Medicare Program; Proposed Changes to the Hospital Inpatient Prospective Payment Systems for Acute Care Hospitals and the Long-Term Care Hospital Prospective Payment System and Fiscal Year 2012 Rates, 25788-26084 [2011-9644]
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25788
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 412, 413, and 476
[CMS–1518–P]
RIN 0938–AQ24
Medicare Program; Proposed Changes
to the Hospital Inpatient Prospective
Payment Systems for Acute Care
Hospitals and the Long-Term Care
Hospital Prospective Payment System
and Fiscal Year 2012 Rates
Centers for Medicare and
Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
AGENCY:
We are proposing to revise 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
statutory provisions contained in the
Patient Protection and Affordable Care
Act and the Health Care and Education
Reconciliation Act of 2010 (collectively
known as the Affordable Care Act) and
other legislation. These changes would
be applicable to discharges occurring on
or after October 1, 2011. We also are
setting forth the proposed 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 proposed
updated rate-of-increase limits would be
effective for cost reporting periods
beginning on or after October 1, 2011.
We are proposing to update 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) and implement
certain statutory changes made by the
Affordable Care Act. These changes
would be applicable to discharges
occurring on or after October 1, 2011.
DATES: Comment Period: To be assured
consideration, comments must be
received at one of the addresses
provided below, no later than 5 p.m.
EDT on June 20, 2011.
ADDRESSES: When commenting, please
refer to file code CMS–1518–P. 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):
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
SUMMARY:
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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–1518–P to submit comments on
this proposed 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–1518–
P, P.O. Box 8011, Baltimore, MD 21244–
1850.
Please allow sufficient time for mailed
comments to be received before the
close of the comment period.
3. By express or overnight mail. You
may send written comments (one
original and two copies) to the following
address only: Centers for Medicare &
Medicaid Services, Department of
Health and Human Services, Attention:
CMS–1518–P, Mail Stop C4–26–05,
7500 Security Boulevard, Baltimore, MD
21244–1850.
4. By hand or courier. If you prefer,
you may deliver (by hand or courier)
your written comments (one original
and two copies) before the close of the
comment period to 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.
FOR FURTHER INFORMATION CONTACT:
Tzvi Hefter, (410) 786–4487, and Ing-Jye
Cheng, (410) 786–4548, Operating
Prospective Payment, MS–DRGs,
Hospital Acquired Conditions (HAC),
Wage Index, New Medical Service
and Technology Add-On Payments,
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Hospital Geographic Reclassifications,
Capital Prospective Payment,
Excluded Hospitals, Medicare
Disproportionate Share Hospital
(DSH), and Postacute Care Transfer
Issues.
Michele Hudson, (410) 786–4487, and
Judith Richter, (410) 786–2590, LongTerm Care Hospital Prospective
Payment System and MS–LTC–DRG
Relative Weights Issues.
Bridget Dickensheets, (410) 786–8670,
Rebasing and Revising of the Market
Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786–6673,
Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786–2261, Inpatient
Quality Reporting—Program
Administration, Validation, and
Reconsideration Issues.
Shaheen Halim, (410) 786–0641,
Inpatient Quality Reporting—
Measures Issues Except Hospital
Consumer Assessment of Healthcare
Providers and Systems Issues; and
Readmission Measures for Hospitals
Issues.
Elizabeth Goldstein, (410) 786–6665,
Inpatient Quality Reporting—Hospital
Consumer Assessment of Healthcare
Providers and Systems Measures
Issues.
Mary Pratt, (410) 786–6867, LTCH
Quality Data Reporting Issues.
Kim Spaulding Bush, (410) 786–3232,
Hospital Value-Based Purchasing
Efficiency Measures Issues.
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
4:00 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
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Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
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).
Tables Available Only Through the
Internet on the CMS Web Site
In the past, a majority of the tables
referred to throughout this preamble
and in the Addendum to this proposed
rule were published in the Federal
Register as part of the annual proposed
and final rules. However, beginning in
FY 2012, some of the IPPS tables and
LTCH PPS tables will no longer be
published as part of the annual IPPS/
LTCH PPS proposed and final rules.
Instead, these tables will be available
only through the Internet. The IPPS
tables for this proposed rule are
available only through the Internet on
the CMS Web site at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
01_overview.asp. Click on the link on
the left side of the screen titled, ‘‘FY
2012 IPPS Proposed Rule Home Page’’ or
‘‘Acute Inpatient—Files for Download’’.
The LTCH PPS tables for this FY 2012
proposed rule are available only through
the Internet on the CMS Web site at:
https://www.cms.gov/LongTermCare
HospitalPPS/LTCHPPSRN/list.asp
under the list item for Regulation
Number CMS–1518–P. For complete
details on the availability of the tables
referenced in this proposed rule, we
refer readers to section VI. of the
Addendum to this proposed rule.
Readers who experience any problems
accessing any of the tables that are
posted on the CMS Web sites identified
above should contact Nisha Bhat at
(410) 786–4487.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
Acronyms
3M 3M Health Information System
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
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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
CRNA Certified Registered Nurse
Anesthetist
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
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
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
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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
HICAN Health Insurance Claims Account
Number
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
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
IGI IHS Global Insight, Inc.
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
IQR Inpatient Quality Reporting
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
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
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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
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 (Public Law
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]
PMSAs Primary metropolitan statistical
areas
POA Present on admission
PPACA Patient Protection and Affordable
Care Act, Public Law 111–148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment
Commission
PRRB Provider Reimbursement Review
Board
PRTFs Psychiatric residential treatment
facilities
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
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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
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 Patient Protection and
Affordable Care Act (Pub. L. 111–148)
and the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111–
152) Applicable to FY 2012
C. Major Contents of This Proposed Rule
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. Other Decisions and Proposed Changes
to the IPPS for Operating Costs and GME
Costs
4. Proposed FY 2012 Policy Governing the
IPPS for Capital-Related Costs
5. Proposed Changes to the Payment Rates
for Certain Excluded Hospitals: Rate-ofIncrease Percentages
6. Proposed Changes to the LTCH PPS
7. Proposed Changes to the Electronic
Prescribing (eRx) Incentive Program
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
II. Proposed 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. Proposed FY 2012 MS–DRG
Documentation and Coding Adjustment,
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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
Pub. L. 110–90
4. Retrospective Evaluation of FY 2008 and
FY 2009 Claims Data
5. Prospective Adjustment 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. Recoupment or Repayment 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
2011 and Subsequent Fiscal Years
9. Application of the Documentation and
Coding Adjustment to the Puerto RicoSpecific Standardized Amount
E. Refinement of the MS–DRG Relative
Weight Calculation
1. Background
2. Summary of the RTI Study of Charge
Compression and CCR Refinement
3. Summary of Policy Changes Made in FY
2011
4. Discussion for FY 2012
F. Preventable Hospital-Acquired
Conditions (HACs), Including Infections
1. Background
a. Statutory Authority
b. HAC Selection
c. Collaborative Process
d. Application of HAC Payment Policy to
MS–DRG Classifications
e. Public Input Regarding Selected and
Potential Candidate HACs
f. POA Indicator Reporting
2. Proposed Additions and Revisions to the
HAC Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury
b. New Diagnosis Codes Proposed To Be
Added to Existing HACs
c. Revision to HAC Subcategory Title
d. Conclusion
3. RTI Program Evaluation Summary
a. Background
b. FY 2009 Data Analysis
c. FY 2010 Data Analysis
G. Proposed Changes to Specific MS–DRG
Classifications
1. Pre-Major Diagnostic Categories (PreMDCs)
a. Noninvasive Mechanical Ventilation
b. Debridement With Mechanical
Ventilation Greater Than 96 Hours With
Major Operating Room (O.R.) Procedure
c. Autologous Bone Marrow Transplant
2. MDC 1 (Diseases and Disorders of the
Nervous System): Rechargeable Dual
Array Deep Brain Stimulation System
3. MDC 3 (Diseases and Disorders of the
Ear, Nose, Mouth, and Throat): Skull
Based Surgeries
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4. MDC 5 (Diseases and Disorders of the
Circulatory System)
a. Percutaneous Mitral Valve Repair With
Implant
b. Aneurysm Repair Procedure Codes
5. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue)
a. Artificial Discs
b. Major Joint Replacement or
Reattachment of Lower Extremities
c. Combined Anterior/Posterior Spinal
Fusion
6. MDC 9 (Diseases and Disorders of the
Skin, Subcutaneous Tissue, and Breast):
Excisional Debridement of Wound,
Infection, or Burn
7. MDC 10 (Endocrine, Nutritional, and
Metabolic Diseases and Disorders)
a. Nutritional and Metabolic Diseases:
Update of MS–DRG Titles
b. Sleeve Gastrectomy Procedure for
Morbid Obesity
8. MDC 15 (Newborns and Other Neonates
with Conditions Originating in the
Perinatal Period): Discharge Status Code
66 (Discharged/Transferred to Critical
Access Hospital (CAH))
9. Proposed Medicare Code Editor (MCE)
Changes
10. Surgical Hierarchies
11. Complications or Comorbidity (CC)
Exclusions List
a. Background
b. Proposed CC Exclusions List for FY 2012
12. 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 Into 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
13. Changes to the ICD–9–CM Coding
System, Including Discussion of the
Replacement of the ICD–9–CM System
With the ICD–10–CM and ICD–10–PCS
Systems in FY 2014
a. ICD–9–CM Coding System
b. Code Freeze
c. Processing of 25 Diagnosis Codes and 25
Procedure Codes on Hospital Inpatient
Claims
d. ICD–10 MS–DRGs
14. Other Issues
a. O.R./Non-O.R. Status of Procedures
b. IPPS Recalled Device Policy
Clarification
H. Recalibration of MS–DRG Weights
I. Proposed Add-On Payments for New
Services and Technologies
1. Background
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
3. FY 2012 Status of Technologies
Approved for FY 2011 Add-On Payments
a. Spiration® IBV Valve System
b. Cardio WestTM Temporary Artificial
Heart System (Cardio WestTM TAH-t)
c. Auto Laser Interstitial Thermal Therapy
(AutoLITTTM) System
4. FY 2012 Applications for New
Technology Add-On Payments
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a. AxiaLIF® 2L+TM System
b. ChampionTM HF Monitoring System
c. PerfectCLEAN With Micrillon®
III. Proposed Changes to the Hospital Wage
Index for Acute Care Hospitals
A. Background
B. Core-Based Statistical Areas for the
Hospital Wage Index
C. Proposed Occupational Mix Adjustment
to the FY 2012 Wage Index
1. Development of Data for the Proposed
FY 2012 Occupational Mix Adjustment
Based on the 2007–2008 Occupational
Mix Survey
2. New 2010 Occupational Mix Survey for
the FY 2013 Wage Index
3. Calculation of the Proposed
Occupational Mix Adjustment for FY
2012
D. Worksheet S–3 Wage Data for the
Proposed FY 2012 Wage Index
1. Included Categories of Costs
2. Proposal for Changes to the Reporting
Requirements for Pension Costs for the
Medicare Wage Index
a. Background
b. Proposal for Allowable Pension Cost for
the Medicare Wage Index
3. Excluded Categories of Costs
4. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals Under
the IPPS
E. Verification of Worksheet S–3 Wage
Data
F. Method for Computing the Proposed FY
2012 Unadjusted Wage Index
1. Steps for Computation
2. Expiration of the Imputed Floor Policy
3. Proposed FY 2012 Puerto Rico Wage
Index
G. Analysis and Implementation of the
Proposed Occupational Mix Adjustment
and the Proposed FY 2012 Occupational
Mix Adjusted Wage Index
H. Revisions to the Wage Index Based on
Hospital Redesignations and
Reclassifications
1. General
2. Effects of Reclassification/Redesignation
3. FY 2012 MGCRB Reclassifications
a. FY 2012 Reclassification Requirements
and Approvals
b. Applications for Reclassifications for FY
2013
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
7. Waiving Lugar Redesignation for the
Out-Migration Adjustment
8. Other Geographic Reclassification Issues
a. Requested Reclassification for Single
Hospital MSAs
b. Requests for Exceptions to Geographic
Reclassification Rules
I. Proposed FY 2012 Wage Index
Adjustment Based on Commuting
Patterns of Hospital Employees
J. Process for Requests for Wage Index Data
Corrections
K. Labor-Related Share for the Proposed FY
2012 Wage Index
IV. Other Proposed Decisions and Changes to
the IPPS for Operating Costs and GME
Costs
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A. Hospital Inpatient Quality Reporting
Program
1. Background
a. Overview
b. Statutory History and History of
Measures Adopted for the Hospital IQR
Program
c. Maintenance of Technical Specifications
for Quality Measures
d. Public Display of Quality Measures
2. Retirement of Hospital IQR Program
Measures
a. Considerations in Retiring Quality
Measures from the Hospital IQR Program
b. Proposed Retirement of Quality
Measures under the Hospital IQR
Program for the FY 2014 Payment
Determination and Subsequent Years
3. Proposed Quality Measures for the FY
2014 and FY 2015 Payment
Determinations
a. Considerations in Expanding and
Updating Quality Measures Under the
Hospital IQR Program
b. Proposed Hospital IQR Program Quality
Measures for the FY 2014 Payment
Determination
c. Proposed Hospital IQR Program Quality
Measures for the FY 2015 Payment
Determination
4. Possible New Quality Measures and
Measure Topics for Future Years
5. Form, Manner, and Timing of Quality
Data Submission
a. Background
b. Proposed Procedural Requirements for
FY 2013 and Subsequent Years
c. Proposed General Data Collection and
Submission Requirements
d. Proposed Data Submission
Requirements for Chart-Abstracted
Measures
e. Proposed Sampling and Case Thresholds
f. Proposed HCAHPS Requirements for the
FY 2013, FY 2014, and FY 2015 Payment
Determinations
g. Proposed Procedures for Claims-Based
Measures
h. Proposed Data Submission
Requirements for Structural Measures
i. Proposed Data Submission and Reporting
Requirements for Healthcare-Associated
Infection (HAI) Measures Reported via
NHSN
6. Proposed Chart Validation Requirements
for Chart-Abstracted Measures
a. Proposed Chart Validation Requirements
and Methods for the FY 2012 Payment
Determination
b. Proposed Supplements to the Chart
Validation Process for the FY 2013
Payment Determination and Subsequent
Years
7. Proposed QIO Regulation Changes for
Provider Medical Record Deadlines
Possibly Including Serious Reportable
Events
8. Proposed Data Accuracy and
Completeness Acknowledgement
Requirements for the FY 2012 Payment
Determination and Subsequent Years
9. Proposed Public Display Requirements
for the FY 2013 Payment Determination
and Subsequent Years
10. Proposed Reconsideration and Appeal
Procedures for the FY 2012 Payment
Determination
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11. Proposed Hospital IQR Program
Disaster Waivers
12. Electronic Health Records
a. Background
b. HITECH Act EHR Provisions
B. Hospital Value-Based Purchasing (VBP)
Program
1. Background
2. Overview of the Hospital VBP Program
Proposed Rule
3. Proposed FY 2014 Hospital VBP
Program Measures
a. Background
b. Proposed Efficiency Measure—Medicare
Spending per Beneficiary Measure—for
the FY 2014 Hospital VBP Program
4. Proposed Efficiency Domain (Medicare
Spending per Beneficiary Measure)
Performance Period and Baseline Period
C. Hospital Readmission Reduction
Program
1. Background
a. Overview
b. Statutory Basis for the Hospital
Readmission Reduction Program
2. Implementation of the Hospital
Readmission Reduction Program
a. Overview
b. Proposed Provisions in the FY 2012
IPPS/LTCH PPS Rulemaking
c. Proposed Provisions To Be Included in
the FY 2013 IPPS/LTCH PPS Proposed
Rule
d. Proposed Expansion of the Applicable
Conditions To Be Included in the Future
Rulemaking
3. Proposed Provisions of the Hospital
Readmission Reduction Program
a. Proposed Applicable Conditions for FY
2013 Hospital Readmission Reduction
Program
b. Proposed Definition of ‘‘Readmissions’’
c. Proposed Readmission Measures and
Related Methodology
D. Rural Referral Centers (RRCs) (§ 412.96)
1. Case-Mix Index (CMI)
2. Discharges
E. Payment Adjustment for Low-Volume
Hospitals (§ 412.101)
1. Background
2. Temporary Changes for FYs 2011 and
2012
3. Proposed Discharge Data Source to
Identify Qualifying Low-Volume
Hospitals and Calculate the Payment
Adjustment (Percentage Increase) for FY
2012
F. Indirect Medical Education (IME)
Adjustment
1. Background
2. IME Adjustment Factor for FY 2012
G. Payment Adjustment for Medicare
Disproportionate Share Hospitals (DSHs)
and Indirect Medical Education (IME)
(§§ 412.105 and 412.106)
1. Background
2. Proposed Policy Change Relating to
Exclusion of Hospice Beds and Patient
Days From the Medicare DSH
Calculation
H. Medicare-Dependent, Small Rural
Hospitals (MDHs) (§ 412.108)
1. Background
2. Extension of the MDH Program
I. Certified Register Nurse Anesthetists
(CRNA) Services Furnished in Rural
Hospitals and CAHs (§ 412.113)
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J. Additional Payments for Qualifying
Hospitals with Lowest per Enrollee
Medicare Spending
1. Background
2. Method for Identifying Qualifying
Hospitals and Eligible Counties
3. Determination of Annual Payment
Amounts
4. Eligible Counties and Qualifying
Hospitals
5. Payment Determination and
Distributions for FY 2011 and FY 2012
K. Proposed Changes in the Inpatient
Hospital Update
1. FY 2012 Inpatient Hospital Update
2. FY 2012 Puerto Rico Hospital Update
3. Productivity Adjustment
L. Additional Payments to Hospitals With
High Percentage of End-Stage Renal
Disease (ESRD) Discharges (§ 412.104)
M. Proposal for Changes to the Reporting
Requirements for Pension Costs for
Medicare Cost-Finding Purposes
1. Background
2. Proposal for Allowable Defined Benefit
Pension Plan Cost for Medicare CostFinding Purposes
N. Rural Community Hospital
Demonstration Program
1. Background
2. Changes to the Demonstration Program
Made by the Affordable Care Act
3. Proposed FY 2012 Budget Neutrality
Adjustment
a. Component of the Proposed FY 2012
Budget Neutrality Adjustment That
Accounts for Estimated Demonstration
Program Costs of the ‘‘Pre-Expansion’’
Participating Hospitals
b. Portion of the Proposed FY 2012 Budget
Neutrality Adjustment That Accounts for
Estimated FY 2012 Demonstration
Program Costs for Hospitals Newly
Selected to Participate in the
Demonstration Program
c. Portion of the Proposed FY 2012 Budget
Neutrality Adjustment to Offset the
Amount by Which the Costs of the
Demonstration Program in FYs 2007 and
2008 Exceeded the Amount That Was
Identified in the FYs 2007 and 2008 IPPS
Final Rules as the Budget Neutrality
Offset for FYs 2007 and 2008
O. Bundling of Payments for Services
Provided to Outpatients Who Later Are
Admitted as Inpatients: 3-Day Payment
Window
1. Background
2. Establishment of Condition Code 51
(Attestation of Unrelated Outpatient
Nondiagnostic Services)
3. Applicability of the Payment Window
Policy to Services Furnished at
Physicians’ Practices
P. Proposed Changes to MS–DRGs Subject
to the Postacute Care Transfer Policy
Q. Hospital Services Furnished under
Arrangements
V. Proposed Changes to the IPPS for CapitalRelated Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Proposed Changes for FY 2012: MS–DRG
Documentation and Coding Adjustment
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F. Other Proposed Changes for FY 2012
VI. Proposed Changes for Hospitals Excluded
From the IPPS
A. Excluded Hospitals
B. Critical Access Hospital (CAH) Payment
for Ambulance Services
1. Background
2. Requirement for CAH Ambulance
Within a 35-Mile Location of a CAH or
Entity
VII. Proposed Changes to the Long-Term Care
Hospital Prospective Payment System
(LTCH PPS) for FY 2012
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. Proposed 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. Proposed Changes to the MS–LTC–DRGs
for FY 2012
3. Development of the Proposed FY 2012
MS–LTC–DRG Relative Weights
a. General Overview of the Development of
the MS–LTC–DRG Relative Weights
b. Development of the Proposed MS–LTC–
DRG Relative Weights for FY 2012
c. Data
d. Hospital-Specific Relative Value (HSRV)
Methodology
e. Proposed Treatment of Severity Levels in
Developing the MS–LTC–DRG Relative
Weights
f. Proposed Low-Volume MS–LTC–DRGs—
Steps for Determining the Proposed FY
2012 MS–LTC–DRG Relative Weights
C. Proposed Quality Reporting Program for
LTCHs
1. Background and Statutory Authority
2. Proposed Quality Measures for the LTCH
Quality Reporting Program for FY 2014
a. Considerations in the Selection of the
Proposed Quality Measures
b. Proposed LTCH Quality Measures for FY
2014 Payment Determination
3. Possible LTCH Quality Measures under
Consideration for Future Years
4. Proposed Data Submission Methods and
Timelines
a. Proposed Method of Data Submission for
HAIs
b. Proposed Timeline for Data Reporting
Related to HAIs
c. Proposed Method of Data Collection and
Submission for the Pressure Ulcer
Measure Data
d. Proposed Timeline for Data Reporting
Related to Pressure Ulcers
5. Public Reporting and Availability of
Data Submitted
D. Proposed Rebasing and Revising of the
Market Basket Used Under the LTCH
PPS
1. Background
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2. Overview of the Proposed FY 2008–
Based RPL Market Basket
3. Proposed Rebasing and Revising of the
RPL Market Basket
a. Development of Cost Categories
b. Final Cost Category Computation
c. Selection of Price Proxies
d. Proposed Methodology for Capital
Portion of the RPL Market Basket
e. Proposed FY 2012 Market Basket Update
for LTCHs
f. Proposed Labor-Related Share
E. Proposed Changes to the LTCH Payment
Rates and Other Proposed Changes to the
FY 2012 LTCH PPS
1. Overview of Development of the LTCH
Payment Rates
2. Proposed FY 2012 LTCH PPS Annual
Market Basket Update
a. Overview
b. Revision of Certain Market Basket
Updates as Required by the Affordable
Care Act
c. Proposed Market Basket Under the LTCH
PPS for FY 2012
d. Productivity Adjustment
e. Proposed Annual Market Basket Update
for LTCHs for FY 2012
3. Proposed Budget Neutrality Adjustment
for the Changes to the Area Wage Level
Adjustment
4. Proposed Budget Neutrality Adjustment
for the Changes to the Area Wage Level
Adjustment
5. Greater Than 25 Day Average Length of
Stay Requirement for LTCHs
a. Determining the Average Length of Stay
When There Is a Change of Ownership
b. Inclusion of Medicare Advantage (MA)
Days in the Average Length of Stay
Calculation
F. Proposed Application of LTCH
Moratorium on the Increase in Beds at
Section 114(d)(1)(B) of Public Law 110–
173 (MMSEA) to LTCHs and LTCH
Satellite Facilities Established or
Classified as Such Under Section
114(d)(2) of Public Law 110–173
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Legislative Requirement for Solicitation
of Comments
2. ICRs for Add-On Payments for New
Services and Technologies
3. ICRs for the Hospital Inpatient Quality
Reporting (IQR) Program
4. ICRs for the Occupational Mix
Adjustment to the Proposed FY 2012
Index (Hospital Wage Index
Occupational Mix Survey)
5. Hospital Applications for Geographic
Reclassifications by the MGCRB
6. ICRs for the Proposed Quality Reporting
Program for LTCHs
C. Response to Public Comments
Regulation Text
Addendum—Proposed Schedule of
Standardized Amounts, Update Factors,
and Rate-of-Increase Percentages
Effective With Cost Reporting Periods
Beginning on or After October 1, 2011
I. Summary and Background
II. Proposed Changes to the Prospective
Payment Rates for Hospital Inpatient
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Operating Costs for Acute Care Hospitals
for FY 2012
A. Calculation of the Proposed Adjusted
Standardized Amount
B. Proposed Adjustments for Area Wage
Levels and Cost-of-Living
C. Proposed MS–DRG Relative Weights
D. Calculation of the Proposed Prospective
Payment Rates
III. Proposed Changes to Payment Rates for
Acute Care Hospital Inpatient CapitalRelated Costs for FY 2012
A. Determination of Federal Hospital
Inpatient Capital-Related Prospective
Payment Rate Update
B. Calculation of the Proposed Inpatient
Capital-Related Prospective Payments for
FY 2012
C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for
Certain Excluded Hospitals: Rate-ofIncrease Percentages for FY 2012
V. Proposed Changes to the Payment Rates
for the LTCH PPS for FY 2012
A. Proposed LTCH PPS Standard Federal
Rate for FY 2012
B. Proposed Adjustment for Area Wage
Levels Under the LTCH PPS for FY 2012
C. Proposed Adjustment for LTCH PPS
High-Cost Outlier (HCO) Cases
D. Computing the Proposed Adjusted
LTCH PPS Federal Prospective Payments
for FY 2012
VI. Tables Referenced in This Proposed
Rulemaking and Available Through the
Internet on the CMS Web Site
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 and Hospital Units
Excluded From the IPPS
VI. Quantitative Effects of the Proposed
Policy Changes Under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
A. Effects of Proposed Policy on HACs,
Including Infections
B. Effects of Proposed Policy Changes
Relating to New Medical Service and
Technology Add-On Payments
C. Effects of Requirements for Hospital
Inpatient Quality Reporting (IQR)
Program
D. Effects of Additional Proposed Hospital
Value-Based Purchasing (VBP) Program
Requirements
E. Effects of Proposed Requirements for
Hospital Readmissions Reduction
Program
F. Effects of Proposed Policy Changes
Relating to Payment Adjustments for
Medicare Disproportionate Share
Hospitals (DSHs) and Indirect Medical
Education (IME)
G. Effects of the FY 2012 Low-Volume
Hospital Payment Adjustment
H. Effects of Proposed Changes Relating to
MDHs
I. Effects of Proposed Policy Relating to
CRNA Services Furnished in Rural
Hospitals and CAHs
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J. Effects of Proposed Changes Relating to
ESRD Add-On Payment
K. Effects of Proposed Changes Relating to
the Reporting Requirements for Pension
Costs for Medicare Cost-Finding and
Wage Reporting Purposes
L. Effects of Implementation of Rural
Community Hospital Demonstration
Program
M. Effects of Proposed Changes to List of
MS–DRGs Subject to the Postacute Care
Transfer and DRG Special Pay Policy
N. Effects of Proposed Changes Relating to
Hospital Services Furnished Under
Arrangements
O. Effects of Proposed Change Relating to
CAH Payment for Ambulance Services
VIII. Effects of Proposed Changes in the
Capital IPPS
A. General Considerations
B. Results
IX. Effects of Proposed Payment Rate
Changes and Policy Changes Under the
LTCH PPS
A. Introduction and General
Considerations
B. Impact on Rural Hospitals
C. Anticipated Effects of Proposed 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 2012
A. Proposed FY 2012 Inpatient Hospital
Update
B. Proposed Update for SCHs and MDHs
for FY 2012
C. Proposed FY 2012 Puerto Rico Hospital
Update
D. Proposed Update for Hospitals Excluded
From the IPPS
III. Secretary’s Recommendation
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating
Payments in Traditional Medicare
I. Background
A. Summary
1. Acute Care Hospital Inpatient
Prospective Payment System (IPPS)
Section 1886(d) of the Social Security
Act (the Act) sets forth a system of
payment for the operating costs of acute
care hospital inpatient stays under
Medicare Part A (Hospital Insurance)
based on prospectively set rates. Section
1886(g) of the Act requires the Secretary
to pay for the capital-related costs of
hospital inpatient stays under a
prospective payment system (PPS).
Under these PPSs, Medicare payment
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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 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 certain 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 varies 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, which is determined from
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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 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 hospitalspecific rate. As discussed below, for
discharges occurring on or after October
1, 2007, but before October 1, 2012, 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
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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; 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.
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 (as codified under section
1886(m)(1) of the Act). 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
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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
October 1, 2009, we issue 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.
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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 Patient Protection
and Affordable Care Act (Pub. L. 111–
148) and the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111–
152) Applicable to FY 2012
The Patient Protection and Affordable
Care Act (Pub. L. 111–148), enacted on
March 23, 2010, and the Health Care
and Education Reconciliation Act of
2010 (Pub. L. 111–152), enacted on
March 30, 2010, made a number of
changes that affect the IPPS and the
LTCH PPS. (Pub. L. 111–148 and Pub.
L. 111–152 are collectively referred to as
the ‘‘Affordable Care Act.’’) A number of
the provisions of the Affordable Care
Act affect the updates to the IPPS and
the LTCH PPS and providers and
suppliers. The provisions of the
Affordable Care Act that were
applicable to the IPPS and the LTCH
PPS for FYs 2010 and 2011 were
implemented in the following
documents:
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On June 2, 2010, we issued in the
Federal Register a notice (75 FR 31118)
that contained the final wage indices,
hospital reclassifications, payment rates,
impacts, and other related tables,
effective for the FY 2010 IPPS and the
RY 2010 LTCH PPS, which were
required by or directly resulted from
implementation of provisions of the
Affordable Care Act.
On August 16, 2010, we issued in the
Federal Register a final rule (75 FR
50042) that implemented provisions of
the Affordable Care Act applicable to
the IPPS and LTCH/PPS for FY 2011.
In this proposed rule, we are
proposing to implement the following
provisions (or portions of the following
provisions) of the Affordable Care Act
that are applicable to the IPPS and
LTCH PPS for FY 2012:
• Section 3001 of Public Law 111–
148, which provides for establishment
of a hospital value-based purchasing
program and applicable measures for
value-based incentive payments with
respect to discharges occurring during
FY 2013.
• Section 3004 of Public Law 111–
148, which provides for the submission
of quality data for LTCHs in order to
receive the full annual update to the
payment rates and the establishment of
quality data measures.
• Section 3025 of Public Law 111–
148, which provides for a hospital
readmissions reduction program and
related quality data reporting measures.
• Section 3124 of Public Law 111–
148, which provides for extension of the
Medicare-dependent, small rural
hospital (MDH) program through FY
2012.
• Section 3401 of Public Law 111–
148, which provides for the
incorporation of productivity
improvements into the market basket
updates for IPPS hospitals and LTCHs.
In addition, we are proposing to
continue in FY 2012 to implement the
following provisions, which were
initiated in FY 2011:
• Section 10324 of Public Law 111–
148, which provided for a wage
adjustment for hospitals located in
frontier States.
• Sections 3401 and 10319 of Public
Law 111–148 and section 1105 of Public
Law 111–152, which revise certain
market basket update percentages for
IPPS and LTCH PPS payment rates for
FY 2012.
• Sections 3125 and 10314 of Public
Law 111–148, which provides for
temporary percentage increases in
payment adjustments to low-volume
hospitals for discharges occurring in FY
2012.
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• Section 1109 of Public Law 111–
152, which provides for additional
payments in FY 2012 for qualifying
hospitals in the lowest quartile of per
capita Medicare spending.
C. Major Contents of This Proposed Rule
In this proposed rule, we are setting
forth proposed changes to the Medicare
IPPS for operating costs and for capitalrelated costs of acute care hospitals in
FY 2012. We also are setting forth
proposed changes relating to payments
for IME costs and payments to certain
hospitals that continue to be excluded
from the IPPS and paid on a reasonable
cost basis.
In addition, in this proposed rule, we
are setting forth proposed changes to the
payment rates, factors, and other
payment rate policies under the LTCH
PPS for FY 2012.
Below is a summary of the major
changes that we are proposing to make:
1. Proposed Changes to MS–DRG
Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of the
proposed rule, we include—
• Proposed changes to MS–DRG
classifications based on our yearly
review.
• Proposed application of the
documentation and coding adjustment
for FY 2012 resulting from
implementation of the MS–DRG system.
• A discussion of the Research
Triangle International, Inc. (RTI) reports
and recommendations relating to charge
compression.
• Proposed recalibrations of the MS–
DRG relative weights.
• Proposed changes to hospitalacquired conditions (HACs) and a
listing and discussion of HACs,
including infections, that would be
subject to the statutorily required
quality adjustment in MS–DRG
payments for FY 2012.
We discussed the FY 2012 status of
new technologies approved for add-on
payments for FY 2011 and present our
evaluation and analysis of the FY 2012
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 this
proposed rule, we are proposing
revisions to the wage index for acute
care hospitals and the annual update of
the wage data. Specific issues addressed
include the following:
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• The proposed FY 2012 wage index
update using wage data from cost
reporting periods beginning in FY 2008.
• Analysis and implementation of the
proposed FY 2012 occupational mix
adjustment to the wage index for acute
care hospitals, including discussion of
the 2010 occupational mix survey.
• A proposal to change the reporting
requirements for pension costs for the
Medicare wage index.
• 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 2012 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 2012 hospital wage
index.
• Determination of the labor-related
share for the proposed FY 2012 wage
index.
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3. Other Decisions and Proposed
Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble of this
proposed rule, we discuss a number of
the provisions of the regulations in 42
CFR parts 412, 413, and 476, including
the following:
• The reporting of hospital quality
data under the Hospital Inpatient
Quality Reporting (IQR) Program as a
condition for receiving the full annual
payment update increase.
• The proposed implementation of
the Hospital Value-Based Purchasing
Program measures.
• The proposed establishment of
hospital readmisssion measures for
reporting of hospital quality data.
• 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 2012.
• Proposed payment adjustment for
low-volume hospitals.
• Proposal for counting hospice days
in the formula for determining the
payment adjustment for
disproportionate share hospitals.
• Proposal for making additional
payments for qualifying hospitals with
lowest per enrollee Medicare spending
for FY 2012.
• Proposal to clarify ESRD add-on
payment requirements based on cost
report requirements.
• Proposal relating to changes to the
reporting requirements for pension costs
for Medicare cost-finding purposes.
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• Proposal to implement statutory
change to the hospital payment update,
including incorporation of a
productivity adjustment.
• Discussion of the Rural Community
Hospital Demonstration Program and a
proposal for making a budget neutrality
adjustment for the demonstration
program.
• Discussion of August 2010 interim
final rule with comment period and
further proposed changes relating to the
3-day payment window for payments
for services provided to outpatients who
are later admitted as inpatients.
4. Proposed FY 2012 Policy Governing
the IPPS for Capital-Related Costs
In section V. of the preamble to this
proposed rule, we discuss the proposed
payment policy requirements for
capital-related costs and capital
payments to hospitals for FY 2012 and
the proposed MS–DRG documentation
and coding adjustment for FY 2012.
5. Proposed Changes to the Payment
Rates for Certain Excluded Hospitals:
Rate-of-Increase Percentages
In section VI. of the preamble of this
proposed rule, we discuss proposed
changes to payments to certain excluded
hospitals. In addition, we discuss
proposed changes relating to payment
for TEFRA services furnished under
arrangements and payment for
ambulance services furnished by CAHowned and operated entities.
6. Proposed Changes to the LTCH PPS
In section VII. of the preamble of this
proposed rule, we set forth proposed
changes to the payment rates, factors,
and other payment rate policies under
the LTCH PPS for FY 2012, including
the annual update of the MS–LTC–DRG
classifications and relative weights for
use under the LTCH PPS for FY 2012,
the proposed documentation and coding
adjustment under the LTCH PPS for FY
2012, and the proposed rebasing and
revising of the market basket for LTCHs.
In addition, we are setting forth
proposals for implementing the quality
data reporting program for LTCHs. We
also are proposing to clarify two policies
regarding the calculation of the average
length of stay requirement for LTCHs,
and proposing a policy to address a
LTCH moratorium issue.
7. Determining Proposed Prospective
Payment Operating and Capital Rates
and Rate-of-Increase Limits for Acute
Care Hospitals
In the Addendum to this proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2012 prospective
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payment rates for operating costs and
capital-related costs for acute care
hospitals. We also are proposing to
establish the threshold amounts for
outlier cases. In addition, we address
the proposed update factors for
determining the rate-of-increase limits
for cost reporting periods beginning in
FY 2012 for certain hospitals excluded
from the IPPS.
8. Determining Proposed Prospective
Payment Rates for LTCHs
In the Addendum to this proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2012 prospective
standard Federal rate. We also are
proposing to establish the proposed
adjustments for wage levels, the laborrelated share, the cost-of-living
adjustment, and high-cost outliers,
including the fixed-loss amount, and the
LTCH cost-to-charge ratios (CCRs) under
the LTCH PPS.
9. Impact Analysis
In Appendix A of this proposed rule,
we set forth an analysis of the impact
that the proposed changes would have
on affected acute care hospitals and
LTCHs.
10. Recommendation of Update Factors
for Operating Cost Rates of Payment for
Hospital Inpatient Services
In Appendix B of this proposed rule,
as required by sections 1886(e)(4) and
(e)(5) of the Act, we provide our
recommendations of the appropriate
percentage changes for FY 2012 for the
following:
• A single average standardized
amount for all areas for hospital
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.
11. 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 2011 recommendations
concerning hospital inpatient payment
policies address the update factor for
hospital inpatient operating costs and
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capital-related costs under the IPPS, for
hospitals and distinct part hospital units
excluded from the IPPS. We address
these recommendations in Appendix B
of this proposed rule. For further
information relating specifically to the
MedPAC March 2011 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.
II. Proposed Changes to Medicare
Severity Diagnosis-Related Group (MS–
DRG) Classifications and Relative
Weights
A. Background
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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, Medicare pays 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.
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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
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. (We refer
readers to section II.G.11.c. of this
proposed rule for a discussion of our
efforts to increase our internal systems
capacity to process diagnosis and
procedures on hospital claims to 25
diagnosis codes and 25 procedure codes
prior to the use of the International
1 Medicare Payment Advisory Commission:
Report to the Congress, Physician-Owned Specialty
Hospitals, March 2005, page viii.
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Classification of Diseases, 10th
Revision, Clinical Modification (ICD–
10–CM) for diagnosis coding and the
International Classification of Diseases,
10th Revision, Procedure Coding
System (ICD–10 PCS) for inpatient
hospital procedure coding, effective
October 1, 2013.) 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) prior to October 1, 2013.
We refer readers to section II.G.11.b. of
this proposed rule for a reference to the
replacement of ICD–9–CM, Volumes 1
and 2, including the Official ICD–9–CM
Guidelines for Coding and Reporting,
Volume 3, with the ICD–10–CM and
ICD–10–PCS, including the Official
ICD–10–CM and ICD–10–PCS
Guidelines for Coding and Reporting,
effective October 1, 2013 (FY 2014).
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 2011,
cases were assigned to one of 747 MS–
DRGs in 25 MDCs. The table below lists
the 25 MDCs.
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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 28.0), there are 13 MS–DRGs to
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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;
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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.
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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).
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,
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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
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
the Medicare Code Editor (MCE). The
MCE screens are designed to identify
cases that require further review before
classification into an MS–DRG.
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After patient information is screened
through the MCE and 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 41499 and 41500), we discussed
a process for considering non-MedPAR
data in the recalibration process. We
stated that for use of non-MedPAR data
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to be feasible for purposes of DRG
recalibration and reclassification, the
data must, among other things: (1) Be
independently verified; (2) reflect a
complete set of cases (or a
representative sample of cases); and (3)
enable us to calculate appropriate DRG
relative weights and ensure that cases
are classified to the ‘‘correct’’ DRG, and
to one DRG only, in the recalibration
process. Further, 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 depend 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 nonMedPAR 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 this FY 2012 proposed rule
is based on data from the September
2010 update of the FY 2010 MedPAR
file, which contained hospital bills
received through September 30, 2010,
for discharges occurring through
September 30, 2010.
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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.
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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
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
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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 public
commenters regarding the proposal to
adopt CS DRGs. We acknowledged the
many public 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
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
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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, 2010, and 2011, and
our proposed actions for FY 2012 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
2012 in other sections of this preamble
and in the Addendum to this proposed
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
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 reports 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
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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 the extent, if any, to
which 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
proposed rule for a discussion of the
issue of charge compression and the
cost-weighting methodology for FY
2012.
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
margins, we believe that the changes we
have adopted and the continuing
reforms we are proposing to make in
this proposed rule for FY 2012 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. Proposed FY 2012 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
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25801
FY 2008. (Currently, there are 747 MS–
DRGs, and we are proposing 4
additional MS–DRGs for FY 2012.) By
increasing the number of MS–DRGs and
more fully taking into account patient
severity of illness in Medicare payment
rates for acute care hospitals, 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 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 provided for
phasing 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.
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 Pub. L.
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
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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.
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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
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
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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, in the case of underpayments)
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
and FY 2009 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
1886(d) of the Act 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 of illness 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
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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
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 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 patient
severity of illness.
A few commenters, including
MedPAC, expressed support for the
analytic approach described in the FY
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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, and in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24092 through 24101), we
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 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 PPS final rule
(74 FR 43768 through 43772), we
responded to comments on our
methodology for the retrospective
evaluation of FY 2008 claims data. We
refer readers to that final rule for a
detailed description of our analysis and
prior responses to comments.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50057 through 50068), we
performed the same analysis for FY
2009 claims data using the same
methodology as we did for FY 2008
claims. We note that, in the FY 2011
IPPS/LTCH PPS proposed rule, we
performed this analysis using FY 2009
claims paid through December 2009. In
the FY 2011 IPPS/LTCH PPS final rule,
we updated the analysis with FY 2009
claims paid through March 2010, as we
discussed in the proposed rule. We note
that, for all IPPS hospitals, other than
those in Puerto Rico, the estimates were
unchanged from those in the proposed
rule. We refer readers to the FY 2011
IPPS/LTCH PPS final rule (75 FR 50057
through 50068) for a detailed
description of our analysis and prior
responses to comments. The results of
the analysis for the FY 2011 proposed
and final rules provided additional
support for our conclusion that the
proposed 5.4 percent estimate
accurately reflected the FY 2009
increases in documentation and coding
under the MS–DRG system.
As in prior years, the FY 2008 and FY
2009 MedPAR files are available to the
public to allow independent analysis of
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the FY 2008 and FY 2009
documentation and coding effect.
Interested individuals may still order
these files through the Web site at:
https://www.cms.hhs.gov/
LimitedDataSets/ by 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.
5. Prospective Adjustment 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 evaluation of FY 2008
Medicare claims data that were most
current at the time of the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule, 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
exceeded the ¥0.6 percent prospective
documentation and coding adjustment
applied under section 7(a) of Public Law
110–90 by 1.9 percentage points. In the
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24096), we
solicited public comment on our
proposal to make a ¥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 the FY 2010 IPPS/RY 2010
LTCH PPS final rule, in response to
public comments, we indicated that we
fully understood 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, and we 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
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25803
1886(d)(3)(A)(vi) of the Act until a full
analysis of case-mix changes could be
completed. We refer readers to the FY
2010 IPPS/LTCH PPS final rule (74 FR
43767 through 43777) for a detailed
description of our proposal, responses
to comments, and finalized policy.
After analysis of the FY 2009 claims
data for the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50057 through 50073),
we found a total prospective
documentation and coding effect of
1.054. After accounting for the ¥0.6
percent and the ¥0.9 percent
documentation and coding adjustments
in FYs 2008 and 2009, we found a
remaining documentation and coding
effect of 3.9 percent. As we have
discussed, an additional cumulative
adjustment of ¥3.9 percent would be
necessary to meet the requirements of
section 7(b)(1)(A) of Public Law 110–90
to make an adjustment to the average
standardized amounts in order to
eliminate the full effect of the
documentation and coding changes on
future payments. Unlike section
7(b)(1)(B) of Public Law 110–90, section
7(b)(1)(A) does not specify when we
must apply the prospective adjustment,
but merely requires us to make an
‘‘appropriate’’ adjustment. Therefore, as
we stated in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50061), we believe
we have some discretion as to the
manner in which we apply the
prospective adjustment of ¥3.9 percent.
We indicated that applying the full
prospective adjustment of ¥3.9 percent
for FY 2011, in combination with the
proposed recoupment adjustment of
¥2.9 percent in FY 2011 (discussed
below) would require an aggregate
adjustment of ¥6.8 percent. As we
discuss elsewhere in this section II.D.,
and more extensively in the FY 2011
IPPS/LTCH PPS final rule, it has been
our practice to moderate payment
adjustments when necessary to mitigate
the effects of significant downward
adjustments on hospitals, to avoid what
could be widespread, disruptive effects
of such adjustments on hospitals. As we
also discuss below in this section II.D.,
we are required to implement the
remaining adjustment in section
7(b)(1)(B) of Public Law 110–90 no later
than the FY 2012 rulemaking period,
and accordingly, in the FY 2011 IPPS/
LTCH PPS proposed rule, we proposed
a recoupment adjustment under section
7(b)(1)(B) of ¥2.9 percent for FY 2011
(75 FR 23870 and 23871). Therefore, we
stated that we believed it was
appropriate to not implement any or all
of the ¥3.9 percent prospective
adjustment in FY 2011. Accordingly, we
did not propose a prospective
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adjustment under section 7(b)(1)(A) of
Public Law 110–90 for FY 2011 (75 FR
23868 through 23870) for FY 2011. We
note that, as a result, payments in FY
2011 (and in each future year until we
implement the requisite adjustment)
would be 3.9 percent higher than they
would have been if we had
implemented an adjustment under
section 7(b)(1)(A) of Public Law 110–90.
Our actuaries estimate that this 3.9
percentage point increase will result in
an aggregate payment of approximately
$4 billion. We also noted that payments
in FY 2010 were also expected to be 3.9
percent higher than they would have
been if we had implemented an
adjustment under section 7(b)(1)(A) of
Public Law 110–90, which our actuaries
estimated increased aggregate payments
by approximately $4 billion in FY 2010.
Because further delay of this
prospective adjustment will result in a
continued accrual of unrecoverable
overpayments, it is imperative that we
propose a prospective adjustment for FY
2012, while recognizing CMS’
continued desire to mitigate the effects
of any significant downward
adjustments to hospitals. Therefore, we
are proposing a ¥3.15 percent
prospective adjustment to the
standardized amount to partially
eliminate the full effect of the
documentation and coding changes on
future payments. Due to the offsetting
nature of the remaining recoupment
adjustment under section 7(b)(1)(B) of
Public Law 110–90 (described below in
section II.D.6. of this preamble), and
after considering other payment
adjustments to FY 2012 rates proposed
elsewhere within this proposed rule, we
believe that the proposed ¥3.15 percent
adjustment will allow for a significant
reduction in potential unrecoverable
overpayments, yet will maintain a
comparable adjustment level between
FY 2011 and FY 2012, reflecting the
applicable percentage increase with a
documentation and coding adjustment.
We recognize that an additional
adjustment of ¥0.75 (3.9 minus 3.15)
percent will be required in future rule
making to complete the necessary ¥3.9
adjustment to meet CMS’ statutory
requirement under section 7(b)(1)(A) of
Public Law 110–90. We are not at this
time proposing a timeline to implement
the remainder of this prospective
adjustment.
6. Recoupment or Repayment
Adjustment for FY 2010 Authorized by
Section 7(b)(1)(B) of Public Law 110–90
As discussed in section II.D.1. of this
preamble, section 7(b)(1)(B) of Public
Law 110–90 requires the Secretary to
make an adjustment to the standardized
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amounts under section 1886(d) of the
Act to offset the estimated increase or
decrease in aggregate payments for FY
2008 and 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.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43773), we
estimated 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,
exceeding the ¥0.6 percent prospective
documentation and coding adjustment
applied under section 7(a) of Public Law
110–90 by 1.9 percentage points. We
stated that our actuaries had estimated
that this 1.9 percentage point increase
resulted in an increase in aggregate
payments of approximately $2.2 billion
in FY 2008. 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.
In the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43774), we stated that
because we would not receive all FY
2009 claims data prior to publication of
the final rule, we would address any
increase or decrease in FY 2009
payments in future rulemaking for FY
2011 and 2012 after we performed a
retrospective evaluation of the FY 2009
claims data. In response to public
comments in FY 2010, we indicated that
we recognized 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 reductions
for providers. However, we indicated
that we are required under section
7(b)(1)(B) of Pub. L. 110–90 to recover
the difference of actual documentation
and coding effect in FY 2008 and FY
2009 that is greater than the prior
adjustments. We agreed with the
commenters who requested that CMS
delay any adjustment and, for the
reasons stated above, indicated that we
expected to address this issue in the FY
2011 rulemaking. We refer readers to the
FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43767 through 43777) for a
detailed description of our proposal,
responses to comments, and finalized
policy.
As we indicated in the FY 2011 IPPS/
LTCH PPS final rule, the change due to
documentation and coding that did not
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reflect real changes in case-mix for
discharges occurring during FY 2008
and FY 2009 exceeded the ¥0.6 and
¥0.9 percent prospective
documentation and coding adjustments
applied under section 7(a) of Pub. L.
110–90 for those 2 years, respectively,
by 1.9 percentage points in FY 2008 and
3.9 percentage points in FY 2009. In
total, this change exceeded the
cumulative prospective adjustments by
5.8 (1.9 plus 3.9) percentage points. Our
actuaries estimated that this 5.8
percentage point increase resulted in an
increase in aggregate payments of
approximately $6.9 billion. In the FY
2011 IPPS/LTCH PPS final rule, we
noted that there may be a need to
actuarially adjust the recoupment
adjustment to accurately reflect
accumulated interest. Therefore, we
determined that an aggregate adjustment
of ¥5.8 percent in FYs 2011 and 2012,
subject to actuarial adjustment to reflect
accumulated interest, would be
necessary in order to meet the
requirements of section 7(b)(1)(B) of
Public Law 110–90 to adjust the
standardized amounts for discharges
occurring in FYs 2010, 2011, and/or
2012 to offset the estimated amount of
the increase in aggregate payments
(including interest) in FYs 2008 and
2009. In the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 23871), we stated
that we intended to take into account
the need to reflect accumulated interest
in proposing a recoupment adjustment
under section 7(b)(1)(B) of Public Law
110–90 for FY 2012.
It is often our practice to phase in rate
adjustments over more than one year in
order to moderate the effect on rates in
any one year. Therefore, consistent with
the policies that we have adopted in
many similar cases, in the FY 2011
IPPS/LTCH PPS proposed rule, we
proposed to make an adjustment to the
standardized amount of ¥2.9 percent,
representing approximately half of the
aggregate adjustment required under
section 7(b)(1)(B) of Public Law 110–90,
for FY 2011. An adjustment of this
magnitude would allow us to moderate
the effects on hospitals in one year
while simultaneously making it possible
to implement the entire adjustment
within the timeframe required under
section 7(b)(1)(B) of Public Law 110–90
(that is, no later than FY 2012).
Unlike the permanent prospective
adjustment to the standardized amounts
under section 7(b)(1)(A) of Public Law
110–90 described earlier, the
recoupment adjustment to the
standardized amounts under section
7(b)(1)(B) of Public Law 110–90 is not
cumulative, and, therefore, would be
removed for subsequent fiscal years
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which represented approximately half
of the aggregate recoupment adjustment
required under section 7(b)(1)(B) of
Public Law 110–90, for FY 2011. We
were persuaded by both MedPAC’s
analysis, and our own review of the
methodologies recommended by various
commenters, that the methodology we
employed to determine the required
recoupment adjustment was sound.
Since the statute required that we
implement the entire recoupment
adjustment no later than FY 2012, we
have sought, as we commonly do, to
moderate the potential impact on
hospitals by phasing in the required
adjustment over more than one year. As
we stated in prior rulemaking, a major
advantage of making the ¥2.9 percent
adjustment to the standardized amount
in FY 2011 was that, because the
required recoupment adjustment is not
cumulative, we anticipated removing
the FY 2011 ¥2.9 percent adjustment
from the rates (in other words, making
a positive 2.9 percent adjustment to the
rates) in FY 2012, at the same time that
the law required us to apply the
remaining approximately ¥2.9 percent
adjustment required by section
7(b)(1)(B) of Public Law 110–90. These
two steps in FY 2012, restoring the FY
2011 ¥2.9 percent adjustment and then
applying the remaining adjustment of
approximately ¥2.9 percent, would
effectively cancel each other out. The
result of these two steps would be an
aggregate adjustment of approximately
0.0 percent. While we stated in the FY
2011 IPPS/LTCH PPS final rule the need
to potentially adjust the remaining ¥2.9
percent estimate to account for
accumulated interest, our actuaries have
determined that there has been no
significant interest accumulation and
that no additional adjustment will be
required. Therefore, for FY 2012,
pursuant to the timeframes set forth by
section 7(b)(1)(B) of Public Law 110–90,
and consistent with the discussion in
the FY 2011 IPPS/LTCH PPS final rule,
we are proposing to complete the
recoupment adjustment by
implementing the remaining ¥2.9
percent adjustment, in addition to
removing the effect of the ¥2.9 percent
adjustment to the standardized amount
finalized for FY 2011. Because these
adjustments will, in effect, balance out,
there will be no year-to-year change in
the standardized amount due to this
recoupment adjustment. As this
adjustment will complete the required
recoupment for overpayments due to
documentation and coding effects on
discharges occurring in FYs 2008 and
2009, we anticipate removing the effect
of this adjustment by adding 2.9 percent
to the standardized amount in FY 2013.
We continue to believe that this is a
reasonable and fair approach that
satisfies the requirements of the statute
while substantially moderating the
financial impact on hospitals.
The table above summarizes the
proposed adjustments for FY 2012 for
documentation and coding for IPPS
hospitals.
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
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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
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once we have completely offset the
increase in aggregate payments for
discharges for FY 2008 and FY 2009
expenditures. In keeping with our
practice of moderating payment
adjustments when necessary, we stated
that we anticipated that the proposal of
phasing in the recoupment adjustment
will have an additional, and significant,
moderating effect on implementing the
requirements of section 7(b)(1)(B) of
Public Law 110–90 for FY 2012.
In the FY 2011 IPPS/LTCH PPS
proposed rule, we sought public
comment on our proposal to offset part
of the total 5.8 percent increase in
aggregate payments (including interest)
for discharges occurring in FY 2008 and
FY 2009 resulting from the adoption of
the MS–DRGs in FY 2011, noting that
this proposal would result in a ¥2.9
percent adjustment to the standardized
amount. We received numerous
comments on our proposal, especially
from national and regional hospital
associations, hospital systems, and
individual hospitals. MedPAC also
commented on our proposal. We refer
readers to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50055 through 50073)
for a detailed description of our analysis
and prior responses to comments, and
finalized policy.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50062 through 50068), we
finalized the proposed adjustment to the
standardized amount of ¥2.9 percent,
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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
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 patient
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 patient 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
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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 was warranted for FY
2010. To gather information to evaluate
these considerations, we indicated that
we planned to perform analyses on FY
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 was
warranted, we indicated that we would
propose to make such an adjustment in
the FY 2010 IPPS proposed rule.
8. Documentation and Coding
Adjustment to the Hospital-Specific
Rates for FY 2011 and Subsequent
Fiscal Years
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule and final rule (74 FR
24098 through 24100 and 74 FR 43775
through 43776, respectively), we
discussed our 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 for other
IPPS hospitals, but did not significantly
differ from that result. We refer readers
to those rules for a more complete
discussion.
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
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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
solicited public comment on this
proposal. Consistent with our approach
for IPPS hospitals discussed earlier, in
the FY 2010 IPPS/RY 2010 LTCH PPS
final rule, we also delayed adoption of
a documentation and coding adjustment
to the hospital-specific rate until FY
2011. We refer readers to the FY 2010
IPPS/RY 2010 LTCH PPS final rule for
a more detailed discussion of our
proposal, responses to comments, and
finalized policy.
As we have noted previously, because
SCHs and MDHs use the same MS–DRG
system as all other IPPS hospitals, we
believe they have the potential to realize
increased payments from
documentation and coding changes that
do not reflect real increases in patient
severity of illness. Therefore, we believe
they should be equally subject to a
prospective budget neutrality
adjustment that we are applying for
adoption of the MS–DRGs to all other
hospitals. We believe the
documentation and coding estimates for
all subsection (d) hospitals should be
the same. While the findings for the
documentation and coding effect for all
IPPS hospitals are similar to the effect
for SCHs and slightly different to the
effect for MDHs, we continue to believe
that this is the appropriate policy so as
to neither advantage or disadvantage
different types of providers. As we
discuss in section II.D.4. of this
preamble, our best estimate, based on
the most recently available data, is that
a cumulative adjustment of ¥5.4
percent is required to eliminate the full
effect of the documentation and coding
changes on future payments to SCHs
and MDHs. Unlike the case of
standardized amounts paid to IPPS
hospitals, prior to FY 2011, we had not
made any previous adjustments to the
hospital-specific rates paid to SCHs and
MDHs to account for documentation
and coding changes. Therefore, the
entire ¥5.4 percent recoupment
adjustment needed to be made, as
opposed to a ¥3.9 percent remaining
adjustment for IPPS hospitals.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50068 through 50071), we
made an adjustment to the standardized
amount for IPPS hospitals of ¥2.9
percent under section 7(b)(1)(B) of
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Public Law 110–90, for FY 2011. As we
noted in the FY 2011 IPPS/LTCH PPS
final rule, in determining the level and
pace of adjustments to account for such
documentation and coding changes, we
believe that it is important to maintain,
as much as possible, both consistency
and equity among these classes of
hospitals. Therefore, we finalized a
prospective adjustment of ¥2.9 percent
to the hospital-specific rates paid to
SCHs and MDHs. We refer readers to the
FY 2011 IPPS/LTCH PPS final rule for
a more detailed discussion of our
proposal, responses to comments, and
finalized policy.
As discussed earlier in this section
II.D., we are proposing a net ¥3.15
percent documentation and coding
adjustment for IPPS hospitals in FY
2012 (¥3.15 percent prospective
adjustment plus a ¥2.9 percent
recoupment adjustment in FY 2012,
offset by the removal of the ¥2.9
percent recoupment adjustment for FY
2010). The proposed IPPS adjustment
exceeds the remaining ¥2.5 percent
documentation and coding adjustment
for hospitals receiving a hospitalspecific rate (that is, the entire ¥5.4
percent adjustment, minus the ¥2.9
percent adjustment finalized for FY
2011). As we indicated in the FY 2011
IPPS/LTCH PPS proposed rule and final
rule, we are continuing, as much as
possible, consistent with section 7(b)(1)
of Public Law 110–90 and section
1886(d)(5)(I)(i) of the Act, to take such
consistency and equity into account in
developing future proposals for
implementing documentation and
coding adjustments. We believe that any
adjustment to the hospital-specific rate
due to documentation and coding effect
should be as similar as possible to
adjustments to the IPPS rate.
Accordingly, we are proposing a ¥2.5
percent payment adjustment to the
hospital-specific rate. We believe that
proposing the entire remaining
prospective adjustment of ¥2.5 percent
allows CMS to maintain, to the extent
possible, similarity and consistency in
payment rates for different IPPS
hospitals paid using the MS–DRG. As
discussed below, we took a similar
approach in finalizing an adjustment to
the Puerto-Rico specific rate in FY 2011.
9. Application of the Documentation
and Coding Adjustment to the Puerto
Rico-Specific Standardized Amount
a. Background
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
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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
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 (that is, we made a positive 0.6
percent adjustment, increasing the
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 patient
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
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to apply documentation and coding
adjustments to the FY 2010 Puerto Ricospecific standardized amount under our
authority in section 1886(d)(5)(I)(i) of
the Act.
b. 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
discharges occurring during FY 2008
was approximately 1.1 percent.
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 was more or less
than our then current estimates, it
would change, possibly lessen, the
anticipated cumulative adjustments that
we had estimated we would have to
make for the FY 2008 and FY 2009
combined adjustment. Therefore, we
believed 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.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43777), we
indicated that, given these
documentation and coding increases,
consistent with our statements in prior
IPPS rules, we would use our authority
under section 1886(d)(5)(I)(i) of the Act
to adjust the Puerto Rico-specific rate
and solicited public comment on the
proposed ¥1.1 percent prospective
adjustment. However, in parallel to our
decision to postpone adjustments to the
Federal standardized amount, we also
indicated that we were adopting a
similar policy for the Puerto Ricospecific rate for FY 2010 and would
consider the phase-in of this adjustment
over an appropriate time period through
future rulemaking. We noted that, as
with the hospital-specific rates, the
Puerto Rico-specific standardized
amount had not previously been
adjusted based on estimated changes in
documentation and coding associated
with the adoption of the MS–DRGs.
Consistent with our approach for IPPS
hospitals for FY 2010, we indicated that
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we would 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.
As we have noted above, similar to
SCHs and MDHs, hospitals in Puerto
Rico use the same MS–DRG system as
all other hospitals and we believe they
have the potential to realize increased
payments from documentation and
coding changes that do not reflect real
increases in patient severity of illness.
Therefore, we believe they should be
equally subject to the prospective
budget neutrality adjustment that we
intend to apply to prospective payment
rates for IPPS hospitals, including SCHs
and MDHs, in order to eliminate the full
effect of the documentation and coding
changes associated with implementation
of the MS–DRG system.
As discussed in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50071
through 50073), using the same
methodology we applied to estimate
documentation and coding changes
under IPPS for non-Puerto Rico
hospitals, our best estimate, based on
the then most recently available data
(FY 2009 claims paid through March
2010), was that, for documentation and
coding that occurred over FY 2008 and
FY 2009, a cumulative adjustment of
¥2.6 percent was required to eliminate
the full effect of the documentation and
coding changes on future payments
from the Puerto Rico-specific rate. As
we stated above, we believe it important
to maintain both consistency and equity
among all hospitals paid on the basis of
the same MS–DRG system. At the same
time, however, we recognize that the
estimated cumulative impact on
aggregate payment rates resulting from
implementation of the MS–DRG system
was smaller for Puerto Rico hospitals as
compared to IPPS hospitals and SCHs
and MDHs. Therefore, in the FY 2011
IPPS LTCH PPS proposed rule (75 FR
23876), we proposed an adjustment to
eliminate the full effect of the
documentation and coding changes on
the portion of future payments to Puerto
Rico hospitals based on the Puerto Ricospecific rate. We stated that we believed
that a full prospective adjustment was
the most appropriate means to take into
full account the effect of documentation
and coding changes on payments, while
maintaining equity as much as possible
between hospitals paid on the basis of
different prospective rates. We noted
that our updated data analysis in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50072 through 50073) final rule showed
that this adjustment would be ¥2.6
percent. The previous estimate in the
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proposed rule was a ¥2.4 percent
adjustment.
One reason we proposed the full
prospective adjustment for the Puerto
Rico-specific rate in FY 2011 was to
maintain equity as much as possible in
the documentation and coding
adjustments applied to various hospital
rates in FY 2011. Because our proposal
was to make an adjustment that
represents the full adjustment that is
warranted for the Puerto Rico-specific
rate, we indicated that we did not
anticipate proposing any additional
adjustments to the this rate for
documentation and coding effects.
Therefore, because the Puerto Ricospecific rate received a full prospective
adjustment of ¥2.6 percent in FY 2011,
we are proposing no further adjustment
in this proposed rule for FY 2012.
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
2. Summary of the RTI Study of Charge
Compression and CCR Refinement
As we transitioned to cost-based
relative weights, some public
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 cost-based weights would
undervalue high-cost items and
overvalue low-cost items if a single CCR
is applied to items of widely varying
costs in the same cost center. 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
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
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
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
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Supplies Charged to Patients’’ and a ‘‘CT
Scanning and MRI’’ subscripted line
under ‘‘Radiology-Diagnostics’’. Despite
receiving public comments in support of
the regression-based 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 more
details on RTI’s findings and
recommendations, we refer readers to
the FY 2009 IPPS final rule (73 FR
48452).) RTI subsequently expanded its
analysis of charge compression beyond
inpatient services to include 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-5002005-0029I/PDF/Refining_Cost_to_
Charge_Ratios_200804.pdf . The IPPSspecific 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_
Cost_to_Charge_Ratios_200807_Final.
pdf.
RTI’s final report 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 regressionbased 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 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.
RTI endorsed short-term regressionbased adjustments, but also concluded
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that more refined and accurate
accounting data are the preferred longterm solution to mitigate charge
compression and related bias in hospital
cost-based weights. 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).
3. Summary of Policy Changes Made in
FY 2011
In the FY 2009 IPPS/LTCH PPS 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 refer readers to the Web
site: https://www.rand.org/pubs/
working_papers/WR560/, and the FY
2009 IPPS/LTCH PPS final rule for
details on the RAND report (73 FR
48453 through 48457).) 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
FY 2009 IPPS/LTCH PPS final rule, we
focused on the CCR for Medical
Supplies and Equipment 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. Accordingly, a
new subscripted line 55.30 for
‘‘Implantable Devices Charged to
Patients’’ was created in July 2009 as
part of CMS’ Transmittal 20 update to
the existing cost report Form CMS–
2552–96. This new subscripted cost
center has been available for use for cost
reporting periods beginning on or after
May 1, 2009.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50075 through 50080), we
finalized our proposal to create standard
cost centers for CT scans, MRI, and
cardiac catheterization, and to require
that hospitals report the costs and
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25809
charges for these services under new
cost centers on the revised Medicare
cost report Form CMS 2552–10. As we
discussed in the FY 2009 IPPS/LTCH
PPS and CY 2009 OPPS/ASC proposed
and final rules, RTI found that the costs
and charges of CT scans, MRI, and
cardiac catheterization differ
significantly from the costs and charges
of other services included in the
standard associated cost center. RTI also
concluded that both the IPPS and OPPS
relative weights would better estimate
the costs of those services if CMS were
to add standard costs centers for CT
scans, MRI, and cardiac catheterization
in order for hospitals to report
separately the costs and charges for
those services and in order for CMS to
calculate unique CCRs to estimate the
cost from charges on claims data. (We
refer readers to the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50075 through
50080) for a more detailed discussion on
the reasons for the creation of standard
cost centers for CT scans, MRI, and
cardiac catheterization.) The new
standard cost centers for MRI, CT scans,
and cardiac catheterization are effective
for cost report periods beginning on or
after May 1, 2010, on the revised cost
report Form CMS–2552–10. CMS issued
the new hospital cost report Form CMS–
2552–10 on December 30, 2010. The
new cost report form can be accessed at
the CMS Web site at: https://www.cms.
gov/Manuals/PBM/itemdetail.asp?filter
Type=none&filterByDID=-99&sortBy
DID=1&sortOrder=ascending&itemID=
CMS021935&intNumPerPage=10. Once
at this Web site, users should double
click on ‘‘Chapter 40.’’
4. Discussion for FY 2012
In the FY 2009 IPPS/LTCH PPS final
rule (73 FR 48468), we stated that, due
to what is typically a 3-year lag between
the reporting of cost report data and the
availability for use in ratesetting, we
anticipated that we might be able to use
data from the new ‘‘Implantable Devices
Charged to Patients’’ cost center to
develop a CCR for Implantable Devices
Charged to Patients in the FY 2012 or
FY 2013 IPPS rulemaking cycle.
Specifically, we stated, ‘‘Because there is
approximately a 3-year lag between the
availability of cost report data for IPPS
and OPPS rate-setting purposes in a
given fiscal year, we may be able to
derive two distinct CCRs, one for
medical supplies and one for devices,
for use in calculating the FY 2012 or FY
2013 IPPS relative weights and the CY
2012 or CY 2013 OPPS relative weights’’
(73 FR 48468). However, as noted in the
FY 2010 IPPS/LTCH PPS final rule (74
FR 43782), due to delays in the issuance
of the revised cost report CMS 2552–10,
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a new CCR for Implantable Devices
Charged to Patients may not be available
until FY 2013. Similarly, when we
finalized the decision in the FY 2011
IPPS/LTCH PPS final rule to add new
cost centers for MRI, CT scans, and
cardiac catheterization, we explained
that data from any new cost centers that
may be created will not be available
until at least 3 years after they are first
used (75 FR 50077). That is, in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50077), we stated that the data from the
standard cost centers for MRI, CT scans,
and cardiac catheterization,
respectively, would not even be
available for possible use in calculating
the relative weights earlier than 3 years
after Form CMS–2552–10 becomes
available. We further stated that, at that
time, we would analyze the data and
determine if it is appropriate to use
those data to create distinct CCRs from
these cost centers for use in the relative
weights for the respective payment
systems. We also reassured public
commenters that there was no need for
immediate concern regarding possible
negative payment impacts on MRI and
CT scans under the IPPS and the OPPS
because the cost report data that would
be used for the calculation of the
relative weights were at least 3 years
from being available. We stated that we
will first thoroughly analyze and run
impacts on the data and provide the
public with the opportunity to comment
before distinct CCRs for MRI and CT
scans would be finalized for use in the
calculation of the relative weights. We
also urged all hospitals to properly
report their costs and charges for MRI,
CT scans, and all other services so that,
in several years’ time, we will have
reliable data from all hospitals on which
to base a decision as to whether to
incorporate additional CCRs into the
relative weight calculation (75 FR
50077).
Accordingly, in preparation for this
FY 2012 IPPS/LTCH PPS proposed rule,
we have assessed the availability of data
in the ‘‘Implantable Devices Charged to
Patients’’ cost center. In order to develop
a robust analysis regarding the use of
cost data from the ‘‘Implantable Devices
Charged to Patients’’ cost center, it is
necessary to have a critical mass of cost
reports filed with data in this cost
center. The cost center for ‘‘Implantable
Devices Charged to Patients’’ is effective
for cost reporting periods beginning on
or after May 1, 2009. We have checked
the availability of FY 2009 cost reports
in the December 31, 2010 quarter ending
update of HCRIS, which is the latest
upload of FY 2009 cost report data that
we could use for this proposed rule. We
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have determined that there are only 437
hospitals (out of approximately 3,500
IPPS hospitals) that have completed the
‘‘Implantable Devices Charged to
Patients’’ cost center. We do not believe
that this is a sufficient amount of data
from which to generate a meaningful
analysis in this particular situation.
Therefore, we are not proposing to use
data from the ‘‘Implantable Devices
Charged to Patients’’ cost center to create
a distinct CCR for Implantable Devised
Charged to Patients for use in
calculating the MS–DRG relative
weights for FY 2012. We will reassess
the availability of data for the
‘‘Implantable Devices Charged to
Patients’’ cost center, and the ‘‘MRI, CT
Scans, and Cardiac Catheterization’’ cost
centers, for the FY 2013 IPPS
rulemaking cycle and, if appropriate, we
will propose to create a distinct CCR at
that time.
F. Preventable Hospital-Acquired
Conditions (HACs), Including Infections
1. Background
a. Statutory Authority
Section 1886(d)(4)(D) of the Act
addresses certain hospital-acquired
conditions (HACs), including infections.
Section 1886(d)(4)(D) of the Act
specifies that by October 1, 2007, the
Secretary was required to select, in
consultation with the Centers for
Disease Control and Prevention (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. Section 1886(d)(4)(D)
of the Act also specifies that the list of
conditions may be revised, again in
consultation with CDC, from time to
time as long as the list contains at least
two conditions.
Section 1886(d)(4)(D)(iii) of the Act
requires that hospitals, effective with
discharges occurring on or after October
1, 2007, submit information on
Medicare claims specifying whether
diagnoses were present on admission
(POA). Section 1886(d)(4)(D)(i) of the
Act specifies that effective for
discharges occurring on or after 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 condition
that was not POA manifests during the
hospital stay, it is considered a HAC
and the case is paid as though the
secondary diagnosis was not present.
However, even if a HAC manifests
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during the hospital stay, if any
nonselected CC/MCC appears on the
claim, the claim will be paid at the
higher MS–DRG rate. Under the HAC
payment policy, all CCs/MCCs on the
claim must be HACs in order to generate
a lower MS–DRG payment. In addition,
Medicare continues to assign a
discharge to a higher paying MS–DRG if
a selected condition is 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.
The HAC provision found in section
1886(d)(4)(D) of the Act is part of an
array of Medicare value-based
purchasing (VBP) tools that we are using
to promote increased quality and
efficiency of care. Those tools include
measuring performance, using payment
incentives, publicly reporting
performance results, applying national
and local coverage policy decisions,
enforcing conditions of participation,
and providing direct support for
providers through Quality Improvement
Organization (QIO) activities. The
application of VBP tools, such as this
HAC provision, is transforming
Medicare from a passive payer to an
active purchaser of higher value health
care services. We are applying these
strategies for inpatient hospital care and
across the continuum of care for
Medicare beneficiaries.
These VBP tools are highly
compatible with the underlying
purposes as well as existing structural
features of Medicare’s IPPS. Under the
IPPS, hospitals are encouraged to treat
patients efficiently because they receive
the same DRG payment for stays that
vary in length and in the services
provided, which gives hospitals an
incentive to avoid unnecessary costs in
the delivery of care. In some cases,
conditions acquired in the hospital do
not generate higher payments than the
hospital would otherwise receive for
cases without these conditions. To this
extent, the IPPS encourages hospitals to
avoid complications.
However, the treatment of certain
conditions can generate higher Medicare
payments in two ways. First, if a
hospital incurs exceptionally high costs
treating a patient, the hospital stay may
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c. Collaborative Process
Beginning in FY 2007, we have
proposed, solicited, and responded to
In establishing the HAC payment
policy under section 1886(d)(4)(D) of
e. Public Input Regarding Selected and
Potential Candidate HACs
public dialogue about refinement of the
HAC list.
Given the timeliness of the HAC
discussion, particularly when
considered within the context of recent
legislative health care reform initiatives,
we remain eager to engage in an ongoing
public dialogue about the various
aspects of this policy. We plan to
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50080 through 50101), we
did not add or remove categories of
HACs, nor did we make any changes to
previously established policies.
However, we continue to encourage
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the Act, our experts have worked
closely with public health and
infectious disease professionals from
across the Department of Health and
Human Services, including CDC, the
Agency for Healthcare Research and
Quality (AHRQ), and the Office of
Public Health and Science (OPHS), to
identify the candidate preventable
HACs, review comments, and select
HACs. CMS and CDC also have
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. In addition, as
discussed below, we have used
rulemaking and Listening Sessions to
obtain public input.
d. Application of HAC Payment Policy
to MS–DRG Classifications
As described above, in certain cases,
application of the HAC payment policy
provisions can result in MS–DRG
reassignment to a lower paying MS–
DRG. The following diagram portrays
the logic of the HAC payment policy
provision as adopted in the FY 2008
IPPS final rule with comment period (72
FR 47200) and in the FY 2009 IPPS final
rule (73 FR 48471):
continue to include updates and
findings from the RTI evaluation on
CMS’ Hospital-Acquired Conditions and
Present on Admission Indicator Web
site available at: https://
www.cms.hhs.gov/HospitalAcqCond/.
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public comments and have
implemented section 1886(d)(4)(D) of
the Act through the IPPS annual
rulemaking process. For specific
policies addressed in each rulemaking
cycle, we direct readers to the following
publications: the FY 2007 IPPS
proposed rule (71 FR 24100) and final
rule (71 FR 48051 through 48053); the
FY 2008 IPPS proposed rule (72 FR
24716 through 24726) and final rule
with comment period (72 FR 47200
through 47218); the FY 2009 IPPS
proposed rule (73 FR 23547) and final
rule (73 FR 48471); the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24106) and final rule (74 FR 43782);
and the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 23880) and final
rule (75 FR 50080). A complete list of
the 10 current categories of HACs is
included in section II.F.2. of this
preamble.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50080 through 50101), we
did not add any additional HACs or
make any changes to policies already
established under the authority of
section 1886(d)(4)(D) of the Act.
b. HAC Selection
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
generate an outlier payment. Because
the outlier payment methodology
requires that hospitals experience large
losses on outlier cases before outlier
payments are made, hospitals have an
incentive to prevent outliers. Second,
under the MS–DRG system that took
effect in FY 2008 and that has been
refined through rulemaking in
subsequent years, certain conditions can
generate higher payments even if the
outlier payment requirements are not
met. Under the MS–DRG system, there
are currently 259 sets of MS–DRGs that
are split into 2 or 3 subgroups based on
the presence or absence of a CC or an
MCC. The presence of a CC or an MCC
generally results in a higher payment.
However, since we implemented the
HAC provisions, if a secondary
diagnosis acquired during a hospital
stay is a HAC and no other CCs or MCCs
are present, the hospital receives a
payment under the MS–DRGs as if the
HACs were not present. (We refer
readers to section II.D. of the FY 2008
IPPS final rule with comment period for
a discussion of DRG reforms (72 FR
47141).)
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Historically, we have not provided
coding advice. Rather, we collaborate
with the American Hospital Association
(AHA) through the Coding Clinic for
ICD–9–CM. We will continue to
collaborate with the AHA to promote
the Coding Clinic for ICD–9–CM as the
source for coding advice about the POA
indicator.
As discussed in previous IPPS
proposed and final rules, there are five
POA indicator reporting options, as
defined by the ICD–9–CM Official
Guidelines for Coding and Reporting:
In the FY 2009 IPPS final rule (73 FR
48486 through 48487), we adopted final
payment policies to: (1) Pay the CC/
MCC MS–DRGs for those HACs coded
with ‘‘Y’’ and ‘‘W’’ indicators; and (2) not
pay the CC/MCC MS–DRGs for those
HACs coded with ‘‘N’’ and ‘‘U’’
indicators.
Beginning on or after January 1, 2011,
hospitals are required to begin reporting
POA indicators using the 5010
electronic transmittal standards format.
The 5010 format removes the need to
report a POA indicator of ‘‘1’’ for codes
that are exempt from POA reporting.
However, for claims that continue to be
submitted using the 4010 electronic
transmittal standards format, the POA
indicator of ‘‘1’’ is still necessary because
of reporting restrictions from the use of
the 4010 electronic transmittal
standards format.
Hospitals that began reporting with
the 5010 format on and after January 1,
2011, can no longer report a POA
indicator of ‘‘1’’ for POA exempt codes.
The POA field should instead be left
blank for codes exempt from POA
reporting. We have issued CMS
instructions on this reporting change as
a One-Time Notification, Pub. No. 100–
20, Transmittal No. 756, Change Request
7024, effective on August 13, 2010.
These instructions, entitled 5010
Implementation-Changes to Present on
Admission (POA) Indicator ‘‘1’’ and the
K3 Segment, can be located at the
following link on the CMS Web site:
https://www.cms.gov/manuals/
downloads/Pub100_20.pdf.
We are continuing our efforts to
clarify instructions regarding use of the
POA indicator. As discussed in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50088), we received public comments in
response to the FY 2011 IPPS/LTCH
PPS proposed rule that expressed
concern about the accuracy of reporting
of POA indicators for HACs related to
intracranial injury with loss of
consciousness. The codes for loss of
consciousness are listed in the Falls and
Trauma HAC category, within the
‘‘Intracranial Injury’’ subcategory.
Because loss of consciousness is a
component of intracranial injuries
rather than a separate condition, we
agreed that the POA guidelines that
instructed coders to assign an ‘‘N’’
indicator if any part of the combination
code was not present on admission did
not apply to the loss of consciousness
codes. As a member of the Editorial
Advisory Board for the Coding Clinic for
ICD–9–CM, we worked with the
American Hospital Association (AHA),
American Health Information
Management Association (AHIMA), and
the Centers for Disease Control and
Prevention (CDC) to provide additional
clarification on how these conditions
should be reported. Additional guidance
on how these cases should be reported
can be found in AHA’s Coding Clinic for
ICD–9–CM, 2nd Quarter 2010,
‘‘Frequently Asked POA Questions’’
section. That publication clarified the
POA reporting for patients in whom a
single code captures the fact that the
patient was admitted as a result of a
head injury and then subsequently lost
consciousness after the admission. For
these cases, we clarified that the POA
indicator assigned should be ‘‘Y,’’
indicating that the head injury and
resulting loss of consciousness occurred
prior to (and was present on) admission.
We expect that this clarification will
lead to greater consistency and accuracy
in POA indicator reporting for these
conditions. We look forward to
continuing our efforts as part of the
AHA’s Editorial Advisory Board for
Coding Clinic for ICD–9–CM to provide
guidance on accuracy of coding and the
reporting of POA indicators. Hospitals
look to this publication to provide
detailed guidance on ICD–9–CM coding
and POA reporting. We encourage
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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. In the FY 2011 IPPS/
LTCH PPS proposed rule, we listed the
instructions and change requests that
were issued to IPPS hospitals and also
to non-IPPS hospitals regarding the
submission of POA indicator data for all
diagnosis codes on Medicare claims and
the processing of non-PPS claims (75 FR
23381). We also indicated that specific
instructions on how to select the correct
POA indicator for each diagnosis code
were included in the ICD–9–CM Official
Guidelines for Coding and Reporting,
available on the CDC Web site at:
https://www.cdc.gov/nchs/data/icd9/
icdguide10.pdf. We reiterate that
additional information regarding POA
indicator reporting and application of
the POA reporting options is available
on the CMS Web site at: https://
www.cms.gov/HospitalAcqCond/.
f. POA Indicator Reporting
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hospitals to send any other questions
about ICD–9–CM codes or POA
indicator selection to the AHA so that
the Editorial Advisory Board can
continue its role of providing
instruction on the accurate selection
and reporting of both ICD–9–CM codes
and POA indicators.
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2. Proposed Additions and Revisions to
the HAC Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury
We discuss below our analysis for a
proposed new condition as a possible
candidate for selection for FY 2012
under section 1886(d)(4)(D) of the Act.
As described in more detail in section
II.F.1.a. of this preamble, each HAC
must be: (1) High cost, high volume, or
both; (2) 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 (3) could reasonably have been
prevented through the application of
evidence-based guidelines. We also
discuss other considerations relating to
the selection of a HAC, including any
administrative or operational issues
associated with a proposed condition.
For example, the condition may only be
able to be identified by multiple codes,
thereby requiring the development of
special GROUPER logic to also exclude
similar or related ICD–9–CM codes from
being classified as a CC or an MCC.
Similarly, a condition acquired during a
hospital stay may arise from another
condition that the patient had prior to
admission, making it difficult to
determine whether the condition was
reasonably preventable. We invite
public comment on clinical, coding, and
prevention issues on our proposal to
add contrast-induced acute kidney
injury as a condition subject to the HAC
payment provision for FY 2012 (for
discharges occurring on or after October
1, 2011).
Contrast-induced acute kidney injury
is a significant complication of the use
of iodinated contrast media and
accounts for a large number of cases of
hospital-acquired acute kidney injury
cases. A published study has shown that
renal failure associated with contrast
administration is correlated with up to
11 percent of cases of renal failure that
occur in hospitals (Nash, et al.:
American Journal on Kidney Disease,
2002, Vol. 39, pp. 930–936). Patients
who experience acute kidney injury
have an increased risk of inhospital
mortality even after adjustments for
disease comorbidities (McCullough, J.:
American College of Cardiology, 2008,
pp. 1419 through 1428). Data suggest
that the risk for mortality extends
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beyond the period of hospitalization,
resulting in 1-year and 5-year mortality
rates significantly higher than those
patients who have not developed acute
kidney injury. In addition, contrastinduced acute kidney injury is
associated with an increased incidence
of myocardial infarction, bleeding
requiring transfusion, and prolonged
hospital stays (McCullough, J.:
American Journal of Medicine, 1997,
Vol. 103, pp. 368 through 375). We note
that ‘‘acute kidney injury’’ is a new
terminology endorsed by the National
Kidney Foundation to replace ‘‘acute
renal failure.’’
There is not a unique code that
identifies kidney injury. However,
kidney injury can be identified as a
subset of discharges with ICD–9–CM
diagnosis code 584.9 (Acute kidney
failure, unspecified). Our clinical
advisors believe that diagnosis code
584.9, in combination with the
associated procedure codes below, can
accurately identify contrast-induced
acute kidney injury:
• 88.40 (Arteriography using contrast
material, unspecified site)
• 88.41 (Arteriography of cerebral
arteries)
• 88.42 (Aortography)
• 88.43 (Arteriography of pulmonary
arteries)
• 88.44 (Arteriography of other
intrathoracic vessels)
• 88.45 (Arteriography of renal
arteries)
• 88.46 (Arteriography of placenta)
• 88.47 (Arteriography of other intraabdominal arteries)
• 88.48 (Arteriography of femoral and
other lower extremity arteries)
• 88.49 (Arteriography of other
specified sites)
• 88.50 (Angiocardiography, not
otherwise specified)
• 88.51 (Angiocardiography of venae
cavae)
• 88.52 (Angiocardiography of right
heart structures)
• 88.53 (Angiocardiography of left
heart structures)
• 88.54 (Combined right and left heart
angiocardiography)
• 88.55 (Coronary arteriography using
a single catheter)
• 88.56 (Coronary arteriography using
two catheters)
• 88.57 (Other and unspecified
coronary arteriography)
• 88.58 (Negative-contrast cardiac
roentgenography)
• 88.59 (Intra-operative coronary
fluorescence vascular angiography)
• 88.60 (Phlebography using contrast
material, unspecified site)
• 88.61 (Phlebography of veins of
head and neck using contrast material)
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• 88.62 (Phlebography of pulmonary
veins using contrast material)
• 88.63 (Phlebography of other
intrathoracic veins using contrast
material)
• 88.64 (Phlebography of the portal
venous system using contrast material)
• 88.65 (Phlebography of other intraabdominal veins using contrast
material)
• 88.66 (Phlebography of femoral and
other lower extremity veins using
contrast material)
• 88.67 (Phlebography of other
specified sites using contrast material)
• 87.71 (C.A.T. of kidney)
• 87.72 (Other nephrotomogram)
• 87.73 (Intravenous pyelogram)
• 87.74 (Retrograde pyelogram)
• 87.75 (Percutaneous pyelogram)
We are proposing to identify contrastinduced acute kidney injury with
diagnosis code 584.9 in combination
with one or more of the above
associated procedure codes.
We also considered identifying
contrast-induced acute kidney injury
through the use of external injury codes,
or E-codes. Code E947.8 (Other drugs
and medicinal substances) has an
inclusion term ‘‘Contrast media used for
diagnostic x-ray procedures’’ to identify
the use of contrast. However, we note
that we do not currently require the
reporting of E-codes for the HAC
payment provisions under the IPPS.
Therefore, we would be unable to rely
on the identification of contrast-induced
acute kidney injury through E-codes on
Medicare IPPS HAC claims.
Section 1886(d)(4)(D) of the Act
requires that a HAC be a condition that
is ‘‘high cost, high volume, or both.’’ In
FY 2009, there were 38,324 inpatient
discharges coded with acute renal
failure as specified by ICD–9–CM
diagnosis code 584.9 reported as not
present on admission (POA status = N)
when reported with one of the above
procedure codes submitted through
Medicare claims. The cases had an
average charge of $29,122 for the entire
hospital stay. Studies suggest the
additional average cost per day for a
patient who has acquired contrastinduced acute kidney injury is $2,654.
Other data report patients stays
increases by 3.75 days once they have
acquired the diagnosis (Subramanian, et
al.: Journal of Medical Economics, 2007,
Vol. 10, pp. 119 through 134).
There are widely recognized
guidelines for the prevention of acute
kidney injury that address the
prevention of contrast-induced acute
kidney injury, and we believe the
condition is reasonably preventable.
One of these guidelines can be found at:
https://www.renal.org/Clinical/
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AcuteKidneyInjury.aspx.
The condition of contrast-induced
acute kidney injury as specified in our
proposal is a CC under the MS DRGs.
We have not identified any additional
administrative or operational difficulties
with proposing this condition as a HAC.
We invite public comment on whether
contrast-induced acute kidney injury
meets the requirements set forth under
section 1886(d)(4)(D) of the Act, as well
as other coding and prevention issues
associated with our proposal to add this
injury as a condition subject to the HAC
payment provision for FY 2012 (for
discharges occurring on or after October
1, 2011). We are particularly interested
in receiving comments on the degree to
which contrast-induced acute kidney
injury is reasonably preventable through
the application of evidence-based
guidelines.
b. New Diagnosis Codes Proposed to be
Added to Existing HACs
As changes to diagnosis codes and
new diagnosis codes are proposed and
finalized for the list of CCs and MCCs,
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We are inviting public comments on
the proposed adoption of theses five
new ICD–9–CM diagnosis codes as CC/
MCCs that are listed above, which, if
finalized, would be added to the current
Falls and Trauma HAC category,
Surgical Site Infection (SSI) Following
Certain Bariatric Procedures HAC
category and Deep Vein Thrombosis and
Pulmonary Embolism (DVT/PE)
Following Certain Orthopedic
Procedures HAC category and would be
subject to the HAC payment provision
for FY 2012.
c. Revision to HAC Subcategory Title
After publication of the FY 2011
IPPS/LTCH PPS final rule, we received
a comment stating that the subcategory
title ‘‘Electric Shock’’ that is included in
the Falls and Trauma HAC category was
misleading. The commenter stated that
this subcategory title did not accurately
describe the CC/MCC ICD–9–CM
diagnoses codes (991 through 994)
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we modify the list of selected HACs to
reflect these changes. Included in Table
6A, which is listed in section VI. of the
Addendum to this proposed rule and
available via the Internet, are five new
ICD–9–CM diagnosis codes that we are
proposing to add to three of the current
HAC categories. We are proposing to
add two new codes for the Falls and
Trauma HAC category, two new codes
for the Surgical Site Infection (SSI)
Following Certain Bariatric Procedures
HAC category, and one new code for the
Deep Vein Thrombosis and Pulmonary
Embolism (DVT/PE) Following Certain
Orthopedic Procedures HAC category.
The two new diagnosis codes that we
are proposing to add to the Falls and
Trauma HAC category are code 808.44
(Multiple closed pelvic fractures
without disruption of pelvic circle) and
code 808.54 (Multiple open pelvic
fractures without disruption of pelvic
circle). These codes fall within the range
of the fracture code subcategory (800
through 829). The two new diagnosis
codes that we are proposing to add to
the Surgical Site Infection (SSI)
Following Certain Bariatric Procedures
HAC category are code 539.01 (Infection
due to gastric band procedure) and code
539.81 (Infection due to other bariatric
procedure). We believe these diagnosis
codes are appropriate for inclusion in
the existing category when reported as
a secondary diagnosis with the specified
principal diagnosis code of morbid
obesity (code 278.01) and one of the
designated bariatric procedure codes
(code 44.38, 44.39, or 44.95). Lastly, the
one new diagnosis code that we are
proposing to add to the Deep Vein
Thrombosis and Pulmonary Embolism
(DVT/PE) Following Certain Orthopedic
Procedures HAC category is code 415.13
(Saddle embolus of pulmonary artery).
Diagnosis code 415.13 would be
applicable when reported along with
one of the following procedures codes
describing certain orthopedic
procedures: 00.85 through 00.87, 81.51,
81.52, or 81.54. Shown in the table
below are these five new diagnosis
codes with their corresponding
descriptions and their proposed CC/
MCC designations.
contained within this subcategory. The
commenter requested that CMS develop
a new title that would more accurately
describe this group of codes.
We agree with the commenter that the
HAC subcategory title ‘‘Electric Shock’’
is potentially misleading because the
codes included within these ranges
contain a variety of injuries, including
the following:
• Category 991 (Effects of Reduced
Temperature)
• Category 992 (Effects of Heat and
Light)
• Category 993 (Effects of Air
Pressure)
• Category 994 (Effects of Other
External Causes)
We are proposing to change the title
of this HAC subcategory from ‘‘Electric
Shock’’ to ‘‘Other Injuries’’ because it
includes a variety of injury codes. The
subcategory will continue to include the
codes within the 991–994 code ranges
appearing on the CC/MCC list. We are
proposing no changes to the list of codes
in this subcategory; we are simply
proposing to rename the subcategory
title. We invite public comments on this
proposed title change to the HAC
subcategory from ‘‘Electric Shock’’ to
‘‘Other Injuries’’ for FY 2012.
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d. Conclusion
The following table lists the current
HAC categories and the ICD–9–CM
codes that identify the conditions and
have been finalized through FY 2011.
For FY 2012, we are proposing that
these conditions continue to be subject
to the HAC payment provision, along
with the creation of a new HAC category
for Contrast-Induced Acute Kidney
Injury as discussed in section II.F.2.a. of
this preamble. In addition, we are
proposing to add five new ICD–9–CM
diagnosis codes and to revise the title of
the ‘‘Electric Shock’’ subcategory in the
Falls and Trauma HAC category.
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We refer readers to section II.F.6. of
the FY 2008 IPPS final rule with
comment period (72 FR 47202 through
47218) and to section II.F.7. of the FY
2009 IPPS final rule (73 FR 48474
through 48486) for detailed analyses
supporting the selection of each of the
HACs selected through FY 2011.
3. RTI Program Evaluation Summary
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a. Background
On September 30, 2009, a contract
was awarded to Research Triangle
Incorporated (RTI) to evaluate the
impact of the Hospital-Acquired
Condition-Present on Admission (HAC–
POA) provisions on the changes in the
incidence of selected conditions, effects
on Medicare payments, impacts on
coding accuracy, unintended
consequences, and infection and event
rates. This is an intra-agency project
with funding and technical support
coming from CMS, OPHS, AHRQ, and
CDC. The evaluation will also examine
the implementation of the program and
evaluate additional conditions for future
selection.
RTI’s evaluation of the HAC–POA
provisions is divided into several parts.
In the FY 2011 IPPS/LTCH PPS final
rule (50085 through 50101), we
summarized the analyses by RTI that
had been completed at that time. These
RTI analyses of POA indicator reporting,
frequencies and net savings associated
with current HACs, and frequencies of
previously considered candidate HACs
reflected MedPAR claims from October
2008 through September 2009.
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b. FY 2009 Data Analysis
As we describe above, we have
provided instructions to IPPS hospitals
and non-IPPS hospitals regarding the
submission of POA indicator data for all
diagnosis codes on Medicare claims and
the processing of non-PPS claims (75 FR
23381) and note that specific
instructions on how to select the correct
POA indicator for each diagnosis code
were included in the ICD–9–CM Official
Guidelines for Coding and Reporting,
available on the CDC Web site at:
https://www.cdc.gov/nchs/data/icd9/
icdguide10.pdf. After publication of the
FY 2011 IPPS/LTCH PPS final rule, we
identified a discrepancy between the
claims data that hospitals submitted and
the CMS data file used to calculate the
HAC measures. Specifically, this error
led to incorrect HAC assignments in
cases where a hospital reported an
external cause of injury (E-code). Since
then, we have corrected this error in the
data file.
As a result, the RTI analysis of the
HAC–POA program that was conducted
using FY 2009 claims data will be
updated using the corrected data file.
We do not expect the corrected data to
have a material impact on our previous
findings for FY 2009. Revised data
tables will be made publicly available
on the CMS Web site at https://
www.cms.gov/HospitalAcqCond/
01_Overview.asp and the RTI Web site
at https://www.rti.org/reports/cms/ soon
after publication of this proposed rule.
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c. FY 2010 Data Analysis
RTIs analysis of the FY 2010 MedPAR
data file for the HAC–POA program
evaluation was not fully complete in
time for publication in this proposed
rule. We will provide the results from
the study on the CMS Web site at
https://www.cms.gov/HospitalAcqCond/
01_Overview.asp and on the RTI Web
site at https://www.rti.org/reports/cms/
when available. We anticipate that the
examination of FY 2010 MedPAR data
will be completed soon after publication
of this proposed rule. We invite public
comment on RTI’s analysis of the FY
2010 MedPAR data for the HAC–POA
program.
G. Proposed Changes to Specific MS–
DRG Classifications
In this proposed rule, we are inviting
public comment on each of the MS–
DRG classification proposed changes
described below, as well as our
proposals to maintain certain existing
MS–DRG classifications, which are also
discussed below. In some cases, we are
proposing changes to the MS–DRG
classifications based on our analysis of
claims data. In other cases, we are
proposing to maintain the existing MS–
DRG classification based on our analysis
of claims data.
1. Pre-Major Diagnostic Categories (PreMDCs)
a. Noninvasive Mechanical Ventilation
We received a request from the
National Association for Medical
Direction of Respiratory Care
(NAMDRC) which suggested that we
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create a new MS–DRG for patients with
certain respiratory conditions who
receive noninvasive mechanical
ventilation (NIV). The requestor stated
that patients who receive NIV are almost
always placed within an intensive care
unit (ICU) or an emergency department
and use the resources available in those
areas. The requestor recommended that
this new MS–DRG recognize current
practice and allow for appropriate
reimbursement for the technical
complexity and monitoring required for
NIV as a form of acute life support.
According to the requestor, NIV has
evolved to become first-line supportive
therapy for several forms of acute
respiratory failure. Lastly, the requestor
recommended that the new MS–DRG
identify NIV usage of approximately 6 to
12 hours to account for the ‘‘legitimate
but very short term use of this therapy.’’
Historically, the concept of
mechanical ventilation for critically ill
patients included establishment of an
artificial airway, invasively, through
endotracheal intubation or a
tracheostomy. According to the
requestor, a significant portion of these
patients can now be treated through
noninvasive mechanical ventilation
with the use of a face or nasal mask. In
the ICD–9–CM classification system,
NIV is described by procedure code
93.90 (Noninvasive mechanical
ventilation), while invasive mechanical
ventilation is described by procedure
codes 96.70 (Continuous invasive
mechanical ventilation of unspecified
duration), 96.71 (Continuous invasive
mechanical ventilation for less than 96
consecutive hours), and 96.72
(Continuous invasive mechanical
ventilation for 96 consecutive hours or
more). The requestor submitted external
data to illustrate trends in NIV use over
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the past decade. These data were
derived from a survey conducted during
2002–2003 of several hospitals located
in Massachusetts and Rhode Island. The
requestor believed that these data
indicate patients with exacerbation of
chronic obstructive pulmonary disease
(COPD), acute pulmonary edema, or
worsening congestive heart failure are
successfully managed with NIV.
We analyzed FY 2010 MedPAR claims
data that are representative of the
respiratory conditions the requestor
identified when reported with NIV. We
found 14 MS–DRGs reporting procedure
code 93.90 using the above
specifications. The MS–DRGs are as
follows:
Pre-MDC MS–DRGs:
• MS–DRG 003 (ECMO or
Tracheostomy with Mechanical
Ventilation 96+ Hrs or PDX Except Face,
Mouth & Neck with Major O.R.)
• MS–DRG 004 (Tracheostomy with
Mechanical Ventilation 96+ Hrs or PDX
Except Face, Mouth & Neck without
Major O.R.) MS–DRGs:
• MS–DRG 189 (Pulmonary Edema &
Respiratory Failure)
• MS–DRG 190 (Chronic Obstructive
Pulmonary Disease with MCC)
• MS–DRG 191 (Chronic Obstructive
Pulmonary Disease with CC)
• MS–DRG 192 (Chronic Obstructive
Pulmonary Disease without CC/MCC)
• MS–DRG 204 (Respiratory Signs &
Symptoms)
• MS–DRG 207 (Respiratory System
Diagnosis with Ventilator Support 96+
Hours)
• MS–DRG 208 (Respiratory System
Diagnosis with Ventilator Support <96
Hours)
• MS–DRG 222 (Cardiac Defibrillator
Implant with Cardiac Catheterization
with AMI/HF/Shock with MCC)
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• MS–DRG 223 (Cardiac Defibrillator
Implant with Cardiac Catheterization
with AMI/HF/Shock without MCC)
• MS–DRG 291 (Heart Failure &
Shock with MCC)
• MS–DRG 292 (Heart Failure &
Shock with CC)
• MS–DRG 293 (Heart Failure &
Shock without CC/MCC)
As shown in the list above and in the
chart below, the MS–DRGs identified
also include those that describe invasive
mechanical ventilation. The ICD–9–CM
coding convention instructs the
reporting of both types of mechanical
ventilation when patients are admitted
on noninvasive mechanical ventilation
that subsequently requires invasive
mechanical ventilation therapy.
The data demonstrate that, in certain
MS–DRGs, for example, MS–DRGs 003,
004, and 222 that the cases with NIV
primarily have shorter lengths of stay
and lower average costs compared to all
the cases in those MS–DRGs.
Alternatively, the data for MS–DRGs
189, 190, 191, and 192 demonstrate that
the cases with NIV have an increased
length of stay and higher average costs,
but a relatively low volume compared to
all the cases in those MS–DRGs.
Combining the current surgical and
medical MS–DRGs into a single, new
MS–DRG would include noninvasive
mechanical ventilation cases with a
wide range of costs for several
indications with varying levels of
severity. The average costs for these
cases range from a low of $5,794 in MS–
DRG 293 to a high of $95,940 in MS–
DRG 003. We believe the cases are more
appropriately assigned and reimbursed
in the MS–DRGs to which they are
currently assigned.
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As mentioned in the requestor’s
comments, and our clinical advisors
agree, NIV encompasses a broad range of
interventions and utilizes periods of
time that range from a few hours to a
few days of continuous chronic use.
Resource requirements are vastly
different for the various intended
indications. For example, as also noted
by the requestor, respiratory failure can
have many forms. Our clinical advisors
provided three subsets of patients as an
example: Those that are given oxygen
support, those that are given pressure
(rate) support, and those that are
intubated. There is overlap between the
three subsets in that a patient may
require one, two, or all three types of
therapy and there are multiple options
for any given patient. Our clinical
advisors stated that these various
subsets of patients can require
significantly different resources. Lastly,
respiratory failure reflects the severity of
the diagnosis (it is a complication)
while NIV is a therapeutic option.
Unlike a major surgical intervention
where the intervention creates
morbidity, NIV merely reflects the
severity of the underlying respiratory
failure.
The requestor further noted in its
comments that a significant number of
patients who receive NIV fail this
therapy and must be intubated and
subsequently placed on a ventilator.
However, those patients who require
both noninvasive and invasive
mechanical ventilation are already
accounted for in the invasive
mechanical ventilation MS–DRGs.
Similar to patients with respiratory
failure, patients with heart failure and
shock have a comparable severity of
illness where each condition reflects the
severity of the diagnosis (it is a
complication). Therefore, the cost is
already reflected in the high resource
expenditure estimates for MS–DRGs
222, 223, 291, 292, and 293, as are all
other severity-correlated resource costs.
In conclusion, we believe that the
data do not support the creation of a
single MS–DRG to identify NIV cases.
As stated previously, the average costs
for the NIV cases range from a low of
$5,794 in MS–DRG 293 to a high of
$95,940 in MS–DRG 003. If created, this
single MS–DRG would include patients
with a wide range in average costs. We
believe the cases are more appropriately
captured in their current MS–DRGs. In
addition to the clinical points raised by
our clinical advisors and outlined
above, the volume and length of stay
data for cases where NIV was reported
with the specified respiratory
conditions further support their present
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MS–DRG assignments. Therefore, we are
not proposing to create a new MS–DRG
for patients receiving NIV. We invite
public comment on our proposal not to
create a new MS–DRG for patients
receiving NIV for FY 2012.
b. Debridement With Mechanical
Ventilation Greater Than 96 Hours With
Major Operating Room (O.R.) Procedure
We received a comment concerning
the use of excisional debridement in
cases with complications that lead to
the need for extended mechanical
ventilation. The commenter stated that
patients undergoing procedures such as
excisional debridement may also
develop extensive complications such
as respiratory failure and sepsis. The
commenter indicated that these patients
tend to use significant resources. The
commenter stated that these cases are
currently assigned to MS–DRG 207
(Respiratory System Diagnosis with
Ventilator Support 96+ Hours) or MS–
DRG 870 (Septicemia with or Severe
Sepsis with Mechanical Ventilation 96+
Hours). The commenter expressed a
concern that the operating room (OR)
procedure of the excisional debridement
was not fully recognized through either
of these two medical MS–DRGs. The
commenter requested that a new MS–
DRG be created that would include
mechanical ventilation of greater than
96 hours with the presence of an
additional major OR procedure.
We agree that patients with long-term
mechanical ventilation greater than 96
hours and a major OR procedure utilize
extensive resources. However, we point
out that these patient cases are not
currently assigned to MS–DRG 207 or
MS–DRG 870 as the commenter stated.
Many of these long-term mechanical
ventilation patient cases are instead
assigned to MS–DRG 003 (ECMO or
Tracheostomy with Mechanical
Ventilation 96+ Hours or PDX,
Excluding Face, Mouth & Neck with
Major Operating Room Procedure).
Cases that require mechanical
ventilation for greater than 96 hours,
that have a tracheostomy performed,
and that have a procedure on the major
O.R. list (including excisional
debridement) are assigned to MS–DRG
003. We specifically created MS–DRG
003 to capture these complicated
patients on long-term mechanical
ventilation who also have a major O.R.
procedure. Therefore, we are not
proposing to create a second MS–DRG
to capture these patients at this time.
We welcome public comments on our
proposal not to create a new MS–DRG
for these patients for FY 2012.
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c. Autologous Bone Marrow Transplant
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50101), effective October 1,
2011, we deleted MS–DRG 009 (Bone
Marrow Transplant) and created two
new MS–DRGs: MS–DRG 014
(Allogeneic Bone Marrow Transplant)
and MS–DRG 015 (Autologous Bone
Marrow Transplant). We created new
MS–DRGs 014 and 015 because of
differences in costs associated with
these procedures. During the comment
period for the FY 2011 IPPS/LTCH PPS
proposed rule, two commenters who
supported the proposed reclassification
of the bone marrow transplant MS–
DRGs requested further refinement to
account for severity of illness. At that
time, we did not subdivide MS–DRG
014 and MS–DRG 015 based on severity
of illness because they did not meet our
criteria for subdivision (75 FR 50102).
As we outlined in our FY 2008 IPPS/
LTCH PPS final rule with comment
period (72 FR 47169), in designating an
MS–DRG as one that would be
subdivided into subgroups based on the
presence of a CC or an MCC, we
developed a set of criteria to facilitate
our decision-making process. The
original criteria were based on average
charges; we now use average costs (FY
2007 IPPS final rule, 71 FR 47882). In
order to warrant creation of a CC or an
MCC subgroup within a base MS–DRG,
the subgroup must meet all of the
following five criteria:
• A reduction in variance of cost of at
least 3 percent.
• At least 5 percent of the patients in
the MS–DRG fall within the CC or MCC
subgroup.
• At least 500 cases are in the CC or
MCC subgroup.
• There is at least a 20-percent
difference in average cost between
subgroups.
• There is a $2,000 difference in
average cost between subgroups.
We examined FY 2010 MedPAR
claims data for these newly created MS–
DRGs, and based on these criteria, we
identified MS–DRG 015 as a possible
MS–DRG that would require further
subdivision. MS–DRG 014 was not
identified, as this MS–DRG did not meet
the criteria stated above for possible
subdivision. Autologous bone marrow
transplantation utilizes the patient’s
own bone marrow or stem cells in the
treatment of certain cancers and bone
marrow diseases. These procedures
restore stem cells that have been
destroyed either by chemotherapy and/
or radiation treatment.
In our analysis, we found 1,338 total
cases assigned to MS–DRG 015 with
average costs of approximately $38,608
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CC or an MCC designation with average
cost of approximately $28,105 and an
average length of stay of approximately
14.6 days. The following table illustrates
our findings:
combination of procedure codes
representing rechargeable systems for
deep brain stimulation therapy,
procedure code 02.93 (Implantation or
replacement of intracranial
neurostimulator lead(s)) and procedure
code 86.98 (Insertion or replacement of
dual array rechargeable neurostimulator
pulse generator) to MS–DRG 023
(Craniotomy with Major Device
Implant/Acute Complex CNS PDX with
MCC or Chemo Implant) and MS–DRG
024 (Craniotomy with Major Device
Implant/Acute Complex CNS PDX
without MCC).
The commenter stated that this
recommendation would allow all full
system dual array deep brain
stimulation cases to be appropriately
grouped to the same MS–DRGs.
Currently, procedure codes 02.93 and
86.98 are assigned to MS–DRG 025
(Craniotomy and Endovascular
Intracranial Procedures with MCC), MS–
DRG 026 (Craniotomy and Endovascular
Intracranial Procedures with CC), and
MS–DRG 027 (Craniotomy and
Endovascular Intracranial Procedures
without CC/MCC), while the procedure
codes for the nonrechargeable dual array
systems, procedure codes 02.93 and
86.95 (Insertion or replacement of dual
array neurostimulator pulse generator,
not specified as rechargeable), are
already assigned to MS–DRGs 023 and
024. The commenter stated that the
procedures to implant the rechargeable
and nonrechargeable dual array systems
are similar clinically as well as
comparable in resource utilization.
We analyzed FY 2010 MedPAR data
and found a total of 16 full system
rechargeable dual array deep brain
stimulation systems reported with
procedure codes 02.93 and 86.98
assigned to MS–DRGs 025 through 027.
We found one case assigned to MS–DRG
025 and one case assigned to MS–DRG
026. The majority of the cases, 14, were
assigned to MS–DRG 027, with average
costs of approximately $23,870 and an
average length of stay of approximately
2.2 days. We found that the deep brain
stimulation cases assigned to MS–DRG
027 had higher average costs than the
overall cases assigned to MS–DRG 027
of approximately $14,200. However, the
average length of stay was shorter for
these cases than the overall length of
stay for MS–DRG 027 cases of
approximately 3.7 days.
We also examined the data for the
nonrechargeable dual array systems to
assess the commenter’s assumption that
both the rechargeable and
nonrechargeable dual array systems are
similar in resource use. We found 155
total nonrechargeable dual array
systems (procedure codes 02.93 and
86.95) assigned to MS–DRGs 023 and
024. There were 5 cases assigned to
MS–DRG 023, with average costs of
approximately $36,159 and an average
length of stay of approximately 10 days.
We found that the majority of the cases,
150, were assigned to MS–DRG 024,
with average costs of approximately
$25,855 and an average length of stay of
approximately 2.2 days. We believe that
these data support the commenter’s
statement that, for the majority of these
cases, the resource use is similar for
both systems.
For comparison purposes, if we
propose the changes that the commenter
suggested, those deep brain stimulation
cases currently assigned to MS–DRG
027 and the one case assigned to MS–
DRG 026 (with average costs of
approximately $27,836) would be
reassigned to MS–DRG 024. The average
costs of approximately $23,870 of these
deep brain stimulation cases assigned to
MS–DRG 027 are similar to the overall
average costs of approximately $23,249
for MS–DRG 024. The one case assigned
to MS–DRG 025 (with average costs of
approximately $29,361) would be
reassigned to MS–DRG 023 (with
average costs of approximately $34,168).
The following table illustrates our
findings:
2. MDC 1 (Diseases and Disorders of the
Nervous System): Rechargeable Dual
Array Deep Brain Stimulation System
We received a public comment in
response to the FY 2011 IPPS/LTCH
PPS proposed rule regarding the MS–
DRG assignment for rechargeable dual
array deep brain neurostimulators. In
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50128), we indicated that we
considered this comment outside of the
scope of the proposed rule as we did not
propose any changes for these
procedures for FY 2011. However, we
are addressing this issue in this FY 2012
proposed rule.
Deep brain stimulation is a surgical
treatment that involves the implantation
of a neurostimulator, used in the
treatment of essential tremor,
Parkinson’s disease, dystonia, and
chronic pain. The commenter
recommended that CMS assign the
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with average costs of approximately
$40,974 and an average length of stay of
approximately 19.7 days. There were
246 cases without a secondary diagnosis
code reported on the claim that had a
We found that the cases reported with
a secondary diagnosis code of a CC or
an MCC were more costly and had a
longer average length of stay than both
the overall cases assigned to MS–DRG
015 and the cases without a CC or an
MCC. The cases without a CC or an
MCC were less costly and had a shorter
average length of stay than both the
cases with a CC or an MCC and the
overall cases assigned to that MS–DRG.
Based on our analysis, all five criteria
for a subgroup division were met,
thereby supporting a 2-level severity
split for MS–DRG 015. Therefore, we are
proposing to delete MS–DRG 015 and
create two new MS–DRGs:
• Proposed MS–DRG 016 (Autologous
Bone Marrow Transplant with MCC/
CC); and
• Proposed MS–DRG 017 (Autologous
Bone Marrow Transplant without MCC/
CC).
We invite public comment on our
proposal to delete MS–DRG 015 and
create two new MS–DRGs 016 and 017
for autologous bone marrow transplant
for FY 2012.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
and an average length of stay of
approximately 18.8 days. There were
1,092 cases that had a secondary
diagnosis code reported on the claim
that was designated as a CC or an MCC
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emcdonald on DSK2BSOYB1PROD with PROPOSALS2
3. MDC 3 (Diseases and Disorders of the
Ear, Nose, Mouth, and Throat): Skull
Based Surgeries
We received a request from a
commenter recommending that CMS
reclassify skull-based surgical
procedures that are currently assigned
to MS–DRGs 135 and 136 (Sinus and
Mastoid Procedures with CC/MCC and
without CC/MCC, respectively) and
reassign them to MS–DRGs 025, 026,
and 027 (Craniotomy and Endovascular
Intracranial Procedures with MCC, with
CC, and without CC/MCC, respectively).
The commenter stated that the current
MS–DRG assignment does not reflect
the resource utilization and technical
complexity of these difficult procedures
when performed for anterior skull base
tumors.
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Skull (or cranial) based surgery is
performed for a variety of serious
medical conditions including
esthesioneuroblastomas, which are rare,
malignant tumors that arise from the
epithelium overlying the olfactory bulb;
sinonasal melanomas, which are
malignant melanomas that may develop
in the mucosa of the nose and sinuses;
and sinonasal undifferentiated
carcinomas, which are rapidly growing
malignant tumors arising in the nasal
cavity and/or sinuses. These types of
conditions are generally identified by
the following ICD–9–CM diagnosis
codes:
• 160.0 (Malignant neoplasm of nasal
cavities)
• 160.1 (Malignant neoplasm of
auditory tube, middle ear, and mastoid
air cells)
• 160.2 (Malignant neoplasm of
maxillary sinus)
• 160.3 (Malignant neoplasm of
ethmoidal sinus)
• 160.4 (Malignant neoplasm of
frontal sinus)
• 160.5 (Malignant neoplasm of
sphenoidal sinus)
• 160.8 (Malignant neoplasm of other
accessory sinuses)
• 160.9 (Malignant neoplasm of
accessory sinus, unspecified)
• 210.7 (Benign neoplasm of
nasopharynx)
• 212.0 (Benign neoplasm of nasal
cavities, middle ear, and accessory
sinuses)
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According to the commenter,
procedure code 22.63 (Ethmoidectomy)
describes the type of surgery being
performed for these patients and is
currently assigned to MS–DRGs 135 and
136.
Using the FY 2010 MedPAR file, we
examined data on cases identified by
procedure code 22.63 when reported
with one of the above listed diagnosis
codes in MS–DRGs 135 and 136. We
found a total of 402 cases in MS–DRG
135 with an average length of stay of
6.30 days and average costs of $12,869.
We found only 23 cases in MS–DRG 135
identified by procedure code 22.63 with
one of the diagnosis codes listed above
with an average length of stay of 3.96
days and average costs of $10,510. In
MS–DRG 136, there were a total of 320
cases with an average length of stay of
2.36 days and average costs of $6,683.
We found only 27 cases in MS–DRG 136
identified by procedure code 22.63 with
one of the diagnosis codes listed above
with an average length of stay of 2.04
days and average costs of $6,844. As
shown in the table below, the cases
reporting procedure code 22.63 in MS–
DRGs 135 and 136 have a lower volume,
a shorter length of stay, and primarily
lower average costs compared to all
cases in MS–DRGs 135 and 136. The
data demonstrate that these cases are
appropriately assigned to their current
MS–DRG classifications.
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Based on our findings, we believe that
the data support reassigning the
combination of procedure codes
representing rechargeable systems for
deep brain stimulation therapy, code
02.93 and code 86.98, to MS–DRGs 023
and 024. Our clinical advisors support
this reassignment. Therefore, we are
proposing to assign rechargeable dual
array systems for deep brain stimulation
cases identified by reporting both
procedure codes 02.93 and 86.98 to MS–
DRGs 023 and 024 for FY 2012. We
invite public comment on our proposal
to assign these cases to MS–DRG 023
and 024 for FY 2012.
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table below, we found that the average
costs for these MS–DRGs range from
$14,200 to $29,524.
In summary, the data do not support
moving cases with procedure code 22.63
when reported with one of the
previously listed diagnosis codes from
MS–DRGs 135 and 136 to MS–DRGs 25,
26 and 27. We invite public comment
on our proposal not to make any MS–
DRG modifications for these codes for
FY 2012.
Eluting Stent without MCC); 248
(Percutaneous Cardiovascular Procedure
with Non-Drug-Eluting Stent with MCC
or 4+ Vessels/Stents); 249 (Percutaneous
Cardiovascular Procedure with NonDrug-Eluting Stent without MCC); 250
(Percutaneous Cardiovascular Procedure
without Coronary Artery Stent or AMI
with MCC); and 251 (Percutaneous
Cardiovascular Procedure without
Coronary Artery Stent or AMI without
MCC).
According to the Food and Drug
Administration’s (FDA’s) terms of the
clinical trial for MitraClipTM, the device
is to be implanted in patients without
any additional surgeries performed.
Therefore, based on these terms, we
believe that the most likely MS–DRG
assignments would be MS–DRGs
250 and 251, as described above.
However, because procedure code 35.97
has only been in use since October 1,
2010, there are no claims data in the
most recent MedPAR update file with
which to evaluate any alternative MS–
DRG assignments. Therefore, we are not
proposing to make any MS–DRG
changes for procedure code 35.97 for FY
2012. We are proposing to keep
procedure code 35.97 in its current MS–
DRG assignments. We invite public
comment on this proposal.
b. Aneurysm Repair Procedure Codes
4. MDC 5 (Diseases and Disorders of the
Circulatory System)
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
a. Percutaneous Mitral Valve Repair
With Implant
Procedure code 35.97 (Percutaneous
mitral valve repair with implant) was
created for use beginning October 1,
2010 (FY 2011) after the concept of a
percutaneous valve repair was
presented and approved at the February
2010 ICD–9–CM Coordination and
Maintenance Committee Meeting.
Procedure code 35.97 was created at
that time to describe the MitraClip TM
device and any other percutaneous
mitral valve repair devices currently on
the market. This procedure code is
assigned to the following MS–DRGs: 231
and 232 (Coronary Bypass with PTCA
with MCC and without MCC,
respectively); 246 (Percutaneous
Cardiovascular Procedure with DrugEluting Stent with MCC or 4+ Vessels/
Stents); 247 (Percutaneous
Cardiovascular Procedure with Drug-
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Thoracic aorta defects, such as
aneurysm, dissection, or injury, are
uncommon but serious conditions that
may arise from a disease or an accident.
Some patients can be medically
managed but most patients are treated
with surgery. Often these defects result
in death if they are not diagnosed and
treated promptly. Currently, there are
two techniques used for repair of aortic
defects; both are O.R. procedures
performed in an inpatient hospital
setting. These two procedures are
described by ICD–9–CM procedure
codes 38.45 (Resection of vessel with
replacement, thoracic vessel) and 39.73
(Endovascular implantation of graft in
thoracic aorta). Both procedure codes
38.45 and 39.73 are currently assigned
to MS–DRGs 237 (Major Cardiovascular
Procedures with MCC or Thoracic
Aortic Aneurysm Repair) and 238
(Major Cardiovascular Procedures
without MCC).
We received a request that we
consider the reassignment of procedure
codes 38.45 and 39.73 within the MS–
DRG structure by removing the
procedure codes from MS–DRGs 237
and 238 and adding them to a more
clinically coherent set of MS–DRGs
reflecting higher resource consumption.
The requestors believed that, based on
their analysis of MedPAR claims data of
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code 22.63 were to be reassigned to MS–
DRGs 25–27, they would be
significantly overpaid. As shown in the
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We also analyzed claims data for MS–
DRGs 25 through 27. We determined
that if the cases identified by procedure
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25823
We reviewed the MedPAR claims data
for these two procedure codes. Our
findings are shown in the following two
tables.
Our findings of the analysis of the
cases with procedure code 38.45
showed that both the average costs and
the average length of stay are
considerably higher than the average
costs and the average length of stay for
those cases without procedure code
38.45.
In addition, we reviewed the cases in
which both procedure codes 38.45 and
39.73 were documented during the same
admission. As can be seen in the charts
below, we found 22 cases in which both
procedure codes 38.45 and 39.73 were
reported. Therefore, the sum of the
values in the next two charts below will
differ from the charts above because of
the cases containing both procedure
codes that have been removed and the
data have been reworked.
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the MS–DRGs to which these
procedures are currently assigned. The
requestors also believed that an
unusually high number of cases
probably fall into cost outlier status.
Our findings of the analysis of the
cases with procedure code 39.73
showed that the average costs are
substantially higher than those costs for
the cases overall in both MS–DRGs 237
and 238. We found that the average
length of stay for the 1,851 cases
identified in MS–DRG 237 is somewhat
lower at 7.73 days than the average
length of stay of 10.26 days in cases not
containing procedure code 39.73.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
MS–DRGs 237 and 238, the resource
utilization of both the endovascular and
open repairs of the abdominal and
thoracic aortas are higher than the
overall average resource utilization for
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is not assigned to MS–DRGs 228
through 230, there are no cases reported.
The table below shows our findings of
the average costs and the average length
of stay for procedure code 38.45 in
combination with procedure code 38.44
in MS–DRGs 228 through 230 and the
average costs and the average length of
stay in all cases in MS–DRGs 228
through 230 when both procedure codes
38.45 and 38.44 are not assigned.
EP05MY11.016
Our analysis of the claims data for the
procedure codes in MDC 5 showed that
procedure code 34.85 is also assigned to
MS–DRGs 228 (Other Cardiothoracic
Procedures with MCC), 229 (Other
Cardiothoracic Procedures with CC),
and 230 (Other Cardiothoracic
Procedures without CC/MCC) when it
occurs in combination with procedure
code 38.44 (Resection of vessel with
replacement, aorta, abdominal). We
found that when procedure code 39.73
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We found in our analysis of the
claims data for cases with both
procedure codes 38.45 and 39.73 that
the average costs are substantially
higher than those costs for the cases
overall in MS–DRG 237. In addition, we
found that the average length of stay for
the 22 cases with both procedure codes
38.45 and 39.73 is higher at 11.86 days
than the average length of stay of 10.03
days for all cases in MS–DRG 237.
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
as a severity of illness proxy for all
cases, as there were no cases in MS–
DRG 238. In the chart, the extensions
‘‘–1,’’ ‘‘–2,’’ and ‘‘–3’’ correspond to
severity levels, with ‘‘–1’’ representing
cases with MCC, ‘‘–2’’ representing cases
with CC, and ‘‘–3’’ representing cases
without CC/MCC.
EP05MY11.018
DRGs 237 and 238 and the 912 cases
containing procedure code 38.45 in MS–
DRGs 237 and 238 to determine if they
would meet the established criteria for
a 3-way severity of illness split. This
criterion is described in section III.G.1.c.
of this preamble. The chart below shows
our findings, with MS–DRG 237 acting
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Our findings show that both the
average length of stay and average costs
are higher in those cases containing
procedure code 34.85 than those cases
without this procedure code in MS–
DRGs 228 through 230.
We then analyzed the 1,851 cases
containing procedure code 39.73 in MS–
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(Cardiac Valve & Other Major
Cardiothoracic Procedures without
Cardiac Catheterization with MCC), 220
(Cardiac Valve & Other Major
Cardiothoracic Procedures without
Cardiac Catheterization with CC); and
221 (Cardiac Valve & Other Major
Cardiothoracic Procedures without
Cardiac Catheterization without CC/
MCC). For the sake of the grouping
algorithm, procedure codes 39.73 and
38.45 must also be added to MS–DRGs
216 through 219. However, if these
codes are documented in cases in which
a cardiac catheterization occurs, they
will be ‘‘trumped’’ by those
catheterizations. Therefore, when we
reviewed the data in order to make
length of stay and cost comparisons, we
only used the three MS–DRGs to which
procedure codes 39.73 and 38.45 would
appear without cardiac catheterization;
that is MS–DRGs 219, 220, and 221. Our
findings describing these three MS–
DRGs are displayed in the following
chart:
Our evaluation of the severity levels
in the cases containing procedure codes
39.73 and 38.45 using the proxy MS–
DRGs 237–1, 237–2, and 237–3
compared to the claims data in the table
above with MS–DRGs 219 through 221
demonstrates that the cases are similar
in resource consumption. In addition,
the cases are clinically coherent.
By proposing to move procedure code
38.45 to MS–DRGs 216 through 221, we
do not believe that there is a need for
combination codes 38.45 plus 38.44 to
be specifically assigned to MS–DRGs
228, 229, and 230. Because MS–DRGs
216 through 221 are higher in the
surgical hierarchy for MDC 5 than MS–
DRGs 228 through 230, the result of the
proposal would be that either procedure
code 38.45 by itself or in combination
with procedure code 38.44 will always
be assigned to MS–DRGs 216 through
221. When reported alone, under our
proposal, procedure code 38.44 would
continue to be assigned to MS–DRGs
237 and 238, as it has been in the past.
Therefore, for FY 2012, we are
proposing to move procedure codes
38.45 and 39.73 from MS–DRGs 237 and
238 and to add these codes to MS–DRGs
216, 217, 218, 219, 220, and 221 based
on our findings of similar resource
consumption and clinical coherence. To
conform to this proposed change, we
also are proposing to change the title of
MS–DRG 237 (Major Cardiovascular
Procedures with MCC or Thoracic
Aortic Aneurysm Repair) by removing
the terms ‘‘or Thoracic Aortic Aneurysm
Repair.’’ Therefore, the new proposed
title of MS–DRG 237 would be ‘‘Major
Cardiovascular Procedures with MCC.’’
We invite public comment on these
proposals.
comment period (72 FR 24731 through
24735 and 47226 through 47232) for
discussion on the comprehensive
evaluation of all the spinal DRGs in the
development of the MS–DRG
classification system. The modifications
made to the spinal DRGs for FY 2008
recognized the similar utilization of
resources, differences in levels of
severity, and the complexity of the
services being performed on patients
undergoing the various types of spinal
procedures.
We analyzed FY 2010 MedPAR claims
data for procedure codes 84.62 and
84.65 in MS–DRG 490 and compared
those results to the claims data for MS–
DRGs 459, 460, 471, 472, and 473. We
found a total of 19,840 cases in MS–
DRG 490 with an average length of stay
of 4.24 days and average costs of
$11,940. As displayed in the chart
below, we found 97 cases reporting
procedure code 84.62, with an average
length of stay of 1.80 days and average
costs of $13,194 in MS–DRG 490. We
also found 35 cases reporting procedure
code 84.65, with an average length of
stay of 2.91 days and average costs of
$20,753. While average costs for the
artificial disc cases were slightly higher
($1,254 for procedure code 84.62 and
$8,813 for procedure code 84.65)
compared to the average cost for all
cases in MS–DRG 490, the artificial disc
cases were of extremely low volume and
reflected shorter lengths of stay
compared to all the cases in MS–DRG
490.
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5. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue)
a. Artificial Discs
In response to the FY 2011 IPPS/
LTCH PPS proposed rule, we received a
public comment that was outside of the
scope of any proposal in that proposed
rule. The commenter urged CMS to
reassign procedure code 84.62 (Insertion
of total spinal disc prosthesis, cervical)
from MS–DRG 490 (Back and Neck
Procedures Except Spinal Fusion with
CC/MCC or Disc Device/
Neurostimulator) into MS–DRGs 471
through 473 (Cervical Spinal Fusion
with MCC, with CC, and without CC/
MCC, respectively). In addition, the
commenter requested that CMS reassign
procedure code 84.65 (Insertion of total
spinal disc prosthesis, lumbosacral)
from MS–DRG 490 (Back and Neck
Procedures Except Spinal Fusion with
CC/MCC or Disc Device/
Neurostimulator) to MS–DRGs 459 and
460 (Spinal Fusion Except Cervical with
MCC and without MCC, respectively).
However, the commenter also provided
an alternative option to reassigning the
procedure codes to different MS–DRGs.
The commenter suggested the creation
of a new, separate MS–DRG for the two
artificial disc procedures if
reassignment to the fusion MS–DRGs
was not feasible.
We refer the reader to the FY 2008
IPPS proposed rule and final rule with
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Our next step was to analyze the
claims data for the cases in the
clinically coherent MS–DRGs to which
we are proposing to move these cases.
These six MS–DRGs are: 216 (Cardiac
Valve & Other Major Cardiothoracic
Procedures with Cardiac Catheterization
with MCC); 217 (Cardiac Valve & Other
Major Cardiothoracic Procedures with
Cardiac Catheterization with CC); 218
(Cardiac Valve & Other Major
Cardiothoracic Procedures with Cardiac
Catheterization without CC/MCC); 219
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We determined that these cases do not
meet our five criteria for adding a new
severity level. The cases failed to meet
criterion four (requiring at least a 20percent difference in average costs
between subgroups) and criterion five
(requiring a $2,000 difference in average
costs between subgroups). Therefore, we
are not proposing the addition of a new
severity level for the base MS–DRG.
Instead, we are proposing to maintain
the two existing severity levels for MS–
DRGs 469 and 470. We welcome public
comments on our proposal not to add an
additional severity level to MS–DRGs
469 and 470.
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b. Major Joint Replacement or
Reattachment of Lower Extremities
We received a request to add an
additional severity level for MS–DRG
469 (Major Joint Replacement or
Reattachment of Lower Extremity with
MCC) and MS–DRG 470 Major Joint
Replacement or Reattachment of Lower
Extremity without MCC). We examined
FY 2010 MedPAR claims data to
determine if we could subdivide the
base MS–DRG into three severity levels:
With MCC, with CC, and without CC/
MCC. We applied the criteria used in
the development of the MS–DRGs
included in the FY 2008 IPPS final rule
with comment period (72 FR 47169). We
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refer readers to this final rule with
comment period for a complete
description of these criteria. As
discussed earlier, the original criteria
were based on average charges.
However, subsequent to the FY 2007
IPPS final rule (71 FR 47882), we now
use average costs. The five criteria using
costs are listed below. In order to
warrant creation of a CC or an MCC
subgroup within a base MS–DRG, the
subgroup must meet all of the following
five criteria:
• A reduction in variance of costs of
at least 3 percent.
• At least 5 percent of the patients in
the MS–DRG fall within the CC or MCC
subgroup.
• At least 500 cases are in the CC or
MCC subgroup.
• There is at least a 20-percent
difference in average costs between
subgroups.
• There is a $2,000 difference in
average costs between subgroups
The following table shows our
determination of the number of cases
and average costs by MCC, CC, and nonCC levels.
c. Combined Anterior/Posterior Spinal
Fusion
A manufacturer requested that CMS
reassign spinal fusion cases utilizing the
AxiaLIF technology from MS–DRGs 459
and 460 (Spinal Fusion Except Cervical
with MCC and without MCC,
respectively) to MS–DRGs 453, 454, and
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not believe the findings warrant the
creation of a separate MS–DRG.
We invite public comment on our
proposal not to reassign procedure code
84.62 from MS–DRG 490 to MS–DRGs
471 through 473 and procedure code
84.65 from MS–DRG 490 to MS–DRGs
459 and 460. We also invite public
comment on our proposal not to create
a new, separate MS–DRG for artificial
disc procedures (codes 84.62 and 84.65)
for FY 2012.
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We recognize the disparity in average
costs for cases reporting the insertion of
a cervical or lumbar artificial disc in
MS–DRG 490 compared to all the cases
in that MS–DRG. However, we do not
believe this supports reassignment of
procedure codes 84.62 and 84.65 to the
MS–DRGs for spinal fusion as the
commenter requested. Even with the
disparity in costs, clinically, the
insertion of an artificial disc is not a
spinal fusion. Therefore, reassignment
of the artificial disc cases to the fusion
MS–DRGs would be clinically
inappropriate. In addition, for certain
Medicare populations, the insertion of
an artificial disc is considered a
noncovered procedure.
As stated earlier, the commenter also
provided an alternative option to
reassigning procedure codes 84.62 and
84.65. The commenter suggested the
creation of a new, separate MS–DRG for
the two artificial disc procedures if
reassignment to the fusion MS–DRGs
was not feasible. In our evaluation of the
claims data and as shown above in the
data chart, the artificial disc cases are of
extremely low volume; therefore, we do
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455 (Combined Anterior/Posterior
Spinal Fusion with MCC, with CC, and
without CC/MCC, respectively). The
commenter stated that an anterior
lumbar interbody spinal fusion
performed with a lateral approach, the
extreme lateral interbody fusion
(XLIF®), with posterior spinal fixation,
can report two codes resulting in
assignment to the combined fusion MS–
DRGs. The commenter also stated that
the AxiaLIF technology, which is also
utilized in an anterior lumbar interbody
spinal fusion and uses a pre-sacral
approach, can only report one code,
resulting in assignment to the single
fusion MS–DRGs. The commenter
expressed concern that the payment
incentives are not properly aligned for
the recently available minimally
invasive spinal fusion technologies. The
commenter compared the XLIF® to the
AxiaLIF and urged CMS to consider the
AxiaLIF technology similar to the XLIF®
for purposes of MS–DRG assignment.
Spinal fusion is a surgical procedure
that joins two or more vertebrae by the
use of bone graft (or bone graft
substitute), with the goal of maintaining
alignment, providing stability,
decreasing pain, and restoring the
function of the spinal nerves. Routinely,
a spinal fusion also utilizes internal
fixation devices (instrumentation) to
assist in stabilizing the spine. These
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fixation devices may include pedicle
screws, cages, rods, or plates. Effective
October 1, 2010, ICD–9–CM procedure
code 81.06 (Lumbar and lumbosacral
fusion of the anterior column, anterior
technique) describes the XLIF®
procedure, and code 81.08 (Lumbar and
lumbosacral fusion of the anterior
column, posterior technique) describes
the AxiaLIF technology.
The spinal fusion codes and their
corresponding MS–DRG assignment
include the use of bone graft and
internal fixation. The requestor’s
comment regarding the assignment of
one procedure code for one technology
versus assigning two procedure codes
for another technology indicates that the
commenter may not fully understand
the MS–DRG GROUPER logic for spinal
fusions. For example, if an anterior
lumbar interbody fusion is performed
and posterior spinal fixation (or
instrumentation) is also utilized, this
requires one code and results in a single
fusion MS–DRG assignment. However,
if a posterior spinal fusion (procedure
code 81.07 (Lumbar and lumbosacral
fusion of the posterior column, posterior
technique) was performed in addition to
an anterior fusion, for example, the
XLIF® procedure (procedure code
81.06), that scenario would necessitate
the assignment of both codes, resulting
in assignment to the combined spinal
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fusion MS–DRGs (453, 454, or 455).
MS–DRGs 453, 454, and 455 were
created to capture patients who have
both an anterior and posterior fusion.
We believe the requestor may have
confused the terms ‘‘fixation’’ and
‘‘fusion’’ for MS–DRG assignment in its
request.
We analyzed the FY 2010 MedPAR
data to evaluate claims reporting
procedure codes 81.06, 81.07, and 81.08
in MS–DRGs 456 through 458 (Spinal
Fusion Except Cervical with Spinal
Curvature/Malignancy/Infection or 9+
Fusions with MCC, with CC and
without CC/MCC, respectively) and
MS–DRGs 459 and 460. We found a
total of 1,115 cases in MS–DRG 456,
with an average length of stay of 13.14
days and average costs of $63,856. We
found 278 cases reporting procedure
code 81.08, with an average length of
stay of 12.04 days and average costs of
$56,585. Similar results can be seen for
procedure code 81.08 in the remaining
MS–DRGs as shown in the chart below
in terms of volume, length of stay, and
average cost. Clearly, the data
demonstrate that the AxiaLIF
technology (procedure code 81.08) is
appropriately assigned to its current
MS–DRG assignments, as is the XLIF®
procedure (procedure code 81.06).
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We also analyzed data for
combinations of the spinal fusion codes
that result in assignment to MS–DRGs
453, 454, and 455. We evaluated the
following combinations:
• 81.06 (Lumbar and lumbosacral
fusion of the anterior column, anterior
technique) and 81.07 (Lumbar and
lumbosacral fusion of the posterior
column, posterior technique).
• 81.06 (Lumbar and lumbosacral
fusion of the anterior column, anterior
technique) and 81.08 (Lumbar and
lumbosacral fusion of the anterior
column, posterior technique).
We further analyzed data with the
following combination of spinal fusion
codes in MS–DRGs 456, 457, and 458
and MS–DRGs 459 and 460:
• 81.07 (Lumbar and lumbosacral
fusion of the posterior column, posterior
technique) and 81.08 (Lumbar and
lumbosacral fusion of the anterior
column, posterior technique).
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The chart below shows the results of
the data analysis for the combination of
procedure codes listed above where an
anterior and posterior spinal fusion was
performed in the same episode of care.
There were a total of 1,190 cases in MS–
DRG 453, with an average length of stay
of 13.08 days and average costs of
$71,693. The cases reporting the
combination of procedure codes 81.06
and 81.08 in this same MS–DRG totaled
431, with an average length of stay of
11.59 days and average costs of $69,859.
Results for the procedure code
combination (81.06 and 81.08) in MS–
DRGs 454 and 455 with regard to
volume of cases, length of stay, and
average costs data also support that
these spinal fusion procedure code
combinations are appropriately placed
in their current MS–DRG assignments.
Likewise, for MS–DRGs 456, 457, and
458, the data support that the spinal
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fusion procedure code combinations of
81.07 and 81.08 are appropriately
placed in their current MS–DRG
assignments. There were a total of 1,115
cases in MS–DRG 456 with an average
length of stay of 13.14 days and average
costs of $68,856. The cases reporting the
combination of procedure codes 81.07
and 81.08 in this same MS–DRG totaled
54, with an average length of stay of
14.37 days and average costs of $52,392.
Results for the procedure code
combination (81.07 and 81.08) in MS–
DRGs 457 and 458 with regard to
volume of cases and average length of
stay were lower compared to all the
cases in those two MS–DRGs. While the
data show higher average costs for the
procedure code combination of 81.07
and 81.08 in MS–DRGs 457 and 458, as
stated previously, the volume was
extremely low.
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As the focus of the analysis was to
evaluate procedure code 81.08 in
comparison to procedure code 81.06, we
believe the AxiaLIF technology
(procedure code 81.08) is grouped
appropriately in its current MS–DRG
assignments, as is the XLIF® procedure
(procedure code 81.06). The volume,
length of stay, and cost data analyzed
demonstrate that the complexity of
services and resources utilized for each
of these technologies are properly
accounted for in their respective MS–
DRG assignments. Therefore, the data
does not support making changes for
procedure code 81.08. As a result, we
are not proposing to reassign cases
reporting this procedure code to the
combined fusion MS–DRGs. We invite
public comment on our proposal to not
reassign procedure code 81.08 from
MS–DRGs 456 through 460 to MS–DRGs
453 through 455 for FY 2012.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
6. MDC 9 (Diseases and Disorders of the
Skin, Subcutaneous Tissue, and Breast):
Excisional Debridement of Wound,
Infection, or Burn
We received a request that we remove
procedure code 86.22 (Excisional
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debridement of wound, infection, or
burn) from the list of codes considered
to be O.R. procedures. The commenter
stated that many inpatient excisional
debridements are performed in a
patient’s room instead of in an operating
room. The commenter believed that the
original assignment of procedure code
86.22 to the O.R. list served to help
reflect the resource intensity required by
a patient with wounds and ulcers that
required an excisional debridement. The
commenter stated that, by doing so, the
code served as a proxy for severity of
illness in the original CMS DRGs prior
to the implementation of MS–DRGs in
FY 2008. The commenter stated that the
creation of the most serious pressure
ulcer codes for stage 3 and stage 4
pressure ulcers (codes 707.23 and
707.24) allows these conditions to be
classified as MCCs. Therefore, the
commenter stated that the need to use
procedure code 86.22 to capture severity
of illness was no longer needed. The
commenter also stated that procedure
code 86.22 is a non-O.R. code under the
APR–DRGs and does not affect the DRG
assignment. The commenter requested
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that procedure code 86.22 be changed
from an O.R. procedure code to a nonO.R. procedure code.
As the commenter stated, excisional
debridements are currently captured in
procedure code 86.22. Procedure code
88.22 is classified as an O.R. procedure
in the current MS–DRGs and, therefore,
leads to a surgical MS–DRG assignment.
We examined MedPAR claims data on
all excisional debridement cases and
found that these debridement cases use
appreciably fewer resources than other
cases in their current surgical DRGs.
However, we determined that if we were
to classify debridement cases as nonO.R. cases and assign them to medical
DRGs, we would significantly underpay
these cases. The following chart shows
differences in average costs for all
excisional debridement cases compared
to other cases within their current MS–
DRG and compared to medical DRGs to
which the patients would be assigned if
the procedure were reclassified as a
non-O.R. procedure.
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• MS–DRGs 573 through 575 (Skin
Graft &/or Debridement for Skin Ulcer
or Cellulitis with MCC, with CC, and
without CC/MCC, respectively).
• MS–DRGs 576 through 578 (Skin
Graft &/or Debridement Except for Skin
Ulcer or Cellulitis with MCC, with CC,
and without CC/MCC, respectively).
We analyzed MedPAR claims data on
the severity level of graft cases without
any debridements in these six MS–
DRGs. Our findings are shown in the
chart below.
debridements. The results of the
findings of the severity levels of
debridements without skin grafts in
these six MS–DRGs are shown in the
chart below.
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these procedures as a non-O.R.
procedure.
We explored alternative approaches to
classifying procedure code 86.22 as a
non-O.R. procedure. We evaluated the
possibility of removing excisional
debridements from their current MS–
DRG assignments within the following
skin-related MS–DRGs, where they are
combined with skin grafts, and creating
a new set of debridement MS–DRGs.
The current MS–DRGs that combine
skin grafts and debridements into the
same MS–DRGs are as follows:
We compared these data to a
proposed new set of skin-related MS–
DRGs that would include only
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
The chart illustrates that when
debridement is the only O.R. procedure,
it is assigned to MS–DRGs that have an
average cost that is approximately
$5,000 more than the actual cost of the
debridement ($12,427 versus $17,332).
Conversely, if the debridement is made
a non-O.R. code, it would, on average,
be assigned to MS–DRGs that have an
average cost that is approximately
$4,000 less than the actual cost of the
debridement ($8,070 versus $12,427).
Therefore, we believe it would be
inappropriate to propose to classify
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debridement MS–DRGs composed of
cases previously captured in MS–DRGs
573 through 575 as well as MS–DRGs
576 through 578. The following chart
illustrates those combined average costs.
We believe that the data support
separating skin graft procedures from
excisional debridements by creating a
new set of MS–DRGs. This would result
in more accurate payment for both skin
grafts and debridement. Therefore, we
are proposing to remove excisional
debridements (procedure code 86.22)
from their current MS–DRG assignments
within MS–DRGs 573 through 578 for
skin grafts and assign them to new
excisional debridement MS–DRGs. We
are proposing to maintain MS–DRGs
573 through 578 for skin grafts. The
following list describes the proposed
new and revised MS–DRG titles:
Proposed new MS–DRGs based on
procedure code 86.22:
• Proposed MS–DRG 570 (Skin
Debridement with MCC)
• Proposed MS–DRG 571 (Skin
debridement with CC)
• Proposed MS–DRG 572 (Skin
Debridement without CC/MCC)
Proposed Revised MS–DRGs based on
codes currently assigned to MS–DRGs
573 through 578, excluding procedure
code 86.22:
• Proposed revised MS–DRG 573
(Skin Graft for Skin Ulcer or Cellulitis
with MCC)
• Proposed revised MS–DRG 574
(Skin Graft for Skin Ulcer or Cellulitis
with CC)
• Proposed revised MS–DRG 575
(Skin Graft for Skin Ulcer or Cellulitis
without CC/MCC)
• Proposed revised MS–DRG 576
(Skin Graft Except for Skin Ulcer or
Cellulitis with MCC)
• Proposed revised MS–DRG 577
(Skin Graft except for Skin Ulcer or
Cellulitis with CC)
• Proposed revised MS–DRG 578
(Skin Graft Except for Skin Ulcer or
Cellulitis without CC/MCC)
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DRGs 573 through 575 compared to the
debridement cases in MS–DRGs 576
through 578 are very similar. We believe
that the data support creating a single
set of skin-related excisional
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emcdonald on DSK2BSOYB1PROD with PROPOSALS2
Our findings indicate that the graft
procedure cases have higher average
costs than the excisional debridement
cases. The average costs for the
excisional debridement cases in MS–
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
We welcome public comments on our
proposal for FY 2012 to create three new
debridement MS–DRGs 570, 571, and
572 for skin debridement and to revise
MS–DRGs 573 through 578 to include
skin grafts only, as indicated above.
7. MDC 10 (Endocrine, Nutritional, and
Metabolic Diseases and Disorders)
a. Nutritional and Metabolic Diseases:
Update of MS–DRG Titles
We received a request to revise the
MS–DRG titles for MS–DRGs 640
through 642 to more clearly capture the
cases that are currently assigned to these
MS–DRGs. The current titles for these
MS–DRGs are: MS–DRGs 640
(Nutritional & Miscellaneous Metabolic
Disorders with MCC); MS–DRG 641
(Nutritional & Miscellaneous Metabolic
Disorders without MCC); and MS–DRG
642 (Inborn Errors of Metabolism). The
requestor suggested that we change the
titles to: MS–DRG 640 (Miscellaneous
Disorders of Nutrition, Metabolism, and
Fluids and Electrolytes with MCC); MS–
DRG 641 (Miscellaneous Disorders of
Nutrition, Metabolism, and Fluids and
Electrolytes without MCC); and MS–
DRG 642 (Inborn and Other Disorders of
Metabolism).
Our clinical advisors support these
suggested changes to the titles, as the
suggested changes would provide a
better description of the diagnoses
assigned to MS–DRGs 640, 641, and
642. Therefore, we are proposing to
revise the MS–DRG titles for MS–DRGs
640, 641, and 642 as the requested
suggested. We invite public comment on
our proposal to change the MS–DRG
titles for MS–DRGs 640, 641, and 642
for FY 2012.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
b. Sleeve Gastrectomy Procedure for
Morbid Obesity
Sleeve gastrectomy is a 70 percent to
80 percent greater curvature gastrectomy
(sleeve resection of the stomach) with
continuity of the gastric lesser curve
being maintained while simultaneously
reducing stomach volume. It may be the
first step in a two-stage procedure when
performing Roux-en-Y Gastric Bypass
(RYGBP). Sleeve gastrectomy can be
performed either as an open or a
laparoscopic procedure. Sleeve
gastrectomy is currently coded using
ICD–9–CM procedure code 43.89 (Other
total gastrectomy). Procedure code 43.89
is currently assigned to several MS–
DRGs. However, the code is not
assigned to MS–DRG 619, 620, or 621
(O.R. Procedures for Obesity with MCC,
with CC, and without CC/MCC,
respectively).
We received a request for CMS to
review MDC 10 (Endocrine, Nutritional,
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and Metabolic Diseases and Disorders)
for consistency. Specifically, the
requestor questioned why diagnosis
code 278.01 (Morbid obesity), when
paired on a claim with procedure code
43.89, would be assigned to MS–DRG
981, 982, or 983 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis with MCC, with CC, or
without CC/MCC, respectively) instead
of MS–DRG 619, 620, or 621.
Upon review, we determined that
diagnosis code 278.01 is assigned to
MDC 10. However, procedure code
43.89 is not assigned to any MS–DRG
set in this MDC. Therefore, the cases are
assigned to MS–DRGs 981 through 983,
reflecting procedures not related to the
principal diagnosis. This was an
inadvertent oversight on CMS’ part
when the MS–DRGs were created.
Therefore, we are proposing to add a
procedure code or codes identifying
sleeve gastrectomy to MS–DRGs 619
through 621 for FY 2012.
Currently, sleeve gastrectomy is
identified in the ICD–9–CM procedure
code Index as follows: Gastrectomy
(partial) (subtotal) NEC 43.89. At
procedure code 43.89 in the ICD–9–CM
procedure code Tabular, an inclusion
note identifies this code as including
sleeve resection of the stomach.
In light of our proposal to add a
procedure code or codes to MS–DRGs
619 through 621, we point out that there
is an NCD that has precluded coverage
of sleeve gastrectomy when performed
either open or laparoscopically. This
decision may be found in the Medicare
National Coverage Determination
Manual, Section 100.1, Nationally NonCovered Indications for Bariatric
Surgery for Treatment of Morbid
Obesity, effective on February 12, 2009.
This manual is available through the
CMS Web site through a link at: https://
www.cms.gov/manuals/downloads/
mcd103c1_Part2.pdf. This manual entry
affirms that treatment for obesity via use
of the open or laparoscopic sleeve
gastrectomy is determined to be
noncovered for Medicare beneficiaries.
Noncoverage of these cases is
determined by the fiscal intermediary or
MAC because of the nature of procedure
code 43.89, which is a code that
identifies several gastrectomy
procedures. Therefore, to identify a code
describing many procedures in the MCE
would be inappropriately restricting
other procedures which are covered.
However, we have received a request to
create specific codes identifying both
laparoscopic sleeve gastrectomy and the
open procedure, vertical sleeve
gastrectomy. We addressed this request
at the ICD–9–CM Coordination and
Maintenance Committee meeting held
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25833
on March 9, 2011. Should a code or
codes be created as a result of this
request, we will then be able to add
these codes to the MCE as a conforming
noncoverage edit when combined with
diagnosis code 278.01. The background
information discussing sleeve
gastrectomy coding can be accessed on
the CMS Web site at: https://
www.cms.gov/ICD9Provider
Diagnosticcodes/03_meetings.
asp#TopOfPage. A summary of the
meeting will be available soon after the
meeting is held. This summary can be
found on CMS’ Web site for the ICD–9–
CM Coordination and Maintenance
Committee at: https://www.cms.gov/
ICD9ProviderDiagnosticCodes/
03_meetings.asp#TopOfPage by
scrolling down to the .pdf zip files
containing the meeting agenda and
handouts.
Therefore, for FY 2012, we are
proposing to add a procedure code or
codes identifying sleeve gastrectomy to
MS–DRGs 619 through 621. However,
we also intend to add any code or codes
created at the ICD–9–CM Coordination
and Maintenance Committee on March
9, 2011, to the MCE as sleeve
gastrectomy, whether open or
laparoscopic, is not covered for
Medicare beneficiaries. The code or
codes would appear in the ‘‘Noncovered
Procedures’’ edit of the MCE. As the
timing of the development of this
proposed rule and the date of the March
2011 meeting of the ICD–9–CM
Coordination and Maintenance
Committee overlap, it is not possible to
determine what those codes might be, or
even if they will be created. However,
should a code or codes be created, we
propose that they will simultaneously
be placed in both MS–DRGs 619
through 621 and the MCE. This decision
may seem to be counterintuitive, but
CMS realizes that our MS–DRGs and the
Medicare GROUPER program are used
for other beneficiaries and insurance
plans rather than strictly for Medicare
beneficiaries. A complete description of
this issue will be addressed in the final
rule. Any new code or codes created as
a result of the ICD–9–CM Coordination
and Maintenance Committee meeting
will only be included in Table 6B,
which will be listed in section VI. of the
Addendum to the final rule and
available via the Internet; we do not
have a mechanism to make the codes
available prior to the final rule’s
publication. We invite public comment
on this proposal.
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8. MDC 15 (Newborns and Other
Neonates With Conditions Originating
in the Perinatal Period): Discharge
Status Code 66 (Discharged/Transferred
to Critical Assess Hospital (CAH))
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50236), we finalized our
transfer policy regarding transfer of
patients from an acute care hospital to
a CAH. In that final rule, we stated that
hospitals are required to use patient
discharge status code 66 on the IPPS
claims to identify transfers to CAHs.
With this new requirement, a
discharge from an IPPS hospital to a
CAH equates to a transfer status.
However, discharge status code 66 is
currently not included in the MS–DRG
GROUPER logic for MS–DRG 789
(Neonate, Died or Transferred to
Another Acute Care Facility). Therefore,
in this proposed rule, we are proposing
to add discharge status code 66 to the
MS–DRG GROUPER logic for MS–DRG
789. We invite public comment on our
proposal to add discharge status code 66
to the MS–DRG GROUPER logic for MS–
DRG 789 for FY 2012.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
9. Proposed Medicare Code Editor
(MCE) Changes
As explained under section II.B.1. of
the preamble of this proposed 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 MS–
DRG. In this proposed rule, we discuss
our intention to make the following
change to the MCE edits.
In section II.G.7.a. of this preamble,
we discuss that the current ICD–9–CM
procedure code for sleeve gastrectomy
(43.89 (Other partial gastrectomy,
other)) is a noncovered code when
performed for resection of the stomach
in patients with morbid obesity. We also
discussed that noncoverage for
Medicare beneficiaries of cases
containing procedure code 43.89 is
determined by the fiscal intermediaries
or MACs because of the nature of
procedure code 43.89. This code is
imprecise and identifies several other
gastrectomy procedures in addition to
sleeve resection. Therefore, to limit
coverage by identifying a code that
describes many procedures through the
use of the MCE would inappropriately
restrict other procedures that are
covered by Medicare. In this same
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section, we also stated that we received
a request to create specific codes
identifying both laparoscopic sleeve
gastrectomy and the open procedure,
vertical sleeve gastrectomy. As we
stated above, we addressed this request
at the ICD–9–CM Coordination and
Maintenance Committee meeting held
on March 9, 2011. If a code or codes
should be created as a result of this
request, we will then be able to add
these codes to the MCE as a conforming
noncoverage edit when combined with
diagnosis code 278.01 (Morbid obesity).
As the timing of development of this
proposed rule and the holding of the
ICD–9–CM Coordination and
Maintenance Committee meeting on
March 9, 2011 overlap, it is not possible
to determine what those codes might be,
or even if they will be created. However,
should a code or codes be created, we
propose that any code or codes for
laparoscopic or open sleeve resection of
the stomach be added to the MCE as a
noncovered procedure or procedures, in
combination with ICD–9–CM diagnosis
code 278.01 (Morbid obesity). The
background information discussing
sleeve gastrectomy coding can be
accessed on the CMS Web site at:
https://www.cms.gov/ICD9Provider
Diagnosticcodes/03_meetings.
asp#TopOfPage. A complete description
of this issue will be addressed in the
final rule. Any new code or codes
describing sleeve gastrectomy will only
be included in Table 6B, which will be
listed in section VI. of the Addendum to
the final rule and available via the
Internet; we do not have a mechanism
to make the codes available prior to the
final rule’s publication. We invite
public comments on this proposal.
10. 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
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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 weigh 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.
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
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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.
Based on the changes that we are
proposing to make for FY 2012, as
discussed in sections II.G.1. and 6. of
this preamble, we are proposing to
revise the surgical hierarchy for PreMDCs and MDC 9 (Diseases and
Disorders of the Skin, Subcutaneous
Tissue, and Breast) as follows:
In Pre-MDCs, we are proposing to
reorder proposed new MS–DRG 016
(Autologous Bone Marrow Transplant
with CC/MCC) and proposed new MS–
DRG 017 (Autologous Bone Marrow
Transplant without CC/MCC) above
MS–DRG 010 (Pancreas Transplant).
In MDC 9, we are proposing to
reorder—
• MS–DRG 578 (Skin Graft Except for
Skin Ulcer or Cellulitis without CC/
MCC) above proposed new MS–DRG
570 (Skin Debridement with MCC);
• Proposed new MS–DRG 570 above
proposed new MS–DRG 571 (Skin
Debridement with CC);
• Proposed new MS–DRG 571 above
proposed new MS–DRG 572 (Skin
Debridement without CC/MCC; and
• Proposed new MS–DRG 572 above
MS–DRG 579 (Other Skin,
Subcutaneous Tissue, and Breast
Procedures with MCC).
11. Complications or Comorbidity (CC)
Exclusions List
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a. Background
As indicated earlier in the preamble
of this proposed rule, under the IPPS
MS–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
complication or comorbidity. A
substantial complication or comorbidity
was defined as a condition that, because
of its presence with a specific principal
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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. Proposed CC Exclusions List for FY
2012
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
exclusions and to remove diagnoses
from the master list that have been
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shown not to meet the definition of a
CC.2
(1) Proposed Limited Revisions Based
on Changes to the ICD–9–CM Diagnosis
Codes
For FY 2012, we are proposing to
make limited revisions to the CC
Exclusions List to take into account the
changes made in the ICD–9–CM
diagnosis coding system effective
October 1, 2011. (We refer readers to
section II.G.13. of the preamble of this
proposed rule for a discussion of ICD–
9–CM changes.) We are proposing to
make these changes in accordance with
the principles established when we
created the CC Exclusions List in 1987.
In addition, we are indicating 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.
CMS encourages input from our
stakeholders concerning the annual
IPPS updates when that input is made
available to us by December of the year
prior to the next annual proposed rule
update. For example, to be considered
for any updates or changes in FY 2012,
comments and suggestions should have
been submitted by early December 2010.
The following comments were
submitted in a timely manner, and are
therefore being discussed in this
section.
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, the FY 2009 final rule (73
FR 48510), the FY 2010 final rule (74 FR 43799);
and the FY 2011 final rule (75 FR 50114). 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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a. Pressure Ulcer Diagnosis Codes
We received a comment
recommending that CMS remove
diagnosis codes 707.23 (Pressure ulcer,
stage III) and 707.24 (Pressure ulcer,
stage IV) from the CC Exclusion List
when reported as a secondary diagnosis
code with a principal diagnosis code for
the pressure ulcer site: Diagnosis code
707.00 (Pressure ulcer, unspecified);
diagnosis code 707.01 (Pressure ulcer,
elbow); diagnosis code 707.02 (Pressure
ulcer, upper back); diagnosis code
707.03 (Pressure ulcer, lower back);
diagnosis code 707.04 (Pressure ulcer,
hip); diagnosis code 707.05 (Pressure
ulcer, buttock); diagnosis code 707.06
(Pressure ulcer, ankle); diagnosis code
707.07 (Pressure ulcer, heel); or
diagnosis code 707.09 (Pressure ulcer,
other site). Currently, when a patient is
admitted with a pressure ulcer, the CC
Exclusion List prevents a pressure ulcer
stage diagnosis code from being
designated as an MCC when reported as
a secondary diagnosis. The commenter
disagreed with this approach and
contended that a patient admitted for
treatment of a stage III or stage IV
pressure ulcer likely requires resources
that would qualify the case as a
diagnosis with an MCC or, at a
minimum, as a CC.
Our clinical advisors agree with the
commenter. Therefore, we are proposing
to remove diagnosis codes 707.23 and
707.24 from the CC Exclusion List when
a principal diagnosis code of one of
codes 707.00 through 707.09 is reported.
Under this proposal, diagnosis code
707.23 or diagnosis code 707.24 would
be an MCC when reported as a
secondary diagnosis code with a
principal diagnosis code of one of codes
707.00 through 707.09.
b. End-Stage Renal Disease Diagnosis
Code
We received a suggestion from a
commenter that diagnosis code 585.6
(End-stage renal disease) be added to the
CC Exclusion List when reported with a
principal diagnosis code of 403.90
(Hypertensive chronic kidney disease,
unspecified, with chronic kidney
disease stage I through stage IV, or
unspecified) or diagnosis code 403.91
(Hypertensive chronic kidney disease,
unspecified, with chronic kidney
disease stage V or end-stage renal
disease). Currently, diagnosis code
585.6 is designated as an MCC.
According to the commenter,
diagnosis codes 585.6 and 403.91 are
essentially the same diagnosis but
coding guidelines require the reporting
of two codes to identify the stage of
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chronic kidney disease when associated
with hypertensive chronic kidney
disease. The commenter suggested that
there is no need for diagnosis code
585.6 to be designated as an MCC when
reported with a principal diagnosis of
hypertensive chronic kidney disease,
stage V or end-stage renal disease. The
commenter also pointed out that, while
coding guidelines would preclude
diagnosis codes 403.90 and 585.6 from
being reported together, the MS–DRG
GROUPER allows diagnosis code 585.6
to act as an MCC when reported as a
secondary diagnosis with principal
diagnosis code 403.90.
In response to the first issue, our
clinical advisors disagree with the
commenter. Diagnosis code 403.91
includes chronic kidney disease stage V
or end-stage renal disease. These are
two separate conditions (or stages) that
are identified by two unique codes.
Diagnosis code 585.5 identifies stage V
chronic kidney disease and is classified
as a CC. Diagnosis code 585.6 identifies
end-stage renal disease, is classified as
an MCC, and describes patients who
require chronic dialysis. The patients
diagnosed with stage V chronic kidney
disease are a different population who
require different resources than those
patients who are diagnosed with endstage renal disease. Therefore, we are
not proposing to add diagnosis code
585.6 to the CC Exclusion List when
reported with a principal diagnosis of
code 403.91.
On the second issue raised by the
commenter, our clinical advisors agree.
Diagnosis code 403.90 identifies
patients with chronic kidney disease,
stages I through IV or unspecified, and
diagnosis code 585.6 identifies endstage renal disease. Our clinical advisors
indicate that the reporting of diagnosis
code 585.6 should not be designated as
an MCC in this case. We agree with the
commenter that diagnosis codes 403.90
and 585.6 should not be reported
together as instructed by the Coding
Guidelines. Only a code from the 585.1
through 585.4 range (stages I through IV,
or unspecified) should be reported with
diagnosis code 403.90. Diagnosis code
585.6 is the exclusive code that
uniquely identifies end-stage renal
disease and should only be reported
with diagnosis code 403.91. Therefore,
we are proposing to add diagnosis code
585.6 to the CC Exclusion List when
reported with a principal diagnosis code
of 403.90.
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c. Hypertensive Chronic Kidney Disease
With Chronic Kidney Disease Stage V or
End-Stage Renal Disease Code
We received a comment
recommending the addition of diagnosis
code 403.91 (Hypertensive chronic
kidney disease, unspecified, with
chronic kidney disease stage V or endstage renal disease) to the CC Exclusion
List when reported as a secondary
diagnosis code with principal diagnosis
code 585.6 (End stage renal disease).
The commenter stated that it would be
unlikely that diagnosis code 403.91
would be reported as a secondary
diagnosis code with diagnosis code
585.6 as the principal diagnosis code
due to sequencing rules for end-stage
renal disease with hypertension.
Currently, diagnosis code 403.91 is
designated as a CC.
Our clinical advisors agree with the
commenter. Therefore, we are proposing
to add diagnosis code 403.91 to the CC
Exclusion List when reported as a
secondary diagnosis code with principal
diagnosis code 585.6.
We invite public comment on the
above three proposals regarding the CC
Exclusion List for FY 2012.
(2) Suggested Changes to Severity Levels
for Encephalopathy
We received a request that we
consider changing the following
diagnosis codes from an MCC to a CC:
• 348.30 (Encephalopathy NOS)
• 348.32 (Metabolic encephalopathy)
• 348.39 (Encephalopathy NEC)
• 349.82 (Toxic encephalopathy)
• 572.2 (Hepatic encephalopathy)
For this FY 2012 IPPS/LTCH PPS
proposed rule, we analyzed the claims
data for the diagnosis codes mentioned
above related to encephalopathy. We
used the same approach we used in
initially creating the MS–DRGs and
classifying secondary diagnosis codes as
non-CCs, CCs, or MCCs. A detailed
discussion of the process and criteria we
used in this process is described in the
FY 2008 IPPS final rule (72 FR 47158
through 47161). We refer the readers to
this discussion for complete information
on our approach to developing the nonCC, CC, and MCC lists. Each diagnosis
for which Medicare data were available
was evaluated to determine its impact
on resource use and to determine the
most appropriate CC subclass (non-CC,
CC, or MCC) assignment. In order to
make this determination, the average
cost for each subset of cases was
compared to the expected cost for cases
in that subset. The following format was
used to evaluate each diagnosis:
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Code
Diagnosis
Cnt1
C1
Cnt2
C2
Cnt3
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C3
The C2 value reflects a patient with at
least one other secondary diagnosis that
is a CC but none that is a MCC. The C3
value reflects a patient with at least one
other secondary diagnosis that is a MCC.
A value close to 1.0 in the C1 field
would suggest that the diagnosis code
produces the same expected value as a
non-CC. A value close to 2.0 suggests
the condition is more like a CC than a
non-CC but not as significant in
resource usage as an MCC. A value close
to 3.0 suggests the condition is expected
to consume resources more similar to an
MCC than a CC or non-CC. For
additional details on this analysis, we
refer readers to the FY 2008 IPPS final
rule (72 FR 47158 through 47161).
The following chart shows the
analysis for each of the encephalopathy
diagnosis codes that are currently
classified as MCCs.
We ran the following data as
described in FY 2008 IPPS final rule (72
FR 47158 through 47161). The C1 value
reflects a patient with no other
secondary diagnosis or with all other
secondary diagnoses that are non-CCs.
The C2 value reflects a patient with at
least one other secondary diagnosis that
is a CC but none that is a MCC. The C3
value reflects a patient with at least one
other secondary diagnosis that is a MCC.
The chart above shows that the C1
findings ranged from a low of 1.5448 to
a high of 2.3158. As stated earlier, a C1
value close to 2.0 suggests the condition
is more like a CC than a non-CC but not
as significant in resource usage as an
MCC. The C1 findings suggest that these
codes are more like a CC than a MCC.
However, the C2 findings ranged from a
low of 2.5054 to a high of 3.0023. Values
close to 3.0 suggests the condition is
more similar to an MCC than a CC or
non-CC. The C2 findings support
maintaining the encephalopathy codes
as an MCC level. The data are clearly
mixed between the C1 and C2 findings,
and does not consistently support a
change in the severity level. Our clinical
advisers recommended that these
encephalopathy codes remain at an
MCC level because these patients with
encephalopathy typically utilize
significant resources and are at a higher
severity level. Based on the clinical
analysis and the lack of consistent
claims data support for the severity
level change, we believe that the
encephalopathy codes should remain on
the MCC list. Therefore, we are
proposing to retain the following
encephalopathy codes on the MCC list:
• 348.30 (Encephalopathy NOS)
• 348.32 (Metabolic encephalopathy)
• 348.39 (Encephalopathy NEC)
• 349.82 (Toxic encephalopathy)
• 572.2 (Hepatic encephalopathy)
We invite public comment on our
proposal not to change the severity level
classification for these codes.
(3) Suggested Changes to Severity Levels
for Mechanical Complication and
Infection Due to Device Related Codes
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We reviewed the findings from these
data. The C1 findings ranged from a low
of 1.6723 to a high of 1.9922. As stated
earlier, a value close to 2.0 in the C1
field suggests that the condition is more
like a CC than a non-CC but not as
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We received a request to change the
severity classification from CCs to MCCs
for the following diagnosis codes:
• 996.01 (Mechanical of cardiac
device, implant and graft due to cardiac
pacemaker (electrode)).
• 996.04 (Mechanical complication of
cardiac device, implant, and graft due to
automatic implantable cardiac
defibrillator).
• 996.61 (Infection and inflammatory
reaction due to internal prosthetic
device, implant, and graft due to cardiac
device, implant, and graft).
Currently, all three diagnosis codes
are classified as a CC. For this proposed
rule, we analyzed claims data using the
methodology described previously in
this section for these diagnosis codes.
The following chart shows our findings:
EP05MY11.028
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Count (Cnt) is the number of patients
in each subset. C1, C2, and C3 are a
measure of the impact on resource use
of patients in each of the subsets. The
C1, C2, and C3 values are a measure of
the ratio of average costs for patients
with these conditions to the expected
average cost across all cases. The C1
value reflects a patient with no other
secondary diagnosis or with all other
secondary diagnoses that are non-CCs.
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significant in resource usage as an MCC.
The C1 findings clearly support the
current classification of these three
codes on the CC list and the C2 findings
supports this classification. Our clinical
advisors agree that the data findings and
their own clinical evaluation of the
severity level of these conditions
support the classification of these three
codes on the CC list. Therefore, we are
proposing that these codes remain on
the CC list. We invite public comment
on this proposal.
Tables 6G and 6H, Additions to and
Deletions from the CC Exclusion List,
respectively, which are proposed to be
effective for discharges occurring on or
after October 1, 2011, are not being
published in the Addendum to this
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proposed 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, which are listed
in section VI. of the Addendum to this
proposed rule (and available via the
Internet) 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/
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AcuteInpatientPPS. If finalized in this
rulemaking cycle, beginning with
discharges on or after October 1, 2011,
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, which are listed in
section VI. of the Addendum to this
proposed rule and available via the
Internet, we are providing the following
summaries of those MCC and CC
changes for FY 2012.
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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 28.0,
is available on a CD for $225.00. Version
29.0 of this manual, which will include
the final FY 2012 MS–DRG changes,
will be available on a CD 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.
12. 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
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, respectively). 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,
respectively). 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, respectively).
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 MS–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
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• 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
• 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
Our review of MedPAR claims data
showed that there were no cases that
merited movement or should logically
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, 2009,
FY 2010, and FY 2011, no procedures were moved,
as noted in the FY 2008 final rule with comment
period (72 FR 46241), the FY 2009 final rule (73 FR
48513), the FY 2010 final rule (74 FR 43796); and
the FY 2011 final rule (75 FR 50122).
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be assigned to any of the other MDCs.
Therefore, for FY 2012, we are not
proposing to change the procedures
assigned among these MS–DRGs.
a. Moving Procedure Codes From MS–
DRGs 981 Through 983 or MS–DRGs
987 Through 989 Into MDCs
We annually conduct a review of
procedures producing assignment to
MS–DRGs 981 through 983 (Extensive
O.R. procedure unrelated to principal
diagnosis with MCC, with CC, and
without CC/MCC, respectively) or MS–
DRGs 987 through 989 (Nonextensive
O.R. procedure unrelated to principal
diagnosis with MCC, with CC, and
without CC/MCC, respectively) 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 MS–DRGs for the MDC in
which the diagnosis falls. As noted
above, there were no cases that merited
movement or that should logically be
assigned to any of the other MDCs.
Therefore, for FY 2012, we are not
proposing to remove any procedures
from MS–DRGs 981 through 983 or MS–
DRGs 987 through 989 into one of the
surgical MS–DRGs for the MDC into
which the principal diagnosis is
assigned.
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 (Prostatic O.R. procedure unrelated
to principal diagnosis with MCC, with
CC, or without CC/MCC, respectively),
and 987 through 989, 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
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the MS–DRGs clinically similar or to
provide payment for the cases in a
similar manner. Generally, we move
only those procedures for which we
have an adequate number of discharges
to analyze the data.
There were no cases representing
shifts in treatment practice or reporting
practice that would make the resulting
MS–DRG assignment illogical, or that
merited movement so that cases should
logically be assigned to any of the other
MDCs. Therefore, for FY 2012, we are
not proposing to move any procedure
codes among these MS–DRGs.
c. Adding Diagnosis or Procedure Codes
to MDCs
Based on the review of cases in the
MDCs as described above in sections
III.G.12.a. and b., we are not proposing
to add any diagnosis or procedure codes
to MDCs for FY 2012.
13. Changes to the ICD–9–CM Coding
System, Including Discussion of the
Replacement of the ICD–9–CM Coding
System With the ICD–10–CM and ICD–
10–PCS Systems in FY 2014
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a. ICD–9–CM Coding System
As described in section II.B.1. of the
preamble of this proposed rule, the ICD–
9–CM is a coding system currently 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/
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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
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 2012 at a public meeting held on
September 15–16, 2010 and finalized
the coding changes after consideration
of comments received at the meetings
and in writing by November 19, 2010.
Those coding changes are announced in
Tables 6A through 6F, which are listed
in section VI. of the Addendum to this
proposed rule and available via the
Internet.
The Committee held its 2011 meeting
on March 9–10, 2011. New codes for
which there was a consensus of public
support and for which complete tabular
and indexing changes are made by May
2011 will be included in the October 1,
2011 update to ICD–9–CM. Code
revisions that were discussed at the
March 9–10, 2011 Committee meeting
but that could not be finalized in time
to include them in the tables listed in
section VI. of the Addendum to this
proposed rule will be included in
Tables 6A through 6F, which will be
listed in section VI. of the Addendum to
the final rule and available via the
Internet, and will be marked with an
asterisk (*).
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25841
Copies of the minutes of the
procedure codes discussions at the
Committee’s September 15–16, 2010
meeting and March 9–10, 2011 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 15–16, 2010 meeting and
March 9–10, 2011 meeting are found at:
https://www.cdc.gov/nchs/icd.htm.
These Web sites also provide detailed
information about the Committee,
including information on requesting a
new code, attending a Committee
meeting, and timeline requirements and
meeting dates.
We encourage commenters to address
suggestions on coding issues involving
diagnosis codes to: Donna Pickett, CoChairperson, ICD–9–CM Coordination
and Maintenance Committee, NCHS,
Room 2402, 3311 Toledo Road,
Hyattsville, MD 20782. Comments may
be sent by E-mail to: dfp4@cdc.gov.
Questions and comments concerning
the procedure codes should be
addressed to: Patricia E. Brooks, CoChairperson, ICD–9–CM Coordination
and Maintenance Committee, CMS,
Center for Medicare Management,
Hospital and Ambulatory Policy Group,
Division of Acute Care, C4–08–06, 7500
Security Boulevard, Baltimore, MD
21244–1850. Comments may be sent by
E-mail to:
patricia.brooks2@cms.hhs.gov.
The ICD–9–CM code changes that
have been approved will become
effective October 1, 2011. 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), which
are listed in section VI. of the
Addendum to this proposed rule and
available via the Internet. As we stated
above, the code numbers and their titles
were presented for public comment at
the ICD–9–CM Coordination and
Maintenance Committee meetings. Both
oral and written comments were
considered before the codes were
approved.
In this proposed rule, we are
soliciting comments on the proposed
classification of these new codes, which
are shown in Tables 6A and 6B listed
in section VI. of the Addendum to this
proposed rule and available via the
Internet.
For codes that have been replaced by
new or expanded codes, the
corresponding new or expanded
diagnosis codes are included in Table
6A, which is listed in section VI. of the
Addendum to this proposed rule and
available via the Internet. New
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procedure codes are shown in Table 6B,
which is listed in section VI. of the
Addendum to this proposed rule and
available via the Internet. Diagnosis
codes that have been replaced by
expanded codes or other codes or have
been deleted are in Table 6C (Invalid
Diagnosis Codes), which is listed in
section VI. of the Addendum to this
proposed rule and available via the
Internet. These invalid diagnosis codes
will not be recognized by the GROUPER
beginning with discharges occurring on
or after October 1, 2011. Table 6D,
which is listed in section VI. of the
Addendum to this proposed rule and
available via the Internet contains
invalid procedure codes. These invalid
procedure codes will not be recognized
by the GROUPER beginning with
discharges occurring on or after October
1, 2011. Revisions to diagnosis code
titles are in Table 6E (Revised Diagnosis
Code Titles), which is listed in section
VI. of the Addendum to this proposed
rule and available via the Internet, and
also includes the MS–DRG assignments
for these revised codes. Table 6F, which
is listed in section VI. of the Addendum
to this proposed rule and available via
the Internet includes revised procedure
code titles for FY 2012.
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 9–10, 2011
Committee meeting that received
consensus and that are finalized by May
2011 will be included in Tables 6A
through 6F, which will be listed in
section VI. of the Addendum to the final
rule and available via the Internet.
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
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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
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
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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
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 l, 2011 implementation of an ICD–
9–CM code at the September 15–16,
2010 Committee meeting. Therefore,
there were no new ICD–9–CM codes
implemented on April 1, 2011.
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
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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 MS–DRG in which its
predecessor code was assigned so there
will be no MS–DRG impact as far as
MS–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
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.
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b. Code Freeze
The International Classification of
Diseases, 10th Revision (ICD–10) coding
system applicable to hospital inpatient
services will be implemented on
October 1, 2013, as described in the
Health Insurance Portability and
Accountability Act (HIPAA)
Administrative Simplification:
Modifications to Medical Data Code Set
Standards to Adopt ICD–10–CM and
ICD–10–PCS final rule (74 FR 3328
through 3362, January 16, 2009). The
ICD–10 coding system includes the
International Classification of Diseases,
10th Revision, Clinical Modification
(ICD–10–CM) for diagnosis coding and
the International Classification of
Diseases, 10th Revision, Procedure
Coding System (ICD–10–PCS) for
inpatient hospital procedure coding, as
well as the Official ICD–10–CM and
ICD–10–PCS Guidelines for Coding and
Reporting. In the January 16, 2009 ICD–
10–CM and ICD–10–PCS final rule (74
FR 3328 through 3362), there was a
discussion of the need for a partial or
total freeze in the annual updates to
both ICD–9–CM and ICD–10–CM and
ICD–10–PCS codes. The public
comment addressed in that final rule
stated that the annual code set updates
should cease l year prior to the
implementation of ICD–10. The
commenters stated that this freeze of
code updates would allow for
instructional and/or coding software
programs to be designed and purchased
early, without concern that an upgrade
would take place immediately before
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the compliance date, necessitating
additional updates and purchases.
We responded to comments in the
ICD–10 final rule that the ICD–9–CM
Coordination and Maintenance
Committee has jurisdiction over any
action impacting the ICD–9–CM and
ICD–10 code sets. Therefore, we
indicated that the issue of consideration
of a moratorium on updates to the ICD–
9–CM, ICD–10–CM, and ICD–10–PCS
code sets in anticipation of the adoption
of ICD–10–CM and ICD–10–PCS would
be addressed through the Committee at
a future public meeting.
The code freeze was discussed at
multiple meetings of the ICD–9–CM
Coordination and Maintenance
Committee and public comment was
actively solicited. The Committee
evaluated all comments from
participants attending the Committee
meetings as well as written comments
that were received. There was an
announcement at the September 15–16,
2010 ICD–9–CM Coordination and
Maintenance Committee meeting that a
partial freeze of both ICD–9–CM and
ICD–10 codes would be implemented as
follows:
• The last regular annual update to
both ICD–9–CM and ICD–10 code sets
will be made on October 1, 2011.
• On October 1, 2012, there will be
only limited code updates to both ICD–
9–CM and ICD–10 code sets to capture
new technology and new diseases.
• There will be no updates to ICD–9–
CM on October 1, 2013, as the system
will no longer be a HIPAA standard.
There will be only limited code updates
to ICD–10 code sets on October 1, 2013,
to capture new technology and new
diseases.
• On October 1, 2014, regular updates
to ICD–10 will begin.
The ICD–9–CM Coordination and
Maintenance Committee announced that
it would continue to meet twice a year
during the freeze. At these meetings, the
public will be encouraged to comment
on whether or not requests for new
diagnosis and procedure codes should
be created based on the need to capture
new technology and new diseases. Any
code requests that do not meet the
criteria will be evaluated for
implementation within ICD–10 on or
after October 1, 2014, once the partial
freeze is ended.
Complete information on the partial
code freeze and discussions of the
issues at the Committee meetings can be
found on the ICD–9–CM Coordination
and Maintenance Committee Web site
at: https://www.cms.gov/
ICD9ProviderDiagnosticCodes/03. A
summary of the September 15–16, 2010
Committee meeting, along with both
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written and audio transcripts of this
meeting, are posted on the ‘‘Download’’
section of this Web page.
c. Processing of 25 Diagnosis Codes and
25 Procedure Codes on Hospital
Inpatient Claims
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50127), we discussed that
we had received repeated requests from
the hospital community to process all
25 diagnosis codes and 25 procedure
codes submitted on electronic hospital
inpatient claims. Prior to January 1,
2011, hospitals could submit up to 25
diagnoses and 25 procedures; however,
CMS’ system limitations allowed for the
processing of only the first 9 diagnoses
and 6 procedures. We indicated in that
final rule that, as part of our efforts to
update Medicare systems prior to the
implementation of ICD–10 on October 1,
2013, we were undergoing extensive
system updates as part of the move to
5010, which includes the ability to
accept ICD–10 codes. This complicated
transition involved converting many
internal systems prior to October 1,
2013, when ICD–10 will be
implemented. We stated that, as one
important step in this planned
conversion process, we were planning
to complete the expansion of our
internal system capability so that we are
able to process up to 25 diagnoses and
25 procedures on hospital inpatient
claims as part of the HIPAA ASC X12
Technical Reports Type 3, Version
005010 (Version 5010) standards system
update. We have not completed this
expansion, and, as a result, we were
able to process up to 25 diagnosis codes
and 25 procedure codes when received
on the 5010 format starting on January
1, 2011. We continue to recognize the
value of the additional information
provided by this coded data for multiple
uses such as for payment, quality
measures, outcome analysis, and other
important uses.
d. ICD–10 MS–DRGs
In response to the FY 2011 IPPS/
LTCH PPS proposed rule, we received
comments on the creation of the ICD–10
version of the MS–DRGs, which will be
implemented on October 1, 2013 (FY
2014) when we implement the reporting
of ICD–10 codes (75 FR 50127 and
50128). While we did not propose an
ICD–10 version of the MS–DRGs in the
FY 2011 IPPS/LTCH PPS proposed rule,
we noted that we have been actively
involved in converting our current MS–
DRGs from ICD–9–CM codes to ICD–10
codes and sharing this information
through the ICD–9–CM Coordination
and Maintenance Committee. We
undertook this early conversion project
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to assist other payers and providers in
understanding how to go about their
own conversion projects. We posted
ICD–10 MS–DRGs based on V26.0 (FY
2009) of the MS–DRGs. We also posted
a paper that describes how CMS went
about completing this project and
suggestions for others to follow. All of
this information can be found on the
CMS Web site at: https://www.cms.gov/
ICD10/17_ICD10_MS_DRG_Conversion_
Project.asp. We have continued to keep
the public updated on our maintenance
efforts for ICD–10–CM and ICD–10–PCS
coding systems as well as the General
Equivalence Mappings that assist in
conversion through the ICD–9–CM
Coordination and Maintenance
Committee. Information on these
committee meetings can be found at:
https://www.cms.gov/
ICD9ProviderDiagnosticCodes/
03_meetings.asp.
During FY 2011, we developed and
posted Version 28.0 of the ICD–10 MS–
DRGs based on the FY 2011 MS–DRGs
(Version 28.0) that we finalized in the
FY 2011 IPPS/LTCH PPS final rule on
the CMS Web site. This ICD–10 MS–
DRG Version 28.0 also includes the CC
Exclusion List and the ICD–10 version
of the hospital acquired conditions
(HACs), which was not posted with
Version 26.0. We also discussed this
update at the September 15–16, 2010
and the March 9–10, 2011 meetings of
the ICD–9–CM Coordination and
Maintenance Committee. The minutes
of these two meetings are posted on the
CMS Web site at: https://www.cms.gov/
ICD9ProviderDiagnosticCodes/
03_meetings.asp. We will continue to
work with the public to explain how we
are approaching the conversion of MS–
DRGs to ICD–10 and will post drafts of
updates as they are developed for public
review. The final version of the ICD–10
MS–DRGs to be implemented in FY
2014 will be subject to notice and
comment rulemaking. In the meantime,
we will provide extensive and detailed
information on this activity through the
ICD–9–CM Coordination and
Maintenance Committee.
14. Other Issues
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a. O.R./Non-O.R. Status of Procedures
(1) Brachytherapy Code
We received a request that we add
ICD–9–CM procedure code 92.27
(Implantation or Insertion of
Radioactive Elements) [Brachytherapy]
into 41 MS–DRGs that are listed below:
• 129 (Major Head and Neck
Procedures with CC/MCC or Major
Device)
• 130 (Major Head and Neck
Procedures without CC/MCC)
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• 163 (Major Chest Procedures with
MCC)
• 164 (Major Chest Procedures with
CC)
• 165 (Major Chest Procedures
without CC/MCC)
• 180 (Respiratory Neoplasms with
MCC)
• 181 (Respiratory Neoplasms with
CC)
• 182 (Respiratory Neoplasms
without CC/MCC)
• 326 (Stomach, Esophageal and
Duodenal Procedures with MCC)
• 327 (Stomach, Esophageal and
Duodenal Procedures with CC)
• 328 (Stomach, Esophageal and
Duodenal Procedures without CC/MCC)
• 329 (Major Small and Large Bowel
Procedures with MCC)
• 330 (Major Small and Large Bowel
Procedures with CC)
• 331 (Major Small and Large Bowel
Procedures without CC/MCC)
• 332 (Rectal Resection with MCC)
• 333 (Rectal Resection with CC)
• 334 (Rectal Resection without CC/
MCC)
• 344 (Minor Small and Large Bowel
Procedures with MCC)
• 345 (Minor Small and Large Bowel
Procedures with CC)
• 346 (Minor Small and Large Bowel
Procedures without CC/MCC)
• 347 (Anal and Stomal Procedures
with MCC)
• 348 (Anal and Stomal Procedures
with CC)
• 349 (Anal and Stomal Procedures
without CC/MCC)
• 405 (Pancreas, Liver and Shunt
Procedures with MCC)
• 406 (Pancreas, Liver and Shunt
Procedures with CC)
• 407 (Pancreas, Liver and Shunt
Procedures without CC/MCC)
• 490 (Back and Neck Procedures
Except Spinal Fusion with CC/MCC or
Disc Device/Neurostimulator)
• 491 (Back and Neck Procedures
Except Spinal Fusion without CC/MCC)
• 500 (Soft Tissue procedures with
MCC)
• 501 (Soft Tissue procedures with
CC)
• 502 (Soft Tissue procedures without
CC/MCC)
• 584 (Breast Biopsy, Local Excision
and Other Breast Procedures with CC/
MCC)
• 585 (Breast Biopsy, Local Excision
and Other Breast Procedures without
CC/MCC)
• 597 (Malignant Breast Disorders
with MCC)
• 598 (Malignant Breast Disorders
with CC)
• 599 (Malignant Breast Disorders
without CC/MCC)
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• 653 (Major Bladder Procedures with
MCC)
• 654 (Major Bladder Procedures with
CC)
• 655 (Major Bladder Procedures
without CC/MCC)
• 656 (Kidney and Ureter Procedures
for Neoplasm with MCC)
• 657 (Kidney and Ureter Procedures
for Neoplasm with CC)
• 658 (Kidney and Ureter Procedures
for Neoplasm without CC/MCC)
• 662 (Minor Bladder Procedures
with MCC)
• 663 (Minor Bladder Procedures
with CC)
• 664 (Minor Bladder Procedures
without CC/MCC)
• 668 (Transurethral Procedures with
MCC)
• 669 (Transurethral Procedures with
CC)
• 670 (Transurethral Procedures
without CC/MCC)
• 671 (Urethral Procedures with CC/
MCC)
• 672 (Urethral Procedures without
CC/MCC)
• 707 (Major Male Pelvic Procedures
with CC/MCC)
• 708 (Major Male Pelvic Procedures
without CC/MCC)
• 736 (Uterine and Adnexa
Procedures for Ovarian or Adnexal
Malignancy with MCC)
• 737 (Uterine and Adnexa
Procedures for Ovarian or Adnexal
Malignancy with CC)
• 738 (Uterine and Adnexa
Procedures for Ovarian or Adnexal
Malignancy without CC/MCC)
• 739 (Uterine and Adnexa
Procedures for Nonovarian or Adnexal
Malignancy with MCC)
• 740 (Uterine and Adnexa
Procedures for Nonovarian or Adnexal
Malignancy with CC)
• 741 (Uterine and Adnexa
Procedures for Nonovarian or Adnexal
Malignancy without CC/MCC)
• 746 (Vagina, Cervix and Vulva
Procedures with CC/MCC)
• 747 (Vagina, Cervix and Vulva
Procedures without CC/MCC)
• 748 (Female Reproductive System
Reconstructive Procedures)
• 749 (Other Female Reproductive
System O.R. Procedures with CC/MCC)
• 750 (Other Female Reproductive
System O.R. Procedures without CC/
MCC)
We examined MedPAR claims data on
this request and only found 150 cases
throughout these MS–DRGs. Our
findings are presented in the table
below.
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believe that making a MS–DRG change
based on such a minimal number of
cases can be justified. Therefore, we are
proposing not to add procedure code
92.27 to any of the 41 MS–DRGs listed
above. Further, we are not proposing
any MS–DRG changes for procedure
code 92.27. We welcome public
comment on our proposal not to make
changes to procedure code 92.27.
(2) Intraoperative Electron Radiation
Therapy (IOERT)
We received a public comment that
was outside of the scope of the FY 2011
IPPS/LTCH PPS proposed rule regarding
the MS–DRG assignment for
intraoperative electron radiation therapy
(IOERT). This issue was discussed
briefly in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50128). However, we
are addressing this issue in this FY 2012
proposed rule. IOERT is the direct
application of radiation to a tumor and/
or tumor bed while the patient is
undergoing surgery for cancer. This
technology may be used for cancers of
the rectum, head/neck, pancreas, lung,
genitourinary, soft tissue, and breast.
IOERT is a secondary procedure
performed during the primary tumor
removal surgery.
The commenter requested that CMS
update the MS–DRG assignments for
procedure code 92.41 (Intraoperative
electron radiation therapy) to ensure
that the cost of this technology is
captured in each MS–DRG involving
tumor removal in the rectum, head/
neck, pancreas, lung, genitourinary, soft
tissue, and breast. Currently, this code
is not assigned to a specific MS–DRG as
the primary procedure performed, the
tumor removal, would determine the
appropriate MS–DRG assignment.
The commenter provided a
recommended list of MS–DRGs to
which IOERT should be assigned:
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The numbers of cases in any of the
MS–DRGs listed were minimal. Many of
the MS–DRGs listed had no occurrences
of procedure code 92.27. The highest
number of cases found was 52, in MS–
DRG 164 (Major Chest Procedures with
CC). Based on these findings, we do not
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Based on our review of the FY 2010
MedPAR claims data, we found a total
of 12 cases with procedure code 92.41
reported. There were three cases
assigned to MS–DRG 502; two cases
each assigned to two different MS–
DRGs: MS–DRG 333 and MS–DRG 501;
and one case assigned each to five MS–
DRGs: MS–DRGs 130, 168, 327, 329, and
330.
The IOERT cases were assigned to an
MS–DRG that included the tumor
removal of that particular site, which
was listed on the table above. Therefore,
the cost of this technology is
appropriately identified in the MS–DRG
assignment for the removal of the tumor
by specific site, and no change is
warranted at this time. Therefore, we are
not proposing any changes to the
assignment for IOERT cases. We invite
public comment on our proposal to not
change the assignment for IOERT cases
for FY 2012.
b. IPPS Recalled Device Policy
Clarification
In the FY 2008 IPPS final rule with
comment period (72 FR 47246 through
47251), we discussed the topic of
Medicare payment for devices that are
replaced without cost or where credit
for a replaced device is furnished to the
hospital. We implemented a policy to
reduce a hospital’s IPPS payment for
certain MS–DRGs where the
implantation of a device that has been
recalled determined the base MS–DRG
assignment. At that time, we specified
that we would reduce a hospital’s IPPS
payment for those MS–DRGs where the
hospital received a credit equal to 50
percent or more of the cost of the device
when a manufacturer provided a credit
for a recalled device.
A similar policy was adopted under
the Outpatient Prospective Payment
System (OPPS) in CY 2008 (the ‘‘partial
credit’’ policy). This policy can be
viewed in its entirety at 72 FR 66743
though 66748. In general terms, under
the partial credit policy, CMS reduces
the amount of payment for an implanted
device made under the OPPS for which
CMS determines that a significant
portion of the payment is attributable to
the cost of an implanted device when
the provider receives partial credit for
the cost of a replaced device, but only
where the amount of the device credit
is greater than or equal to 50 percent of
the cost of the new replacement device
being implanted.
It has come to our attention that there
is a discrepancy between the IPPS
policy and the OPPS partial credit
policy for replacement devices. In
particular, the OPPS partial credit
policy specifies that the credit must be
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50 percent or greater of the cost of the
replacement device. However, the IPPS
policy does not specify whether the
credit should be 50 percent or greater of
the replacement device or the original
device. We believe that the OPPS partial
credit policy and the IPPS policy should
be consistent with each other on the
issue of whether the 50 percent or more
credit is with respect to the replacement
device or the original device. Therefore,
we are proposing to clarify the IPPS
policy to state that the policy applies
where ‘‘the hospital received a credit
equal to 50 percent or more of the cost
of the replacement device.’’ We invite
public comment on this proposal.
H. Recalibration of MS–DRG Weights
In developing the proposed FY 2012
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 2010
MedPAR data used in this proposed rule
include discharges occurring on October
1, 2009, through September 30, 2010,
based on bills received by CMS through
December 31, 2010, 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
2010 MedPAR file used in calculating
the proposed relative weights includes
data for approximately 10,814,950
Medicare discharges from IPPS
providers. Discharges for Medicare
beneficiaries enrolled in a Medicare
Advantage managed care plan are
excluded from this analysis. These
discharges are excluded when the
MedPAR ‘‘GHO Paid’’ indicator field on
the claim record is equal to ‘‘1’’ or when
the MedPAR DRG payment field, which
represents the total payment for the
claim, is equal to the MedPAR ‘‘Indirect
Medical Education (IME)’’ payment
field, indicating that the claim was an
‘‘IME only’’ claim submitted by a
teaching hospital on behalf of a
beneficiary enrolled in a Medicare
Advantage managed care plan. 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 costbased relative weighting methodology is
the FY 2009 Medicare cost report data
files from HCRIS (that is, cost reports
beginning on or after October 1, 2008,
and before October 1, 2009), which
represents the most recent full set of
cost report data available. We used the
December 31, 2010 update of the HCRIS
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cost report files for FY 2009 in setting
the relative cost-based weights.
The methodology we used to calculate
the DRG cost-based relative weights
from the FY 2010 MedPAR claims data
and FY 2009 Medicare cost report data
is as follows:
• To the extent possible, all the
claims were regrouped using the
proposed FY 2012 MS–DRG
classifications discussed in sections II.B.
and G. of the preamble of this proposed
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 2010 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 96.2 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
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indicator field for each diagnosis
present on the claim, only for purposes
of relative weight-setting, the POA
indicator field was reset to ‘‘Y’’ for ‘‘Yes’’
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 for 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 the POA
reporting meets policy goals of
encouraging quality care and generates
program savings, it presents an issue for
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the relative weight-setting process.
Because cases identified as HACs are
likely to be more complex than similar
cases that are not identified 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 weight-setting
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, we reset the
POA indicator field to ‘‘Y’’ only for
relative weight-setting purposes for all
claims that otherwise have a ‘‘N’’ or an
‘‘U’’ in the POA field. This resetting
‘‘forced’’ the more costly HAC claims
into the higher severity MS–DRGs as
appropriate, and the relative weights
calculated for each MS–DRG more
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closely reflect the true costs of those
cases.
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 2009 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.
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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
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 1.5798292955 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 proposed national average
CCRs for FY 2012 are as follows:
Since FY 2009, the relative weights
have been based on 100 percent cost
weights based on our MS–DRG grouping
system.
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 this FY 2012
IPPS/LTCH PPS proposed rule, we are
proposing to use that same case
threshold in recalibrating the MS–DRG
weights for FY 2012. Using the FY 2010
MedPAR data set, there are 8 MS–DRGs
that contain fewer than 10 cases. Under
the MS–DRGs, we have fewer lowvolume 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 based
on whether the patient was age 0 to 17
years or age 17 years and older. Other
than the age split, cases grouping to
these DRGs are identical. The DRGs for
patients age 0 to 17 years generally have
very low volumes because children are
typically ineligible for Medicare. In the
past, we have found that the low
volume of cases for the pediatric DRGs
could lead to significant year-to-year
instability in their relative weights.
Although we have always encouraged
non-Medicare payers to develop weights
applicable to their own patient
populations, we have heard frequent
complaints from providers about the use
of the Medicare relative weights in the
pediatric population. We believe that
eliminating this age split in the MS–
DRGs will provide more stable payment
for pediatric cases by determining their
payment using adult cases that are
much higher in total volume. Newborns
are unique and require separate MS–
DRGs that are not mirrored in the adult
population. Therefore, it remains
necessary to retain separate MS–DRGs
for newborns. All of the low-volume
MS–DRGs listed below are for
newborns. In FY 2012, because we do
not have sufficient MedPAR data to set
accurate and stable cost weights for
these low-volume MS–DRGs, we are
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We developed the national average
CCRs as follows:
Taking the FY 2009 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
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cases in other MS–DRGs. The crosswalk
table is shown below:
and opportunity for public comment.
Section 1886(d)(5)(K)(ii)(I) of the Act
specifies that a new medical service or
technology may be considered for new
technology add-on payment 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 discharges occurring in
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 the 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
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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their FY 2011 weights by the percentage
change in the average weight of the
I. Proposed Add-On Payments for New
Services and Technologies
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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
are used to calculate the MS–DRG
weights. For example, data from
discharges occurring during FY 2010 are
used to calculate the FY 2012 MS–DRG
weights in this proposed 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 MS–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 this proposed
rule, we generally refer to both FDA
approval and FDA clearance as FDA
‘‘approval.’’) However, in some cases,
there may be few to 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
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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 2009 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, 2012 (the start of FY
2013). Because the FY 2013 MS–DRG
weights would be calculated using FY
2011 MedPAR data, the costs of such a
new technology would be fully reflected
in the FY 2013 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 2013 and
thereafter.
We do not consider a service or
technology to be new if it is
substantially similar to one or more
existing technologies. That is, even if a
technology receives a new FDA
approval, it may not necessarily be
considered ‘‘new’’ for purposes of new
technology add-on payments if it is
‘‘substantially similar’’ to a technology
that was approved by FDA and has been
on the market for more than 2 to 3 years.
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
‘‘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 final rule (74 FR 43813 and 43814),
we noted that the discussion of
substantial similarity in the FY 2006
IPPS final rule related to comparing two
separate technologies made by different
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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.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43814), we added
a third factor of consideration to our
analysis of whether a new technology is
substantially similar to one or more
existing technologies. Specifically, in
making a determination of whether a
technology is substantially similar to an
existing technology, we adopted a
policy 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 (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).
As we noted in the FY 2010 IPPS/RY
2010 LTCH PPS final rule, 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
ineligible for the new technology add-on
payment.
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
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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 IPPS/LTCH
PPS final rule published in the Federal
Register on August 16, 2010, contained
the final thresholds that were used to
evaluate applications for new
technology add-on payments for this
proposed rule for FY 2012 (75 FR 50605
through 50613).
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 Health Insurance
Portability and Accountability Act
(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
hospitals that would receive new
technology add-on payments, 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
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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 does not require a covered entity
to obtain consent from patients to use or
disclose protected health information
for the covered entity’s treatment,
payment, or health care operations
purposes, and expressly permits such
entities to use or to disclose protected
health information for these purposes
and for the treatment purposes of
another health care provider and the
payment purposes of another covered
entity or health care provider. (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
Identifiable Health Information
published in the Federal Register (67
FR 53208 through 53214) on August 14,
2002, for a full discussion of consent in
the context of the HIPAA Privacy Rule.)
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
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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 be made in a manner that
ensures that aggregate payments to
hospitals are not more or less than they
were in the prior fiscal year (i.e., they
are ‘‘budget neutral’’). 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
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, in
accordance with 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
longstanding practice of how CMS
evaluates the eligibility criteria for new
medical service or technology add-on
payment applications. That is, we first
determine whether a medical service or
technology meets the newness criteria,
and only if so, do we then make a
determination as to whether the
technology meets the cost threshold and
represents a substantial clinical
improvement over existing medical
services or technologies. We also
amended § 412.87(c) to specify that all
applicants for new technology add-on
payments must have FDA approval or
clearance 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.
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
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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)
and the Director of the Center for
Medicare (CM), who is also designated
as the CTI’s Executive Coordinator.
The specific processes for coverage,
coding, and payment are implemented
by CM, 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.gov/
CouncilonTechInnov/Downloads/
InnovatorsGuide5_10_10.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,
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providers, and health policy experts.
Stakeholders with further questions
about Medicare’s coverage, coding, and
payment processes, or who want further
guidance about how they can navigate
these processes, can contact the CTI at
CTI@cms.hhs.gov.
We note that applicants for add-on
payments for new medical services or
technologies for FY 2013 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 the
CMS 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 2013, the Web site also will
post the tracking forms completed by
each applicant.
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
Section 1886(d)(5)(K)(viii) of the Act,
as amended by section 503(b)(2) of
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
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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 2012 prior to
publication of the FY 2012 IPPS/LTCH
PPS proposed rule, we published a
notice in the Federal Register on
November 29, 2010 (75 FR 73091
through 73094), and held a town hall
meeting at the CMS Headquarters Office
in Baltimore, MD, on February 2, 2011.
In the announcement notice for the
meeting, we stated that the opinions and
alternatives provided during the
meeting would assist us in our
evaluations of applications by allowing
public discussion of the substantial
clinical improvement criterion for each
of the FY 2012 new medical service and
technology add-on payment
applications before the publication of
the FY 2012 proposed rule.
Approximately 50 individuals
registered to attend the town hall
meeting in person, while additional
individuals listened over an open
telephone line. Each of the three FY
2012 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 the
applications, in our evaluation of the
new technology add-on applications for
FY 2012 in this proposed rule.
In response to the published notice
and the new technology town hall
meeting, we received three written
comments regarding applications for FY
2012 new technology add-on payments.
We summarize these comments or, if
applicable, indicate that there were no
comments received, at the end of each
discussion of the individual
applications in this proposed rule.
Comment: A number of attendees at
the new technology town hall meeting
provided comments that were unrelated
to ‘‘substantial clinical improvement.’’
Response: As explained above and in
the Federal Register notice announcing
the meeting (75 FR 73091), the purpose
of the new technology town hall
meeting was specifically to discuss
substantial clinical improvement of
pending new technology applications
for FY 2012. Therefore, we are not
summarizing those comments in this
proposed rule. Commenters are
welcome to resubmit these comments in
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response to proposals in this proposed
rule.
Comment: One commenter, a major
device association, requested that CMS
provide more flexibility for the
substantial clinical improvement
criteria by allowing new technologies to
demonstrate a substantial likelihood
that clinical improvement will result.
The commenter believed that this
request was not unreasonable, given the
fact that conclusive evidence would not
necessarily be available in the short
period of time for which an add-on
payment would be available. The
commenter also suggested that CMS
consider a broader range of evidence in
assessing whether a new technology
meets the test of providing substantial
clinical improvement over an older
technology.
Response: As stated in the 2001 new
technology add-on payment final rule
(66 FR 46913), we believe that the
‘‘substantial clinical improvement’’
criterion is intended ‘‘to limit these
special payments for those technologies
that afford clear improvements over the
use of previously available
technologies.’’ We believe that special
payments for new technology should be
limited to those new technologies that
have been demonstrated to represent a
substantial clinical improvement in
caring for Medicare beneficiaries, such
that there is a clear advantage to
creating a payment incentive for
physicians and hospitals to utilize the
new technology. If such an
improvement is not demonstrated, we
continue to believe the incentives of the
MS–DRG system provide a useful
balance to the introduction of new
technologies. In that regard, we point
out that various new technologies
introduced over the years have been
demonstrated to have been less effective
than initially thought, or in some cases
even potentially harmful. We believe it
is in the best interest of Medicare
beneficiaries for CMS to proceed
carefully with respect to the incentives
created to quickly adopt new
technologies.
With respect to the comment that
CMS should consider a broader range of
evidence in assessing whether a new
technology meets the test of providing
substantial clinical improvement over
an older technology, we accept different
types of data (for example, peerreviewed articles, study results, or
letters from major associations, among
others) that demonstrate and support
the substantial clinical improvement
associated with the new technology. In
addition to clinical data, we will
consider any evidence that would
support the substantial clinical
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improvement associated with a new
technology. Therefore, we believe we
already consider an appropriate range of
evidence as the commenter has
requested.
Comment: One commenter stated that,
while it appreciated that new
technology add-on payments are
intended to encourage innovation, CMS’
application of the substantial clinical
improvement criterion fails to account
for how many technological advances
may occur in practice. The commenter
expressed confidence that many recent
design improvements in medical
devices represent significant advances
in clinical utility of older/established
technologies, and indicated CMS may
fail to recognize these improvements in
the current context of applying add-on
payments.
Response: As discussed above, a
service or technology is not ‘‘new’’ for
purposes of the new technology add-on
payment if it is substantially similar to
one or more existing technologies. That
is, even if a technology receives a new
FDA approval, it may not necessarily be
considered ‘‘new’’ for purposes of new
technology add-on payments if it is
‘‘substantially similar’’ to a technology
that was approved by FDA and has been
on the market for more than 2 to 3 years.
To determine substantial similarity, we
consider (1) Whether a product uses the
same or a similar mechanism of action
to achieve a therapeutic outcome, (2)
whether a product is assigned to the
same or a different DRG and (3) 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. As we noted in the
FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43813 through 43814), 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
ineligible for the new technology add-on
payment. A complete discussion of the
substantial similarity criteria and policy
can be found in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43813
through 43814)
Comment: One commenter believed
that CMS has narrowly interpreted the
statutory criteria for granting new
technology add-on payments, which has
created a situation in which it has
become increasingly difficult for new
technologies to qualify for this add-on
payment. The commenter asserted that
the criteria are so steep and the process
so opaque that many companies,
especially small companies, cannot
afford to undertake the process at all.
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The commenter recommended that CMS
continue to engage stakeholders to
improve the new technology add-on
payment process. The commenter also
recommended that CMS consider
creating additional guidance to further
clarify the requirements as to what
qualifies as a new technology. The
commenter believed that additional
guidance could provide greater certainty
and predictability for many companies
developing novel technologies.
Response: We believe it is important
to maintain an open dialogue on the
IPPS new technology add-on payment
process, as well as the broader issue of
how new technology is introduced into
all of the Medicare payment systems. As
announced in a notice published in the
Federal Register (75 FR 73091 through
73094), on February 2, 2011, prior to the
new technology town hall meeting, we
held an informational workshop for the
general public that gave an overview on
the processes of the new technology
provisions in both the inpatient hospital
and outpatient hospital settings, in
addition to the procedures involved
with ICD–9–CM coding and MS–DRG
reassignment under the IPPS. We
believe that our annual new technology
town hall meeting and rulemaking
process (including the posting of the
applicants’ tracking forms on the CMS
Web site) allow for an ongoing dialogue
between CMS and the public on the new
technology add-on payment process.
Furthermore, we are willing to meet
with potential applicants prior to and
after an application has been submitted
in order to ensure an application meets
the submission requirements and to
provide technical feedback on an
applicant’s application.
In reference to the commenter’s
general statement that CMS’
interpretation of the statutory criteria
has been narrowly cited, we are
interested in and welcome comment on
any specific criteria or data quality
standards that commenters believe we
should adopt to improve the new
technology add-on application process,
or any concerns or challenges that
commenters believe we may encounter
in undertaking this effort. Again, as we
stated at the new technology town hall
meeting, we are interested in working
with stakeholders to improve the
inpatient new technology add-on
payment process. We are interested in
ensuring that the latest medical
technology that improves care for the
Medicare patient population continues
to be available to our beneficiaries. In
addition, we invite potential applicants
to contact CMS with any specific
questions or concerns they may have
prior to the submission of their
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application for new technology add-on
payment.
3. FY 2012 Status of Technologies
Approved for FY 2011 Add-On
Payments
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a. Spiration® IBV® Valve System
Spiration, Inc. submitted an
application for new technology add-on
payments for the Spiration® IBV® Valve
System (Spiration® IBV®). The
Spiration® IBV® is a device that is used
to place, via bronchoscopy, small, oneway 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 (LVRS).
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 HDE
approval from the FDA on October 24,
2008. We were 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 had precluded the device from
being used in the treatment of any
patients until the Institutional Review
Board (IRB) granted approvals regarding
its study sites. Therefore, the Spiration®
IBV® met the newness criterion once it
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 final rule (74
FR 43819), the applicant stated that the
first IRB approval for the Spiration®
IBV® was March 12, 2009. In that final
rule, based on the information above
from the applicant, we determined that
the Spiration® IBV® meets the newness
criterion and the newness period for the
Spiration® IBV® begins on March 12,
2009.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
the Spiration® IBV® and consideration
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of the public comments we received in
response to the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, including the
additional analysis of clinical data and
supporting information submitted by
the applicant, we approved the
Spiration® IBV® for new technology
add-on payments for FY 2010 with a
maximum add-on payment of $3,437.50.
In the FY 2011 IPPS/LTCH PPS
proposed rule, we did not propose any
changes to the new technology add-on
payments for the Spiration® IBV®. We
did not receive any public comments on
whether to continue or discontinue the
new technology add-on payment for the
Spiration® IBV® for FY 2011. Therefore,
for FY 2011, we continued new
technology add-on payments for cases
involving the Spiration® IBV® in FY
2011, with a maximum add-on payment
of $3,437.50.
The new technology add-on payment
regulations provide 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’’ (42 CFR 412.87(b)(2)). Our
practice has been to begin and end new
technology add-on payments on the
basis of a fiscal year, and we have
generally followed a guideline that uses
a 6-month window before and after the
start of the fiscal year to determine
whether to extend the new technology
add-on payment for an additional fiscal
year. In general, we extend add-on
payments for an additional year only if
the 3-year anniversary date of the
product’s entry on the market occurs in
the latter half of the fiscal year (70 FR
47362). With regard to the newness
criterion for the Spiration® IBV®, as
stated above, we consider the beginning
of the newness period for the device to
have commenced on the date of the first
IRB approval for the Spiration® IBV®,
which was March 12, 2009. For FY
2012, as of March 12, 2012, the
Spiration® IBV® will have been on the
market for 3 years, and is therefore no
longer considered ‘‘new’’ as of March 12,
2012. Because the 3-year anniversary
date of the Spiration® IBV®’s entry onto
the market will occur in the first half of
the fiscal year, we are proposing to
discontinue its new technology add-on
payment for FY 2012.
b. 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) in FY
2009. The TAH-t is a technology that is
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25863
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
used in hospital inpatients. One of the
FDA’s post-approval requirements is
that the manufacturer agrees to provide
a post-approval study demonstrating
that 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
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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
‘‘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 in response to the FY 2009
IPPS proposed rule, we approved the
TAH-t for new technology add-on
payments for FY 2009 (73 FR 48557).
We also continued to make new
technology add-on payments for the
TAH-t in FY 2010 and FY 2011.
We describe the new technology addon payment requirements with regard to
newness above. With regard to the
newness criterion for the TAH-t, as
stated above, we consider the beginning
of the newness period for the device to
have commenced from the Medicare
NCD date of May 1, 2008; it is no longer
considered new as of May 11, 2011.
Because the 3-year anniversary date of
the TAH-t will occur prior to the start
of FY 2012, we are proposing to
discontinue the new technology add-on
payment for the TAH-t in FY 2012.
c. Auto Laser Interstitial Thermal
Therapy (AutoLITTTM) System
Monteris Medical submitted an
application for new technology add-on
payments for FY 2011 for the
AutoLITTTM. AutoLITTTM is a
minimally invasive, MRI-guided laser
tipped catheter designed to destroy
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malignant brain tumors with interstitial
thermal energy causing immediate
coagulation and necrosis of diseased
tissue. The technology can be identified
by ICD–9–CM procedure codes 17.61
(Laser interstitial thermal therapy [LITT]
of lesion or tissue of brain under
guidance), and 17.62 (Laser interstitial
thermal therapy [LITT] of lesion or
tissue of head and neck under
guidance), which became effective on
October 1, 2009.
The AutoLITTTM received a 510K
FDA clearance in May 2009. The
AutoLITTTM is indicated for use to
necrotize or coagulate soft tissue
through interstitial irradiation or
thermal therapy in medicine and
surgery in the discipline of
neurosurgery with 1064 nm lasers. The
AutoLITTTM may be used in patients
with glioblastoma multiforme brain
(GBM) tumors. The applicant stated in
its application and through
supplemental information that, due to
required updates, the technology was
actually introduced to the market in
December 2009. The applicant
explained that it was necessary to
reduce the thermal damage lines from
three to one and complete International
Electrotechnical Commission/
Underwriter Laboratory testing, which
led to the introduction of the technology
to the market in December 2009,
although the technology was approved
by FDA in May 2009. The applicant also
stated through supplementary
information to its application that the
first sale of the product took place on
March 19, 2010. However, because the
product was already available for use in
December 2009, it appears that the
newness date would begin in December
2009. In the FY 2011 IPPS/LTCH PPS
proposed rule, we welcomed public
comments on this issue.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
the AutoLITTTM and consideration of
the public comments we received in
response to the FY 2011 IPPS/RY 2011
LTCH PPS proposed rule, including the
additional analysis of clinical data and
supporting information submitted by
the applicant, we approved the
AutoLITTTM for new technology add-on
payments for FY 2011. Consistent with
the applicant’s clinical trial, the add-on
payment is intended only for use of the
device in cases of Glioblastoma
Multiforme. Therefore, we limited the
new technology add-on payment to
cases involving the AutoLITTTM in MS–
DRGs 025 (Craniotomy and
Endovascular Intracranial Procedures
with MCC), 026 (Craniotomy and
Endovascular Intracranial Procedures
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with CC), and 027 (Craniotomy and
Endovascular Intracranial Procedures
without CC or MCC). Cases involving
the AutoLITTTM that are eligible for the
new technology add-on payment are
identified by assignment to MS–DRGs
025, 026, and 027 with a procedure code
of 17.61 (Laser interstitial
thermotherapy of lesion or tissue of
brain under guidance) in combination
with a primary diagnosis code that
begins with a prefix of 191 (Malignant
neoplasm of brain). We note that using
the procedure and diagnosis codes
above and restricting the add-on
payment to cases that map to MS–DRGs
025, 026, and 027 is consistent with
information provided by the applicant,
which demonstrated that cases of the
AutoLITTTM would only map to MS–
DRGs 025, 026, and 027. Procedure code
17.62 (Laser interstitial thermotherapy
of lesion or tissue of head and neck
under guidance) does not map to MS–
DRGs 025, 026, or 027 under the
GROUPER software and, therefore, is
ineligible for new technology add-on
payment.
The average cost of the AutoLITTTM is
reported as $10,600 per case. Under
§ 412.88(a)(2) of the regulations, 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
add-on payment for a case involving the
AutoLITTTM is $5,300.
We describe the new technology addon payment requirements with regard to
newness above. With regard to the
newness criterion for the AutoLITTTM,
as stated above, we consider the
beginning of the newness period for the
device to commence from the market
release date of December 2009.
Therefore, the device will be considered
‘‘new’’ until December 2012. Because the
3-year anniversary date for the
AutoLITTTM will occur after FY 2012,
we are proposing to continue to make
new technology add-on payments for
the AutoLITTTM in FY 2012.
4. FY 2012 Applications for New
Technology Add-On Payments
a. AxiaLIF® 2L+TM System
TranS1 submitted an application for
new technology add-on payments for
the AxiaLIF® 2L+TM System for FY
2012. The AxiaLIF® 2L+TM System is an
implantable spinal fixation system,
delivered through a pre-sacral approach,
facilitating spinal fusion through axial
stabilization of the anterior lumbar
spine at Lumbar vertebrae 4 through
Sacral vertebrae 1 (L4–S1).
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The AxiaLIF® 2L+TM System received
510K FDA clearance (K092124) on
January 21, 2010, and the applicant
asserts that the device was available on
the market immediately afterward
through a limited market release
program. The AxiaLIF® 2L+TM System
is indicated for use to provide anterior
stabilization of the L4–S1 spinal
segments as an adjunct to spinal fusion.
It is also indicated for minimally
invasive access to the anterior portion of
the lower spine for assisting in the
treatment of degeneration of the lumbar
disc, performing lumbar discectomy, or
for assistance in the performance of L4–
S1 interbody fusion. The AxiaLIF®
2L+TM System may be used in patients
requiring fusion to treat
pseudoarthrosis, unsuccessful previous
fusion, spinal stenosis,
spondylolisthesis (Grade 1), or
degenerative disc disease as defined as
back pain of discogenic origin with
degeneration of the disc confirmed by
history and radiographic studies. The
AxiaLIF® 2L+TM System is coded using
ICD–9–CM procedure code 81.08
(Lumbar and lumbosacral fusion of the
anterior column, posterior technique).
With regard to the newness criterion,
we are concerned that the AxiaLIF®
2L+TM System may be substantially
similar to the other devices
manufactured by the applicant,
AxiaLIF® System and AxiaLIF® IITM
System, the latter of which is listed as
the predicate device on the AxiaLIF®
2L+TM System’s application for FDA
approval. Specifically, in making a
determination of substantial similarity,
we consider the following: (1) Whether
a product uses the same or similar
mechanism of action to achieve a
therapeutic outcome; (2) whether a
product is assigned to the same or
different DRG; and (3) whether the new
use of a technology involves the
treatment of the same or similar type of
disease and the same or similar patient
population.
We are particularly concerned that the
AxiaLIF® 2L+TM System uses the same
or similar mechanism of action as the
AxiaLIF® IITM System to achieve a
therapeutic outcome. According to the
applicant’s 510K summary submitted to
the FDA (K073514), the AxiaLIF®
System is a multicomponent system
including titanium alloy implantable
devices and instrumentation for creating
a pre-sacral axial track to the L5–S1 disk
space. Similarly, the AxiaLIF® IITM
System is described in the applicant’s
510K summary submitted to the FDA
(K073643) as a system of medical grade
titanium alloy for the anterior
stabilization of the L4–S1 spinal
segments as an adjunct to spinal fusion.
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The applicant states that the AxiaLIF®
2L+TM System was created from the
AxiaLIF® IITM System platform. The
applicant submitted the following to
distinguish the AxiaLIF® 2L+TM System
from the AxiaLIF® IITM System:
• There have been internal thread
changes for the 2L+ implant to
accompany the Spanning Distraction
Rod, which is designed to create and
hold distraction in the L5–S1 disc space
and allow for a higher degree of control
over the Rod advancement and
distraction;
• The design enhancements in the
2L+ System remove the dependence of
distraction on size and placement of the
S1 Rod, thus allowing precise implant
placement in the vertebral bodies;
• In the 2L+ Implant, the L4 section
of the L4–L5 Rod incorporates a conical
design to increase fixation. The outer
diameter (O.D.) of the L5 section is
increased to be identical to the O.D. of
the S1 implant to provide more surface
area bone contact;
• The 2L+ Instrumentation
incorporates Dilator Trials as an
opportunity to enhance and simplify the
intraoperative measuring technique by
providing a direct visual means of
measurement; and
• The 2L+ Fixation Rod fills the
cannulation to prevent graft from
moving into the rod from the disc space.
The Fixation Rod also fixates the S1
Anchor and L4–L5 Rod together such
that these components cannot passively
separate.
Based on indications for use listed by
the FDA for the AxiaLIF® System
(K073514), the AxiaLIF® IITM System
(K073643), and the AxiaLIF® 2L+TM
System (as described above), we also are
concerned that all of these devices
involve the treatment of the same or
similar type of disease and the same or
similar patient population. With respect
to whether a product is assigned to the
same or different DRG, we note that
currently the AxiaLIF® System and the
AxiaLIF® 2L+TM System both generally
map to MS–DRGs 459 (Spinal Fusion
Except Cervical with MCC) and 460
(Spinal Fusion Except Cervical without
MCC). Though the AxiaLIF® IITM
System is no longer on the market, it
would also map to the same DRGs.
If the AxiaLIF® 2L+TM System is
found to be substantially similar to the
AxiaLIF® System or the AxiaLIF® IITM
System, the AxiaLIF® 2L+TM System
would no longer qualify for the new
technology add-on payment.
Specifically, the appropriate start date
for the AxiaLIF® 2L+TM System would
be the start date of the device that is
found to be substantially similar to the
AxiaLIF® 2L+TM System. As noted
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above, the AxiaLIF® IITM System
received FDA approval on April 28,
2008. The 3-year newness period for the
AxiaLIF® IITM System ends prior to the
start of FY 2012 (July 28, 2011). Given
the length of time since the AxiaLIF®
IITM System’s entry into the market,
cost-related data for the AxiaLIF® IITM
System is already reflected in the most
recent MS–DRG relative weights.
Additionally, the AxiaLIF® System
received multiple FDA approvals, the
most recent of which was on January 11,
2008. The 3-year newness period for the
AxiaLIF® System also ends prior to the
start of FY 2012 (January 11, 2011).
Given the length of time since the
AxiaLIF® System’s entry into the
market, cost-related data for the
AxiaLIF® System is already reflected in
the most recent MS–DRG relative
weights. However, if the AxiaLIF®
2L+TM System is not substantially
similar to any of the predicate devices
mentioned above, then the newness
period for the AxiaLIF® 2L+TM System
would begin on January 21, 2010 (the
AxiaLIF® 2L+TM System’s FDA
approval date) and would be within the
year newness period for FY 2012. We
invite public comment regarding
whether or not the AxiaLIF® 2L+TM
System meets the newness criteria, and,
in particular, whether it is substantially
similar to the AxiaLIF® System or the
AxiaLIF® IITM System.
In an effort to demonstrate that the
AxiaLIF® 2L+TM System meets the cost
criterion, the applicant used data from
the FY 2009 MedPAR file. The applicant
explained through supplemental
information to its application that most
cases of the AxiaLIF® 2L+TM System
would map to MS–DRGs 459 (Spinal
Fusion Except Cervical with MCC) and
460 (Spinal Fusion Except Cervical
without MCC). The applicant searched
the FY 2009 MedPAR file for cases with
an ICD–9–CM procedure code of 81.08
(Lumbar and lumbosacral fusion of the
anterior column, posterior technique).
The applicant found 2,533 cases in MS–
DRG 459 (5 percent of all cases) and
48,135 cases in MS–DRG 460 (95
percent of all cases). The average
standardized charge per case was
$117,847 for MS–DRG 459 and $84,153
for MS–DRG 460, equating to a caseweighted average standardized charge
per case of $77,195.
This case-weighted standardized
charge per case contains charges related
to other implantable devices. Therefore,
it is necessary to remove charges of
other implantable devices from the caseweighted standardized charge per case
(before substituting charges for the
AxiaLIF® 2L+TM System). The applicant
used the following methodology to
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determine the average amount of
charges related to other implantable
devices within the case-weighted
average standardized charge per case.
The applicant estimated a standardized
medical/surgical supplies charge of
$47,860. After searching all claims in
the CY 2008 100 percent inpatient
limited data set standardized file, the
applicant determined that, on average,
implantable devices (revenue center
0278) accounted for 75 percent of the of
medical/surgical supplies charges,
equating to $36,104 for the cases the
applicant found in MS–DRGs 459 and
460. The applicant then subtracted this
amount from the case-weighted average
standardized charge per case, which
resulted in a case-weighted average
standardized charge per case, excluding
an implantable device, of $41,090
($77,195¥$36,104).
The applicant then estimated the
charges for the AxiaLIF® 2L+TM System
by inflating the expected purchase price
of the AxiaLIF® 2L+TM System by 2.77
times the purchase price of
defibrillators, resulting in a
standardized charge of $51,482 for the
AxiaLIF® 2L+TM System. The applicant
stated that using a markup based on
defibrillators was appropriate because,
like the AxiaLIF® 2L+TM System,
defibrillators are also a high-cost
implantable device. The applicant then
added the average standardized charge
for the AxiaLIF® 2L+TM System to the
average standardized charge per case
excluding an implantable device, which
resulted in a total case-weighted average
standardized charge per case of $92,557
($41,075 + $51,482). The applicant
calculated a case-weighted threshold of
$78,354 for MS–DRGs 459 and 460.
Because the total average standardized
charge per case ($92,557), as calculated
by the applicant, exceeds the caseweighted threshold ($78,354), the
applicant maintains that it meets the
cost criteria.
We have concerns with the
applicant’s methodology. Specifically,
in determining the projected
standardized charge for the AxiaLIF®
2L+TM System, the applicant relies on a
charge markup for defibrillators because
it is also a high-cost implantable device
for which a hospital purchase price is
known. We are concerned about
whether more direct data or different
proxies are available, including a charge
markup for the AxiaLIF® System or
AxiaLIF® IITM System. In reviewing the
applicant’s charge markup, we also are
concerned about the source data for
determining the 2.77 charge markup
ratio for defibrillators. We invite public
comment on whether the AxiaLIF®
2L+TM System meets the cost criterion
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for a new technology add-on payment
for FY 2012.
With respect to the substantial
clinical improvement criterion, the
applicant asserts that it meets this
criterion in its application. The
applicant stated that substantial clinical
improvement is demonstrated by the
AxiaLIF® 2L+TM System’s facilitation of
spinal fusion surgery without a
laparotomy. By avoiding a laparotomy,
the AxiaLIF® 2L+TM System reduces
blood loss, postoperative pain, narcotic
use, denervation, morbidity, the
probability of complications, and the
risk of trauma to the tissue area
surrounding the lumbar. The applicant
further stated that the AxiaLIF® 2L+TM
System reduces morbidity and has
reduced risk of injuring vital organs and
important intrinsic stabilizing
structures, with a lower complication
profile than traditional open fusion
techniques. The applicant noted that
long-term results can include better
support of lordosis and prevention of
adjacent level disease. We are
concerned that this does not
demonstrate a substantial clinical
improvement from the AxiaLIF® IITM
System, which also facilitated spinal
fusion surgery without a laparotomy.
The applicant has not conducted
clinical trials, but the 300 cases of
AxiaLIF® 2L+TM System’s use (through
the Limited Market Release) yielded a
complication rate of 0.7 percent. The
applicant also asserts that the pre-sacral
approach results in a lower average
length of stay than a non-sacral
approach.
The applicant has referred us to
several sources of literature presenting
data related to the pre-sacral approach
for the applicant’s AxiaLIF® device. We
are concerned that the applicant has
generally repeated the statements made
regarding the clinical improvement of
its AxiaLIF® device and has not
provided information that indicates that
the AxiaLIF® 2L+TM System offers a
substantial clinical benefit over the
earlier AxiaLIF® or AxiaLIF® IITM
devices. Moreover, the applicant has not
provided any clinical outcomes data for
the AxiaLIF® 2L+TM System to
substantiate its assertions regarding
substantial clinical improvement for the
AxiaLIF® 2L+TM System. While the
applicant maintains that data from the
AxiaLIF® device are relevant and can be
used to substantiate its assertions for the
AxiaLIF® 2L+TM System, we are
concerned that data directly associated
with the use of the AxialLIF® 2L+TM
System are not available. For example,
it is not clear the degree to which the
population that requires treatment with
the AxiaLIF® 2L+TM System differs from
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the population that requires treatment
with the AxiaLIF® device or the
AxiaLIF® IITM System, and it is also not
clear the degree to which the differences
between the devices discussed above
may affect clinical outcomes.
The applicant also believes that an
inline placement of the fixation implant
may provide an advantage due to
closeness of the implant to functional
axis of the spine and through alignment
with the direction of the compressive
forces on the vertebral bodies. The
applicant maintains that evaluation and
testing have proven the AxiaLIF® 2L+TM
System to be a biomechanically sturdy
L4–S1 axial construct that significantly
reduces the range of motion at the
desired point and achieves
decompression by increasing the L4–S1
disc spaces. We note that the only
clinical change from the AxiaLIF®
device and the AxiaLIF® 2L+TM System
is that the latter reaches the L4. There
is no stated clinical change between the
AxiaLIF® IITM and the AxiaLIF® 2L+TM
System. We invite public comment on
whether the AxiaLIF® 2L+TM System
meets the substantial clinical
improvement criterion for the new
technology add-on payment for FY
2012.
b. ChampionTM HF Monitoring System
CardioMEMS, Inc. submitted an
application for new technology add-on
payment for FY 2012 for the
ChampionTM HF Monitoring System, an
Implantable Hemodynamic Monitor
System (IHMS). The IHMS is comprised
of an implantable sensor/monitor placed
in the distal pulmonary artery.
Pulmonary artery hemodynamic
monitoring is used in the management
of heart failure. The IHMS measures
multiple pulmonary artery pressure
parameters for an ambulatory patient to
measure and transmit data via a wireless
sensor to a secure Web site. The IHMS
utilizes radiofrequency energy to power
the sensor and to measure pulmonary
artery pressure. The data are accessed
by clinicians via the Internet.
Interpretation of trend data allows the
clinician to make adjustments to
therapy while the patient is at home.
Changes in pulmonary artery pressure
can be used along with heart failure
signs and symptoms to adjust
medications. There are currently no
FDA approved devices performing this
IHMS function. The IHMS consists of
three components: (1) A wireless
implantable hemodynamic sensor/
monitor which is implanted in the distal
pulmonary artery (sensor); (2) an
external patient measurement system;
and (3) a patient data management
system.
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CardioMEMS, Inc. believes that a
large majority of patients receiving the
sensor will be admitted to an inpatient
hospital with a diagnosis of ‘‘acute or
chronic heart failure’’ (ICD–9–CM code
428.43 (Acute or chronic combine
systolic and diastolic heart failure)) and
the sensor will be implanted during this
hospital stay. For safety considerations,
a small portion of these patients may be
discharged and the sensor implanted at
a future date in the hospital outpatient
setting. In addition, there will likely be
a group of patients in chronic heart
failure who are not currently
hospitalized, but who have been
hospitalized in the past few months for
whom the treating physician believes
that regular pulmonary artery pressure
readings are necessary to optimize
patient management. Depending on the
patient’s status, these patients may have
the sensor implanted in the hospital
inpatient or outpatient setting.
With respect to the newness criterion,
we note that this device is not currently
approved by the FDA, but the
manufacturer anticipates that FDA
approval will be granted in the second
quarter of 2011. No ICD–9–CM
procedure code exists at this time that
uniquely identifies the System. As
noted in Table 6B, which is listed in
section VI. of the Addendum to this
proposed rule and available via the
Internet, we have approved the use of
new procedure code 38.26 (Insertion of
implantable wireless pressure sensor for
intracardiac or great vessel
hemodynamic monitoring), which will
identify use of the System. The new
ICD–9–CM procedure code 38.26 will be
assigned to MS–DRG 264 (Other
Circulatory System O.R. Procedures).
In an effort to demonstrate that the
System meets the cost criteria, the
applicant used data from a clinical trial.
Specifically, the manufacturer used data
from the CardioMEMS Heart Sensor
Allows Monitoring of Pressure to
Improve Outcomes in NYHA Class III
heart failure patients (CHAMPION)
trial 4 which enrolled 550 patients in 30
hospitals within the United States. We
note that there were 575 patients
initially enrolled in the trial. Of these
575 patients, 25 underwent a right heart
catheterization and did not receive an
implant primarily because of
anatomical/physiological conditions
identified during the catheterization.
4 Wireless pulmonary artery haemodynamic
monitoring in chronic heart failure: a randomised
controlled trial. Abraham WT, Adamson PB, Bourge
RC, Aaron MF, Costanzo MR, Stevenson LW,
Strickland W, Neelagaru S, Raval N, Krueger S,
Weiner S, Shavelle D, Jeffries B, Yadav JS; for the
CHAMPION Trial Study Group. Lancet. 2011 Feb
19;377(9766):658–666.
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The manufacturer collected 310 hospital
claims from the 550 patients enrolled in
the CHAMPION trial. The applicant
eliminated claims with incomplete data
or statistical outliers, and was left with
137 claims for its cost analysis.
CardioMEMS funded the clinical trial
and, therefore, did not submit these 137
claims. The applicant believes that cases
eligible for the System would map to
MS–DRG 264. Using the 137 claims
from the CHAMPION trial, the
manufacturer determined an average
standardized charge per case without
the new technology to equal $12,817.
The applicant indicated that the caseweighted average standardized charge
per case does not include charges
related to the System, so it is then
necessary to add the charges related to
the device to the average standardized
charge per case to evaluate the cost
threshold criterion. To convert the costs
of the technology to charges,
CardioMEMS used an average cost-tocharge ratio (CCR) of 0.311 based on FY
2008 hospital cost reports from the 30
hospitals who participated in the
CHAMPION trial. Based on this CCR,
the manufacturer determined an average
charge for the System to equal $45,016.
Using this methodology, the total
average standardized charge per case
including the new technology equals
$57,833 ($45,016 + $12,817). This
amount exceeds the cost threshold of
$46,546 for MS–DRG 264 (Table 10 of
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50607)). Because the total
average standardized charge per case
($57,833) exceeds the threshold
($46,546), the applicant maintains that
it meets the cost criteria.
In addition to the methodology
described above, the manufacturer
searched for claims for patients in the
CHAMPION trial that were aged 65
years or older at the time of device
implantation as a proxy for Medicare
patients. Out of the original 137 hospital
claims, 56 (41 percent) were for patients
aged 65 years or older. From these 56
claims (across 23 hospitals from the
CHAMPION study), the applicant
calculated an average standardized
charge of $13,031, which did not
include charges for the device. The
applicant added the charges related to
the device ($45,016, calculated as
described above) to the average
standardized charge per case to evaluate
the cost threshold criterion. Using this
methodology, the total average
standardized charge per case including
the new technology equals $58,047
($45,016 + $13,031). This amount also
exceeds the FY 2012 cost threshold of
$46,546 for MS–DRG 264. Because the
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total average standardized charge per
case ($58,047) exceeds the threshold
($46,546), the applicant maintains that
it meets the cost criteria. We invite
public comment on whether or not the
ChampionTM HF Monitoring System
meets the cost criterion.
With regard to substantial clinical
improvement, the applicant cited
clinical data from the CHAMPION trial.
The trial is a prospective, multicenter,
randomized, single-blinded clinical trial
conducted in the United States,
designed to evaluate the safety and
efficacy of the System in reducing heart
failure-related hospitalizations in a
subset of subjects suffering from heart
failure. The applicant shared several
major findings from the CHAMPION
trial 5 as described below. First, at
6 months, the treatment group exhibited
a 30 percent relative risk reduction in
the rate of heart failure-related
hospitalization (0.31 vs. 0.44,
p < 0.0001). There were 83 heart failurerelated hospitalizations in 270 treatment
patients compared to 120 heart failurerelated hospitalizations in the 280
control subjects. The ‘‘number needed to
treat’’ (NNT) to reduce one heart failurerelated hospitalization was eight
patients. Second, during the 6-month
follow-up period, the proportion of
subjects hospitalized for one or more
heart failure-related hospitalizations
was significantly lower in the treatment
group (54 out of 270 patients) than in
the control group (80 out of 280
patients) (20 percent vs. 28.6 percent;
p = 0.0222). Third, at 6 months,
treatment patients had more days alive
outside of the hospital (174.4 vs. 172.1,
p = 0.0222) and fewer average days in
the hospital (2.2 vs. 3.8, p = 0.0194)
compared to control patients. Treatment
patients spent 472 fewer days in the
hospital than the control patients.
Finally, the treatment group was
assessed with the Minnesota Living
with Heart Failure Questionnaire, which
reported a greater improvement in
quality of life (QOL) than the control
group (¥10.6 vs. ¥7.4, p = 0.0373). The
applicant concluded that the
CHAMPION trial demonstrated that,
with knowledge of class III heart failure
patients’ pulmonary artery pressures,
physicians could improve medical
management leading to fewer heart
failure-related hospitalizations. The
applicant further stated that the device
5 Wireless pulmonary artery haemodynamic
monitoring in chronic heart failure: a randomised
controlled trial. Abraham WT, Adamson PB, Bourge
RC, Aaron MF, Costanzo MR, Stevenson LW,
Strickland W, Neelagaru S, Raval N, Krueger S,
Weiner S, Shavelle D, Jeffries B, Yadav JS; for the
CHAMPION Trial Study Group. Lancet. 2011 Feb
19;377(9766):658–666
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Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
had very few device-related and systemrelated complications over the course of
the clinical trial, and that primary and
secondary study endpoints were
successfully achieved. There was one
report of an ‘‘Unanticipated Serious
Adverse Device Event’’ involving a
‘‘tingling sensation’’ in a control patient,
which was adjudicated by the Clinical
Events Committee as not device/systemrelated. There were two reports of
Serious Adverse Device Events due to
hemoptysis and a blood clot, both of
which resolved without permanent
sequelae. The Clinical Events
Committee adjudicated both events as
device/system-related. The applicant
maintained that during the first
6 months, there were 336 Serious
Adverse Events (hospitalizations or
deaths due to heart failure or other
common comorbidities seen in this
population) in 121 patients in the
treatment group (44.8 percent) versus
385 Serious Adverse Events in 155
patients in the control group (55.4
percent).
In addition, the manufacturer stated
that the CHAMPION trial suggests the
safety and effectiveness of the device
was maintained during longer term
follow-up. (The primary efficacy
endpoint of the CHAMPION trial was
6 months. However, patients remained
in their assigned groups until the last
patient reached 6 months, which is
referred to as ‘‘the entire follow-up.’’ The
mean time of this entire follow up was
up to 15 months.) Therefore, the
manufacturer believes that the System
meets the substantial clinical
improvement criterion. We invite public
comment on whether or not the
ChampionTM HF Monitoring System
technology represents a substantial
clinical improvement in the Medicare
population.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
c. PerfectCLEAN With Micrillon®
UMF Corporation (the manufacturer)
submitted an application for a
technology called the PerfectCLEAN
with Micrillon® (PerfectCLEAN).
PerfectCLEAN is a cleaning textile
product (or cleaning mat/wipe) with
chlorine embedded or bound to the
extruded fiber. The manufacturer asserts
that PerfectCLEAN is intended to be
used to trap and eliminate pathogens
such as Methicillin-resistant
Staphylococcus aureus (MRSA),
Clostridium difficile (C diff.) and the
H1N1 flu virus from surfaces within the
hospital (as well as other health care
facilities and locations). The applicant
asserts that it can trap and remove more
than 99.99 percent of bacteria on hard
surfaces.
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The manufacturer stated that the
PerfectCLEAN is an Environmental
Protection Agency (EPA) approved
antimicrobial/disinfectant that will be
available on the market in the first
quarter of 2011. The applicant
maintains that PerfectCLEAN is subject
to review and approval by the EPA per
the EPA’s Federal Insecticide,
Fungicide, Rodenticide Act (FIFRA)
Treated Article Exemption and,
therefore, is not subject to review by the
FDA. The applicant states that it was
determined in a pre-registry meeting
with the EPA that the underlying
chemistries used to create the chlorine
binding effects of Micrillon® chemistry
are EPA and FDA approved even though
no FDA claims are being sought.
With respect to whether the
PerfectCLEAN is eligible for new
technology add-on payments, we note
that our regulations at § 412.87(c) state,
‘‘CMS will only consider, for add-on
payments for a particular fiscal year, an
application for which the new medical
service or technology has received FDA
approval or clearance by July 1 prior to
the particular fiscal year.’’ FDA
‘‘approval,’’ refers to the premarket
approval application (PMA) process for
most Class III devices, and FDA
‘‘clearance’’ refers to the 510(k)
premarket notification submission
process for most Class II devices and
some Class I and Class III devices
(section 515 of the Food, Drug and
Cosmetic Act (FDCA) for PMA) and
sections 510(k) and 513(i) of the FDCA
(for premarket notification submission
process)). Therefore, we believe our
regulations, by requiring applicants to
receive an FDA approval or clearance in
order to be eligible for new technology
add-on payments, limit the universe of
items and services eligible to receive
these payments to those that require
FDA approval or clearance. The
applicant has informed CMS that it is in
the process of registering and listing its
product with the FDA under section
510(b) through (d) and (j) and
anticipates this process to be completed
prior to the July 1 regulatory deadline.
The registration process that the
applicant is currently pursing will result
in neither FDA approval nor clearance,
and we are therefore concerned that the
PerfectCLEAN is not eligible for new
technology add-on payments under our
existing regulations., which require
‘‘FDA approval or clearance by July 1
prior to the particular fiscal year’’ (42
CFR § 412.87(c)). We welcome public
comments on whether the
PerfectCLEAN is eligible for new
technology add-on payments under the
current regulations.
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With regard to the cost criterion, the
applicant used data from the FY 2011
After Outliers Removed (AOR) file
(posted on the CMS Web site) for its cost
analysis, which is based on the FY 2009
MedPAR file. The applicant considered
MS–DRGs that relate to surgeries, skin
abrasions, open sores, wounds, and
similar inflamed tissue conditions
where infection sites are thought to be
more likely to occur for inpatient care
situations. This resulted in the applicant
determining that the technology would
be most frequently used in 622 different
MS–DRGs. The applicant noted that the
charges from the FY 2011 AOR file were
not inflated from FY 2009 to FY 2011;
therefore the applicant applied a 2-year
inflation factor of 12 percent (to update
the charges from FY 2009 to FY 2011).
The applicant based the 2-year inflation
factor of 12 percent on a 3-year average
of the 2 year rate-of-change in charges
(the 2-year rate-of-change for FY 2009 of
11.841 percent (73 FR 48764); the 2-year
rate-of-change for FY 2010 of 14.184
percent (74 FR 44010); and the 2-year
rate-of-change for FY 2011 of 9.8843
percent (75 FR 50429)) that CMS uses in
its outlier threshold calculation as
published in section II. of the
Addendum to the annual IPPS final
rule. The applicant computed a caseweighted standardized charge per case
of $40,442 for all 622 MS–DRGs, which
did not include any charges related to
the PerfectCLEAN. Therefore, it added
the charges related to the technology to
the case-weighted average standardized
charge per case in evaluating the cost
threshold criterion. The manufacturer
estimates a charge per patient of $100
per day for the PerfectCLEAN. The
applicant includes in this amount
charges for payroll, treated textiles,
packaging and protective gloves,
laundering, storage, and distribution.
The applicant multiplied the average
length of stay for each MS–DRG (as
found in Table 5 of the Addendum to
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50547 through 50566)) by the
charge per patient per day to determine
the total charges per stay by MS–DRG
related to the PerfectCLEAN. The
applicant added additional charges per
stay for the PerfectCLEAN to the caseweighted standardized charge per case
and determined a total case-weighted
average standardized charge per case of
$41,105. Based on the 622 MS–DRGs to
which the technology mapped, the
applicant computed a case-weighted
threshold of $40,834. Because the total
case-weighted average standardized
charge per case of $41,105 exceeds the
case weighted threshold of $40,834, the
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applicant maintains that it meets the
cost criteria.
We have several concerns regarding
the applicant’s cost analysis. First,
although the technology can potentially
be used in every single Medicare case,
the application targets specific MS–
DRGs. The applicant did not provide a
detailed clinical justification regarding
their selection of MS–DRGs, or a
detailed justification for why the
technology could not be used in other
MS–DRGs. We believe it would be more
appropriate to target all cases in every
MS–DRG when conducting the cost
analysis for this type of non-procedure
or condition specific item. Using the FY
2011 AOR file, we conducted our own
analysis with the same methodology
above (and inflated the charges and
included the total charges per stay
related to the PerfectCLEAN) across all
MS–DRGs. Based on our analysis, we
determined a total case-weighted
average standardized charge per case of
$29,535. Using the applicant’s
methodology, we also determined a
case-weighted threshold of $37,384
across all MS–DRGs. Because the total
case-weighted average standardized
charge per case of $29,535 is less than
the case-weighted threshold of $37,384,
we believe the PerfectCLEAN may not
meet the cost criteria.
Second, the applicant included in the
average charge per day more general
charges unrelated to the specific new
technology, such as payroll, packaging
and protective gloves, laundering,
storage and distribution. We do not
believe it is appropriate to include
charges for expenses already accounted
for in MS–DRG based payments, such as
laundering, storage, and distribution,
and supplies already used by hospital
staff such as packaging and protective
gloves. We also note that the applicant
states in its substantial clinical
improvement discussion that the
PerfectCLEAN represents the first
comprehensive process for the removal
and elimination of harmful microorganisms responsible for HAIs from
patient environments, the elimination of
cross-contamination, and significant
savings across many cost centers. If the
PerfectCLEAN is a substitute for other
cleaning mechanisms such as wiping
down a hospital room with a spray and
can produce significant savings across
many cost centers, then it would be
appropriate to deduct some charges
from the average charge per day in order
to accurately reflect the cost to hospitals
of this technology. For these reasons, we
remain concerned about the accuracy of
the computation of a charge per patient
of $100 per day and whether the
PerfectCLEAN meets the cost criterion.
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Thirdly, the applicant based the 12percent, 2-year rate-of-change in charges
on a 3-year average (FY 2009 through
FY 2011) of the 2-year rate-of-change in
charges as published in section II. of the
Addendum to the annual IPPS final
rule. We do not believe it is appropriate
to use a 3-year average of the 2-year rateof-change in charges as the 2-year rateof-change in charges already uses the
most recent data available to measure
this change and, therefore, does not
need to be averaged with prior years.
Specifically, as described in section II.
of the Addendum to this proposed rule,
to calculate the proposed FY 2012 2year rate-of-change in charges, we
compared the 1-year average annualized
rate-of-change in charges per case from
the last quarter of FY 2009 in
combination with the first quarter of FY
2010 (July 1, 2009 through December 31,
2009) to the last quarter of FY 2010 in
combination with the first quarter of FY
2011 (July 1, 2010 through December 31,
2010). This rate-of-change was 4.43
percent (1.044394) or 9.07 percent
(1.090759) over 2 years. If we substitute
the FY 2012 proposed 2-year rate-ofchange in charges of 9.07 percent for the
12-percent 3-year average of the 2-year
rate-of-change in charges that the
applicant used in its cost analysis, the
total case-weighted average
standardized charge per case would be
$40,047 across the 622 MS–DRGs to
which the applicant believes the
technology would map. As mentioned
above, the applicant computed a caseweighted threshold of $40,834. Because
the total case-weighted average
standardized charge per case of $40,047
is less than the case-weighted threshold
of $40,834, it appears the applicant
would not meet the cost criteria. We
invite public comment on whether the
PerfectCLEAN meets the cost criterion.
The applicant maintains that it meets
the substantial clinical improvement
criteria for the following reasons: The
applicant believes the PerfectCLEAN
significantly improves clinical outcomes
for a patient population as compared to
currently available treatments, decreases
rate of subsequent diagnostic or
therapeutic interventions, and decreases
the number of future hospitalizations or
physician visits. The applicant cited
independent laboratory studies that set
forth the level of removal and
elimination of pathogens achieved by
the PerfectCLEAN. The applicant stated
that the PerfectCLEAN includes ‘‘more
precise and focused patient room
procedures that when properly applied
utilize the textile and micro-denier
efficacies’’ listed in the product’s
independent test reports. The applicant
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states that this results ‘‘in a safer patient
environment where the likelihood of
cross contamination is reasonable.’’ The
applicant included test report data for
the product, which demonstrated a
99.99 percent effectiveness of removing
pathogens such as MRSA and C diff.
The applicant cited industry and
clinical support to demonstrate that
improved patient environment can save
lives. The applicant also stated that
PerfectCLEAN represents the first
comprehensive process for the removal
and elimination of harmful microorganisms responsible for hospital
acquired infections from patient
environments, the elimination of crosscontamination, and significant savings
across many cost centers. The applicant
stated that this new innovative system
delivers reliable and repeatable results
not currently achieved using currently
available protocols and products. The
applicant provided the following
example: a traditional method of
disinfection is to apply liquid
disinfectants, which the applicant stated
typically requires a 10-minute dwell
time (which in most cases is not
completed by the hospital) and then
wiping or mopping up the
nonevaporated liquids. Compared to
this method, the applicant asserts that
the PerfectCLEAN first removes the
micro-organisms from those surfaces
using specially designed microscopic
fibers. The applicant asserts that these
pathogens are trapped in a formulation
of a chlorine binding technology which
eliminates the pathogens.
The applicant further asserts that the
PerfectCLEAN maintains its disinfecting
capability longer than other methods
because the chlorine-binding technology
is introduced at the pellet stage of fiber
extrusion so that it is present
throughout the fiber, as opposed to a
finish or coating process that wears off
as textiles are used and laundered.
Additionally, the applicant asserts that
the technology’s non-leaching
chlorination system recharges in the
wash process by attracting and binding
free molecules of chlorine. The
applicant further asserts that in this way
the PerfectCLEAN recharges back to its
original strength and efficacy which
allows it to work more rapidly than
other techniques. The applicant asserts
that this reduces cross-contamination by
those persons handling soiled textiles
after the people contact surfaces which
have been cleaned of harmful microorganisms. The applicant added that the
training in use of color coated textiles
(different color mats) affords superior
monitoring and compliance supervision
of the hygiene specialists charged with
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responsibility to reduce crosscontamination. We invite public
comment on whether the PerfectCLEAN
meets the substantial clinical
improvement criterion.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
III. Proposed 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
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 delineations of statistical areas
established by the Office of Management
and Budget (OMB). A discussion of the
proposed FY 2012 hospital wage index
based on the statistical areas, including
OMB’s revised definitions of
Metropolitan Areas, appears under
section III.B. of this preamble.
Beginning October 1, 1993, section
1886(d)(3)(E) of the Act requires that we
update the wage index annually.
Furthermore, this section 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 proposed adjustment for FY
2012 is discussed in section II.B. of the
Addendum to this proposed rule.
As discussed below in section III.H. of
this preamble, we also take into account
the geographic reclassification of
hospitals in accordance with sections
1886(d)(8)(B) and 1886(d)(10) of the Act
when calculating IPPS payment
amounts. Under section 1886(d)(8)(D) of
the Act, the Secretary is required to
adjust the standardized amounts so as to
ensure that aggregate payments under
the IPPS after implementation of the
provisions of sections 1886(d)(8)(B) and
(C) and 1886(d)(10) of the Act are equal
to the aggregate prospective payments
that would have been made absent these
provisions. The proposed budget
neutrality adjustment for FY 2012 is
discussed in section II.A.4.b. of the
Addendum to this proposed rule.
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Section 1886(d)(3)(E) of the Act also
provides for the collection of data every
3 years on the occupational mix of
employees for short-term, acute care
hospitals participating in the Medicare
program, in order to construct an
occupational mix adjustment to the
wage index. A discussion of the
occupational mix adjustment that we
are proposing to apply beginning
October 1, 2011 (the FY 2012 wage
index) appears under section III.C. of
this preamble.
B. 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 delineations 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 2011 final rule, in this
FY 2012 proposed rule, we are
proposing to provide that hospitals
receive 100 percent of their wage index
based upon the CBSA configurations.
Specifically, for each hospital, we are
proposing to determine a wage index for
FY 2012 employing wage index data
from hospital cost reports for cost
reporting periods beginning during FY
2008 and using the CBSA labor market
definitions. We consider CBSAs that are
Metropolitan Statistical Areas (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)).
In OMB Bulletin No. 10–2, issued on
December 1, 2009, OMB announced that
the CBSA changes in that bulletin
would be the final update prior to the
2010 Census of Population and Housing.
CMS adopted those changes in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50162), beginning October 1, 2010, and
they are reflected in this FY 2012
proposed rule. In 2013, OMB plans to
announce new area delineations based
on its 2010 standards (75 FR 37246) and
the 2010 Census data.
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The OMB bulletin is available on the
OMB Web site at https://
www.whitehouse.gov/OMB—go to
‘‘Agency Information’’ and click on
‘‘Bulletins’’.
C. Proposed Occupational Mix
Adjustment to the FY 2012 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 Proposed
FY 2012 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 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. (We refer
readers to the FY 2010 IPPS final rule
(74 FR 43827) for a detailed discussion
of the 2007–2008 survey.) Again, for the
FY 2011 hospital wage index, we used
data from the 2007–2008 survey
(including revised data for 45 hospitals)
to compute the FY 2011 adjustment.
For the FY 2012 hospital wage index,
we are proposing to again use
occupational mix data collected on the
2007–2008 Medicare Wage Index
Occupational Mix Survey to compute
the occupational mix adjustment for FY
2012. We are including data for 3,165
hospitals that also have wage data
included in the proposed FY 2012 wage
index.
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2. New 2010 Occupational Mix Survey
for the FY 2013 Wage Index
As stated earlier, section 304(c) of
Public Law 106–554 amended section
1886(d)(3)(E) of the Act to require CMS
to collect data every 3 years on the
occupational mix of employees for each
short-term, acute care hospital
participating in the Medicare program.
We used occupational mix data
collected on the 2007–2008 survey to
compute the occupational mix
adjustment for FY 2010 and the FY 2011
wage index and are proposing to use the
2007–2008 occupational mix survey
data in this proposed rule for the FY
2012 wage index. Therefore, a new
measurement of occupational mix will
be required for FY 2013.
The new 2010 survey (Form CMS–
10079 (2010)) provides for the collection
of hospital-specific wages and hours
data for calendar year 2010 (that is,
payroll periods ending between January
1, 2010 and December 31, 2010) and
will be applied beginning with the FY
2013 wage index. The 2010 survey was
adopted in the Federal Register on
January 15, 2010 (75 FR 2548) and
approved by OMB on February 26, 2010
(OMB control number 0938–0907). The
survey 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
are required to submit their completed
2010 surveys to their fiscal
intermediaries/MACs by July 1, 2011.
The preliminary, unaudited 2010 survey
data will be released in early October
2011, along with the FY 2009 Worksheet
S–3 wage data, for the FY 2013 wage
index review and correction process.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
3. Calculation of the Proposed
Occupational Mix Adjustment for FY
2012
For FY 2012 (as we did for FY 2011),
we are proposing to calculate the
occupational mix adjustment factor
using the following steps:
Step 1—For each hospital, determine
the percentage of the total nursing
category attributable to a nursing
subcategory by dividing the nursing
subcategory hours by the total nursing
category’s hours. Repeat this
computation for each of the four nursing
subcategories: (1) Registered nurses;
(2) licensed practical nurses; (3) nursing
aides, orderlies, and attendants; and (4)
medical assistants.
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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
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.F.
of this preamble) by the percentage of
the hospital’s total workers attributable
to the total nursing category (using the
occupational mix survey data, this
percentage is determined by dividing
the hospital’s total nursing category
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).
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The remaining portion of the
hospital’s total salaries and wage-related
costs that is attributable to all other
employees of the hospital is not
adjusted by the occupational mix. A
hospital’s all other portion is
determined by subtracting the hospital’s
nursing category percentage from 100
percent.
Step 8—For each hospital, calculate
the total occupational mix adjusted
salaries and wage-related costs for a
hospital by summing the occupational
mix adjusted salaries and wage-related
costs for the total nursing category (from
Step 7) and the portion of the hospital’s
salaries and wage-related costs for all
other employees (from Step 7).
To compute a hospital’s occupational
mix adjusted average hourly wage,
divide the hospital’s total occupational
mix adjusted salaries and wage-related
costs by the hospital’s total hours (from
Step 4 of the unadjusted wage index
calculation in section III.F. of this
preamble).
Step 9—To compute the occupational
mix adjusted average hourly wage for an
urban or rural area, sum the total
occupational mix adjusted salaries and
wage-related costs for all hospitals in
the area, then sum the total hours for all
hospitals in the area. Next, divide the
area’s occupational mix adjusted
salaries and wage-related costs by the
area’s hours.
Step 10—To compute the national
occupational mix adjusted average
hourly wage, sum the total occupational
mix adjusted salaries and wage-related
costs for all hospitals in the Nation, then
sum the total hours for all hospitals in
the Nation. Next, divide the national
occupational mix adjusted salaries and
wage-related costs by the national
hours. The proposed FY 2012
occupational mix adjusted national
average hourly wage is $36.1406.
Step 11—To compute the
occupational mix adjusted wage index,
divide each area’s occupational mix
adjusted average hourly wage (Step 9)
by the national occupational mix
adjusted average hourly wage (Step 10).
Step 12—To compute the Puerto Rico
specific occupational mix adjusted wage
index, follow Steps 1 through 11 above.
The proposed FY 2012 occupational
mix adjusted Puerto Rico-specific
average hourly wage is $15.4107.
The table below is an illustrative
example of the occupational mix
adjustment.
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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 2012 wage index. For the
FY 2007–2008 survey, the response rate
was 90.8 percent.
In computing the proposed FY 2012
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 its labor market area.
This method has the least impact on the
wage index for other hospitals in the
area. For areas where no hospital
submitted data for purposes of
calculating the occupational mix
adjustment, we applied the national
occupational mix factor of 1.0000 in
calculating the area’s proposed FY 2012
occupational mix adjusted wage index.
In addition, if a hospital submitted a
survey, but that survey data could not
be used because we determined the
survey data 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 0.9246 (CBSA
17780, College Station-Bryan, TX), to a
high of 1.0761 (CBSA 19, Rural
Louisiana). Also, in computing a
hospital’s occupational mix adjusted
salaries and wage-related costs for
nursing employees (Step 7 of the
calculation), in the absence of
occupational mix survey data, we
multiplied the hospital’s total salaries
and wage-related costs by the
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percentage of the area’s total workers
attributable to the area’s total nursing
category. For FY 2012, there are five
CBSAs (that include six hospitals) for
which we did not have occupational
mix data for any of its hospitals. The
CBSAs are:
• CBSA 36140, Ocean City, NJ (1
hospital)
• CBSA 22140, Farmington, NM (1
hospital)
• CBSA 41900, San German-Cabo
Rojo, PR (2 hospitals)
• CBSA 49500, Yauco, PR (1 hospital)
• CBSA 21940, Fajardo, PR (1
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; 73
FR 48580; 74 FR 43832, and 75 FR
50167). During the FY 2008 rulemaking
cycle, some commenters suggested a
penalty equal to a 1- to 2-percent
reduction in the hospital’s wage index
value or a set percentage of the
standardized amount. During the FY
2009 and FY 2010 rulemaking cycles,
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. 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 developed the FY 2011 wage
index.
In the FY 2011 IPPS/LTCH PPS
proposed and final rules (75 FR 23943
and 50167, respectively), we stated that,
in order to gain a better understanding
of why some hospitals are not
submitting the occupational mix data,
we will require hospitals that do not
submit occupational mix data to provide
an explanation for not complying. This
requirement will be effective beginning
with the new 2010 occupational mix
survey (the 2010 survey is discussed in
section III.C.2. of this preamble). We
will instruct fiscal intermediaries/MACs
to begin gathering this information as
part of the FY 2013 wage index desk
review process. We note that we reserve
the right to apply a different approach
in future years, including potentially
penalizing nonresponsive hospitals.
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D. Worksheet S–3 Wage Data for the
Proposed FY 2012 Wage Index
The proposed FY 2012 wage index
values are based on the data collected
from the Medicare cost reports
submitted by hospitals for cost reporting
periods beginning in FY 2008 (the FY
2011 wage index was based on data
from cost reporting periods beginning
during FY 2007).
1. Included Categories of Costs
The proposed FY 2012 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 includes 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.
2. Proposal for Changes to the Reporting
Requirements for Pension Costs for the
Medicare Wage Index
a. Background
The instructions for determining and
reporting defined benefit pension costs
on the cost report for Medicare costfinding purposes are located in section
2142 of the Provider Reimbursement
Manual, Part I (PRM–I). For Medicare
wage index purposes, the instructions in
section 3605.2 of the Provider
Reimbursement Manual, Part II (PRM–
II) for Worksheet S–3, Part II, Lines 13
through 20, require hospitals to comply
with the requirements in section 2142 of
the PRM–I.
Specifically, section 2142.5 of the
PRM–I defines the current period
liability for pension cost (that is, the
maximum allowable pension cost) based
on the actuarial accrued liability,
normal cost, and unfunded actuarial
liability. Under section 2142.4(A) of the
PRM–I, these liability measurements are
to be computed in accordance with the
Employee Retirement Income Security
Act of 1974 (ERISA), regardless of
whether or not the pension plan is
subject to ERISA. Also, section
2142.6(A) of the PRM–I requires the
current period liability for pension costs
to be funded in order to be allowable.
In addition, section 2142.6(C) of the
PRM–I allows for funding in excess of
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the current period liability to be carried
forward and recognized in future
periods. We note that, on March 28,
2008, CMS published Revision 436, a
technical clarification to section 2142 of
the PRM–I.
Actuarial accrued liability and normal
cost are typically determined on an
ongoing plan basis using long-term,
best-estimate assumptions. The interest
assumption reflects the average rates of
return expected over the period during
which benefits were payable, taking into
account the investment mix of plan
assets. Pension costs for plans not
subject to ERISA (such as church plans
and plans sponsored by public sector
employers) are also typically based on
the actuarial accrued liability and
normal cost using long-term, best
estimate assumptions.
The Pension Protection Act (PPA) of
2006 (Pub. L. 109–280) amended ERISA.
Under the PPA amendments to ERISA,
the actuarial accrued liability and
normal cost are no longer used as a basis
for determining ERISA minimum
required or maximum tax deductible
contributions. ERISA contribution limits
are now based on a ‘‘funding target’’ and
‘‘target normal cost’’ measured on a
settlement basis using the current
market interest rates for investment
grade corporate bonds that match the
duration of the benefit payouts. The
Internal Revenue Service (IRS)
publishes the applicable interest rate
tables on a monthly basis. Because
pension liabilities are very sensitive to
changes in the interest rate used to
discount future benefit payouts, pension
costs based on the PPA ‘‘funding target’’
and ‘‘target normal cost’’ values are
expected to be less stable than those
based on the pre-PPA traditional longterm, best-estimate assumptions, which
change infrequently. Furthermore, plans
not subject to the ERISA requirements,
as amended by the PPA, are not likely
to use the new ‘‘funding target’’ and
‘‘target normal cost’’ basis for
determining pension costs, and ERISA
plans are not likely to continue to report
costs developed using the actuarial
accrued liability and normal cost based
on long-term, best estimate
assumptions. Accordingly, there is no
longer a standard actuarial basis used by
all plans.
In response to the PPA amendments
to ERISA, we began a review of the rules
for determining pension costs for
Medicare cost finding and wage index
purposes. As an interim measure, we
issued a Joint Signature Memorandum
(JSM) in November 2009 that contained
instructions and a spreadsheet to assist
hospitals and Medicare contractors in
determining the annual allowable
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defined benefit pension cost for the FY
2011 wage index (JSM/TDL–10061, 11–
20–09, December 3, 2009). Although
these instructions were released for
purposes of the wage index, these
instructions also serve as interim
guidance for Medicare cost-finding
purposes.
In this proposed rule, we are
proposing to revise our policy for
determining pension cost for Medicare
purposes. As mentioned above, due to
the ERISA rules, as amended by the
PPA, there is no longer a standard
actuarial cost basis to be used by all
types of plans. Therefore, we are
proposing to no longer rely on actuarial
computation to determine the maximum
annual cost limitation for Medicare.
Instead, the general parameters of our
proposal would maintain the current
requirement that pension costs must be
funded to be reportable, and would
require all hospitals to report the actual
pension contributions funded during
the reporting period, on a cash basis.
In addition, under this cash basis
approach, we are proposing separate
methodologies for measuring pension
costs for Medicare cost-finding purposes
(discussed in section IV.M. of this
preamble) and for purposes of updating
the wage index (discussed below in
section III.D.2.b. of this preamble). We
believe it is necessary to have two
distinct proposals in order to address
the different goals of determining a
hospital’s payments and updating the
average hourly wage to establish the
geographic area wage index. The
function of the wage index is to measure
relative hospital labor costs across areas.
This function is distinct from Medicare
payment determinations, where the goal
is to measure the actual costs incurred
by individual hospitals. These two
distinct proposals would require
separate updated instructions to section
2142 of the PRM–I for Medicare costfinding purposes and section 3605.2 of
the PRM–II for purposes of the wage
index. Below is a detailed discussion of
our proposal for reporting pension costs
under the wage index. A full discussion
of our proposal for Medicare costfinding is discussed in section IV.M. of
this preamble.
The proposal below reflects our
commitment to the general principles of
the President’s Executive Order released
January 18, 2011, entitled ‘‘Improving
Regulation and Regulatory Review.’’
b. Proposal for Allowable Pension Cost
for the Medicare Wage Index
As mentioned above, the function of
the Medicare wage index is to measure
relative hospital labor costs across all
areas. Therefore, while we believe
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pension costs must be funded in order
to be reportable (we refer readers to the
August 12, 2010 Federal Register (74 FR
47369) for an explanation of this
longstanding policy), it also is important
for pension costs to be relatively stable
from year to year so that there is less
volatility in the wage index. Thus, we
are proposing to include, in the wage
index, pension costs equal to the
average actual cash contributions
deposited to a hospital’s defined benefit
pension plan by the hospital and/or the
hospital system over a 3-year period.
The use of cash contributions as a
measure of the costs incurred is
necessary to ensure uniformity among
all hospitals, regardless of their tax
status or ERISA coverage. The 3-year
average is intended to reduce the
volatility that often occurs due to timing
of contributions. Most pension plan
sponsors have flexibility to determine
the pension funding for a particular
period and their decisions may be based
on cash-flow considerations or other
factors unrelated to the normal
operation of the plan. Furthermore, the
funding of current period pension costs
may be delayed by almost a full year
after the close of the period to which it
applies. By using a 3-year average, we
hope to enhance the stability of the
wage index.
To ensure that the average annual
pension cost reflected in the wage index
is consistent with the reporting period
applicable to all other costs included in
the index, we are proposing that the 3year average be centered on the base
cost reporting year for the wage index.
For example, the FY 2013 wage index
will be based on Medicare cost reporting
periods beginning during FY 2009 and
would reflect the average pension
contributions made in hospitals’ cost
reporting periods beginning during FYs
2008, 2009, and 2010. Thus, this
proposal would require pension plan
contribution data for the cost reporting
periods immediately preceding and
immediately following the base cost
reporting period for the wage index.
We do not anticipate that the use of
contributions made in the cost reporting
period immediately following the
reporting year will create an
administrative burden because, even
under the existing rule, contributions to
fund current period costs are often
deferred until the following period. In
addition, trust account statements and
general ledger reports to support the
contributions should be readily
available. We are proposing to apply the
above methodology for reporting
pension costs for the wage index
beginning with the FY 2013 IPPS
update. We invite public comment on
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this policy proposal and are especially
interested in receiving comments
related to the proposed 3-year averaging
period.
3. Excluded Categories of Costs
Consistent with the wage index
methodology for FY 2011, the proposed
wage index for FY 2012 also excludes
the direct and overhead salaries and
hours for services not subject to IPPS
payment, such as SNF services, home
health services, costs related to GME
(teaching physicians and residents) and
certified registered nurse anesthetists
(CRNAs), and other subprovider
components that are not paid under the
IPPS. The proposed FY 2012 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).
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4. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals Under
the IPPS
Data collected for the IPPS wage
index are also currently used to
calculate wage indices applicable to
other providers, such as SNFs, home
health agencies (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. Such
comments should be made in response
to separate proposed rules for those
providers.
E. Verification of Worksheet S–3 Wage
Data
The wage data for the proposed FY
2012 wage index were obtained from
Worksheet S–3, Parts II and III of the
Medicare cost report for cost reporting
periods beginning on or after October 1,
2007, and before October 1, 2008. For
wage index purposes, we refer to cost
reports during this period as the ‘‘FY
2008 cost report,’’ the ‘‘FY 2008 wage
data,’’ or the ‘‘FY 2008 data.’’
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 proposed wage
index includes FY 2008 data submitted
to us as of March 3, 2011. As in past
years, we performed an intensive review
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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 result in specific edit failures. For
the proposed FY 2012 wage index, we
identified and excluded 23 providers
with data that was too aberrant to
include in the proposed wage index,
although if data elements for some of
these providers are corrected, we
intended to include some of these
providers in the FY 2012 final wage
index. We instructed fiscal
intermediaries/MACs to complete their
data verification of questionable data
elements and to transmit any changes to
the wage data no later than April 13,
2011. We intend that all unresolved data
elements will be resolved by the date
the final rule is issued. The revised data
will be reflected in the FY 2012 IPPS
final rule.
In constructing the proposed FY 2012
wage index, we included the wage data
for facilities that were IPPS hospitals in
FY 2008, 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 proposed rule,
we removed 19 hospitals that converted
to CAH status between February 16,
2010, the cut-off date for CAH exclusion
from the FY 2011 wage index, and
February 15, 2011, the cut-off date for
CAH exclusion from the FY 2012 wage
index. After removing hospitals with
aberrant data and hospitals that
converted to CAH status, the proposed
FY 2012 wage index is calculated based
on 3,484 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 2011 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. The
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FY 2011 wage index included separate
wage data for campuses of three
multicampus hospitals.
For FY 2012, as we discussed in the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50168), we are proposing to no
longer allow hospitals to use 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 (Form CMS–
2552–96, Worksheet S–2, lines 61 and
62). The data from cost reporting
periods that begin in FY 2008 are now
available for calculating the wage index
for FY 2012. Therefore, a multicampus
hospital will not have the option 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. The table
containing the proposed FY 2012 wage
index, which is listed in section VI. of
the Addendum to this proposed rule
and available via the Internet, includes
separate wage data for campuses of
three multicampus hospitals.
F. Method for Computing the Proposed
FY 2012 Unadjusted Wage Index
1. Steps for Computation
The method used to compute the
proposed FY 2012 wage index without
an occupational mix adjustment
follows:
Step 1—As noted above, we are
proposing to base the proposed FY 2012
wage index on wage data reported on
the FY 2008 Medicare cost reports. We
gathered data from each of the nonFederal, 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, 2007, and before
October 1, 2008. In addition, we
included data from some hospitals that
had cost reporting periods beginning
before October 2007 and reported a cost
reporting period covering all of FY
2008. 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 2008
data. We note that, if a hospital had
more than one cost reporting period
beginning during FY 2008 (for example,
a hospital had two short cost reporting
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periods beginning on or after October 1,
2007, and before October 1, 2008), 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),
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 2011 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).
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We note that contract labor and home
office salaries for which no
corresponding hours are reported are
not included. In addition, wage-related
costs for nonteaching physician Part A
employees (Line 18) are excluded if no
corresponding salaries are reported for
those employees on Line 4.
Step 3—Hours—With the exception of
wage-related costs, for which there are
no associated hours, we compute total
hours using the same methods as
described for salaries in Step 2.
Step 4—For each hospital reporting
both total overhead salaries and total
overhead hours greater than zero, we
then allocate overhead costs to areas of
the hospital excluded from the wage
index calculation. First, we determine
the ratio of excluded area hours (sum of
Lines 8 and 8.01 of Worksheet S–3, Part
II) to revised total hours (Line 1 minus
the sum of Part II, Lines 2, 3, 4.01, 5,
5.01, 6, 6.01, 7, and Part III, Line 13 of
Worksheet S–3). We then compute the
amounts of overhead salaries and hours
to be allocated to excluded areas by
multiplying the above ratio by the total
overhead salaries and hours reported on
Line 13 of Worksheet S–3, Part III. Next,
we compute the amounts of overhead
wage-related costs to be allocated to
excluded areas using three steps: (1) We
determine the ratio of overhead hours
(Part III, Line 13 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
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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, 2005,
through April 15, 2007, 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
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 we are not
proposing to make any changes to the
usage for FY 2012. The factors used to
adjust the hospital’s data were based on
the midpoint of the cost reporting
period, as indicated below.
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For example, the midpoint of a cost
reporting period beginning January 1,
2008, and ending December 31, 2008, is
June 30, 2008. An adjustment factor of
1.01766 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
2008 and covered a period of less than
360 days or more than 370 days, we
annualize the data to reflect a 1-year
cost report. Dividing the data by the
number of days in the cost report and
then multiplying the results by 365
accomplishes annualization.
Step 6—Each hospital is assigned to
its appropriate urban or rural labor
market area before any reclassifications
under section 1886(d)(8)(B), section
1886(d)(8)(E), or section 1886(d)(10) of
the Act. Within each urban or rural
labor market area, we add the total
adjusted salaries plus wage-related costs
obtained in Step 5 for all hospitals in
that area to determine the total adjusted
salaries plus wage-related costs for the
labor market area.
Step 7—We divide the total adjusted
salaries plus wage-related costs obtained
under both methods in Step 6 by the
sum of the corresponding total hours
(from Step 4) for all hospitals in each
labor market area to determine an
average hourly wage for the area.
Step 8—We add the total adjusted
salaries plus wage-related costs obtained
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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
proposed national average hourly wage
(unadjusted for occupational mix) is
$36.1697.
Step 9—For each urban or rural labor
market area, we calculate the hospital
wage index value, unadjusted for
occupational mix, by dividing the area
average hourly wage obtained in Step 7
by the national average hourly wage
computed in Step 8.
Step 10—Following the process set
forth above, we develop a separate
Puerto Rico-specific wage index for
purposes of adjusting the Puerto Rico
standardized amounts. (The national
Puerto Rico standardized amount is
adjusted by a wage index calculated for
all Puerto Rico labor market areas based
on the national average hourly wage as
described above.) We add the total
adjusted salaries plus wage-related costs
(as calculated in Step 5) for all hospitals
in Puerto Rico and divide the sum by
the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an
overall proposed average hourly wage
(unadjusted for occupational mix) of
$15.3863 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
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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
which is listed in section VI. of the
Addendum to this proposed rule and
available via the Internet.
2. Expiration of the Imputed Floor
Policy
In the FY 2005 IPPS final rule (69 FR
49109 through 49111), we adopted the
‘‘imputed’’ floor as a temporary 3-year
regulatory 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. There
are two States that have no rural areas
(New Jersey and Rhode Island). Rhode
Island has only one urban area. In
accordance with the imputed floor
calculation (§ 412.64(h)(4) of the
regulations), Rhode Island receives no
benefit from the policy. As a result, the
imputed floor policy only benefits one
State—New Jersey. Although New Jersey
may argue that it is disadvantaged by
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hospitals but where the rural floor is not
applied to hospitals in States where the
rural or imputed floor is applied. For
this reason, we believe that the floor
policy should apply only when required
by statute. Thus, only States containing
both rural areas and hospitals located in
such areas (including any hospital
reclassified as rural under § 412.103)
would benefit from the rural floor, as
required by section 4410 of Public Law
105–33.
In the proposed FY 2012 wage index,
the rural floor will apply to 189
hospitals in 26 States. If the imputed
floor policy was to continue into FY
2012, it would apply to 39 additional
hospitals in New Jersey. We are seeking
public comments regarding the
expiration of the imputed floor.
3. Proposed FY 2012 Puerto Rico Wage
Index
We note that, for the proposed FY
2012 wage index, there is one new
hospital in rural Puerto Rico when
previously there were none. However,
this hospital has no cost reporting
period beginning during FY 2008 and,
therefore, has no wage data for inclusion
in the proposed FY 2012 wage index
calculation for rural Puerto Rico. We
discussed in the FY 2005 IPPS final rule
that, under these circumstances, we
would determine a State’s rural floor
based on the imputed floor policy in
§ 412.64(h)(4) of the regulations.
However, as discussed above, the
imputed floor is set to expire with the
FY 2011 wage index. We adopted the
policy in the FY 2008 IPPS final rule
with comment period (72 FR 47323) that
if there are no hospitals’ cost report
wage data available to calculate a State’s
rural floor, and the imputed floor policy
has expired, ‘‘we will use the
unweighted average of the wage indices
from all CBSAs (urban areas) that are
contiguous to the rural counties of the
State to compute the State’s rural floor.
(We define contiguous as sharing a
border.)’’ Except for Fajardo, Puerto Rico
(CBSA 21940), all other Puerto Rico
urban areas are contiguous to a rural
As discussed in section III.C. of this
preamble, for FY 2012, we are proposing
to apply the occupational mix
adjustment to 100 percent of the
proposed FY 2012 wage index. We
calculated the proposed occupational
mix adjustment using data from the
2007–2008 occupational mix survey
data, using the methodology described
in section III.C.3. of this preamble.
Using the occupational mix survey
data and applying the occupational mix
adjustment to 100 percent of the
proposed FY 2012 wage index results in
a proposed national average hourly
wage of $36.1406 and a proposed
Puerto-Rico specific average hourly
wage of $15.4107. After excluding data
of hospitals that either submitted
aberrant data that failed critical edits, or
that do not have FY 2008 Worksheet S–
3 cost report data for use in calculating
the proposed FY 2012 wage index, we
calculated the proposed FY 2012 wage
index using the occupational mix
survey data from 3,165 hospitals. Using
the Worksheet S–3 cost report data of
3,484 hospitals and occupational mix
survey data from 3,165 hospitals
represents a 90.8 percent survey
response rate. The proposed FY 2012
national average hourly wages for each
occupational mix nursing subcategory
as calculated in Step 2 of the
occupational mix calculation are as
follows:
The proposed national average hourly
wage for the entire nurse category as
computed in Step 5 of the occupational
mix calculation is $30.442540295.
Hospitals with a nurse category average
hourly wage (as calculated in Step 4) of
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area. Therefore, based on our existing
policy, the proposed FY 2012 rural
Puerto Rico wage index is calculated
based on the average of the proposed FY
2012 wage indices for the following
urban areas: Aguadilla-Isabela-San
´
Sebastian, PR (CBSA 10380); Guayama,
¨
PR (CBSA 25020); Mayaguez, PR (CBSA
32420); Ponce, PR (CBSA 38660), San
´
German-Cabo Rojo, PR (CBSA 41900),
San Juan-Caguas-Guaynabo, PR (CBSA
41980), and Yauco, PR (CBSA 49500).
G. Analysis and Implementation of the
Proposed Occupational Mix Adjustment
and the Proposed FY 2012 Occupational
Mix Adjusted Wage Index
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the statutory rural floor because it has
no rural areas, the imputed floor policy
provides New Jersey with a guaranteed
benefit that no other State has. In any
given year, approximately one-half of
the States have no hospitals that benefit
from the rural floor provision. However,
New Jersey benefits each year that the
imputed floor policy is in place.
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, linking the extension to a policy
to apply budget neutrality for the rural
and imputed floors within each State,
instead of nationally, over a 3-year
transition period. Section 3141 of the
Affordable Care Act replaced the
statewide budget neutrality policy with
the national budget neutrality policy
that was in place during FY 2008. That
is, section 3141 required that budget
neutrality for the rural and imputed
floor be applied ‘‘through a uniform,
national adjustment to the area wage
index’’ instead of within each State
beginning in FY 2011 (75 FR 50160).
However, we note that the Affordable
Care Act did not include a provision to
extend the imputed floor or to make the
imputed floor permanent. Therefore, the
imputed floor is set to expire with the
FY 2011 wage index, and we are not
proposing to extend the imputed floor
policy. Thus, the imputed floor is not
reflected in the table containing the
proposed FY 2012 wage index, which is
listed in section VI. of the Addendum to
this proposed rule and available via the
Internet.
As we discussed in the FY 2008 IPPS
proposed rule and final rule with
comment period (72 FR 24786 and 72
FR 47322, respectively), the application
of the national budget neutrality
requirement for the rural and imputed
floors requires a transfer of payments
from hospitals in States with rural
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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 2007–2008 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 proposed FY 2012
occupational mix adjusted wage indices
for each CBSA to the proposed
unadjusted wage indices for each CBSA.
As a result of applying the occupational
mix adjustment to the wage data, the
proposed wage index values for 209
(53.6 percent) urban areas and 32 (66.7
percent) rural areas would increase. One
hundred seven (27.4 percent) urban
areas would increase by 1 percent or
more, and 5 (1.3 percent) urban areas
would increase by 5 percent or more.
Seventeen (35.4 percent) rural areas
would increase by 1 percent or more,
and no rural areas would increase by 5
percent or more. However, the wage
index values for 181 (46.4 percent)
urban areas and 16 (33.3 percent) rural
areas would decrease. Eighty-eight (22.6
percent) urban areas would decrease by
1 percent or more, and no urban area
would decrease by 5 percent or more.
Seven (14.6 percent) rural areas would
decrease by 1 percent or more, and no
rural areas would decrease by 5 percent
or more. The largest positive impacts are
7.81 percent for an urban area and 2.90
percent for a rural area. The largest
negative impacts are 3.95 percent for an
urban area and 2.78 percent for a rural
area. No urban or rural areas are
unaffected. These results indicate that a
larger percentage of rural areas (66.7
percent) would benefit from the
occupational mix adjustment than do
urban areas (53.6 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 (33.3 percent) of rural CBSAs
would still experience a decrease in
their wage indices as a result of the
occupational mix adjustment.
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The proposed wage index values for
FY 2012 (except those for hospitals
receiving wage index adjustments under
section 1886(d)(13) of the Act) included
in Tables 4A, 4B, 4C, and 4F, which are
listed in section VI. of the Addendum to
this proposed rule and available via the
Internet, include the proposed
occupational mix adjustment.
Tables 3A and 3B, which are listed in
section VI. of the Addendum to this
proposed rule and available via the
Internet, list the 3-year average hourly
wage for each labor market area before
the redesignation or reclassification of
hospitals based on FYs 2010, 2011, and
2012 cost reporting periods. Table 3A
lists these data for urban areas, and
Table 3B lists these data for rural areas.
In addition, Table 2, which is listed in
section VI. of the Addendum to this
proposed rule and available via the
Internet, includes the adjusted average
hourly wage for each hospital from the
FY 2006 and FY 2007 cost reporting
periods, as well as the FY 2008 period
used to calculate the proposed FY 2012
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
proposed average hourly wages in
Tables 2, 3A, and 3B, which are listed
in section VI. of the Addendum to this
proposed rule and available via the
Internet, include the proposed
occupational mix adjustment. The
proposed wage index values in Tables
4A, 4B, 4C, and 4D also include the
proposed national rural floor budget
neutrality adjustment.
H. Revisions to the Wage Index Based
on Hospital Redesignations and
Reclassifications
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
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year (beginning October 1). The
regulations applicable to
reclassifications by the MGCRB are
located in 42 CFR 412.230 through
412.280. (We refer readers to a
discussion of the proximity
requirements in the FY 2002 IPPS final
rule (66 FR 39874 and 39875).)
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
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.H.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
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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
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
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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.
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 2012 MGCRB Reclassifications
a. FY 2012 Reclassification
Requirements and Approvals
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 proposed rule was
constructed, the MGCRB had completed
its review of FY 2012 reclassification
requests. Based on such reviews, there
were 280 hospitals approved for wage
index reclassifications by the MGCRB
for FY 2012. Because MGCRB wage
index reclassifications are effective for 3
years, for FY 2012, hospitals reclassified
during FY 2010 or FY 2011 are eligible
to continue to be reclassified to a
particular labor market area based on
such prior reclassifications. There were
283 hospitals approved for wage index
reclassifications in FY 2010 and 294
hospitals approved for wage index
reclassifications in FY 2011. Of all of
the hospitals approved for
reclassification for FY 2010, FY 2011,
and FY 2012, based upon the review at
the time of this proposed rule, 857
hospitals are in a reclassification status
for FY 2012.
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
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withdrawal of an application for
reclassification or termination of an
existing 3-year reclassification that
would be effective in FY 2012 has to be
received by the MGCRB within 45 days
of the publication of the proposed rule.
Hospitals also may 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).
Additional discussion on withdrawals
and terminations, and clarifications
regarding reinstating reclassifications
and ‘‘fallback’’ reclassifications, were
included in the FY 2008 IPPS final rule
(72 FR 47333).
Changes to the wage index that result
from withdrawals of requests for
reclassification, terminations, wage
index corrections, appeals, and the
Administrator’s review process for FY
2012 will be incorporated into the wage
index values published in the FY 2012
IPPS/LTCH PPS final rule. These
changes affect not only the wage index
value for specific geographic areas, but
also the wage index value redesignated/
reclassified 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/reclassified hospitals.
Further, the wage index value for the
area from which the hospitals are
redesignated/reclassified may be
affected.
b. Applications for Reclassifications for
FY 2013
Applications for FY 2013
reclassifications are due to the MGCRB
by September 1, 2011. 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 2011, 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.
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
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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
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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
2011 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
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occurring on or after October 1, 2011,
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.
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As in the past, hospitals redesignated
under section 1886(d)(8)(B) of the Act
are also eligible to be reclassified to a
different area by the MGCRB. Affected
hospitals are permitted to compare the
reclassified wage index for the labor
market area in Table 4C (which is listed
in section VI. of the Addendum to this
proposed rule and available via the
Internet) 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 may
withdraw from an MGCRB
reclassification within 45 days of the
publication of this proposed rule.
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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
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
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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 the requirements of section 3137(c)
of the Affordable Care Act, beginning
with reclassifications for the FY 2011
wage index, a Lugar hospital must also
demonstrate that its average hourly
wage is equal to at least 82 percent of
the average hourly wage of hospitals in
the area to which it seeks redesignation
(§ 412.230(d)(1)(iv)(C)).
Hospitals not located in a Lugar
county seeking reclassification to the
urban area where the Lugar hospitals
have been redesignated are not
permitted to measure to the Lugar
county to demonstrate proximity (no
more than 15 miles for an urban
hospital, and no more than 35 miles for
a rural hospital or the closest urban or
rural area for RRCs or SCHs) in order to
be reclassified to such urban area. These
hospitals must measure to the urban
area exclusive of the Lugar County to
meet the proximity or nearest urban or
rural area requirement. 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
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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
2010 notice issued in the Federal
Register on June 2, 2010 (75 FR 31118).
Prior to the enactment of the Medicare
and Medicaid Extenders Act of 2010
(Pub. L. 111–309) on December 15,
2010, the extension of the 508 provision
was included in sections 3137(a) and
10317 of the Affordable Care Act (Pub.
L. 111–148). Section 3137 of the
Affordable Care Act extended, through
FY 2010, section 508 reclassifications as
well as certain special exceptions. The
most recent extension of the provision
was included in section 102 of the
Medicare and Medicaid Extender Act,
which extends, through FY 2011,
section 508 reclassifications as well as
certain special exceptions. The latest
extension of these provisions expires on
September 30, 2011, and will no longer
be applicable effective with FY 2012.
7. Waiving Lugar Redesignation for the
Out-Migration Adjustment
We have received several inquiries
regarding the effect on a hospital’s
deemed urban status when a hospital
waives its reclassification under section
1886(d)(8) of the Act in order to accept
an out-migration adjustment to the wage
index under section 1886(d)(13) of the
Act. (We refer readers to a discussion of
the out-migration adjustment under
section III.I. of the preamble of this
proposed rule.) In this proposed rule,
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we are clarifying that Lugar hospitals
will be required to waive their Lugar
urban status in its entirety in order to
receive the out-migration adjustment.
We believe this represents a permissible
reading of the statute, as section
1886(d)(13)(G) of the Act states that a
hospital with an out-migration
adjustment is not ‘‘eligible’’ for a
reclassification under subsection (8).
Therefore, beginning with FY 2012, we
are proposing that an eligible hospital
that waives its Lugar status in order to
receive the out-migration adjustment
has effectively waived its deemed urban
status and, thus, is rural for all purposes
under the IPPS, including being
considered rural for the DSH payment
adjustment, effective for the fiscal year
in which the hospital receives the outmigration adjustment. (We refer readers
to a discussion of DSH payment
adjustment under section IV.G. of this
preamble.)
In addition, we are proposing to make
a minor procedural change that would
allow a Lugar hospital that qualifies for
and accepts the out-migration
adjustment (through written notification
to CMS within 45 days from the
publication of the proposed rule) to
automatically waive its urban status for
the 3-year period for which its outmigration adjustment is effective. That
is, such a Lugar hospital would no
longer be required during the second
and third years of eligibility for the outmigration adjustment to advise us
annually that it prefers to continue
being treated as rural and receive the
adjustment. We are making this
proposal in response to public
comments we received on the FY 2011
IPPS/LTCH proposed rule that
discussed the burden of this annual
request (74 FR 43840). Thus, under the
proposed procedural change, a Lugar
hospital that requests to waive its urban
status in order to receive the rural wage
index in addition to the out-migration
adjustment would be deemed to have
accepted the out-migration adjustment
and agrees to be treated as rural for the
duration of its 3-year eligibility period,
unless prior to its second or third year
of eligibility the hospital explicitly
notifies CMS in writing, within 45 days
from the publication of the proposed
rule, that it instead elects to return to its
deemed urban status and no longer
wishes to accept the out-migration
adjustment.
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8. Other Geographic Reclassification
Issues
a. Requested Reclassification for Single
Hospital MSAs
Section 412.230 of the regulations sets
forth criteria for an individual hospital
to apply for geographic reclassification
to a higher rural or urban wage index
area. Specifically, under
§ 412.230(a)(3)(ii), an individual
hospital may be redesignated from an
urban area to another urban area, from
a rural area to another rural area, or
from a rural area to an urban area for the
purpose of using the other area’s wage
index value. Such a hospital must also
meet other criteria. One required
criterion (under § 412.230(d)(1)(iii)(C) of
the regulations) is that the hospital must
demonstrate that its own average hourly
wage is higher than the average hourly
wage of hospitals in the area in which
the hospital is located (108 percent for
urban hospitals and 106 percent for
rural hospitals). In cases where a
hospital wishing to reclassify is the only
hospital in its MSA, that hospital is
unable to satisfy this criterion because
it cannot demonstrate that its average
hourly wage is higher than that of the
other hospitals in the area in which the
hospital is located (because there are no
other hospitals in the area). For
hospitals in the category described
above, our current policy provides an
alternative that allows hospitals to seek
reclassification using the group
reclassification rules under § 412.232 or
§ 412.234. Specifically, if a hospital is
the single hospital in its area for the 3year period over which the average
hourly wage is calculated for the
purpose of the comparison under
§ 412.230(d)(1)(iii)(C), the hospital may
apply for geographic reclassification as
a single hospital county group in
accordance with the procedures set
forth at § 412.232 or § 412.234. In
addition to specifying the average
hourly wage criteria, these regulations
state that the county in which the
hospital is located must be adjacent to
the urban area to which it seeks
redesignation. In addition, a certain
level of economic integration needs to
exist between the two areas. For
example, for urban county group
reclassifications (for FY 2008 and
subsequent periods), § 412.234(a)(3)(iv)
states that ‘‘hospitals located in counties
that are in the same Combined
Statistical Area (CSA) or Core-Based
Statistical Area (CBSA) * * * as the
urban area to which they seek
redesignation qualify as meeting the
proximity requirements for
reclassification to the urban area to
which they seek redesignation.’’
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Recently, we have been advised of a
single hospital MSA scenario of concern
to a particular hospital. In this scenario,
an urban hospital located in an area in
which there was only one other hospital
had previously applied for and was
granted a reclassification by the MGCRB
to an adjacent urban area with a higher
wage index. During the 3-year
reclassification timeframe, the other
hospital in its labor market area closed.
After the expiration of its
reclassification, the hospital became
ineligible for reclassification to that
same adjacent urban area with a higher
wage index because it was no longer
able to satisfy the wage data comparison
criteria to reclassify individually under
§ 412.230(d)(1)(iii)(C). In addition, the
hospital could not apply for
redesignation under the urban county
group regulation at § 412.234 because
the hospital was not located in the same
CSA or CBSA as the urban area to which
it sought reclassification. In this
example, the concern that was shared
with CMS was that the hospital was
competitively disadvantaged in
competing for labor with neighboring
hospitals where the hospital had a
comparable average hourly wage,
compared to the other hospitals in its
surrounding area, because it receives a
lower wage index.
We believe that the geographic
reclassification regulations should not
be revised to accommodate this
situation. We have repeatedly rejected
special rules to accommodate single
hospital MSAs (69 FR 48915, 49109; 71
FR 47869, 48071 and 48072). In these
explanations, we have highlighted the
fact that hospitals in single hospital
MSAs not only may be eligible for outcommuting adjustments, but that they
also may apply to an adjacent MSA
within the same CSA using the group
reclassification rules without meeting
the 108-percent test. Each year, we
propose to adopt the OMB’s statistical
area definitions (75 FR 50162), so if a
hospital in a single hospital MSA
cannot meet group reclassification
criteria because of the CSA standard, it
means that OMB has determined that
there is not a sufficient degree of
employment interchange to suggest that
the areas compete for the same labor. In
addition, when we originally adopted
the 108-percent test, we noted that ‘‘with
respect to single hospital MSAs, a
hospital in such an MSA receives a
wage index value that is based entirely
on its own wage data and, therefore, its
actual wage levels. Since such a hospital
is clearly not disadvantaged by its
inclusion in a labor market area where
its wage index is determined based on
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its own wage levels, it is appropriate
under this guideline that a hospital
should not be reclassified if it is the
only one in its area.’’ (57 FR 39746)
Allowing a hospital representing 100
percent of its area’s wages to be exempt
from the wage data comparison test
could undermine the 108-percent test
for hospitals in other circumstances
where the standard cannot be met.
Finally, we note that section 3137(c) of
the Affordable Care Act prohibits us
from altering average hourly wage
comparison criteria for FY 2012. That
provision states that ‘‘notwithstanding
any other provision of law,’’ the MGCRB
is required to use the ‘‘average hourly
wage comparison criteria used in
making such decisions as of September
30, 2008,’’ until the first fiscal year
beginning on the date that is one year
after the Secretary submits a report to
Congress.
We are soliciting public comments on
this issue. In particular, we invite
comments on the types of regulatory
solutions that could be made available
to a hospital in this type of situation.
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b. Requests for Exceptions to
Geographic Reclassification Rules
Over the last several years, CMS has
received numerous requests for
exceptions to current Medicare law and
regulation regarding geographic
reclassification or requests to revise the
existing regulations in order to allow a
hospital or group of hospitals the ability
to reclassify to a labor market area with
a higher wage index. Section 3137(b) of
the Affordable Care Act requires the
Secretary to submit a report to Congress
that includes a ‘‘plan to reform the
hospital wage index.’’ This report to
Congress is due by December 31, 2011.
As part of our efforts in this regard, we
are soliciting public comments, to be
considered only as part of our report to
Congress and not to be addressed in the
FY 2012 IPPS/LTCH PPS final rule, on
ways to redefine the geographic
reclassification requirements to more
accurately define labor markets.
I. Proposed FY 2012 Wage Index
Adjustment Based on Commuting
Patterns of Hospital Employees
In accordance with the broad
discretion granted to the Secretary
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
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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 hospital 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 not necessarily 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 proposed FY 2012 wage
index, we are proposing to calculate 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 post-reclassified
wage indices, to calculate the outmigration adjustment. This adjustment
is calculated as follows:
Step 1—Subtract the wage index for
the qualifying county from the wage
index of each of the higher wage area(s)
to which hospital workers commute.
Step 2—Divide the number of hospital
employees residing in the qualifying
county who are employed in such
higher wage index area by the total
number of hospital employees residing
in the qualifying county who are
employed in any higher wage index
area. For each of the higher wage 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).
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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 2011 will be eligible to retain
the adjustment for FY 2012. 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, 2011.
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 FYs
2005 through 2011 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 are deemed to
have chosen to retain their
redesignation or reclassification.
Hospitals that reclassified under section
1886(d)(10) of the Act that wish to
receive the out-migration adjustment,
rather than their reclassification
adjustment, are instructed to follow the
termination/withdrawal procedures
specified in 42 CFR 412.273 and section
III.H.3. of the preamble of this proposed
rule. Otherwise, they will be deemed to
have waived the out-migration
adjustment. Hospitals redesignated
under section 1886(d)(8)(B) of the Act
will be deemed to have waived the outmigration adjustment unless they
explicitly notify CMS within 45 days
from the publication of this proposed
rule that they elect to receive the outmigration adjustment instead. These
notifications should be sent to the
following address: Centers for Medicare
and Medicaid Services, Center for
Medicare, Attention: Wage Index
Adjustment Waivers, Division of Acute
Care, Room C4–08–06, 7500 Security
Boulevard, Baltimore, MD 21244–1850.
Table 4J, which is listed in section VI.
of the Addendum to this proposed rule
and available via the Internet, lists the
proposed out-migration wage index
adjustments for FY 2012. 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 out-
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migration adjustment unless CMS is
otherwise notified within the timeframe
stated above. In addition, hospitals
eligible to receive the out-migration
wage index adjustment and that
withdraw their application for
reclassification will automatically
receive the wage index adjustment
listed in Table 4J, which is listed in
section VI. of the Addendum to this
proposed rule and available via the
Internet.
J. Process for Requests for Wage Index
Data Corrections
The preliminary, unaudited
Worksheet S–3 wage data and
occupational mix survey data files for
the proposed FY 2012 wage index were
made available on October 4 2010,
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
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 13,
2010, 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 4, 2010 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 6, 2010. Hospitals were
notified of this deadline and of all other
deadlines and requirements, including
the requirement to review and verify
their data as posted on the preliminary
wage index data files on the Internet,
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through the October 13, 2010
memorandum referenced above.
In the October 13, 2010
memorandum, we also specified that a
hospital requesting revisions to its
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 6, 2010.
The fiscal intermediaries/MACs
notified the hospitals by mid-February
2011 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
2011. CMS published the proposed
wage index public use files that
included hospitals’ revised wage index
data on February 22, 2011. Hospitals
had until March 7, 2011, to submit
requests to the fiscal intermediaries/
MACs for 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 are required to
transmit any additional revisions
resulting from the hospitals’
reconsideration requests by April 13,
2011. 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 is
April 20, 2011.
Hospitals should examine Table 2,
which is listed in section VI. of the
Addendum to this proposed rule and
available via the Internet. Table 2
contains each hospital’s adjusted
average hourly wage used to construct
the wage index values for the past 3
years, including the FY 2008 data used
to construct the proposed FY 2012 wage
index. We note that the hospital average
hourly wages shown in Table 2 only
reflect changes made to a hospital’s data
and transmitted to CMS by March 2011.
We will release the final wage index
data public use files in early May 2011
on the Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
WIFN/list.asp. The May 2011 public use
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files are 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
13, 2011). If, after reviewing the May
2011 final files, a hospital believes that
its wage or occupational mix data are
incorrect due to a fiscal intermediary/
MAC or CMS error in the entry or
tabulation of the final data, the hospital
should send a letter to both its fiscal
intermediary/MAC and CMS that
outlines why the hospital believes an
error exists and provide all supporting
information, including relevant dates
(for example, when it first became aware
of the error). CMS and the fiscal
intermediaries (or, if applicable, the
MACs) must receive these requests no
later than June 6, 2011.
Each request also must be sent to the
fiscal intermediary/MAC. The fiscal
intermediary/MAC will review requests
upon receipt and contact CMS
immediately to discuss any findings.
At this point in the process, that is,
after the release of the May 2011 wage
index data files, changes to the wage
and occupational mix data will only be
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 will
approve 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 13, 2011.
• Requests for correction of errors
that were not, but could have been,
identified during the hospital’s review
of the February 22, 2011 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 6, 2011) will be incorporated
into the final wage index in the FY 2012
IPPS/LTCH PPS final rule, which will
be effective October 1, 2011.
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 2012 payment rates.
Accordingly, hospitals that do not meet
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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
MAC’s) attention. Moreover, because
hospitals have access to the final wage
index data by early May 2011, they have
the opportunity to detect any data entry
or tabulation errors made by the fiscal
intermediary or the MAC or CMS before
the development and publication of the
final FY 2012 wage index by August
2011, and the implementation of the FY
2012 wage index on October 1, 2011. If
hospitals avail themselves of the
opportunities afforded to provide and
make corrections to the wage and
occupational mix data, the wage index
implemented on October 1 should be
accurate. Nevertheless, in the event that
errors are identified by hospitals and
brought to our attention after June 6,
2011, 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 6 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
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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 MACs 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
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 6, 2011 deadline for the
FY 2012 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 calculated
the final wage index (that is, by the June
6, 2011 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
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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.
K. Labor-Related Share for the Proposed
FY 2012 Wage Index
Section 1886(d)(3)(E) of the Act
directs the Secretary to adjust the
proportion of the national prospective
payment system base payment rates that
are attributable to wages and wagerelated costs by a factor that reflects the
relative differences in labor costs among
geographic areas. It also directs the
Secretary to estimate from time to time
the proportion of hospital costs that are
labor-related: ‘‘The Secretary shall adjust
the proportion (as estimated by the
Secretary from time to time) of
hospitals’ costs which are attributable to
wages and wage-related costs of the
DRG prospective payment rates * * *’’
We refer to the portion of hospital costs
attributable to wages and wage-related
costs as the labor-related share. The
labor-related share of the prospective
payment rate is adjusted by an index of
relative labor costs, which is referred to
as the wage index.
Section 403 of Public Law 108–173
amended section 1886(d)(3)(E) of the
Act to provide that the Secretary must
employ 62 percent as the labor-related
share unless this ‘‘would result in lower
payments to a hospital than would
otherwise be made.’’ However, this
provision of Public Law 108–173 did
not change the legal requirement that
the Secretary estimate ‘‘from time to
time’’ the proportion of hospitals’ costs
that are ‘‘attributable to wages and wagerelated costs.’’ We believe that this
reflected Congressional intent that
hospitals receive payment based on
either a 62-percent labor-related share,
or the labor-related share estimated from
time to time by the Secretary, depending
on which labor-related share resulted in
a higher payment.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43850 through
43856), we rebased and revised the
hospital market basket for operating
costs. We established a FY–2006-based
IPPS hospital market basket to replace
the FY as 2002-based IPPS hospital
market basket, effective October 1, 2009.
In that final rule, we presented our
analysis and conclusions regarding the
frequency and methodology for
updating the labor-related share for FY
as 2010. We also recalculated a laborrelated share of 68.8 percent, using the
FY 2006-based IPPS market basket, for
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discharges occurring on or after October
1, 2009. In addition, we implemented
this revised and rebased labor-related
share in a budget neutral manner, but
consistent with section 1886(d)(3)(E) of
the Act, we did not take into account
the additional payments that would be
made as a result of hospitals with a
wage index less than or equal to 1.0
being paid using a labor-related share
lower than the labor-related share of
hospitals with a wage index greater than
1.0.
The labor-related share is used to
determine the proportion of the national
IPPS base payment rate to which the
area wage index is applied. In this
proposed rule, we are not proposing to
make any further changes to the
national average proportion of operating
costs that are attributable to wages and
salaries, fringe 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).
Therefore, for FY 2012, we are
proposing to continue to use a laborrelated share of 68.8 percent for
discharges occurring on or after October
1, 2011. Tables 1A and 1B, which are
published in section VI. of the
Addendum to this proposed rule and
available via the Internet, reflect this
labor-related share. 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 labor-related share unless
this employment ‘‘would result in lower
payments to a hospital than would
otherwise be made.’’ Therefore, for all
IPPS hospitals whose wage indices are
less than 1.0000, we are proposing to
apply the wage index to a labor-related
share of 62 percent of the national
standardized amount. For all IPPS
hospitals whose wage indices are greater
than 1.0000, we are proposing to apply
the wage index to a labor-related share
of 68.8 percent of the national
standardized amount.
For Puerto Rico hospitals, the national
labor-related share will always be 62
percent because the national wage index
for all Puerto Rico hospitals is less than
1.0. In this proposed rule, we are
proposing to continue to use a laborrelated share for the Puerto Rico-specific
standardized amounts of 62.1 percent
for discharges occurring on or after
October 1, 2011. This Puerto Rico laborrelated share of 62.1 percent was also
adopted in the FY 2010 IPPS/LTCH PPS
final rule (74 FR 43857) at the time the
FY 2006-based hospital market basket
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was established, effective October 1,
2009. Consistent with our methodology
for determining the national laborrelated share, we added the Puerto Ricospecific relative weights for wages and
salaries, fringe 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) to determine
the labor-related share. Puerto Rico
hospitals are paid based on 75 percent
of the national standardized amounts
and 25 percent of the Puerto Ricospecific standardized amounts. The
labor-related share of a hospital’s Puerto
Rico-specific rate will be either the
Puerto Rico-specific labor-related share
of 62.1 percent or 62 percent, depending
on which results in higher payments to
the hospital. If the hospital has a Puerto
Rico-specific wage index of greater than
1.0, we will set the hospital’s rates using
a labor-related share of 62.1 percent for
the 25 percent portion of the hospital’s
payment determined by the Puerto Rico
standardized amounts because this
amount will result in higher payments.
Conversely, a hospital with a Puerto
Rico-specific wage index of less than 1.0
will be paid using the Puerto Ricospecific labor-related share of 62 percent
of the Puerto Rico-specific rates because
the lower labor-related share will result
in higher payments. The Puerto Rico
labor-related share of 62.1 percent for
FY 2012 is reflected in Table 1C, which
is published in section VI. of the
Addendum to this proposed rule and
available via the Internet.
IV. Other Proposed Decisions and
Changes to the IPPS for Operating Costs
and GME Costs
A. Hospital Inpatient Quality Reporting
(IQR) Program
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 measures various
aspects of care for almost all Medicare
beneficiaries. These measures assess
structural aspects of care, clinical
processes, patient experiences with
care, and, increasingly, outcomes.
CMS has implemented quality
measure reporting programs for multiple
settings of care. To measure the quality
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of hospital inpatient services, CMS
implemented the Hospital Inpatient
Quality Reporting (IQR) Program
(formerly referred to as the Reporting
Hospital Quality Data for Annual
Payment Update (RHQDAPU) Program).
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 System (formerly referred to
as the Physician Quality Reporting
Program 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 endstage renal disease quality incentive
program that links payment to
performance.
In implementing the Hospital IQR
Program and other quality reporting
programs, we have focused on measures
that have high impact and support CMS
and HHS priorities for improved quality
and efficiency of care for Medicare
beneficiaries. Our goal for the future is
to align the clinical quality measure
requirements of the Hospital IQR
Program with various other programs,
including those authorized by the
Health Information Technology for
Economic and Clinical Health (HITECH)
Act so that the burden for reporting will
be reduced.
We also are proposing to implement
a Hospital Value-Based Purchasing
(VBP) Program under section 1886(o) of
the Act. On January 7, 2011, we issued
a proposed rule to implement the
Hospital VBP Program under section
1886(o) of the Act (76 FR 2454 through
2491) (the Hospital Inpatient VBP
Program proposed rule). We are
proposing additional policies for the
Hospital VBP Program in section IV.B.
of this proposed rule. In the Hospital
Inpatient VBP Program proposed rule
(76 FR 2454 through 2491), we proposed
that hospitals would receive valuebased incentive payments if they meet
performance standards with respect to
measures for a performance period for
the fiscal year involved. The measures
under the Hospital VBP Program must
be selected from the measures specified
under the Hospital IQR Program. The
Hospital VBP Program will apply to
payments for discharges occurring on or
after October 1, 2012, in accordance
with section 1886(o) of the Act.
The Hospital IQR Program is
intertwined with the Hospital VBP
Program because the measures and
reporting infrastructure for both
programs will overlap. We view the
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Hospital VBP Program as the next step
in promoting higher quality care for
Medicare beneficiaries by transforming
Medicare into an active purchaser of
quality health care for its beneficiaries.
As we stated in the Hospital Inpatient
VBP Program proposed rule (76 FR
2455), in developing that proposed rule
as well as other value-based payment
initiatives, we applied the following
principles for the development and use
of measures and scoring methodologies:
Purpose:
• We view value-based purchasing as
an important step to revamping how
care and services are paid for, moving
increasingly toward rewarding better
value, outcomes, and innovations
instead of merely volume.
Use of Measures:
• Public reporting and value-based
payment systems should rely on a mix
of standards, process, outcomes, and
patient experience of care measures,
including measures of care transitions
and changes in patient functional status.
Across all programs, we seek to move as
quickly as possible to the use of
primarily outcome and patient
experience measures. To the extent
practicable and appropriate, outcome
and patient experience measures should
be adjusted for risk or other appropriate
patient population or provider
characteristics.
• To the extent possible and
recognizing differences in payment
system maturity and statutory
authorities, measures should be aligned
across public reporting and payment
systems under Medicare and Medicaid.
The measure sets should evolve so that
they include a focused core set of
measures appropriate to the specific
provider category that reflects the level
of care and the most important areas of
service and measures for that provider.
• The collection of information
should minimize the burden on
providers to the extent possible. As part
of that effort, we will continuously seek
to align our measures with the adoption
of meaningful use standards for health
information technology (HIT), so the
collection of performance information is
part of care delivery.
• To the extent practicable, measures
used by CMS should be nationally
endorsed by a multi-stakeholder
organization. Measures should be
aligned with best practices among other
payers and the needs of the end users
of the measures.
We invite public comment on these
principles.
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b. Statutory History and History of
Measures Adopted for the Hospital IQR
Program
We refer readers to the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR
43860) and the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50180) for detailed
discussions of the history of the
Hospital IQR Program, including the
statutory history and the measures we
have adopted for the Hospital IQR
measure set through FY 2014.
Section 1886(b)(3)(B)(viii)(V) of the
Act requires that, effective for payments
beginning with FY 2008, the Secretary
to 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. We
are seeking comments on an option that
would allow us from time to time to
consider a range of consensus
endorsement entities or bodies that can
assist us with our measure development
process. We believe that this approach
would provide for a diverse
endorsement process and the best body
of evidence to support quality measures
used in our quality programs.
25891
and include detailed instructions on
survey implementation, data collection,
data submission and other relevant
topics. As necessary, HCAHPS Bulletins
are issued to provide notice of changes
and updates to technical specifications
in HCAHPS data collection systems.
d. Public Display of Quality Measures
Section 1886(b)(3)(B)(viii)(VII) of the
Act, as amended by section 3001(a)(2) of
the Affordable Care Act, requires that
the Secretary establish procedures for
making information regarding measures
submitted available to the public after
ensuring that a hospital has the
opportunity to review its data before
they are made public. We are proposing
to display information regarding the
measures (such as names of measures
for which data will be displayed in the
future) on the Hospital Compare Web
site under this provision, and invite
public comment on this proposal. We
will continue our current practice of
reporting data from the Hospital IQR
Program as soon as it is feasible on CMS
Web sites such as the Hospital Compare
Web site, https://
www.hospitalcompare.hhs.gov after a
30-day preview period.
The Hospital Compare Web site is an
c. Maintenance of Technical
interactive Web tool that assists
Specifications for Quality Measures
beneficiaries by providing information
The technical specifications for the
on hospital quality of care to those who
Hospital IQR Program measures, or links need to select a hospital. It further
to Web sites hosting technical
serves to encourage beneficiaries to
specifications, are contained in the
work with their doctors and hospitals to
CMS/The Joint Commission
discuss the quality of care hospitals
Specifications Manual for National
provide to patients, thereby providing
Hospital Inpatient Quality Measures
an additional incentive to hospitals to
(Specifications Manual). This
improve the quality of care that they
Specifications Manual is posted on the
furnish. The Hospital IQR Program
CMS QualityNet Web site at https://
currently includes process of care
www.QualityNet.org. We maintain the
measures, risk-adjusted outcome
technical specifications by updating this measures, the HCAHPS patient
Specifications Manual semiannually, or experience-of-care survey, and
more frequently in unusual cases, and
structural measures, all of which are
include detailed instructions and
featured on the Hospital Compare Web
calculation algorithms for hospitals to
site.
However, information that may not be
use when collecting and submitting data
relevant to or easily understood by
on required measures. These
semiannual updates are accompanied by beneficiaries and information for which
there are unresolved display issues or
notifications to users, providing
design considerations for inclusion on
sufficient time between the change and
the effective date in order to allow users Hospital Compare may be made
available on other CMS Web sites that
to incorporate changes and updates to
are not intended to be used as an
the specifications into data collection
interactive Web tool, such as https://
systems.
www.cms.hhs.gov/HospitalQualityInits/.
The technical specifications for the
Publicly reporting the information in
HCAHPS patient experience of care
this manner, though not on the Hospital
survey are contained in the current
HCAHPS Quality Assurance Guidelines Compare Web site, allows CMS to meet
the requirement under section
manual, which is available at the
1886(b)(3)(B)(viii)(VII) of the Act for
HCAHPS On-Line Web site, https://
www.hcahpsonline.org. We maintain the establishing procedures to make
information regarding measures
HCAHPS technical specifications by
submitted under the Hospital IQR
updating the HCAHPS Quality
Assurance Guidelines manual annually, Program available to the public
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following a preview period. In such
circumstances, affected parties are
notified via CMS listservs, CMS e-mail
blasts, national provider calls, and
QualityNet announcements regarding
the release of preview reports followed
by the posting of data on a Web site
other than Hospital Compare.
2. Retirement of Hospital IQR Program
Measures
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
a. Considerations in Retiring Quality
Measures From the Hospital IQR
Program
We generally retain measures from the
previous year’s Hospital IQR Program
measure set for subsequent years’
measure sets. We previously retired one
‘‘topped out’’ measure, PN–1:
Oxygenation Assessment for
Pneumonia, from the Hospital IQR
Program on the basis of high unvarying
performance among hospitals, because
measures with very high performance
among hospitals present little
opportunity for improvement, and do
not provide meaningful distinctions in
performance for consumers.
We also have retired one measure
from the Hospital IQR Program because
it no longer ‘‘represent[ed] the best
clinical practice,’’ as required under
section 1886(b)(3)(B)(viii)(VI) of the Act.
We stated that when there is reason to
believe that the continued collection of
a measure as it is currently specified
raises potential patient safety concerns,
we believe that it is appropriate for CMS
to take immediate action to remove a
measure from the Hospital IQR Program
and not wait for the annual rulemaking
cycle. Therefore, we adopted the policy
(74 FR 43864 and 43865) that we would
promptly retire such a measure, confirm
the retirement in the next IPPS
rulemaking cycle, and notify hospitals
and the public of the decision to
promptly retire measures through the
usual hospital and QIO communication
channels used for the Hospital IQR
Program. These channels include
memos and e-mail notification and
QualityNet Web site articles and
postings.
As we stated in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50185),
among the criteria that we consider
when determining whether to retire
Hospital IQR Program measures are the
following: (1) Measure performance
among hospitals is so high and
unvarying that meaningful distinctions
and improvements in performance can
no longer be made; (2) performance or
improvement on a measure does not
result in better patient outcomes; (3) a
measure does not align with current
clinical guidelines or practice; (4) the
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availability of a more broadly applicable
(across settings, populations, or
conditions) measure for the topic; (5)
the availability of a measure that is more
proximal in time to desired patient
outcomes for the particular topic; (6) the
availability of a measure that is more
strongly associated with desired patient
outcomes for the particular topic; (7)
collection or public reporting of a
measure leads to negative unintended
consequences other than patient harm.
These criteria were suggested by
commenters during rulemaking, and we
agreed that these criteria should be
among those considered in evaluating
Hospital IQR Program measures for
retirement.
b. Proposed Retirement of Hospital IQR
Program Measures for the FY 2014
Payment Determination and Subsequent
Years
In order to reduce the reporting
burden on hospitals, and in particular,
the burden associated with reporting
chart-abstracted measures, we have
considered options to accommodate the
expansion of the measure set through
the retirement of additional Hospital
IQR measures. Specifically, we have
considered retiring one or more of the
measures suggested by various
commenters that were listed in the FY
2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43865). We noted in that final
rule that commenters recommended for
retirement 11 Hospital IQR Program
chart-abstracted measures. Seven of
these 11 measures were recommended
by commenters for retirement based on
their performance being uniformly high
nationwide, with little variability among
hospitals (topped-out measures). Based
on our own analysis, we concluded that
these measures are topped out and for
this reason, we proposed not to include
them in the FY 2013 Hospital VBP
Program measure set (76 FR 2460).
These measures are listed below:
• 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
• SCIP INF–6 Appropriate Hair
Removal
The methodology we used to
determine that these measures are
topped out is detailed in the Hospital
Inpatient VBP Program proposed rule
(76 FR 2460). We are proposing to retire
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these topped out measures from the
Hospital IQR measure set. In addition,
we proposed to not include an eighth
measure in the FY 2013 Hospital VBP
Program measure set because we believe
that inclusion of this measure would
result in the unintended consequence of
inappropriate antibiotic use (76 FR
2462). This measure is PN–5c Timing of
receipt of initial antibiotic following
hospital arrival. We are also proposing
to retire this measure from the Hospital
IQR Program because of the potential for
this negative unintended consequence.
For these reasons, we are proposing to
retire these eight measures from the
Hospital IQR measure set for FY 2014
and subsequent years, and that hospitals
would no longer be required to submit
data on these measures starting with
January 1, 2012 discharges. We invite
public comment on this proposal.
3. Proposed Measures for the FY 2014
and FY 2015 Hospital IQR Payment
Determinations
a. Considerations in Expanding and
Updating Quality Measures Under the
Hospital IQR Program
In general, we seek to adopt measures
for the Hospital IQR Program that
promote better, safer, more efficient
care. Our measure development and
selection activities for the Hospital IQR
Program take into account national
priorities, such as those established by
the National Priorities Partnership, HHS
Strategic Plan, the National Strategy for
Quality Improvement in Healthcare, as
well as other widely accepted criteria
established in medical literature. (We
refer readers to the following Web sites
regarding these priorities: https://
www.nationalprioritiespartnership.org/
(National Priorities Partnership); https://
www.hhs.gov/secretary/about/priorities/
priorities.html (HHS Strategic Plan); and
https://www.healthcare.gov/center/
reports/quality03212011a.html
(National Strategy for Quality
Improvement in Healthcare)). To the
extent practicable, we have sought to
adopt measures which have been
endorsed by a national consensus
organization, recommended by multistakeholder organizations, and
developed with the input of providers,
purchasers/payers and other
stakeholders. Because measures for the
Hospital VBP Program must be selected
from the measures specified for the
Hospital IQR Program, the measures to
be selected for inclusion in the Hospital
VBP Program also reflect these
priorities. In addition, we believe it is
important to expand the pool of
measures to include measures that are
directed toward improving patient
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safety. This goal is supported by at least
two Federal reports documenting that
tens of thousands of patients do not
receive safe care in the nation’s
hospitals.6 7
Section 3001(a)(2) of the Affordable
Care Act amended the Act by adding a
new section 1886(b)(3)(B)(viii)(VIII) of
the Act. This section states that,
‘‘[e]ffective for payments beginning with
fiscal year 2013, with respect to quality
measures for outcomes of care, the
Secretary shall provide for such risk
adjustment as the Secretary determines
to be appropriate to maintain incentives
for hospitals to treat patients with
severe illnesses or conditions.’’ Section
3001(a)(2) of the Affordable Care Act
also added new sections
1886(b)(3)(B)(viii)(IX)(aa) and (bb) of the
Act. These sections state that ‘‘* * *
effective for payments beginning with
fiscal year 2013, each measure specified
by the Secretary under this clause shall
be endorsed by the entity with a
contract under section 1890(a) [of the
Act],’’ and ‘‘[i]n the case of a specified
area or medical topic determined
appropriate by the Secretary for which
a feasible and practical has not been
endorsed by the entity with a contract
under section 1890(a) [of the Act], the
Secretary may specify a measure that is
not so endorsed as long as due
consideration is given to measures that
have been endorsed or adopted by a
consensus organization identified by the
Secretary.’’ In the FY 2011 IPPS/LTCH
PPS final rule, we established that all of
the measures adopted in that rule for the
FY 2013 and FY 2014 payment
determinations meet these standards (75
FR 50200).
We have previously acknowledged
the data collection burden for hospitals
participating in the Hospital IQR
Program, and reiterated our desire to
expand the Hospital IQR Program
measure set while minimizing burden
and seeking to provide alternative
mechanisms for data submission (75 FR
50189). We also stated that in future
expansions and updates to the Hospital
IQR 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-of-care
6 OEI–06–09–00090, ‘‘Adverse Events in
Hospitals: National Incidence Among Medicare
Beneficiaries.’’ Department of Health and Human
Services, Office of Inspector General, November
2010.
7 2009 National Healthcare Quality Report, pp.
107–122. ‘‘Patient Safety,’’ Agency for Healthcare
Research and Quality.
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measures; (b) expanding the scope of
hospital services to which the measures
apply; (c) considering the burden on
hospitals in collecting chart-abstracted
data; (d) harmonizing the measures used
in the Hospital IQR 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
databases; and, (f) weighing the
relevance and utility of the measures
compared to the burden on hospitals in
submitting data under the Hospital IQR
Program.
Specifically, we give priority to
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 Hospital IQR Program
measure set. In addition, in selecting
measures, we seek to address the six
quality aims of effective, safe, timely,
efficient, patient-centered, and equitable
healthcare. Current and long term
priority topics include: Prevention and
population health; safety; chronic
conditions; high cost and high volume
conditions; elimination of health
disparities; healthcare-associated
infections (HAIs) and other adverse
healthcare outcomes; improved care
coordination; improved efficiency;
improved patient and family experience
of care; effective management of acute
and chronic episodes of care; reduced
unwarranted geographic variation in
quality and efficiency; and adoption and
use of interoperable HIT.
Hospital IQR Program measures were
initially based solely on a hospital’s
submission of chart-abstracted quality
measure data. However, in recent years
we have adopted measures that do not
require chart abstraction, including
structural measures and claims-based
measures that we can calculate using
other data sources. This approach
supports our goal of expanding the
measures for the Hospital IQR Program
while minimizing the burden on
hospitals and, in particular, without
significantly increasing the chart
abstraction burden.
In addition to structural measures and
claims-based measures, we previously
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noted that registries are potential
alternative sources of hospital data for
the Hospital IQR Program. (A registry is
a collection of clinical data for purposes
of assessing clinical performance,
quality of care, and opportunities for
quality improvement.) We envisioned
that instead of requiring hospitals to
submit the same data to CMS that many
hospitals are already submitting to
registries, we would collect the data
directly from the registries. This could
enable the expansion of the Hospital
IQR Program measure set without
increasing the burden of data collection
for those hospitals participating in the
registries. We have previously adopted
structural measures of registry
participation, and we continue to
evaluate the feasibility of leveraging
registry-based data collection
mechanisms for the Hospital IQR
Program.
We also stated our intention to
explore mechanisms for data
submission using electronic health
records (EHRs) (73 FR 48614; 74 FR
43866, 43892; and 75 FR 50189).
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 capturing, formatting,
and transmitting the 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 Hospital IQR Program
measure set with less cost and burden
to hospitals. We believe that automatic
collection and reporting of data through
EHRs will greatly simplify and
streamline reporting for various CMS
quality reporting programs, and that at
a future date, such as FY 2015, hospitals
will be able to switch solely to EHRbased reporting of data that are
currently manually chart-abstracted and
submitted to CMS for the Hospital IQR
Program.
We reiterate our commitment to
pursue our goals to expand and update
quality measures under the Hospital
IQR Program and also to minimize
burden. We note that in addition to the
input we described above, we take into
consideration the measures adopted by
the Hospital Quality Alliance (HQA) as
well as an array of input from the
public. The HQA is a national publicprivate collaboration that is committed
to making meaningful, relevant, and
easily understood information about
hospital performance accessible to the
public and to informing and
encouraging efforts to improve quality.
We appreciate HQA’s integral efforts to
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improve hospital quality of care and its
support of our public quality reporting
programs.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50191 through 502192), we
finalized our proposal to adopt
measures for the Hospital IQR Program
for three consecutive payment
determinations. The intent of this policy
was to provide greater certainty for
hospitals to plan to meet future
reporting requirements and implement
related quality improvement efforts.
Aside from giving hospitals more
advance notice in planning quality
reporting, this 3-year approach also
provides more time for us to prepare,
organize and implement the
infrastructure needed to collect data on
the measures and make payment
determinations. We indicated, however,
that these preliminary measure sets
could still be updated through the
rulemaking process should we need to
respond to agency and/or legislative
changes.
Finally, in section IV.A.5.a.(2) of the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50219 through 50220), we adopted a
proposal to make Hospital IQR Program
payment determinations beginning with
FY 2013 using one calendar year of data
for chart-abstracted measures. We will
use this approach, which synchronizes
the quarters for which data on these
measures must be submitted during
each year with the quarters used to
make payment determinations with
respect to a fiscal year beginning with
January 1, 2011 discharges. However, it
will not affect our payment
determinations until FY 2013.
Section 1886(o)(2)(A) of the Act
requires the Secretary to select
measures, other than readmission
measures, for the Hospital VBP Program
from the measures specified under the
Hospital IQR Program. Section
1886(o)(2)(B)(i)(I) of the Act states that,
for FY 2013, the selected measures must
cover at least the following five
specified conditions or procedures:
Acute myocardial infarction (AMI),
Heart failure (HF), Pneumonia (PN),
Surgeries, as measured by the Surgical
Care Improvement Project (SCIP), and
Healthcare-associated infections (HAIs),
as measured by the prevention metrics
and targets established in the HHS
Action Plan to Prevent HealthcareAssociated Infections (or any successor
plan) of the Department of Health and
Human Services. Section
1886(o)(2)(B)(i)(II) of the Act provides
that, for FY 2013, measures selected for
the Hospital Inpatient Program must
also be related to the Hospital Consumer
Assessment of Healthcare Providers and
Systems survey (HCAHPS).
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In selecting measures for the Hospital
IQR Program, we are mindful of the
conceptual framework of the Hospital
VBP Program. We will focus on
selecting measures that we believe will
also meet the Hospital VBP Program
measure inclusion criteria and advance
the goals of the Hospital VBP Program
by targeting hospitals’ ability to improve
patient care and patient outcomes.
In addition, in order to support HHS
priorities such as patient safety and
reduction of HAIs and readmissions,
and meet more of the widespread goals
of the Affordable Care Act in terms of
improving the quality of care provided
to Medicare beneficiaries, we are
proposing in this proposed rule to adopt
measures for the FY 2014 and FY 2015
Hospital IQR payment determinations.
However, we note that the final measure
sets to be used for these years’ payment
determinations could be changed via
future rulemaking. This allows CMS the
flexibility to accommodate changes in
program needs and legislative changes.
We invite public comment on these
proposals.
b. Proposed Hospital IQR Program
Measures for the FY 2014 Hospital IQR
Payment Determination
(1) Proposed Retention of 52 Hospital
IQR Program Measures Finalized in the
FY 2011 IPPS/LTCH PPS Final Rule for
the FY 2014 Payment Determination
We previously finalized 60 measures
for the FY 2014 Hospital IQR Program
measure set. However, as we discussed
above, we are proposing to retire 8
measures from the FY 2014 measure set.
We are proposing to retain the
remaining 52 the 60 quality measures
finalized in the FY 2011 IPPS/LTCH
PPS final rule for the FY 2014 payment
determination. We invite public
comment on our proposal to retain 52
quality measures for the FY 2014
payment determination.
(2) Proposed Additional Hospital IQR
Program Measures for the FY 2014
Payment Determination
(A) Proposed CDC/NHSN-Based
Healthcare-Associated Infection (HAI)
Measures
HAIs are among the leading causes of
death in the U.S. The Centers for
Disease Control (CDC) estimates that as
many as 2 million infections are
acquired each year in hospitals and
result in approximately 90,000 deaths
per year.8 It is estimated that more
8 McKibben L, Horan T. Guidance on public
reporting of healthcare-associated infections:
Recommendations of the Healthcare Infection
Control Practices Advisory Committee. AJIC 2005;
33:217–26
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Americans die each year from HAIs than
from auto accidents and homicides
combined. HAIs not only put the patient
at risk, but also increase the days of
hospitalization required for patients and
add considerable health care costs.
HAIs are largely preventable with
widely publicized interventions such as
better hygiene and advanced
scientifically tested techniques for
surgical patients. Therefore, the public
reporting of HAIs has been of great
interest to many health care consumers
and advocacy organizations because it
promotes awareness and permits health
care consumers to choose the hospitals
with lower HAI rates, as well as gives
hospitals an incentive to improve
infection control efforts. To maximize
the efficiency and improve the
coordination of HAI prevention efforts
across the Department, HHS established
in 2008 a senior-level Steering
Committee for the Prevention of
Healthcare-Associated Infections. In
2009, the Steering Committee, along
with scientists and program officials
across the government, developed the
HHS Action Plan to Prevent HealthcareAssociated Infections, providing a
roadmap for HAI prevention in acute
care hospitals. In the first iteration of
the Action Plan, the Steering Committee
chose to focus on infections in acute
care hospitals because the associated
morbidity and mortality was most
severe in that setting and the scientific
information on prevention and the
capacity to measure improvement was
most complete. Thus, prevention of
HAIs in acute care hospitals became the
first phase of the Action Plan and it
focuses on six high priority HAI-related
areas.
In addition, the Steering Committee
included in the Action Plan five-year
goals for nine specific measures of
improvement tied to the six HAI
prevention priority areas. Since the
release of the first Action Plan in June
2009, the Steering Committee has been
developing a successor plan in
collaboration with public and private
partners which is expected to
incorporate advances in science and
technology and expand the scope to the
outpatient environment. The successor
plan is also expected to address the
health and safety of healthcare
personnel, as well as the risks of
influenza transmission from healthcare
personnel to patients. The second
Action Plan is due for publication in
2011.
We also note that the House
Committee on Appropriations asked in
a 2009 Report that CMS include in its
‘‘pay for reporting’’ system two infection
control measures developed by the
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Hospital Quality Alliance (HQA)—
Central line-associated bloodstream
infections and a surgical site infection
rate (H. Rep. No. 111–220, at 159
(2009)). In the report, the Committee
stated that ‘‘if the measures are included
in Hospital Compare, the public
reporting of the data is likely to reduce
HAI occurrence, an outcome
demonstrated in previous research.’’
In the FY 2011 IPPS/LTCH PPS final
rule, we adopted the two HAI measures
identified by the House Committee on
Appropriations in its 2009 report:
Central Line [catheter] Associated Blood
Stream Infection (CLABSI) measure, and
Surgical Site Infection (SSI) measure.
The CLABSI measure is currently part of
the FY 2013 Hospital IQR measure set,
and data submission on the measure
began with January 2011 events.9 The
Surgical Site Infection (SSI) measure is
currently part of the FY 2014 Hospital
IQR measure set, and data submission
on the measure will begin with January
2012 events.
In this proposed rule, we are
proposing to adopt two additional HAI
measures for the FY 2014 Hospital IQR
measure set. These proposed measures
were developed by the CDC and are
currently collected by the CDC via the
NHSN. These measures are: (1) Central
Line Bundle Compliance (NQF #0298)
(referred to by the CDC and in this
proposed rule as Central Line Insertion
Practices, or CLIP); and (2) Catheter
Associated Urinary Tract Infection
(CAUTI) (NQF #138). Both measures are
high priority HAI measures that are
included among the prevention metrics
established in the HHS Action Plan to
Prevent HAIs which, as we noted above,
underscores the importance of reducing
HAIs. As detailed below, both measures
also meet Hospital IQR Program
statutory requirements for measure
selection. Furthermore, both measures
are currently collected by the NHSN,
which is a secure, Internet-based
surveillance system maintained and
managed by the CDC, and can be
utilized by all types of healthcare
facilities in the U.S., including acute
care hospitals, long term acute care
hospitals, psychiatric hospitals,
rehabilitation hospitals, outpatient
dialysis centers, ambulatory surgery
centers, and long term care facilities.
The NHSN enables healthcare facilities
to collect and use data about HAIs,
adherence to clinical practices known to
prevent HAIs, the incidence or
prevalence of multidrug-resistant
organisms within their organizations,
and other adverse events. Some States
9 The CDC captures HAI data based on the onset
of an event, rather than based on the discharge date.
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use NHSN as a means for healthcare
facilities to submit patient-level data on
the measures mandated through their
specific State legislation. Currently, 28
States require hospitals to report HAIs
using NHSN, and CDC provides support
to more than 4,000 hospitals that are
using NHSN. NHSN data collection
occurs via a Web-based tool hosted by
CDC provided free of charge to
providers. In addition, data submission
for HAI measures through EHRs may be
possible in the near future.
(i) Central Line Insertion Practice
Adherence Percentage (CLIP)
Central line associated blood stream
infections (CLABSIs) can be prevented
through proper management of the
central line. The CDC’s Healthcare
Infection Control Practices Advisory
Committee (CDC/HICPAC) Guidelines
for the Prevention of Intravascular
Catheter-Related Infections
recommends evidence-based central
line insertion practices known to reduce
the risk of subsequent central lineassociated bloodstream infection.10
These include hand-washing by
inserters, use of maximal sterile barriers
during insertion, proper use of a skin
antiseptic prior to insertion, and
allowing that skin antiseptic to dry
before catheter insertion. Despite the
scientific evidence supporting these
practices, several reports suggest that
adherence to these practices remains
low in United States hospitals. The
proposed CLIP process measure is a
companion measure to the previously
adopted CLABSI measure, and it
assesses the extent to which a facility
employs practices consistent with CDC/
HICPAC recommendations that are
known to reduce CLABSI. There are 2
States that currently require facilities to
report to NHSN at least one month of
CLIP data.
The CLIP measure is used in State
reporting initiatives and is an NQFendorsed measure (NQF #298) that is
operationalized for collection via the
NHSN. Therefore, the measure meets
the selection criteria under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
This CLIP prevention metric is also
listed in the HHS Action Plan to Prevent
HAIs and, as we detailed above, has
been widely identified as a high priority
for public reporting.
10 O’Grady NP, Alexander M, Dellinger EP,
Gerberding JL, Heard SO, Maki DG, et al.,
Guidelines for the prevention of intravascular
catheter-related infections. MMWR 2002;51(No.
RR–10:1–26).
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(ii) Catheter Associated Urinary Tract
Infection (CAUTI)
The urinary tract is the most common
site of HAI, accounting for more than 30
percent of infections reported by acute
care hospitals.11 Healthcare-associated
urinary tract infections (UTIs) are
commonly attributed to catheterization
of the urinary tract. CAUTI can lead to
such complications as cystitis,
pyelonephritis, gram-negative
bacteremia, prostatitis, epididymitis,
and orchitis in males and, less
commonly, endocarditis, vertebral
osteomyelitis, septic arthritis,
endophthalmitis, and meningitis in all
patients. Complications associated with
CAUTI cause discomfort to the patient,
prolonged hospital stay, and increased
cost and mortality. Each year, more than
13,000 deaths are associated with
UTIs.12 Prevention of CAUTIs is
discussed in the CDC/HICPAC
document, Guideline for Prevention of
Catheter-associated Urinary Tract
Infections. The NQF-endorsed CAUTI
measure we are proposing is currently
collected by the NHSN as part of Statemandated reporting and surveillance
requirements for hospitals. There are 3
States that require facilities to report to
NHSN at least one month of CAUTI
data.
Section 1886(b)(3)(B)(viii)(IX)(aa) of
the Act requires that effective for
payments beginning with FY 2013, each
measure specified by the Secretary for
inclusion in the Hospital IQR Program
be endorsed by the entity with a
contract under section 1890(a) of the
Act, unless the exception set forth in
section 1886(b)(3)(B)(viii)(IX)(bb) of the
Act applies. The NQF currently holds
the contract under section 1890(a) of the
Act, and the NQF has endorsed this
CAUTI measure (NQF #138). For this
reason, we believe that this measure
satisfies the endorsement requirement
applicable to the Hospital IQR Program.
This proposed measure is currently risk
stratified,and therefore is consistent
with section 1886(b)(3)(B)(viii)(VIII) of
the Act. Risk stratification means that it
is calculated using different categories
of patients with varying risk of
developing an infection. At the time of
this proposed rule, this CAUTI measure
(NQF #138) is undergoing measure
maintenance review by the NQF and we
note that the review may result in
changes to the specifications. We invite
11 Klevens RM, Edward JR, et al., Estimating
health care-associated infections and deaths in U.S.
hospitals, 2002. Public Health Reports
2007;122:160–166.
12 Wong ES., Guideline for prevention of catheterassociated urinary tract infections. Infect Control
1981;2:126–30.
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public comment on our proposal to
adopt these two HAI measures into the
Hospital IQR Program for the FY 2014
payment determination. We are
proposing that hospitals would begin
submitting data on these measures
beginning with events that occur on or
after January 1, 2012. We are also
proposing that hospitals use the NHSN
infrastructure and protocols, as well as
the specifications (available at https://
www.cdc.gov/nhsn/PDFs/HSPmanual/
HPS_Manual.pdf) to report the
measures for Hospital IQR Program
purposes. The proposed reporting
mechanism for these HAI measures is
discussed in greater detail in section
IV.A.5.i. of this proposed rule.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
(B) Proposed New Claims-Based
Measure
We are proposing to add the following
new claim-based measure to the
Hospital IQR Program measure set for
the FY 2014 payment determination:
Medicare Spending per Beneficiary. The
details of this measure are discussed
below.
(i) Medicare Spending per Beneficiary
Measure
Healthcare costs consume an everincreasing amount of our Nation’s
resources, straining family, business,
and government budgets. Healthcare
costs take up a growing share of Federal
and State budgets and imperil the
governments’ long-term fiscal outlooks.
In the U.S., the sources of inefficiency
that are leading to rising healthcare
costs include payment systems that
reward medical inputs rather than
outcomes. Medicare is transforming
from a system that rewards volume of
service to one that rewards efficient,
effective care and reduces delivery
system fragmentation.
In order to further this transformation
and help address the critical issue of
health care costs, we are proposing to
add a measure of Medicare spending per
beneficiary to the Hospital IQR Program
measure set for the FY 2014 payment
determination. This proposed Medicare
spending per beneficiary measure
addressing the cost of care is a type of
measure that is not currently included
in the Hospital IQR Program. We are not
aware that the NQF or any other
consensus organizations under section
1886(b)(3)(B)(viii)(IX) of the Act have
currently endorsed any Medicare
spending per beneficiary measures. We
will give due consideration under
section 1886(b)(3)(B)(viii)(IX)(bb) of the
Act to any Medicare spending per
beneficiary measures that become
endorsed in the future. It is important
that the cost of care be explicitly
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measured so that, in conjunction with
other measures that we have adopted
and are proposing to adopt for the
Hospital IQR Program, we can recognize
hospitals that are involved in the
provision of high quality care at lower
cost.
We are proposing that this Medicare
spending per beneficiary measure
would be calculated using claims data
for hospital discharges occurring
between May 15, 2012 and February 14,
2013. Therefore, the addition of this
proposed measure would not increase
the data submission burden on
hospitals. We outline below the
methodology that we are proposing to
use to calculate the measure, if
finalized.
• The Medicare Spending per
Beneficiary Episode
In order to calculate the Medicare
spending per beneficiary for each
hospital, we believed that it would be
necessary to determine: (1) The
timeframe, or length of the ‘‘spending
per beneficiary episode’’ during which
Medicare payments would be
aggregated; (2) the types of Medicare
payments to be aggregated over this
timeframe; and (3) how to adjust or
standardize these payments across
hospitals (for example, risk adjustment).
• Length of the Medicare Spending per
Beneficiary Episode
We are proposing an episode that runs
from three days prior to an inpatient
PPS hospital admission (the index
admission) through 90 days post
hospital discharge. We are proposing to
include the time period 90 days post
hospital discharge in order to emphasize
the importance of care transitions and
care coordination in improving patient
care. We believe inclusion of this time
period surrounding the hospital
admission would reinforce the need to
reduce adverse outcomes, including
readmissions. Encouraging delivery of
coordinated care in an efficient manner
is an important goal which can best be
achieved through inclusion of Medicare
payments made outside the timeframe
of the hospital inpatient stay.
We recognize that some outcome
measures are based on an episode that
runs 30 days post discharge. We
considered proposing 30 days as the
post discharge time period for the
episode. However, we believe this
shorter time period does not place
sufficient emphasis on longer term care
transitions and care coordination.
Nevertheless, while we are proposing a
90 day post discharge period, we seek
public comment on an alternative 30
day time period for the initial
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implementation of this measure that
would be more consistent with the 30
day time period currently in use for
some outcome measures.
• Medicare Payments Included in the
Spending per Beneficiary Episode
In order to calculate the Medicare
spending per beneficiary, it is necessary
to define the Medicare payments
included in the spending per
beneficiary episode. Subject to the
adjustments described below, we are
proposing to include all Medicare Part
A and Part B payments made for
services provided to the beneficiary
during the episode, including payments
made by beneficiaries that we can
determine using our claims data, such
as Part B deductibles and coinsurance
amounts. As with the 90 day post
discharge period, we believe that this
comprehensive inclusion of Medicare
Part A and Part B spending emphasizes
the importance of care coordination in
improving patient care. Encouraging
delivery of coordinated care in an
efficient manner over an extended time
period is an important goal which can
best be achieved through the inclusion
of comprehensive Medicare Part A and
Part B spending.
We also are proposing that transfers,
readmissions, and additional
admissions that began during the 90-day
post discharge window of an index
admission would be included in the
episode used for calculating the
measure.
We are proposing to exclude from the
Medicare spending per beneficiary
calculation episodes where at any time
during the episode the beneficiary is not
enrolled in both Medicare Part A and
Medicare Part B, including if the
beneficiary is enrolled in a Medicare
Advantage plan at any time during the
episode or becomes deceased. We also
are proposing to exclude any episodes
where the beneficiary is covered by the
Railroad Retirement Board. We also
propose to exclude any episodes where
Medicare is a secondary payer. The
rationale for exclusion of these episodes
from the calculation of the Medicare
spending per beneficiary is that we do
not have full payment data to identify
and standardize spending which would
otherwise be attributable to these
episodes.
• Adjusting the Medicare Payments
Included in the Spending per
Beneficiary Episode
Section 1886(o)(2)(B)(ii) of the Act
requires that a Medicare spending per
beneficiary measure adopted for the
Hospital VBP Program be ‘‘adjusted for
factors such as age, sex, race, severity of
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illness, and other factors that the
Secretary determines appropriate.’’
Consistent with these statutory
requirements, we are proposing to
adjust the proposed Medicare spending
per beneficiary measure for age and
severity of illness. We are proposing to
adjust for severity of illness based on
the hierarchical condition categories
(HCCs) for the period 90 days prior to
the episode and based on the MS–DRG
during the index admission. Adding the
MS–DRG to the use of the HCC
improves the severity of illness
adjustment and better standardizes the
data, allowing for more valid
comparisons of Medicare spending per
beneficiary amounts across hospitals.
Note that we would exclude episodes
where the beneficiary is not enrolled in
both Medicare Part A and Medicare Part
B, for the 90 days prior to the episode
because we would not be able to capture
all the data necessary for the severity of
illness adjustment.
We are not proposing to adjust the
Medicare spending per beneficiary for
sex and race, consistent with our
understanding of NQF’s position
strongly discouraging adjusting
measures based on these factors.
In addition, we are proposing to
exclude geographic payment rate
differences (for example, based on the
wage index and geographic practice cost
index) in order to standardize the
spending per beneficiary. Note, we are
not proposing to adjust for geographic
differences in spending that are
unrelated to geographic payment rate
differences. However, we seek comment
on whether there are geographic factors
other than payment rate differences that
should be considered in the spending
per beneficiary measure. We also
propose to standardize spending by
excluding the portion of IPPS payments
resulting from the payment differentials
caused by Hospital-Specific Rates, IME,
and DSH. Note that we are not
proposing to exclude spending for
hospitals that are paid Hospital-Specific
Rates, rather we are proposing to
exclude the differential additional
spending that results from the use of the
Hospital-Specific Rates. Again, making
these adjustments allows for more valid
comparisons of Medicare spending per
beneficiary amounts across hospitals.
For example, without adjusting for
geographic payment rate differences, a
hospital might have higher or lower
spending per beneficiary amounts
compared to other hospitals based on its
wage index and not its performance.
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• Calculating a Hospital’s Medicare
Spending per Beneficiary Amount
For each subsection (d) hospital
participating in the Hospital IQR
Program, we are proposing to add
together all the adjusted Medicare Part
A and Part B payments, as defined
above, included in all the Medicare
spending per beneficiary episodes, as
defined above, for that hospital. We
would then divide this sum by the total
number of Medicare Spending per
Beneficiary episodes for that hospital.
The resulting amount would constitute
the hospital’s Medicare spending per
beneficiary amount for the period. The
discharge period that we are proposing
to apply the proposed measure for the
FY 2014 Hospital IQR Program is May
15, 2012 through February 14, 2013.
• Calculating a Hospital’s Medicare
Spending per Beneficiary Ratio
We are proposing to calculate a
hospital’s Medicare spending per
beneficiary ratio as the hospital’s
Medicare spending per beneficiary
amount divided by the median
Medicare spending per beneficiary
amount across all hospitals.
As noted above, we are also proposing
to adopt this proposed measure for the
Hospital VBP Program FY 2014 measure
set. The proposed method for scoring
and incorporating this Medicare
spending per beneficiary ratio into the
hospital’s total performance score for
the Hospital VBP Program is fully
described in section IV.B.3.b.(3)(C) of
this proposed rule.
(C) Proposed New Web-Based Structural
Measure
Structural measures assess the
characteristics and capacity of the
provider to deliver quality health care.
In the FY 2009 IPPS final rule, we
finalized the ‘‘Participation in a
Systematic Database for Cardiac
Surgery’’ measure (73 FR 48609) for the
FY 2010 payment determination. This
measure does not require the hospital to
actually participate in a cardiac surgery
registry, instead, it only requires the
hospital to report whether or not it
participates in a cardiac surgery registry.
In the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43871 and 43872), we
adopted two more structural measures:
Participation in a Systematic Clinical
Database Registry for Stroke Care; and
Participation in a Systematic Clinical
Database Registry for Nursing Sensitive
Care under the Hospital IQR Program for
the FY 2011 payment determination.
Based on public comments, we collect
these structural measures once
annually.
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We are now proposing to include a
new structural measure, Participation in
a Systematic Clinical Database Registry
for General Surgery, in the Hospital IQR
Program beginning with the FY 2014
payment determination. The
Participation in a Systematic Clinical
Database Registry for General Surgery
measure would require each hospital
that participates in Hospital IQR
Program to indicate whether it is
participating in a Systematic Clinical
Database Registry for General Surgery
and, if so, to identify the registry. This
measure, like two of the previously
adopted structural measures on registry
participation (Participation in a
Systematic Clinical Database Registry
for Stroke Care; and Participation in a
Systematic Clinical Database Registry
for Nursing Sensitive Care), is an
application of an NQF-endorsed
measure (NQF #0493) ‘‘Participation by
a physician or other clinician in a
systematic clinical database registry that
includes consensus endorsed quality
measures’’ to the inpatient facility.
We recognize that the NQF has
endorsed this measure for the
physician/clinician setting, but believe
that this measure is highly relevant to
the hospital setting, in that participation
in a systematic clinical database registry
for various topics is quite common in
hospitals. Therefore, we previously
adopted the Stroke and Nursing
Sensitive Care registry participation
measures as applications of the measure
appropriate to the hospital inpatient
setting. We reviewed the NQF’s
consensus endorsed measures, as well
as measures endorsed or adopted by
another consensus organization, and
were unable to identify any other
measures specifically for participation
in a systematic clinical database registry
for general surgery that have been
endorsed for the hospital inpatient
setting. Having given due consideration
to other measures that have been
endorsed or adopted by a consensus
entity, we are proposing to adopt an
application of this non-NQF endorsed
measure under the Secretary’s authority
to select non-NQF endorsed measures
where such measures do not exist for a
specified topic or medical topic. We are
proposing to adopt the measure under
the exception authority provided in
section 1886 (b)(3)(B)(IX)(bb) of the Act.
Additionally, we believe that, for the
same reasons, the previously adopted
structural measures for Stroke and
Nursing Sensitive Care registries also
meet the requirements under this
authority and propose to continue
collecting them on that basis.
We are proposing that annual data
submission for this proposed structural
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measure via a Web-based collection tool
would begin in July 2012 with respect
to the time period January 1, 2012,
through June 30, 2012. We believe that
participation in a registry provides
hospitals with valuable ongoing quality
improvement information and
demonstrates a commitment to improve.
Many registries also collect outcome
data and provide feedback to hospitals
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about their performance. We invite
public comment on this proposal to
include this structural measure for the
FY 2014 payment determination.
In summary, we are proposing to
retire 8 measures from the measure set
for the FY 2014 payment determination
that was finalized in the FY 2011 IPPS/
LTCH PPS final rule, and we are
proposing to add 4 measures to the
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measure set for the FY 2014 payment
determination: 2 HAI measures
collected through the NHSN, 1 claimsbased measure (Medicare Spending Per
Beneficiary), and 1 structural measure,
for a total of 56 measures for the FY
2014 Hospital IQR payment
determination. These 56 measures are
listed below.
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c. Proposed Hospital IQR Program
Quality Measures for the FY 2015
Payment Determination
(1) Proposed Retention of FY 2014
Payment Determination Measures for
the FY 2015 Payment Determination
We generally retain the Hospital IQR
Program measures from one year to the
next. Consistent with this approach, we
are proposing to retain all of the
proposed measures for the FY 2014
payment determination, if finalized, for
the FY 2015 payment determination. We
invite public comment on this proposal.
(2) Proposed New Hospital IQR Program
Measures for the FY 2015 Payment
Determination
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
(A) Proposed New CDC/NHSN-Based
Healthcare-Associated Infection (HAI)
Measures for the 2015 Payment
Determination
For the FY 2015 payment
determination, we are proposing to
adopt three additional HAI measures
that are currently collected by CDC via
the NHSN. These measures are: (1)
Methicillin-resistant Staphylococcus
Aureus (MRSA) Bacteremia measure; (2)
C. Difficile SIR; and (3) Healthcare
Personnel (HCP) Influenza Vaccination
and the specifications for these 3
measures are available at https://
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www.cdc.gov/nhsn/PDFs/HSPmanual/
HPS_Manual.pdf. Like the CLIP and the
CAUTI measures that we are proposing
for the FY 2014 payment determination,
all three proposed HAI measures are
high priority HAI measures listed in the
HHS Action Plan to Prevent HAIs and
were listed in previous rulemaking as
possible quality measures for future
payment determinations.
Our review indicated that there are no
measures for MRSA or C. Difficile SIR
that have been endorsed by the NQF or
another consensus entity for the
hospital inpatient setting. Therefore, we
are proposing to adopt this non-NQFendorsed measure under the Secretary’s
authority to select non-NQF endorsed
measures where such measures do not
exist for a specified topic or medical
topic. We are proposing to adopt these
two CDC-developed measures (MRSA
and C. Difficile SIR) under the exception
authority provided in section 1886
(b)(3)(B)(IX)(bb) of the Act.
The HCP Influenza Vaccination
measure is NQF-endorsed (NQF #0431)
for the hospital setting. Therefore, this
measure meets the requirement for
measure selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
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(1) Methicillin-Resistant Staphylococcus
Aureus (MRSA) Bacteremia Measure
There are different types of
staphylococcus aureus bacteria,
commonly called ‘‘staph.’’ Staph bacteria
are normally found on the skin or in the
nose. The bacteria are generally
harmless unless they enter the body
through a cut or other wound, and even
then they usually cause only minor skin
problems in healthy people. MRSA
infection is caused by a strain of staph
bacteria that has become resistant to the
antibiotics commonly used to treat
ordinary staph infections. Older adults
with weakened immune systems and
patients in hospital or nursing home
settings are most vulnerable to MRSA
infections. Health care-associated MRSA
infections typically are associated with
invasive procedures or devices, such as
surgeries, intravenous tubing, urinary
catheters, or artificial joints. MRSA
infections account for about 60 percent
of skin infections seen in United States
emergency departments and invasive
MRSA infections may cause about
18,000 deaths during a hospital stay a
year.13 Currently, there are 6 States that
require facilities to report MRSA
13 Catherine Liu, Arnold Bayer, et al., Clinical
practice Guidelines by the for the treatment of
Methicillin-Resistant Staphylococcus Aureus
Infections in Adult and Children. Infectious Disease
Society of America 2011; 52:e18.
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information to NHSN. As stated above,
we were unable to identify any other
measures specifically for MRSA that
have been endorsed by the NQF for the
hospital inpatient setting. We found no
other measures that have been endorsed
or adopted by a consensus entity.
Therefore, we are proposing to adopt
this non-NQF-endorsed and CDCdeveloped measure under the
Secretary’s authority to select non-NQF
endorsed measures where such
measures do not exist for a specified
topic or medical topic, under the
exception authority provided in section
1886 (b)(3)(B)(IX)(bb) of the Act. The
proposed reporting mechanism for the
MRSA measure is discussed in greater
detail in section IV.A.5.i. of this
proposed rule. We invite public
comment on this proposed HAI
measure.
(2) C. Difficile SIR Measure
Clostridium Difficile (C. difficile) is a
bacterium that can cause symptoms
ranging from diarrhea, pseudomembranous colitis, and toxic
megacolon to life-threatening sepsis and
even death. Illness from C. Difficile most
commonly affects older adults in
hospitals or in long term care facilities
where germs spread easily, antibiotic
use is common and people are
especially vulnerable to infection.
Illness from C. Difficile typically occurs
after use of antibiotic medications. C.
Difficile spreads mainly on hands from
person to person, but also on commonly
touched services such as cart handles,
bedrails, bedside tables, toilets, sinks,
stethoscopes, thermometers, and
telephones. In recent years, C. Difficile
infections have become more frequent,
more severe and more difficult to treat.
Each year, tens of thousands of people
in the United States get sick from C.
Difficile, including some otherwise
healthy people who are not hospitalized
or taking antibiotics. Healthcare
providers have become more aware of
the C. Difficile infection and therefore,
more testing is being done for
symptomatic patients. The C. Difficile
pathogens may require specialized
monitoring to evaluate if intensified
infection control efforts are required to
reduce the occurrence of these
organisms and related infections.
Currently, there are 3 States that require
facilities to report C. Difficile data to
NHSN. Our goal for this proposed C.
Difficile SIR measure is to provide a
common mechanism (CDC/NHSN) for
all hospitals including hospitals
participating in the Hospital IQR
Program to report and analyze these
data that will inform infection control
staff of the impact of targeted prevention
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efforts. The NHSN is listed in the HHS
Action Plan to Prevent HAIs as the data
source for HAI measures. As stated
above, we were unable to identify any
other measures specifically for C.
Difficile SIR that have been endorsed by
the NQF for the hospital inpatient
setting. We found no other measures
that have been endorsed or adopted by
a consensus entity. Therefore, we are
proposing to adopt this non-NQFendorsed and CDC-developed measure
under the Secretary’s authority to select
non-NQF endorsed measures where
such measures do not exist for a
specified topic or medical topic, under
the exception authority provided in
section 1886 (b)(3)(B)(IX)(bb) of the Act.
We have chosen to leverage existing
NHSN reporting system to collect HAI
measures since we have already
established a mechanism for reporting
to the NHSN.
The proposed reporting mechanism
for these proposed HAI measures is
discussed in greater detail in section
IV.A.5.i. of this proposed rule. We invite
public comment on these proposed HAI
measures.
(3) Healthcare Personnel (HCP)
Influenza Vaccination (NQF # 0431)
For the FY 2015 payment
determination, we are proposing to
adopt one additional HAI measure that
is currently collected by CDC via the
NHSN: Healthcare Personnel (HCP)
Influenza Vaccination (NQF # 0431).
This measure assesses the percentage of
HCP employed at the facility that
received a prophylactic vaccination for
influenza. This measure is NQF
endorsed, and therefore, the measure
meets the selection criteria under
section 1886(b)(3)(B)(viii)(IX)(aa) of the
Act.
Rates of serious illness and death
resulting from influenza and its
complications are increased in high-risk
populations such as persons over 50
years or under four years of age, and
persons of any age who have underlying
conditions that put them at an increased
risk. HCP can acquire influenza from
patients and can transmit influenza to
patients and other HCP. Many HCP
provide care for, or are in frequent
contact with, patients with influenza or
patients at high risk for complications of
influenza. The involvement of HCP in
influenza transmission has been a longstanding concern.14 15 16
14 Maltezou HC, Drancourt M., Nosocomial
influenza in children. Journal of Hospital Infection
2003; 55:83–91.
15 Hurley JC, Flockhart S., An influenza outbreak
in a regional residential facility. Journal of Infection
Prevention 2010; 11:58–61.
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Vaccination is an effective preventive
measure against influenza, and can
prevent many illnesses, deaths, and
losses in productivity.17 HCP are
considered a high priority for expanding
influenza vaccine use. Achieving and
sustaining high influenza vaccination
coverage among HCP is intended to help
protect HCP and their patients and
reduce disease burden and healthcare
costs. Results of several studies indicate
that higher vaccination coverage among
HCP is associated with lower incidence
of nosocomial influenza.18 19 20 Such
findings have led some to call for
mandatory influenza vaccination of
HCP.21 22 23 24 25
Until recently, vaccination coverage
among HCP has been well below the
national Healthy People 2010 target of
60 percent,26 but preliminary data
suggest 62 percent of HCP reported
receiving seasonal influenza vaccine in
16 Salgado CD, Farr BM, Hall KK, Hayden FG.,
Influenza in the acute hospital setting. The Lancet
Infectious Diseases 2002; 2:145–155.
17 Wilde JA, McMillan JA, Serwint J, Butta J,
O’Riordan MA, Steinhoff MC., Effectiveness of
influenza vaccine in health care professionals: a
randomized trial. The Journal of the American
Medical Association 1999; 281:908–913.
18 Salgado CD, Giannetta ET, Hayden FG, Farr
BM., Preventing influenza by improving the vaccine
acceptance rate of clinicians. Infection Control and
Hospital Epidemiology 2004; 25: 923–928.
19 Potter J, Stott DJ, Roberts MA, et al., Influenza
vaccination of health-care workers in long-term-care
hospitals reduces the mortality of elderly patients.
Journal of Infectious Diseases 1997; 175:1–6.
20 Hayward AC, Harling R, Wetten S, et al.,
Effectiveness of an influenza vaccine programme for
care home staff to prevent death, morbidity, and
health service use among residents: cluster
randomised controlled trial. British Medical Journal
2006; 333:1241–1246.
21 Talbot TR, Bradley SF, Cosgrove SE, et al.,
SHEA position paper: Influenza vaccination of
healthcare workers and vaccine allocation for
healthcare workers during vaccine shortages.
Infection Control and Hospital Epidemiology 2005;
26:882–890.
22 American College of Physicians (ACP), ACP
policy on influenza vaccination of health care
workers. https://www.acponline.org/running
_practice/quality_improvement/projects/adult_
immunization/flu_hcw.pdf.
23 Greene LR, Cain TA, Dolan SA et al., APIC
position paper: influenza immunization of
healthcare personnel. Association of Professionals
in Infection Control (APIC). November 2008. https://
www.apic.org/Content/NavigationMenu/
PracticeGuidance/Topics/Influenza/APIC_Position_
Paper_Influenza_11_7_08final_revised.pdf
24 National Patient Safety Foundation (NPSF),
Mandatory flu vaccinations for healthcare workers.
Press Release, November 18, 2009. https://
www.npsf.org/pr/pressrel/2009-11-18.php.
25 Infectious Diseases Society of America (IDSA),
IDSA policy on mandatory immunization of health
care workers against seasonal and 2009 H1N1
influenza. Infectious Diseases Society of America
(IDSA). September 30, 2009. https://
www.idsociety.org/HCWimmunization/.
26 Walker FJ, Singleton JA, Lu P, Wooten KG,
Strikas RA., Influenza vaccination of healthcare
workers in the United States, 1989–2002. Infection
Control and Hospital Epidemiology 2006; 27:257–
265.
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2009–2010.27 Only 37 percent reported
receiving the 2009 pandemic A/H1N1
vaccine.28
HCP refers to all personnel working in
healthcare settings who have the
potential for exposure to patients and/
or to infectious materials, including
body substances, contaminated medical
supplies and equipment, contaminated
environmental surfaces, or
contaminated air.29 HCP may include
(but are not limited to) physicians,
nurses, nursing assistants, therapists,
technicians, emergency medical service
personnel, dental personnel,
pharmacists, laboratory personnel,
autopsy personnel, students and
trainees, contractual staff not employed
by the healthcare facility, and persons
(for example, clerical, dietary, housekeeping, laundry, security,
maintenance, billing, and volunteers)
not directly involved in patient care but
potentially exposed to infectious agents
that can be transmitted to and from HCP
and patients. Settings in which HCP
may work include, but are not limited
to, acute care hospitals, long-term care
facilities, skilled nursing facilities,
rehabilitation centers, physicians’
offices, urgent care centers, outpatient
clinics, home health agencies, and
emergency medical services.
Currently, four States have ‘‘offer’’
laws for influenza vaccination of HCP,
meaning that vaccine must be offered to
HCP by healthcare facilities; and three
States (Alabama, California, and New
Hampshire) have ‘‘ensure’’ laws for
influenza vaccination of HCP, meaning
that vaccination of non-immune HCP is
mandatory in the absence of a specified
exemption or refusal; and, additionally,
numerous hospitals and other
healthcare facilities have established
policies requiring mandatory influenza
vaccination of their HCP.30
27 https://www.cdc.gov/mmwr/preview/
mmwrhtml/rr55e209a1.htm. Influenza Vaccination
of Health-Care Personnel: Recommendations of the
Healthcare Infection Control Practices Advisory
Committee (HICPAC) and the Advisory Committee
on Immunization Practices.
28 Centers for Disease Control and Prevention.,
Interim results: Influenza A (H1N1) 2009 and
Monovalent Seasonal Influenza Vaccination
Coverage Among Health-Care Personnel—United
States August 2009–January 2010. Morbidity and
Mortality Weekly Report (MMWR); 59:357–362.
Available at: https://www.cdc.gov/mmwr/preview/
mmwrhtml/mm5912a1.htm.
29 Adapted from: Pearson ML., Bridges CB.,
Harper SA.,: Influenza vaccination of health-care
personnel: Recommendations of the Healthcare
Infection Control Practices Advisory Committee
(HICPAC) and the Advisory Committee on
Immunization Practices (ACIP). Morbidity and
Mortality Weekly Report (MMWR) 2006; 55:1–16.
Available at: https://www.cdc.gov/mmwr/preview/
mmwrhtml/rr5502a1.htm.
30 For additional information regarding healthcare
facilities’ influenza vaccine policies, please see:
https://www.immunize.org/honor%2Droll/.
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Currently, no State requires that
hospitals report this measure to NHSN.
However, approximately 13 hospitals
(including long term acute care and
rehabilitation), outpatient hemodialysis
centers, long term care facilities, and
ambulatory surgical centers are
currently reporting HCP immunization
data to NHSN. In September 2009, CDC
released the Healthcare Personnel Safety
(HPS) Component of NHSN, which
complements Patient Safety and
Biovigilance components available in
NHSN. The HPS Component replaced
CDC’s National Surveillance System for
Health Care Workers (NaSH) and is
comprised of two modules: the Blood/
Body Fluid Exposure Module and the
Influenza Vaccination and Management
and Exposure Module.31 Currently,
participation in either module is
voluntary. The current Influenza
Vaccination and Management and
Exposure Module may soon offer
options for healthcare facilities to
submit vaccination summary data.
NHSN plans to partner with vendorbased surveillance systems to permit
periodic data extractions into NHSN.
The modules feature basic, custom,
and advanced analysis capabilities
available in real-time, which allow
individual healthcare facilities to
compile and analyze their own data, as
well as benchmark these results to
aggregate NHSN estimates. The HPS
Component can assist participating
facilities in developing surveillance and
analysis capabilities to permit the
timely recognition of HCP safety
problems and prompt interventions
with appropriate measures. Influenza
vaccination data submitted to CDC will
ultimately capture regional trends on
the yearly uptake of the vaccine,
prophylaxis and treatment for
healthcare personnel, as well as the
elements within yearly influenza
campaigns that succeed or require
improvement. At the State and national
levels, the HPS Component will aid in
monitoring rates and trends.
We are proposing to adopt the
Healthcare Provider Influenza
Vaccination measure that is currently
collected by the CDC via the NHSN
because of its importance in preventing
influenza not only among healthcare
workers but also patients that they
attend.. As stated earlier, this measure
assesses the percent of Healthcare
Personnel employed at the facility that
received a prophylactic vaccination for
influenza. Detailed specifications for the
proposed measure are available at:
https://www.cdc.gov/nhsn/PDFs/
31 Available
at: https://www.cdc.gov/nhsn/
hps.htm.
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HSPmanual/HPS_Manual.pdf. As we
also stated above, this measure is NQFendorsed for the hospital setting. The
proposed reporting mechanism for this
proposed HAI measure is discussed in
greater detail in section IV.A.5.i. of this
proposed rule. We invite public
comment on this proposed HAI
measure.
(B) Proposed New Chart-Abstracted
Measures for the FY 2015 Payment
Determination
We are proposing to adopt two sets of
chart-abstracted measures for the FY
2015 payment determination: the Stroke
and Venous Thromboembolism (VTE)
measure sets. All of these proposed
measures have either previously been
proposed for the Hospital IQR Program,
or have been listed as being under
consideration for future adoption into
the program. In addition, with one
exception (STK–1: VTE Prophylaxis), all
of the measures in these two measure
sets have been electronically specified
and are among the measures adopted for
the EHR Incentive Program for eligible
hospitals. While we are proposing to
adopt these for chart-abstracted
submission in 2013 for the FY 2015
payment determination, we believe that
by a future date, such as 2015, hospitals
will be able to switch to EHR-based
submission of these and all other chartabstracted measures submitted for the
Hospital IQR Program, and, as we
discuss in greater detail below, we
intend to work toward this goal over the
next few years.
The Stroke measure set we are
proposing to adopt consists of 8
measures; and the VTE measure set
consists of 6 measures. Both measure
sets are NQF-endorsed and their
specifications are currently available in
the Specifications Manual, which can be
found on QualityNet. We believe that
both of the proposed measure sets
compliment the data elements in our
current SCIP VTE and AMI measure
sets.
(i) Stroke Measure Set
Stroke is a topic of great relevance to
the Medicare population due to its
impact on morbidity and mortality, and
it is an area with great potential for
quality improvement for hospitals
caring for stroke patients. Stroke is the
third most common cause of death in
the United States and is one of the top
20 conditions contributing to Medicare
costs. Approximately 8 to 12 percent of
ischemic strokes are fatal,32 and
32 American Heart Association, Heart Disease and
Stroke Statistics—2009 Update. American Heart
Association, 2009: p. 1–36.
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determination. Numerous commenters
encouraged us to adopt the listed stroke
measures which they see as evidencebased measures that accurately measure
the care of the stroke patient (74 FR
43875 through 43876). Commenters
believed that the measures are widely
recognized for their roles in minimizing
secondary strokes and other
complications.
We are proposing to adopt a stroke
measure set with 8 NQF-endorsed
process-of-care measures for the FY
2015 payment determination. The table
below lists and describes each of these
eight proposed measures.
Because the NQF is the entity that
holds a contract with the Secretary
under section 1890(a) of the Act,
measures that are endorsed by the NQF
meet the requirement for measure
selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
Aside from the consideration of NQFendorsement, we believe that the
inclusion of the proposed stroke
measure set in the Hospital IQR Program
would provide a comprehensive view of
how well stroke care is being managed
in a hospital setting. As stated earlier,
detailed measure specifications for these
33 Weir, N.U., et al., Variations between countries
in outcome after stroke in the International Stroke
Trial (IST). Stroke, 2001. 32(6): p. 1370–7.
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mortality following stroke is influenced
by the quality of care provided to
patients during their initial
hospitalization.33 In the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR
43873), we listed 8 Stroke measures as
being under consideration for adoption
for the FY 2012 Hospital IQR payment
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8 proposed measures are available in the
Specifications Manual located in
QualityNet. We invite public comment
on the proposed stroke measure set.
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(ii) VTE Measure Set
It is widely agreed that VTE is the
number one preventable cause of
hospital death in the United States and
the cost of VTE when it occurs is very
high. A recent study from AHRQ in
Health Affairs highlighted that when an
acute VTE event occurs, it increases the
costs of care by 25 percent. In 2008, the
Surgeon General issued a Call to Action
to Prevent Deep Vein Thrombosis and
Pulmonary Embolism. (This document
can be found at: https://
www.surgeongeneral.gov/topics/
deepvein/calltoaction/call-to-action-ondvt-2008.pdf.) VTE prevention with
pharmacologic agents can impact the
cost effectiveness of care. Specifically,
patients who received anti-coagulant
medication during hospitalization have
less likelihood of recurrence of VTEs
upon discharge to home. Parenteral
anticoagulation is the first line of
therapy because of its rapid onset of
action. Because the oral anticoagulant
medication has a very slow onset of
action, it cannot be used as monotherapy for acute VTE. A minimum of
five days of parenteral anticoagulation is
recommended as ‘‘overlap therapy’’
while oral anticoagulant medication is
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being initiated. More thrombotic
complications and higher costs are
associated with treatment in patients
demonstrating a subtherapeutic aPTT.
Unfractionated Heparin (UFH) Dosages/
Platelet Count Monitoring by Protocol
(or Nomogram) has significantly
advanced the use of UFH with the
demonstrated ability to achieve
therapeutic aPTTs more rapidly than
with standard UFH dosing. When this
occurs, patients can be discharged
sooner. However, anticoagulation
therapy poses risks to patients and often
leads to adverse drug events due to
complex dosing, requisite follow-up
monitoring and inconsistent patient
compliance. The use of standardized
practices for anticoagulation therapy
that includes patient/caregiver
involvement may reduce the risk of
adverse drug events.
The Hospital IQR Program currently
has 2 measures of VTE prophylaxis for
surgical patients (SCIP–VTE–1: Venous
thromboembolism (VTE) prophylaxis
ordered for surgery patients; and SCIP–
VTE–2: VTE prophylaxis within 24
hours pre/post surgery) in the SCIP
measure set. In the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR
43873), we listed 5 VTE measures (VTE–
1; Venous thromboembolism
prophylaxis; VTE–3: Venous
thromboembolism patients with
anticoagulation overlap therapy; VTE–4:
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Venous thromboembolism patients
receiving unfractionated heparin with
dosages/platelet count monitoring by
protocol; VTE–5: Venous
thromboembolism discharge
instructions; and VTE–6: Incidence of
potentially-preventable venous
Thromboembolism) as possible new
quality measures for the FY 2012
payment determination. In the FY 2011
IPPS/LTCH PPS final rule (75 FR 50213
through 50218), we listed 6 VTE
measures (VTE–1; Venous
thromboembolism prophylaxis; VTE–2:
Intensive care unit venous
thromboembolism prophylaxis; VTE–3:
Venous thromboembolism patients with
anticoagulation overlap therapy; VTE–4:
Venous thromboembolism patients
receiving unfractionated heparin with
dosages/platelet count monitoring by
protocol; VTE–5: Venous
thromboembolism discharge
instructions; and VTE–6: Incidence of
potentially-preventable venous
thromboembolism) as measures we were
considering for possible future adoption
into the program.
We are now proposing to adopt for the
FY 2015 Hospital IQR measure set 6
VTE measures which are aimed at
preventing the incidence of potentially
preventable VTE. These 6 measures are
listed and described below.
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These 6 measures were endorsed in a
2008 NQF project titled: National
Voluntary Consensus Standards for
Prevention and Care of Venous
Thromboembolism: Additional
Performance Measures. Because the
NQF is the entity that holds a contract
with the Secretary under section 1890(a)
of the Act, measures that are endorsed
by the NQF meet the requirement for
measure selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
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Aside from the consideration of NQFendorsement, we believe that the
inclusion of the VTE measure set in the
Hospital IQR Program would provide a
comprehensive view of how well VTE
care is being managed in a hospital
setting. Detailed measure specifications
for these 6 proposed measures are
available in the Specifications Manual
located on QualityNet. We invite public
comment on the proposed VTE measure
set.
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In summary, for the FY 2015 payment
determination, we are proposing to
retain all of the FY 2014 measures (56
measures if all of the measures are
finalized), to adopt 3 HAI measures, and
14 chart-abstracted measures for a total
of 73 measures for the FY 2015 payment
determination. The measures proposed
for the Hospital IQR Program for the FY
2015 payment determinations are set
forth below.
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4. Possible New Quality Measures and
Measure Topics for Future Years
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
Looking forward, we anticipate that as
EHR technology evolves, and more
infrastructure is put in place, we will
have the capacity to accept electronic
reporting of all of the clinical chartabstracted quality measures that are
currently in the Hospital IQR Program
or have been proposed for adoption into
the program. We intend for this future
progress to significantly reduce the
administrative burden on hospitals
under the Hospital IQR Program. We
recognize that considerable work needs
to be done by measure owners and
developers to make this possible with
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respect to the clinical quality measures
that we proposed. This includes
completing electronic specifications for
measures, pilot testing, reliability and
validity testing, and implementing such
specifications into EHR technology to
capture and calculate the results, and
implementing the systems. We believe
that at a future date, such as 2015, CMS
and hospitals will be able to switch to
complete EHR-based reporting of all
chart-abstracted measures to CMS for
the Hospital IQR Program, and we
intend to work diligently toward this
goal. We believe this will simplify
measure collection and submission for
the Hospital IQR Program, and will
reduce the burden on hospitals. We
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25911
invite public comment and suggestions
on this topic.
In future rules, it is our intention to
propose to adopt outcome measures for
stroke and joint replacement surgery
which we have developed and
anticipate submitting for NQF review. In
addition, we intend to propose
additional HAI measures as they gain
NQF endorsement. We also invite
public comment on the following
quality measures and topics set out
below that we are considering for the
future. We seek to limit the number of
chart-abstracted measures and topics in
the near future, in order to facilitate the
transition to EHR-based reporting.
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5. Form, Manner, and Timing of Quality
Data Submission
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
a. Background
Sections 1886(b)(3)(B)(viii)(I) and (II)
of the Act state that the applicable
percentage increase, for FY 2007 and
each subsequent fiscal year, shall be
reduced by 2.0 percentage points (or,
beginning with FY 2015, by one-quarter
of such applicable percentage increase
(determined without regard to sections
1886(b)(3)(B)(ix), (xi), or (xii) of the Act)
for any subsection (d) hospital that does
not submit quality data in a form and
manner, and at a time, specified by the
Secretary. The data submission
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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.
In order to participate in the Hospital
IQR Program, hospitals must meet
specific procedural requirements.
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Hospitals choosing to participate in the
Hospital IQR Program must also meet
specific data collection, submission, and
validation requirements.
b. Procedural Requirements for FY 2012
Payment Determinations and
Subsequent Years
The proposed Hospital IQR Program
procedural requirements are, for the
most part, the same as the procedures
adopted in the FY 2011 IPPS/LTCH PPS
final rule for the Hospital IQR Program.
Hospitals must comply with the
following procedural requirements to
participate—
• Register with QualityNet, before
participating hospitals initially begin
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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).
• Complete a Notice of Participation.
New subsection (d) hospitals and
existing hospitals that wish to
participate in the Hospital IQR Program
for the first time must complete an
online Notice of Participation (formerly
known as ‘‘Reporting Hospital Quality
Data for Annual Payment Update Notice
of Participation,’’ also referred to as
IPledge) that includes the name and
address of each hospital campus that
shares the same CMS Certification
Number (CCN). We revise the Notice of
Participation periodically as needed and
provide appropriate notification of any
revisions to hospitals and QIOs through
the routine Hospital IQR Program
communication channels, which
include memo and e-mail notification
and QualityNet Web site articles and
postings.
• 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 Hospital
IQR Program and has not otherwise
submitted a Notice of Participation
using the new CCN must submit a
completed Notice of Participation 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 to participate in the Hospital
IQR Program. We are proposing
regulation text to codify this
requirement.
• We will accept Hospital IQR
Program withdrawal forms for the FY
2013 payment determination from
hospitals any time from October 1, 2011
until August 15, 2012. The August 15,
2012 deadline will give us sufficient
time to update the FY 2013 payment to
hospitals starting on October 1, 2012. If
a hospital withdraws from the program
for the FY 2013 payment determination,
it will receive a reduction of 2.0
percentage points to the FY 2013
applicable percentage increase. Once a
hospital has submitted a Notice of
Participation, it is considered to be an
active Hospital IQR Program participant
until such time as the hospital submits
a withdrawal form to CMS.
• We will determine if a hospital has
complied with our data submission
requirements by looking at whether the
hospital has properly submitted data to
the appropriate data warehouses for
HCAHPS, CDC/NHSN, chart-abstracted
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measures, and structural measure
quality measure data during the four
calendar year quarters of FY 2012.
The Hospital IQR Program procedural
requirements have remained relatively
unchanged for the past several years and
we are proposing to codify them at 42
CFR 412.140. We invite public comment
on this proposal.
c. Proposed Procedural Requirements
for FY 2013 and Subsequent Years
We are proposing that hospitals that
have an open date (as noted on the
approved CMS OSCAR system) before
March 31, 2009 that did not participate
in the Hospital IQR Program in FY 2011
or FY 2012 but that wish to participate
in the Hospital IQR Program for the FY
2013 payment determination must
submit a completed Notice of
Participation to CMS on or before
December 31, 2011. 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 Hospital IQR
Program while also enabling us to
collect enough data from them to make
an accurate FY 2013 payment
determination. We are proposing
regulation text that provides that
hospitals that would like to participate
in the Hospital IQR program for the first
time, or that previously withdrew from
the program and would like to
participate again, must submit to CMS
a completed Notice of Participation
Form by December 31 of the fiscal year
preceding the fiscal year in which they
would like to participate.
d. Proposed Data Submission
Requirements for Chart-Abstracted
Measures
We are proposing to reduce the
quarterly submission deadline for chartabstracted quality measures from 41⁄2
months to 104 days. In other words, for
FY 2014 payment determinations, the
quarterly deadline for the quality
measures under the topic that require
chart abstraction (AMI, HF, PN, SCIP,
Emergency Department Throughput
(EDT), and Global Immunization (GIM)
will be 104 days following the last
discharge date in the calendar quarter.
We are proposing to reduce the data
submission deadline in order to allow
for a correction period, which we will
propose in future rulemaking. We also
believe that this proposed change will
encourage hospitals to utilize quality
measure information in a more rapid
manner to facilitate quality
improvement. We also want to provide
hospitals sufficient notice of any
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proposed changes to our submission
deadline, since we recognize the
advance time needed by hospitals to
modify their recordkeeping and
abstraction practices to comply with
this proposed requirement. We also are
proposing to change the aggregate
population and sampling deadline from
4 months to 3 months to align with the
corresponding proposal to change the
data submission deadline from 135 to
104 days.
We will continue to require hospitals
to submit aggregate population and
sample size counts to CMS on a
quarterly basis for Medicare and nonMedicare discharges for the topic areas
for which chart-abstracted data must be
submitted (currently AMI, HF, PN, and
SCIP) (75 FR 50221). Starting with the
FY 2014 payment determination, we are
proposing to change the submission
deadline for hospitals to submit
aggregate population and sample size
count data for the measures requiring
chart abstraction from four months to
three months following the last
discharge date in the calendar quarter.
We are proposing this three-month
deadline for submission of the aggregate
population and sample size counts data
to provide CMS with information
necessary to notify hospitals about their
data completeness status. Specifically,
we currently provide a Provider
Participation Report the day after the
submitted file is processed, which
includes a calculation of the number of
hospital submitted cases by topic,
hospital self-reported aggregate
population and sample size count, and
Medicare FFS claims by clinical topic
and SCIP surgical category. We expect
that hospitals will use this report after
submission to assess their patient-level
data completeness and will submit
additional patient-level cases before the
proposed quarterly patient-level
deadline. We are proposing to provide
hospitals with the same 14-day period
after the proposed aggregate population
and sample size count deadline to
submit the required patient-level
records.
e. Proposed Sampling and Case
Thresholds Beginning With the FY 2015
Payment Determination
We are proposing to continue the
requirement for hospital submission of
population and sampling data for the FY
2015 payment determination and future
years. Hospitals must submit to CMS
quarterly aggregate population and
sample size counts for Medicare and
non-Medicare discharges for the topic
areas for which chart-abstracted data
must be submitted (AMI, HF, PN, SCIP,
EDT and GIM). Hospitals are required to
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submit their aggregate population and
sample size count for each topic area.
In accordance with the policy we
adopted in the FY 2011 IPPS/LTCH PPS
final rule, hospitals that have not treated
patients in a specific topic area must
still submit quarterly population and
sample size counts for all Hospital IQR
chart-abstracted data topics. For
example, if a hospital has not treated
AMI patients, the hospital is still
required to submit a zero for its
quarterly aggregate population and
sample count for that topic in order to
meet the requirement. We view it as
vital for hospitals to determine
accurately their aggregate population
and appropriate sampling size data in
order for CMS to assess hospitals’ data
reporting completeness for their total
population of cases, Medicare and nonMedicare.
In order to reduce the burden on
hospitals that treat a low number of
patients in a Hospital IQR 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
would not be required to submit patientlevel 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 topic areas each
quarter. Hospitals meeting the five or
fewer patient discharge exception may
voluntarily submit these data.
We strongly recommend that
hospitals review the QIO Clinical
Warehouse Feedback Reports and the
Hospital IQR Program Provider
Participation Reports that are available
after patient-level data are submitted to
the QIO Clinical Warehouse. We
generally update 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.
f. Proposed HCAHPS Requirements for
the FY 2013, FY 2014, and FY 2015
Payment Determinations
Beginning with discharges occurring
in third quarter CY 2011, we are
proposing to move the HCAHPS data
submission deadline forward by one
week in order to allow for a review and
correction period, which we will
propose in future rulemaking. Currently,
hospitals have about 14 weeks after the
end of a calendar quarter to submit
HCAHPS data for that quarter to the QIO
Clinical Warehouse. If this proposal is
adopted, hospitals will have about 13
weeks after the end of a calendar quarter
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to submit HCAHPS data for that quarter
to the QIO Clinical Warehouse.
Other than this proposed change, we
are not proposing any other changes to
the HCAHPS requirements for the FY
2013 and FY 2014 Hospital IQR Program
payment determinations, which were
adopted in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50220). For FY 2015
Hospital IQR payment determinations,
we are proposing to continue the
HCAHPS requirements as follows.
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 HCAHPS Web site at:
https://www.hcahpsonline.org. A current
list of approved HCAHPS survey
vendors can be found on the HCAHPS
Web site. For the FY 2015 Hospital IQR
Program, we are proposing that the
HCAHPS data will be based on
discharges from January 1, 2013 through
December 31, 2013.
Every hospital choosing to contract
with a survey vendor must 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 survey administration.)
Hospitals are strongly encouraged to
submit their entire patient discharge
list, excluding patients who had
requested ‘‘no publicity’’ status or who
are excluded because of State
regulations, in a timely manner to their
survey vendor to allow adequate time
for sample creation, sampling, and
survey administration. We wish to
emphasize that hospitals must also
provide the administrative data that is
required for HCAHPS in a timely
manner to their survey vendor. This
includes the patient MS–DRG at
discharge, or alternative information
that can be used to determine the
patient’s service line, in accordance
with the survey protocols in the most
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recent HCAHPS Quality Assurance
Guidelines.
We note that the HCAHPS Quality
Assurance Guidelines require that
hospitals maintain complete discharge
lists that indicate which patients were
eligible for the HCAHPS survey, which
patients were not eligible, which
patients were excluded, and the
reason(s) for ineligibility and exclusion.
(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
data via My QualityNet, the secure part
of the QualityNet Web site, on the
hospital’s behalf.
Hospitals must submit at least 300
completed HCAHPS surveys in a rolling
four-quarter period unless the hospital
is too small to obtain 300 completed
surveys. We wish to emphasize that the
absence of a sufficient number of
HCAHPS eligible discharges is the only
acceptable reason for submitting fewer
than 300 completed HCAHPS surveys in
a rolling four quarter period. If a
hospital obtains fewer than 100
completed surveys, the hospital’s
HCAHPS scores will be accompanied by
a footnote on the Hospital Compare Web
site alerting the Web site users that the
scores should be reviewed with caution,
as the number of surveys may be too
low to reliably assess hospital
performance.
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.
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
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and Interactive Voice Response (IVR)
materials and facilities; (d) data receipt,
entry and storage facilities; and, (e)
written documentation of survey
processes. As needed, hospitals and
survey vendors will be subject to followup site visits or conference calls. We
wish to point out that the HCAHPS
Quality Assurance Guidelines state that
hospitals should refrain from activities
that explicitly influence how patients
respond on the HCAHPS survey. If we
determine that a hospital is not
compliant with HCAHPS program
requirements, we may determine that
the hospital is not submitting HCAHPS
data that meet the requirements of the
Hospital IQR 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 Hospital IQR
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Program requirements. New hospitals
can conduct a dry run in the last month
of a calendar quarter. 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 dry-run
data and submit the data to My
QualityNet, the secure portion of
QualityNet.
We again are encouraging hospitals to
regularly check the HCAHPS Web site at
https://www.hcahpsonline.org for
program updates and information.
We proposed that HCAHPS scores
become part of the Hospital VBP
Program in FY 2013. As HCAHPS scores
become incorporated in hospital
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payment, we believe that a neutral
third-party should administer the
survey for hospitals whose annual
payment updates will be affected by
their HCAHPS scores. It is our belief
that an experienced survey vendor will
be best able to ensure reliable results.
Therefore, we are considering whether
to allow only non-subsection (d)
hospitals to self-administer the
HCAHPS survey. We invite public
comment that will inform our future
policy on this issue.
g. Proposed Procedures for ClaimsBased Measures
CMS is proposing to adopt a new
claims-based measure for FY 2014, the
Medicare Spending per Beneficiary
Measure, which is included in the chart
below.
BILLING CODE 4120–01–P
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We are not proposing to change the
procedures and time periods we
adopted in the FY 2011 IPPS/LTCH PPS
final rule for the FY 2012, FY 2013 and
FY 2014 payment determinations. For
the FY 2014 payment determination, we
are proposing to use up to 3 years of
Medicare FFS claims data to calculate
the measures, as appropriate for the
measure.
Hospitals are encouraged to regularly
check the QualityNet Web site, https://
www.QualityNet.org, for program
updates and information.
h. Proposed Data Submission
Requirements for Structural Measures
Structural measures assess the
characteristics and capacity of the
provider to deliver quality healthcare.
We are proposing to add one additional
structural measure for the FY 2014
payment determination, Participation in
a Systematic Clinical Database Registry
for General Surgery, and to align the
submission deadline for all structural
measures with the submission deadline
for the fourth quarter of the chartabstracted measures. We are proposing
to update the period of data collection
that hospitals will submit the required
registry participation information once
annually for the structural measures via
a Web-based collection tool between
April 1, 2012 and May 15, 2012 with
respect to the time period of January 1,
2011 through December 31, 2011. This
proposal will give CMS a more complete
picture of registry participation as well
as synchronize data submissions for
structural and chart-abstracted
measures. These measures do not
require the hospital to participate in a
registry.
Below is the list of structural
measures we have adopted or are
proposing to adopt for the FY 2014
payment determination:
i. Proposed Data Submission and
Reporting Requirements for HealthcareAssociated Infection (HAI) Measures
Reported via NHSN
2014 payment determination and 3 HAI
measures for FY 2015 payment
determination. For FY 2014, the two
proposed measures are Central Line
Insertion Practices Adherence
Percentage and Catheter Associated
Urinary Tract Infection. For FY 2015,
the three proposed measures are:
Healthcare Provider Influenza
Vaccination, MRSA Bacterimia and C.
Difficile. Below is the list of HAI
measures we are proposing to adopt for
the FY 2014 and FY 2015 payment
determinations:
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As discussed above, we are proposing
to adopt 2 new HAI measures for the FY
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We are proposing to update the
current data submission and reporting
requirements for these proposed
measures. Specifically, we are
proposing to utilize the data submission
and reporting standard procedures that
have been set forth by CDC for NHSN
participation in general and for
submission of these measures to NHSN.
We refer readers to the CDC’s NHSN
Web site (https://www.cdc.gov/nhsn) for
detailed data submission and reporting
procedures. We believe that these
procedures are feasible because they are
already widely used by over 4,000
hospitals reporting HAI data using the
NHSN. Our proposal seeks to reduce
hospital burden by aligning CMS data
submission and reporting procedures
with NHSN procedures currently
utilized by hospitals, including
hospitals complying with 28 State HAI
reporting requirements. The existing
data collection and submission
timeframes for the HAI measures for the
FY 2014 payment determination, which
we are proposing to use for the HAI
measures we have proposed above, are
shown below. Hospitals must submit
their quarterly data to NHSN for
Hospital IQR Program purposes on or
around the dates shown in the table
below (updates to this will be posted on
the QualityNet Web site).
Hospitals would have until the
Hospital IQR Program final submission
deadline to submit their quarterly data
to NHSN. After the final Hospital IQR
Program submission deadline has
occurred for each CY 2012 quarter, CMS
will obtain the hospital-specific
calculations that have been generated by
the NHSN for the Hospital IQR Program.
We invite public comment on this
proposal.
45-day requirement, the CMS CDAC
contractor assigned a ‘‘zero’’ validation
score to each measure in a missing
record. We are proposing to change the
time period given to hospitals to submit
medical records to the CDAC contractor
to 30 calendar days, and we are
proposing to codify this proposal at 42
CFR 412.140(d)(1). This proposed
change in submission timeframe will
align the current process with the
requirements in 42 CFR 476.78(b)(2),
which currently allow only 30 days for
chart submission in the context of
reviews by QIOs. We are proposing this
deadline modification to reduce the
time we need to complete validation,
and provide hospitals with feedback on
their abstraction accuracy. We believe
that this linkage between Hospital IQR
Program validation discharge quarters
and the same fiscal year’s Hospital VBP
Program proposed performance period
would improve the reliability and
accuracy of the Hospital VBP Program’s
chart-abstracted measures. Hospitals
that are subject to Hospital IQR payment
reduction due to not passing our
validation requirement would be
excluded from receiving a Hospital VBP
performance score and corresponding
incentive payment under section
1886(o)(1)(C)(ii)(I) of the Act. Thus,
CMS would ensure that the data
submitted on chart-abstracted measures
we adopt for the Hospital VBP Program
is accurate by virtue of validating it
under the validation procedures we
have adopted for the Hospital IQR
Program.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
a. Proposed Changes to the Chart
Validation Requirements and Methods
for the FY 2012 Payment Determination
and Subsequent Years
We are proposing several changes to
the chart validation requirements and
methods we adopted in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50225
through 50229) for the FY 2012 payment
determination and subsequent years. In
previous years, charts were requested by
the CMS CDAC contractor and hospitals
were given 45 days from the date of the
request to submit the requested records.
If any record(s) were not received by the
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b. Proposed Supplements to the Chart
Validation Process for the FY 2014
Payment Determination and Subsequent
Years
We are proposing to continue to use
the supplements to the chart validation
requirements and methods we adopted
in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50227 through 50229) for FY
2014 payment determinations and
future years with several proposed
modifications.
We are proposing to add hospitals to
our validation sample if they were open
under their current CCNs in FY 2012
but not selected for validation in the
three previous annual Hospital IQR
Program validation samples. We are
proposing this addition to supplement
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Measures
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our validation approach to ensure that
all eligible Hospital IQR Program
hospitals are selected for validation at
least once every 4 years. We are
proposing this addition starting in FY
2015 because FY 2015 would be the
fourth year that CMS would have used
the random validation approach (which
begins in FY 2012 as adopted in the FY
2011 IPPS/LTCH PPS final rule). We
invite public comment on this proposal.
We believe that this proposed
Hospital IQR Program validation
process meets the requirements set forth
in section 1886(b)(3)(B)(viii)(XI) of the
Act. This section states that ‘‘the
Secretary shall establish a process to
validate measures specified under this
clause as appropriate. Such process
shall include the auditing of a number
of randomly selected hospitals sufficient
to ensure validity of the reporting
program under this clause as a whole
and shall provide a hospital with an
opportunity to appeal the validation of
measures reported by such hospital.’’
Starting with the FY 2012 payment
determination and continuing in
subsequent fiscal years, the chart
validation process audits 800 randomly
selected hospitals for the discharge
quarters. This sample size is sufficient
to validate more than 22 percent of
subsection (d) hospitals in an applicable
fiscal year and ensure accuracy of the
Hospital IQR Program quality data.
For FY 2014 payment determination,
we are proposing to validate 24 chartabstracted measures including 19
currently validated measures, and 5
proposed additional measures. The FY
2014 proposed validation reflects the 5
measures we are proposing to add (2
EDT measures, Central Line Associated
Blood Stream Infection, Global
Influenza Immunization, and Global
Pneumonia Immunization measures)
and the 8 measures we are proposing to
retire (AMI–1, AMI–3, AMI–4, AMI–5,
HF–4, PN–4, PN–5c, and SCIP Infection
6).
Validation of the HCAHPS measure is
conducted through our oversight
activities. We provide oversight of all
HCAHPS survey vendors and hospitals
self-administering the survey in order to
ensure that the data collection protocols
are followed. We also provide oversight
and validation through our review of
Quality Assurance Plans, site visits,
conference calls and detailed data
analyses each quarter to ensure there are
no anomalies found in the data. In
particular, we use site visits to review
all data collection activities, including
data reviews to track a discharged
patient from sampling to survey
administration to data submission.
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We are proposing, starting with FY
2014 payment determinations, a modest
increase to the current Hospital IQR
Program validation sample of SCIP,
AMI, HF, and PN cases. Specifically, we
are proposing to add three charts per
selected hospital per quarter to the
validation sample. This additional
quarterly sample would enable us to
validate the CLABSI measure that we
added to the Hospital IQR Program
measure set beginning with the FY 2014
payment determination. CLABSI is a
relatively rare event compared to SCIP,
AMI, HF, and PN cases. In 2009, about
18,000 CLABSIs occurred in ICU
patients in the United States, and these
infections were a major contributor to
prolonged hospital stays and inpatient
mortality. We are proposing a process to
validate the CLABSI measure that takes
into account the relative infrequency of
this event and the case-finding
methodology for it, specifically the
requirements for a positive blood
culture result and the presence of a
central venous catheter in the patient at
the time of, or within 48 hours before,
onset of the infection. We recognize that
the current validation process and
sample size for AMI, HF, PN, and SCIP
measures is not likely to be sufficiently
reliable to detect systematic
underreporting of CLABSI. Unlike the
current AMI, HF, PN, and SCIP chart
abstracted process of care measures,
CLABSI is a rarely occurring infection
among acute care inpatient discharges.
We estimate that between 0.1 percent to
0.2 percent of all acute care inpatient
patient discharges nationwide involve
patients who are infected with a
CLABSI. We believe that our current
Hospital IQR AMI, HF, PN, and SCIP
sample sizes and sample methods
would not reliably validate CLABSI
measure rates at the hospital level
because of the relatively rare occurrence
of these events. We also seek to target
validation of the CLABSI measure to
minimize hospital burden in complying
with our sample size proposals, for
which hospitals must find, photocopy,
and return requested medical records to
CMS. If CMS did not utilize this
targeted validation approach for the
CLABSI measure, hospitals would have
to submit 200 to 300 additional
randomly selected cases in order to
effectively validate this measure, given
its rare occurrence. We believe that our
proposed CLABSI validation process
addresses these limitations through the
use of a targeted incremental validation
sample comprised of three charts of
possible CLABSI events, and will
reliably validate the Hospital IQR
Program CLABSI measure while not
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overly burdening hospitals with medical
record requests.
Specifically, we are proposing to
identify sampled hospitals’ three
quarterly potential CLABSI charts using
a two-step selection process that would
target intensive care unit patients with
bloodstream infection (positive blood
culture results) and a Central Venous
Catheter (CVC) provided by sampled
hospitals to CMS. In the first step of this
process, a CMS contractor would
require the 800 randomly sampled
hospitals to provide a quarterly list of
all blood cultures positive for infection
status taken from intensive care units
conducting CLABSI surveillance during
the discharge quarter. We are aware that
this list will include both reported
CLABSI events and many non-CLABSI
events, including patients with and
without CVCs. In clinical terms, our
intent in reviewing these positive blood
culture lists is to identify the
information needed to determine
whether the blood culture isolate is a
likely pathogen found at least once, or
a common skin commensal (CSC) found
in two or more positive blood cultures
drawn on separate occasions. CSC’s are
microorganisms that are commonly
found on the skin and often indicate
contamination of the blood culture
media rather than infection by the
microorganism when it is identified in
a single blood culture test. Two sets of
blood cultures are needed to
differentiate true infection from
contamination. The list of CSCs is
comprised of the following organisms:
diphtheroids (Corynebacterium spp.);
Bacillus spp. (not B. anthracis);
Priopionibacterium spp.; coagulase
negative staphylococci including S.
epidermidis; viridans group
streptococci; Aerococcus spp.; and
Micrococcus spp. This list of CSCs is
also found at the NHSN Web site,
https://www.cdc.gov/nhsn/PDFs/
pscManual/4PSC_CLABScurrent.pdf.
We would also require hospitals to selfidentify intensive care unit patients
with a CVC that are on this blood
culture list. Using all of this
information, we would be able to
identify intensive care unit patients
with a bloodstream infection and with
a CVC (that is, candidate CLABSI
events) for subsequent sampling.
In the second step of this process, we
would randomly sample these candidate
CLABSI events (ICU patients with a
CVC and where a pathogen was
recovered at least once or the same CSC
was cultured from 2 or more blood
cultures drawn on separate occasions).
Specifically, the CMS CDAC would
require hospitals to submit up to 3
medical records each quarter meeting
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these criteria, randomly selected by
CMS from among eligible charts. This
number of medical records is sufficient
to detect unreported CLABSI events
based on our sample size analysis and
experience from State health
department validation efforts. This
proposed process utilizes the validation
experience from at least ten current
State health department validation
initiatives. In addition, we are
proposing to randomly validate CLABSI
data by abstracting all necessary quality
data from the 12 quarterly medical
records in our AMI, HF, PN, and SCIP
targets already collected for IQR
validation as well as the 3 additional
records we later propose to collect for
ED throughput/Immunization. Our
intent in validating all currently
requested quarterly medical records for
CLABSI is to assess reliability of
CLABSI measure rates from a random
sample of patients independent from the
proposed 3 record sample selected using
blood culture lists and CVC presence to
target underreporting of CLABSI events
to the CDC’s NHSN. In our proposed 12
record random sample of CLABSI
events, we will not use blood culture
list and CVC presence in our sampling,
since this sample is already drawn from
the AMI, HF, PN, and SCIP hospital
reported data reported to CMS. By
combining a random and targeted
sampling approach using two
independent sources to validate CLABSI
data, we believe that we are adequately
assessing the accuracy and reliability of
the CLABSI measure in accordance with
section 1886(b)(3)(B)(viii)(XI) of the Act.
We are proposing to determine the
CLABSI validation score using a process
that begins with the CMS contractor
validation coordinator comparing the
CDAC’s CLABSI infection status to the
hospital’s event data reported to NHSN
for the applicable quarter. For each
medical record reviewed, a hospital
would receive a match only if the CMS
contractor validation coordinator
determines equivalency between the
CMS contractor’s determination of
infection status and the infection status
reported to NHSN. For example, if one
of the CMS-requested validation
medical records revealed CLABSI and
the event was not reported to the NHSN,
then the hospital would receive a zero
score for the CLABSI measure for that
validated record. If the CMS contractor
discovered that a second record in the
CMS validation sample indicated no
CLABSI event, but a CLABSI was
reported to the NHSN for the record, the
hospital would also receive a zero score
for the CLABSI measure for that
validation record. Thus, Hospitals
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would only receive a 100% CLABSI
validation score for individual records if
their CMS validation records’ CLABSI
status was consistent with the
information reported, or not reported, to
NHSN. In the above example, if the
CMS quarterly validation process
identified that 13 out of 15 total
sampled records accurately reported the
presence of a CLABSI or did not report
a CLABSI where none was present, then
the hospital’s CLABSI validation score
would be 13⁄15, or about 87 percent.
Starting with FY 2014 payment
determination, we are also proposing to
add a sixth quarterly sample, which
would enable us to validate the EDT
measures and the Immunization for
Influenza and Immunization for
Pneumonia global measures that we
added to the Hospital IQR Program
measure set. We are proposing to
modify the current process (75 FR
50225–75 FR 50229) for these measures
in two ways. First, we are proposing to
select 3 additional records each quarter
from the records submitted by the 800
annually sampled hospitals. These
records would only include principal
diagnoses and surgical procedures not
already included in the AMI, HF, PN,
and SCIP populations eligible for
validation sampling in these four topic
areas. Second, we would abstract EDT
and the Immunization for Influenza and
Immunization for Pneumonia global
measure data from the 15 quarterly AMI,
HF, PN, SCIP and CLABSI records
already submitted by hospitals for IQR
validation. We would validate 18
records per quarter for these measures.
With the addition of this sample of three
records, we would ensure that all
hospitals that reported chart-abstracted
Hospital IQR data in all principal
procedure and diagnosis codes would
be eligible for sample selection for these
global measures, thus, starting in FY
2014, we would be validating a total of
18 records per quarter per validated
hospital in 6 strata (1) SCIP, (2) AMI, (3)
HF, (4) PN, (5) CLABSI, and (6) EDT/
immunization measures.
7. Proposed QIO Regulation Changes for
Provider Medical Record Deadlines
Possibly Including Serious Reportable
Events
Our Hospital IQR validation
requirement has utilized 42 CFR 476.78
authority and deadlines to require
participating hospitals to return
requested medical record information in
a timely manner. Our State QIOs use
this information to educate hospitals on
medical record abstraction accuracy,
and identify potential opportunities for
quality improvement through medical
record review. It is our goal to improve
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the alignment of QIO work in the
Hospital IQR Program, quality
improvement assistance, beneficiary (or
beneficiary representative) requested
QIO quality of care reviews, and QIO
medical necessity reviews to improve
the following three aims: (1) Improve
individual care; (2) improve health for
populations; and (3) lower cost through
improvement. QIOs serve a critical role
in advancing these three aims through
their work with Medicare providers and
beneficiaries to advance quality care
and health.
Moreover, because we developed our
validation process based on the
requirements of the QIO program
regulations, we are also proposing
corresponding changes to 42 CFR
476.78(b), along with minor editorial
revisions. This section includes
requirements related to the submission
of medical information as well as other
information associated with the
prospective payment system.
Specifically, we are proposing to add a
new § 478.78(b)(2)(ii) that would require
the submission of medical information
within 21 days in those situations in
which a ‘‘serious reportable event’’ or
other circumstance has been identified
during the course of a QIO review. For
purposes of this subsection, we are
proposing to define the term ‘‘serious
reportable event’’ to be consistent with
the NQF’s definition of a serious
reportable event in its report ‘‘Serious
Reportable Events in Healthcare 2006
Update.’’ These events include the
following:
Surgical Events
• Surgery performed on the wrong
body part
• Surgery performed on the wrong
patient
• Wrong surgical procedure
performed on a patient
• Unintended retention of a foreign
object in a patient after surgery or other
procedure
• Intraoperative or immediately
postoperative death in an ASA Class I
patient
Product or Device Events
• Patient death or serious disability
associated with the use of contaminated
drugs, devices or biologics provided by
the healthcare facility
• Patient death or serious disability
associated with the use or function of a
device in patient care in which the
device is used or functions other than as
intended
• Patient death or serious disability
associated with intravascular air
embolism that occurs while being cared
for in a healthcare facility
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Patient Protection Events
• Infant discharged to the wrong
person
• Patient death or serious disability
associated with patient leaving the
facility without permission
• Patient suicide, or attempted
suicide, resulting in serious disability
while being cared for in a healthcare
facility
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Care Management Events
• Patient death or serious disability
associated with a medication error (for
example, errors involving the wrong
drug, wrong dose, wrong patient, wrong
time, wrong rate, wrong preparation or
wrong route of administration)
• Patient death or serious disability
associated with a hemolytic reaction
(abnormal breakdown of red blood cells)
due to the administration of ABO/
HLA—incompatible blood or blood
products
• Maternal death or serious disability
associated with labor or delivery in a
low-risk pregnancy while being cared
for in a healthcare facility
• Patient death or serious disability
associated with hypoglycemia, the onset
of which occurs while the patient is
being cared for in a healthcare facility
• Death or serious disability
associated with failure to identify and
treat hyperbilirubinemia (condition
where there is a high amount of
bilirubin in the blood) in newborns
• Stage 3 or 4 pressure ulcers
acquired after admission to a healthcare
facility
• Patient death or serious disability
due to spinal manipulative therapy
• Artificial insemination with the
wrong donor sperm or wrong egg
Environmental Events
• Patient death or serious disability
associated with an electric shock while
being cared for in a healthcare facility
• Any incident in which a line
designated for oxygen or other gas to be
delivered to a patient contains the
wrong gas or is contaminated by toxic
substances
• Patient death or serious disability
associated with a burn incurred from
any source while being cared for in a
healthcare facility
• Patient death or serious disability
associated with a fall while being cared
for in a healthcare facility
• Patient death or serious disability
associated with the use of restraints or
bedrails while being cared for in a
healthcare facility
Criminal Events
• Any instance of care ordered by or
provided by someone impersonating a
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physician, nurse, pharmacist, or other
licensed healthcare provider
• Abduction of a patient of any age
• Sexual assault on a patient within
or on the grounds of a healthcare facility
• Death or significant injury of a
patient or staff member resulting from a
physical assault (that is, battery) that
occurs within or on the grounds of a
healthcare facility
This proposed 21 day medical record
deadline would be used when, for
example, in the QIO’s judgment, delays
in receiving medical information could
negatively undermine its efforts to
evaluate the quality of care provided or
the facility’s adherence to payment
policies. It also would enable QIOs to
better utilize, and respond to,
information about adverse events gained
from the quality reporting program, in a
timely fashion so that QIOs can have an
improved and more immediate impact
on the quality of health care.
We also are proposing a technical
correction to 42 CFR 476.78(a) to correct
a cross reference.
We invite public comment on our
proposal to improve patient care
through QIO access to more rapid
provider information about ‘‘serious
reportable events’’ and our proposed
technical correction to 42 CFR
476.78(a).
8. Proposed Data Accuracy and
Completeness Acknowledgement
Requirements for the FY 2012 Payment
Determination and Subsequent Years
We are proposing to require hospitals
to continue to electronically
acknowledge their data accuracy and
completeness once annually. However,
we are proposing to change the
submission deadline to be used for the
FY 2012 Hospital IQR Program payment
determination and subsequent years.
This proposal will allow us to align the
submission deadline with the final
quarter of the chart-abstracted measures.
Hospitals will continue to submit the
required electronic acknowledgment
attesting that the data provided to meet
the FY 2012 Hospital IQR Program data
submission requirements is accurate
and complete to the best of the
hospital’s knowledge at the time of data
submission. We are proposing to make
the submission deadline for the Data
Accuracy and Completeness
Acknowledgement May 15, 2012 with
respect to the time period of January 1,
2011 through December 31, 2011. We
invite public comment on this proposal.
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9. Proposed Public Display
Requirements for the FY 2014 Payment
Determination and Subsequent Years
We are proposing to continue, for the
FY 2014 payment determination and
subsequent years, the approach we
adopted in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50230) for public
display requirements for the FY 2012
payment determination and subsequent
years.
The Hospital IQR Program quality
measures are typically reported on the
Hospital Compare Web site https://
www.hospitalcompare.hhs.gov, but on
occasion are reported on other CMS
Web sites. We require that hospitals sign
a Notice of Participation form when
they first register to participate in the
Hospital IQR Program. Once a hospital
has submitted a form, the hospital is
considered to be an active Hospital IQR
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 us
to publicly report the quality measures
included in the Hospital IQR 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.
We invite public comment on this
proposal.
10. Proposed Reconsideration and
Appeal Procedures for the FY 2012
Payment Determination
We are proposing to continue, for the
FY 2012 payment determination and
subsequent years, the general approach
we adopted in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50230) for
reconsideration and appeal procedures
for the FY 2011 payment determination.
We also are proposing to codify the
requirements under this process at 42
CFR 412.140(e). We discuss each of the
regulatory provisions being proposed, as
well as specific changes, below.
We are proposing that the general
deadline for submitting a request for
reconsideration in connection with the
FY 2012 payment determination will be
30 days from the date of receipt of the
payment determination notification.
Historically, most reconsideration
requests are based on the failure to meet
established data submission deadlines.
While we want to ensure that hospitals
have an opportunity to request
reconsiderations when warranted, we
also need to balance this goal with our
need to complete the reconsideration
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process in a timely manner and with the
hospitals’ desire to obtain final
decisions on their requests in a timely
manner. Therefore, we are proposing to
reduce the reconsideration and appeal
period from a deadline of November 1st
2012 to 30 days after hospital receipt of
the payment determination notification.
Notifications will be sent via a trackable
mail option such as Certified U.S. Mail
or Registered Mail. We include this
change in the proposed § 412.140(e)(1).
As discussed more fully below, we are
proposing 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 2012 payment
determination, we are proposing to
continue utilizing many of the same
procedures that we utilized for the FY
2011 requests for reconsideration. We
are, however, clarifying that a hospital
must submit all documentation and
evidence that supports its request for
reconsideration at the time that it
submits its request. This includes copies
of any communications, such as e-mails
that the hospital believes demonstrate
its compliance with the program
requirements, as well as all paper
medical records that support the
hospital’s rationale for seeking
reconsideration. The information that
must be included when a hospital
submits a reconsideration request has
been listed in proposed § 412.140(e)(2).
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 Hospital IQR
Program requirements and should
receive the full update to the
standardized amount.
—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 note that to
the extent a hospital can submit a
request for reconsideration on-line,
the burden on our staff would be
reduced and, as a result, we can more
quickly review the request.
—QualityNet System Administrator
contact information, including name,
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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 are proposing that if a
hospital asks us to reconsider an
adverse Hospital IQR Program
payment decision made because the
hospital failed the validation
requirement, the hospital must submit
paper copies of all the medical
records that it submitted to the CDAC
contractor each quarter for purposes
of the validation. Hospitals must
submit this documentation to a CMS
contractor. 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 2012 IPPS/LTCH PPS final
rule.
Hospitals submitting a Hospital IQR
Program validation reconsideration
request will have all data elements to be
reconsidered reviewed by CMS, and not
their State QIO. (The State QIO is
available to conduct a quarterly
validation appeal if requested to do so
by a hospital.)
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, hospitals
that submit a reconsideration request to
CMS must 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 it
decreases the number of PRRB appeals
by resolving issues earlier in the
reconsideration and appeals process.
We have proposed language at
§ 412.140(e)(3) stating that a hospital
that receives an adverse decision on its
reconsideration request may appeal that
decision to the PRRB.
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
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information provided in the
reconsideration request, regarding our
decision. We expect the process to take
approximately 90 days from the receipt
of the reconsideration request.
We are proposing to continue for the
FY 2012 Hospital IQR reconsideration
and future years the scope of review
when a hospital requests
reconsideration because it failed our
validation requirements, which we
adopted in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43892). The
scope of this review will be as follows:
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 be reconsidered on the
basis of mismatched data elements.
Only hospitals that fail to meet the
passing threshold for the quarterly
validation would receive an opportunity
to appeal the validation results to their
State QIO.
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
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.
3. Hospital requests reconsideration
for medical records not submitted to the
CDAC contractor within the proposed
30 calendar day deadline. Our review
will initially be limited to determining
whether the CDAC contractor received
the requested record within the
proposed 30 calendar days, and whether
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the hospital received the initial medical
record request. If we determine during
reconsideration that the CDAC
contractor did receive a paper copy of
the requested medical record within the
proposed 30 calendar days, then we
would abstract data elements from the
medical record submitted by the
hospital. If we determine that the
hospital received a request for medical
records and did not submit the
requested records within the proposed
30 day period, CMS will not accept
these records as part of the
reconsideration. CMS will not abstract
data from charts not received timely by
the CMS contractor. Please note that this
proposed language is also designed to
address those instances where the
hospital’s request is based on ‘‘invalid
record selections,’’ which we have
defined as medical records submitted
during the quarterly validation process
that do not match the patient’s episode
of care information as determined by the
CMS contractor as described above in
situation 2, above ‘‘Hospital requests
reconsideration for medical record
copies submitted during the quarterly
validation process and classified as
invalid record selections.’’
In sum, we are proposing to continue
to initially limit 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 CMS
contractor during the quarterly
validation process. We would 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, we would abstract data elements
from the medical record submitted by
the hospital as part of our review of its
reconsideration request.
If a hospital is dissatisfied with the
result of a Hospital IQR Program
reconsideration decision, the hospital
may file an appeal under 42 CFR Part
405, Subpart R (a PRRB appeal). We
invite public comment on the extent to
which these proposed procedures will
be less costly for hospitals, and whether
they will lead to fewer PRRB appeals.
11. Proposed Hospital IQR Program
Disaster Waivers
In our experience, there have been
times when hospitals have been unable
to submit required quality data due to
extraordinary circumstances that are not
within their control. It is our goal to not
penalize hospitals for such
circumstances or unduly increase their
burden during these times. Therefore,
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we are proposing to continue, for the FY
2014 and subsequent years payment
determinations, the process we adopted
in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50225), for hospitals to
request and for CMS to grant waivers
with respect to the reporting of required
quality data when there are
extraordinary circumstances beyond the
control of the hospital. Under the
process, in the event of extraordinary
circumstances, such as a natural
disaster, not within the control of the
hospital, for the hospital to receive
consideration for an extension or waiver
of the requirement to submit quality
data for one or more quarters, a hospital
would submit to CMS a request form
that would be made available on the
QualityNet Web site. The following
information should be noted on the
form:
• Hospital CCN;
• Hospital Name;
• CEO and any other designated
personnel contact information,
including name, e-mail address,
telephone number, and mailing address
(must include a physical address, a post
office box address is not acceptable);
• Hospital’s reason for requesting an
extension or waiver;
• Evidence of the impact of the
extraordinary circumstances, including
but not limited to photographs,
newspaper and other media articles; and
• A date when the hospital will again
be able to submit Hospital IQR Program
data, and a justification for the proposed
date.
The request form must be signed by
the hospital’s CEO. We are proposing
that a request form must be submitted
within 30, rather than 45, days of the
date that the extraordinary circumstance
occurred. The QIO in the hospital’s state
will forward the request form to CMS.
Following receipt of the request form,
CMS will: (1) provide a written
acknowledgement using the contact
information provided in the request, to
the CEO and any additional designated
hospital personnel, notifying them that
the hospital’s request has been received;
and (2) provide a formal response to the
CEO and any additional designated
hospital personnel using the contact
information provided in the request
notifying them of our decision.
This proposal does not preclude CMS
from granting waivers or extensions to
hospitals that have not requested them
when we determine that an
extraordinary circumstance, such as an
act of nature (for example, hurricane),
affects an entire region or locale. If CMS
makes the determination to grant a
waiver or extension to hospitals in a
region or locale, CMS proposes to
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communicate this decision through
routine communication channels to
hospitals, vendors and QIOs, including
but not limited to issuing memos,
e-mails and notices on the QualityNet
Web site. We are proposing to include
an overview of this process in proposed
42 CFR 412.140(c)(2). We invite public
comment on this proposal.
12. Electronic Health Records (EHRs)
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 sought to
prepare for future EHR submission of
quality measures by sponsoring the
creation of electronic specifications for
quality measures under consideration
for the Hospital IQR Program.
b. HITECH Act EHR Provisions
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 requirements for
meaningful use of certified EHR
technology, which include reporting on
quality measures using certified EHR
technology. With respect to the
selection of quality measures for this
purpose, under section 1886(n)(3)(A)(iii)
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 Hospital IQR
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. All measures
must be proposed for public comment
prior to their selection, except in the
case of measures previously selected for
the Hospital IQR Program under section
1886(b)(3)(B)(viii) of the Act. The final
rule for the Medicare and Medicaid EHR
Incentive Programs includes 15 clinical
quality measures for eligible hospitals
and critical access hospitals (75 FR
44418), 2 of which were previously
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selected for the Hospital IQR Program
under section 1886(b)(3)(B)(viii) of the
Act. The remainder of the measures for
these incentive programs are being
proposed for the Hospital IQR Program
for the FY 2015 payment determination.
We continue to believe there are
important synergies with respect to the
two programs. 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
Hospital IQR Program. Through the EHR
Incentive Programs we expect that the
submission of quality data through
EHRs will provide a foundation for
establishing the capacity of hospitals to
send, and for CMS to receive, quality
measures via hospital EHRs for Hospital
IQR Program measures in the future.
The HITECH Act requires that the
Secretary seek to avoid redundant and
duplicative reporting, with specific
reference to the Hospital IQR Program
for eligible hospitals. To the extent that
quality measures are included in both
the Hospital IQR Program and the EHR
Incentive Programs, this would mean
that Hospital IQR Program would need
to transition to use of certified EHR
technology rather than manual chart
abstraction. We are considering what
the most practical approach to effect
such a transition might be. One option
is to select a date after which chartabstracted data would no longer be used
in the Hospital IQR Program. This
would require sufficient advance notice
to hospitals for hospitals to report the
data via certified EHR technology. At
that point, we believe that it is likely
that nearly all IPPS hospitals will have
implemented certified EHR technology
as incentivized by the HITECH Act.
Another option would be to allow
hospitals to submit the same measure
for the Hospital IQR Program based on
either chart-abstraction or EHR-based
reporting. This would require extensive
testing to ensure equivalence given that
the data for the Hospital IQR Program
supports both the public reporting of
such information and the Hospital VBP
Program. We are concerned that this
option would not be feasible. We invite
public comment on the approach of
selecting a date such as calendar year
2015 after which chart-abstracted data
would no longer be accepted for the
Hospital IQR Program.
Ultimately, we do not anticipate
having two different sets of clinical
quality measures for the EHR Incentive
Program and the Hospital IQR Program.
Rather, we anticipate a single set of
hospital clinical quality measures, most
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of which we anticipate would be
electronically specified. We envision a
single reporting infrastructure for
electronic submission in the future, and
will strive to align the hospital quality
initiative programs to seek to avoid
redundant and duplicative reporting of
quality measures for hospitals. We note
that some important Hospital IQR
Program quality measures such as
HCAHPS experience of care measures
are based on survey data and do not
lend themselves to EHR reporting.
Similarly, certain outcome quality
measures, such as the current Hospital
IQR Program readmission measures, are
based on claims rather than clinical
data. Thus, not all Hospital IRP quality
measures will necessarily be capable of
being submitted through EHRs. As a
consequence, not all Hospital IQR
Program measures would necessarily be
appropriate for inclusion in the EHR
Incentive Programs.
We again note that the provisions in
this FY 2012 IPPS/LTCH PPS proposed
rule do not implicate or implement any
HITECH statutory provisions. Those
provisions are the subject of separate
rulemaking and public comment.
B. Hospital Value-Based Purchasing
(VBP) Program
1. Background
Section 1886(o) of the Act requires the
Secretary to establish a Hospital
Inpatient VBP Program under which
value-based incentive payments are
made in a fiscal year to hospitals
meeting performance standards
established for a performance period for
such fiscal year. Both the performance
standards and the performance period
for a fiscal year are to be established by
the Secretary.
Section 1886(o)(1)(B) of the Act
directs the Secretary to begin making
value-based incentive payments under
the Hospital Inpatient VBP Program to
hospitals for discharges occurring on or
after October 1, 2012. These incentive
payments will be funded for FY 2013
through a reduction to the FY 2013 base
operating MS–DRG payment for each
discharge of 1 percent, as required by
section 1886(o)(7)(B)(i) of the Act.
Section 1886(o)(1)(C) of the Act
provides that the Hospital Inpatient VBP
Program applies to subsection (d)
hospitals (as defined in section
1886(d)(1)(B) of the Act), but excludes
from the definition of the term
‘‘hospital,’’ with respect to a fiscal year:
(1) A hospital that is subject to the
payment reduction under section
1886(b)(3)(B)(viii)(I) of the Act (the
Hospital IQR Program) for such fiscal
year; (2) a hospital for which, during the
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performance period for the fiscal year,
the Secretary cited deficiencies that
pose immediate jeopardy to the health
or safety of patients; and (3) a hospital
for which there are not a minimum
number (as determined by the Secretary)
of measures for the performance period
for the fiscal year involved, or for which
there are not a minimum number (as
determined by the Secretary) of cases for
the measures that apply to the hospital
for the performance period for such
fiscal year.
2. Overview of the Hospital Inpatient
VBP Program Proposed Rule
On January 7, 2011, we issued the
Hospital Inpatient VBP Program
proposed rule to implement section
1886(o) of the Act (76 FR 2454 through
2491). This proposed rule was
developed based on extensive research
we conducted on hospital value-based
purchasing, including research that
formed the basis of a 2007 report we
submitted to Congress, entitled ‘‘Report
to Congress: Plan to Implement a
Medicare Hospital Value-Based
Purchasing Program’’ (November 21,
2007). This report is available on the
CMS Web site at: https://www.cms.gov/
AcuteInpatientPPS/downloads/
HospitalVBPPlan
RTCFINALSUBMITTED2007.pdf. The
report takes into account input from
both stakeholders and other interested
parties.
As described more fully in the
Hospital Inpatient VBP Program
proposed rule (76 FR 2458 through
2463), we proposed to initially adopt for
the FY 2013 Hospital Inpatient VBP
Program 18 measures that we have
already adopted for the Hospital IQR
Program, categorized into two domains.
We proposed to group 17 of the
proposed measures, which are clinical
process of care measures, into a Clinical
Process of Care domain, and proposed
to place 1 measure, the Hospital
Consumer Assessment of Healthcare
Providers and Systems (HCAHPS)
survey, into a Patient Experience of Care
domain. We also proposed to use a 3quarter performance period from July 1,
2011 through March 31, 2012 for these
proposed measures for purposes of the
FY 2013 Hospital Inpatient VBP
Program and to determine whether
hospitals meet the proposed
performance standards for these
measures by comparing their
performance during the proposed
performance period to their
performance during a proposed 9-month
(3-quarter) baseline period from July 1,
2009 through March 31, 2010.
We proposed to implement a
methodology for assessing the total
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performance of each hospital based on
performance standards, under which we
will score each hospital based on
achievement and improvement ranges
for each applicable measure. In
addition, we proposed for FY 2013 to
calculate a total performance score for
each hospital by combining the greater
of the hospital’s achievement or
improvement points for each measure to
determine a score for each domain,
multiplying each domain score by a
proposed weight (clinical process of
care: 70 percent, patient experience of
care: 30 percent), and adding together
the weighted domain scores. We
proposed to convert each hospital’s total
performance score into a value-based
incentive payment utilizing a linear
exchange function. We refer readers to
the Hospital Inpatient VBP Program
proposed rule for greater detail on all of
these proposals.
3. Proposed FY 2014 Hospital Inpatient
VBP Program Measures
a. Background
Section 1886(o)(2)(A) of the Act
requires the Secretary to select for the
Hospital Inpatient VBP Program
measures, other than readmission
measures, from the measures specified
under section 1886(b)(3)(B)(viii) of the
Act for the Hospital IQR Program.
Section 1886(o)(2)(B)(i) of the Act
requires the Secretary, with respect to
value-based incentive payments made
for discharges occurring during FY
2013, to ensure that the selected
measures cover at least the following
specified conditions or topics: Acute
Myocardial Infarction (AMI); Heart
Failure (HF); Pneumonia (PN);
Surgeries, as measured by the Surgical
Care Improvement Project (SCIP);
Healthcare-Associated Infections (HAIs),
as measured by the prevention metrics
and targets established in the HHS
Action Plan to Prevent HAIs (available
at: https://www.hhs.gov/ash/initiatives/
hai/actionplan/) (or any
successor plan); and HCAHPS. Section
1886(o)(2)(B)(ii) of the Act requires the
Secretary, with respect to value-based
incentive payments made for discharges
occurring during FY 2014 or a
subsequent year, to ensure that Hospital
Inpatient VBP Program measures
include efficiency measures, including
measures of Medicare spending per
beneficiary.
Section 1886(o)(2)(C)(i) of the Act
provides that the Secretary may not
select a measure with respect to a
performance period for a fiscal year
unless the measure has been specified
under the Hospital IQR Program and
included on the Hospital Compare Web
site for at least one year prior to the
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beginning of the performance period.
Section 1886(o)(2)(C)(ii) of the Act
provides that a measure selected under
section 1886(o)(2)(A) of the Act shall
not apply to a hospital if the hospital
does not furnish services appropriate to
the measure.
b. Proposed Efficiency Measure—
Medicare Spending per Beneficiary
Measure—for the FY 2014 Hospital
Inpatient VBP Program
(1) Introduction
Section 1886(o)(2)(B)(ii) of the Act
requires the Secretary to ensure that, for
Hospital Inpatient VBP discharges
occurring during FY 2014 or a
subsequent year, the measures selected
‘‘include efficiency measures, including
measures of ‘Medicare spending per
beneficiary’. * * *’’ Therefore, for the
FY 2014 Hospital Inpatient VBP
Program, we are proposing to adopt a
Medicare spending per beneficiary
measure. This measure also is proposed
for inclusion in the Hospital IQR
Program in this proposed rule and is
described in detail above in section
IV.A.3.b.(2)(B)(v). The proposed
approach to scoring this measure and
including it in the Hospital Inpatient
VBP Program is described below.
(2) Scoring the Medicare Spending Per
Beneficiary Measure
Section 1886(o)(5)(B)(ii) of the Act
requires that the hospital performance
score be determined using the higher of
its achievement or improvement score
for each measure. Therefore, we are
proposing to calculate each hospital’s
achievement score and improvement
score on the proposed Medicare
spending per beneficiary measure, in
order to determine which score will be
used to calculate the total performance
score for the hospital.
We are proposing this scoring
methodology because it is generally
similar to the methodology proposed for
scoring the Clinical Process of Care and
Outcome Measures in the Hospital
Inpatient VBP Program proposed rule
(76 FR 2465 through 2471).
(A) Scoring Based on Achievement
We are proposing to calculate a
Medicare per beneficiary spending ratio
of the Medicare spending per
beneficiary amount for each hospital to
the median Medicare spending per
beneficiary amount across all hospitals
during the performance period. We are
proposing that a hospital would earn
between 1 and 10 achievement points
on the Medicare spending per
beneficiary measure if its individual
Medicare spending per beneficiary ratio
during the performance period falls at or
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25927
between the achievement threshold and
the achievement benchmark for the
measure. We are proposing to set the
achievement threshold at the median
Medicare spending per beneficiary ratio
across all hospitals during the
performance period. We are proposing
to set the benchmark at the mean of the
lowest decile of Medicare spending per
beneficiary ratios during the
performance period. A hospital whose
individual Medicare spending per
beneficiary ratio falls below the
achievement threshold would score 0
achievement points on the measure, and
a hospital whose individual Medicare
spending per beneficiary ratio falls at or
above the achievement benchmark
would score the maximum of 10
achievement points on the measure. A
hospital whose individual Medicare
spending per beneficiary ratio falls at or
above the achievement threshold, but
below the benchmark, would score
between 1–9 points according to the
following formula:
[9 * ((Hospital’s performance period
score ¥ achievement threshold)/
(benchmark ¥ achievement
threshold))] + .5
(B) Scoring Based on Improvement
We are proposing that a hospital
would earn between 1 and 9
improvement points on the proposed
Medicare spending per beneficiary
measure if its individual Medicare
spending per beneficiary ratio during
the performance period falls within the
improvement range. We are proposing
to set the threshold for improvement at
the hospital’s own Medicare spending
per beneficiary ratio, as calculated
during the baseline period. We are
proposing a baseline period of May 15,
2010 through February 14, 2011 for the
Medicare spending per beneficiary
measure and discuss this proposal in
section IV.B.3.b.(4) of the preamble of
this proposed rule. We are proposing
that the improvement benchmark would
be equal to the achievement benchmark
for the performance period, which is the
mean of the lowest decile of Medicare
spending per beneficiary ratios across
all hospitals. A hospital whose
Medicare spending per beneficiary ratio
is equal to or lower than its baseline
period Medicare spending per
beneficiary ratio would score 0
improvement points on the measure. If
a hospital’s score on the measure during
the performance period was greater than
its baseline period score but below the
benchmark (within the improvement
range), the hospital would receive a
score of 0–9 according to the following
formula:
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[10 * ((Hospital performance period
score ¥ Hospital baseline period
score)/(Benchmark ¥ Hospital
baseline period score))] ¥ .5
(C) Example of Scoring the Medicare
Spending per Beneficiary Measure
If Hospital A had the following
spending per beneficiary amounts
during the baseline and performance
period:
Baseline = $10,105
Performance = $9,125;
and the median spending per
beneficiary amounts across all hospitals
for the baseline and performance
periods were:
Median Baseline = $11,672
Median Performance = $12,467;
then the Medicare spending per
beneficiary ratios for Hospital A in the
baseline and performance periods
would be:
Baseline Ratio = 0.866
Performance Ratio = 0.732.
With an achievement threshold of 1.0
and an achievement benchmark of
0.712, we would then calculate
attainment and improvement points for
Hospital A as follows:
Attainment Points = 9 * (1.0 ¥ 0.732)/
(1.0 ¥ 0.712) + 0.5 = 8.868
Improvement Points = 10 * (0.866 ¥
0.732)/(0.866 ¥ 0.712) ¥ 0.5 =
8.185
These points are rounded to yield 9
attainment points and 8 improvement
points.
Because section 1886(o)(5)(B)(ii) of
the Act, as added by section 3001 of the
Affordable Care Act, requires that the
hospital performance score will be
determined using the higher of
attainment or improvement score for
each measure, the hospital in this
example would receive 9 points on the
Medicare spending per beneficiary
measure.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
(D) Incorporation of Medicare Spending
per Beneficiary Measure Score Into the
Overall Hospital Total Performance
Score
We are proposing to incorporate the
Medicare spending per beneficiary
measure score into the FY 2014 Hospital
Inpatient VBP Program as part of a new
domain: The ‘‘Efficiency’’ domain. The
Medicare spending per beneficiary
measure score would be the Efficiency
domain score for purposes of the FY
2014 Hospital Inpatient VBP Program.
Consistent with the domain scoring
method proposed in the Hospital
Inpatient VBP Program proposed rule
(76 FR 2454 through 2491), we are
proposing to determine the total earned
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points for the Efficiency domain in
general by adding the points earned for
each domain measure and dividing by
the total possible points, then
multiplying that number by 100 percent.
However, because we are proposing to
adopt only one measure for the
Efficiency domain for the FY 2014
Hospital Inpatient VBP Program, the
total points earned for the domain
would be the points earned on the
Medicare spending per beneficiary
measure. We are proposing that the total
possible points that a hospital could
earn for the Efficiency domain for FY
2014 would be 10, which is equal to the
total possible points that the hospital
could earn for the Medicare spending
per beneficiary measure. We are
proposing that the Efficiency domain
percentage score would be calculated
for FY 2014 as follows: Efficiency
domain score = Total points earned on
the Medicare spending per beneficiary
measure divided by 10, then multiplied
by 100 percent.
Once the Efficiency domain score has
been determined, we are proposing to
assign it a weight for use in the
calculation of the total performance
score. We intend to propose FY 2014
domain weighting, any additional FY
2014 measures, and other FY 2014
proposals for the Hospital Inpatient VBP
Program in the CY 2012 Hospital
Outpatient Prospective Payment System
proposed rule.
4. Proposed Efficiency Domain
(Medicare Spending per Beneficiary
Measure) Performance Period and
Baseline Period
Section 1886(o)(2)(C)(i) of the Act
prohibits the Secretary from selecting a
measure for the Hospital Inpatient VBP
Program with respect to a performance
period unless it has been specified
under the Hospital IQR Program and
included on the Hospital Compare Web
site for at least 1 year prior to the
beginning of such performance period.
Section 1886(o)(8) of the Act requires
that hospitals be notified of the
calculation of their value-based
incentive payment no later than 60 days
prior to the fiscal year involved. In order
to comply with these statutory
requirements for the FY 2014 Hospital
Inpatient VBP Program, we are
proposing to adopt a 9-month period of
performance from May 15, 2012 through
February 14, 2013 for the proposed
Medicare spending per beneficiary
measure. If the measure is adopted, this
would allow for a 1-year display period
on Hospital Compare, a 60-day
notification period, and would allow the
time needed for administrative
processes. We note that this would
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mean that only IPPS discharges
occurring from May 15, 2012 through 90
days prior to February 14, 2013 would
count as index stays for purposes of
creating the Medicare spending per
beneficiary episodes. The Medicare
spending per beneficiary episode is
described in section IV.A.3.b.(2).(B).(v)
of this proposed rule.
For the purposes of calculating
improvement points on the proposed
Medicare spending per beneficiary
measure, it is necessary to establish the
baseline period to which the
performance period score will be
compared. For purposes of the FY 2014
Hospital Inpatient VBP Program, we are
proposing to adopt a baseline period of
May 15, 2010 through 90 days prior to
February 14, 2011 for this proposed
measure. The proposed baseline period
is consistent with the baseline period
that has been proposed for the FY 2013
clinical process of care and patient
experience of care measures in the
Hospital Inpatient VBP Program
proposed rule (76 FR 2454 through
2491) because it precedes the
performance period by 2 years.
We invite public comment on all of
our proposals related to the Efficiency
Domain and Medicare spending per
beneficiary measure.
5. Proposal to Simultaneously Specify
Additional Measures for the Hospital
Inpatient VBP Program and Adoption
Into the Hospital IQR Program
We are proposing to simultaneously
specify additional measures for the
Hospital Inpatient VBP Program and
adoption into the Hospital IQR Program,
as appropriate for usage in both
programs. Our rationale is to improve
patient safety and quality of care in an
expedited manner that is compliant
with applicable statutory guidance. We
are currently utilizing this approach in
this rule by proposing to add the
Medicare Spending per Beneficiary
measure to both Hospital Inpatient VBP
and Hospital IQR Programs. We will
provide all associated regulatory impact
and policy rationale in future proposals
for both programs. We believe that this
proposal notifies stakeholders through
rulemaking and welcome comments on
this proposal.
C. Hospital Readmissions Reduction
Program
1. Background
a. Overview
CMS is committed to promoting high
quality health care and improving
patient health outcomes. Readmission to
a hospital may be an adverse event for
patients and many times imposes a
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financial burden on the health care
system. Successful efforts to reduce
preventable readmission rates will
improve quality of care while
simultaneously decreasing costs.
Hospitals can work with their
communities to lower readmission rates
and improve patient care in a number of
ways, such as ensuring patients are
clinically ready to be discharged,
reducing infection risk, reconciling
medications, improving communication
with community providers responsible
for post-discharge patient care,
improving care transitions, and ensuring
that patients understand their care plans
upon discharge.
Many studies have demonstrated the
effectiveness of these types of inhospital and post-discharge
interventions in reducing the risk of
readmission, confirming that hospitals
and their partners have the ability to
lower readmission rates.34 35 36 These
types of efforts taken during and after a
hospitalization have been shown to be
effective in reducing readmission rates
in geriatric populations generally, 37 38
as well as for multiple specific
conditions. Moreover, such
interventions can be cost saving. For
example, in the case of heart failure,
improved hospital 39 and post-discharge
care,40 41 including pre-discharge
34 Gwadry-Sridhar FH, Flintoft V, Lee DS, Lee H,
Guyatt GH: A systematic review and meta-analysis
of studies comparing readmission rates and
mortality rates in patients with heart failure. Arch
Intern Med. 2004;164(21):2315–2320.
35 McAlister FA, Lawson FM, Teo KK, Armstrong
PW.: A systematic review of randomized trials of
disease management programs in heart failure.
AmJMed. 2001;110(5):378–384.
36 Krumholz HM, Amatruda J, Smith GL, et al.:
Randomized trial of an education and support
intervention to prevent readmission of patients with
heart failure. J Am Coll Cardiol. 2002;39(1):83–89.
37 Coleman EA, Parry C, Chalmers S, Min SJ.: The
care transitions intervention: results of a
randomized controlled trial. Arch Intern Med.
2006;166:1822–8.
38 Naylor MD, Brooten D, Campbell R, Jacobsen
BS, Mezey MD, Pauly MV, Schwartz JS.:
Comprehensive discharge planning and home
follow-up of hospitalized elders: a randomized
clinical trial. JAMA. 1999;281:613–20.
39 Gwadry-Sridhar FH, Flintoft V, Lee DS, Lee H,
Guyatt GH.: A systematic review and meta-analysis
of studies comparing readmission rates and
mortality rates in patients with heart failure. Arch
Intern Med. 2004;164(21):2315–2320.
40 Lappe JM, Muhlestein JB, Lappe´ DL, et al.:
Improvements in 1-year cardiovascular clinical
outcomes associated with a hospital-based
discharge medication program. Ann Intern Med.
2004;141(6):446–453.
41 Phillips CO, Wright SM, Kern DE, Singa RM,
Shepperd S, Rubin HR.: Comprehensive discharge
planning with postdischarge support for older
patients with congestive heart failure: a
metaanalysis [published correction appears in
JAMA. 2004;292(9):1022]. JAMA. 2004;291(11):
1358–1367.
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planning,42 43 home-based follow-up,
and patient education,44 45 have been
shown to lower heart failure
readmission rates, suggesting that heart
failure readmission rates might be
reduced if proven interventions were
more widely adopted. Financial
incentives to reduce readmissions will
in turn promote improvement in care
transitions and care coordination, as
these are important means of reducing
preventable readmissions.46
In its 2007 ‘‘Report to Congress:
Promoting Better Efficiency in
Medicare,’’ 47 MedPAC noted the
potential benefit to patients of lowering
readmissions and suggested payment
strategies that would incentivize
hospitals to reduce these rates. MedPAC
identified 7 conditions and procedures
that accounted for almost 30 percent of
potentially preventable readmissions:
heart failure; chronic obstructive
pulmonary disease; pneumonia; acute
myocardial infarction; coronary artery
bypass graft surgery; percutaneous
transluminal coronary angioplasty; and
other vascular procedures. To promote
quality of care, CMS developed hospital
quality of care measures that compare
patient outcomes across different
hospitals. These measures, including
hospital risk-standardized readmission
measures for Acute Myocardial
Infarction (AMI), Heart Failure (HF) and
Pneumonia (PN), were originally
developed for public reporting as a part
of the Hospital IQR Program. We
adopted the HF readmission measure for
the Hospital IQR Program in the FY
2009 IPPS final rule for the FY 2010
payment determination (73 FR 48606)
and the AMI and PN readmission
measures in the CY 2009 OPPS/ASC
final rule with comment period for the
42 Rich MW, Beckham V, Wittenberg C, Leven CL,
Freedland KE, Carney RM.: A multi disciplinary
intervention to prevent the readmission of elderly
patients with congestive heart failure. N Engl J Med.
1995;333(18):1190–1195.
43 Schneider JK, Hornberger S, Booker J, Davis A,
Kralicek R.: A medication discharge planning
program: measuring the effect on readmissions. Clin
Nurs Res. 1993;2(1):41–53.
44 Koelling TM, Johnson ML, Cody RJ, Aaronson
KD.: Discharge education improves clinical
outcomes in patients with chronic heart failure.
Circulation. 2005;111(2):179–185.
45 Krumholz HM, Amatruda J, Smith GL, et al.:
Randomized trial of an education and support
intervention to prevent readmission of patients with
heart failure. J Am Coll Cardiol. 2002;39(1):83–89.
46 Coleman EA.: 2005. Background Paper on
Transitional Care Performance Measurement.
Appendix I. In: Institute of Medicine, Performance
Measurement: Accelerating Improvement.
Washington, DC: National Academy Press.
47 Medicare Payment Advisory Commission
(MedPAC). Report to Congress: Promoting Greater
Efficiency in Medicare; 2007. Available at https://
www.medpac.gov/documents/Jun07_
EntireReport.pdf. Accessed January 10, 2011.
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25929
FY 2010 payment determination (73 FR
68781). Details about the methodology
used for these measures may be found
online at: https://www.qualitynet.org/
dcs/ContentServer?c=Page&pagename=
QnetPublic%2FPage%2FQnetTier4&
cid=1219069855841.
As described above, readmission rates
are important markers of quality of care,
particularly of the care of a patient in
transition from an acute care setting to
a non-acute care setting, and improving
readmissions can positively influence
patient outcomes and the cost of care.
The above hospital risk-standardized
readmission measures are endorsed by
the National Quality Forum (NQF) and
have been publicly reported on Hospital
Compare Web site since 2009 (https://
www.hospitalcompare.hhs.gov) to
encourage quality improvement and
lower readmission rates. As discussed
in detail below, we are now proposing
that the readmission measures for these
three conditions be used for the
Hospital Readmission Reduction
Program under section 1886(q) of the
Act, as added by Section 3025 of the
Affordable Care Act.
b. Statutory Basis for the Hospital
Readmission Reduction Program
Section 3025 of the Affordable Care
Act, as amended by section 10309 of the
Affordable Care Act, added a new
subsection (q) to section 1886 of the Act.
Section 1886(q) of the Act establishes
the ‘‘Readmission Reduction Program’’
effective for discharges from an
‘‘applicable hospital’’ beginning on or
after October 1, 2012, under which
payments to those hospitals under
section 1886(d) of the Act will be
reduced to account for certain excess
readmissions.
In this year’s IPPS rulemaking, we
address: (i) Those aspects of the
program that relate to the conditions
and readmissions to which the program
will apply for the first program year
beginning October 1, 2012; (ii) the
readmission measures and related
methodology used for those measures,
as well as the calculation of the
readmission rates; and (iii) public
reporting of the readmission data.
Specific information regarding the
payment adjustment required under
section 1886(q) of the Act will be
proposed in next year’s IPPS/LTCH PPS
proposed rule. Although we are not
proposing specific policies regarding the
payment adjustment under the Hospital
Readmissions Reduction Program in this
proposed rule, we believe that it is still
important to set forth the general
framework of the Hospital Readmissions
Reduction Program, including the
payment adjustment provisions, in
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order for the public to understand how
the proposed measures outlined in this
rulemaking will affect certain hospital
payments beginning in FY 2013.
Section 1886(q)(1) of the Act sets forth
the methodology by which payments to
‘‘applicable hospitals’’ will be adjusted
to account for excess readmissions.
Pursuant to section 1886(q)(1) of the
Act, payments for discharges from an
‘‘applicable hospital’’ will be an amount
equal to the product of the ‘‘base
operating DRG payment amount’’ and
the adjustment factor for the hospital for
the fiscal year. That is, the ‘‘base
operating DRG payments’’ are reduced
by an adjustment factor that accounts
for excess readmissions. Section
1886(q)(1) of the Act requires the
Secretary to make payments for a
discharge in an amount equal to the
product of ‘‘the base operating DRG
payment amount’’ and ‘‘the adjustment
factor’’ for the hospital in a given fiscal
year. Section 1886(q)(2) of the Act
defines the base operating DRG payment
amount as ‘‘the payment amount that
would otherwise be made under
subsection (d) (determined without
regard to subsection (o) [the Hospital
VBP Program]) for a discharge if this
subsection did not apply; reduced by
* * * any portion of such payment
amount that is attributable to payments
under paragraphs (5)(A), (5)(B), (5)(F),
and (12) of subsection (d).’’ Paragraphs
(5)(A), (5)(B), (5)(F), and (12) of
subsection(d) refer to outlier payments,
IME payments, DSH payments, and
payments for low volume hospitals,
respectively.
Furthermore, section 1886(q)(2)(B) of
the Act specifies special rules for
defining ‘‘the payment amount that
would otherwise be made under
subsection (d)’’ for certain hospitals.
Specifically, section 1886(q)(2)(B) of Act
states that ‘‘[i]n the case of a Medicaredependent, small rural hospital (with
respect to discharges occurring during
fiscal years 2012 and 2013) or a sole
community hospital * * * the payment
amount that would otherwise be made
under subsection (d) shall be
determined without regard to
subparagraphs (I) and (L) of subsection
(b)(3) and subparagraphs (D) and (G) of
subsection (d)(5).’’ We intend to propose
regulations to implement the statutory
provisions related to the definition of
‘‘base operating DRG payment amount’’
in the FY 2013 IPPS/LTCH PPS
proposed rule.
Section 1886(q)(3)(A) of the Act
defines the ‘‘adjustment factor’’ for an
applicable hospital for a fiscal year as
equal to the greater of ‘‘(i) the ratio
described in subparagraph (B) for the
hospital for the applicable period (as
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defined in paragraph (5)(D)) for such
fiscal year; or (ii) the floor adjustment
factor specified in subparagraph (C).’’
Section 1886(q)(3)(B) of the Act in turn
describes the ratio used to calculate the
adjustment factor. It states that the ratio
is ‘‘equal to 1 minus the ratio of—(i) the
aggregate payments for excess
readmissions * * *; and (ii) the
aggregate payments for all discharges.
* * *’’ Section 1886(q)(3)(C) of the Act
describes the floor adjustment factor,
which is set at 0.99 for FY 2013, 0.98
for FY 2014, and 0.97 for FY 2015 and
subsequent fiscal years.
Section 1886(q)(4) of the Act sets forth
the definitions of ‘‘aggregate payments
for excess readmissions’’ and ‘‘aggregate
payments for all discharges’’ for an
applicable hospital for the applicable
period. The term ‘‘aggregate payments
for excess readmissions’’ is defined in
section 1886(q)(4)(A) of the Act as ‘‘the
sum, for applicable conditions * * * of
the product, for each applicable
condition, of (i) the base operating DRG
payment amount for such hospital for
such applicable period for such
condition; (ii) the number of admissions
for such condition for such hospital for
such applicable period; and (iii) the
‘‘Excess Readmission Ratio* * * for
such hospital for such applicable period
minus 1.’’ The ‘‘Excess Readmission
Ratio’’ is a hospital-specific ratio
hospital-specific ratio based on each
applicable condition. Specifically,
section 1886(q)(4)(C) of the Act defines
the Excess Readmission Ratio as the
ratio of ‘‘risk-adjusted readmissions
based on actual readmissions’’ for an
applicable hospital for each applicable
condition, to the ‘‘risk-adjusted expected
readmissions’’ for the applicable
hospital for the applicable condition.
Section 1886(q)(5) of the Act provides
definitions of ‘‘applicable condition,’’
‘‘expansion of applicable conditions,’’
‘‘applicable hospital,’’ ‘‘applicable
period,’’ and ‘‘readmission.’’ The term
‘‘applicable condition,’’ which we
address in detail in this proposed rule,
is defined as a ‘‘condition or procedure
selected by the Secretary among
conditions and procedures for which: (i)
readmissions * * * represent
conditions or procedures that are high
volume or high expenditures * * * and
(ii) measures of such readmissions
* * * have been endorsed by the entity
with a contract under section 1890(a)
* * * and such endorsed measures
have exclusions for readmissions that
are unrelated to the prior discharge
(such as a planned readmission or
transfer to another applicable hospital).’’
The term ‘‘expansion of the applicable
condition’’ refers to the Secretary’s
authority, beginning with fiscal year
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2015, ‘‘to the extent practicable, [to]
expand the applicable conditions
beyond the 3 conditions for which
measures have been endorsed * * * to
the additional 4 conditions that have
been identified by the Medicare
Payment Advisory Commission in its
report to Congress in June 2007 and to
other conditions and procedures as
determined appropriate by the
Secretary.’’
Section 1886(q)(5)(C) of the Act
defines ‘‘applicable hospital,’’ that is, a
hospital subject to the readmission
reduction program, as a ‘‘subsection (d)
hospital or a hospital that is paid under
section 1814(b)(3) [of the Act], as the
case may be.’’ The term ‘‘applicable
period,’’ as defined by section
1886(q)(5)(D) of the Act, ‘‘means, with
respect to a fiscal year, such period as
the Secretary shall specify.’’ As
explained in this proposed rule, the
‘‘applicable period’’ is the period from
which data are collected in order to
calculate various ratios and adjustments
under the Hospital Readmissions
Reduction Program.
Section 1886(q)(6) of the Act sets forth
the reporting requirements for hospitalspecific readmission rates. Section
1886(q)(7) of the Act limits
administrative and judicial review of
certain determinations made pursuant
to section 1886(q) of the Act. Finally,
section 1886(q)(8) of the Act requires
the Secretary to collect data on
readmission rates for all hospital
inpatients for ‘‘specified hospitals’’ in
order to calculate the hospital-specific
readmission rates for all hospital
inpatients and to publicly report these
readmission rates.
2. Implementation of the Hospital
Readmissions Reduction Program
a. Overview
We intend to implement the
requirements of the Hospital
Readmissions Reduction Program in the
FY 2012, FY 2013, and future IPPS/
LTCH PPS rulemaking cycles.
b. Proposed Provisions in the FY 2012
IPPS/LTCH PPS Rulemaking
As explained above, the adjustment
factor set forth in section 1886(q) of the
Act does not apply to discharges until
FY 2013. Therefore, we are able to
implement the Hospital Readmission
Reduction Program over two years. We
are first addressing issues such as the
selection of readmission measures and
the calculation of the excess
readmission ratio, which will then be
used, in part, to calculate the
readmission payment adjustment factor.
Specifically, in the FY 2012 IPPS
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rulemaking, we are addressing portions
of section 1886(q) of the Act related to
the following provisions:
• Selection of applicable conditions;
• Definition of ‘‘readmission;’’
• Measures for the applicable
conditions chosen for readmission;
• Methodology for calculating the
Excess Readmission Ratio;
• Public reporting of the readmission
data; and
• Definition of ‘‘applicable period.’’
With respect to the topics of
‘‘measures for readmission’’ for the
applicable conditions, and
‘‘methodology for calculating the Excess
Readmission Ratio,’’ we will specifically
address the following:
• Index hospitalizations;
• Risk Adjustment;
• Risk Standardized Readmission
Rate;
• Data sources; and
• Exclusion of Certain Readmissions.
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c. Proposed Provisions To Be Included
in the FY 2013 IPPS/LTCH PPS
Proposed Rule
In the FY 2013 IPPS rulemaking, we
will address the provisions in section
1886(q) of the Act that are related to the
payment adjustment, as well as the rest
of the provisions in section 1886(q) of
the Act that are not addressed in the FY
2012 IPPS/LTCH PPS rulemaking.
Specifically, in the FY 2013 IPPS/LTCH
proposed rule, we plan to address
section 1886(q) of the Act related to the
following provisions:
• Base operating DRG payment
amount, including policies for SCHs
and MDHs;
• Adjustment factor (both the ratio
and floor adjustment factor);
• Aggregate payments for excess
readmissions;
• Applicable hospital; and
We believe it is appropriate to first
address the readmission measures and
the calculation of the excess
readmission ratio that will then be used,
in part, to calculate the readmission
payment adjustment factor and the
application of the readmission payment
adjustment factor to inpatient hospital
payments. We believe the 2-year
rulemaking schedule provides adequate
time and opportunities for careful
consideration of the various aspects of
this program by both CMS and
stakeholders prior to implementation of
the Hospital Readmission Reduction
Program in FY 2013.
d. Proposed Expansion of the
Applicable Conditions To Be Included
in the Future Rulemaking
Pursuant to section 1886(q)(5)(B) of
the Act, the Secretary ‘‘shall, to the
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extent practicable,’’ expand the list of
applicable conditions beyond the 3
conditions for which measures have
been endorsed and add 4 conditions
that have been identified by MedPAC
for the Hospital Readmission Reduction
Program. We plan to implement this
section of the Act in later rulemaking.
3. Proposed Provisions for the Hospital
Readmission Reduction Program
a. Proposed Applicable Conditions for
the FY 2013 Hospital Readmission
Reduction Program
Section 1886(q) of the Act sets forth
payment adjustments for applicable
hospitals to account for excess
readmissions, for applicable conditions,
that are high volume or high
expenditure, in the hospital. These
payment adjustments are determined
based on the occurrence of readmissions
for ‘‘applicable conditions.’’ When
selecting ‘‘applicable conditions,’’ the
Secretary must select among conditions
and procedures for which (1)
readmissions are ‘‘high volume or high
expenditure; and (2) ‘‘measures of such
readmissions’’ have been endorsed by
the entity with a contract under section
1890(a) of the Act (currently NQF) and
such endorsed measures have
exclusions for readmissions that are
unrelated to the prior discharge.
Consistent with these requirements, we
are proposing to include AMI, HF and
PN as ‘‘applicable conditions’’ for the
Hospital Readmissions Reduction
Program in FY 2013 and subsequent
fiscal years. As set forth below, we
believe these conditions meet the
criteria for ‘‘applicable conditions’’
under section 1886(q)(5)(A) of the Act.
We also note that in the 2007 Report to
Congress that we referred to earlier in
the overview section, MedPAC listed
three conditions: AMI, HF, and PN, as
priorities for hospital-specific public
reporting of readmission rates.48
With regards to the first criterion, that
readmissions of ‘‘applicable conditions’’
be ‘‘high volume or high expenditure,’’
MedPAC identified AMI, HF, PN as
being among the seven conditions and
procedures associated with
approximately 30 percent of potentially
preventable readmissions,49 based on an
3M analysis conducted for MedPAC of
2005 MedPAR (Medicare FFS hospital
48 Medicare Payment Advisory Commission
(MedPAC). Report to Congress: Promoting Greater
Efficiency in Medicare; 2007. Available at https://
www.medpac.gov/documents/
Jun07_EntireReport.pdf. Accessed January 10, 2011.
49 Medicare Payment Advisory Commission
(MedPAC). Report to Congress: Promoting Greater
Efficiency in Medicare; 2007. Available at https://
www.medpac.gov/documents/
Jun07_EntireReport.pdf. Accessed January 10, 2011.
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25931
claims). Of these seven conditions and
procedures, HF and PN were the highest
in terms of volume and expenditures.
Additionally, in our analysis of the
235 diagnostic categories for
hospitalization based on 2008 Medicare
hospital claims data, HF and PN were
first and second, respectively, as the
most frequent diagnostic category for
both total admissions and total
readmissions. AMI was ninth among the
235 conditions in terms of frequency of
admission and 8th in frequency of
readmission. We therefore believe that
AMI, HF and PN consitute high volume
and high expenditure conditions
particularly as relates to hospital
admission and readmission.
With regards to the second criterion,
we believe that measures of
readmissions for these applicable
conditions also meet the statutory
requirements. Section 1886(q)(5)(A)(i) of
the Act requires that each ‘‘applicable
condition’’ have ‘‘measures of
readmissions’’ that ‘‘(I) have been
endorsed by the entity with a contract
under section 1890(a); and (II) such
endorsed measures have exclusions for
readmissions that are unrelated to the
prior discharge.’’ As discussed in section
IV.C.3.c. below, we believe that our
proposal to select AMI, HF, and PN as
‘‘applicable conditions’’ is consistent
with this statutory requirement. The
NQF (the entity with a contract under
section 1890(a) of the Act) has endorsed
‘‘measures of readmissions’’ for each of
these three conditions, and those NQFendorsed measures ‘‘have exclusions for
readmissions that are unrelated to the
prior discharge (such as a planned
readmission or transfer to another
applicable hospital).’’
We believe AMI, HF, and PN meet
both prongs of the definition of
‘‘applicable condition.’’ Therefore, we
are proposing to include AMI, HF, and
PN as ‘‘applicable conditions’’ for the
Hospital Readmissions Reduction
Program for FY 2013 and subsequent
fiscal years. We invite public comment
on this proposal.
b. Proposed Definition of ‘‘Readmission’’
Section 1886(q)(5)(E) of the Act
defines ‘‘readmission’’ as, ‘‘in the case of
an individual who is discharged from an
applicable hospital, the admission of the
individual to the same or another
applicable hospital within a time period
specified by the Secretary from the date
of such discharge.’’ The definition
further states that ‘‘[i]nsofar as the
discharge relates to an applicable
condition for which there is an
endorsed measure * * * such time
period (such as 30 days) shall be
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consistent with the time period
specified for such measure.’’
The three NQF-endorsed readmission
measures define a readmission as
occurring when a patient is discharged
from the applicable hospital to a nonacute setting (for example, home health,
skilled nursing, rehabilitation or home)
and then is admitted to the same or
another acute care hospital within a
specified time period from the time of
discharge from the index
hospitalization. The time period
specified for these measures is 30 days.
Because the measures as endorsed by
NQF are calculated based on
readmissions occurring within 30 days,
we are proposing 30 days as the time
period specified from the date of
discharge for the purpose of defining
readmission for the purpose of the
Hospital Readmissions Reduction
Program. This is in compliance with the
statutory requirement that the time
period specified by the Secretary from
the date of discharge for the purpose of
defining readmission be consistent with
the time period specified for the
endorsed measures. We invite public
comment on our proposal to adopt,
without revision, a proposed definition
of readmission with a time period of 30
days from the date of discharge from the
index hospital as set forth in the
existing NQF-endorsed measures.
c. Proposed Readmission Measures and
Related Methodology
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(1) Proposed Readmission Measures for
Applicable Conditions
As explained above, section
1886(q)(5)(A)(ii) of the Act requires that
each ‘‘applicable condition’’ selected by
the Secretary have ‘‘measures of
readmissions’’ that ‘‘have been endorsed
by the entity with a contract under
section 1890(a)’’ and that ‘‘such
endorsed measures have exclusions for
readmissions that are unrelated to the
prior discharge.’’ We are proposing to
adopt three NQF-endorsed, hospital
risk-standardized readmission measures
for AMI, HF, and PN which are
currently included in the Hospital IQR
Program. These existing measures are:
• Acute Myocardial Infarction 30-day
Risk Standardized Readmission
Measure (NQF# 0505);
• Heart Failure 30-day Risk
Standardized Readmission Measure
(NQF#0330); and
• Pneumonia 30-day Risk
Standardized Readmission Measure
(NQF#0506).
CMS adopted these measures for the
Hospital IQR Program in the FY 2009
IPPS/LTCH final rule for FY 2010
payment determination (73 FR 48606)
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and the CY 2009 OPPS/ASC final rule
with comment period (73 FR 68781).
The NQF (the entity with a contract
under section 1890(a) of the Act) has
endorsed each of these ‘‘measures of
readmissions’’ and, as explained in more
detail below, those NQF-endorsed
measures ‘‘have exclusions for
readmissions that are unrelated to the
prior discharge.’’ Therefore, we believe
these measures meet the statutory
requirements for selection for the
Hospital Readmissions Reduction
Program, and we are proposing them,
without modification, as measures for
the program.
(2) NQF Endorsement of Measures of
Readmissions
We note that these measures and their
underlying methodologies were
endorsed by NQF. We are proposing to
adopt, for purposes of the Hospital
Readmissions Reduction Program, the
measures and related methodologies as
they are currently endorsed by NQF.
This includes the currently endorsed
30-day time window, risk-adjustment
methodology, and exclusions for certain
readmissions that comprise the
measures. We believe that this proposal
to adopt, without modification, these
measures of readmission is consistent
with the statutory language, which
requires the measures of readmissions to
be ‘‘endorsed by the entity with a
contract under section 1890(a).’’ If we
were to modify the endorsed measures,
we are concerned that they would no
longer be considered ‘‘endorsed.’’ If the
NQF were to later endorse a revised
measure for one of these conditions, we
would then propose through notice and
comment rulemaking that the revised
measure be used prospectively for
purposes of the Hospital Readmissions
Reduction Program.
We welcome public comment on this
proposal to use, for each of the proposed
applicable conditions, existing measures
as endorsed by the NQF.
(3) Endorsed Measures With Exclusions
for Unrelated Readmissions
Section 1886(q)(5)(A)(i)(ii)(II) of the
Act requires that each of the
readmission measures also has
‘‘exclusions for readmissions that are
unrelated to the prior discharge (such as
a planned readmission or transfer to
another applicable hospital).’’ The three
NQF-endorsed readmission measures
that we are proposing for inclusion in
the Hospital Readmissions Reduction
Program have exclusions that meet this
statutory requirement. Under each
measure, certain unrelated readmissions
are not taken into account when
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determining the number of readmissions
under the measures.
The AMI 30-day risk standardized
readmission measure, as endorsed by
the NQF and as proposed in this rule,
has exclusions for certain unrelated
readmissions. Because admissions for
Percutaneous Transluminal Coronary
Angioplasty (PTCA) or Coronary Artery
Bypass Graft (CABG) may be staged or
are typically scheduled readmissions for
patients initially admitted for AMI, the
AMI 30-day risk standardized
readmission measure does not count as
readmissions those admissions after
discharge that include PTCA or CABG
procedures, unless the principal
discharge diagnosis for the readmission
is one of the following diagnoses that
are not consistent with a scheduled
readmission: heart failure, acute
myocardial infarction, unstable angina,
arrhythmia, and cardiac arrest (that is,
readmissions with these diagnoses and
a PTCA or CABG procedure are counted
as readmissions). We adopted this
approach when first developing this
measure after consultation with clinical
experts, including cardiologists, and
review of relevant readmissions data.
During the development of the
readmission measures for both HF and
PN, we similarly asked clinical experts
to identify planned readmissions for
these conditions, that is, those which
would not count as a readmission, after
an admission for HF or PN. Specifically,
the clinical experts were asked whether
there were common follow-up causes of
readmissions for a scheduled procedure
that represented a continuation of care
after either a HF or PN admission,
respectively. No such related, planned
procedures were identified as occurring
commonly after the index admissions
for HF or PN at the time of the
development of the IQR measures.
Therefore, no similar exclusions exist
for the HF and PN measures of
readmissions as they are currently
endorsed.
Under the three NQF-endorsed riskstandardized readmission measures that
we are proposing in this proposed rule,
transfers to other acute care facilities are
excluded from each of the readmission
measures. The NQF-endorsed proposed
measures consider these multiple
contiguous hospitalizations to be a
single acute episode of care. The
measures attribute the readmission for
transferred patients to the hospital that
ultimately discharges the patient to a
non-acute care setting (for example, to
home or a skilled nursing facility).
Thus, in the case of a patient who is
transferred between two or more
hospitals, if the patient is readmitted in
the 30 days following the final
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emcdonald on DSK2BSOYB1PROD with PROPOSALS2
hospitalization, the measures attribute
such a readmission to the hospital that
discharged the patient to a non-acute
care setting. We believe that the
exclusion of transfers to other
applicable hospitals under the measures
is sufficient to meet the requirement set
forth in section 1886(q)(5)(A)(ii)(II) of
the Act that certain ‘‘unrelated’’
readmissions be excluded from the
measures selected for use in the
program. We invite public comment on
our proposal to adopt, without revision
or modification, the exclusions for
unrelated admissions set forth in the
existing NQF-endorsed measures.
(4) Methodology of Proposed
Readmission Measures
In the following section, we describe
the major components of the measure
methodology of the three NQF-endorsed
risk-standardized readmission measures
for AMI, HF and PN proposed for the
implementation of the Hospital
Readmissions Reduction Program.
Additional details about each of these
measures may be found online at
https://www.QualityNet.org > HospitalInpatient > Readmission Measures >
methodologies. This Web page is
located at https://www.qualitynet.org/
dcs/ContentServer?c=Page&pagename=
QnetPublic%2FPage%2FQnetTier4
&cid=1219069855841.
Briefly, as is described in more detail
in the sections below, the measures are
risk-standardized rates of readmission.
For each hospital qualifying index
hospitalizations are identified based on
the principal discharge diagnosis of the
patient and the inclusion/exclusion
criteria (section IV.C.3.c.(4)(A), Index
hospitalization). Each hospitalization is
evaluated for whether the patient had a
readmission to an acute care setting in
the 30-days following discharge (section
IV.C.3.c.(4)(B), Readmission). Patientrisk factors, including age, and chronic
medical conditions are also identified
from inpatient and outpatient claims for
the 12-months prior to the
hospitalization for risk-adjustment
(section IV.C.3.c.(4)(D), RiskAdjustment). The readmissions, sample
size for each hospital, and patient riskfactors are then used to calculate a riskstandardized readmission ratio for each
hospital. For the purposes of publiclyreporting the measures, this riskstandardized readmission ratio is then
multiplied by the national crude rate of
readmission for the given condition to
produce a risk-standardized
readmission rate (RSRR) (section
IV.C.3.c.(5)(B)).
As stated above, we invite public
comment on our selection of the three
readmission measures, as endorsed by
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the NQF, and as described in more
detail below.
(A) Index Hospitalization
An index hospitalization for each of
the readmission measures is the
hospitalization from which we evaluate
the 30 days after discharge for possible
readmissions. The measures, as
endorsed by the NQF, evaluate eligible
hospitalizations and readmissions of
Medicare patients discharged from an
applicable hospital (as defined by
section 1886(q)(5)(C) of the Act) having
a principal discharge diagnosis for the
measured condition in an applicable
period. The NQF endorsed measures, as
specified, exclude patients under 65
years of age.
The discharge diagnoses for each
applicable condition are based on a list
of specific ICD–9–CM codes for that
condition. These codes are listed in the
2010 Measures Maintenance Technical
Report: Acute Myocardial Infarction,
Heart Failure, and Pneumonia 30-Day
Risk-Standardized Readmission
Measures. They also are posted on the
QualityNet Web site: https://
www.QualityNet.org > HospitalInpatient > Readmission Measures >
methodologies. See https://
www.qualitynet.org/dcs/
ContentServer?c=Page&pagename=
QnetPublic%2FPage%2FQnetTier4&
cid=1219069855841.
The current NQF-endorsed CMS 30day risk standardized readmission
measures exclude the following
admissions from the group of index
hospitalizations:
• Hospitalizations for patients with
an in-hospital death (because they are
not eligible for readmission);
• Hospitalizations for patients
without at least 30 days post-discharge
enrollment in Medicare FFS (because
the 30-day readmission outcome cannot
be assessed in this group);
• Hospitalizations for patients
discharged against medical advice
(because providers did not have the
opportunity to deliver full care and
prepare the patient for discharge).
(B) Readmission
As explained above, the initial
hospitalization assessed for a
readmission is called the index
hospitalization. The proposed measures,
as endorsed by the NQF, define
readmission as a second admission to
another acute care hospital within 30days of the index hospitalization. Under
the proposed measure, as endorsed by
the NQF, a patient who is readmitted
twice within 30 days simply is counted
as having been readmitted; this patient’s
readmissions are not counted differently
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25933
than a patient with a single readmission
within 30 days of discharge.
With the exception of the exclusions
discussed previously (transfers and
planned readmissions, as discussed in
the Exclusions for Unrelated
Readmissions section above), the
proposed measures, as currently
endorsed by the NQF, include
readmissions for all causes, without
regard to the principal diagnosis of the
readmission. There are several reasons
for this approach. First, from the
patient’s perspective, readmission from
any cause is an adverse event. We want
the measures to be patient-centered
measures. Second, although we would
expect few hospitals to use gaming
strategies, we strive to make sure that
measures do not create incentives for
them to do so. Limiting the
readmissions to particular diagnoses
creates an opportunity for hospitals to
potentially avoid having readmissions
counted by changing coding practices.
Further, do so could create a perverse
incentive whereby hospitals begin to
avoid patients with conditions that are
part of the readmissions measures.
Third, there are not clinically and
technically sound and accepted
strategies for accurately identifying
readmission that are unrelated to
hospital quality based on the
documented cause of readmission. For
example, a patient with HF who
develops an HAI may ultimately be
readmitted for sepsis. It would be
inappropriate to consider the
readmission as unrelated to the care the
patient received for HF. Finally, we
believe it is important that hospitals
strive to reduce readmissions from all
causes, not just those that are
readmissions measures; while the
measures do not presume that each
readmission is preventable,
interventions have generally shown
reductions in all types of readmissions.
The NQF measures are intended to
provide incentives for hospitals to
reduce readmissions and not to achieve
zero readmissions.
(C) Time Window
The three proposed measures, as
endorsed by the NQF, count
readmissions within a 30-day period
from the date of the initial discharge
from the index hospitalization. This is
the standard time period to be
considered a readmission. The
timeframe of 30 days is a clinically
meaningful period for hospitals, in
collaboration with their medical
communities, to reduce readmission
risk. This time period for assessing
readmission is an accepted standard in
research and measurement. We believe
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that during this 30-day time period,
hospital and community partners can
take steps to reduce risk by ensuring
patients are clinically ready to be
discharged, improving communication
across providers, reducing risks of
infections, and educating patients on
symptoms to monitor whom to contact
with questions and where and when to
seek follow-up care can influence
readmission rates.
(D) Risk Adjustment
Section 1886(q)(4)(C)(i)(I) of the Act
requires that the number of
readmissions used in the Excess
Readmission Ratio be risk adjusted. This
language requires us, when comparing
hospitals’ readmission rates, to account
for differences in the severity of illness
of the patients that hospitals treat. Risk
adjustment essentially ‘‘levels the
playing field’’ for comparing hospital
performance by taking into account that
some hospitals’ patients are sicker than
others on admission and therefore have
a higher risk of readmission.
The methodology for calculating the
RSRRs under the NQF-endorsed
measures that we are proposing adjust
for key factors that are clinically
relevant and have strong relationships
with the outcome (for example, patient
demographic factors, patient co-existing
medical conditions, and indicators of
patient frailty). Under the current NQFendorsed methodology, these covariates
are obtained from Medicare claims
extending 12 months prior to, and
including, the index admission. This
risk-adjustment approach adjusts for
differences in the clinical status of the
patient at the time of the index
admission as well as for demographic
variables.
A complete list of the variables used
for risk adjustment and the clinical and
statistical process for selecting the
variables for each NQF-endorsed
measure, as proposed, is available in the
publicly-available technical
documentation of the existing measures
for AMI, HF, and pneumonia. The risk
adjustment variables for each condition
are presented in the 2010 Measures
Maintenance Technical Report: Acute
Myocardial Infarction, Heart Failure,
and Pneumonia 30–Day RiskStandardized Readmissions Measures
that are posted on https://
www.QualityNet.org > HospitalInpatient > Readmission Measures >
Resources. The variables used are
Condition Categories that group ICD–9–
CM codes into clinically coherent
variables. The 2010 Condition CategoryICD–9–CM Crosswalk provides a map to
the specific ICD–9–CM codes in each
variable and is also posted on https://
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www.QualityNet.org > HospitalInpatient > Readmission Measures >
Measure Calculation Methodology or
readers may use the following Web site
address: https://www.qualitynet.org/dcs/
ContentServer?c=Page&pagename=
QnetPublic%2FPage%2
FQnetTier4&cid=1219069855841
(E) Applicable Period
Section 1886 (q)(5)(D) of the Act
authorizes the Secretary to specify the
‘‘applicable period’’ with respect to a
fiscal year. Currently, for Hospital IQR
Program public reporting purposes, we
use three years of data (three 12-month
increments) to calculate the three
proposed readmission measures. This
provides substantially more data than a
one or two year time frame and
increases the precision of the measure
in distinguishing performance among
hospitals. This is advantageous in the
display of the three proposed
readmission measures on Hospital
Compare where we categorize hospital
performance into one of three discrete
categories: ‘‘Better than the US national
rate,’’ ‘‘No different than the US national
rate,’’ and ‘‘Worse than the US national
rate.’’
For the FY 2013 Hospital
Readmissions Reduction Program, we
are proposing to use 3 years of data for
discharges from July 1, 2008 through
June 30, 2011 as the applicable period
upon which to calculate excess
readmission ratios for each of the three
proposed measures. Based on our
experience with the IQR program, we
believe that this timeframe increases the
precision of the measures in
distinguishing performance among
hospitals. However, for purposes of the
Hospital Readmissions Reduction
Program, we will not be categorizing
hospital performance in three
categories; rather, we will be using the
measures to calculate excess
readmission ratios for the three
conditions. We are currently conducting
analyses to determine an appropriate
data period (for example, 1 year, 2 years,
3 years) that will yield reliable excess
readmission ratios for the three
proposed measures. We intend to
consider both the positive and negative
consequences of using longer or shorter
data periods for this program. Should
our analysis or public comment indicate
that a shorter data period yields excess
readmission ratios with acceptable
reliability, we may consider finalizing a
shorter time period.
We invite public comment and
suggestions on the topic of an
appropriate length for the applicable
period to consider using for the three
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proposed readmission measures for the
FY 2013 payment determination.
(F) Data Sources
As discussed above, the adjustment
under section 1886(q) of the Act is made
to the ‘‘base operating DRG payment
amount,’’ and components of the ratio
used to determine a hospital’s
adjustment factor also use that payment
amount. Payments under section 1886
of the Act, including the ‘‘base operating
DRG payment amount, are made for
services furnished to Medicare’s fee-forservice population under part A.
Therefore, for purposes of implementing
the Hospital Readmissions Program
under section 1886(q) of the Act, we are
proposing to use Medicare claims data
for the Medicare FFS population only.
This is the same universe of claims used
for calculating the endorsed measures
for the purposes of the IQR program.
The administrative data sources for
the risk adjustment analyses are
Medicare administrative claims datasets
that contain FFS inpatient and
outpatient (Medicare Parts A and B)
claims information in the prior 12
months and subsequent one month for
patients admitted in each of these years.
We are proposing to use claims from the
index hospitalization included the
measure and from the prior 12 months
from all of these data sources to gather
risk factors. If the patient does not have
any claims in the 12 months prior to the
index hospitalization admission, only
comorbidities from the included
admission are used.
We welcome public comment on this
proposal.
(G) Minimum Number of Discharges for
Applicable Conditions
Section 1886 (q)(4)(C)(II)(ii) of the Act
authorizes the Secretary to exclude
readmissions for an applicable
condition for which there are ‘‘fewer
than a minimum number (as determined
by the Secretary).’’ Currently, for public
reporting purposes under the IQR
program, only hospitals with at least 25
discharges for each of the three
proposed applicable conditions are
included in the display of the three
proposed readmission measures on
Hospital Compare. We chose this
number of discharges for the IQR based
on our findings that using fewer cases
did not provide sufficiently reliable
information on hospital performance. In
general the larger the number of cases,
the more reliable is the information. We
are currently conducting additional
analyses to determine further evaluate
the appropriate minimum number of
discharges needed to yield reliable
excess readmission ratios for the three
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proposed measures. However, based on
our experience with the IQR program,
we are proposing to use the current
threshold of 25 discharges for each of
the three measures for the Hospital
Readmissions Reduction Program.
However, should our analysis or public
comment indicate that a different
minimum number of discharges would
be more appropriate for this program,
we would consider finalizing a different
number.
We invite public comment and
suggestions on the topic of appropriate
minimum number of discharges to
consider for the three proposed
readmission measures.
(H) Reporting Hospital-Specific
Readmission Rates
Section 1886(q)(6)(A) of the Act
requires the Secretary to ‘‘make
information available to the public
regarding readmission rates of each
subsection (d) hospital under the
readmission reduction program.’’
Section 1886(q)(6)(B) of the Act requires
the Secretary to ‘‘ensure that a
subsection (d) hospital has the
opportunity to review and submit
corrections for, the information to be
made public with respect to the hospital
* * * prior to such information being
made public.’’ Section 1886(q)(6)(C) of
the Act requires the Secretary to post
the hospital-specific readmission
information on the Hospital Compare
Web site in an easily understandable
format.
We currently report information on
the three readmission rates we are
proposing in this proposed rule on the
Hospital Compare Web site for each
subsection (d) hospital. We provide
hospitals with an opportunity to
preview their readmission rates for 30days prior to posting on the Web site.
We propose to use a similar process and
timeframe for the rates calculated for the
Hospital Readmissions Reduction
Program. Through this process hospitals
will be able to review the information
and submit to CMS corrections in
advance of the information to be made
public. We will carefully review all
such correction submissions and
determine the appropriateness of any
revisions. We will inform the hospital
requesting corrections of our findings
and we will make any appropriate
revisions to the information to be made
available to the public regarding the
hospital’s readmission rates.
We invite public comment on this
proposal.
(I) Readmission Rates for All Patients
Section 1886(q)(8)(A) of the Act
requires the Secretary to calculate
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readmission rates for all patients for a
‘‘specified hospital’’ for an applicable
condition and ‘‘other conditions deemed
appropriate by the Secretary for an
applicable period.’’ Section
1886(q)(8)(D)(ii) of the Act defines
‘‘specified hospital’’ as: subsection (d)
hospitals; hospitals described in clauses
(i) through (v) of subsection (d)(1)(B)
(psychiatric hospitals, rehabilitation
hospitals, children’s hospitals, LTCHs,
and cancer hospitals); and, ‘‘as
determined feasible and appropriate by
the Secretary, other hospitals.’’ Such
information is to be calculated in the
same manner as used to calculate
readmission rates for hospitals with
respect to the postings on the CMS
Hospital Compare Web site. Section
1886(q)(8)(C) of the Act requires
specified hospitals, or a State or an
appropriate entity on behalf of the
hospitals, to submit to the Secretary, in
a form, manner and time specified by
the Secretary, data and information
determined necessary to calculate the
all patient readmission rates. Section
1886(q)(8)(D) of the Act defines ‘‘all
patients’’ to mean patients who are
treated on an inpatient basis and
discharged from a specified hospital.
We are not proposing any specific
policies to implement section 1886(q)(8)
of the Act at this time, but we invite
public comment and suggestions for
issues related to implementation of
these provisions, such as the
mechanisms to collect the all-patient
data, the collection of patient identifiers
to track patient care history across
multiple settings to conduct risk
adjustment for outcome measures, what
entities could submit all patient data on
behalf of hospitals, and more generally,
the requirement for all patient data
submission.
(5) Proposed Excess Readmission Ratio
(A) Statutory Background
Section 1886(q)(4)(C) of the Act
requires the Secretary to develop a riskadjusted ‘‘Excess Readmission Ratio.’’
The Excess Readmission Ratio will be
used in the calculation of ‘‘aggregate
payments for excess readmissions’’ as
required under section 1886(q)(4)(A)(iii)
of the Act, which, in turn, is used to
determine the adjustment factor under
section 1886(q)(3). Specifically, section
1886(q)(4)(C)(i) states that the term
‘‘ ‘Excess Readmission Ratio’ means
* * * with respect to an applicable
condition for a hospital for an
applicable period * * * the ratio of
* * * risk adjusted readmissions based
on actual readmissions * * * to * * *
the risk adjusted expected
readmissions.’’ The statute also requires
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that the numerator and denominator of
the ratio, that is, ‘‘risk adjusted
readmissions based on actual
readmissions’’ and the ‘‘risk adjusted
expected readmissions,’’ be determined
‘‘consistent with a readmission measure
methodology that has been endorsed
under paragraph (5)(A)(ii)(I).’’
(B) Proposed Excess Readmission Ratio
Methodology
We are proposing to use the riskstandardized ratio calculated for the
NQF-endorsed measures for AMI, HF,
and PN as the ‘‘excess readmission
ratio.’’ This risk-standardized ratio
(excess readmission ratio), as required
by statute, is a ratio of ‘‘risk adjusted
readmission based on actual’’ to ‘‘risk
adjusted expected readmissions.’’
Moreover, use of this ratio meets the
statutory requirement that the
numerator and denominator of the ratio
be determined in a manner that is
‘‘consistent with’’ an NQF-endorsed
readmission measure methodology.
The proposed ratio is a measure of
relative performance. If a hospital
performs better than an average hospital
that admitted similar patients (that is,
patients with the same risk factors for
readmission such as age and
comorbidities), the ratio will be less
than one. If a hospital performs worse
than average, the ratio will be greater
than one. Hospitals with a ratio greater
than one have excess readmissions
relative to average quality hospitals with
similar types of patients
As part of the Hospital IQR Program,
the risk-standardized ratio to the
measure result is reported on Hospital
Compare Web site. The riskstandardized ratio is the unique result
produced by the measures for each
hospital for each condition to assess
relative hospital performance. Hospitals
may not be familiar with this ratio,
because the measure result reported on
Hospital Compare for each hospital and
each condition is this ratio multiplied
by a constant (the national raw rate of
readmission for the condition), and it is
currently presented as the riskstandardized readmission rate (RSRR).
Multiplying by a constant transforms
the ratio into a rate (the riskstandardized readmission rate) that is
better understood by consumers. Thus
Hospital Compare results for CMS
readmission measures are computed as
follows:
[Hospital risk-standardized ratio] X
[national raw readmission rate] (i)
Numerator and Denominator of the
Risk-Standardized Ratio (Excess
Readmission Ratio)
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• How much variation in hospital
readmission rates overall is accounted
for by variation across hospitals in
patients’ individual risk factors (such as
age and other medical conditions); a risk
weight (beta-coefficient) is calculated
for each patient risk factor at all
hospitals. The specific approach and
variables used in the risk adjustment are
discussed below.
• How much variation in readmission
rates is accounted for by hospitals’
contribution to readmission risk, after
adjusting for differences in readmission
due to differences in patients’ risk
factors. The model estimates the amount
by which a specific hospital increases or
decreases patients’ risk of readmission
relative to an average hospital based on
the hospitals actual readmission relative
to hospitals with similar patients. The
estimated amount each hospital
contributes (or subtracts) from its
patients readmission risk compared to
hospitals with similar patients is called
the ‘‘hospital-specific readmission
effect.’’ It is used only in the numerator
to estimate the adjusted actual
readmissions. The hospital-specific
effect will be negative for a better than
average hospital, positive for a worse
than average hospital, and close to zero
for an average hospital. If there are no
quality differences resulting in excess
readmissions among hospitals (if all
hospitals had the same readmission
rates relative to hospitals with similar
patients), the hospital-specific effects for
all hospitals will be zero and the ratio
for all hospitals will be one.
(iii) Denominator Calculation—
Expected Readmissions (at an Average
Quality Hospital Treating the Same
Patients)
The denominator of the riskstandardized ratio (excess readmission
ratio) under this NQF-endorsed
methodology sums the probability of
readmission for each patient at an
average hospital. This probability is
calculated using:
• The intercept term for the model
(the same for all hospitals and for both
numerator and denominator equations);
and
• The increase or decrease in the
probability of readmission contributed
by each of the patients’ risk factors (risk
adjustment coefficients multiplied by
the patient’s risk factors, X).
This can be expressed mathematically
as:
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(ii) Numerator Calculation—Adjusted
Actual Readmissions
For each hospital, the numerator of
the ratio used in the NQF-endorsed
methodology (actual adjusted
readmissions) is calculated by
estimating the probability of
readmission for each patient at that
hospital and summing up over all the
hospital’s patients to get the actual
adjusted number of readmissions for
that hospital. This estimated probability
of readmission for each patient is
calculated using:
• The hospital-specific effect
(increase, decrease, or no change in
probability of readmission relative to
the probability of readmission at an
average hospital);
• The intercept term for the model
(the same for all hospitals and for both
numerator and denominator equations);
• The increase or decrease in the
probability of readmission contributed
by each of the patients’ risk factors (risk
adjustment coefficients multiplied by
the patient’s risk factors, X)
Mathematically, the numerator
equation can be expressed as:
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The NQF-endorsed measures, which
we are proposing for the Hospital
Readmissions Reduction Program,
calculate this risk-standardized ratio
(excess readmission ratio) using
hierarchical logistic modeling, which is
a widely accepted statistical method
that evaluates relative hospital
performance based on outcomes such as
readmission. The method adjusts for
variation across hospitals in how sick
their patients are when admitted to the
hospital (and therefore variation in
hospitals’ patients’ readmission risk) as
well as the variation in the number of
patients that a hospital treats to reveal
difference in quality. The detailed
methodology for these measures is
publicly-available and the calculation
SAS packs are made available upon
request. This is the calculation software
that permits the measures to be
calculated. We describe the key details
of the methodology here.
In order to model the extent to which
hospitals affect patients’ risk of
readmission, this statistical model first
analyzes data on all the patients
discharged from all hospitals for a given
condition that indicate for each patient
what comorbidities were present when
the patient was admitted and whether or
not the patient was readmitted and
calculates:
Thus, the ratio compares the total
adjusted actual readmissions at the
hospital to the number that would be
expected if the hospital’s patients were
treated at an average hospital with
similar patients. Hospitals with more
adjusted actual readmissions than
expected readmissions will have a riskstandardized ratio (excess readmission
ratio) greater than one.
Because the ratio is risk-adjusted, a
hospital may have high crude
readmission rates (number of 30-day
readmissions among patients with the
applicable condition divided by number
of admissions for patients with the
applicable condition) yet have a riskstandardized ratio (excess readmission
ratio) less than one. For example, if a
hospital with a higher than average raw
readmission rate cares for very sick
patients, the ratio may show that the
adjusted actual number of readmissions
(the numerator), which accounts for the
case-mix, is actually lower than what
would be expected for an average
hospital caring for these patients
(denominator) and therefore the Excess
Readmission Ratio, as proposed, will be
less than one, demonstrating that this
hospital performs better than average,
despite having a high crude readmission
rate, and does not have excess
readmissions. Similarly, if a hospital
has a seemingly low unadjusted
readmission rate but cares for a very low
risk population of patients, it may be
found to have an adjusted actual
number of readmissions that is higher
than the expected number of
readmissions, and therefore a ratio
greater than one.
In summary, we are proposing to use
the risk-standardized readmission ratio
of the NQF-endorsed readmission
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measures as the Excess Readmission
Ratio. The ratio is a measure of relative
performance. If a hospital performs
better than an average hospital that
admitted similar patients (that is,
patients with the same risk factors for
readmission such as age and
comorbidities), the ratio will be less
than 1.0. If a hospital performs worse
than average, the ratio will be greater
than 1.0.
We welcome public comment on our
proposal to use this methodology for
calculating the ‘‘risk adjusted
readmissions based on actual
readmissions’’ as well as the ‘‘risk
adjusted expected readmissions’’ used to
determine the Excess Readmission
Ratio, as set forth in section
1886(q)(5)(C) of the Act.
D. 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
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 12-
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25937
percent cap on DSH payments that is
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
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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
• 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.)
The preceding numbers will be
revised in the FY 2012 IPPS final rule
to the extent required to reflect the
updated FY 2010 MedPAR file, which
will contain data from additional bills
received through March 2011.
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
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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 proposed national
median CMI value for FY 2012 includes
data from all urban hospitals
nationwide, and the proposed regional
values for FY 2012 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 proposed values are
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. We
are proposing to update the regional
standards based on discharges for urban
hospitals’ cost reporting periods that
began during FY 2009 (that is, October
1, 2008 through September 30, 2009),
which are the latest cost report data
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based on discharges occurring during
FY 2010 (October 1, 2009 through
September 30, 2010), and include bills
posted to CMS’ records through
December 2010.
We are proposing 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,
2011, they must have a CMI value for
FY 2010 that is at least—
• 1.5292; 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.
The proposed median CMI values by
region are set forth in the following
table:
available at the time this proposed rule
was developed.
Therefore, we are proposing that, in
addition to meeting other criteria, a
hospital, if it is to qualify for initial RRC
status for cost reporting periods
beginning on or after October 1, 2011,
must have, as the number of discharges
for its cost reporting period that began
during FY 2009, 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, as
indicated in the following table.
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E. Payment Adjustment for Low-Volume
Hospitals (§ 412.101)
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1. Background
Section 1886(d)(12) of the Act, as
added by section 406(a) of Public Law
108–173, provides for a payment
adjustment to account for the higher
costs per discharge for low-volume
hospitals under the IPPS, effective
beginning FY 2005. The additional
payment adjustment to a low-volume
hospital provided for under section
1886(d)(12) of the Act is ‘‘in addition to
any payment calculated under this
section.’’ Therefore, the additional
payment adjustment is based on the per
discharge amount paid to the qualifying
hospital under section 1886 of the Act.
In other words, the low-volume add-on
payment amount is based on all other
per discharge payments made under
section 1886 of the Act, including
capital, DSH, IME, and outliers. For
SCHs and MDHs, the low-volume addon payment amount is based on either
the Federal rate or the hospital-specific
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rate, whichever results in a greater
operating IPPS payment. Sections 3125
and 10314 of the Affordable Care Act
amended the definition of a low-volume
hospital under section 1886(d)(12)(C) of
the Act. Sections 3125 and 10314 of the
Affordable Care Act also revised the
methodology for calculating the
payment adjustment for low-volume
hospitals.
Prior to the amendments made by the
Affordable Care Act, section
1886(d)(12)(C)(i) of the Act defined a
low-volume hospital as ‘‘a subsection (d)
hospital (as defined in paragraph (1)(B))
that the Secretary determines is located
more than 25 road miles from another
subsection (d) hospital and that has less
than 800 discharges during the fiscal
year.’’ Section 1886(d)(12)(C)(ii) of the
Act further stipulates that the term
‘‘discharge’’ means ‘‘an inpatient acute
care discharge of an individual
regardless of whether the individual is
entitled to benefits under Part A.’’
Therefore, the term ‘‘discharge’’ refers to
total discharges, not merely Medicare
discharges. Furthermore, under section
406(a) of Public Law 108–173, which
initially added subparagraph (12) to
section 1886(d) of the Act, the provision
requires the Secretary to determine an
applicable percentage increase for these
low-volume hospitals based on the
‘‘empirical relationship’’ between ‘‘the
standardized cost-per-case for such
hospitals and the total number of
discharges of such hospitals and the
amount of the additional incremental
costs (if any) that are associated with
such number of discharges.’’ The statute
thus mandates that the Secretary
develop an empirically justifiable
adjustment based on the relationship
between costs and discharges for these
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low-volume hospitals. The statute also
limits the adjustment to no more than
25 percent.
Based on an analysis we conducted
for the FY 2005 IPPS final rule (69 FR
49099 through 49102), a 25 percent lowvolume adjustment to all qualifying
hospitals with less than 200 discharges
was found to be most consistent with
the statutory requirement to provide
relief to low-volume hospitals where
there is empirical evidence that higher
incremental costs are associated with
low numbers of total discharges. In the
FY 2006 IPPS final rule (70 FR 47432
through 47434), we stated that a
multivariate analyses supported the
existing low-volume adjustment
implemented in FY 2005. Therefore, the
low-volume adjustment of an additional
25 percent would continue to be
provided for qualifying hospitals with
less than 200 discharges.
2. Temporary Changes for FYs 2011 and
2012
Section 1886(d)(12) of the Act was
amended by sections 3125 and 10314 of
the Affordable Care Act. The changes
made by these sections of the Affordable
Care Act are effective only for
discharges occurring during FYs 2011
and 2012. Beginning with FY 2013, the
preexisting low-volume hospital
payment adjustment and qualifying
criteria, as implemented in FY 2005,
will resume. Specifically, as discussed
above, the provisions of the Affordable
Care Act revised the definition of a lowvolume hospital and also revised the
methodology for calculating the
payment adjustment for low-volume
hospitals for FYs 2011 and 2012.
Sections 3125(3) and 10314(1) of the
Affordable Care Act amended the
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These numbers will be revised in the
FY 2012 final rule based on the latest
available cost report data.
We note that the median number of
discharges for hospitals in each census
region is greater than the national
standard of 5,000 discharges. Therefore,
5,000 discharges is the minimum
criterion for all hospitals under this
proposed rule.
We reiterate that, if an osteopathic
hospital is to qualify for RRC status for
cost reporting periods beginning on or
after October 1, 2011, the hospital
would be required to have at least 3,000
discharges for its cost reporting period
that began during FY 2009.
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Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
qualifying criteria for low-volume
hospitals under section 1886(d)(12)(C)(i)
of the Act to make it easier for hospitals
to qualify for the low-volume
adjustment. Specifically, the revised
provision specifies that, for FYs 2011
and 2012, a hospital qualifies as a lowvolume hospital if it is ‘‘more than 15
road miles from another subsection (d)
hospital and has less than 1,600
discharges of individuals entitled to, or
enrolled for, benefits under Part A
during the fiscal year.’’ In addition,
section 1886(d)(12)(D) of the Act, as
added by section 3125(4) and amended
by section 10314 of the Affordable Care
Act, provides that the payment
adjustment (the applicable percentage
increase) is to be determined ‘‘using a
continuous linear sliding scale ranging
from 25 percent for low-volume
hospitals with 200 or fewer discharges
of individuals entitled to, or enrolled
for, benefits under Part A in the fiscal
year to 0 percent for low-volume
hospitals with greater than 1,600
discharges of such individuals in the
fiscal year.’’
Section 3125(3)(A) of the Affordable
Care Act revised the distance
requirement of ‘‘25 road miles’’ to ‘‘15
road miles’’ for FYs 2011 and 2012 such
that a low-volume hospital is required
to be only more than 15 road miles,
rather than more than 25 road miles,
from another subsection (d) hospital for
purposes of qualifying for the lowvolume payment adjustment in FYs
2011 and 2012. The mileage
requirement will revert back to ‘‘more
than 25 road miles’’ for fiscal years after
FY 2012.
Sections 3125(3)(B) and 10314(1) of
the Affordable Care Act revised the
discharge requirement for FYs 2011 and
2012 to less than 1,600 discharges of
individuals entitled to, or enrolled for,
benefits under Medicare Part A during
the fiscal year. Prior to enactment of the
Affordable Care Act, under section
1886(d)(12) of the Act, as added by
section 406(a) of Public Law 108–173,
the discharge requirement to qualify as
a low-volume hospital is less than 800
total discharges annually, which
includes discharges of both Medicare
and non-Medicare patients. This
discharge requirement will apply also
for fiscal years after FY 2012.
Section 3125(4) of the Affordable Care
Act added section 1886(d)(12)(D) to the
Act, and section 10314(2) of the
Affordable Care Act further modified
that section of the Act. Section
1886(d)(12)(D) of the Act, as modified,
revises the methodology for calculating
the payment adjustment under section
1886(d)(12)(A) of the Act for lowvolume hospitals for discharges
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occurring in FYs 2011 and 2012. For FY
2010 and prior fiscal years, and
beginning again in FY 2013, sections
1886(d)(12)(A) and (B) of the Act require
the Secretary to determine an applicable
percentage increase for low-volume
hospitals based on the ‘‘empirical
relationship’’ between ‘‘the standardized
cost-per-case for such hospitals and the
total number of discharges of such
hospitals and the amount of the
additional incremental costs (if any) that
are associated with such number of
discharges.’’ The statute thus requires
the Secretary to develop an empirically
justifiable adjustment based on the
relationship between costs and
discharges for these low-volume
hospitals. The statute also limits the
adjustment to no more than 25 percent.
Based on analyses we conducted for the
FY 2005 IPPS final rule (69 FR 49099
through 49102) and the FY 2006 IPPS
final rule (70 FR 47432 through 47434),
a 25 percent low-volume adjustment to
all qualifying hospitals with less than
200 discharges was found to be most
consistent with the statutory
requirement to provide relief to lowvolume hospitals where there is
empirical evidence that higher
incremental costs are associated with
low numbers of total discharges.
However, section 1886(d)(12)(D) of the
Act, as added by the Affordable Care
Act, provides that, for discharges
occurring in FYs 2011 and 2012, the
Secretary shall determine the applicable
percentage increase using a continuous
linear sliding scale ranging from an
additional 25 percent payment
adjustment for hospitals with 200 or
fewer Medicare discharges to a 0
percent additional payment adjustment
for hospitals with more than 1,600
Medicare discharges.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50238 through 50275), we
revised our regulations at 42 CFR
412.101 to reflect the changes to the
payment adjustment for low-volume
hospitals provided for by the provisions
of the Affordable Care Act. We also
clarified the existing regulations to
indicate that a hospital must continue to
qualify as a low-volume hospital in
order to receive the payment adjustment
in that year; that is, it is not based on
a one-time qualification. Furthermore,
we established a procedure for a
hospital to request low-volume hospital
status.
Specifically, in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50238 and
50414), we revised our regulations at
§ 412.101(b)(2)(ii) to provide that, to
qualify for the low-volume payment
adjustment in FYs 2011 and 2012, a
hospital must be located more than 15
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road miles from the nearest subsection
(d) hospital. We also defined, at
§ 412.101(a), the term ‘‘road miles’’ to
mean ‘‘miles’’ as defined at
§ 412.92(c)(i). This change in the
qualifying criteria from 25 to 15 road
miles is applicable only for FYs 2011
and 2012, but the definition of ‘‘road
miles’’ continues to apply even after the
distance requirement reverts to 25 road
miles beginning in FY 2013.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50238 through 50239 and
50414), we revised our regulations at
§ 412.101(b)(2)(ii) to provide that, to
qualify for the low-volume adjustment
in FYs 2011 and 2012, a hospital must
have fewer than 1,600 ‘‘Medicare
discharges’’ during the fiscal year based
on the hospital’s Medicare discharges
from the most recently available
MedPAR data as determined by CMS.
We also revised the regulations to
specify at § 412.101(a) that the term
‘‘Medicare discharges’’ means a
‘‘discharge of inpatients entitled to
Medicare Part A, including discharges
associated with individuals whose
inpatient benefits are exhausted or
whose stay was not covered by
Medicare and also discharges of
individuals enrolled in a MA
organization under Medicare Part C.’’
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50240 through 50241), we
adopted a continuous linear sliding
scale equation to determine the lowvolume payment adjustment for FYs
2011 and 2012 for eligible low-volume
hospitals with Medicare discharges of
more than 200 and less than 1,600 (that
is, from 201 to 1,599 Medicare
discharges). Consistent with the statute,
for FYs 2011 and 2012 for eligible lowvolume hospitals with 200 or fewer
Medicare discharges, we established a
low-volume payment adjustment of 25
percent.
Under the regulations at
§ 412.101(c)(2), for FYs 2011 and 2012,
the low-volume adjustment is
determined as follows:
• Low-volume hospitals with 200 or
fewer Medicare discharges will receive
a low-volume adjustment of an
additional 25 percent for each
discharge.
• Low-volume hospitals with
Medicare discharges of more than 200
and fewer than 1,600 will receive for
each discharge a low-volume
adjustment of an additional percent
calculated using the formula: [(4/14) ¥
(Medicare discharges/5600)]. For
additional information on the
mathematical interpretation of this
formula, we refer readers to the FY 2011
IPPS/LTCH PPS final rule (75 FR
50241).
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While we revised the qualifying
criteria and the payment adjustment for
low-volume hospitals for FYs 2011 and
2012, consistent with the amendments
made by the Affordable Care Act, we
also noted in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50240), that we
did not modify the process for
requesting and obtaining the lowvolume hospital payment adjustment. In
general, in order to qualify for the lowvolume hospital payment adjustment, a
hospital must provide to its fiscal
intermediary or MAC sufficient
evidence to document that it meets the
discharge and distance requirements.
The fiscal intermediary or MAC will
determine, based on the most recent
data available, if the hospital qualifies
as a low-volume hospital, so that the
hospital will know in advance whether
or not it will receive a payment
adjustment and, if so, the applicable
add-on percentage. The fiscal
intermediary or MAC and CMS may
review available data, in addition to the
data the hospital submits with its
request for low-volume hospital status,
in order to determine whether or not the
hospital meets the qualifying criteria.
3. Proposed Discharge Data Source to
Identify Qualifying Low-Volume
Hospitals and Calculate the Payment
Adjustment (Percentage Increase) for FY
2012
As described above, for FYs 2005
through 2010 and FY 2013 and
subsequent years, since the discharge
determination is made based on the
hospital’s number of total discharges,
the hospital’s most recently submitted
cost report is used to determine if the
hospital meets the criteria to receive the
low-volume payment adjustment in the
current year (§ 412.101(b)(2)(i)). For FYs
2011 and 2012, the hospital’s Medicare
discharges from the most recently
available MedPAR data, as determined
by CMS, are used to determine if the
hospital meets the discharge criteria to
receive the low-volume payment
adjustment in the current year
(§ 412.101(b)(2)(ii)). As also described
above, the applicable low-volume
percentage increase is determined using
a continuous linear sliding scale
equation that results in a low-volume
adjustment ranging from an additional
25 percent for hospitals with 200 or
fewer Medicare discharges to a 0
percent additional payment adjustment
for hospitals with 1,600 or more
Medicare discharges.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50241), we established that,
for FY 2011, the low-volume payment
adjustment would be determined using
Medicare discharge data for FY 2009
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from the March 2010 update of the
MedPAR files, as these were the most
recent available data. We also stated that
we expected to use Medicare claims
data from FY 2010 to determine the lowvolume payment adjustment for FY
2012, as these would be the most recent
available data at that time.
In this proposed rule, we are
proposing that, for FY 2012, qualifying
low-volume hospitals and their payment
adjustment would be determined using
Medicare discharge data from the most
recent update of the FY 2010 MedPAR
file, that is, the December 2010 update,
as these data are the most recent data
available. Furthermore, we are
proposing that if more recent FY 2010
Medicare discharge data are available
(such as data from the March 2011
update of the MedPAR files), we would
use such data in the final rule. Table 14,
which is listed in section VI. of the
Addendum to this proposed rule and
available via the Internet, lists the
‘‘subsection (d)’’ hospitals with fewer
than 1,600 Medicare discharges based
on the December 2010 update of the FY
2010 MedPAR files and their proposed
FY 2012 low-volume payment
adjustment. Eligibility for the proposed
low-volume payment adjustment for FY
2012 is also dependent upon meeting (if
the hospital is qualifying for the lowvolume payment adjustment for the first
time in FY 2012), or continuing to meet
(if the hospital qualified in FY 2011) the
mileage criteria specified at
§ 412.101(b)(2)(ii).
We note that the list of hospitals with
fewer than 1,600 Medicare discharges in
Table 14 does not reflect whether or not
the hospital meets the mileage criterion;
that is, the hospital also must be located
more than 15 road miles from any other
IPPS hospital in order to qualify for a
low-volume hospital payment
adjustment in FY 2012.
In order to receive a low-volume
hospital adjustment payment under
§ 412.101, a hospital must notify and
provide documentation to its fiscal
intermediary or MAC that it meets the
mileage criterion. The use of a Webbased mapping tool, such as MapQuest,
as part of documenting that the hospital
meets the mileage criterion for lowvolume hospitals, is acceptable. The
fiscal intermediary or MAC will
determine if the information submitted
by the hospital, such as the name and
street address of the nearest hospitals,
location on a map, and distance (in road
miles, as defined in the regulations at
§ 412.101(a)) from the hospital
requesting low-volume hospital status,
is sufficient to document that it meets
the mileage criterion. If not, the fiscal
intermediary or MAC will follow up
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25941
with the hospital to obtain additional
necessary information to determine
whether or not the hospital meets the
low-volume mileage criterion. The fiscal
intermediary or MAC will refer to the
hospital’s Medicare discharge data
determined by CMS (as proposed for FY
2012 as shown in Table 14, which is
listed in section VI. of the Addendum to
this proposed rule and available via the
Internet), to determine whether or not
the hospital meets the discharge
criterion, and the amount of the
payment adjustment, once it is
determined that both the mileage and
discharge criteria are met. The Medicare
discharge data shown in Table 14, as
well as the Medicare discharge data for
all ‘‘subsection (d)’’ hospitals with
claims in the December 2010 update of
the FY 2010 MedPAR files, also will be
available on the CMS Web site for
hospitals to check their Medicare
discharges to help them to decide
whether or not to apply for low-volume
hospital status.
Similar to the policy we established
in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 20574 through 20575), we
are proposing that, for FY 2012, a
hospital make its request for lowvolume hospital status in writing to its
fiscal intermediary or MAC by
September 1, 2011, so that the
applicable low-volume percentage addon would be applied to payments for its
discharges beginning on or after October
1, 2011. For FY 2012, we are proposing
that a hospital which qualified for the
low-volume payment adjustment in FY
2011 may continue to receive a lowvolume payment adjustment in FY
2012, without reapplying, if it continues
to meet the Medicare discharge
criterion, based on the latest available
FY 2010 MedPAR data (as proposed
above) and the distance criterion.
However, the hospital would be
required to verify in writing to its fiscal
intermediary or MAC that it continues
to be more than 15 miles from any other
‘‘subsection (d)’’ hospital no later than
September 30, 2011. Further, similar to
the policy we established for FY 2011
(Transmittal 2060, Change Request
7134; October 1, 2010), we are
proposing that, for requests for lowvolume hospital status for FY 2012
received after September 1, 2011, if the
hospital meets the criteria to qualify as
a low-volume hospital, the fiscal
intermediary or MAC would apply the
applicable low-volume adjustment in
determining payments to the hospital’s
FY 2012 discharges prospectively
within 30 days of the date of the fiscal
intermediary’s or MAC’s low-volume
status determination.
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F. Indirect Medical Education (IME)
Adjustment (§ 412.105)
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1. Background
Section 1886(d)(5)(B) of the Act
provides for an additional payment
amount under the IPPS for hospitals
that have residents in an approved
graduate medical education (GME)
program in order to reflect the higher
indirect patient care costs of teaching
hospitals relative to nonteaching
hospitals. The regulations regarding the
calculation of this additional payment,
known as the indirect medical
education (IME) adjustment, are located
at § 412.105.
Public Law 105–33 (BBA 1987)
established a limit on the number of
allopathic and osteopathic residents that
a hospital may include in its full-time
equivalent (FTE) resident count for
direct GME and IME payment purposes.
Under section 1886(h)(4)(F) of the Act,
for cost reporting periods beginning on
or after October 1, 1997, a hospital’s
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. Changes to the policies
regarding counting residents for both
IME and direct GME payment purposes
as a result of the implementation of
sections 5503 through 5506 of the
Affordable Care Act were issued in a
final rule published in the Federal
Register on November 24, 2010 (75 FR
72133).
2. IME Adjustment Factor for FY 2012
The IME adjustment to the MS–DRG
payment is based in part on the
applicable IME adjustment factor. The
IME adjustment factor is calculated by
using a hospital’s ratio of residents to
beds, which is represented as r, and a
formula multiplier, which is
represented as c, in the following
equation: c × [{1 + r} .405¥ 1]. The
formula is traditionally described in
terms of a certain percentage increase in
payment for every 10-percent increase
in the resident-to-bed ratio.
Section 502(a) of Public Law 108–173
modified the formula multiplier (c) to be
used in the calculation of the IME
adjustment. Prior to the enactment of
Public Law 108–173, the formula
multiplier was fixed at 1.35 for
discharges occurring during FY 2003
and thereafter. In the FY 2005 IPPS final
rule, we announced the schedule of
formula multipliers to be used in the
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calculation of the IME adjustment and
incorporated the schedule in our
regulations at § 412.105(d)(3)(viii)
through (d)(3)(xii). Section 502(a)
modified the formula multiplier
beginning midway through FY 2004 and
provided for a new schedule of formula
multipliers for FYs 2005 and thereafter
as follows:
• For discharges occurring on or after
April 1, 2004, and before October 1,
2004, the formula multiplier is 1.47.
• For discharges occurring during FY
2005, the formula multiplier is 1.42.
• For discharges occurring during FY
2006, the formula multiplier is 1.37.
• For discharges occurring during FY
2007, the formula multiplier is 1.32.
• For discharges occurring during FY
2008 and fiscal years thereafter, the
formula multiplier is 1.35.
Accordingly, for discharges occurring
during FY 2012, the formula multiplier
is 1.35. We estimate that application of
this formula multiplier for the FY 2012
IME adjustment will result in an
increase in IPPS payment of 5.5 percent
for every approximately 10-percent
increase in the hospital’s resident-to-bed
ratio.
G. Payment Adjustment for Medicare
Disproportionate Share Hospitals
(DSHs) and Indirect Medical Education
(IME) (§§ 412.105 and 412.106)
1. Background
Section 1886(d)(5)(F) of the Act
provides for additional Medicare
payments to subsection (d) hospitals
that serve a significantly
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 payment adjustment, which is
the most common, is based on a
complex statutory formula 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’’
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and the ‘‘Medicaid fraction.’’ The
Medicare fraction (also known as the
‘‘SSI fraction’’ or ‘‘SSI ratio’’) 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
hospital acute care inpatient days.
Regulations located at § 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 IV.G.2. of this preamble, we
are combining our discussion of
proposed 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)(i) and for
counting patient days for purposes of
the DSH payment adjustment at
§ 412.106(a)(1)(ii).
2. Proposed Policy Change Relating to
the Exclusion of Hospice Beds and
Patient Days From the Medicare DSH
Calculation
a. Background
As discussed in the FY 2004 IPPS
final rule (68 FR 45415 through 45420),
when determining a hospital’s Medicare
DSH payment, our policy is to include
patient days in hospital units or wards
that would be directly included in
determining the allowable costs of
inpatient hospital care payable under
the IPPS on the Medicare cost report.
Under this policy, CMS uses the level of
care generally provided in such a unit
or ward as a proxy for determining the
level of care provided to a particular
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patient on a particular day within that
unit. As stated in the FY 2004 IPPS final
rule, our policy is ‘‘not intended to focus
on the level or type of care provided to
individual patients in a unit, but rather
on the level and type of care provided
in the unit as a whole.’’ (68 FR 45417)
In the FY 2005 IPPS final rule, we
amended this policy to specifically
exclude observation and swing days
from the patient day count. In this
proposed rule, we are proposing to
establish an additional exclusion with
respect to counting bed days and patient
days for patients receiving hospice
services in an inpatient setting of a
hospital.
b. Hospice Inpatient Services
Section 1861(dd)(1) of the Act defines
hospice care to include a limited set of
‘‘items and services provided to a
terminally ill individual by, or by others
under arrangements made by, a hospice
program under a written plan (for
providing such care to such individual)
established and periodically reviewed
by the individual’s attending physician
and by the medical director.’’ Among
those items and services specified under
section 1861(dd)(1)(G) of the Act is
‘‘short-term inpatient care (including
both respite care and procedures
necessary for pain control and acute and
chronic symptom management) in an
inpatient facility meeting such
conditions as the Secretary determines
to be appropriate to provide such care,
but such respite care may be provided
only on an intermittent, nonroutine, and
occasional basis and may not be
provided consecutively over longer than
five days.’’ Based on these statutory
definitions of hospice care, the
Secretary, through regulation at
§ 418.302, has grouped hospice care
services into four categories for payment
purposes. Two of these payment
categories describe hospice services in
an inpatient setting: inpatient respite
care day and general inpatient care day.
Section 418.302(b)(3) of the
regulations defines an inpatient respite
care day as ‘‘a day on which the
individual who has elected hospice care
receives care in an approved facility on
a short-term basis for respite.’’ Section
40.2.2 of Chapter 9 of the Medicare
Benefit Policy Manual (https://
www.cms.gov/manuals/Downloads/
bp102c09.pdf) further describes an
inpatient respite care day as a shortterm inpatient day provided only when
necessary to relieve family members or
other caregivers caring for the
individual at home. Under the Act,
inpatient respite care is limited to 5
consecutive days for a given stay.
Similarly, the regulations at
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§ 418.302(b)(4) describe a general
inpatient care day as ‘‘a day on which
an individual who has elected hospice
care receives general inpatient care in
an inpatient facility for pain control or
acute or chronic symptom management
which cannot be managed in other
settings.’’
Section 40.1.5 of Chapter 9 of the
Medicare Benefit Policy Manual
provides that general inpatient care is
appropriate when care for pain control
or acute or chronic symptom
management cannot feasibly be
provided in another setting. This section
of the Medicare Benefit Policy Manual
further states that such care is ‘‘not
equivalent to a hospital level of care.’’
That hospice care is not hospital level
care is further supported by the
provision at § 418.202(e), which
provides that general inpatient care and
inpatient respite care hospice services
can be ‘‘provided in a participating
hospice inpatient unit, or a participating
hospital or [skilled nursing facility], that
additionally meets the standards in
§ 418.202(a) and (e) regarding staffing
and patient areas * * * [and] must
conform to the [hospice provider’s]
written plan of care.’’
Furthermore, hospice services
provided in an inpatient hospital setting
are not payable under the IPPS. Rather,
at this time, these services are payable
under two of the four prospectively
determined all-inclusive categories of
care under the hospice payment system.
In the FY 2004 IPPS final rule (68 FR
45418), we stated that we believed it
‘‘reasonable to interpret the phrase
‘hospital’s patient days,’ to mean only
the hospital’s inpatient days at a level
of care that would be covered under the
IPPS as a means to determine an IPPS
payment adjustment.’’ In that rule, we
acknowledged that it would be
‘‘administratively inefficient and
impracticable’’ to calculate a hospital’
inpatient days based on a determination
of whether a particular patient in a
particular inpatient bed for a particular
stay is receiving a level of care that
would be covered under the IPPS (68 FR
45418). Accordingly, we adopted a
policy under which we use the level of
care that is generally provided in
particular units or wards as a proxy for
determining whether the care provided
to a particular patient is of a type that
would be covered under the IPPS.
However, we have recognized
exceptions to this policy for certain
categories of nonacute care, even if that
care is provided in an acute care unit.
Therefore, we are proposing to revise
§ 412.106(a)(1)(ii) to exclude patient
days associated with hospice patients
receiving inpatient hospice services in
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an inpatient hospital setting from the
Medicare and Medicaid fractions of the
DPP. We also are proposing to amend
our cost reporting instructions
accordingly. Our proposal to exclude
hospice inpatient days is analogous to
our decision in the FY 2005 IPPS final
rule to exclude observation and swingbed days from the Medicare and
Medicaid fractions of the DPP. In that
rule, we stated that our policies to
exclude observation days and swing-bed
days from the count of patient days
‘‘stem from the fact that although the
services are provided in beds that would
otherwise be available to provide an
IPPS level of services, these days are not
payable under the IPPS * * *’’ (69 FR
49097). Similarly, our proposal to
exclude inpatient hospice days stems
from the fact that these days are not
acute care services generally payable
under the IPPS.
We note that, on rare occasions,
patients receiving care under a third
payment category, routine home care,
may also receive services in an inpatient
hospital setting. Unlike inpatient respite
care or general inpatient services,
routine home care services are not
intended to be provided in a hospital
setting. For the same reasons stated
above, such days should also be
excluded from the Medicare and
Medicaid fractions of the DPP.
We also are proposing to exclude from
the hospital’s bed count days associated
with hospice patients who receive
inpatient hospice services in the
hospital for purposes of both the IME
payment adjustment and the DSH
payment adjustment. The rules for
counting hospital beds for the purposes
of the IME 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. Our bed
counting policy is to include bed days
available for IPPS-level acute care
hospital services. Inpatient hospice
services provided in an acute unit or
ward are occasional, alternative uses of
acute inpatient beds that would
otherwise be considered available for
IPPS-level acute care hospital services
(as long as other criteria for a bed to be
considered as an available bed are met
under § 412.105(b)). A bed used for
inpatient hospice services on a given
day is not available to be used for IPPSlevel services. Therefore, we are
proposing to revise § 412.105(b)(4) to
state that such hospice days are
excluded from the counts of available
beds for purposes of the IME payment
adjustment. Because the same rules
govern the counting of available beds for
purposes of the DSH payment
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adjustment under § 412.106(a)(1)(i),
hospice days will also be excluded from
the count of available beds for purposes
of the DSH payment adjustment.
We note that there is a circumstance
in which a hospital will provide IPPSlevel acute care hospital services to a
hospice patient for which it would
receive payment under the IPPS. This
occurs when a Medicare beneficiary
receiving hospice care under his or her
hospice benefit requires acute care
hospital services to treat a condition
unrelated to his or her hospice plan of
care. For example, an individual who
has elected the hospice benefit could be
treated in the inpatient hospital setting
for a broken bone that is unrelated to his
or her terminal illness. Under these
circumstances, the patient is receiving
acute care hospital services of the sort
payable under the IPPS. As such,
consistent with § 412.106(a)(ii), we are
not proposing to exclude these patient
days from the Medicare and Medicaid
fractions of the DPP or from the count
of available beds under § 412.105(b)(4)
and § 412.106(a)(1)(i).
We further note that hospitals may
have hospice units that are separate and
distinct from their acute care inpatient
units. Under existing regulations at
§ 412.105(b)(3) and § 412.106(a)(ii)(A),
services provided in distinct nonacute
inpatient units are excluded from the
patient day and bed day count. Our
proposal with respect to inpatient
hospice services does not change or
affect this policy.
In summary, we are proposing to
exclude inpatient hospice days from the
patient day count in § 412.106(a)(1)(ii)
(for DSH) and the bed day count at
§ 412.105(b) (for IME) and at
§ 412.106(a)(1)(i) (for DSH).
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H. Medicare-Dependent, Small Rural
Hospitals (MDHs) (§ 412.108)
1. Background
Under the IPPS, separate special
payment protections are provided to a
Medicare-dependent, small rural
hospital (MDH). MDHs are paid based
on the higher of the Federal rate for
their hospital inpatient services or a
blended rate based in part on the
Federal rate and in part on the MDH’s
hospital-specific rate. 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 (that
is, not less than 60 percent of its
inpatient days or discharges either in its
1987 cost reporting year or in two of its
most recent three settled Medicare cost
reporting years). The regulations at 42
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CFR 412.108 set forth the criteria that a
hospital must meet to be classified as an
MDH.
Although MDHs are paid under an
adjusted payment methodology, they are
still IPPS hospitals paid under section
1886(d) of the Act. Like all IPPS
hospitals paid under section 1886(d) of
the Act, MDHs are paid for their
discharges based on the DRG weights
calculated under section 1886(d)(4) of
the Act.
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 rate based on the
hospital’s FY 1982 or FY 1987 costs per
discharge, whichever of these hospitalspecific 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
hospital-specific rate based on FY 1982,
FY 1987, or FY 2002 costs per
discharge, whichever of these hospitalspecific rates is highest.
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 accurately forecast the
outlier payments, 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 hospitalspecific rate. The fiscal intermediary or
MAC makes a final adjustment at the
settlement of the cost report 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
determination in accordance with the
procedures set forth in 42 CFR Part 405,
Subpart R, which govern provider
payment determinations and appeals.
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2. Extension of the MDH Program
As we discussed in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50286 and
50287), section 3124 of the Affordable
Care Act extended the MDH program
from the end of FY 2011 (that is, for
discharges occurring before October 1,
2011) to the end of FY 2012 (that is, for
discharges occurring before October 1,
2012). Under prior law, as specified in
section 5003(a) of Public Law 109–171
(DRA 2005), the MDH program was to
be in effect through the end of FY 2011
only. Section 3124(a) of the Affordable
Care Act amended sections
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II)
of the Act to extend the MDH program
and payment methodology from the end
of FY 2011 to the end of FY 2012, by
striking ‘‘October 1, 2011’’ and inserting
‘‘October 1, 2012’’. Section 3124(b) of the
Affordable Care Act also made
conforming amendments to sections
1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of
the Act. Section 3124(b)(2) of the
Affordable Care Act also amended
section 13501(e)(2) of OBRA 1993 to
extend the provision permitting
hospitals to decline reclassification as
an MDH through FY 2012. In the FY
2011 IPPS/LTCH PPS final rule (75 FR
50287 and 50414), we amended the
regulations at § 412.108(a)(1) and
(c)(2)(iii) to reflect the statutory
extension of the MDH program through
FY 2012. We are not proposing any
additional changes to this regulatory
text for FY 2012.
I. Certified Registered Nurse Anesthetist
(CRNA) Services Furnished in Rural
Hospitals and CAHs (§ 412.113)
Section 2312 of the Deficit Reduction
Act of 1984 (Pub. L. 98–369) provided
for reimbursement to hospitals on a
reasonable cost basis for the costs that
hospitals incur in connection with the
services of certified registered nurse
anesthetists (CRNAs). Section 2312(c)
provided that pass-through payment of
CRNA costs was effective for cost
reporting periods beginning on or after
October 1, 1984, and before October 1,
1987. Section 9320 of the Omnibus
Budget Reconciliation Act of 1986 (Pub.
L. 99–509) (which established a fee
schedule for the services of nurse
anesthetists) amended section 2312(c) of
Public Law 98–369 by extending the
CRNA pass-through provision through
cost reporting periods beginning before
January 1, 1989. In addition, Public Law
99–509 amended section 1861 of the Act
to add a new subsection (bb), which
provides that CRNA services include
anesthesia services and related care
furnished by a CRNA. Section 608 of the
Family Support Act of 1988 (Pub. L.
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100–485) extended pass-through
payments for CRNA services through
1991 and amended section 9320 of
Public Law 99–509 by including
language referring to eligibility for passthrough payments for CRNA services if
the facility is ‘‘* * *a hospital located
in a rural area (as defined for purposes
of section 1886(d) of the Social Security
Act).’’ Reasonable cost-based payment
for CRNA services was extended
indefinitely by section 6132 of the
Omnibus Budget Reconciliation Act of
1989 (Pub. L. 101–239).
Section 1886(d) of the Act defines
‘‘rural’’ as any area outside an urban
area. This definition of ‘‘rural’’ was in
effect when Public Law 100–485 was
implemented. In 1999, the Balanced
Budget Refinement Act (Pub. L. 106–
113) amended section 1886(d)(8) of the
Act by adding a new subparagraph (E),
which permits a hospital physically
located in an urban area to apply for
reclassification to be treated as rural. In
addition, Public Law 106–113 made a
corresponding change to section
1820(c)(2)(B)(i) of the Act, which
specifies the rural location requirement
for CAH designation, by adding the
phrase ‘‘or is treated as being located in
a rural area pursuant to section
1886(d)(8)(E).’’
The regulations implementing passthrough payments for anesthesia
services and related care furnished by
qualified nonphysician anesthetists
employed by a hospital or CAH,
including CRNAs, are located at
§ 412.113(c). In the FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 24010), we
proposed to revise § 412.113(c)(2)(i)(A)
to state that, effective for cost reporting
periods beginning on or after October 1,
2010, CAHs and hospitals that have
reclassified pursuant to section
1886(d)(8)(E) of the Act and § 412.103 of
the regulations also are rural for
purposes of section 1886(d) of the Act
and, therefore, are eligible to be paid
based on reasonable cost for anesthesia
services and related care furnished by a
qualified nonphysician anesthetist.
After consideration of the public
comments, in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50303), we
adopted a policy that would allow
otherwise eligible critical access
hospitals (CAHs) or hospitals, that have
reclassified from urban to rural status
under section 1886(d)(8)(E) of the Act
and 42 CFR 412.103, to receive
reasonable cost payments for anesthesia
services and related care furnished by
qualified nonphysician anesthetists
(also referred to in this section as CRNA
pass-through payments), effective for
cost reporting periods beginning on or
after October 1, 2010. After the issuance
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of the final rule, we received an inquiry
from a public commenter who indicated
that CMS had misunderstood its
submitted comment on the FY 2011
IPPS/LTCH PPS proposed rule in which
the commenter stated that the policy
should be effective on the basis of a
calendar year, not a cost reporting
period, since as a rule a hospital can
only begin receiving CRNA passthrough payments at the beginning of a
calendar year. Our response to this
public comment in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50303)
indicated that it was unnecessary to
modify the effective date in the final
rule because ‘‘if the provision is effective
for cost reporting periods beginning on
or after October 1, 2010, it will also be
in effect for the calendar year beginning
January 1, 2011.’’ While this statement
was accurate, it did not take into
account that if a hospital’s cost
reporting period begins on or after
January 1, 2011, the hospital would be
ineligible to receive CRNA pass-through
payments until the beginning of the next
calendar year, on January 1, 2012.
Under the finalized policy in the FY
2011 IPPS/LTCH PPS final rule,
hospitals reclassifying from urban to
rural areas with cost reporting periods
beginning between October 1, 2010, and
December 31, 2010, would be able to
first receive CRNA pass-through
payments effective January 1, 2011,
while hospitals with cost reporting
periods beginning on or after January 1,
2011, would not be able to receive
CRNA pass-through payments until one
year later on January 1, 2012.
In an interim final rule with comment
period included in the Federal Register
on November 24, 2010 (75 FR 72256),
we stated that our intention in the FY
2011 IPPS/LTCH PPS final rule was not
to make the provision for CRNA passthrough payment for anesthesia services
and related care furnished by
nonphysician anesthetists effective
January 1, 2011, for some hospitals and
CAHs and January 1, 2012, for other
hospitals and CAHs. We stated our
belief that the provision would be more
equitable if it had a uniform effective
date for all eligible hospitals and CAHs.
While we considered changing the
effective date to January 1, 2011, for all
hospitals and CAHs to begin receiving
CRNA pass-through payments under
this provision, we noted that our
regulations at 42 CFR 412.113(c)(2)(iii)
state that the hospital or CAH must
demonstrate to its fiscal intermediary
prior to the start of the calendar year
that it meets the requirements for
receiving CRNA pass-through payments.
For this reason, we stated our belief that
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25945
the best option was to adopt an effective
date of December 2, 2010, for all
hospitals and CAHs, which we provided
for in the interim final rule with
comment period. With an effective date
of December 2, 2010, all hospitals and
CAHs regardless of their specific fiscal
year beginning date were provided the
opportunity to demonstrate prior to
January 1, 2011, that they met the
requirements for receiving CRNA passthrough payments beginning January 1,
2011. In the interim final rule with
comment period, we amended the
regulations at § 412.113(c)(2)(i)(A) to
provide for an effective date of
December 2, 2010, for all eligible
hospitals and CAHs to receive CRNA
pass-through payments for anesthesia
services and related care furnished by
qualified nonphysician anesthetists.
We intend to respond to public
comments received on the interim final
rule with comment period and will
adopt our final policy in the FY 2012
IPPS/LTCH PPS final rule.
J. Additional Payments for Qualifying
Hospitals With Lowest per Enrollee
Medicare Spending
1. Background
Section 1109 of the Affordable Care
Act requires additional payments for
FYs 2011 and 2012 for ‘‘qualifying
hospitals.’’ Section 1109(d) defines a
‘‘qualifying hospital’’ as a ‘‘subsection (d)
hospital * * * that is located in a
county that ranks, based upon its
ranking in age, sex and race adjusted
spending for benefits under parts A and
B * * * per enrollee within the lowest
quartile of such counties in the United
States.’’ Therefore, a ‘‘qualifying
hospital’’ is one that meets the following
conditions: (1) It is a ‘‘subsection (d)
hospital’’ as defined in section
1886(d)(1)(B) of the Act; and (2) it is
located in a county that ranks within the
lowest quartile of counties based upon
its spending for benefits under Medicare
Part A and Part B per enrollee adjusted
for age, sex, and race. Section 1109(b) of
the Affordable Care Act makes available
$400 million to qualifying hospitals for
FY 2011 and FY 2012. Section 1109(c)
of the Affordable Care Act requires the
$400 million to be divided among each
qualifying hospital in proportion to the
ratio of the individual qualifying
hospital’s FY 2009 IPPS operating
hospital payments to the sum of total FY
2009 IPPS operating hospital payments
made to all qualifying hospitals.
Section 1109 is one of several
provisions in the Affordable Care Act
that addresses concerns about how
Medicare makes adjustments for
geographic differences in the cost of
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providing services and geographic
variation in the volume and intensity of
health care spending. Some other
provisions in the Affordable Care Act
that relate to concerns about geographic
variation in Medicare payments include:
• Section 3102(a), which provides a
floor of 1.0 on the physician fee
schedule work geographic practice cost
index (GPCI) through the end of CY
2010 (later extended by the Medicare
and Medicaid Extension Act of 2010
through the end of CY 2011);
• Section 3102(b), as amended by
section 1108 of the Affordable Care Act,
which requires that only one-half of the
relative cost differences in employee
wages and office rents be reflected in
the practice expense GPCIs in 2010 and
2011;
• Section 10324, which provides for a
floor on the wage index and the practice
expense GPCI in frontier States (defined
as 50 percent or more of the counties in
the State having a population density of
less than six people per square mile).
These provisions provide temporary
adjustments in payments while other
initiatives are underway to evaluate
geographic adjustment factors that are
used in Medicare’s payment systems.
For instance, section 3101 of the
Affordable Care Act requires the
Secretary, not later than January 1, 2012,
to make appropriate adjustments to the
practice expense GPCI considering
alternative data sources such as the
American Community Survey for the
nonphysician employee portion of the
GPCI. Section 3137 of the Affordable
Care Act requires the Secretary to
submit to Congress a report that
includes a plan to reform the hospital
wage index system under section 1886
of the Act by December 31, 2011. In
addition to these provisions, the
Secretary has contracted with the
Institute of Medicine (IOM) to study the
hospital wage index and the physician
fee schedule GPCI. The IOM’s first
report to CMS is due in May 2011 and
will provide an evaluation and
assessment of:
(1) The empirical validity of the
adjustment factors (the hospital wage
index and physician fee schedule GPCI);
(2) The methodology used to
determine the adjustment factors;
(3) Measures used for the adjustment
factors, taking into account—
• Timeliness of data and frequency of
revisions to such data;
• Sources of data and the degree to
which such data are representative of
costs; and
• Operational costs of providers who
participate in Medicare.
The report will include
recommendations for the Secretary to
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consider. We are looking forward to
receiving IOM’s report and acting
expeditiously on its recommendations
to improve Medicare’s payment systems
and better adjust for geographic
differences in the cost of hospital labor
as well as the cost of operating a
physician practice.
2. Methodology for Identifying
Qualifying Hospitals and Eligible
Counties
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50303 through 50342), we
finalized our methodology for
distributing the $400 million to
qualifying hospitals located in the
lowest quartile of counties in per
enrollee Medicare spending. First, we
provided our methodology for
determining the bottom quartile of
counties with the lowest Medicare Part
A and Part B spending adjusted by age,
sex, and race for the purpose of
disbursing the available $400 million.
We developed an adjustment model by
age, sex, and race, as required under the
provisions of section 1109. We then
applied this adjustment to the county
Medicare Part A and Part B spending
data to account for the demographics of
the Medicare beneficiaries in those
counties. After those adjustments were
applied, we determined the Medicare
Part A and Part B spending by county
per enrollee. As we explained in the
final rule, our methodology for
determining the Medicare Part A and
Part B spending per enrollee by county
adjusted for age, sex, and race is similar
to the methodology we use to calculate
risk adjustment models for Medicare
Advantage (MA) ratesetting. For more
information on the methodology we
used to calculate the county Medicare
per enrollee spending rates, we refer
readers to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50303 through 75 FR
50307).
In addition, in the FY 2011 IPPS/
LTCH PPS final rule, we developed a
methodology to identify the qualifying
hospitals located in each of the eligible
counties. As we stated earlier, section
1109 defines a qualifying hospital is a
‘‘subsection (d) hospital’’ (as defined for
purposes of section 1886(d) of the Act)
that is ‘‘located in’’ an eligible county. A
subsection (d) hospital is defined in
section 1886(d)(1)(B) of the Act, in part,
as a ‘‘hospital located in one of the 50
States or the District of Columbia.’’
Therefore, we excluded Puerto Rico
hospitals and CAHs from the provisions
of section 1109 because they do not
meet the definition of a ‘‘subsection (d)
hospital.’’
In the FY 2011 IPPS/LTCH PPS final
rule, we identified ‘‘qualifying
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hospitals’’ based on their Medicare
provider number (now referred to as the
‘‘CMS certification number’’ (CCN))
because this number is used by
hospitals to identify themselves on their
Medicare cost reports. We also provided
that, in order to meet the definition of
a ‘‘qualifying hospital,’’ the hospital, as
identified by its CCN, must: (1) Have
existed as a subsection (d) hospital as of
April 1, 2010; (2) be geographically
located in an eligible county; and (3)
have received IPPS operating payments
(in accordance with section 1886(d)) of
the Act) under its CCN in FY 2009. We
used the Online Survey, Certification
and Reporting (OSCAR) database to
determine a hospital’s county location
associated with that CCN. We also
specified that the address listed for a
hospital’s CCN must be currently
located in a qualifying county in order
for a hospital to meet the definition of
a ‘‘qualifying hospital.’’ For more
information on how we identified the
qualifying hospitals, we refer readers to
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50307 and 50308). We note that
we are proposing to clarify the
application of our definition in section
IV.J.4. of this preamble.
3. Determination of Annual Payment
Amounts
The third step in the implementation
of section 1109 of the Affordable Care
Act required that we determine the
payment amount that each qualifying
hospital would receive. Specifically,
section 1109(c) of the Affordable Care
Act required that the payment amount
for a qualifying hospital be determined
‘‘in proportion to the portion of the
amount of the aggregate payments under
section 1886(d) of the Social Security
Act to the hospital for fiscal year 2009
bears to the sum of all such payments
to all qualifying hospitals for such fiscal
year.’’ As specified in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50310
through 50312), we determined that a
qualifying hospital’s payment amount
will be based on the proportion of its
IPPS operating payments made in FY
2009 under section 1886(d) of the Act
relative to the total IPPS operating
payments made to all qualifying
hospitals in FY 2009 under section
1886(d) of the Act. The FY 2009 IPPS
operating payments made under section
1886(d) of the Act includes DRG and
wage-adjusted payments made under
the IPPS standardized amount with addon payments for operating DSH,
operating IME, operating outliers, and
new technology (collectively referred to
in this preamble as the IPPS operating
payment amount). We used the March
2010 update of the FY 2009 MedPAR
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two newly added counties. We stated
that if we added qualifying hospitals in
these counties as a result of accurate
notification from the public, we would
publish a revised list of qualifying
hospitals and their payment weighting
factors on the CMS Web site after
August 30, 2010. We did not receive any
public comments that there were
qualifying hospitals located in Crooks
County, OR or Bottineu County, ND.
Therefore, the list of eligible counties
and qualifying hospitals that was
finalized in Tables 1 and 2 in the FY
2011 IPPS/LTCH PPS final rule
remained valid for distribution of
payments under section 1109 for FY
2011 and FY 2012.
In auditing our determination of
qualifying hospitals prior to the
distribution of payments for FY 2011,
we found that the following providers
on the list of qualifying hospitals which
we finalized in the FY 2011 IPPS/LTCH
PPS final rule were not subsection (d)
hospitals in FY 2011:
Because these providers were not
subsection (d) hospitals in FY 2011, the
statute precludes them from being
qualifying hospitals eligible to receive
section 1109 payments for FY 2011. We
are proposing to clarify in this proposed
rule that, in applying our definition of
qualifying hospitals for making
payments under section 1109 of the
Affordable Care Act, these 11 providers
(and other providers that do not meet
the statutory definition) are not
qualifying hospitals and, therefore,
should be removed from the list of
qualifying hospitals. Furthermore, we
are proposing to clarify that, in order to
meet the definition of ‘‘qualifying
hospital’’ under section 1109 for FY
2012, a hospital that is on the list of
qualifying hospitals in this proposed
rule must meet the statutory criteria of
a ‘‘qualifying hospital’’ for some portion
of FY 2012 (a hospital must be a
subsection (d) hospital for some part of
FY 2012).
In addition, we note that, prior to the
issuance of the FY 2012 final rule and
prior to making section 1109 payments
for FY 2012, we intend to review
`
providers’ status vis-a-vis the statutory
definition of qualifying hospital.
Accordingly, we note that, in the FY
2012 final rule and again prior to
distribution of section 1109 payments
for FY 2012, we will update the list of
qualifying hospitals and payment
weighting factors based on these
findings. In addition to the opportunity
to submit comments on this proposed
rule, we are proposing to provide
hospitals an opportunity after the FY
2012 IPPS rulemaking cycle to notify
CMS whether any qualifying hospitals
removed from the list have been
removed in error and to notify CMS if
a hospital is on the list of qualifying
hospitals and will not be a qualifying
hospital (for example, a subsection (d)
hospital) for any or all part of FY 2012.
The public may submit input on these
two topics via e-mail to Nisha Bhat,
nisha.bhat@cms.hhs.gov. All
information, including relevant
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4. Eligible Counties and Qualifying
Hospitals
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In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50312 through 50342), we
published the list of eligible counties,
that is, the lowest quartile of counties
with Medicare Part A and Part B
spending per enrollee adjusted for age,
sex, and race, the qualifying hospitals
located in those counties, and the
qualifying hospitals’ payment weighting
factors, for purposes of making
payments under section 1109 for FY
2011 and FY 2012. We identified 3,142
counties in the United States. Therefore,
there are 786 eligible counties (rounded
from 785.5 eligible counties). Of those
786 eligible counties, there are only 273
counties in which qualifying hospitals
are located, using the methodology that
we finalized in the FY 2011 IPPS/LTCH
PPS final rule. Using CCNs, we
identified 416 IPPS hospitals that are
currently located in those eligible
counties and that received IPPS
operating payments in FY 2009.
In response to public comments on
the FY 2011 IPPS/LTCH PPS proposed
rule, in the FY 2011 IPPS/LTCH PPS
final rule, we corrected the list of
eligible counties by replacing two
counties on our list of eligible counties
(adding Crooks County, OR and
Bottineu County, ND). However, we did
not identify any qualifying hospitals
located in those two eligible counties.
Therefore, we provided the public an
opportunity to notify CMS by August
30, 2010, if there were any qualifying
IPPS hospitals located in either of the
hospital inpatient claims data to
determine the IPPS operating payment
amounts for each qualifying hospital in
order to calculate the proportion of
money that each qualifying hospital
would receive under this provision. For
more information on the methodology
we used to calculate the payment
determinations, we refer readers to the
FY 2011 IPPS/LTCH PPS final rule (75
FR 30310 through 75 FR 50312).
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documentation, must be received by
November 1, 2011.
5. Payment Determinations and
Distributions for FY 2011 and FY 2012
Under section 1109(b) of the
Affordable Care Act, the total pool of
payments available to qualifying
hospitals for FY 2011 and FY 2012 is
$400 million. In the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50308
through 50310), we stated that we
would distribute $150 million for FY
2011 and $250 million for FY 2012. We
stated that we would distribute
payments to the qualifying hospitals
through an annual one-time payment
during each of FY 2011 and FY 2012
through their Medicare contractor (fiscal
intermediary or MAC). We instructed
qualifying hospitals to report these
additional payments on their Medicare
hospital cost report corresponding to the
appropriate cost reporting period that
the hospitals receive the payments and
that hospitals should report these
payments on the ‘‘Other adjustment’’
line on Worksheet E, Part A of the
Medicare hospital cost report Form
2552. We noted that we require these
payments to be reported on the cost
report for tracking purposes only and
that these additional payments will not
be adjusted or settled by the fiscal
intermediary or MAC on the cost report.
At the time of the issuance of this FY
2012 proposed rule, we have not yet
made the payments to the qualifying
hospitals for FY 2011. As we stated in
the FY 2011 IPPS/LTCH PPS final rule,
we will make the FY 2011 payments
during FY 2011 (that is, by September
30, 2011). However, in this proposed
rule, we are notifying the public that we
intend to change the method we will
use to distribute the payment for FY
2011 and FY 2012, in order to ease the
reporting burden on hospitals. Rather
than making a one-time annual payment
to the qualifying hospitals through their
Medicare contractor using the Medicare
cost report, we plan to make payments
to the qualifying hospitals through a
one-time annual payment made by one
Medicare contractor who would directly
pay all of the qualifying hospitals. We
will send each qualifying hospital a
letter stating the specifics of how the
hospital will receive its payments.
Because these one-time annual
payments would be made through a
special process outside of the scope of
normal payments by their Medicare
contractor, the hospitals’ Medicare
contractor would no longer need to
track the payment amounts made to the
hospitals under this provision. We
believe this will simplify and expedite
the payment process so that one
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Medicare contractor is responsible for
overseeing the distribution of payments.
In addition, this simplified process will
ease the administrative burden within
CMS to track that payments have been
properly made to the qualifying
hospitals. In addition, the burden to
hospitals is reduced because hospitals
would no longer have to report these
additional payments on their Medicare
hospital cost report corresponding to the
appropriate cost reporting period for
which the hospitals receive payments in
FY 2011 or FY 2012 (as we instructed
in the FY 2011 IPPS/LTCH PPS final
rule and note above).
In the FY 2011 IPPS/LTCH PPS final
rule, we also stated that we would make
only one determination of eligible
counties and qualifying hospitals for FY
2011 and FY 2012, with the caveat that
we would accept additional public
input on the limited issue of whether
there are any qualifying hospitals in the
two newly identified eligible counties.
As we stated earlier, we did not receive
any public input on qualifying hospitals
for the two newly identified eligible
counties. However, as we describe
above, 11 hospitals that were included
on the list of qualifying hospitals do not
meet the statutory criteria in section
1109 of the Affordable Care Act.
Therefore, we are proposing to revise
our list of qualifying hospitals and their
payment weighting factors finalized in
the FY 2011 IPPS/LTCH PPS final rule
to exclude these 11 providers. As
explained in the FY 2011 IPPS/LTCH
PPS final rule, we finalized in that rule
(to the best of our ability) the list of
eligible counties and qualifying
hospitals once for ease of
implementation of the section 1109
provision and to allow hospitals to plan
their budgets accordingly. The proposed
revision of our determination to exclude
these 11 providers will result in changes
to the payment weighting factors. We
are proposing to update the payment
weighting factors accordingly.
Therefore, we are proposing to
distribute the remaining $250 million in
FY 2012 to those qualifying hospitals
proposed in this proposed rule based on
payment weighting factors proposed in
this proposed rule. In addition, in order
to distribute the section 1109 payments
for FY 2011 in as timely a manner as
possible, we intend to make preliminary
section 1109 payments for FY 2011
using this proposed list of qualifying
providers and payment weighting
factors using the payment method
described above. If additional hospitals
are deleted from the proposed list of
qualifying hospitals for FY 2011 because
they do not meet the statutory criteria,
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the payment weighting factors would
need additional revision. If this
situation occurs, we are proposing to
further amend the payment weighting
factors for payments to be made in FY
2012 so that each qualifying hospital
receives its appropriate share of the total
$400 million.
We refer readers to the CMS Web site
at: https://www.cms.gov/
AcuteInpatientPPS/TopOfPage for the
tables listed below. The tables are
included collectively as the ‘‘Section
1109 Files’’ for the FY 2012 IPPS/LTCH
proposed rule.
• The final list of eligible counties
that was published in the FY 2011 IPPS/
LTCH PPS final rule. We note that we
are not updating this table.
• The proposed list of qualifying
hospitals, location, and payment
weighting factors (based on the March
2010 update of the FY 2009 MedPAR);
based on the clarifications proposed
above.
• The distribution of the $400 million
for FY 2011 and FY 2012 by State based
on the proposed list of qualifying
hospitals, location, and payment
weighting factors.
We note that the Web address for this
Web site is effective as of the date of
publication of this proposed rule and
that, in the future, these tables may be
archived to the Web site at: https://
www.cms.gov/AcuteInpatientPPS/FFD/
list.asp#TopOfPage.
K. Proposed Changes in the Inpatient
Hospital Update
1. FY 2012 Inpatient Hospital Update
In accordance with section
1886(b)(3)(B)(i) of the Act, each year we
update the national standardized
amount for inpatient operating costs by
a factor called the ‘‘applicable
percentage increase.’’ Prior to enactment
of the Affordable Care Act, section
1886(b)(3)(B)(i)(XX) of the Act set the
applicable percentage increase equal to
the rate-of-increase in the hospital
market basket for subsection (d)
hospitals (hereafter referred to as ‘‘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 did not provide these
data, the update was equal to the market
basket percentage increase less an
additional 2.0 percentage points. The
update for the hospital-specific rates for
SCHs and MDHs is set by section
1886(b)(3)(B)(iv) of the Act as discussed
further below.
As discussed below in section IV.K.3.
of this preamble, section 1886(b)(3)(B)
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of the Act, as amended by sections
3401(a) and 10319(a) of the Affordable
Care Act, sets the applicable percentage
increase under the IPPS for FY 2012 as
equal to the rate-of-increase in the
hospital market basket for IPPS
hospitals in all areas (which is currently
based on the first quarter 2011 forecast
of the FY 2006-based IPPS market
basket), subject to a reduction of 2.0
percentage points if the hospital fails to
submit quality information under rules
established by the Secretary in
accordance with section
1886(b)(3)(B)(viii) of the Act, and then
subject to an adjustment based on
changes in economy-wide productivity
(the multifactor productivity (MFP)
adjustment), and an additional
reduction of 0.1 percentage point.
Sections 1886(b)(3)(B)(xi) and
(b)(3)(B)(xii) of the Act, as added by
section 3401(a) of the Affordable Care
Act, state that application of the MFP
adjustment and the additional FY 2012
adjustment of 0.1 percentage point may
result in the applicable percentage
increase being less than zero.
In accordance with section
1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care
Act, we are proposing an MFP
adjustment (the 10-year moving average
of MFP for the period ending FY 2012)
of 1.2 percent, which is calculated as
described below in section IV.K.3. of
this preamble, based on IHS Global
Insight, Inc.’s (IGI’s) first quarter 2011
forecast.
Consistent with current law, and
based on IGI’s first quarter 2011 forecast
of the FY 2012 market basket increase,
we are proposing an applicable
percentage increase to the FY 2012
operating standardized amount of 1.5
percent (that is, the FY 2012 estimate of
the market basket rate-of-increase of 2.8
percent less an adjustment of 1.2
percentage points for economy-wide
productivity and less 0.1 percentage
point) 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 are proposing an applicable
percentage increase to the operating
standardized amount of ¥0.5 percent
(that is, the FY 2012 estimate of the
market basket rate-of-increase of 2.8
percent, less 2.0 percentage points for
failure to submit quality data, less an
adjustment of 1.2 percentage points for
economy-wide productivity, and less an
additional adjustment of 0.1 percentage
point).
We are proposing to revise the
existing regulations at 42 CFR 412.64(d)
to reflect the current law. Specifically,
in accordance with section 1886(b)(3)(B)
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of the Act, as amended by sections
3401(a) and 10319(a) of the Affordable
Care Act, we are proposing to add a new
paragraph (iv) to § 412.64(d)(1) to set the
applicable percentage increase to the FY
2012 operating standardized amount as
the percentage increase in the market
basket index, subject to a reduction of
2.0 percentage points if the hospital fails
to submit quality information under
rules established by the Secretary in
accordance with section
1886(b)(3)(B)(viii) of the Act, and then
subject to a multifactor productivity
adjustment and, lastly, subject to the
additional reduction of 0.1 percentage
point.
Section 1886(b)(3)(B)(iv) of the Act
provides that the applicable percentage
increase to the hospital-specific rates for
SCHs and MDHs equals the applicable
percentage increase 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). Therefore,
the update to the hospital specific rates
for SCHs and MDHs is also subject to
section 1886(b)(3)(B)(i) of the Act, as
amended by sections 3401(a) and
10319(a) of the Affordable Care Act.
Accordingly, we are proposing an
update to the hospital-specific rates
applicable to SCHs and MDHs of 1.5
percent for hospitals that submit quality
data or ¥0.5 percent for hospitals that
fail to submit quality data. For FY 2012,
the regulations in §§ 412.73(c)(16),
412.75(d), 412.77(e), 412.78(e), and
412.79(d) already contain provisions
that set the update factor for SCHs and
MDHs equal to the update factor applied
to the national standardized amount for
all IPPS hospitals. Therefore, we are not
proposing to make further changes to
these five regulatory provisions to
reflect the FY 2012 update factor for
SCHs and MDHs.
2. FY 2012 Puerto Rico Hospital Update
Puerto Rico hospitals are paid a
blended rate for their inpatient
operating costs based on 75 percent of
the national standardized amount and
25 percent of the Puerto Rico-specific
standardized amount. Section
1886(d)(9)(C)(i) of the Act is the basis
for determining the applicable
percentage increase applied to the
Puerto Rico-specific standardized
amount. Section 401(c) of Public Law
108–173 amended section
1886(d)(9)(C)(i) of the Act, which states
that, for discharges occurring in a fiscal
year (beginning with FY 2004), the
Secretary shall compute an average
standardized amount for hospitals
located in any area of Puerto Rico that
is equal to the average standardized
amount computed under subclause (I)
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25949
for fiscal year 2003 for hospitals in a
large urban area (or, beginning with FY
2005, for all hospitals in the previous
fiscal year) increased by the applicable
percentage increase under subsection
(b)(3)(B) for the fiscal year involved.
Therefore, the update to the Puerto
Rico-specific operating standardized
amount equals the applicable
percentage increase set forth in section
1886(b)(3)(B)(i) of the Act, as amended
by sections 3401(a) and 10319(a) of the
Affordable Care Act (that is, the same
update factor as for all other hospitals
subject to the IPPS). Accordingly, we are
proposing an applicable percentage
increase to the Puerto Rico-specific
operating standardized amount of 1.5
percent. For FY 2012, under the
authority of section 1886(d)(9)(C)(i) of
the Act, as amended by section 401(c)
of Public Law 108–173, we are
proposing to revise the existing
regulations at § 412.211(c) to set the
update factor for the Puerto Ricospecific operating standardized amount
equal to the update factor applied to the
national standardized amount for all
IPPS hospitals.
3. Productivity Adjustment
Section 3401(a) of the Affordable Care
Act amends section 1886(b)(3)(B) of the
Act to require certain adjustments to the
‘‘applicable percentage increase’’ to the
operating IPPS. One such change is to
require that, in FY 2012 (and in
subsequent fiscal years), the applicable
percentage increase be annually
adjusted by changes in economy-wide
productivity. Section
1886(b)(3)(B)(xi)(II) of the Act, as added
by section 3401(a) of the Affordable
Care Act, defines this productivity
adjustment as equal to the 10-year
moving average of changes in annual
economy-wide, private nonfarm
business multifactor productivity (MFP)
(as projected by the Secretary for the 10year period ending with the applicable
fiscal year, calendar year, cost reporting
period, or other annual period) (the
‘‘MFP adjustment’’). The Bureau of Labor
Statistics (BLS) is the agency that
publishes the official measure of private
nonfarm business MFP. We refer readers
to the BLS Web site at: https://
www.bls.gov/mfp to obtain the BLS
historical published MFP data.
The projection of MFP is currently
produced by IHS Global Insight, Inc.
(IGI), an economic forecasting firm. In
order to generate a forecast of MFP, IGI
replicated the MFP measure calculated
by the BLS using a series of proxy
variables derived from its U.S.
macroeconomic models. These models
take into account a broad range of
factors that influence the total U.S.
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according to the BLS methodology. In
Table IV.K.1 below, we identify each of
the major MFP component series
employed by the BLS to measure MFP.
We also provide the corresponding
concepts forecasted by IGI and
determined by IGI and CMS to be the
best available proxies for the BLS series.
IGI found that the historical growth
rates of the BLS components used to
calculate MFP and the IGI components
identified are consistent across all series
and, therefore, suitable proxies for
calculating MFP. We have included
below a more detailed description of the
methodology used by IGI to construct a
forecast of MFP, which is aligned
closely with the methodology employed
by the BLS. For more information
regarding the BLS method for estimating
productivity, we refer readers to the BLS
Web site at: https://www.bls.gov/mfp/
mprtech.pdf.
At the time of the development of this
proposed rule, the BLS had published a
historical time series of private nonfarm
business MFP for 1987 through 2009,
with 2009 being a preliminary value.
Using this historical MFP series and the
IGI forecasted series, the IGI had
developed a forecast of MFP for 2010
through 2021, as described below.
To create a forecast of BLS’ MFP
index, the forecasted annual growth
rates of the ‘‘non-housing, nongovernment, nonfarm, real GDP,’’ ‘‘hours
of all persons in private non-farm
establishments adjusted for labor
composition,’’ and ‘‘real effective capital
stock’’ series (ranging from 2010 to 2021)
are used to ‘‘grow’’ the levels of the ‘‘real
value-added output,’’ ‘‘private nonfarm
business sector labor input,’’ and
‘‘aggregate capital input’’ series
published by the BLS. Projections of the
‘‘hours of all persons’’ measure are
calculated using the difference between
projections of the BLS index of output
per hour and real GDP. This difference
is then adjusted to account for changes
in labor composition in the forecast
interval.
Using these three key concepts, MFP
is derived by subtracting the
contribution of labor and capital inputs
from output growth. However, in order
to estimate MFP, we need to understand
the relative contributions of labor and
capital to total output growth.
Therefore, two additional measures are
needed to operationalize the estimation
of the IGI MFP projection: Labor
compensation and capital income. The
sum of labor compensation and capital
income represents total income. The
BLS calculates labor compensation and
capital income (in current dollar terms)
to derive the nominal values of labor
and capital inputs. IGI uses the
‘‘nongovernment total compensation’’
and ‘‘flow of capital services from the
total private nonresidential capital
stock’’ series as proxies for the BLS’
income measures. These two proxy
measures for income are divided by
total income to obtain the shares of
labor compensation and capital income
to total income. In order to estimate
labor’s contribution and capital’s
contribution to the growth in total
output, the growth rates of the proxy
variables for labor and capital inputs are
multiplied by their respective shares of
total income. These contributions of
labor and capital to output growth are
subtracted from total output growth to
calculate the ‘‘change in the growth rates
of multifactor productivity’’:
MFP = Total output growth—(labor
input growth * labor compensation
share) + (capital input growth * capital
income share))
The change in the growth rates (also
referred to as the compound growth
rates) of the IGI MFP are multiplied by
100 in order to calculate the percent
change in growth rates (the percent
change in growth rates are published by
the BLS for its historical MFP measure).
Finally, the growth rates of the IGI MFP
are converted to index levels based to
2005 to be consistent with the BLS’
methodology. For benchmarking
purposes, the historical growth rates of
IGI’s proxy variables were used to
estimate a historical measure of MFP,
which was compared to the historical
MFP estimate published by the BLS.
The comparison revealed that the
growth rates of the components were
consistent across all series and,
therefore, validated the use of the proxy
variables in generating the IGI MFP
projections. The resulting MFP index
was then interpolated to a quarterly
frequency using the Bassie method for
temporal disaggregation. The Bassie
technique utilizes an indicator (pattern)
series for its calculations. IGI uses the
index of output per hour (published by
the BLS) as an indicator when
interpolating the MFP index.
As described in section I. of the
Addendum to this proposed rule, we are
proposing to determine the IPPS market
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economy. IGI forecasts the underlying
proxy components such as Gross
Domestic Product (GDP), capital, and
labor inputs required to estimate MFP
and then combines those projections
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basket percentage increase for FY 2012,
which is used to determine the FY 2012
applicable percentage increase, based on
the FY 2006-based IPPS market basket.
The FY 2006-based IPPS market basket
was finalized and adopted in the FY
2010 IPPS/LTCH PPS final rule (74 FR
43843). Section 3401(a) of the
Affordable Care Act amended section
1886(b)(3)(B) of the Act in part by
adding a new clause (xi) which requires
that, after determining the applicable
percentage increase for a fiscal year,
‘‘such percentage increase shall be
reduced by the productivity adjustment
described in subclause (II)’’ (which we
refer to as the ‘‘MFP adjustment’’).
Section 1886(b)(3)(B)(i)(XX) of the Act
establishes the applicable percentage
increase for FY 2007 and each
subsequent fiscal year as equal to the
rate-of-increase (that is, the percentage
increase) in the hospital market basket
for IPPS hospitals, subject to the
hospital submitting quality data under
rules established by the Secretary in
accordance with section
1886(b)(3)(B)(viii) of the Act and to
other statutory adjustments, including
the productivity adjustment.
We are proposing that the MFP
adjustment be subtracted from the FY
2012 operating applicable percentage
increase. We are proposing that the end
of the 10-year moving average of
changes in the MFP should coincide
with the end of the appropriate FY
update period. Because the applicable
percentage increase is reduced by the
MFP adjustment, we believe it is
appropriate for the numbers associated
with both components of the calculation
(the underlying market basket
percentage increase used to determine
the applicable percentage increase and
the productivity adjustment) to line up
so that changes in market conditions are
aligned. Therefore, for the FY 2012
update, the MFP adjustment is
calculated as the 10-year moving
average of changes in MFP for the
period ending September 30, 2012. We
are proposing to round the final annual
adjustment to the one-tenth of one
percentage point level up or down as
applicable according to conventional
rounding rules (that is, if the number we
are rounding is followed by 5, 6, 7, 8,
or 9, we would round the number up;
if the number we are rounding is
followed by 0, 1, 2, 3, or 4, we would
round the number down).
In accordance with section
1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care
Act, we are proposing to base the FY
2012 market basket update used to
determine the applicable percentage
increase for the IPPS on the first quarter
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2011 forecast of the FY 2006-based IPPS
market basket, which is estimated to be
2.8 percent. This percentage increase,
subject to the hospital submitting
quality data under rules established by
the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act, is then
reduced by the proposed MFP
adjustment (the 10-year moving average
of MFP for the period ending FY 2012)
of 1.2 percent, which is calculated as
described above and based on IGI’s first
quarter 2011 forecast. We are proposing
that if more recent data are subsequently
available (for example, a more recent
estimate of the market basket and MFP
adjustment), we would use such data, if
appropriate, to determine the FY 2012
market basket update and MFP
adjustment in the final rule. Following
application of the productivity
adjustment, the applicable percentage
increase is then reduced by 0.1
percentage point, as required by section
1886(b)(3)(B)(xii) of the Act, as added
and amended by sections 3401 and
10319(a) of the Affordable Care Act (as
discussed in section I. of the Addendum
to this proposed rule).
L. Additional Payments to Hospitals
With High Percentage of End-Stage
Renal Disease (ESRD) Discharges
(§ 412.104)
Under existing regulations at
§ 412.104(a), we provide additional
Medicare payments to a hospital for
inpatient services provided to Medicare
beneficiaries with end-stage renal
disease (ESRD) who receive dialysis
during a hospital stay if the hospital’s
ESRD Medicare beneficiary discharges,
excluding certain MS–DRGs noted
below, where the beneficiary receives
dialysis during the inpatient stay, are 10
percent or more of its total Medicare
discharges. These additional payments
are intended to lessen the impact of the
added costs for hospitals that deliver
inpatient dialysis services to a high
concentration of ESRD Medicare
beneficiaries. The regulation provides
that discharges classified into MS–DRG
652 (Renal Failure), MS–DRG 682
(Renal Failure with MCC), MS–DRG 683
(Renal Failure with CC), MS–DRG 684
(Renal Failure without CC/MCC), and
MS–DRG 685 (Admit for Renal Dialysis)
are excluded from the calculation of
ESRD Medicare beneficiary discharges
for purposes of determining a hospital’s
eligibility for these additional payments.
We excluded these MS–DRGs because
they include payment for the cost of
inpatient dialysis treatments.
The current Medicare cost reporting
instructions in the Provider
Reimbursement Manual, Part II (PRM–
II), at section 3630.1, require hospitals
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to enter as the denominator of the
calculation on Line 5 ‘‘total Medicare
discharges as reported on Worksheet S–
3, Part I,’’ excluding discharges for the
dialysis MS–DRGs. As drafted, this
instruction includes only discharges for
beneficiaries enrolled in original fee-forservice Medicare in the denominator of
the calculation. We are proposing to
clarify that our policy is that the term
‘‘Medicare discharges’’ used in
§ 412.104(a) refers to discharges of all
beneficiaries entitled to Medicare Part
A. Discharges associated with
individuals entitled to Medicare Part A
include discharges of individuals
receiving benefits under original
Medicare, discharges of individuals
whose inpatient benefits are exhausted
or whose stay was not covered by
Medicare, and discharges for
individuals enrolled in Medicare
Advantage Plans, cost contracts under
section 1876 of the Act (health
maintenance organizations (HMOs)) and
competitive medical plans (CMPs).
Consistent with this proposed
clarification, these discharges would be
included in the denominator of the
calculation for the purpose of
determining eligibility for the ESRD
additional payment to hospitals.
Similarly, for the numerator of this
calculation, all discharges of ESRD
beneficiaries who are entitled to
Medicare Part A and who receive
inpatient dialysis, subject to the
exclusions of certain discharges
classified into MS–DRGs 652, 682, 683,
684, and 685, would be included in the
determination of eligibility for the
additional payment to hospitals. We
intend to revise the instructions under
section 3630.1 of the Provider
Reimbursement Manual to reflect this
clarification.
M. Proposal for Changes to the
Reporting Requirements for Pension
Costs for Medicare Cost-Finding
Purposes
1. Background
Currently, certain pension costs may
be allowable costs under Medicare to
the extent such costs are related to the
reasonable and necessary cost of
providing patient care and represent
costs actually incurred. Reasonable cost
reimbursement is addressed in section
1861(v)(1)(A) of the Act. Section
1861(v)(1)(A) of the Act defines
‘‘reasonable cost,’’ in part, as the cost
actually incurred, excluding costs found
to be unnecessary in the efficient
delivery of needed health services.
Section 1861(v)(1)(A) of the Act does
not specifically address the
determination of reasonable costs, but
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authorizes the Secretary to promulgate
regulations and principles to be applied
in determining reasonable costs.
We have issued regulations
implementing this provision of the Act,
including 42 CFR 413.9(a), which
provide that the determination of
reasonable cost ‘‘must be based on the
reasonable cost of services covered
under Medicare and related to the care
of beneficiaries.’’ In addition, § 413.9(c)
requires that the provision for payment
of reasonable cost of services is
intended to meet the actual costs
incurred in providing services.
Therefore, in accordance with the
statute, the regulations include two
principles that help guide the
determination of which expenses may
be considered allowable reasonable
costs that can be paid under Medicare;
that is, such costs must be ‘‘related’’ to
the care of Medicare beneficiaries, and
such costs must actually be ‘‘incurred.’’
Consistent with these provisions, we
have issued instructions in section 2142
of the Provider Reimbursement Manual,
Part I (PRM–I) for determining and
reporting defined benefit pension costs
on the cost report for Medicare costfinding purposes. For Medicare wage
index purposes, the cost reporting
instructions in section 3605.2 of the
Provider Reimbursement Manual, Part II
(PRM–II) for Worksheet S–3, Part II,
Lines 13 through 20, require hospitals to
comply with the requirements in section
2142 of the PRM–I.
Specifically, section 2142.5 of the
PRM–I defines the current period
liability for pension cost (that is, the
maximum allowable pension cost) based
on the actuarial accrued liability,
normal cost, and unfunded actuarial
liability. Under section 2142.4(A) of
PRM–I, these liability measurements are
to be computed in accordance with the
Employee Retirement Income Security
Act of 1974 (ERISA), regardless of
whether or not the pension plan is
subject to ERISA. Also, section
2142.6(A) of the PRM–I requires the
current period liability for pension cost
to be funded in order to be allowable.
In addition, section 2142.6(C) of the
PRM–I allows for funding in excess of
the current period liability to be carried
forward and recognized in future
periods. We note that, on March 28,
2008, CMS published Revision 436, a
technical clarification to section 2142 of
the PRM–I.
Actuarial accrued liability and normal
cost are typically determined on an
ongoing plan basis using long-term,
best-estimate assumptions. The interest
assumption reflects the average rates of
return expected over the period during
which benefits were payable, taking into
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account the investment mix of plan
assets. Pension costs for plans not
subject to ERISA (such as church plans
and plans sponsored by public sector
employers) also are typically based on
the actuarial accrued liability and
normal cost using long-term, best
estimate assumptions.
The Pension Protection Act (PPA) of
2006 (Pub. L. 109–280) amended ERISA.
Under the PPA amendments to ERISA,
the actuarial accrued liability and
normal cost are no longer used as a basis
for determining ERISA minimum
required or maximum tax deductible
contributions. ERISA contribution limits
are now based on a ‘‘funding target’’ and
‘‘target normal cost’’ measured on a
settlement basis using the current
market interest rates for investment
grade corporate bonds that match the
duration of the benefit payouts. The
Internal Revenue Service (IRS)
publishes the applicable interest rate
tables on a monthly basis. Because
pension liabilities are very sensitive to
changes in the interest rate used to
discount future benefit payouts, pension
costs based on the PPA ‘‘funding target’’
and ‘‘target normal cost’’ values are
expected to be less stable than those
based on the pre-PPA traditional longterm, best-estimate assumptions, which
change infrequently. Furthermore, plans
not subject to the ERISA requirements,
as amended by the PPA, are not likely
to use the new ‘‘funding target’’ and
‘‘target normal cost’’ basis for
determining pension costs, and ERISA
plans are not likely to continue to report
costs developed using the actuarial
accrued liability and normal cost based
on long-term basis, best estimate
assumptions. Accordingly, there is no
longer a standard actuarial basis used by
all plans.
In response to the PPA amendments
to ERISA, we began a review of the rules
for determining pension costs for
Medicare cost-finding and wage index
purposes. As an interim measure, we
issued a Joint Signature Memorandum
(JSM) in November 2009 that contained
instructions and a spreadsheet to assist
hospitals and Medicare contractors in
determining the annual allowable
defined benefit pension cost for the FY
2011 wage index (JSM/TDL–10061, 11–
20–09, December 3, 2009). Although
these instructions were released for
purposes of the wage index, these
instructions also serve as interim
guidance for Medicare cost-finding
purposes.
In this proposed rule, we are
proposing to revise our policy for
determining pension cost for Medicare
purposes. As mentioned above, due to
the ERISA rules, as amended by the
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PPA, there is no longer a standard
actuarial cost basis to be used by all
types of plans. Therefore, we are
proposing to no longer rely on actuarial
computation to determine the maximum
annual cost limitation for Medicare.
Instead, the general parameters of our
proposal would maintain the current
requirement that pension costs must be
funded to be reportable, and would
require all hospitals to report the actual
pension contributions funded during
the reporting period, on a cash basis.
In addition, under this cash basis
approach, we are proposing separate
methodologies for measuring pension
costs for Medicare cost-finding purposes
(discussed below under section IV.M.2.
of this preamble) and for purposes of
updating the wage index (discussed in
section III.D.2. of this preamble). We
believe it is necessary to have two
distinct proposals in order to address
the different goals of determining a
hospital’s payments and updating the
average hourly wage to establish the
geographic area wage index. The
function of the wage index is to measure
relative hospital labor costs across areas.
This function is distinct from Medicare
payment determinations, where the goal
is to measure the actual costs incurred
by individual hospitals. These two
distinct proposals would require
separate updated instructions to section
2142 of the PRM–I for Medicare costfinding purposes and section 3605.2 of
the PRM–II for purposes of the wage
index. Below is a detailed discussion of
our proposal of a new methodology for
reporting pension costs for Medicare
cost-finding purposes. A full discussion
of our proposal for reporting pension
costs under the wage index is discussed
in section III.D.2. of this preamble.
The proposal below reflects our
commitment to the general principles of
the President’s Executive Order released
January 18, 2011, entitled ‘‘Improving
Regulation and Regulatory Review.’’
2. Proposal for Allowable Defined
Benefit Pension Plan Cost for Medicare
Cost-Finding Purposes
As mentioned above, the defined
benefit pension plan costs (hereafter
referred to as ‘‘pension costs’’) reported
for Medicare payment purposes should
reflect the actual costs incurred by an
individual provider. We are proposing
to retain the policy in the current
manual requiring pension costs to be
funded in order to be reportable. We
believe funding is an appropriate basis
because it measures the actual
expenditure towards the current period
liability for pensions. We also are
proposing to continue to limit the
current period liability for pension costs
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(that is, maximum annual allowable
pension costs). However, we are
proposing to change the methodology
for calculating the limit on the current
period liability. We are proposing that
this methodology would be effective for
cost reporting periods beginning on or
after October 1, 2011.
Specifically, we are proposing a limit
on the current period liability equal to
150 percent of the three consecutive
reporting periods out of the recent
reporting which produce the highest
average. We believe a threshold of 150
percent is appropriate for the following
reasons: First, the proposed threshold
should be adequate to allow for typical
fluctuations in contributions and for
inflation. Second, we believe a
threshold is necessary to limit the
current period liability in order to
ensure that reported pension costs are
reasonable and do not reflect excessive
or advance funding in any particular
year. In addition, the proposed limit
would help ensure that pension costs in
the current year are reasonable because
we expect the limit to capture pension
costs which relate exclusively to patient
care services furnished in the current
cost reporting period. While we are
proposing a limit, we recognize there
may be situations in which pension
costs in excess of the 150-percent limit
might be reasonable, such as a funding
requirement imposed by a third party,
that is, ERISA’s minimum funding
requirement, statute or collective
bargaining agreement. Therefore, we are
proposing a process to allow hospitals
with contributions in excess of the
proposed limit to submit documentation
demonstrating that all or a portion of the
‘‘excess’’ costs are reasonable and
necessary for a particular cost reporting
period.
The proposed 150-percent limit was
established based on an analysis of
historical contribution data submitted
by pension plans subject to ERISA and
published by the U.S. Department of
Labor (DOL). Based on our analysis of
the DOL contribution data, we expect
the limit to apply only in a small
minority of cases. We believe the use of
readily available historical contribution
data to establish the limitation will
avoid the complexity of a limitation
based on technical actuarial
measurements. A limit based on the
three consecutive reporting periods out
of the five most recent reporting periods
which produce the highest average will
help to ensure that periods when no
contributions (or only minimal
contributions) are made will not
dramatically reduce the limit in
subsequent periods.
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We believe use of a 5-year period
would minimize the administrative
burden on providers that would be
associated with a longer period. We also
believe using the three consecutive
reporting periods which produce the
highest average will better reflect a
typical average pension cost while use
of contributions for any three periods,
even nonconsecutive, could introduce
atypical results. Specifically, using the
three highest contributions in the 5-year
period may overstate the average
contribution. However, because
excessive contributions tend to reduce
future funding requirements, we believe
it would be unusual for excessive
contributions to occur in three
consecutive periods.
While we are proposing a limit, we
believe that providers’ pension costs in
excess of the 150-percent limit that are
not considered reasonable for the
current cost reporting period under the
proposed review process are likely to be
prefunded pension costs attributable to
the patient care services for a future cost
reporting period. Therefore, similar to
the current instruction in section
2142.6(C) of the PRM–I, we are
proposing to continue to use a carry
forward policy. Specifically, we are
proposing that current period
contributions in excess of the 150percent limit that are not considered
reasonable for the current cost reporting
period under the proposed review
process be carried forward and reported
in future period(s) as the applicable
limit for the future period(s) will allow.
Medicare contractors would be required
to maintain historical data in order to
determine the 150-percent limit and
track any carry forward amounts. We
anticipate making a worksheet available
for this purpose.
We are interested in public comments
as to documentation or criteria that
would be appropriate for the review
process proposed above. We also invite
public comments on this proposal and
are especially interested in receiving
public comments related to our proposal
to limit the reportable pension amount.
N. Rural Community Hospital
Demonstration Program
1. Background
Section 410A(a) of the Medicare
Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA),
Public Law 108–173, required the
Secretary to establish a demonstration
program to test the feasibility and
advisability of establishing ‘‘rural
community hospitals’’ to furnish
covered inpatient hospital services to
Medicare beneficiaries. The
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demonstration program pays rural
community hospitals for such services
under a cost-based methodology for
Medicare payment purposes for covered
inpatient hospital services furnished to
Medicare beneficiaries. A rural
community hospital, as defined in
section 410A(f)(1) of MMA, 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 under section
1820 of the Act.
Section 410A(a)(4) of Public Law 108–
173, in conjunction with paragraphs (2)
and (3) of section 410A(a), provided that
the Secretary was to select for
participation no more than 15 rural
community hospitals in rural areas of
States that the Secretary identified as
having low population densities. Using
2002 data from the U.S. Census Bureau,
we identified the 10 States with the
lowest population density in which
rural community hospitals were to be
located in order to participate in the
demonstration program: 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.)
We originally solicited applicants for
the demonstration program in May
2004; 13 hospitals began participation
with cost reporting years beginning on
or after October 1, 2004. In 2005, 4 of
these 13 hospitals withdrew from the
program and became CAHs. In a notice
published in the Federal Register on
February 6, 2008 (73 FR 6971), we
announced a solicitation for up to 6
additional hospitals to participate in the
demonstration program. Four additional
hospitals were selected to participate
under this solicitation. These four
additional hospitals began under the
demonstration program payment
methodology with the hospital’s first
cost reporting period starting on or after
July 1, 2008. At that time, there were 13
hospitals participating in the
demonstration program.
Five hospitals (3 of the hospitals were
among the 13 hospitals that were
original participants in the
demonstration program and 2 of the
hospitals were among the 4 hospitals
that began the demonstration program
in 2008) withdrew from the
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demonstration program during CYs
2009 and 2010. (Three of these hospitals
indicated that they would be paid more
for Medicare inpatient services under
the rebasing option allowed under the
SCH methodology provided for under
section 122 of the Medicare
Improvements for Patients and
Providers Act of 2008 (Pub. L. 110–275).
One hospital restructured to become a
CAH, and one hospital closed.) These
actions left 8 hospitals participating in
the demonstration program as of
November 1, 2010.
In addition, section 410A(c)(2) of
Public Law 108–173 required 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.’’ This requirement is
commonly referred to as ‘‘budget
neutrality.’’ Generally, when we
implement 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. Typically, 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 same hospitals.
In the past seven IPPS final
regulations, spanning the period for
which the demonstration program has
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been implemented, we have adjusted
the national inpatient PPS rates by an
amount sufficient to account for the
added costs of this demonstration
program, thus applying budget
neutrality across the payment system as
a whole rather than merely across the
participants in the demonstration
program. As we discussed in the FY
2005, FY 2006, FY 2007, FY 2008, FY
2009, FY 2010, FY 2011 IPPS final rules
(69 FR 49183; 70 FR 47462; 71 FR
48100; 72 FR 47392; 73 FR 48670; 74 FR
43922, and 75 FR 50343 respectively),
we believe that the language of the
statutory budget neutrality requirements
permits the agency to implement the
budget neutrality provision in this
manner. In light of the statute’s budget
neutrality requirement, we are
proposing a methodology to calculate a
budget neutrality adjustment factor to
the FY 2012 national IPPS rates.
2. Changes to the Demonstration
Program Made by the Affordable Care
Act
Sections 3123 and 10313 of the
Affordable Care Act (Pub. L. 111–148)
amended section 410A of Public Law
108–173, which established the rural
community hospital demonstration
program. Sections 3123 and 10313 of
the Affordable Care Act changed the
rural community hospital
demonstration program in several ways.
First, the Secretary is required to
conduct the demonstration program for
an additional 5-year period that begins
on the date immediately following the
last day of the initial 5-year period
under section 410A(a)(5) of Public Law
108–173, as amended (section
410A(g)(1) of Public Law 108–173, as
added by section 3123(a) of the
Affordable Care Act and further
amended by section 10313 of that Act).
Further, the Affordable Care Act
requires that, in the case of a rural
community hospital that is participating
in the demonstration program as of the
last day of the initial 5-year period, the
Secretary shall provide for the
continued participation of such rural
hospital in the demonstration program
during the 5-year extension, unless the
hospital makes an election, in such form
and manner as the Secretary may
specify, to discontinue participation
(section 410A(g)(4)(A) of Pub. L. 108–
173, as added by section 3123(a) of the
Affordable Care Act and further
amended by section 10313 of such Act).
In addition, the Affordable Care Act
provides that during the 5-year
extension period, the Secretary shall
expand the number of States with low
population densities determined by the
Secretary to 20 (section 410A(g)(2) of
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Pub. L. 108–173, as added by section
3123(a) and amended by section 10313
of the Affordable Care Act). Further, the
Secretary is required to use the same
criteria and data that the Secretary used
to determine the States under section
410A(a)(2) of Public Law 108–173 for
purposes of the initial 5-year period.
The Affordable Care Act also allows not
more than 30 rural community hospitals
in such States to participate in the
demonstration program during the
5-year extension period (section
410A(g)(3) of Public Law 108–173, as
added by section 3123(a) of the
Affordable Care Act and as further
amended by section 10313 of such Act).
Additionally, we note that we indicated
in the FY 2011 IPPS final rule (75 FR
50343) that section 410A(g)(4)(b) of
Public Law 108–173 as added by section
3123(a) of the Affordable Care Act and
as further amended by section 10313 of
that Act provides that the amount of
payment under the demonstration
program for covered inpatient hospital
services furnished in a rural community
hospital [other than services furnished
in a psychiatric or rehabilitation unit of
the hospital that is a distinct part] is the
reasonable costs of providing such
services for discharges occurring in the
first cost reporting period beginning on
or after the first day of the 5-year
extension period. We want to clarify
that we believe that section
410A(g)(4)(B) of Public Law 108–173, as
added by section 3123(a) the Affordable
Care Act and as further amended by
section 10313 of such Act, provides this
with respect to a rural community
hospital that is participating in the
demonstration program under section
410A as of the last day of the initial 5year period. Specifically, the Affordable
Care Act requires that in the case of a
rural community hospital that is
participating in the demonstration as of
the last day of the initial 5-year period,
the Secretary in calculating payments
under subsection (b) shall substitute
under paragraph (1)(A) the phrase ‘‘the
reasonable costs of providing such
services for discharges occurring in the
first cost reporting period beginning on
or after the first day of the 5-year
extension period’’ for the phrase ‘‘the
reasonable costs of providing such
services for discharges occurring in the
first cost reporting period beginning on
or after the implementation of the
demonstration.’’ The phrase ‘‘the
reasonable costs of providing such
services for discharges occurring in the
first cost reporting period beginning on
or after the implementation of the
demonstration’’ does not precisely track
the language in section 410A(b)(1)(A) of
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Public Law 108–173, therefore we
cannot delete and replace as described
in the Affordable Care Act. However, we
believe the language of section
410A(g)(4)(B)(i) of Public Law 108–173
as amended is clear. Namely, a rural
community hospital that is participating
in the demonstration as of the last day
of the initial 5-year period shall be paid
for its covered inpatient hospital
services ‘‘the reasonable costs of
providing such services for discharges
occurring in the first cost reporting
period beginning on or after the first day
of the 5-year extension period.’’ (This
methodology does not apply to services
furnished in a psychiatric or
rehabilitation unit of the hospital which
is a distinct part.) For discharges
occurring in a subsequent cost reporting
period during the demonstration, the
formula in section 410A(b)(1)(B) of
Public Law 108–173, as amended,
would apply to such hospitals. That is,
the payment will be the lesser of
reasonable cost or the target amount. We
calculate the target amount in the
second cost reporting period by taking
the reasonable costs of providing
covered inpatient hospital services in
the first cost reporting period beginning
on or after the first day of the 5-year
extension and increasing it by the IPPS
market basket percentage increase for
that particular cost reporting period. We
calculate the target amount in
subsequent cost reporting periods by
taking the preceding cost reporting
period’s target amount and increasing it
by the IPPS market basket percentage
increase for that particular cost
reporting period. (We note that in
calculating target amounts we utilize the
IPPS market basket percentage increase
as defined in section 1886(b)(3)(B)(iii),
opposed to the applicable percentage
increase as defined in section
1886(b)(3)(B)(i) of the Act. We note that
section 410A(b)(2)(B) of Public Law
108–173, in pertinent part, provides that
target amounts are ‘‘increased by the
applicable percentage increase (under
clause (i) of section 1886(b)(3)(B) of the
Social Security Act * * *) in the market
basket percentage increase (as defined
in clause (iii) of such section) for that
particular cost reporting period.’’ The
phrase ‘‘applicable percentage increase
(under clause (i) of section 1886(b)(3)(B)
of the Social Security Act * * *) in the
market basket percentage increase
* * *’’ is ambiguous as there is no
applicable percentage increase in the
market basket percentage increase.
Because the focus of the provision is the
amount of the IPPS market basket
percentage increase, we believe the
provision is addressing the IPPS market
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basket percentage increase, and not the
applicable percentage increase, which
includes other adjustments to the
market basket percentage increase.
Further, because section 410A(b)(2)(B)
of Public Law 108–173 is addressing
target amounts under the demonstration
we believed it was logical to read the
statute as providing for an update
structure mimicking the update
structure for target amounts of
reasonable cost-based providers like
children’s and cancer hospitals, as well
as RNCHIs. This rationale applies any
time we use the IPPS market basket
percentage increase to update target
amounts in the demonstration. With
respect to hospitals that are newly
joining the demonstration, they are paid
the reasonable costs of providing
covered inpatient hospital services,
other than services furnished in a
psychiatric or rehabilitation unit of the
hospital which is a distinct part, for
discharges occurring in the hospital’s
first cost reporting period beginning on
or after the implementation of the
demonstration program (section
410A(b)(1)(A) of Pub. L. 108–173). We
have determined that each of these new
hospitals will begin participating in the
demonstration with its first cost
reporting period beginning on or after
April 1, 2011. We chose this date
because it follows immediately upon the
notification of the hospitals of their
acceptance to the demonstration and it
will allow the hospitals to begin
participation in the demonstration as
soon as possible. With respect to rural
community hospitals newly joining the
demonstration, for discharges occurring
in a subsequent cost reporting period
under the demonstration program, the
formula in section 410A(b)(1)(B) of
Public Law 108–173, as amended,
would apply. That is, payments will be
the lesser amount of reasonable costs or
the target amount. We calculate the
target amount in the second cost
reporting period by taking the
reasonable costs of providing covered
inpatient hospital services in the first
cost reporting period and increasing it
by the IPPS market basket percentage
increase for that particular cost
reporting period. We calculate the target
amount in subsequent cost reporting
periods by taking the preceding cost
reporting period’s target amount and
increasing it by the IPPS market basket
percentage increase for that particular
cost reporting period. In addition,
various other technical and conforming
changes were made to section 410A of
Public Law 108–173 by section 3123(a)
of the Affordable Care Act and as further
amended by section 10313 of that Act.
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We published a solicitation for
applications for additional participants
in the Rural Community Hospital
Demonstration Program in the Federal
Register on August 30, 2010 (75 FR
52960). Applications were due on
October 14, 2010. The 20 States with the
lowest population density, which are
eligible for the demonstration program
are: Alaska, Arizona, Arkansas,
Colorado, Idaho, Iowa, Kansas, Maine,
Minnesota, Mississippi, Montana,
Nebraska, Nevada, New Mexico, North
Dakota, Oklahoma, Oregon, South
Dakota, Utah, and Wyoming (Source:
U.S. Census Bureau, Statistical Abstract
of the United States: 2003). We
approved 19 new hospitals for
participation in the demonstration
program. As of this date, we are waiting
for these hospitals to respond as to
whether they accept the terms and
conditions stipulated for their
participation in the demonstration;
therefore, it is possible that fewer than
the total of 19 will participate. We have
based cost estimates for the
demonstration for this new set of
hospitals based on the assumption that
all 19 hospitals will elect to participate.
If fewer actually make this election, we
are proposing to accordingly adjust the
demonstration cost estimates in the FY
2012 IPPS/LTCH PPS final rule.
3. Proposed FY 2012 Budget Neutrality
Adjustment
In order to ensure that the
demonstration is budget neutral as is
required by the statute, we are
proposing to adjust the national IPPS
rates in this proposed rule to account for
any added costs attributable to the
demonstration program. Specifically,
the proposed budget neutrality
adjustment would account for: (1) The
estimated costs of the demonstration
program in FY 2012 for the 8 currently
participating hospitals (‘‘pre-expansion
participating hospitals’’); (2) the
estimated costs of the demonstration in
FY 2012 for the 19 hospitals newly
selected to begin participation in the
demonstration program; and (3) the
amount by which the costs of the
demonstration program, as indicated by
settled cost reports for cost reporting
periods beginning in FYs 2007 and 2008
for hospitals participating in the
demonstration program during FYs 2007
and 2008, exceeded the amount that was
identified in the FY 2007 and FY 2008
IPPS final rules as the budget neutrality
offsets for FYs 2007 and 2008.
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a. Component of the Proposed FY 2012
Budget Neutrality Adjustment That
Accounts for Estimated FY 2012
Demonstration Program Costs of the
‘‘Pre-Expansion Participating Hospitals’’
We note that eight hospitals that were
selected for participation in either 2005
or 2008 are currently continuing to
participate in the extension period
mandated by the Affordable Care Act.
We are proposing that the component of
the proposed FY 2012 budget neutrality
adjustment to the national IPPS rates
that accounts for the estimated
demonstration program costs in FY 2012
for the eight ‘‘pre-expansion
participating hospitals’’ would be
calculated by utilizing three separate
methodologies: one methodology for the
six hospitals that have participated in
the demonstration program since its
inception and that are continuing to
participate in the demonstration
program (‘‘originally participating
hospitals’’); a second methodology for
one hospital that is currently
participating in the demonstration
program and that was among the four
hospitals that joined the demonstration
program in 2008; and a third
methodology for the other hospital that
is currently participating in the
demonstration program and that was
among the four hospitals that joined the
demonstration program in 2008.
Different methods are used for these
three sets of hospitals because the data
available to us to estimate the
demonstration program costs for each is
different. Specifically, we are proposing
to use the following hospital cost
reports as the data sources used to
estimate the costs attributable to the
demonstration program under section
410A of Pub. L. 108–173 as amended:
(1) For the six ‘‘originally participating
hospitals’’, the estimate of the portion of
the proposed budget neutrality
adjustment that accounts for the
estimated FY 2012 demonstration
program costs is based on data from
their settled cost reports applicable to
the second year of the demonstration—
that is, for cost reporting periods ending
in FY 2007. We are proposing to use
these cost reports because they are the
most recent finalized cost reports and,
thus, we believe their accounting of
costs is the most accurate indicator
available to us at this time to estimate
FY 2012 demonstration costs.
(2) For one of the two hospitals that
joined the demonstration program in
2008, and that are still participating, we
are proposing to estimate the FY 2012
demonstration program costs under
section 410A of Public Law 108–173 as
amended based on data from its as
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submitted cost report beginning January
1, 2008. Because we do not have final
settled cost reports for this hospital for
either 2008 or 2009, we are proposing to
rely on its ‘‘as submitted’’ cost report for
this period to estimate FY 2008
demonstration program costs for that
hospital. We are proposing to use the ‘‘as
submitted cost report’’ because we
believe that as it is among the most
recent cost reports, its accounting of
costs is the most accurate indicator
available to us at this time to estimate
costs under the demonstration.
(3) The remaining hospital of the eight
‘‘pre-expansion participating hospitals’’,
which began participation in FY 2008,
is an Indian Health Service provider.
Historically, the hospital has not filed
standard Medicare cost reports. To
estimate its costs for FY 2012, we are
proposing to use its full ‘‘as submitted’’
cost report filed for the period ending
September 30, 2009. We are proposing
to use this ‘‘as submitted’’ cost report
because as among the most recent cost
reports we believe it allows us to
estimate FY 2012 costs accurately.
We are proposing to use the same
general methodology as for the FY 2011
IPPS/LTCH PPS final rule, but
providing more detail. The proposed
methodology for calculating the
estimated FY 2012 demonstration cost
for the eight ‘‘pre-expansion hospitals’’
is as follows:
Step 1: In order to calculate
demonstration costs for each of the six
‘‘originally participating hospitals’’ for
the cost reporting period ending in FY
2007, we subtracted the amount it
would have otherwise been paid under
the applicable payment system(s) for
covered inpatient hospital services
without the demonstration during such
period (as indicated on the settled cost
report for this period) from the amount
paid to it for such services under the
reasonable cost methodology in section
410A(b) of Public Law 108–173 (as
indicated on the settled cost report for
this period). Steps 1(a) through (c)
below are performed to calculate FY
2007 demonstration costs for these six
hospitals. (We are proposing to use final
settled cost reports ending in FY 2007
to represent FY 2007 demonstration
costs for each of these hospitals because
a substantial portion of the months
included within these cost report years
(respective to each hospital) fall within
FY 2007, and, therefore we believe that
for purposes of this analysis it is
appropriate to consider data from these
cost reports to represent FY 2007
inpatient costs for the demonstration
during that period. In addition, we note
that throughout the remainder of the
preamble discussion on the budget
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neutrality adjustment for the rural
community hospital demonstration we
refer to ‘‘covered inpatient hospital
services’’ as that term is defined in
section 410A(f)(2) of Public Law 108–
173 as amended as ‘‘inpatient hospital
services.’’ We also note that the phrase
‘‘the reasonable cost methodology’’
means the reasonable cost methodology
in section 410A(b) of Public Law 108–
173 or the reasonable cost methodology
in section 410A(b) of Public Law 108–
173, as amended as applicable in the
particular situation.
• Step 1(a): First, for each hospital,
we subtracted the amount that would
otherwise be paid under the IPPS for the
hospital’s inpatient hospital services
(excluding those associated with swing
beds) for the cost reporting period
ending in FY 2007 (as indicated on the
settled cost report for this period) from
the amount paid for such services under
the reasonable cost methodology (as
indicated on the settled cost report for
this period). The result of this difference
is each hospital’s demonstration costs
for its inpatient hospital services
(excluding those associated with swing
beds) for the cost reporting period
ending in FY 2007. (We used the
amount the hospital would otherwise be
paid under the IPPS as indicated above
because this is the payment
methodology under which the hospital’s
beds (excluding swing beds) would be
paid in the absence of the
demonstration. This rationale applies
throughout the preamble discussion on
the rural community hospital
demonstration budget neutrality
adjustment whenever this is a
component of the proposed
methodology.)
• Step 1(b): Next, with respect to the
hospitals that have swing beds, we
subtracted the amount the hospital
would otherwise be paid under section
1888(e)(7) of the Act for the inpatient
hospital services associated with the
swing beds for the cost reporting period
ending in FY 2007 (as indicated in the
settled cost report for this period) from
the amount paid for such services under
the reasonable cost methodology (as
indicated in the settled cost report for
such period). The result of this
difference is each hospital’s
demonstration costs associated with its
swing beds for the cost reporting period
ending in FY 2007. (We used the
amount the hospital would otherwise be
paid under section 1888(e)(7) of the Act
as indicated above because this is the
payment methodology under which the
hospital’s swing beds would be paid in
the absence of the demonstration. This
rationale applies throughout the
preamble discussion on the rural
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community hospital demonstration
budget neutrality adjustment whenever
this is a component of the proposed
methodology.)
• Step 1(c): Next, in order to calculate
total estimated FY 2010 demonstration
costs for all six hospitals, we added
together the differences calculated
above in Step 1(a) and Step 1(b) as
applicable for each of the six hospitals
and then multiplied this sum by the
IPPS market basket percentage increases
for FYs 2008 through 2010, which were
adopted in the respective IPPS final
rules and a 2-percent annual volume
adjustment for the years 2008 through
2010.
We note that we are proposing to
apply the applicable IPPS market basket
percentage increases described above to
model estimated FY 2010 demonstration
costs because we believe that this
update factor appropriately indicates
the trend of increase in hospital
operating costs. Further, this approach
is consistent with the agency’s use of
the IPPS market basket percentage
increase to update the rate-of-increase
limits (which is a reasonable cost-based
methodology) for children’s and cancer
hospitals as well as RNCHIs. Therefore,
we believe it enables us to estimate
appropriately demonstration costs that
are tied to a reasonable cost-based
methodology. Also, this approach is
consistent with how we update target
amounts under the demonstration under
section 410A(b)(2)(B) of Public Law
108–173. The proposed 2-percent
annual volume adjustment was
stipulated by the CMS Office of the
Actuary in 2004, at the outset of the
demonstration and is supposed to
accurately reflect the tendency of
hospitals’ volumes to increase. We
acknowledge the possibility that
volumes for small hospitals may
fluctuate, and are incorporating into the
estimate of demonstration costs a factor
to allow for a potential increase. We
note that the rationale provided herein
for utilizing an IPPS market basket
percentage increase and a 2-percent
annual volume adjustment to estimate
demonstration costs is applicable
throughout the preamble discussion on
the rural community hospital budget
neutrality adjustment whenever these
factors are used in the proposed
methodology.
As a side note, as a special feature of
the demonstration, we added a
supplemental work sheet to the
standard hospital cost report which is
completed by the fiscal intermediary in
the final settlement for these six
‘‘originally participating hospitals.’’ This
supplemental work sheet includes the
calculation of the hospital’s first year
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reasonable costs of inpatient hospital
services (excluding those associated
with swing beds) as set forth in section
410A of Public Law 108–173, and, in
addition, for the hospital’s second year
cost reports (those cost reports ending in
FY 2007), the target amount (that is, the
previous year’s Medicare reasonable
cost amount for inpatient hospital
services updated by the IPPS market
basket percentage increase as provided
in section 410A(b)(2)(B) of Pub. L. 108–
173). This supplemental work sheet also
includes a calculation of the amount
that would otherwise be paid for the
hospital’s inpatient hospital services
under the IPPS, as is ordinarily
presented on the standard hospital cost
report. For hospitals that have swing
beds, this supplemental work sheet also
includes the following: the estimated
amount the hospital would otherwise be
paid under section 1888(e)(7) of the Act
for the inpatient hospital services
associated with the hospital’s swing
beds; the estimated amount the hospital
would be paid under the reasonable cost
methodology for the inpatient hospital
services provided in its swing beds, and
the hospital’s target amount for its
swing beds.
Step 2: In order to calculate estimated
FY 2008 demonstration costs for the
non-Indian Health Service hospital that
began the demonstration program in
2008, we subtracted the estimated
amount it would have otherwise been
paid for inpatient hospital services
without the demonstration under the
applicable payment system(s) (as
indicated on the ‘‘as submitted’’ cost
report beginning January 1, 2008) from
the estimated costs of such services
under the reasonable cost methodology
(as indicated on the ‘‘as submitted’’ cost
report for this period). Steps 2(a)
through (c) below are performed to
calculate this amount. We note that we
are proposing to use the cost report
beginning January 1, 2008 to represent
FY 2008 demonstration costs for this
hospital because it corresponds most
precisely to FY 2008 and, therefore, we
believe correctly represents FY 2008
inpatient costs for the demonstration for
that period.
• Step 2(a): Specifically, we
subtracted the estimated amount that
would otherwise be paid under the IPPS
for the hospital’s inpatient hospital
services (excluding swing beds) for the
cost reporting period beginning January
1, 2008 (as indicated on the ‘‘as
submitted’’ cost report) from the
estimated amount to be paid for such
services under the reasonable cost
methodology (as indicated on the ‘‘as
submitted’’ cost report for such period).
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• Step 2(b): Next, we subtracted the
estimated amount that would otherwise
be paid under section 1888(e)(7) of the
Act for the inpatient hospital services
associated with the swing beds during
the cost reporting period beginning
January 1, 2008 (as indicated on the ‘‘as
submitted’’ cost report) from the
estimated amount to be paid for such
services under the reasonable cost
methodology as indicated on the ‘‘as
submitted’’ cost report for such period.
• Step 2(c): We added together the
differences calculated in Steps 2(a) and
(b) above to obtain the hospital’s total
estimated FY 2008 demonstration cost.
• Step 2(d): Then, in order to
calculate the hospital’s estimated FY
2010 demonstration costs, we took the
amount calculated in Step 2(c) above
and multiplied it by the IPPS market
basket percentage increases for FYs
2009 and 2010 as adopted in the
respective IPPS final rules and a 2percent annual volume adjustment for
each of FYs 2009 and 2010.
Step 3: In order to calculate the
estimated FY 2009 demonstration costs
for the Indian Health Service provider,
we subtracted the estimated amount the
hospital would have otherwise been
paid for inpatient hospital services
without the demonstration under the
applicable payment system (as indicated
on the ‘‘as submitted’’ cost report ending
September 30, 2009) from the estimated
costs for such services under the
reasonable cost methodology (as
indicated in the ‘‘as submitted’’ cost
report for such period). Step 3(a) below
is performed to calculate this amount.
(We note that we are proposing to use
the cost report ending September 30,
2009 to represent FY 2009
demonstration costs for this hospital
because it corresponds most precisely to
FY 2009 and, therefore, we believe
correctly represents FY 2009 inpatient
costs for the demonstration for that
period.)
• Step 3(a): Specifically, we
subtracted the estimated amount the
hospital would have otherwise been
paid for inpatient hospital services
under the IPPS in the cost reporting
period ending September 30, 2009
without the demonstration (as indicated
on the ‘‘as submitted’’ cost report for this
period) from the estimated amount to be
paid under the reasonable cost
methodology for such services (as
indicated in the ‘‘as submitted’’ cost
report for such period). We note that
this provider had no swing beds,
therefore, we did not estimate any
portion of the costs under section
1888(e)(7) of the Act.
• Step 3(b): Next, in order to calculate
the Indian Health Service provider’s
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estimated FY 2010 demonstration costs,
we multiplied the difference calculated
in Step 3(a) above by the IPPS market
basket percentage increase for FY 2010
adopted in the FY 2010 IPPS/LTCH PPS
final rule and the 2-percent annual
volume adjustment.
Step 4: Then, in order to calculate
total estimated FY 2010 demonstration
costs for all eight ‘‘pre-expansion
participating hospitals’’, we added the
estimated FY 2010 demonstration costs
calculated in Steps 1(c), 2(d), and 3(b)
above.
Step 5: Next, in order to calculate
total estimated FY 2012 demonstration
costs for all eight ‘‘pre-expansion
hospitals’’, we multiplied the amount
calculated in Step 4 above by the FY
2011 IPPS market basket percentage
increase adopted in the FY 2011 IPPS/
LTCH PPS final rule and the proposed
FY 2012 IPPS market basket percentage
increase contained elsewhere in this
proposed rule and a 2-percent annual
volume adjustment for FYs 2011 and
2012. Thus, we arrived at the total
estimated FY 2012 demonstration costs
for all eight currently participating
hospitals which needs to be offset,
which is $21,290,305. If updated data
become available for the final rule, we
are proposing to use them to estimate
the costs of the demonstration program
in FY 2012 (including the use of any
change in the FY 2012 market basket
percentage increase).
b. Portion of the Proposed FY 2012
Budget Neutrality Adjustment That
Accounts for Estimated FY 2012
Demonstration Program Costs for
Hospitals Newly Selected To Participate
in the Demonstration Program
Section 410A(g)(3) of Public Law 108–
173, as added by section 3123 of the
Affordable Care Act and as further
amended by section 10313 of such Act,
provides that ‘‘[n]otwithstanding
subsection (a)(4), during the 5-year
extension period, not more than 30 rural
community hospitals may participate in
the demonstration program under this
section.’’ Consequently, up to 22
additional hospitals may be added to
the demonstration program (30 hospitals
minus the 8 ‘‘pre-expansion
participating hospitals’’). In order to
ensure budget neutrality for the 19
newly selected hospitals, we are
proposing to include a component in
the proposed budget neutrality
adjustment factor to the proposed FY
2012 national IPPS rates to account for
the estimated FY 2012 costs of those
new hospitals. For this proposed rule,
we are proposing to generally use ‘‘as
submitted’’ cost reports to estimate
demonstration costs because they are
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the most recent cost reports and,
therefore, we believe most accurately
reflect the hospital’s cost and payment
for Medicare inpatient services in the
respective year. We note that hospitals
were required to submit pages from
their most recent cost reports with their
applications. For 13 of these hospitals,
these cost reports had end dates in FY
2009; for the 6 remaining hospitals, they
had end dates in FY 2010. Therefore, in
various steps in the proposed
methodology below, we begin various
estimates with FY 2009 if the hospital
submitted a cost report ending in FY
2009, and FY 2010 if the hospital
submitted a cost report ending in FY
2010.
We are proposing to use the following
methodology in order to estimate FY
2012 demonstration program costs for
the 19 newly selected hospitals. This
methodology differs from that in the FY
2011 IPPS/LTCH PPS final rule,
because, at that time, hospitals had not
been selected for participation, and thus
we had no data specific to those
hospitals that would enter the
demonstration as a result of its
expansion mandated by the Affordable
Care Act.
Step 1(a): For each hospital that
submitted a cost report ending in FY
2009, we subtracted the estimated
amount that would be paid for its
inpatient hospital services (excluding
those associated with swing beds) under
the IPPS for such period (as indicated
on the ‘‘as submitted’’ cost report for
such period) from the estimated amount
for reasonable costs for such services (as
indicated on the ‘‘as submitted’’ cost
report for such period) in order to
calculate the difference between the
hospital’s estimated cost and payment
for its inpatient hospital services
(excluding those associated with swing
beds) during the cost reporting period
ending in FY 2009.
Step 1(b): For each hospital that
submitted a cost report ending in FY
2010, we subtracted the estimated
amount that would be paid for its
inpatient hospital services (excluding
those associated with swing beds) under
the IPPS (as indicated on the ‘‘as
submitted’’ cost report for such period)
from the estimated amount for the
reasonable cost for such services (as
indicated on the ‘‘as submitted’’ cost
report for such period) in order to
calculate the difference between the
hospital’s estimated costs and payment
for its inpatient hospital services
(excluding those associated with swing
beds) during such period.
Step 1(c): While a portion of the 19
newly selected hospitals that have
swing beds reported estimated costs for
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those beds, some hospitals did not,
namely a portion of the hospitals that
submitted cost reports ending in FY
2009 with their applications. Therefore,
we needed to gap-fill in order to account
for this issue. For each of the hospitals
with swing beds that submitted cost
reports ending in FY 2009, but that did
not submit with its application
estimated costs associated with those
swing beds, we assigned an estimated
cost for its swing beds based on an
average of the estimated cost-payment
difference associated with the swing
beds of the newly participating
hospitals that reported such data on
their applications. We are proposing to
assign estimated costs based on the
average of the cost-payment difference
for those hospitals that submitted these
data, because these hospitals represent a
sample of hospitals chosen for the
demonstration, which we believe can
accurately reflect costs and payment.
We believe that these amounts, derived
from the applications of the hospitals
that submitted these data, accurately
reflect this sample because they are
hospitals of similar size and
circumstances. Furthermore, these
hospitals, which submitted the data,
were chosen from the same set of States
as the overall set of the newly selected
hospitals. We utilized the methodology
in Steps 1(c)(i) through (c)(iii) below to
calculate this amount:
• Step 1(c)(i): For each of the
hospitals with swing beds that
submitted with its application both a
cost report ending in FY 2009 and
estimated costs of those swing beds
during such period, we calculated its
estimated cost-payment difference
between the amount that the hospital
estimates that will be paid under section
1888(e)(7) of the Act during such period
for those swing beds (that is, the amount
that the hospital estimates that will be
paid under section 1886(e)(7) for the
inpatient hospital services associated
with its swing beds for such period from
the amount that the hospital estimates
that it would be paid for the reasonable
costs for such services during such
period as those amounts are reported on
the hospital’s application) by simply
taking this amount from the hospital’s
application.
• Step 1(c)(ii): Then, for each of the
hospitals with swing beds that
submitted with its application both a
cost report ending in FY 2010 and the
estimated costs of those swing beds
during such period, we calculated the
difference between the estimate costs
and payment for those swing beds for
such period by simply taking this
amount from the hospital’s application.
(We note that all hospitals that had
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swing beds and that submitted cost
reports ending in FY 2010 with their
application supplied data on the
estimated cost and payment for swing
bed services on these cost reports.)
• Step 1(c)(iii): Next, we totaled all of
the individual amounts calculated
under Steps 1(c)(i) and (c)(ii) above and
then divided this amount by the total
number of hospitals that provided data
on estimated costs on swing beds in
their applications. We used the result of
this computation as the estimated cost
for the swing beds for each of the
hospitals that failed to submit estimated
costs for those beds with their
applications.
• Step 1(d): Then, in order to
calculate the total costs during the cost
reporting period ending in FY 2009 for
each hospital that submitted a cost
report ending in FY 2009, we did the
following: (a) If the hospital had no
swing beds, its total estimated costs for
such period is the difference calculated
under Step 1(a); (b) If the hospital had
swing beds, we added the difference
calculated under Step 1(a) with the
difference calculated under Step 1(c)(i)
or Step 1(c)(iii) as applicable.
• Step 1(e): Next, in order to calculate
total estimated FY 2009 costs for all of
the hospitals that submitted cost reports
ending in FY 2009 with their
applications, we added together all of
the total estimated costs that were
calculated for each such hospital under
Step 1(d) above. We note that we believe
that using cost reports ending in FYs
2009 and 2010 best reflect costs and
payment in FYs 2009 and 2010 because
these cost reports most closely respond
to those fiscal years.
• Step 1(f): Then, in order to calculate
the total estimated FY 2011 costs for the
newly selected hospitals that submitted
cost reports ending in FY 2009 with
their applications, we multiplied the
amount calculated in Step 1(e) above by
the FYs 2010 and 2011 IPPS market
basket percentage increases adopted in
the respective IPPS/LTCH PPS final
rules as well as a 2-percent annual
volume adjustment for each of FYs 2010
and 2011.
• Step 1(g): Then, in order to
calculate the total estimated FY 2010
costs for each hospital that submitted a
cost report ending in FY 2010, we did
the following: (a) If the hospital had no
swing beds, its total estimated costs is
the difference calculated under Step
1(b); (b) If the hospital had swing beds,
we added the difference calculated
under Step 1(b) with the difference
calculated under Step 1(c)(ii).
• Step 1(h): Next, in order to calculate
the total FY 2010 costs for all of the
hospitals that submitted FY 2010 cost
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reports with their applications, we
added together all of the total estimated
FY 2010 costs calculated for each such
hospital under Step 1(g) above.
• Step 1(i): Then, we calculated the
total estimated FY 2011 costs for all of
the newly selected hospitals that
submitted cost reports ending in FY
2010 by multiplying the amount
calculated in Step 1(h) above by the FY
2011 IPPS market basket percentage
increase adopted in the respective IPPS/
LTCH PPS final rule as well as a 2percent annual volume adjustment for
FY 2011.
• Step 1(j): Next, in order to calculate
total estimated FY 2012 demonstration
costs for all of the 19 newly selected
hospitals, we added together the
amounts calculated in Steps 1(f) and 1(i)
above and then multiplied this sum by
the proposed IPPS FY 2012 market
basket percentage increase proposed
elsewhere in this proposed rule and a 2percent annual volume adjustment for
FY 2012. The amount of the estimated
FY 2012 demonstration costs for the 19
newly selected hospitals needing to be
offset is $31,351,908. If updated data
become available for the final rule, we
are proposing to use them to estimate
the costs of the demonstration program
in FY 2012.
c. Portion of the Proposed FY 2012
Budget Neutrality Adjustment To Offset
the Amount by Which the Costs of the
Demonstration Program in FYs 2007 and
2008 Exceeded the Amount That Was
Identified in the FYs 2007 and 2008
IPPS Final Rules as the Budget
Neutrality Offset for FYs 2007 and 2008
In addition, in order to ensure that the
demonstration program in FYs 2007 and
2008 was budget neutral, we are
proposing to incorporate a component
into the budget neutrality adjustment
factor to the proposed FY 2012 national
IPPS rates, which would offset the
amount by which the demonstration
program costs as indicated by settled
cost reports beginning in FYs 2007 and
2008 for hospitals participating in the
demonstration program during FYs 2007
and 2008 exceeded the amount that was
identified in the FYs 2007 and 2008
IPPS final rules as the budget neutrality
offset for FYs 2007 and 2008.
Specifically, we are proposing the
following methodology. This is the same
methodology as used in the FY 2011
IPPS/LTCH PPS final rule, but we are
adding detail. In this proposed rule, we
are recognizing the possibility that in
the year’s time between the FY 2011 and
FY 2012 final rule that the cost reports
for the cost reporting years beginning in
FY 2008 for the hospitals then
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participating in the demonstration may
be finalized, that is, settled.
• Step One: Calculate the costs of the
demonstration program for each of FYs
2007 and 2008 according to the settled
cost reports that began in FYs 2007 or
2008 for the then participating hospitals
(which represent the third and fourth
years of the demonstration program for
each of the then participating hospitals)
and then add these two sums together.
The costs of the demonstration program
for each of FYs 2007 and 2008 is the
difference resulting from subtracting the
total amount that would otherwise be
paid to the then participating hospitals
under the applicable payment system(s)
(that is, under the IPPS and under
section 1888(e)(7) of the Act to the
extent the participating hospital had
swing beds) without the demonstration
from the amount paid to those hospitals
under the demonstration payment
methodology in section 410A(b) of
Public Law 108–173. (We are proposing
to use these settled cost reports, which
represent the third and fourth years of
the demonstration program for each of
the then participating hospitals, and,
therefore, we believe correctly represent
inpatient costs for the demonstration
program during each of those 2 years.)
These settled cost reports represent the
third and fourth years of the
demonstration, because the
demonstration started with cost report
start dates on or after October 1, 2004.
Therefore, the first year of the
demonstration program is represented
by cost reports with a start date between
October 1, 2004 and September 30, 2005
(that is, FY 2005; the second year of the
demonstration program is represented
by cost reports with a start date between
October 1, 2005 and September 30, 2006
(FY 2006); the third year of the
demonstration program is represented
by cost reports with a start date between
October 1, 2006 and September 30, 2007
(FY 2007); and the fourth year of the
demonstration program is represented
by cost reports with a start date between
October 1, 2007 and September 30, 2008
(FY 2008).
• Step Two: Subtract the amount that
was offset by the budget neutrality
adjustment for FYs 2007 and 2008
($9,197,870 for FY 2007 and $9,681,893
for FY 2008) from the combined costs of
the demonstration program in FYs 2007
and 2008 as calculated in Step one.
• Step Three: The result of Step two
is a dollar amount, for which we would
calculate a factor that would offset such
amounts and would be incorporated
into the overall proposed budget
neutrality adjustment to the proposed
national IPPS rates for FY 2012. This
specific component to the overall
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proposed budget neutrality adjustment
for FY 2012 would account for the
difference between the combined costs
of the demonstration program in FYs
2007 and 2008 and the amount of the
budget neutrality adjustment published
in the FYs 2007 and 2008 IPPS/LTCH
PPS final rules and, therefore, would
ensure that the demonstration program
is budget neutral for FYs 2007 and 2008.
Because of delays in the settlement
process for the demonstration hospitals’
third and fourth year cost reports, that
is, for cost reporting periods starting in
each FYs 2007 and 2008 respectively,
we are unable to state the costs of the
demonstration program corresponding
to FYs 2007 and 2008 for purposes of
determining the amount by which the
costs corresponding to FYs 2007 and
2008 exceeded the amount offset by the
budget neutrality adjustment for FYs
2007 and 2008. Therefore, we are not
proposing the specific numeric amount
representing this offsetting process that
would be incorporated into the budget
neutrality adjustment applied to the
national IPPS rates. We note that we
anticipate that they may be available for
the FY 2012 IPPS/LTCH PPS final rule.
Therefore, the estimated adjustment to
the national IPPS rates in this proposed
rule cannot include a component to
account for these costs. However, to the
extent such data is available for the final
rule, we are proposing to have the
budget neutrality offset to the IPPS rates
account for the amount by which the
costs corresponding to FYs 2007 and
2008 exceeded the amount offset by the
budget neutrality adjustments for FYs
2007 and 2008 as calculated by the
process described above.
For this FY 2012 IPPS/LTCH PPS
proposed rule, the estimated amount for
which an adjustment to the proposed
national IPPS rates is being calculated is
the sum of the amounts specified in
sections IV.N.3.a. and IV. N.3.b. of this
proposed rule, which is $52,642,213
(this estimate does not account for the
numeric result of the method in
IV.N.3.c.). As explained previously, to
the extent the numeric result of the
method in IV.N.3.c. is available in the
final rule, under our proposal, this
amount would be included in the
amount which needs to be offset by the
budget neutrality adjustment. Sections
IV.N.3.a. and IV.N.3.b. of this proposed
rule state dollar amounts, which
represent estimated costs attributable to
the demonstration program for the
respective component of the overall
estimated calculation of the proposed
budget neutrality factor for FY 2012.
This estimated amount is based on the
specific assumptions identified, as well
as from data sources that are used
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because they represent either the most
recently finalized, (that is, settled) or, if
‘‘as submitted,’’ recently available cost
reports.
O. Bundling of Payments for Services
Provided to Outpatients Who Later Are
Admitted as Inpatients: 3-Day Payment
Window
1. Background
Section 1886(a)(4) of the Act includes
in the definition of ‘‘operating costs of
inpatient hospital services’’ diagnostic
services (including clinical diagnostic
laboratory tests) or other services related
to the admission (as defined by the
Secretary) furnished by the hospital (or
by an entity that is wholly owned or
operated by the hospital) to the patient
during the 3 days preceding the date of
the patient’s admission to a subsection
(d) hospital subject to the IPPS. For a
non-subsection (d) hospital (psychiatric
hospitals and units, inpatient
rehabilitation hospitals and units, longterm care hospitals, children’s hospitals,
and cancer hospitals), the statutory
payment window is 1 day preceding the
date of the patient’s admission.
Section 102(a)(1) of Preservation of
Access to Care for Medicare
Beneficiaries and Pension Relief Act of
2010 (Pub. L. 111–192, enacted on June
25, 2010) specifies that the term in
section 1886(a)(4) of the Act, ‘‘other
services related to the admission’’,
includes ‘‘all services that are not
diagnostic services (other than
ambulance and maintenance renal
dialysis services) for which payment
may be made under this title [Title
XVIII] that are provided by a hospital (or
an entity wholly owned or wholly
operated by the hospital) to a patient—
(A) on the date of the patient’s inpatient
admission; or (B) during the 3 days (or,
in the case of a hospital that is not a
subsection (d) hospital, during the 1
day) immediately preceding the date of
admission unless the hospital
demonstrates (in a form and manner,
and at a time, specified by the Secretary)
that such services are not related (as
determined by the Secretary) to such
admission.’’ Public Law 111–192 makes
no changes to the existing policy
regarding billing for diagnostic services.
Under the 3-day (or 1-day) payment
window policy, all outpatient diagnostic
services furnished to a Medicare
beneficiary by a hospital (or an entity
wholly owned or operated by the
hospital), on the date of a beneficiary’s
admission or during the 3 days (1 day
for a non-subsection (d) hospital)
immediately preceding the date of a
beneficiary’s inpatient hospital
admission, must be included on the Part
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A bill for the beneficiary’s inpatient stay
at the hospital. All outpatient
nondiagnostic services provided by the
hospital (or an entity wholly owned or
wholly operated) on the date of the
inpatient admission or during the 3 days
(1 day for a non-subsection (d) hospital)
immediately preceding the date of a
beneficiary’s inpatient hospital
admission are deemed related to the
admission and must be billed with the
inpatient stay unless the hospital attests
to specific nondiagnostic services as
being unrelated to the hospital claim.
In an interim final rule with comment
period issued in the Federal Register on
August 16, 2010 (75 FR 50346 through
50349), we discussed and made changes
to the Medicare regulations pertaining
to the 3-day payment window policy in
order to comport with the requirements
of section 102 of Public Law 111–192.
We refer readers to that interim final
rule with comment period for further
information about the 3-day payment
window policy. We have received
public comments on the August 16,
2010 interim final rule with comment
period, and we plan to address these
public comments as well as any public
comments we may receive on the
proposals in this proposed rule in the
FY 2012 IPPS/LTCH PPS final rule.
2. Condition Code 51 (Attestation of
Unrelated Outpatient Nondiagnostic
Services)
As we stated in the August 16, 2010
interim final rule with comment period
(75 FR 50348), we intend to establish a
process for hospitals to attest to
nondiagnostic services as being
unrelated to the hospital claim when a
hospital submits an outpatient claim. As
part of the process, hospitals would be
required to maintain documentation in
the beneficiary’s medical record to
support their claim that the outpatient
nondiagnostic services are unrelated to
the beneficiary’s inpatient admission.
The National Uniform Billing
Committee (NUBC) is a committee
established by the American Hospital
Association and includes the
participation of all the major national
provider and payer organizations. The
NUBC was formed to develop a single
billing form and standard data set that
could be used nationwide by
institutional providers and payers for
handling health care claims. The NUBC
has provided a mechanism through the
establishment of a condition code for a
hospital to attest directly on the
outpatient claim to specific
nondiagnostic services as being
clinically unrelated to an inpatient
hospital claim (that is, the preadmission
diagnostic services are clinically
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distinct or independent from the reason
for the beneficiary’s inpatient
admission). As of April 1, 2011, a
hospital must add condition code 51 on
claims for separately billed outpatient
nondiagnostic services furnished on or
after June 25, 2010 (the date of
enactment of Pub. L. 111–192) if the
hospital wishes to attest to
nondiagnostic services as being
unrelated to the hospital claim. We
issued a manual system revision
through Change Request #7142,
Transmittal 796, on October 29, 2010,
instructing CMS contractors to accept
condition code 51 on outpatient claims.
3. Applicability of the Payment Window
Policy to Services Furnished at
Physicians’ Practices
We have received several inquiries
regarding the applicability of the
payment window to preadmission
services furnished at hospital-owned or
hospital-operated physicians’ clinics or
practices. The statutory language under
section 1886(a)(4) of the Act is clear that
the 3-day (or, where applicable, 1-day)
payment window policy applies not
only to diagnostic and related
nondiagnostic services furnished to
patients at hospitals but also at entities
that are wholly owned or operated by
the admitting hospital. In a 1998 final
rule on payment for preadmission
services (63 FR 6866), we stated, ‘‘A
hospital-owned or hospital-operated
physician clinic or practice is subject to
the payment window provision. The
technical portion of preadmission
diagnostic services performed by the
physician clinic or practice must be
included on the inpatient bill and may
not be billed separately. A physician’s
professional service is not subject to the
window.’’ Thus, we made clear that the
term ‘‘entities’’ under this section of the
statute includes physicians’ clinics or
practices. Although the 1998 rule
provides specific guidance regarding
billing for preadmission diagnostic
services furnished at hospital-owned or
hospital-operated physician’s practices,
we had issued no guidelines regarding
billing for preadmission nondiagnostic
services provided by a hospital-owned
or hospital-operated physician’s
practice, leaving many to assume that
the payment window does not apply to
such services.
Prior to the June 25, 2010 enactment
of section 102(a)(1) of Public Law 111–
192, the payment window policy for
preadmission nondiagnostic services
was rarely applied because the policy
required an exact match between the
principal ICD–9 CM diagnosis codes for
the outpatient services and the inpatient
admission. Because of the exact match
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policy, very few services furnished in a
physician’s office or clinic that is
wholly owned or operated by the
hospital would be subject to the policy.
However, the statutory change to the
payment window policy made by Public
Law 111–192 significantly broadened
the definition of nondiagnostic services
that are subject to the payment window
to include any nondiagnostic service
that is clinically related to the reason for
a patient’s inpatient admission,
regardless of whether the inpatient and
outpatient diagnoses are the same. This
statutory change therefore significantly
broadens the application of the payment
window policy in hospital-owned or
hospital-operated physician offices or
clinics (that is, clinics that are not
provider-based). We note that, under
this change, hospitals and hospitalowned or hospital-operated entities
must now attest that preadmission
nondiagnostic services are not related to
an admission using condition code 51
(Attestation of Unrelated Outpatient
Nondiagnostic Services) when they
submit a claim during the 3-day (or,
where applicable, 1-day) preadmission
period.
In response to ongoing requests to
clarify the applicability of the payment
window policy to preadmission
nondiagnostic services provided in
hospital-owned or hospital-operated
physicians’ offices or clinics, we are
clarifying in this proposed rule that the
3-day (or, where applicable, 1-day)
payment window policy applies to both
preadmission diagnostic and
nondiagnostic services furnished to a
patient at physician’s practices that are
wholly owned or wholly operated by
the admitting hospital. For purposes of
the payment window, ‘‘wholly owned or
operated’’ literally means that the
admitting hospital must be the sole
owner or the sole operator of the entity
providing the preadmission services in
order for the payment window policy to
apply. A hospital is considered the sole
operator of an entity if the hospital has
exclusive responsibility for conducting
or overseeing the entity’s routine
operations, regardless of whether the
hospital also has policymaking
authority over the entity (we refer
readers to the regulations at 42 CFR
412.2(c)(5)(i) and to discussions and
examples of wholly owned or operated
scenarios in rules issued in the Federal
Register on January 12, 1994 (59 FR
1656) and February 11, 1998 (63 FR
6865 through 6867)).
In the circumstance where a clinic
that is not provider-based meets the
definition of being wholly owned or
wholly operated by the hospital and the
3-day (or, if applicable, 1-day) payment
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window applies to related
nondiagnostic preadmission services,
the hospital’s charge on the inpatient
claim would include any overhead costs
associated with Medicare’s physician
fee schedule payment. Therefore, it
should follow that Medicare’s payment
to the physician for the physician fee
schedule service should be at the lower
facility rate, which does not include
overhead, staff, equipment, and supplies
required to perform the service in the
physician’s office (rather than the higher
nonfacility rate that does include those
overhead costs) to avoid paying for the
services twice because they are no
longer being paid separately under Part
B.
Under 42 CFR 414.22(b)(5)(i),
Medicare pays physicians using the
nonfacility relative value units when
services are provided in a physician’s
office and bases physician payment on
the facility relative value units when the
physician provides services in a facility,
including hospitals, skilled nursing
facilities, community mental health
centers, and ambulatory surgical
centers. Because a hospital-owned or
hospital-operated physician practice or
clinic that is not provider-based is a
nonfacility setting, we will need to
change the regulation to specifically
provide for Medicare to pay for a service
provided in a nonfacility setting at the
facility rate in order to comply with
section 102(a) of Pub. L. 111–192. We
intend to discuss such a proposal in
more detail in a future physician fee
schedule proposed rule and address
how this statutory provision will be
implemented in physicians’ offices that
are wholly owned or wholly operated by
the hospital. In all circumstances, we
would expect the hospital to inform the
physician offices and clinics where the
hospital is the sole owner or sole
operator and when an inpatient
admission occurs.
P. Proposed Changes to MS–DRGs
Subject to the Postacute Care Transfer
Policy
1. Background
Existing regulations at § 412.4(a)
define discharges under the IPPS as
situations in which a patient is formally
released from an acute care hospital or
dies in the hospital. Section 412.4(b)
defines acute care transfers, and
§ 412.4(c) defines postacute care
transfers. Our policy, set forth in
§ 412(f), provides that when a patient is
transferred and his or her length of stay
is less than the geometric mean length
of stay for the MS–DRG to which the
case is assigned, the transferring
hospital is generally paid based on a
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graduated per diem rate for each day of
stay, not to exceed the full MS–DRG
payment that would have been made if
the patient had been discharged without
being transferred.
The per diem rate paid to a
transferring hospital is calculated by
dividing the full DRG payment by the
geometric mean length of stay for the
MS–DRG. Based on an analysis that
showed that the first day of
hospitalization is the most expensive
(60 FR 45804), our policy generally
provides for payment that is double the
per diem amount for the first day, with
each subsequent day paid at the per
diem amount up to the full MS–DRG
payment (§ 412.4(f)(1)). Transfer cases
are also eligible for outlier payments. In
general, the outlier threshold for transfer
cases, as described in § 412.80(b), is
equal to the fixed-loss outlier threshold
for nontransfer cases (adjusted for
geographic variations in costs), divided
by the geometric mean length of stay for
the MS–DRG, and multiplied by the
length of stay for the case, plus one day.
We established the criteria set forth in
§ 412.4 for determining which DRGs
qualify for postacute care transfer
payments in the FY 2006 IPPS final rule
(70 FR 47419 through 47420). The
determination of whether a DRG is
subject to the postacute care transfer
policy was initially based on the
Medicare Version 23.0 GROUPER (FY
2006) and data from the FY 2004
MedPAR file. However, if a DRG did not
exist in Version 23.0 or a DRG included
in Version 23.0 is revised, we use the
current version of the Medicare
GROUPER and the most recent complete
year of MedPAR data to determine if the
DRG is subject to the postacute care
transfer policy. Specifically, if the
DRG’s total number of discharges and
proportion of short-stay discharges to
postacute care exceed the 55th
percentile for all DRGs, CMS will apply
the postacute care transfer policy to that
DRG and to any other MS–DRG that
shares the same base DRG. In the
preamble to the FY 2006 final rule (70
FR 47419), we stated that ‘‘we will not
revise the list of DRGs subject to the
postacute care transfer policy annually
unless we are making a change to a
specific DRG.’’
To account for MS–DRGs subject to
the postacute care policy that exhibit
exceptionally higher shares of costs very
early in the hospital stay, § 412.4(f) also
includes special payment methodology.
For these MS–DRGs, hospitals receive
50 percent of the full MS–DRG payment,
plus the single per diem payment, for
the first day of the stay, as well as a
reduced per diem payment for
subsequent days (up to the full MS–DRG
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payment (§ 412.4(f)(6)). For an MS–DRG
to qualify for the special payment
methodology, the geometric mean
length of stay must be greater than 4
days, and the average charges of 1-day
discharge cases in the MS–DRG must be
at least 50 percent of the average charges
for all cases within the MS–DRG. DRGs
that are part of an MS–DRG group must
meet DRG special payment policy if any
one of the MS–DRGs that share that
same base MS–DRG qualifies
(§ 412.4(f)(6)).
2. Proposed Changes to the Postacute
Care Transfer MS–DRGs
Based on our annual review of MS–
DRGs, we have identified a number of
MS–DRGs that should be included on
the list of MS–DRGs subject to the
postacute care transfer policy. As we
discuss in section III.G. of this proposed
rule, in response to public comments
and based on our analysis of FY 2010
MedPAR claims data, we are proposing
to make several changes to MS–DRGs to
better capture certain severity of illness
levels, to be effective for FY 2012.
Specifically, we are proposing to modify
the assignment of the autologous bone
marrow transplants now assigned to
MS–DRG 015 (Autologous Bone Marrow
Transplant) to capture the severity
levels of ‘‘with CC/MCC’’ and ‘‘without
CC/MCC.’’ We are proposing to establish
two new MS–DRGs (proposed MS–
DRGs 016 and 017 (Autologous Bone
Marrow Transplant with MCC/CC and
without MCC/CC, respectively) to
replace MS–DRG 015. We also are
proposing to establish three new MS–
DRGs to capture three severity of illness
levels for skin debridement—proposed
MS–DRG 570 (Skin Debridement with
MCC); proposed MS–DRG 571 (Skin
Debridement with CC); and proposed
MS–DRG 572 (Skin Debridement
without CC/MCC). In addition, we are
proposing to move the codes for
rechargeable dual array deep brain
stimulation (codes 02.93 and 86.98) to
MS–DRGs 023 and 024 (Craniotomy
with Major Device Implant/Acute
Complex CNS PDX, with MCC and
without MCC, respectively) where
similar devices are currently assigned.
We are proposing to move two
procedure codes that either repair a
thoracic aneurysm or place a stent graft
(codes 38.45 and 39.73) out of MS–DRG
237 and 238 (Major Cardiovascular
Procedures w MCC or Thoracic Aortic
Aneurysm Repair, and Major
Cardiovascular Procedures with MCC
and without MCC, respectively). We are
proposing to assign these two codes to
MS–DRGs 219, 220, and 221 (Cardiac
Valve & Other Major Cardiothoracic
Procedure without Cardiac
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Catheterization with MCC, with CC, and
without CC, respectively). We are
proposing to add a procedure code for
partial gastrectomy (43.89) to MS–DRGs
619, 620, and 621 (O.R. Procedure for
Obesity with MCC, with CC, and
without CC/MCC, respectively). A
discussion of these proposed changes
can be found in section II.G. of the
preamble of this proposed rule.
In light of these proposed changes to
the MS–DRGs, according to the
regulations under § 412.4(c), we
evaluated these proposed FY 2012 MS–
DRGs against the general postacute care
transfer policy criteria using the FY
2010 MedPAR data. If an MS–DRG
qualified for the postacute care transfer
policy, we also evaluated that MS–DRG
under the special payment methodology
criteria according to regulations at
§ 412.4(f)(6). We note that these
proposed changes to the MS–DRGs can
result in interactive effects between
MS–DRGs and in cases moving from
existing MS–DRGs to the new proposed
MS–DRGs, and that our review reflects
this as well. As a result of our review,
we are proposing to update the list of
MS–DRGs that are subject to the
postacute care transfer policy to include
the proposed new MS–DRGs 570, 571,
and 572 for FY 2012. (These MS–DRGs
are reflected in Table 5, which is listed
in section VI. of the Addendum to this
proposed rule and available via the
Internet, and are also listed in the tables
at the end of this section.)
In addition, based on our evaluation
of the proposed FY 2012 MS–DRGs
using the FY 2010 Med PAR data, we
have identified the following two
existing MS–DRGs that meet the criteria
to be subject to the postacute care
transfer policy for FY 2012: MS–DRGs
023 (Craniotomy with Major Device
Implant or Acute Complex CNS PDX
with MCC) and MS–DRG 024
(Craniotomy with Major Device Implant
or Acute Complex CNS PDX without
MCC). We are proposing to add these
two MS–DRGs to the list of MS–DRGs
that are subject to the postacute care
transfer policy for FY 2012. The
following table lists the respective
criteria for each MS–DRG that we are
proposing to add to the postacute
transfer policy list.
Further, based on our evaluation of
the proposed FY 2012 MS–DRGs using
the FY 2010 Med PAR data, we have
determined that MS–DRGs 228 (Other
Cardiothoracic Procedures with MCC),
229 (Other Cardiothoracic Procedures
with CC), 230 (Other Cardiothoracic
Procedures without CC/MCC), 640
(Miscellaneous Disorders of Nutrition,
Metabolism, Fluids/Electrolytes with
MCC), and 641 (Miscellaneous
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DRGs subjected to the postacute care
transfer policy, effective FY 2012. We
refer readers to the bolded text in the
following table to see which criteria
were not met in our analysis for each
MS–DRG removed from the postacute
care transfer policy list.
BILLING CODE 4120–01–P
BILLING CODE 4120–01–C
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Disorders of Nutrition, Metabolism,
Fluids/Electrolytes without MCC) no
longer meet the postacute care transfer
criteria. Therefore, we are proposing
that they be removed from the list of
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Therefore, we are proposing that they
would be subject to the DRG special
payment methodology, effective FY
2012.
implementing regulations at 42 CFR
409.12 indicate that Medicare pays for
‘‘nursing and related services, use of
hospital * * * facilities, and medical
social services as * * * inpatient
hospital services or inpatient CAH
services * * * only if those services are
ordinarily furnished by the hospital or
CAH.’’ Consistent with the statute, only
with regard to other diagnostic or
therapeutic services do the regulations
at 42 CFR 409.16 state that Medicare
will also pay for these services if
furnished ‘‘by others under
arrangements made by the hospital or
CAH.’’
However, it has come to our attention
that some providers in the hospital
community may have interpreted our
instructions under section 2118 (Cost of
Services Furnished under Arrangement)
of the Provider Reimbursement Manual,
Part I (PRM–I), relating to payment for
routine services to allow additional
services to be provided under
arrangements. Some providers have
interpreted the provision of the
paragraph on ‘‘Routine Services’’ relating
to services provided ‘‘under
arrangement’’ under section 2118 of the
PRM–I to mean that even routine
services described in sections 1861(b)(1)
and (b)(2) of the Act, which are
normally provided to hospital inpatients
by the hospital, can be provided by an
outside entity under arrangement.
To the extent that our manual
provisions could be read to allow
hospitals to furnish such ‘‘routine
services’’ ‘‘under arrangements,’’ we are
now proposing a change to limit the
services a hospital may provide under
arrangement to reflect the statutory
definition of ‘‘inpatient hospital
services’’ and the implementing
regulations. Under our proposed policy,
if routine services, that is, services
described in sections 1861(b)(1) and
(b)(2) of the Act, are provided in the
hospital, they are considered as being
provided ‘‘by the hospital.’’ We believe
that this proposal is consistent with the
statute because the statutory language
specifying that the routine services
described in sections 1861(b)(1) and
(b)(2) of the Act be provided ‘‘by the
hospital’’ suggests that the hospital is
required to exercise professional
responsibility over the services,
including quality controls. In situations
For purposes of Medicare payment,
section 1861(b) of the Act defines
‘‘inpatient hospital services’’ in part as
‘‘* * * the following items and services
furnished to an inpatient of a hospital
and (except as provided in paragraph
(3)) by the hospital—
(1) Bed and board;
(2) Such nursing services and other
related services, such use of hospital
facilities, and such medical social
services as are ordinarily furnished by
the hospital for the care and treatment
of inpatients * * *; and
(3) Such other diagnostic or
therapeutic items or services, furnished
by the hospital or by others under
arrangements with them made by the
hospital, as are ordinarily furnished to
inpatients either by such hospital or by
others under such arrangements;’’
We note that the statute specifies that
‘‘routine services,’’ for example, bed,
board, nursing and other related
services, except those specified at
paragraph (3) of section 1861(b) of the
Act are to be provided by ‘‘the hospital,’’
and not just ‘‘a hospital.’’ Similarly, our
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Procedure with Cardiac Catheterization
with CC), and 218 (Cardiac Valve &
Other Major Cardiothoracic Procedure
without CC/MCC) meet the criteria for
the special payment methodology.
Q. Hospital Services Furnished Under
Arrangements
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
Finally, we have determined that MS–
DRGs 216 (Cardiac Valve & Other Major
Cardiothoracic Procedure with Cardiac
Catheterization with MCC), 217 (Cardiac
Valve & Other Major Cardiothoracic
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in which certain routine services are
provided under arrangements ‘‘in the
hospital,’’ for example, contracted
nursing services, we believe the
arrangement generally results in the
hospital exercising the same level of
control over those services as the
hospital does in situations in which the
services are provided by the hospital’s
salaried employees. Therefore, if these
services are provided in the hospital to
its inpatients, we consider the services
as being provided by the hospital.
However, if these services are provided
outside the hospital, the services are
considered as being provided under
arrangement, and not by the hospital.
That is, consistent with the statute, only
therapeutic and diagnostic services can
be provided under arrangement. If we
finalize this proposed policy, we will
change the provisions of section 2118 of
the PRM–I accordingly.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
V. Proposed Changes to the IPPS for
Capital-Related 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 capital payments for each
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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).
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
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. Hospitals eligible for special
exceptions payments are required to
submit documentation to the fiscal
intermediary or MAC indicating the
completion date of their project. 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
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beyond the end of the capital IPPS
transition period. Under this limitation
on the period for special exceptions
payments at § 412.348(g)(7) of the
regulations, FY 2012 is the final year
hospitals can receive special exceptions
payments. (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
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.)
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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
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.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
E. Proposed Changes for FY 2012: MS–
DRG Documentation and Coding
Adjustment
1. Background
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 patient 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,
there are 747 MS–DRGs and we are
proposing 4 additional MS–DRGs for FY
2012.) By increasing the number of
DRGs and more fully taking into
account patient 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
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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
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 an
additional documentation and coding
adjustment of ¥0.9 percent to the FY
2009 IPPS national standardized
amounts and the national 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).)
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24092
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through 24101), we presented the
results of a retrospective evaluation of
the FY 2008 data for claims paid
through December 2008. We sought
public comment on our methodology
and analysis and our proposal to apply
a prospective adjustment to address the
effect of documentation and coding
changes unrelated to changes in real
case-mix in FY 2008. In addition, we
sought public comment on addressing
in the FY 2011 rulemaking cycle any
effect of documentation and coding
changes that do not reflect real changes
in case-mix for discharges occurring
during FY 2009. However, after
consideration of the public comments
received on the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, consistent
with the application of the
documentation and coding adjustment
to the operating IPPS standardized
amounts, we 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 could be completed
(74 FR 43926 through 43928).
For the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 24014), we
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 that has
already been applied to the national
capital Federal rate to ensure budget
neutrality for the implementation of
MS–DRGs. Specifically, we performed a
retrospective evaluation of the FY 2009
claims data updated through December
2009 using the same analysis
methodology as we did for FY 2008
claims in the FY 2010 IPPS/RY 2010
LTCH PPS proposed and final rules.
Based on this evaluation, our actuaries
determined that the implementation of
the MS–DRG system resulted in a 5.4
percent change in case-mix due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2009.
We also noted our intent to update our
analysis with FY 2009 data on claims
paid through March 2009 (sic) for the
FY 2011 IPPS/LTCH PPS final rule. (We
note that the March 2009 update date
for claims paid data in the proposed
rule should have stated March 2010.)
As intended, as discussed in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50355), we updated our analysis with
FY 2009 data on claims paid through
March 2010 in that final rule. For the FY
2011 IPPS/LTCH PPS final rule,
applying the same analysis methodology
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emcdonald on DSK2BSOYB1PROD with PROPOSALS2
as we did for the proposed rule to an FY
2009 claims data updated through
March 2010 verified the 5.4 percent
change in case-mix due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2009.
The 5.4 percent estimate of the
cumulative effect of changes in
documentation and coding under the
MS–DRG system that did not reflect real
changes in case-mix for FYs 2008 and
2009 exceeded the cumulative ¥1.5
percent prospective documentation and
coding adjustment that had already been
applied to the national capital Federal
rate by 3.9 percentage points (5.4
percent minus 1.5 percent). Therefore,
an additional cumulative adjustment of
¥3.9 percent to the national capital
Federal rate would be necessary to
eliminate the full effect of the
documentation and coding changes due
to the adoption of the MS–DRGs on
future payments.
Therefore, in that same final rule,
under the Secretary’s broad authority
under section 1886(g) of the Act,
consistent with section 1886(d)(3)(A)(vi)
of the Act and section 7(b) of Public
Law 110–90, we implemented an
adjustment to the FY 2011 national
capital Federal rate of ¥2.9 percent to
account for part of the effect of the
estimated changes in documentation
and coding changes under the MS–DRG
system that occurred in FYs 2008 and
2009 that did not reflect real changes in
case-mix. We also established that we
will leave the ¥2.9 percent adjustment
in place for subsequent fiscal years to
account for the effect of that
documentation and coding change in
subsequent years. Furthermore, we
stated our intention to address the
remaining estimated adjustment to the
national capital Federal rate of ¥1.0
percent (that is, the estimated effect of
documentation and coding changes
under the MS–DRG system of ¥5.4
percent minus the existing ¥0.6 percent
and ¥0.9 percent adjustments and the
¥2.9 percent adjustment for FY 2011)
in future rulemaking cycles.
2. Proposed Prospective MS–DRG
Documentation and Coding Adjustment
to the National Capital Federal Rate for
FY 2012 and Subsequent Years
We 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
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prospective adjustments for
documentation and coding applied in
FY 2008 and FY 2009 accurately
reflected the changes due to
documentation and coding that
occurred in those years. As noted in
section V.A. of this preamble, under
section 1886(g) of the Act, the Secretary
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 national 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 of illness (and costs).
As discussed above, based on our
retrospective evaluation of the FY 2009
claims, our actuaries determined that
implementation of the MS–DRG system
resulted in a 5.4 percent change in casemix due to documentation and coding
that did not reflect real changes in casemix for discharges occurring during FY
2009. To date, we have made
adjustments to the national capital
Federal rate to account for 4.4 percent
(that is, ¥0.6 percent in FY 2008, ¥0.9
percent in FY 2009, and ¥2.9 percent
in FY 2011) of the estimated 5.4 percent
documentation and coding effect. Thus,
our current estimate of the remaining
adjustment to the national capital
Federal rate is ¥1.0 percent to account
for the effect of documentation and
coding changes under the MS–DRG
system for FYs 2008 and 2009.
In this 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, consistent
with the intention we stated in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50357), we are proposing to reduce the
national capital Federal rate in FY 2012
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by ¥1.0 percent to account for the
remainder of the cumulative effect of
the estimated changes in documentation
and coding under the MS–DRG system
in FYs 2008 and 2009 that did not
reflect real changes in case-mix.
Furthermore, consistent with the
documentation and coding adjustments
we have made in the past, we are
proposing to leave this proposed ¥1.0
percent adjustment in place for
subsequent fiscal years to account for
the effect in FY 2012 and subsequent
years. As explained above, this
proposed ¥1.0 percent adjustment
accounts for the remainder of our
current estimate of the cumulative effect
of documentation and coding changes
under the MS–DRG system for FYs 2008
and 2009 of ¥5.4 percent minus the
existing ¥0.6 percent, ¥0.9 percent,
and ¥2.9 percent adjustments.
3. Documentation and Coding
Adjustment to the Puerto Rico-Specific
Capital Rate
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 2011 IPPS/LTCH
PPS final rule (75 FR 50358 through
50359), we discussed the retrospective
evaluation of the FY 2009 claims data
from the March 2010 update of the
MedPAR file of hospitals located in
Puerto Rico using the same
methodology used to estimate
documentation and coding changes
under IPPS for non-Puerto Rico
hospitals. This analysis shows that the
change in case-mix due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FYs 2008
and 2009 from hospitals located in
Puerto Rico was approximately 2.6
percent. (As discussed in that same final
rule, the Puerto Rico-specific capital
rate was not adjusted for the cumulative
effects of documentation and coding
changes in FY 2008 or FY 2009.) We
also explained that we continue to
believe that such an adjustment is
appropriate because all hospitals have
the same financial incentives for
documentation and coding
improvements, and the same ability to
benefit from the resulting increase in
aggregate payments that do not reflect
real changes in case-mix.
Given this case-mix increase due to
changes in documentation and coding
under the MS–DRGs, consistent with
the adjustment we made to the FY 2011
national capital Federal rate (discussed
above) and consistent with our
adjustment to the FY 2011 Puerto Ricospecific standardized amount, under the
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Secretary’s broad authority under
section 1886(g) of the Act, we
established an adjustment to the Puerto
Rico-specific capital rate of ¥2.6
percent in FY 2011 for the cumulative
increase in case-mix due to changes in
documentation and coding under the
MS–DRGs for FYs 2008 and 2009. In
addition, consistent with our
implementation of other prospective
MS–DRG documentation and coding
adjustments to the capital Federal rate
and operating IPPS standardized
amounts, we established that we will
leave that ¥2.6 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 in subsequent years. The
¥2.6 percent adjustment to the capital
Puerto Rico-specific rate that we made
in FY 2011 reflects the entire amount of
our current estimate of the effects of
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FYs 2008
and 2009 from hospitals located in
Puerto Rico. Consequently, in this
proposed rule, we are not proposing to
make any additional adjustments to the
capital Puerto Rico-specific rate for FY
2012 for the effect of documentation and
coding that did not reflect real changes
in case-mix.
F. Other Proposed Changes for FY 2012
The proposed annual update to the
capital IPPS national Federal and Puerto
Rico-specific rates, as provided for at
§ 412.308(c), for FY 2012 is discussed in
section III. of the Addendum to this
proposed rule.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
VI. Proposed 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. A 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, and updated
annually by a rate-of-increase
percentage. The updated target amount
was multiplied by total Medicare
discharges during that period 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,
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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
IPPS-excluded 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.)
We are proposing that the FY 2012
rate-of-increase percentage to be applied
to the target amount for cancer and
children’s hospitals and RNHCIs be the
estimated FY 2012 percentage increase
in the IPPS operating market basket,
estimated to be 2.8 percent. Beginning
with FY 2006, we have used the
percentage increase in the IPPS
operating market basket to update the
target amounts for children’s and cancer
hospitals. As explained in the FY 2006
IPPS final rule (70 FR 47396 through
47398), with IRFs, IPFs, and LTCHs
being paid under their own PPS, the
remaining number of providers being
paid based on reasonable cost subject to
a ceiling (that is, children’s hospitals, 11
cancer hospitals, and RNHCIs) is too
small and the cost report data are too
limited to be able to create a market
basket solely for these hospitals. For FY
2012, we are proposing to continue to
use the IPPS operating market basket to
update the target amounts for children’s
and cancer hospitals and RNHCIs for the
reasons discussed in the FY 2006 IPPS
final rule.
Therefore, we are proposing to use the
revised and rebased FY 2006-based IPPS
operating market basket to update the
target amounts for children’s and cancer
hospitals and RNHCIs for FY 2012.
Based on IHS Global Insight, Inc.’s 2011
first quarter forecast, with historical
data through the 2010 fourth quarter, we
are estimating that the FY 2012 update
to the IPPS operating market basket
would be 2.8 percent (that is, the
estimate of the market basket rate-ofincrease). (We are proposing that if more
recent data become available for the
final rule, we would use them to
calculate the IPPS operating market
basket update for FY 2012.)
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
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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 proposed rule for the
specific proposed update changes to the
Federal payment rates for LTCHs under
the LTCH PPS for FY 2012. The annual
updates for the IRF PPS and the IPF PPS
are issued by the agency in separate
Federal Register documents.
B. Critical Access Hospital (CAH)
Payment for Ambulance Services
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. Section
1834(l) of the Act sets forth the payment
rules for ambulance services. Generally,
payment to ambulance providers and
suppliers for ambulance services are
made under the ambulance fee
schedule. Section 205 of Public Law
106–554 (BIPA) amended section
1834(l) of the Act by adding a paragraph
(8) to that section, which provides that
the Secretary shall pay the reasonable
costs incurred in furnishing ambulance
services if such services are furnished
by a CAH (as defined in section
1861(mm)(1) of the Act), or by an entity
that is owned and operated by a CAH,
but only if the CAH or entity is the only
provider or supplier of ambulance
services that is located within a 35-mile
drive of the CAH. The term ‘‘provider of
ambulance services’’ includes all
Medicare-participating providers that
submit claims under Medicare for
ambulance services (for example,
hospitals, CAHs, skilled nursing
facilities (SNFs), and home health
agencies (HHAs)). The term ‘‘supplier of
ambulance services’’ is defined as an
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entity that provides ambulance services
and that is independent of any
Medicare-participating or nonMedicare-participating provider.
Section 205 was effective for services
furnished on or after December 21,
2000. Regulations implementing section
1834(l)(8) of the Act are set forth at 42
CFR 413.70(b)(5).
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50361), we implemented
section 3128(a) of the Affordable Care
Act, which amended section 1834(l)(8)
of the Act by inserting ‘‘101 percent of’’
before ‘‘the reasonable costs.’’ As such,
section 3128(a) increased payment for
ambulance services furnished by a
qualifying CAH or entity owned and
operated by a CAH to 101 percent of
reasonable costs, effective for cost
reporting periods beginning on or after
January 1, 2004. We amended the
regulations at § 413.70(b)(5)(i) to
conform to this statutory change by
stating that, effective for cost reporting
periods beginning on or after January 1,
2004, payment for ambulance services
furnished by a CAH or an entity that is
owned and operated by a CAH is 101
percent of the reasonable costs of the
CAH or the entity in furnishing those
services, but only if the CAH or the
entity furnishing those services is the
only provider or supplier of ambulance
services located within a 35-mile drive
of the CAH or the entity.
2. Requirement for CAH Ambulance
Within a 35-Mile Location of a CAH or
Entity
Section 413.70(b)(5) of the existing
regulations states that payment for
ambulance services furnished by a CAH
or an entity that is owned and operated
by a CAH is 101 percent of reasonable
costs of the CAH or the entity in
furnishing those services, but only if the
CAH or the entity is ‘‘the only provider
or supplier of ambulance services
located within a 35-mile drive of the
CAH or the entity’’. However, the
statutory language at section 1834(l)(8)
of the Act states that a CAH is eligible
to be paid based on 101 percent of
reasonable cost for ambulance services
furnished by the CAH or by an entity
that is owned and operated by a CAH,
but only if the CAH or entity is the only
provider or supplier of ambulance
services that is located within a 35-mile
drive of such CAH. Because the statute
only requires that there be no other
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provider or supplier of ambulance
services within a 35-mile drive of the
CAH and does not address whether
there is another provider or supplier of
ambulance services within a 35-mile
drive of the CAH-owned and operated
entity, we believe that the existing
regulation is not consistent with the
plain reading of the statutory language
at section 1834(l)(8) of the Act. In
addition, we believe the plain reading of
the statutory language at section
1834(l)(8) of the Act does not address
the situation where there is no provider
or supplier of ambulance services
within a 35-mile drive of the CAH, but
there is a CAH-owned and operated
entity furnishing ambulance services
that is more than a 35-mile drive from
the CAH, thus creating a ‘‘gap’’ in the
statutory language. That is, the statutory
language does not address the situation
where the entity that is owned and
operated by the CAH is located more
than a 35-mile drive from the CAH.
In order to ensure that the regulations
are consistent with the plain language of
section 1834(l)(8) of the Act, we are
proposing to revise § 413.70(b)(5)(i) by
adding a new paragraph (C) to state that,
effective for cost reporting periods
beginning on or after October 1, 2011,
payment for ambulance services
furnished by a CAH or by a CAH-owned
and operated entity is 101 percent of
reasonable costs of the CAH or the
entity in furnishing those services, but
only if the CAH or the entity is the only
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH (Figure 1). Under this
proposed change, the CAH-owned and
operated entity would be paid 101
percent of reasonable cost for its
ambulance services only if there is no
other provider or supplier of ambulance
services within a 35-mile drive of the
CAH. However, if there is a provider or
supplier of ambulance services located
within a 35-mile drive of the CAH
(Figure 2), the CAH-owned and operated
entity would not be paid at 101 percent
of reasonable cost, but instead would be
paid under the ambulance fee-schedule.
In addition, we are proposing to
establish a policy that would address
the ‘‘gap’’ in the statutory language, that
is, where the CAH-owned and operated
entity furnishing ambulance services is
more than a 35-mile drive from the
CAH, but there is no other provider or
supplier of ambulance services located
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25969
within a 35-mile drive of the CAH. We
are proposing to include in the
proposed new paragraph (C) of
§ 413.70(b)(5)(i) a provision which states
that, effective for cost reporting periods
beginning on or after October 1, 2011, if
there is no provider or supplier of
ambulance services within a 35-mile
drive of the CAH but there is a CAHowned and operated entity that is more
than a 35-mile drive from the CAH, the
CAH-owned and operated entity would
be paid at 101 percent of reasonable cost
for its ambulance services as long as that
entity is the closest provider or supplier
of ambulance services to the CAH
(Figure 3). Allowing the CAH-owned
and operated entity to be paid at 101
percent of reasonable cost if there is no
other provider or supplier of ambulance
services that is closer to the CAH is
consistent with the original purpose of
section 1834(l)(8) of the Act, which was
intended to help ensure an adequate
level of ambulance services in areas
served by CAHs. The statute allows for
reasonable cost-based payment only if
there is no other provider or supplier of
ambulance services within a 35-mile
drive of the CAH. If there is another
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH, the statute does not allow
for payment to the CAH or a CAHowned and operated entity at 101
percent of reasonable cost because there
is an adequate level of ambulance
services available. Accordingly, where a
CAH-owned and operated entity is
located more than a 35-mile drive from
the CAH, we are proposing to allow
payment at 101 percent of reasonable
cost only if there is no other provider or
supplier of ambulance services located
closer to the CAH. If there is a closer
provider or supplier of ambulance
services, that closer provider or supplier
would also be assuring an adequate
level of ambulance services in the area
served by the CAH, and there would be
no need to pay the CAH-owned and
operated entity at 101 percent of
reasonable cost in order to ensure access
to ambulance services. Therefore, if the
CAH-owned and operated entity
(located more than a 35-mile drive from
the CAH) is not the closest provider or
supplier of ambulance services to the
CAH (Figure 4), the CAH-owned and
operated entity would be reimbursed
under the ambulance fee schedule.
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services within a 35-mile drive of the
CAH.
schedule for its ambulance services
because the CAH-owned and operated
entity is not the only provider or
supplier of ambulance services located
within a 35-mile drive of the CAH.
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reasonable cost for its ambulance
service because there is no other
provider or supplier of ambulance
Figure 2:
The CAH-owned and operated entity
would be paid under the ambulance fee
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
Figure 1:
The CAH-owned and operated entity
would be paid at 101 percent of
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
25971
reasonable cost for its ambulance
services because even though the CAHowned and operated entity is more than
a 35-mile drive from the CAH, it is the
closest provider or supplier of
ambulance services to the CAH.
Figure 4:
The CAH-owned and operated entity
would receive payment under the
ambulance fee schedule for its
ambulance service because there is
another provider or supplier of
ambulance services that is closer to the
CAH than the CAH-owned and operated
entity.
In summary, we are proposing to
amend § 413.70(b)(5)(i) by adding a new
paragraph (C) to state that, effective for
cost reporting periods beginning on or
after October 1, 2011, payment for
ambulance services furnished by a CAH
or by a CAH-owned and operated entity
is 101 percent of reasonable costs of the
CAH or the entity in furnishing those
services, but only if the CAH or the
entity is the only provider or supplier of
ambulance services located within a 35mile drive of the CAH. In addition, we
are proposing to include in the
proposed new § 413.70(b)(5)(i)(C) a
provision to state that, effective for cost
reporting periods beginning on or after
October 1, 2011, if there is no provider
or supplier of ambulance services
located within a 35-mile drive of the
CAH, but there is a CAH-owned and
operated entity more than a 35-mile
drive from the CAH, the CAH-owned
and operated entity would be paid at
101 percent of reasonable cost for its
ambulance services as long as that entity
is the closest provider or supplier of
ambulance services to the CAH. We also
are making a conforming change to
§ 413.70(b)(5)(i)(B) to make the effective
date of that paragraph consistent with
the effective date of the new proposed
paragraph (C).
VII. Proposed Changes to the LongTerm Care Hospital Prospective
Payment System (LTCH PPS) for FY
2012
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). For the initial implementation
of the LTCH PPS (FYs 2003 through FY
2007), the system used information from
LTCH patient records to classify
patients into distinct long-term care
diagnosis-related groups (LTC–DRGs)
based on clinical characteristics and
expected resource needs. Beginning in
FY 2008, we adopted the Medicare
severity long-term care diagnosis-related
groups (MS–LTC–DRGs) as the patient
classification system used under the
LTCH PPS. 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)
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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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Figure 3:
The CAH-owned and operated entity
would be paid at 101 percent of
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(Pub. L. 97–248) for payments for
inpatient services provided by a LTCH
with a cost reporting period beginning
on or after October 1, 2002. (The
regulations implementing the TEFRA
reasonable cost-based payment
provisions are located at 42 CFR Part
413.) With the implementation of the
PPS for acute care hospitals authorized
by the Social Security Amendments of
1983 (Pub. L. 98–21), which added
section 1886(d) to the Act, certain
hospitals, including LTCHs, were
excluded from the PPS for acute care
hospitals and were paid their reasonable
costs for inpatient services subject to a
per discharge limitation or target
amount under the TEFRA system. For
each cost reporting period, a 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,
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
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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 referred to the July
through June time period as a ‘‘long-term
care hospital rate year’’ (LTCH PPS rate
year). In addition, we changed the
publication schedule for the annual
update to allow for an effective date of
July 1. The payment amounts and
factors used to determine the annual
update of the LTCH PPS Federal rate are
based on a LTCH PPS rate year. In the
past, while the LTCH payment rate
updates were 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 the RY 2009
LTCH PPS final rule (73 FR 26797
through 26798), 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 relative weights now
occur on the same schedule and appear
in the same publication. As a result, the
updates to the rates and the relative
weights are now effective on October 1
(on a Federal fiscal year schedule), and
the annual updates to the LTCH PPS
Federal rates are no longer published
with a July 1 effective date.
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, Public
Law 110–173 also required the Secretary
to submit, no later than 18 months after
the date of enactment of the law, a
report to Congress on a study of national
long-term care hospital facility and
patient criteria 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 sections 114(c)(1) and
(c)(2) of Public Law 110–173 focused on
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providing 3 years of relief for certain
LTCHs from the percentage threshold
payment adjustment policy at 42 CFR
412.534 and 412.536. However, because
of the original implementation schedule
of those sections of the regulations, the
payment provisions had varying
timeframes of applicability (73 FR
29701 through 29704). In addition,
section 114(c)(3) of 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). In addition, section 114(c)(4) of
Public Law 110–173 provided that the
Secretary shall not, for the 3-year period
beginning on the date of enactment of
the Act, make the one-time adjustment
to the payment rates provided for in
§ 412.523(d)(3) or any similar provision
(73 FR 26800 through 26804). 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) (73 FR 24875
through 24877). Section 114(d) of Public
Law 110–173 established a 3-year
moratorium (with specified exceptions)
on the establishment and classification
of new LTCHs, LTCH satellites, and on
the increase in the number of LTCH
beds in existing LTCHs or satellite
facilities. Finally, section 114(f) of
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 26804 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
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 that were necessary as a result
of the statutory changes of Public Law
110–173 were addressed in separate
interim final rules with comment period
(73 FR 24871 and 73 FR 29699). In the
FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43976 through 43990), we
addressed all of the public comments
received and finalized these two interim
final rules with comment period.
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. Specifically,
section 4302(a) modified the effective
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dates of the provisions of section 114(c)
of Public Law 110–173, described
above, and added an additional category
of LTCHs or satellite facilities that
would not be subject to the percentage
threshold payment adjustment at
§ 412.536 for a 3-year period. In
addition, section 4302(a)(2)(A) of Public
Law 111–5 added ‘‘grandfathered’’
satellites (specified in § 412.22(h)(3)(i)
of the regulations) to those ‘‘applicable’’
LTCHs (specified in § 412.534(g) of the
regulations) originally granted relief
under section 114(c) of Public Law 110–
173. We issued instructions to the fiscal
intermediaries and MACs interpreting
the provisions of section 4302 of Public
Law 111–5 (Change Request 6444). In
addition, in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43990
through 43992), we implemented the
provisions of section 4302 of Public Law
111–5 through an interim final rule with
comment period. We received one piece
of timely correspondence regarding the
provisions of section 4302 of Public Law
111–5 that were implemented through
the interim final rule with comment
period that was included in the FY 2010
IPPS/RY 2010 LTCH PPS final rule. We
addressed this public comment and
finalized the interim final rule with
comment period in section VII.E. of the
preamble of the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50399).
As discussed in the FY 2011 IPPS/
LTCH PPS final rule, a number of the
provisions of the Affordable Care Act
affected the policies, payment rates and
factors under the LTCH PPS.
Specifically, section 1886(m)(3)(A)(ii) of
the Act, as added by section 3401(c) of
the Affordable Care Act, specifies that,
for each of rate years 2010 through 2019,
any annual update to the standard
Federal rate shall be reduced by the
other adjustment specified in new
section 1886(m)(4) of the Act.
Furthermore, section 1886(m)(3)(A)(i) of
the Act specifies that, for rate year 2012
and subsequent rate years, any annual
update to the standard Federal rate shall
be reduced by the productivity
adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. Section
1886(m)(3)(A)(ii) and sections
1886(m)(4)(A) and (B) of the Act require
a 0.25 percentage point reduction for
rate year 2010 and a 0.50 percentage
point reduction for rate year 2011.
Section 1886(m)(3)(B) of the Act
provides that the application of
paragraph (3) of section 1886(m) of the
Act may result in the annual update
being less than zero for a rate year, and
may result in payment rates for a rate
year being less than such payment rates
for the preceding rate year. Furthermore,
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section 3401(p) of the Affordable Care
Act specifies that the amendments made
by section 3401(c) of such Act shall not
apply to discharges occurring before
April 1, 2010 (75 FR 50387 through
50390). Sections 3106 and 10312 of the
Affordable Care Act together provide for
a 2-year extension to the payment
policies applicable to LTCHs and LTCH
satellite facilities set forth in sections
114(c) and (d)(1) of the MMSEA, as
amended by the ARRA. Specifically,
sections 3106 and 10312 of the
Affordable Care Act together result in
the phrase ‘‘3-year period’’ being
replaced with the phrase ‘‘5-year period’’
each place it appears in sections 114(c)
and (d)(1) of MMSEA, as amended by
the ARRA. As discussed in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50399
through 50400), sections 3106 and
10312 of the Affordable Care Act, which
amended sections 114(c) and (d)(1) of
the MMSEA, as amended by the ARRA,
result in the following:
• An additional 2-year delay in the
application of the SSO payment
adjustment, which would have applied
the additional payment option of an
‘‘IPPS comparable’’ payment to LTCHs
for certain SSO cases where the covered
length of stay is less than or equal to the
‘‘IPPS comparable threshold.’’ Therefore,
the Secretary will not apply this SSO
payment adjustment for the 5-year
period beginning on the date of
enactment of MMSEA (December 29,
2007).
• An additional 2-year delay in the
one-time prospective budget neutrality
adjustment to the standard Federal rate
(§ 412.523(d)(3)). Thus, the Secretary is
precluded from making the one-time
adjustment to standard Federal rate
until December 29, 2012.
• An increase from 3 years to 5 years
to the timeframes set forth in section
114(c) of the MMSEA as amended by
the ARRA, thereby extending for an
additional 2 years the delay in the
application of the 25-percent payment
threshold policy for certain LTCHs and
LTCH satellite facilities (§§ 412.534 and
412.536), and extending for an
additional 2 years, the increased
percentage thresholds outlined at
section 114(c)(2) of the MMSEA as
amended by the ARRA.
• Additional 2-year extensions of the
moratorium on the establishment of new
LTCHs and LTCH satellite facilities and
the moratorium on the increase of LTCH
beds in existing LTCHs or satellite
facilities as provided by section 114(d)
of the MMSEA as amended by the
ARRA. In general, section 114(d) of the
MMSEA as amended by the ARRA
precluded the establishment and
classification of new LTCHs or LTCH
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satellite facilities or additional beds
from being added to existing LTCHs or
LTCH satellite facilities unless one of
the specified exceptions to the
particular moratorium was met.
2. Criteria for Classification as a LTCH
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,
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
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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).
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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. Proposed Medicare Severity LongTerm Care Diagnosis-Related Group
(MS–LTC–DRG) Classifications and
Relative Weights for FY 2012
1. Background
Section 123 of the BBRA requires that
the Secretary implement a PPS for
LTCHs (that is, a per discharge system
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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
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).’’ 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 and rationale for the
use 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
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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). The MS–DRG
classifications are updated annually. As
described in section II.G. of this
preamble, for FY 2012 we are proposing
to delete one MS–DRG and create two
new MS–DRGs for a net gain of one MS–
DRG. If this proposal is adopted, we
would have a total of 751 MS–DRG
groupings. Consistent with section 123
of the BBRA, as amended by section
307(b)(1) of the BIPA, and § 412.515 of
the regulations, 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 VII.B.3.f. of this preamble, we
are proposing to continue to use lowvolume 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 are
proposing to group all of the lowvolume MS–LTC–DRGs into five
quintiles based on average charge per
discharge. (A detailed discussion of the
initial development and application of
the quintile methodology appears in the
August 30, 2002 LTCH PPS final rule
(67 FR 55978).) We also are proposing
to account for adjustments to payments
for short-stay outlier (SSO) cases (that
is, cases where the covered length of
stay at the LTCH is less than or equal
to five-sixths of the geometric average
length of stay for the MS–LTC–DRG).
Furthermore, we are proposing to 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
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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 proposed methodology to adjust the
FY 2011 MS–LTC–DRG relative weights
to account for nonmonotonically
increasing relative weights in section
VII.B.3.g. (Step 6) of this preamble.)
2. Patient Classifications Into MS–LTC–
DRGs
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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
MS–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
(procedure 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;
• Additional or secondary diagnoses;
• Surgical procedures;
• Age;
• Sex; and
• Discharge status of the patient.
Through FY 2010, the number of
secondary or additional diagnoses and
the number of surgical procedures
considered for MS–DRG assignment was
limited to eight and six, respectively. In
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50127), we established that, for
claims submitted on the 5010 format
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beginning January 1, 2011, we would
increase the capacity to process
diagnosis and procedure codes up to 25
diagnoses and 25 procedures. This
includes one principal diagnosis and up
to 24 secondary diagnoses for severity of
illness determinations. We refer readers
to section II.G.11.c. of the preamble of
the FY 2011 IPPS/LTCH PPS final rule
for a complete discussion of this change
(75 FR 50127).
Upon the discharge of the patient
from a LTCH, the LTCH must assign
appropriate diagnosis and procedure
codes from the most current version of
the International Classification of
Diseases, Ninth 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
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. (We refer readers to section
II.G.13. of this preamble for additional
information on the annual revisions to
the ICD–9–CM codes.)
With respect to the ICD–9–CM coding
system, we have been discussing the
conversion to the ICD–10–CM and the
ICD–10–PCS coding systems for many
years. As is discussed in detail in
section II.G.11. of the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50122
through 50127) and in section III.G.13 of
this proposed rule, the ICD–10 coding
systems applicable to hospital inpatient
services will be implemented on
October 1, 2013. In order for the
industry to make the necessary
conversions from ICD–9–CM to ICD–10–
CM and ICD–10–PCS, we proposed,
through the ICD–9–CM Coordination
and Maintenance Committee, to
consider a moratorium on updates to the
ICD–9–CM and ICD–10 coding sets. We
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refer readers to section II.G.13. of this
preamble for additional information on
the adoption of the ICD–10–CM and
ICD–10–PCS systems.
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).
We refer readers to section II.D. of the
FY 2008 IPPS final rule with comment
period for a detailed discussion about
the creation of MS–DRGs based on
severity of illness levels (72 FR 47141
through 47175).
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, certain cases are selected for
further development (74 FR 43949).
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
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
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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.
b. Proposed Changes to the MS–LTC–
DRGs for FY 2012
As specified by our regulations at
§ 412.517(a), which requires that the
MS–LTC–DRG classifications and
relative weights be updated annually
and consistent with our historical
practice of using the same patient
classification system under the LTCH
PPS as is used under the IPPS, we are
proposing to update the MS–LTC–DRG
classifications effective October 1, 2011,
through September 30, 2012 (FY 2012)
consistent with the proposed changes to
specific MS–DRG classifications
presented in section II.G. of this
proposed rule (that is, proposed
GROUPER Version 29.0). Therefore, the
proposed MS–LTC–DRGs for FY 2012
presented in this proposed rule are the
same as the proposed MS–DRGs that
would be used under the IPPS for FY
2012. In addition, because the proposed
MS–LTC–DRGs for FY 2012 are the
same as the proposed MS–DRGs for FY
2012, the other changes that affect MS–
DRG (and by extension MS–LTC–DRG)
assignments under proposed Version
29.0 of the GROUPER discussed in
section II.G. of the preamble of this
proposed rule, including the proposed
changes to the MCE software and
proposed changes to the ICD–9–CM
coding system, also would be applicable
under the LTCH PPS for FY 2012.
3. Development of the Proposed FY
2012 MS–LTC–DRG Relative Weights
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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.
Although the adoption of the MS–
LTC–DRGs resulted in some
modifications of existing procedures for
assigning weights in cases of zero
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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)),
the basic methodology for developing
the proposed FY 2012 MS–LTC–DRG
relative weights in this proposed 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
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 a MS–LTC–DRG with
a relative weight of 2 will, on average,
cost twice as much to treat as cases in
a MS–LTC–DRG with a relative weight
of 1.
b. Development of the Proposed MS–
LTC–DRG Relative Weights for FY 2012
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) (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 (RY 2008 LTCH PPS
final rule (72 FR 26882 through 26884)).
Consistent with § 412.517(b), we are
proposing to 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, we refer readers to the FY
2008 IPPS final rule (72 FR 47295
through 47296).) Thus, for this proposed
rule, the annual update to the MS–LTC–
DRG classifications and relative weights
for FY 2012 are based on the FY 2011
MS–LTC–DRG classifications and
relative weights established in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50613 through 50627).
c. Data
In this proposed rule, to calculate the
proposed MS–LTC–DRG relative
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weights for FY 2012, we are proposing
to obtain total charges from FY 2010
Medicare LTCH bill data from the
December 2010 update of the FY 2010
MedPAR file, which are the best
available data at this time, and to use
the proposed Version 29.0 of the
GROUPER to classify LTCH cases. We
also are proposing that if more recent
data become available, we would to use
those data and the finalized Version
29.0 of the GROUPER in establishing the
FY 2012 MS–LTC–DRG relative weights
in the final rule.
Consistent with our historical
methodology, we are proposing to
exclude 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. In addition, as is the case with the
IPPS, Medicare Advantage (Part C)
claims are now included in the MedPAR
files (74 FR 43808). Consistent with
IPPS policy, we are proposing to
continue to exclude such claims in the
calculations for the relative weights
under the LTCH PPS that are used to
determine payments for fee-for-service
Medicare claims. Specifically, we are
proposing to remove any claims from
the MedPAR files that have a GHO Paid
indicator value of ‘‘1,’’ which effectively
removes Medicare Advantage claims
from the relative weight calculations (73
FR 48532). Therefore, in the
development of the proposed FY 2012
MS–LTC–DRG relative weights in this
proposed rule, we are proposing to
exclude the data of 13 all-inclusive rate
providers and the 2 LTCHs that are paid
in accordance with demonstration
projects that had claims in the FY 2010
MedPAR file, as well as any Medicare
Advantage claims.
d. 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. To account for the fact
that cases may not be randomly
distributed across LTCHs, consistent
with the methodology we have used
since the implementation of the LTCH
PPS, we are proposing to continue to
use a hospital-specific relative value
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(HSRV) methodology to calculate the
proposed MS–LTC–DRG relative
weights for FY 2012. We believe this
method removes this hospital-specific
source of bias in measuring LTCH
average charges (67 FR 55985).
Specifically, we are proposing to reduce
the impact of the variation in charges
across providers on any particular
proposed 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
standardize charges for each LTCH by
converting its charges for each case to
hospital-specific relative charge values
and then adjust those values for the
LTCH’s case-mix. The adjustment for
case-mix is needed to rescale the
hospital-specific relative charge values
(which, by definition, average 1.0 for
each LTCH). The average relative weight
for a LTCH is its case-mix, so it is
reasonable to scale each LTCH’s average
relative charge value by its case-mix. In
this way, each LTCH’s relative charge
value is adjusted by its case-mix to an
average that reflects the complexity of
the cases it treats relative to the
complexity of the cases treated by all
other LTCHs (the average case-mix of all
LTCHs).
In accordance with our established
methodology, we are proposing to
continue to standardize charges for each
case by first dividing the adjusted
charge for the case (adjusted for SSOs
under § 412.529 as described below in
section VII.B.3.g. (step 3) of the
preamble of this proposed rule) by the
average adjusted charge for all cases at
the LTCH in which the case was treated.
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 (67 FR
55989).
Multiplying the resulting ratio by the
LTCH’s case-mix index accounts for the
fact that the same relative charges are
given greater weight at a LTCH with
higher average costs than they would at
a LTCH with low average costs, which
is needed to adjust each LTCH’s relative
charge value to reflect its case-mix
relative to the average case-mix for all
LTCHs. Because we standardize charges
in this manner, we count charges for a
Medicare patient at a LTCH with high
average charges as less resource
intensive than they would be at a LTCH
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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 casemix, 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.
e. Treatment of Severity Levels in
Developing the Proposed MS–LTC–DRG
Relative Weights
For purposes of determining the MS–
LTC–DRG relative weights, under our
historical methodology, 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 cross-walked
to other MS–LTC–DRGs based on the
clinical similarities and assigned the
relative weight of the cross-walked MS–
LTC–DRG (as described in greater detail
below). In this proposed rule, we are
proposing to continue to utilize these
same three categories of MS–LTC–DRGs
for purposes of determining the
proposed MS–LTC–DRG relative
weights for FY 2012. (We provide indepth discussions of our proposed
policy regarding weight-setting for
proposed low-volume MS–LTC–DRGs
in section VII.B.3.f. of the preamble of
this proposed rule and for proposed novolume MS–LTC–DRGs, under Step 5 in
section VII.B.3.g. of the preamble of this
proposed rule.)
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. In general, consistent
with our existing methodology, we are
proposing to use the following steps to
determine the proposed FY 2012 MS–
LTC–DRG relative weights: (1) If a
proposed MS–LTC–DRG has at least 25
cases, it is assigned its own proposed
relative weight; (2) if a proposed MS–
LTC–DRG has between 1 and 24 cases,
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it is assigned to a quintile for which we
compute a proposed relative weight for
all of the proposed MS–LTC–DRGs
assigned to that quintile; and (3) if a
proposed MS–LTC–DRG has no cases, it
is cross-walked to another proposed
MS–LTC–DRG based upon clinical
similarities to assign an appropriate
proposed relative weight (as described
below in detail in Step 5 of section
VII.B.3.g. of this preamble).
Furthermore, in determining the
proposed FY 2012 MS–LTC–DRG
relative weights, when necessary, we are
proposing to make adjustments to
account for nonmonotonicity, as
discussed in greater detail below in Step
6 of section VII.B.3.g. of this preamble.
We refer readers to the discussion in the
FY 2010 IPPS/RY LTCH PPS final rule
for our rationale for including an
adjustment for nonmonotonicity (74 FR
43953 through 43954).
f. Proposed Low-Volume MS–LTC–
DRGs
In order to account for proposed MS–
LTC–DRGs with low volume (that is,
with fewer than 25 LTCH cases),
consistent with our existing
methodology we are proposing, for
purposes of determining the proposed
FY 2012 MS–LTC–DRG relative weights,
to continue to employ the quintile
methodology for proposed low-volume
MS–LTC–DRGs, such that we group
those proposed ‘‘low-volume MS–LTC–
DRGs’’ (that is, proposed MS–LTC–DRGs
that contained between 1 and 24 cases
annually) into one of five categories
(quintiles) based on average charges (67
FR 55984 through 55995 and 72 FR
47283 through 47288). In determining
the proposed FY 2012 MS–LTC–DRG
relative weights in this proposed rule, in
cases where the initial assignment of a
proposed low-volume MS–LTC–DRG to
quintiles resulted in nonmonotonicity
within a base-DRG, in order to ensure
appropriate Medicare payments,
consistent with our historical
methodology, we are proposing to make
adjustments to the treatment of
proposed low-volume MS–LTC–DRGs to
preserve monotonicity, as discussed in
detail below in section VII.B.3.g. (Step
6) in this preamble.
In this proposed rule, using LTCH
cases from the December 2010 update of
the FY 2010 MedPAR file, we identified
277 MS–LTC–DRGs that contained
between 1 and 24 cases. This list of
proposed MS–LTC–DRGs was then
divided into one of the 5 low-volume
quintiles, each containing a minimum of
55 proposed MS–LTC–DRGs (277/5 = 55
with 2 proposed MS–LTC–DRG as the
remainder). We assigned a proposed
low-volume MS–LTC–DRG to a specific
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low-volume quintile by sorting the
proposed 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 is not evenly divisible by
5, the average charge of the low-volume
quintile was used to determine which of
the proposed low-volume quintiles
would contain the 2 additional
proposed low-volume MS–LTC–DRGs.
Specifically, after organizing the MS–
LTC–DRGs by ascending order by
average charge, we assigned the first
fifth (1st through 55th) of proposed lowvolume MS–LTC–DRGs (with the lowest
average charge) into Quintile 1. The
proposed MS–LTC–DRGs with the
highest average charge cases would be
assigned into Quintile 5. Because the
average charge of the 56th proposed
low-volume MS–LTC–DRG in the sorted
list is closer to the average charge of the
55th proposed low-volume MS–LTC–
DRG (assigned to Quintile 1) than to the
average charge of the 57th proposed
low-volume MS–LTC–DRG (assigned to
Quintile 2), we are proposing to assign
it to Quintile 1 (such that Quintile 1
would contain 56 proposed low-volume
MS–LTC–DRGs before any adjustments
for nonmonotonicity, as discussed
below). This process was repeated
through the remaining proposed lowvolume MS–LTC–DRGs so that 3 of the
5 low-volume quintiles contain 55
proposed MS–LTC–DRGs (Quintiles 2,
3, and 5) and the other 2 low-volume
quintiles contain 56 proposed MS–LTC–
DRGs (Quintiles 1 and 4). Table 13A,
which is listed in section VI. of the
Addendum to this proposed rule and is
available via the Internet, lists the
composition of the proposed lowvolume quantitles for MS–LTC–DRGs
for FY 2012.
Accordingly, in order to determine
the proposed FY 2012 relative weights
for the proposed MS–LTC–DRGs with
low volume, we are proposing to use the
5 low-volume quintiles described above.
The proposed composition of each of
the 5 low-volume quintiles shown in the
chart below was used in determining
the proposed FY 2012 MS–LTC–DRG
relative weights (as shown in Table 11
listed in section VI. of the Addendum to
this proposed rule and available via the
Internet). We determined a proposed
relative weight and (geometric) average
length of stay for each of the 5 lowvolume quintiles using the methodology
that we are proposing to apply to the
proposed MS–LTC–DRGs (25 or more
cases), as described in section VII.B.3.g.
of the preamble of this proposed rule.
We are proposing to assign the same
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relative weight and average length of
stay to each of the proposed low-volume
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 proposed
low volume of LTCH cases will vary in
the future. We are proposing to use the
best available claims data in the
MedPAR file to identify proposed lowvolume MS–LTC–DRGs and to calculate
the proposed relative weights based on
our methodology.
We note that we will continue to
monitor the volume (that is, the number
of LTCH cases) in the low-volume
quintiles to ensure that our quintile
assignments used in determining the
proposed MS–LTC–DRG relative
weights result in appropriate payment
for such cases and do not result in an
unintended financial incentive for
LTCHs to inappropriately admit these
types of cases.
g. Steps for Determining the Proposed
FY 2012 MS–LTC–DRG Relative
Weights
In this proposed rule, we are
proposing, in general, to determine the
FY 2012 MS–LTC–DRG relative weights
based on our existing methodology. For
additional information on the original
development of this methodology, and
modifications to it since the adoption of
the MS–LTC–DRGs, we refer readers to
the August 30, 2002 LTCH PPS final
rule (67 FR 55989 through 55995) and
the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43951 through 43966).
In summary, for FY 2012, to
determine the proposed FY 2012 MS–
LTC–DRG relative weights, we are
proposing to group LTCH cases to the
appropriate proposed MS–LTC–DRG,
while taking into account the proposed
low-volume quintile (as described
above). After grouping the cases to the
appropriate MS–LTC–DRG (or lowvolume quintile), we are proposing to
calculate the proposed FY 2012 relative
weights by first removing statistical
outliers and cases with a length of stay
of 7 days or less (as discussed in greater
detail below). Next, we are proposing to
adjust the number of cases in each MS–
LTC–DRG (or low-volume quintile) for
the effect of SSO cases (step 3 below).
After removing statistical outliers (step
1 below) and cases with a length of stay
of less than 8 days (step 2 below), the
SSO adjusted discharges and
corresponding charges were then used
to calculate proposed ‘‘relative adjusted
weights’’ for each proposed MS–LTC–
DRG (or proposed low-volume quintile)
using the HSRV method.
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Below we discuss in detail the steps
for calculating the proposed FY 2012
MS–LTC–DRG relative weights. We note
that, as we stated in section VII.B.3.c. of
this preamble, we excluded the data of
all-inclusive rate LTCHs, LTCHs that are
paid in accordance with demonstration
projects, and any Medicare Advantage
claims in the FY 2010 MedPAR file.
Step 1—Remove statistical outliers.
The first step in the calculation of the
proposed FY 2012 MS–LTC–DRG
relative weights is to remove statistical
outlier cases. Consistent with our
historical relative weight methodology,
we are proposing to 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 proposed MS–LTC–DRG. These
statistical outliers are removed prior to
calculating the proposed relative
weights because we believe that they
may represent aberrations in the data
that distort the measure of average
resource use. Including those LTCH
cases in the calculation of the proposed
relative weights could result in an
inaccurate relative weight that does not
truly reflect relative resource use among
the proposed MS–LTC–DRGs. (For
additional information on this step of
the relative weight methodology, we
refer readers to 67 FR 55989 and 74 FR
43959.)
Step 2—Remove cases with a length
of stay of 7 days or less.
The proposed 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
proposed FY 2012 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
proposed FY 2012 MS–LTC–DRG
relative weights, we removed LTCH
cases with a length of stay of 7 days or
less. (For additional information on this
step of the relative weight methodology,
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we refer readers to 67 FR 55989 and 74
FR 43959.)
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 proposed FY
2012 MS–LTC–DRG relative weights,
consistent with our historical relative
weight methodology, we are proposing
to adjust 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 are proposing to make 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
proposed 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
proposed 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 proposed MS–LTC–DRG.
Counting SSO cases as full discharges
with no adjustment in determining the
proposed FY 2012 MS–LTC–DRG
relative weights would lower the
proposed FY 2012 MS–LTC–DRG
relative weight for affected proposed
MS–LTC–DRGs because the relatively
lower charges of the SSO cases would
bring down the average charge for all
cases within a proposed MS–LTC–DRG.
This would result in an ‘‘underpayment’’
for non-SSO cases and an
‘‘overpayment’’ for SSO cases. Therefore,
we are proposing to adjust for SSO cases
under § 412.529 in this manner because
it results in more appropriate payments
for all LTCH cases. (For additional
information on this step of the relative
weight methodology, we refer readers to
67 FR 55989 and 74 FR 43959.)
Step 4—Calculate the proposed FY
2012 MS–LTC–DRG relative weights on
an iterative basis.
Consistent with our historical relative
weight methodology, we are proposing
to calculate the proposed FY 2012 MS–
LTC–DRG relative weights using the
HSRV methodology, which is an
iterative process. First, for each LTCH
case, we are proposing to calculate a
hospital-specific 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
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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 a proposed adjusted
hospital-specific relative charge value
for the case. An initial case-mix index
value of 1.0 is used for each LTCH.
For each proposed MS–LTC–DRG, we
are proposing to calculate the proposed
FY 2012 relative weight by dividing the
average of the adjusted hospital-specific
relative charge values (from above) for
the proposed MS–LTC–DRG by the
overall average hospital-specific relative
charge value across all cases for all
LTCHs. Using these recalculated
proposed MS–LTC–DRG relative
weights, each LTCH’s average relative
weight for all of its cases (that is, its
case-mix) is calculated by dividing the
sum of all the LTCH’s proposed MS–
LTC–DRG relative weights by its total
number of cases. The LTCHs’ hospitalspecific relative charge values above
were 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 proposed 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 proposed FY
2012 relative weight for MS–LTC–DRGs
with no LTCH cases.
As we stated above, we are proposing
to determine the proposed FY 2012
relative weight for each proposed MS–
LTC–DRG using total Medicare
allowable total charges reported in the
best available LTCH claims data (that is,
the December 2010 update of the FY
2010 MedPAR file for this proposed
rule). Using these data, we identified a
number of proposed MS–LTC–DRGs for
which there were no LTCH cases in the
database, such that no patients who
would have been classified to those
proposed MS–LTC–DRGs were treated
in LTCHs during FY 2010 and,
therefore, no charge data were available
for these proposed MS–LTC–DRGs.
Thus, in the process of determining the
proposed MS–LTC–DRG relative
weights, we were unable to calculate
proposed relative weights for the
proposed 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 proposed MS–
LTC–DRGs may be treated at LTCHs,
consistent with our historical
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methodology, we are proposing to
assign a proposed relative weight to
each of the proposed 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). (For additional
information on this step of the relative
weight methodology, we refer readers to
67 FR 55991 and 74 FR 43959 through
43960.)
In general, we are proposing to
determine proposed FY 2012 relative
weights for the proposed MS–LTC–
DRGs with no LTCH cases in the FY
2010 MedPAR file used in this proposed
rule (that is, proposed ‘‘no-volume’’ MS–
LTC–DRGs) by cross-walking each novolume proposed MS–LTC–DRG to
another proposed MS–LTC–DRG with a
calculated proposed relative weight
(determined in accordance with the
proposed methodology described
above). Then, the proposed ‘‘no-volume’’
MS–LTC–DRG was assigned the same
relative weight (and average length of
stay) of the proposed MS–LTC–DRG to
which it was cross-walked (as described
in greater detail below).
Of the 751 proposed MS–LTC–DRGs
for FY 2012, we identified 237 proposed
MS–LTC–DRGs for which there were no
LTCH cases in the database (including
the 8 ‘‘transplant’’ proposed MS–LTC–
DRGs and 2 ‘‘error’’ proposed MS–LTC–
DRGs). As stated above, we are
proposing to assign relative weights for
each of the 237 proposed no-volume
MS–LTC–DRGs (with the exception of
the 8 ‘‘transplant’’ proposed MS–LTC–
DRGs and the 2 ‘‘error’’ proposed MS–
LTC–DRGs, which are discussed below)
based on clinical similarity and relative
costliness to one of the remaining 514
(751—237= 514) proposed MS–LTC–
DRGs for which we were able to
determine proposed relative weights
based on FY 2010 LTCH claims data
using the steps described above. (For the
remainder of this discussion, we refer to
the proposed ‘‘cross-walked’’ MS–LTC–
DRGs as the proposed MS–LTC–DRGs to
which we crosswalk one of the 237
proposed ‘‘no volume’’ MS–LTC–DRGs
for purposes of determining a proposed
relative weight.) Then, we assigned the
proposed no-volume MS–LTC–DRG the
proposed relative weight of the
proposed cross-walked MS–LTC–DRG.
(As explained below in Step 6, when
necessary, we made adjustments to
account for nonmonotonicity.)
For this proposed rule, we are
proposing to crosswalk the proposed novolume MS–LTC–DRG to a proposed
MS–LTC–DRG for which there were
LTCH cases in the FY 2010 MedPAR
file, and to which it is similar clinically
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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.
We evaluated the relative costliness in
determining the applicable proposed
MS–LTC–DRG to which a proposed novolume MS–LTC–DRG was crosswalked in order to assign an appropriate
proposed relative weight for the
proposed no-volume MS–LTC–DRGs in
FY 2012. (For more detail on our
process for evaluating relative
costliness, we refer readers to the FY
2010 IPPS/RY 2010 LTCH PPS final rule
(73 FR 48543).) We believe in the rare
event that there would be a few LTCH
cases grouped to one of the proposed
no-volume MS–LTC–DRGs in FY 2012,
the proposed relative weights assigned
based on the proposed cross-walked
MS–LTC–DRGs would 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 are proposing to then assign the
proposed relative weight of the
proposed cross-walked MS–LTC–DRG
as the proposed relative weight for the
proposed no-volume MS–LTC–DRG
such that both of these proposed MS–
LTC–DRGs (that is, the proposed novolume MS–LTC–DRG and the
proposed cross-walked MS–LTC–DRG)
have the same proposed relative weight
for FY 2012. We note that if the
proposed cross-walked MS–LTC–DRG
had 25 cases or more, its proposed
relative weight, which was calculated
using the proposed methodology
described in Steps 1 through 4 above,
was assigned to the proposed no-volume
MS–LTC–DRG as well. Similarly, if the
proposed MS–LTC–DRG to which the
no-volume MS–LTC–DRG is crosswalked had 24 or less cases and,
therefore, was designated to one of the
low-volume quintiles for purposes of
determining the proposed relative
weights, we assigned the proposed
relative weight of the applicable lowvolume quintile to the proposed novolume MS–LTC–DRG such that both of
these proposed MS–LTC–DRGs (that is,
the proposed no-volume MS–LTC–DRG
and the proposed cross-walked MS–
LTC–DRG) have the same proposed
relative weight for FY 2012. (As we
noted above, in the infrequent case
where nonmonotonicity involving a
proposed no-volume MS–LTC–DRG
results, additional adjustments as
described in Step 6 are required in order
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to maintain monotonically increasing
relative weights.)
For this proposed rule, a list of the
proposed no-volume MS–LTC–DRGs
and the proposed MS–LTC–DRG to
which it is cross-walked (that is, the
proposed cross-walked MS–LTC–DRG)
for FY 2012 is shown in Table 13B,
which is listed in section VI. of the
Addendum to this proposed rule and is
available via the Internet.
To illustrate this methodology for
determining the proposed relative
weights for the FY 2012 MS–LTC–DRGs
with no LTCH cases, we are providing
the following example, which refers to
the proposed no-volume MS–LTC–DRGs
crosswalk information for FY 2012
provided in Table 13B.
Example: There were no cases in the
FY 2010 MedPAR file used for this
proposed 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
proposed relative weight of MS–LTC–
DRG 70 of 0.8062 for FY 2012 to MS–
LTC–DRG 61 (Table 11, which is listed
in section VI. of the Addendum to this
proposed rule and is available vie the
Internet).
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 are
proposing to use the most recent
available claims data in the MedPAR
file to identify proposed no-volume
MS–LTC–DRGs and to determine the
proposed relative weights in this
proposed rule.
Furthermore, for FY 2012, consistent
with our historical relative weight
methodology, we are proposing to
establish proposed MS–LTC–DRG
relative weights of 0.0000 for the
following transplant proposed MS–
LTC–DRGs: Heart Transplant or Implant
of Heart Assist System with MCC
(proposed MS–LTC–DRG 1); Heart
Transplant or Implant of Heart Assist
System without MCC (proposed MS–
LTC–DRG 2); Liver Transplant with
MCC or Intestinal Transplant (proposed
MS–LTC–DRG 5); Liver Transplant
without MCC (proposed MS–LTC–DRG
6); Lung Transplant (proposed MS–
LTC–DRG 7); Simultaneous Pancreas/
Kidney Transplant (proposed MS–LTC–
DRG 8); Pancreas Transplant (proposed
MS–LTC–DRG 10); and Kidney
Transplant (proposed MS–LTC–DRG
652). This is because Medicare will only
cover these procedures if they are
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performed at a hospital that has been
certified for the specific procedures by
Medicare and presently no LTCH has
been so certified. At the present time,
we include these proposed eight
transplant MS–LTC–DRGs in the
GROUPER program for administrative
purposes only. Because we use the same
GROUPER program for LTCHs as is used
under the IPPS, removing these
proposed MS–LTC–DRGs would be
administratively burdensome. (For
additional information regarding our
treatment of transplant MS–LTC–DRGs,
we refer readers to the RY 2010 LTCH
PPS final rule (74 FR 43964).)
Step 6—Adjust the proposed FY 2012
MS–LTC–DRG relative weights to
account for nonmonotonically
increasing relative weights.
As discussed earlier in this section,
the MS–DRGs contain base DRGs that
have been subdivided into one, two, or
three severity of illness 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
DRG with CC/MCC and the DRG
without CC/MCC. Alternatively, the
other type of two-level subdivision may
consist of the DRG with MCC and the
DRG 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, proposed relative
weights should increase by severity,
from lowest to highest. If the proposed
relative weights decrease as severity
decreased (that is, if within a base
proposed MS–LTC–DRG, a proposed
MS–LTC–DRG with CC has a higher
proposed relative weight than one with
MCC, or the proposed MS–LTC–DRG
without CC/MCC has a higher proposed
relative weight than either of the
others), they are nonmonotonic. We
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continue to believe that utilizing
nonmonotonic relative weights to adjust
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 determining the
proposed FY 2012 MS–LTC–DRG
relative weights in this proposed rule,
consistent with our historical
methodology we are proposing to
combine proposed MS–LTC–DRG
severity levels within a base proposed
MS–LTC–DRG for the purpose of
computing a proposed relative weight
when necessary to ensure that
monotonicity is maintained. For a
comprehensive description of our
existing methodology to adjust for
nonmonotonicity, we refer readers to
the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43964 through 43966).
Any adjustments for nonmonotonicity
that were made in determining the
proposed FY 2012 MS–LTC–DRG
relative weights in this proposed rule by
applying this methodology are denoted
in Table 11, which is listed in sectin VI.
of the Addendum to this proposed rule
and is available via the Internet.
Step 7— Calculate the proposed FY
2012 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 to develop the LTCH
PPS under section 123 of Public Law
106–113, as amended by section 307(b)
of Public Law 106–554, 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
(§ 412.517(b) in conjunction with
§ 412.503). (For a detailed discussion on
the establishment of the budget
neutrality requirement for the annual
update of the MS–LTC–DRG
classifications and relative weights, we
refer readers to the RY 2008 LTCH PPS
final rule (72 FR 26881).)
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 (§ 412.517(a)
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in accordance with § 412.503). Under
the budget neutrality requirement at
§ 412.517(b), 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 are proposing to
update the MS–LTC–DRG classifications
and relative weights for FY 2012 based
on the most recent available LTCH data,
and to apply a budget neutrality
adjustment in determining the proposed
FY 2012 MS–LTC–DRG relative weights.
To ensure budget neutrality in the
proposed update to the MS–LTC–DRG
classifications and relative weights
under § 412.517(b), we are proposing to
continue to use our established two-step
budget neutrality methodology. In this
proposed rule, in the first step of our
proposed MS–LTC–DRG budget
neutrality methodology, we are
proposing for FY 2012 to calculate and
apply a proposed normalization factor
to the recalibrated proposed relative
weights (the result of Steps 1 through 6
above) to ensure that estimated
payments are not influenced by changes
in the composition of case types or the
changes to the classification system.
That is, the proposed normalization
adjustment is intended to ensure that
the recalibration of the proposed MS–
LTC–DRG relative weights (that is, the
process itself) neither increases nor
decreases the average CMI.
To calculate the proposed
normalization factor for FY 2012 (the
first step of our budget neutrality
methodology), we are proposing to use
the following three steps: (1.a.) We used
the most recent available LTCH claims
data (FY 2010) and grouped them using
the proposed FY 2012 GROUPER
(Version 29.0) and the proposed
recalibrated FY 2012 MS–LTC–DRG
relative weights (determined in steps 1
through 6 of the Steps for Determining
the Proposed FY 2012 MS–LTC–DRG
Relative Weights above) to calculate the
average CMI; (1.b.) we grouped the same
LTCH claims data (FY 2010) using the
FY 2011 GROUPER (Version 28.0) and
FY 2011 MS–LTC–DRG relative weights
and calculated the average CMI; and
(1.c.) we computed the ratio of these
average CMIs by dividing the average
CMI for FY 2011 (determined in Step
1.b.) by the proposed average CMI for
FY 2012 (determined in step 1.a.). In
determining the proposed MS–LTC–
DRG relative weights for FY 2012, each
proposed recalibrated MS–LTC–DRG
relative weight was multiplied by
1.11482 in the first step of the budget
neutrality methodology, which
produced ‘‘normalized relative weights.’’
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25981
In this proposed rule, in the second
step of our proposed MS–LTC–DRG
budget neutrality methodology, we are
proposing to determine 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 (that is, the proposed FY
2012 MS–LTC–DRG classifications and
relative weights) are equal to estimated
aggregate LTCH PPS payments before
reclassification and recalibration (that
is, the FY 2011 MS–LTC–DRG
classifications and relative weights).
Accordingly, consistent with our
existing methodology, we are proposing
to use FY 2010 discharge data to
simulate payments and compare
estimated aggregate LTCH PPS
payments using the FY 2011 MS–LTC–
DRGs and relative weights to estimate
aggregate LTCH PPS payments using the
proposed FY 2012 MS–LTC–DRGs and
relative weights. Furthermore,
consistent with our historical policy of
using the best available data, we also are
proposing that if more recent data
become available, we would use such
data to determine the budget neutrality
adjustment factor for FY 2012 in the
final rule.
For this proposed rule, we are
proposing to determine the proposed FY
2012 budget neutrality adjustment factor
using the following three steps: (2.a.) we
simulated estimated total LTCH PPS
payments using the proposed
normalized relative weights for FY 2012
and proposed GROUPER Version 29.0
(as described above); (2.b.) we simulated
estimated total LTCH PPS payments
using the FY 2011 GROUPER (Version
28.0) and the FY 2011 MS–LTC–DRG
relative weights shown in Table 11 of
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50613 through 50626); and (2.c.)
we calculated the ratio of these
estimated total LTCH PPS payments by
dividing the estimated total LTCH PPS
payments using the FY 2011 GROUPER
(Version 28.0) and the FY 2011 MS–
LTC–DRG relative weights (determined
in step 2.b.) by the estimated total LTCH
PPS payments using the proposed FY
2012 GROUPER (Version 29.0) and the
proposed normalized MS–LTC–DRG
relative weights for FY 2012
(determined in Step 2.a.). In
determining the proposed FY 2012 MS–
LTC–DRG relative weights, each
proposed normalized relative weight
was multiplied by a budget neutrality
factor of 0.994312 in the second step of
the proposed budget neutrality
methodology to determine the proposed
budget neutral FY 2012 relative weight
for each proposed MS–LTC–DRG.
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Accordingly, in determining the
proposed FY 2012 MS–LTC–DRG
relative weights in this proposed rule,
consistent with our existing
methodology, we are proposing to apply
a normalization factor of 1.11482 and a
budget neutrality factor of 0.994312
(computed as described above). Table
11, which is listed in sectin VI. of the
Addendum to this proposed rule and is
available via the Internet, lists the
proposed MS–LTC–DRGs and their
respective proposed relative weights,
geometric mean length of stay, and fivesixths of the geometric mean length of
stay (used in determining SSO
payments under § 412.529) for FY 2012.
The proposed FY 2012 MS–LTC–DRG
relative weights in Table 11, which is
listed in section VI. of the Addendum to
this proposed rule and available via the
Internet, reflect both the proposed
normalization factor of 1.11482 and the
proposed budget neutrality factor of
0.994312.
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C. Proposed Quality Reporting Program
for LTCHs
1. Background and Statutory Authority
CMS seeks to promote higher quality
and more efficient health care for
Medicare beneficiaries, and our efforts
are furthered by quality reporting
programs coupled with public reporting
of that information. Such quality
reporting programs already exist for
various settings such as hospital
inpatient services via the Hospital
Inpatient Quality Reporting (IQR)
Program (formerly called the Reporting
Hospital Quality Data for Annual
Payment Update (RHQDAPU) Program),
hospital outpatient services via the
Hospital Outpatient Quality Data
Reporting Program (HOP QDRP), and
physicians’ and other eligible
professionals’ services via the Physician
Quality Reporting System (formerly
called the Physician Quality Reporting
Initiative, or PQRI). We have also
implemented quality reporting programs
for home health agencies and skilled
nursing facilities that are based on
conditions of participation, and an endstage renal disease quality incentive
program (ESRD QIP) that links payment
to performance.
Section 3004(a) of the Affordable Care
Act authorizes an additional quality
reporting program for LTCHs, by adding
a new paragraph (5) to section 1886(m)
of the Act. Section 1886(m)(5)(A)(i) of
the Act requires that, for rate year 2014
and each subsequent rate year, the
Secretary shall reduce any annual
update to the standard Federal rate for
discharges occurring during such rate
year, by 2 percentage points, for any
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LTCH that does not comply with quality
data submission requirements with
respect to an applicable rate year. We
note that section 1886(m)(5) of the Act
uses the term ‘‘rate year.’’ Beginning
with the annual update to the LTCH
PPS that took effect on October 1, 2009,
we consolidated the rulemaking cycle
for the annual update of the LTCH PPS
Federal payment rates with the annual
update of the MS–LTC–DRG
classifications and weights so that the
annual updates to the rates and factors
have an October 1 effective date and
occur on the same schedule. To reflect
this change to the annual payment rate
update cycle, we revised the regulations
at § 412.503 to specify that, beginning
on or after October 1, 2009, the ‘‘LTCH
PPS rate year’’ is defined as October 1
through September 30 (73 FR 26797
through 26798 and 26838). Beginning
October 1, 2010, we changed from using
the term ‘‘rate year’’ to ‘‘fiscal year’’
under the LTCH PPS in order to
conform to the standard definition of
the Federal fiscal year (October 1
through September 30). For LTCH PPS
purposes, the term ‘‘rate year’’ and the
term ‘‘fiscal year’’ both refer to the time
period beginning October 1 and ending
September 30. For more information
regarding this terminology change, we
refer readers to the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50396 and 50397).
For purposes of the discussion below, in
order to eliminate any possible
confusion that may be caused by using
the term ‘‘rate year’’ with respect to the
proposed Quality Measurement
Reporting Program for LTCHs, we will
use the term ‘‘fiscal year’’ rather than
‘‘rate year.’’
As provided at section
1886(m)(5)(A)(ii) of the Act, depending
on the amount of annual update for a
particular year, a reduction of 2.0
percentage points may result in the
annual update being less than 0.0
percent for a fiscal year and may result
in payment rates under the LTCH PPS
being less than payment rates for the
preceding fiscal year. In addition, as set
forth at section 1886(m)(5)(B) of the Act,
any reduction based on failure to
comply with the reporting requirements,
as required by section 1886(m)(5)(A) of
the Act, shall apply only with respect to
the particular fiscal year involved, and
any such reduction shall not be taken
into account in computing the payment
rate for subsequent fiscal years.
Section 1886(m)(5)(C) of the Act
requires that, for fiscal year 2014 and
each subsequent fiscal year, each LTCH
shall submit to the Secretary data on
quality measures as specified by the
Secretary. Such data must be submitted
in a form and manner, and at a time,
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specified by the Secretary. Any
measures selected by the Secretary must
have been endorsed by the entity with
a contract under section 1890(a) of the
Act. This contract is currently held by
the NQF. 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 in our
reporting programs.
However, section 1886(m)(5)(D)(ii) of
the Act provides that, in the case of a
specified area or medical topic
determined appropriate by the Secretary
for which a feasible and practical
measure has not been endorsed by the
entity with a contract under section
1890(a) of the Act (currently, NQF), the
Secretary may specify a measure(s) that
is (are) not so endorsed, as long as due
consideration is given to measures that
have been endorsed or adopted by a
consensus organization identified by the
Secretary. Under section
1886(m)(5)(D)(iii) of the Act, the
Secretary shall publish, by no later than
October 1, 2012, measures which shall
be applicable with respect to the FY
2014 payment determination.
Section 1886(m)(5)(E) of the Act
requires the Secretary to establish
procedures for making data submitted
under the LTCH quality reporting
program available to the public. The
Secretary must ensure that each LTCH
has the opportunity to review the data
that are to be made public with respect
to that facility prior to such data being
made public. The Secretary must also
report quality measures that relate to
services furnished in LTCHs on the
CMS Web site.
2. Proposed Quality Measures for the
LTCH Quality Reporting Program for FY
2014
a. Considerations in the Selection of the
Proposed Quality Measures
In implementing the LTCH quality
reporting program, we believe that the
development of a quality reporting
program that is successful in promoting
the delivery of high quality health care
services in LTCHs is of paramount
importance. As the statute provides in
section 1886(m)(5)(D) of the Act, in
establishing the LTCH quality reporting
program, we must publish quality
measures to be reported with respect to
the FY 2014 payment determination no
later than October 1, 2012. In an effort
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to meet that mandate, we sought to
develop a quality reporting program that
incorporates overarching health care
aims and goals intended to facilitate
quality care in a manner that is effective
and meaningful, while remaining
mindful of reporting burden and
feasibility of data collection by LTCHs,
in order to reduce and avoid duplicative
reporting efforts when possible. We seek
to efficiently collect information on
valid, reliable, and relevant measures of
quality and to share this information
with the public, as provided at section
1886(m)(5)(E) of the Act.
Several provisions of the Affordable
Care Act, taken together, call on the
Secretary to establish a national strategy
to provide a comprehensive plan and
priorities to improve the delivery of
health care services, patient health
outcomes, and population health
through a transparent, collaborative
process. This strategy, the National
Quality Strategy, was released by the
Secretary (available on the Web site at:
https://www.healthcare.gov/center/
reports/quality03212011a.html#es). We
have used the priorities of the National
Quality Strategy to guide identification
of the proposed quality measures for
LTCHs under section 1886(m)(5) of the
Act.
We also applied the following
additional considerations and criteria in
selecting the proposed quality measures
for LTCHs: whether a measure is
included in, or facilitates alignment
with, other Medicare and Medicaid
programs; whether a measure addresses
HHS priorities, such as prevention, care
of chronic illness, high prevalence
conditions, patient safety, patient and
caregiver engagement, and care
coordination; and whether a measure is
evidence-based and may drive quality
improvement as well as has a low
probability of causing unintended
adverse consequences, such as reduced
LTCH admissions of higher risk
patients.
Furthermore, at the Listening Session
held on November 15, 2010, for the
Affordable Care Act section 3004 quality
reporting programs, we sought input,
and invited comments and suggestions,
regarding quality reporting, quality
measurement recommendation,
prioritization, and feasibility, and did
the same through the use of a Special
Open Door Forum held on December 16,
2010, for the Affordable Care Act
section 3004 quality reporting programs.
Transcripts for both the Listening
Session and the Open Door Forum can
be found on the CMS Web site at: https://
www.cms.gov/LTCH-IRF-HospiceQuality-Reporting.
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In addition, we invited suggestions
and input regarding the section 3004
quality reporting programs to be sent to
us using the CMS Web site mail box
LTCH-IRF-Hospice-QualityReportingComments@cms.hhs.gov
found at https://www.cms.gov/LTCH-IRFHospice-Quality-Reporting. We also
received suggestions and input from a
LTCH technical expert panel (TEP),
convened by the CMS measure
development contractor on January 31,
2011, that reviewed and prioritized the
quality measures identified by a LTCH
environmental scan led by a CMS
measures development contractor, RTI
International, specifically for the LTCH
quality reporting program. Specifically,
this TEP reviewed measures found in
the environmental scan and rated them
for importance, scientific soundness,
usability, and feasibility.
In sum, in selecting the proposed
quality measures discussed below, with
applicability for FY 2014 and
subsequent years, our goal is to achieve
several objectives. First, the proposed
measures should relate to the general
aims of better care for the individual,
better population health, and lower cost
through better quality. Second, the
proposed measures should promote
improved quality specifically to the
priorities that are of most relevance to
LTCHs. These include patient safety,
such as avoiding healthcare-associated
infections (HAIs) and adverse events,
better coordination of care, and personcentered and family-centered care.
Third, the proposed measures should
address improved quality for the
primary role of LTCHs, which is to
furnish extended medical care to
individuals with clinically complex
problems, such as multiple acute or
chronic conditions, that need hospitallevel care for relatively extended
periods of greater than 25 days.
b. Proposed LTCH Quality Measures for
FY 2014 Payment Determination
We are proposing that, for the FY
2014 payment determination, LTCHs
submit data on three quality measures:
(1) Urinary Catheter-Associated Urinary
Tract Infections (CAUTI); (2) Central
Line Catheter-Associated Blood Stream
Infection (CLABSI); and (3) Pressure
Ulcers that are New or Have Worsened
HAIs are a topic area widely
acknowledged by the HHS Action Plan
to Prevent HAIs, the Institute of
Medicine (IOM), the National Priorities
Partnership, and others as a high impact
priority requiring measurement and
improvement. Better care is one of the
aims found in the National Quality
Strategy, and patient safety is one of the
priorities. Mitigating HAIs is essential in
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25983
the improvement of patient safety, and,
therefore, patient care. HAIs are among
the leading causes of death in the
United States and, therefore, are serious
reportable events. CDC estimates that as
many as 2 million infections are
acquired each year in hospitals and
result in approximately 90,000 deaths
per year.50 HAIs not only put the patient
at risk, but also increase the days of
hospitalization required for patients and
add considerable health care costs.
Therefore, two of the three quality
measures proposed are HAI measures.
Other HAIs included in the HHS
Action Plan to Prevent HAIs were under
consideration for the LTCH quality
reporting program beginning October 1,
2012. However, the TEP convened by
the measure development contractor
recommended the two proposed
infection events, urinary catheterassociated urinary tract infection and
central line catheter-associated
bloodstream infection (each an episode
of an infection, such as CAUTI or
CLABSI) as highly pertinent, and
important for data collection as well as
most ready and currently feasible for
implementation in the LTCH setting.
HAI quality measures are important for
quality reporting, and we intend to
propose additional HAI measures
included in the HHS HAI Action Plan
to Prevent HAIs through future
rulemaking. These potential HAI quality
measures are listed in our discussion of
possible measures under consideration
for future years. At this time, we are
proposing the selection of the CLABSI
and CAUTI events as the two initial HAI
quality measures for the LTCH quality
measure reporting program.
(1) Proposed FY 2014 LTCH Measure
#1: Urinary Catheter-Associated Urinary
Tract Infections (CAUTI)
The first measure we are proposing
for LTCHs for purposes of the FY 2014
payment determination is an
application of the NQF-endorsed
measure developed by CDC for hospital
intensive care units (ICU) entitled
(NQF# CAUTI 0138) ‘‘Urinary CatheterAssociated Urinary Tract Infection
[CAUTI] rate per 1,000 urinary catheter
days, for Intensive Care Unit Patients’’ to
all LTCH care units. This measure was
developed by the CDC to measure the
percentage of patients with CAUTIs in
the ICU context. At the time we are
developing this proposed rule, the
measure we are applying, NQF CAUTI
#0138, is undergoing measure
50 McKibben L; Horan T: Guidance on public
reporting of healthcare-associated infections:
Recommendations of the Healthcare Infection
Control Practices Advisory Committee. AJIC
2005;33:217 through 226.
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maintenance review by NQF. This
review may result in a change in how
the CDC calculates the aggregated data
from using a rate for CAUTI, to the use
of a Standardized Infection Ratio (SIR)
of healthcare associated catheterassociated urinary tract infections. We
are proposing to adopt the current
measure in this rulemaking cycle.
However, we intend to propose the
adoption of any modifications to this
measure that may result from the NQF
review process in future rulemaking.
While it is fast becoming a medical
best practice to avoid urinary catheter
use whenever possible, this may not
always be possible with the LTCH
patient population, due to the severity
of their primary illnesses as well as
comorbidities. Patients who are exposed
to indwelling urinary catheters have a
significantly higher risk of developing
urinary tract infections (UTIs).
UTIs are a common cause of
morbidity and mortality. The HHS
National Action Plan to Prevent HAIs
identified catheter associated urinary
tract infections as the leading type of
HAI that is largely preventable, and the
occurrence of which can be drastically
reduced in order to reduce adverse
health care related events and avoid
excess costs.
The urinary tract is the most common
site of HAI, accounting for more than 30
percent of infections reported by acute
care hospitals.51 Healthcare-associated
UTIs are commonly attributed to
catheterization of the urinary tract.
CAUTI can lead to such
complications as cystitis,
pyelonephritis, gram-negative
bacteremia, prostatitis, epididymitis,
and orchitis in males and, less
commonly, endocarditis, vertebral
osteomyelitis, septic arthritis,
endophthalmitis, and meningitis in all
patients. Complications associated with
CAUTI also include discomfort to the
patient, prolonged hospital stay, and
increased cost and mortality. Each year,
more than 13,000 deaths are associated
with UTIs.2 Prevention of CAUTIs is
discussed in the CDC/HICPAC
document, Guideline for Prevention of
Catheter-associated Urinary Tract
Infections.52 The NQF-endorsed CAUTI
measure we are proposing is currently
collected by the National Healthcare
Safety Network (NHSN) as part of Statemandated reporting and surveillance
requirements for hospitals. We note that
51 Klevens RM, Edward JR, et al. Estimating
health care-associated infections and deaths in U.S.
hospitals, 2002. Public Health Reports
2007;122:160–166.
52 Wong ES. Guideline for prevention of catheterassociated urinary tract infections. Infect Control
1981;2:126–30.
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CDC’s NHSN is a secure Internet-based
surveillance system that currently has
data collection forms and data
submission and reporting mechanism in
place for LTCHs. NHSN is currently
used, in part, as one means by which
certain State-mandated reporting and
surveillance data are collected.
We recognize that the NQF has
endorsed this measure for the short
term, acute care ICU setting, but believe
that this measure is highly relevant to
LTCHs, in that urinary catheters are
commonly used in the LTCH care
setting. As previously noted, NQF
CAUTI #0138 is undergoing measure
maintenance review by NQF. This
review may result in a change in how
CDC calculates the aggregated data from
using a rate for CAUTI to the use of a
SIR). We are proposing to adopt the
current measure in this rule making
cycle. However, we intend to propose
the adoption of any modifications to
this measure that may result from the
NQF review process in future
rulemaking. The TEP convened by the
CMS measure development contractor
on January 31, 2011, identified CAUTI
as a high priority quality issue for
LTCHs, and there was agreement by this
TEP that this particular infection rate is
worthy of surveillance within LTCHs.
This measure is applicable for
surveillance in long-term care units
(CDC/NHSN Manual, Device-Associated
Module, CAUTI Event, which is
available on the CDC Web site at:
https://www.cdc.gov/nhsn/pdfs/
pscManual/7pscCAUTIcurrent.pdf.
Section 1886(m)(5)(D)(ii) of the Act
provides that ‘‘[i]n the case of a specified
area or medical topic determined
appropriate by the Secretary for which
a feasible and practical measure has not
been endorsed by the entity with a
contract under section 1890(a) [of the
Act], the Secretary may specify a
measure that is not so endorsed as long
as due consideration is given to
measures that have been endorsed or
adopted by a consensus organization
identified by the Secretary.’’ We
reviewed the NQF’s consensus-endorsed
measures and were unable to identify
any NQF-endorsed measures for urinary
catheter-associated urinary tract
infections for the LTCH setting. We are
unaware of any other measures for
catheter-associated urinary tract
infections that have been approved by a
voluntary consensus standards bodies
and endorsed by NQF. We are proposing
to adopt an application of this NQFendorsed (in the short-term acute care
ICU setting) measure under the
Secretary’s authority to select non-NQFendorsed measures. We are proposing to
adopt the measure under the exception
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authority provided in section
1886(m)(5)(D)(ii) of the Act. As
previously noted, NQF CAUTI #0138 is
undergoing measure maintenance
review by NQF. This review may result
in changes to this measure’s
specifications in how CDC calculates
the aggregated data from using a rate for
CAUTI to the use of a SIR. We are
proposing to adopt the current measure
in this rulemaking cycle. We intend to
propose the adoption of any
modifications to this measure that may
result from the NQF review process in
future rulemaking. We note that we
intend to ask NQF to formally extend its
endorsement of the CAUTI measure to
the LTCH setting.
(2) FY 2014 Measure #2: Central Line
Catheter-Associated Bloodstream
Infection (CLABSI)
The second measure we are proposing
for LTCHs for the FY 2014 payment
determination is an application of a
CDC-developed NQF-endorsed measure
for hospital ICU and high-risk nursery
patients; (NQF# CLABSI 0139) ‘‘Central
Line Catheter-Associated Bloodstream
Infection (CLABSI) Rate for ICU and
High-Risk Nursery (HRN) Patients.’’ This
is a measure of the percentage of ICU
and high-risk nursery patients who, over
a certain amount of days, acquired
central line catheter-associated
bloodstream infections over a specified
number of line days. At the time we are
developing this proposed rule, the
measure we are proposing to apply,
NQF CLABSI #0139, is undergoing
measure maintenance review by NQF.
This review may result in a change in
how CDC calculates the aggregated data
from using a rate for CLABSI to the use
of a SIR of health care associated
CLASBIs. We propose to adopt the
measure in its current state in this
rulemaking cycle. We intend to propose
the adoption of any modifications to
this measure that may result from the
NQF review process in a future rule
cycle.
A central line is a catheter that health
care providers often place in a large vein
in the neck, chest, or groin to give
medication or fluids or to collect blood
for medical tests. Many LTCH patients
have been discharged from short-term
acute care hospital ICUs or ICU stepdown units with these central lines
already in place. In other situations, a
central line IV may be inserted during
the patient’s stay at the LTCH.
Bloodstream infections are usually
serious infections typically causing a
prolongation of hospital stay and
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increased cost and risk of mortality.53
An estimated 248,000 bloodstream
infections occur in U.S. hospitals each
year.54 Furthermore, CLABSIs result in
thousands of deaths each year and
billions of dollars in added costs to the
U.S. healthcare system, yet these
infections are preventable. The CDC is
providing guidelines and tools to the
health care community to help reduce
central line catheter-associated
bloodstream infections. Techniques to
prevent CLABSI through proper central
line management are addressed in
CDC’s Healthcare Infection Control
Practices Advisory Committee
Guidelines for the Prevention of
Intravascular Catheter Related
Infections.55
We recognize that NQF endorsement
of this measure is limited to ICU and
HRN patients in hospital settings, but
believe that this measure is also highly
relevant in the LTCH setting because
intravascular, central venous catheters
(also known as a ‘‘central line’’) are used
frequently due to the fact that these
types of hospitals care for patients with
complex medical problems which
require LTCH stays and intensive
treatment. As previously noted, NQF
CLABSI #0139 is undergoing measure
maintenance review by NQF. This
review may result in changes to this
measure’s specifications in how CDC
calculates the aggregated data from
using a rate for CLABSI to the use of a
SIR. We are proposing to adopt the
current measure in this rulemaking
cycle. We intend to propose the
adoption of any modifications to this
measure that may result from the NQF
review process in future rulemaking.
The CMS measure development
contractor convened a TEP on January
31, 2011, which identified CLASBIs as
a high priority quality issue for LTCHs;
there was agreement by the TEP that
this particular infection rate is worthy of
surveillance within LTCHs. This
measure is applicable for surveillance in
long-term hospital care units (CDC/
NHSN Manual, Device-Associated
Module, CLABSI Event, which is
available at the CDC Web site at:
https://www.cdc.gov/nhsn/PDFs/
pscManual/4PSC_CLABScurrent.pdf.
53 CDC/NHSN Manual. Device-Associated
Module, CLABSI Event. Available at https://
www.cdc.gov/nhsn/PDFs/pscManual/
4PSC_CLABScurrent.pdf, assessed on Jauary 20,
2011.
54 Klevens RM, Edward JR, et al. Estimating
health care-associated infections and deaths in U.S.
hospitals, 2002. Public Health Reports
2007;122:160–166.
55 O’Grady NP, Alexander M, Dellinger EP,
Gerberding JL, Heard SO, Maki DG, et al. Guidelines
for the prevention of intravascular catheter-related
infections. MMWR 2002;51(No. RR–10:1–26.
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Section 1886(m)(5)(D)(ii) of the Act
provides that ‘‘[i]n the case of a specified
area or medical topic determined
appropriate by the Secretary for which
a feasible and practical measure has not
been endorsed by the entity with a
contract under section 1890(a) [of the
Act], the Secretary may specify a
measure that is not so endorsed as long
as due consideration is given to
measures that have been endorsed or
adopted by a consensus organization
identified by the Secretary.’’ We
reviewed the NQF’s consensus-endorsed
measures, and were unable to identify
any NQF endorsed measures for central
line catheter-associated bloodstream
infections for the LTCH setting. We are
unaware of any other measures for
CLABSI that have been approved by
voluntary consensus standards bodies
and endorsed by NQF. Therefore, we are
proposing to adopt an application of
this NQF-endorsed (for ICU and HRN)
measure under the Secretary’s authority
provided in section 1886(m)(5)(D)(ii) of
the Act. As previously noted, NQF
CLABSI #0139 is undergoing measure
maintenance review by NQF. This
review may result in changes to this
measure’s specifications in how CDC
calculates the aggregated data from
using a rate for CLABSI to the use of a
SIR. We are proposing to adopt the
measure in its current state in this
rulemaking cycle. We intend to propose
the adoption of any modifications to
this measure that may result from the
NQF review process in future
rulemaking. We note that we intend to
ask NQF to formally extend its
endorsement of the CLABSI measure to
all care settings within the LTCH (that
is, beyond the LTCH ICU).
(3) FY 2014 Measure #3: Pressure Ulcers
The third measure we are proposing
for LTCHs for purposes of the FY 2014
payment determination is an
application of a CMS-developed NQFendorsed measure for short-stay nursing
home patients: (NQF NH–012–10)
‘‘Percent of Residents with Pressure
Ulcers that Are New or Have
Worsened.’’ This measure includes the
percentage of patients who have one or
more stage 2–4 pressure ulcers that are
new or worsened from a previous
assessment. Consistent in our support of
the National Quality Strategy principles,
mitigating the occurrence or worsening
of pressure ulcers is essential in the
improvement of patient safety and,
therefore, patient care.
We recognize NQF endorsement of
this measure is limited to short-stay
nursing home patients, but believe that
this measure is highly relevant and a
high priority quality issue for the care
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25985
of LTCH patients. Pressure ulcers are
high-volume and high-cost adverse
events across the spectrum of health
care settings from acute hospitals to
home health. Patients in the LTCH
setting are medically complex, have
functional limitations that often are
severe, and, therefore, are at high risk
for the development, or worsening, of
pressure ulcers. Pressure ulcers are
serious medical conditions and an
important measure of quality. Pressure
ulcers can lead to serious, lifethreatening infections, which
substantially increase the total cost of
care. Furthermore, as we noted in the
FY 2008 IPPS final rule with comment
period (72 FR 42705), in 2006 there
were 322,946 reported cases of Medicare
patients with a pressure ulcer as a
secondary diagnosis—each case had an
average charge of $40,381 for a hospital
stay, for an annual total cost of 13
billion dollars. The prevalence of
pressure ulcers in health care facilities
is increasing, with some 2.5 million
patients being treated annually for
pressure ulcers in acute care
facilities.56 57 In 2006, there were
503,300 acute hospital stays during
which pressure ulcers were noted. This
is a 78.9 percent increase from 1993
when there were about 281,300 hospital
stays related to pressure ulcers.58
The CMS measure development
contractor convened a TEP on January
31, 2011, which identified this topic as
highly relevant and a high priority
quality issue for the care of LTCH
patients, and the application of this
measure (NQF NH–012–10) as
appropriate for LTCHs.
Section 1886(m)(5)(D)(ii) of the Act
provides that ‘‘[i]n the case of a specified
area or medical topic determined
appropriate by the Secretary for which
a feasible and practical measure has not
been endorsed by the entity with a
contract under section 1890(a) [of the
Act], the Secretary may specify a
measure that is not so endorsed as long
as due consideration is given to
measures that have been endorsed or
adopted by a consensus organization
identified by the Secretary.’’ We
56 Russo CA, Steiner C, Spector W.:
Hospitalizations related to pressure ulcers among
adults 18 years and older, 2006 (Healthcare Cost
and Utilization Project Statistical Brief No. 64).
December 2008. Available at: https://www.hcupus.ahrq.gov/reports/statbriefs/sb64.pdf.
57 Institute for Healthcare Improvement: Relieve
the pressure and reduce harm. May 21, 2007.
Available at: https://www.ihi.org/IHI/Topics/
PatientSafety/SafetyGeneral/ImprovementStories/
FSRelievethePressureandReduceHarm.htm.
58 MacLean DS.: Preventing & managing pressure
sores. Caring for the Ages. March 2003;4(3):34–7.
Available at: https://www.amda.com/publications/
caring/march2003/policies.cfm.
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reviewed the NQFconsensus-endorsed
measures, and we were unable to
identify any NQF-endorsed measures for
the monitoring of pressure ulcers that
are new or worsened, for the LTCH
setting. We are unaware of any other
measure for the LTCH setting of new or
worsened pressure ulcers that are
approved by voluntary consensus
standards bodies and endorsed by NQF.
Therefore, we are proposing to adopt an
application of this NQF-endorsed (for
short-stay nursing home patients)
measure for the LTCH quality reporting
program under the Secretary’s authority
set forth at section 1886(m)(5)(D)(ii) of
the Act. We also intend to ask NQF to
extend its endorsement of the short-stay
nursing home pressure ulcer measure
specifically to the LTCH setting.
We invite public comment on the
proposed quality measures: (1) Urinary
Catheter Associated Urinary Tract
Infections (CAUTI); (2) Central Line
Catheter-Associated Bloodstream
Infection (CLABSI); and (3) Pressure
Ulcers that are New or Have Worsened.
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3. Possible LTCH Quality Measures
Under Consideration for Future Years
As discussed below, we seek to
achieve a comprehensive set of quality
measures to be available for widespread
use for informed decision-making and
quality improvement. Therefore, as
stated previously, we intend to propose,
through future rulemaking, measures
included in the HHS Action Plan to
Prevent HAIs. We also intend to propose
through future rulemaking measures
related to ventilator care such as the
NQF-endorsed Institute for Healthcare
Improvement process measure, NQF
#0302, Ventilator Bundle, which is a
comprehensive ventilator care-bundle
process measure that is designed to
facilitate protocols such as weaning, and
mitigate ventilator-related infections,
such as ventilator-associated
pneumonia, and other complications.
We also intend to propose additional
outcome measures such as those related
to acute care rehospitalization. We are
aware of the limits related to feasibility
in data submission at the present time.
For example, there is no feasible means
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to submit the ventilator bundle process
measure at this at this time, and are
therefore currently identifying the data
elements necessary for this measure
using a data subset from the Continuity
Assessment Record and Evaluation
(CARE) data set as well as a submission
mechanism. We also intend to propose,
through future rulemaking, additional
measures, such as those related to
symptom management, physical
restraints, medication use, falls,
infections, and function, using the data
subsets of the CARE data set necessary
for measure calculations. We invite
public comment and suggestions on the
implementation of a standardized
assessment instrument for LTCHs that
would similarly support the calculation
of quality measures. We also invite
public comment on the measures and
measures topics under consideration for
future years set out below. In addition,
we invite other suggestions and
rationale to support the adoption of
measures and topics not listed below.
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4. Proposed Data Submission Methods
and Timelines
a. Proposed Method of Data Submission
for HAIs
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
We are proposing to adopt two
proposed HAI quality measures, Central
Line Catheter-Associated Blood Stream
Infection (CLABSI) Event: CLABSI rate
per 1000 central line days, and Urinary
Catheter-Associated Urinary Tract
Infection (CAUTI) Event: CAUTI rate
per 1000 urinary catheter days. We are
proposing to use CDC/NHSN for data
collection and reporting for these two
HAI measures (https://www.cdc.gov/
nhsn/ ).
As we noted above, the NHSN is a
secure, Internet-based surveillance
system. It is maintained by CDC, and
can be utilized by all types of healthcare
facilities in the United States, including
LTCHs, acute care hospitals that collect
and report HAIs through the NHSN as
part of our Hospital IQR Program, as
well as psychiatric hospitals,
rehabilitation hospitals, outpatient
dialysis centers, and ambulatory surgery
centers. The NHSN enables health care
facilities to submit their HAI event data,
and access their data for the purposes of
internal infection-surveillance.
Facilities can also use the NHSN to
obtain information on clinical practices
known to prevent HAIs, information on
the incidence or prevalence of
multidrug-resistant organisms within
their organizations, and information on
other adverse events. Some States use
the NHSN as a means of collecting State
law-mandated HAI reporting. NHSN
collects data via a Web-based tool
hosted by the CDC and available at:
https://www.cdc.nhsn. This reporting
service is provided free of charge to
healthcare facilities. In addition, CDC
may have the ability to receive NHSN
measures data from electronic health
records (EHRs) in the near future.
Currently, the data reporting of these
two HAI events is completed through
the NHSN. More than 20 States require
hospitals to report HAIs using NHSN,
and CDC supports more than 4,000
hospitals that are using the NHSN. Over
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80 LTCHs currently submit HAI data via
the NHSN.
HAI event reporting, and meaningful
HAI event surveillance by the LTCH,
using the CDC/NHSN requires the
submission of HAI events, regardless of
payor. We believe delivery of high
quality care in the LTCH setting is
imperative. Collecting such quality data
on all patients in the LTCH setting
supports CMS’ mission to ensure high
quality care for Medicare beneficiaries.
This will provide us with the most
robust and accurate reflection of quality
in the LTCH setting. Therefore, in order
to facilitate and ensure that high quality
care is delivered to Medicare
beneficiaries in the LTCH setting, we are
proposing that quality data related to
HAIs be collected on all LTCH patients,
regardless of payor.
Currently the NHSN has data
collection forms and data submission
and reporting mechanisms in place that
are in use by LTCHs for these CLABSI
and CAUTI measures. Details related to
the procedures using the NHSN for data
submission can be found at: https://
www.cdc.gov/nhsn. Specifically, details
related to the procedures of using the
NHSN for data submission and
information on definitions, numerator
data, denominator data and data
analyses for CLABSI Event: CLABSI rate
per 1000 central line days calculated by
dividing the number of CLABSI by the
number of central line days and
multiplying the result by 1000 can be
found at https://www.cdc.gov/nhsn/
PatientSafety.html. Details related to the
CLABSI SIR can be found at https://
www.cdc.gov/hai/pdfs/stateplans/
SIR_05_25_2010.pdf. Details related to
the procedures of using the NHSN for
data submission and information on
definitions, numerator data,
denominator data and data analyses for
CAUTI Event: CAUTI rate per 1000
urinary catheter days calculated by
dividing the number of CAUTIs by the
number of catheter days and
multiplying the result by 1000 can also
be found at https://www.cdc.gov/nhsn/
PatientSafety.html.
The reporting procedures for these
HAI events would not be affected by the
use of the SIR instead of the current rate
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calculation. CDC performs those
calculations. Further information
related to the use of the SIRs can be
found on the Web sites at: https://
www.hhs.gov/ash/initiatives/hai/
appendices.html and https://
www.cdc.gov/HAI/surveillance/
QA_stateSummary.html.
b. Proposed Timeline for Data Reporting
Related to HAIs
CDC recommends that HAI reporting
occur closest in time to the event, and
further recommends that reporting
occur no later than 30 days following
the event. To facilitate HAI surveillance
and reporting for these proposed
measures for payment determination,
we are proposing an additional
timeframe for reporting following the
initial reporting period. We are
proposing a data submission timeframe
for NHSN event reporting for these
proposed LTCH quality reporting
program HAI measures of October 1,
2012 through December 31, 2012 for the
determination of FY 2014 annual
payment update, and that LTCHs submit
their data no later than May 15, 2013.
In order to better align with the
current Hospital IQR Program HAI
reporting processes (75 FR 20223), we
also are proposing that all subsequent
LTCH quality reporting cycles will be
based on a calendar year cycle (for
example, beginning January 1, 2013
through December 31, 2013) for
determination of the update to the
standard Federal rate for each LTCH in
FY 2015 and subsequent years. We are
proposing that, beginning in CY 2013,
and for all subsequent years, LTCHs
would submit HAI event data via the
NHSN, for four consecutive quarters of
the calendar year. For example, for the
FY 2015 annual payment update to the
standard Federal rate, LTCHs would
submit HAI data collected in the first
quarter of CY 2013, the second quarter
of CY 2013, the third quarter of CY
2013, and the fourth quarter of CY 2013.
The proposed timelines for
submission of quality data on the
CLABSIs and CAUTIs for the FY 2015
annual payment update are set out
below.
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LTCHs would have until the final
submission deadline for the LTCH
quality reporting program to submit
their quarterly data to the NHSN. After
the final submission deadline has
occurred for each CY 2013 quarter, CMS
will receive a file from the CDC with the
aggregated measurement rates of the
specific calculations that have been
generated by the NHSN for the LTCH
quality reporting program and we will
use those results for purposes of
determining whether the LTCH met the
requirements for the LTCH quality
reporting program. We invite public
comments on the proposed reporting
cycle for LTCHs.
In alignment with the Hospital IQR
Program, (75 FR 50223), we also are
proposing that once quarterly each
LTCH will utilize an automated report
function that will be made available to
submitters in the NHSN, to generate a
quarterly report containing individual
LTCH-level numerator, denominator,
and exclusion counts for these two HAI
measures specifically. CDC will create
an automated LTCH quality program
report function and add it to NHSN’s
reporting functionalities. While LTCHs
may be reporting other data elements to
CDC for other reporting programs (that
is: State-mandated surveillance
programs), the quarterly LTCH quality
program report that would be generated
within NHSN would only contain those
data elements needed to calculate the
two measures currently being proposed
for the LTCH quality reporting program.
We would only receive this aggregated
data from CDC.
We also are proposing that any further
details regarding data submission and
reporting requirements for HAI
measures to be reported via NHSN
would be posted on the CMS Web site
at: https://www.cms.gov/LTCH-IRF-
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Hospice-Quality-Reporting/ by no later
than January 31, 2012.
Requirements for NHSN participation,
measure specifications, and data
collection can be found at the Web site
at: https://www.cdc.gov/nhsn/. LTCHs
are encouraged to visit this Web site in
order to view the NHSN enrollment and
reporting requirements. Training
resources are available there. In order to
allow adequate time for enrollment in
the NHSN, and for training to take
place, should these measures be
finalized, additional details related to
this reporting program’s requirements,
such as when enrollment is due to
occur, will be announced by no later
than January 31, 2012, on the CMS Web
site at: https://www.cms.gov/LTCH-IRFHospice-Quality-Reporting/. In the
announcement, we would propose to
provide guidance on the specifications,
definitions and reporting requirements.
We invite public comments on the
proposed HAI NHSN submission
requirements, reporting cycle, and
reporting timeline for LTCHs.
c. Proposed Method of Data Collection
and Submission for the Pressure Ulcer
Measure Data
We are proposing that the pressure
ulcer data elements necessary to
calculate the pressure ulcer measure
would be identical to those data
elements collected through the
Minimum Data Set 3.0 (MDS 3.0), which
is a reporting instrument used in
nursing homes The current MDS 3.0
pressure ulcer items evolved as an
outgrowth of CMS’ work to develop a
standardized patient assessment
instrument, referred to as the Continuity
Assessment Record and Evaluation tool,
or CARE. The current MDS 3.0 pressure
ulcer items are also currently used in
the calculation of the NQF-endorsed
nursing home pressure ulcer measure,
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Percent of Residents With Pressure
Ulcers That Are New or Worsened
[Short Stay] (NQF NH–012–10). We note
that the MDS data elements were
supported by the National Pressure
Ulcer Advisory Panel (NPUAP).
We believe that to support the
standardized collection and calculation
of the LTCH pressure ulcer quality
measure will require the use of a subset
of the standardized CARE instrument,
and thus we are proposing the use of a
subset of the CARE instrument’s
assessment items for data collection. We
will be using specifically the pressure
ulcer data elements necessary to
calculate the pressure ulcer measure,
and those data items are identical to
those data elements collected through
the Minimum Data Set 3.0 (MDS 3.0).
The current MDS 3.0 pressure ulcer data
items can be found at the CMS Web site
at: https://www.cms.gov/Nursing
HomeQualityInits/45_
NHQIMDS30TrainingMaterials.asp.59
This data assessment subset will allow
identical data elements to be collected
in LTCHs and in nursing homes.
The CARE assessment instrument,
was developed and tested in the postacute care payment reform
demonstration (which included LTCHs)
as required by section 5008 of the
Deficit Reduction Act (DRA) (Pub. L.
109–171). It is a standardized
assessment instrument that can be used
across all postacute care sites to
measure functional status and other
factors during treatment and at
discharge from each provider. (For more
information, we refer readers to the
following Web site: https://
www.pacdemo.rti.org.) CARE was tested
59 https://www.cms.gov/NursingHomeQuality
Inits/45_NHQIMDS30TrainingMaterials.asp (Look
for Downloads. Select MDS 3.0 Item Subsets v1.002.
Click on MDS 3.0 ALL Items. Scroll down to
Section M, Skin Conditions, items M0100–M0900.)
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over the last 2 years in 199 providers,
of which 28 were LTCHs. Participant
feedback suggested most of these items
are already collected by LTCHs during
their intake process and in monitoring
the patients’ health status during the
stay. Importantly, the CARE items meet
Federal interoperable data standards
and should be transferable by most data
systems. A data collection mechanism
for transferring the data to CMS is
currently under development, and it is
anticipated to be similar to the current
systems used to report assessment data
for payment and quality monitoring in
the other post acute care sites.
We believe that, for the collection of
data necessary to calculate this pressure
ulcer measure, using a CARE subset of
standardized data elements to collect,
report, and calculate the proposed
pressure ulcer quality measure will
drive uniformity across settings which
will lead to better quality of care in
LTCHs and, ultimately, across the
continuum of care settings. We also
believe that the use of a standardized
method of communication will lead to
better informed decision making.
If this proposal is finalized, additional
details regarding the data elements
needed to calculate this measure,
submission requirements and
specifications used for these data
elements to calculate the proposed
pressure ulcer quality measure using a
subset of CARE instrument will be
published on the CMS Web site at
https://www.cms.gov/LTCH-IRF-HospiceQuality-Reporting/ by no later than
January 31, 2012.
We are proposing to use standardized
assessment data elements for data
collection that would support the
calculation of quality measures in the
LTCHs. Specifically, we are proposing
to use a subset of the CARE instrument
for the collection of the data elements
necessary to calculate the proposed
quality measure, the Percent of New or
Worsened Pressure Ulcers.
We invite public comment on the use
of a subset of CARE items for the
purposes of data collection for this
proposed measure: Percent of Patients
with New or Worsened Pressure Ulcers.
We invite public comment on this
proposal for the calculation of the
proposed quality measure for pressure
ulcers.
d. Proposed Timeline for Data Reporting
Related to Pressure Ulcers
The delivery of high quality care in
the LTCH setting is imperative. We
believe that collecting quality data on
all patients in the LTCH setting supports
CMS’ mission to ensure quality care for
Medicare beneficiaries. Collecting data
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on all patients provides the most robust
and accurate reflection of quality in the
LTCH setting. Accurate representation
of quality provided in LTCHs is best
conveyed using data related to pressure
ulcers on all LTCH patients, regardless
of payor. Thus, so as to facilitate and
ensure this effort, we are proposing that
quality data related to pressure ulcers
shall be collected on all LTCH patients,
regardless of payor, using a subset of the
CARE data collection instrument in
accordance with the timetable and
schedule set forth in section VII.C.4.b. of
this preamble. We will provide further
details about the data collection
instrument on the CMS Web site
https://www.cms.gov/LTCH-IRF-HospiceQuality-Reporting/ as these details
become available. We invite public
comments on the proposed reporting
cycle for LTCHs.
5. Public Reporting and Availability of
Data Submitted
Under section 1886(m)(5)(E) of the
Act, the Secretary is required to
establish procedures for making any
quality data submitted by LTCHs
available to the public. Such procedures
will ensure that a LTCH has the
opportunity to review the data that is to
be made public with respect to the
LTCH prior to such data being made
public. The Secretary will report quality
measures that relate to services
furnished in LTCHs on the CMS Web
site. Currently, the agency is developing
plans regarding the implementation of
this provision. Procedures for public
reporting will be proposed through
future rule making. At this time no
procedures or timeline has been
established for public reporting of data.
D. Proposed Rebasing and Revising of
the Market Basket Used Under the
LTCH PPS
1. Background
The input price index (that is, the
market basket) that was used to develop
the LTCH PPS for FY 2003 was the
‘‘excluded hospital with capital’’ market
basket. That market basket was based on
1997 Medicare cost report data and
included data for Medicare-participating
IRFs, IPFs, LTCHs, cancer hospitals, and
children’s hospitals. Although the term
‘‘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,’’
as used in this section, refers to an input
price index.
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Beginning with RY 2007, LTCH PPS
payments were updated using a FY
2002-based market basket reflecting the
operating and capital cost structures for
IRFs, IPFs, and LTCHs (hereafter
referred to as the rehabilitation,
psychiatric, and long-term care (RPL)
market basket). We excluded cancer and
children’s hospitals from the RPL
market basket because their payments
are based entirely on reasonable costs
subject to rate-of-increase limits
established under the authority of
section 1886(b) of the Act, which are
implemented in regulations at § 413.40.
They are not paid under a PPS. Also, the
FY 2002 cost structures for cancer and
children’s hospitals are noticeably
different than the cost structures of the
freestanding IRFs, freestanding IPFs,
and LTCHs. A complete discussion of
the FY 2002-based RPL market basket
appears in the RY 2007 LTCH PPS final
rule (71 FR 27810 through 27817).
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 21062), we
expressed our interest in exploring the
possibility of creating a stand-alone
LTCH market basket that reflects the
cost structures of only LTCH providers.
However, as we discussed in the FY
2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43967 through 43968), 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. We
remain unable to sufficiently
understand the observed differences in
costs and cost structures between
hospital-based IRFs and freestanding
IRFs and between hospital-based IPFs
and freestanding IPFs. Therefore, we do
not believe it is appropriate at this time
to propose stand-alone market baskets
for IRFs, IPFs, and LTCHs.
We are currently exploring the
viability of creating two separate market
baskets from the current RPL market
basket: One market basket would
include freestanding IRFs and
freestanding IPFs and would be used to
update payments under both the IPF
and IRF payment systems. The other
market basket would be a stand-alone
LTCH market basket. Depending on the
outcome of our research, we may
propose a stand-alone LTCH market
basket in the next LTCH PPS update
cycle. We invite public comment on the
possibility of using this type of market
basket to update LTCH payments in the
future.
Under the LTCH PPS for FY 2012, we
are proposing to rebase and revise the
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FY 2002-based RPL market basket by
creating a proposed FY 2008-based RPL
market basket as described below. In the
following discussion, we provide an
overview of the market basket and
describe the methodologies we are
proposing to use for purposes of
determining the operating and capital
portions of the proposed FY 2008-based
RPL market basket.
2. Overview of the Proposed FY 2008–
Based RPL Market Basket
The proposed FY 2008-based RPL
market basket is a fixed-weight,
Laspeyres-type price index. 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 proposed rule, we are
proposing to use FY 2008 as the base
period) and total base period
expenditures are estimated for a set of
mutually exclusive and exhaustive
spending categories, with the proportion
of total costs that each category
represents being calculated. 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
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.
As noted above, the market basket is
described as a fixed-weight index
because it represents the change in price
over time of a constant mix (quantity
and intensity) of goods and services
needed to furnish hospital services. 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, a hospital hiring more nurses
to accommodate the needs of patients
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would increase the volume of goods and
services purchased by the hospital, but
would not be factored into the price
change measured by a fixed-weight
hospital market basket. Only when the
index is rebased would changes in the
quantity and intensity be captured, with
those changes being reflected 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.
3. Proposed Rebasing and Revising of
the RPL Market Basket
We are inviting public comments on
our proposed methodological changes to
the RPL 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 proposed rule, we are
proposing to shift the base year cost
structure for the RPL market basket from
FY 2002 to FY 2008). ‘‘Revising’’ means
changing data sources, price proxies, or
methods, used to derive the input price
index. For FY 2012, we are proposing to
rebase and revise the market basket used
to update the LTCH PPS.
a. Development of Cost Categories
(1) Medicare Cost Reports
The proposed FY 2008-based RPL
market basket consists of several major
cost categories derived from the FY
2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs, including wages and
salaries, pharmaceuticals, professional
liability insurance, capital, and a
residual. These FY 2008 Medicare cost
reports include providers whose cost
report begin date is on or between
October 1, 2007, and September 30,
2008. We are proposing to use FY 2008
as the base year because we believe that
the Medicare cost reports for this year
represent the most recent, complete set
of Medicare cost report data available
for IRFs, IPFs, and LTCHs. However,
there is an issue with obtaining data
specifically for benefits and contract
labor from this set of FY 2008 Medicare
cost reports because IRFs, IPFs, and
LTCHs were not required to complete
the Medicare cost report worksheet from
which these data were collected
(Worksheet S–3, Part II). As a result,
only a small number of providers (less
than 30 percent) reported data for these
categories, and we do not expect these
FY 2008 data to improve over time.
However, because IRFs, IPFs, and
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LTCHs were not required to submit data
for Worksheet S–3, Part II in previous
cost reporting years, we have always
had this issue of incomplete Medicare
cost report data for benefits and contract
labor (including when we finalized the
FY 2002-based RPL market basket). Due
to the incomplete benefits and contract
labor data for IRFs, IPFs, and LTCHs, we
are proposing to develop these cost
weights using FY 2008 Medicare cost
report data for IPPS hospitals (similar to
the method that was used for the FY
2002-based RPL market basket). We
provide additional detail on this
approach later in this section.
Because our goal is to measure cost
shares that are reflective of case-mix and
practice patterns associated with
providing services to Medicare
beneficiaries, we are proposing to limit
our selection of Medicare cost reports to
those from hospitals that have a
Medicare average length of stay that is
within a comparable range of their total
facility average length of stay. We
believe this provides a more accurate
reflection of the structure of costs for
Medicare covered days. We are
proposing to use the cost reports of
LTCHs and IRFs with Medicare average
lengths of stay within 15 percent (that
is, 15 percent higher or lower) of the
total facility average length of stay for
the hospital. This is the same edit we
applied to derive the FY 2002-based
RPL market basket and generally
includes those LTCHs and IRFs with
Medicare average length of stay within
approximately 5 days of the facility
average length of stay of the hospital.
We are proposing to use a less
stringent measure of Medicare average
length of stay for IPFs. For this provider
type, and in order to produce a robust
sample size, we are proposing to use
those facilities’ Medicare cost reports
whose average length of stay is within
30 or 50 percent (depending on the total
facility average length of stay) of the
total facility average length of stay. This
is the same edit we applied to derive the
FY 2002-based RPL market basket.
We applied these length of stay edits
to first obtain a set of cost reports for
facilities that have a Medicare length of
stay within a comparable range of their
total facility length of stay. Using this
set of Medicare cost reports, we then
calculated cost weights for four cost
categories and a residual as represented
by all other costs directly from the FY
2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs (found in Table VII.D–1
below). These Medicare cost report cost
weights were then supplemented with
information obtained from other data
sources (explained in more detail
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(2) Other Data Sources
In addition to the IRF, IPF and LTCH
Medicare cost reports for freestanding
IRFs, freestanding IPFs, and LTCHs, the
other data sources we used to develop
the proposed FY 2008-based RPL market
basket cost weights were the FY 2008
IPPS Medicare cost reports and the 2002
Benchmark Input-Output (I–O) Tables
created by the Bureau of Economic
Analysis (BEA), U.S. Department of
Commerce. The FY 2008 Medicare cost
reports include providers whose cost
report begin date is on or between
October 1, 2007, and September 30,
2008.
As noted above, the proposed FY
2008-based RPL cost weights for
benefits and contract labor were derived
using FY 2008-based IPPS Medicare cost
reports. We used these Medicare cost
reports to calculate cost weights for
‘‘wages and salaries,’’ ‘‘benefits,’’ and
‘‘contract labor’’ for IPPS hospitals for
FY 2008. For the proposed benefits cost
weight for the FY 2008-based RPL
market basket, the ratio of the FY 2008
IPPS benefits cost weight to the FY 2008
IPPS wages and salaries cost weight was
applied to the RPL wages and salaries
cost weight. Similarly, the ratio of the
FY 2008 IPPS contract labor cost weight
to the FY 2008 IPPS wages and salaries
cost weight was applied to the RPL
wages and salaries cost weight to derive
a contract labor cost weight for the
proposed FY 2008-based RPL market
basket.
The ‘‘All other’’ cost category is
divided into other hospital expenditure
category shares using the 2002 BEA
Benchmark I–O data following the
removal of the portions of the ‘‘all other’’
cost category provided in Table VII.D–
1 that are attributable to the benefits and
contract labor cost categories. The BEA
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Benchmark I–O data are generally
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. For the FY 2002based RPL market basket, we used the
1997 Benchmark I–O data. We are
proposing to use the 2002 Benchmark I–
O data in the FY 2008-based RPL market
basket. Instead of using the less detailed
Annual I–O data, we aged the 2002
Benchmark I–O data forward to 2008.
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
expenditure shares are determined as
being equal to each category’s
proportion to total ‘‘all other’’
expenditures based on the aged 2002
Benchmark I–O data. For instance, if the
cost for telephone services represented
10 percent of the sum of the ‘‘all other’’
Benchmark I–O hospital expenditures,
then telephone services would represent
10 percent of the ‘‘all other’’ cost
category of the RPL market basket.
b. Final Cost Category Computation
As stated previously, for this FY 2012
rebasing proposal, we are proposing to
use the Medicare cost reports for IRFs,
IPFs, and LTCHs to derive four major
cost categories. The proposed FY 2008based RPL market basket includes two
additional cost categories that were not
broken out separately in the FY 2002based RPL market basket:
‘‘Administrative and Business Support
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Services’’ and ‘‘Financial Services.’’ The
inclusion of these two additional cost
categories, which are derived using the
Benchmark I–O data, is consistent with
the addition of these two cost categories
to the FY 2006-based IPPS market
basket (74 FR 43845). We are proposing
to break out both categories so we can
better match their respective expenses
with more appropriate price proxies. A
thorough discussion of our rationale for
each of these cost categories is provided
below in section VII.D.3.f. of this
proposed rule. Also, the proposed FY
2008-based RPL market basket excludes
one cost category: ‘‘Photographic
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 RPL market basket. Therefore, we
are proposing to include the
photographic supplies costs in the
‘‘Chemicals’’ cost category weight with
other similar chemical products.
We are not proposing to change our
definition of the labor-related share.
However, we are proposing to rename
our aggregate cost categories from
‘‘labor-intensive’’ and ‘‘nonlaborintensive’’ services to ‘‘labor-related’’ and
‘‘nonlabor-related’’ services. This is
consistent with the FY 2006-based IPPS
market basket (74 FR 43845). As
discussed in more detail below and
similar to the FY 2002-based RPL
market basket, we classify a cost
category as labor-related and include it
in the labor-related share if the cost
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
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proposed new labels more accurately
reflect the concepts that they are
intended to convey. We are not
proposing to change our definition of
the labor-related share because we
continue to classify a cost category as
labor-related if the costs are laborintensive and vary with the local labor
market.
c. Selection of Price Proxies
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
After computing the FY 2008 cost
weights for the proposed rebased RPL
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 Insurance, all of the proxies for
the operating portion of the proposed
FY 2008-based RPL market basket 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 encountered by
hospitals. For example, we use a 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
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the prices of final goods and services
bought by the typical consumer.
Because they may not represent the
price encountered 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
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
proposed PPIs, CPIs, and ECIs selected
meet these criteria.
Table VII.D–2 below sets forth the
proposed FY 2008-based RPL market
basket, including cost categories and
their respective weights and price
proxies. For comparison purposes, the
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corresponding FY 2002-based RPL
market basket cost weights also are
listed. For example, ‘‘Wages and
Salaries’’ are 49.447 percent of total
costs in the proposed FY 2008-based
RPL market basket compared to 52.895
percent for the FY 2002-based RPL
market basket. ‘‘Employee Benefits’’ are
12.831 percent in the proposed FY
2008-based RPL market basket
compared to 12.982 percent for the FY
2002-based RPL market basket. As a
result, compensation costs (wages and
salaries plus employee benefits) for the
proposed FY 2008-based RPL market
basket are 62.278 percent of total costs
compared to 65.877 percent for the FY
2002-based RPL market basket.
Following Table VII.D–2 is a summary
outlining the choice of the proxies we
are proposing to use for the operating
portion of the FY 2008-based RPL
market basket. The price proxies
proposed for the capital portion are
described in more detail in the capital
methodology section below in section
VII.D.3.d. of this proposed rule.
We note that the proxies for the
operating portion of the FY 2008-based
RPL market basket are the same as those
used for the FY 2006-based IPPS
operating market basket. Because these
proxies meet our criteria of reliability,
timeliness, availability, and relevance,
we believe they are the best measures of
price changes for the cost categories. For
further discussion on the FY 2006-based
IPPS market basket, we refer readers to
the discussion in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR
43843).
BILLING CODE 4120–01–P
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(2) Employee Benefits
We are proposing to 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
RPL market basket.
(3) Electricity
We are proposing to use the PPI for
Commercial Electric Power (BLS series
code WPU0542). This same proxy was
used in the FY 2002-based RPL market
basket.
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(4) Fuel, Oil, and Gasoline
For the FY 2002-based RPL market
basket, this category only included
expenses classified under North
American Industry Classification
System (NAICS) 21 (Mining). We used
the PPI for Commercial Natural Gas
(BLS series code WPU0552) as a proxy
for this cost category. For the proposed
FY 2008-based market basket, we are
proposing to 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
(11) Medical Instruments
We are proposing to use the PPI for
Medical, Surgical, and Personal Aid
Devices (BLS series code WPU156) to
measure the price growth of this cost
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majority of the industry’s fuel, oil, and
gasoline expenses originate from
petroleum refineries (NAICS 324110),
we are proposing to use the PPI for
Petroleum Refineries (BLS series code
PCU324110324110) as the proxy for this
cost category.
(8) Food: Direct Purchases
(5) Water and Sewage
(9) Food: Contract Services
We are proposing to use the CPI for
Water and Sewerage Maintenance (All
Urban Consumers) (BLS series code
CUUR0000SEHG01) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
We are proposing to use the CPI for
Food Away From Home (All Urban
Consumers) (BLS series code
CUUR0000SEFV) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
RPL market basket.
(6) Professional Liability Insurance
(10) Chemicals
We are proposing to 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 is also used to proxy PLI
price changes in the Medicare Economic
Index (75 FR 73268). This same proxy
was used in the FY 2002-based RPL
market basket.
We are proposing to use the PPI for
Pharmaceuticals for Human Use,
Prescription (BLS series code
WPUSI07003) to measure the price
growth of this cost category. We note
that we are not making a change to the
PPI that is used to proxy this cost
category. Although there was a recent
change to the BLS naming convention
for this series, this is the same proxy
that was used in the FY 2002-based RPL
market basket.
We are proposing to use a blended PPI
composed of the PPI for Industrial Gas
Manufacturing (NAICS 325120) (BLS
series code PCU325120325120P), the
PPI for Other Basic Inorganic Chemical
Manufacturing (NAICS 325180) (BLS
series code PCU32518–32518–), the PPI
for Other Basic Organic Chemical
Manufacturing (NAICS 325190) (BLS
series code PCU32519–32519–), and the
PPI for Soap and Cleaning Compound
Manufacturing (NAICS 325610) (BLS
series code PCU32561–32561–). 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 are proposing to 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 (BLS series code
WPU061), the proxy used in the FY
2002-based RPL market basket. Table
VII.D–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.
category. In the 1997 Benchmark I–O
data, approximately half of the expenses
classified in this category were for
surgical and medical instruments.
Therefore, we used the PPI for Surgical
and Medical Instruments and
(1) Wages and Salaries
We are proposing to use the ECI for
Wages and Salaries for Hospital Workers
(All Civilian) (BLS series code
CIU1026220000000I) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
Equipment (BLS series code WPU1562)
to proxy this category in the FY 2002based RPL market basket. The 2002
Benchmark I–O data show that surgical
and medical instruments now represent
only 33 percent of these expenses and
(7) Pharmaceuticals
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We are proposing to use the PPI for
Processed Foods and Feeds (BLS series
code WPU02) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
RPL market basket.
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that the largest expense category is
surgical appliance and supplies
manufacturing (corresponding to BLS
series code WPU1563). Due to this
reallocation of costs over time, we are
proposing to change the price proxy for
this cost category to the more aggregated
PPI for Medical, Surgical, and Personal
Aid Devices.
(12) Photographic Supplies
We are proposing to eliminate the cost
category specific to photographic
supplies for the proposed FY 2008based RPL market basket. These costs
would now be included in the
Chemicals cost category because the
costs are presently reported as all other
chemical products. Notably, although
we would be eliminating the specific
cost category, these costs would still be
accounted for within the RPL market
basket.
(13) Rubber and Plastics
We are proposing to use the PPI for
Rubber and Plastic Products (BLS series
code WPU07) to measure price growth
of this cost category. This same proxy
was used in the FY 2002-based RPL
market basket.
Related Occupations (Private Industry)
(BLS 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 RPL market basket.
(23) Telephone Services
We are proposing to use the CPI for
Telephone Services (BLS series code
CUUR0000SEED) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
RPL market basket.
(19) Administrative and Business
Support Services
(24) Postage
We are proposing to use the CPI for
Postage (BLS series code
CUUR0000SEEC01) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
RPL market basket.
We are proposing to use the ECI for
Compensation for Office and
Administrative Support Services
(Private Industry) (BLS series code
CIU2010000220000I) to measure the
price growth of this category. Previously
these costs were included in the All
Other: Labor-intensive category (now
renamed the All Other: Labor-related
Services 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.
(20) All Other: Labor-Related Services
(14) Paper and Printing Products
We are proposing to use the PPI for
Converted Paper and Paperboard
Products (BLS series code WPU0915) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
We are proposing to use the ECI for
Compensation for Service Occupations
(Private Industry) (BLS series code
CIU2010000300000I) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
(15) Apparel
We are proposing to use the PPI for
Apparel (BLS series code WPU0381) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
(21) Professional Fees: Nonlabor-Related
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(16) Machinery and Equipment
We are proposing to use the PPI for
Machinery and Equipment (BLS series
code WPU11) to measure the price
growth of this cost category. This same
proxy was used in the FY 2002-based
RPL market basket.
(17) Miscellaneous Products
We are proposing to use the PPI for
Finished Goods Less Food and Energy
(BLS series code WPUSOP3500) to
measure the price growth of this cost
category. Using this index would
remove the double-counting of food and
energy prices, which would already be
captured elsewhere in the market
basket. This same proxy was used in the
FY 2002-based RPL market basket.
(18) Professional Fees: Labor-Related
We are proposing to use the ECI for
Compensation for Professional and
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We are proposing to use the ECI for
Compensation for Professional and
Related Occupations (Private Industry)
(BLS series code CIS2020000120000I) to
measure the price growth of this
category. This is the same price proxy
that we are proposing to use for the
Professional Fees: Labor-related cost
category.
(22) Financial Services
We are proposing to use the ECI for
Compensation for Financial Activities
(Private Industry) (BLS series code
CIU201520A000000I) to measure the
price growth of this cost category.
Previously these costs were included in
the All Other: Nonlabor-intensive
category (now renamed the All Other:
Nonlabor-related Services 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.
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(25) All Other: Nonlabor-Related
Services
We are proposing to use the CPI for
All Items Less Food and Energy (BLS
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 2002-based RPL market basket. We
believe that using the CPI for All Items
Less Food and Energy would remove the
double counting of changes in food and
energy prices, as they are already
captured elsewhere in the market
basket. Consequently, we believe that
the incorporation of this proxy would
represent a technical improvement to
the market basket.
d. Proposed Methodology for Capital
Portion of the RPL Market Basket
In the FY 2002-based RPL market
basket, we did not have freestanding
IRF, freestanding IPF, and LTCH 2002
Medicare cost report data for the capital
cost weights, due to a change in the
2002 reporting requirements. Therefore,
we used these hospitals’ 2001
expenditure data for the capital cost
categories of depreciation, interest, and
other capital expenses, and aged the
data to a 2002 base year using relevant
price proxies.
For the proposed FY 2008-based RPL
market basket, we are proposing to
calculate weights for the proposed RPL
market basket capital costs using the
same set of FY 2008 Medicare cost
reports used to develop the operating
share for IRFs, IPFs, and LTCHs. To
calculate the proposed total capital cost
weight, we first apply the same length
of stay edits as applied when calculating
the operating cost weights as described
above in section VII.D.3.a. of this
preamble The resulting proposed capital
weight for the FY 2008 base year is
8.392 percent.
Lease expenses are unique in that
they are not broken out as a separate
cost category in the RPL market basket,
but rather are proportionally distributed
amongst the cost categories of
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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 the FY 2002-based RPL
market basket, we first assumed 10
percent of lease expenses represents
overhead and assigned those costs to the
Other Capital-Related Costs 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 FY
2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs. This methodology was also
used to compute the apportionment
used in the FY 2002-based RPL market
basket (71 FR 27815).
The total Interest expense cost
category is split between government/
nonprofit interest and for-profit interest.
The FY 2002-based RPL market basket
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 forprofit interest and was proxied by the
average yield on Moody’s Aaa bonds (70
FR 47912). This was based on the FY
2002-based IPPS capital input price
index (70 FR 23406) due to insufficient
Medicare cost report data for
freestanding IRFs, freestanding IPFs,
and LTCHs. For the proposed FY 2008based RPL market basket, we are
proposing to derive the split using the
FY 2008 Medicare cost report data on
interest expenses for government/
nonprofit and for-profit freestanding
IRFs, freestanding IPFs, and LTCHs.
Based on these data, we calculated a
proposed 33/67 split between
government/nonprofit and for-profit
interest. We believe it is important that
this split reflects the latest relative cost
structure of interest expenses for RPL
providers. As stated above, we first
apply the average length of stay edits (as
described in section VII.D.3.a. of this
preamble) prior to calculating this split.
Therefore, we are using cost reports that
are reflective of case mix and practice
patterns associated with providing
services to Medicare beneficiaries.
Using data specific to government/
nonprofit and for-profit freestanding
IRFs, freestanding IPFs, and LTCHs as
well as the application of these length
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of stay edits are the primary reasons for
the difference in this split relative to the
FY 2002-based RPL market basket.
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
capital portion of the proposed FY 2008based RPL market basket is intended to
capture the long-term 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 are proposing to use
the vintage weights to compute vintageweighted price changes associated with
depreciation and interest expense.
Vintage weights are an integral part of
the proposed FY 2008-based RPL market
basket. 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 capital
portion of the proposed FY 2008-based
RPL market basket would reflect the
annual price changes associated with
capital costs, and would be a useful
simplification of the actual capital
investment process. By accounting for
the vintage nature of capital, we are able
to provide an accurate and stable annual
measure of price changes. Annual
nonvintage price changes for capital are
unstable due to the volatility of interest
rate changes and, therefore, do not
reflect the actual annual price changes
for Medicare capital-related costs. The
capital component of the proposed FY
2008-based RPL market basket would
reflect 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 an
appropriate 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
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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
2008.
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. For the FY
2002-based RPL market basket, due to
insufficient Medicare cost report data
for freestanding IRFs, freestanding IPFs,
and LTCHs, we used 2001 Medicare cost
reports for IPPS hospitals to determine
the expected life of building and fixed
equipment and movable equipment (71
FR 27816). The FY 2002-based RPL
market basket was based on an expected
average life of building and fixed
equipment of 23 years. It used 11 years
as the average expected life for
moveable equipment. We believed that
this data source reflected the latest
relative cost structure of depreciation
expenses for hospitals at the time and
was analogous to freestanding IRFs,
freestanding IPFs, and LTCHs.
The expected life of any asset 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 useful life of an asset if
depreciation were to continue at current
year levels, assuming straight-line
depreciation. Following a similar
method to what was applied for the FY
2002-based RPL market basket, we are
proposing to use the average expected
life of building and fixed equipment to
be equal to 26 years, and the average
expected life of movable equipment to
be 11 years. These expected lives are
calculated using FY 2008 Medicare cost
reports for IPPS hospitals since we are
currently unable to obtain robust
measures of the expected lives for
building and fixed equipment and
movable equipment using the Medicare
cost reports from freestanding IRFs,
freestanding IPFs, and LTCHs.
We also are proposing to use the
building and fixed equipment and
movable equipment weights derived
from FY 2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs to separate the depreciation
expenses into annual amounts of
building and fixed equipment
depreciation and movable equipment
depreciation. Year-end asset costs for
building and fixed equipment and
movable equipment were determined by
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multiplying the annual depreciation
amounts by the expected life
calculations. 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 the proposed 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
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 26 years, the
vintage weights for building and fixed
equipment are deemed to represent the
average purchase pattern of building
and fixed equipment over 26-year
periods. With real building and fixed
equipment purchase estimates available
from 2008 back to 1963, we averaged
twenty 26-year 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 26-year period are
calculated by dividing the real building
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and fixed capital purchase amount in
any given year by the total amount of
purchases in the 26-year period. This
calculation is done for each year in the
26-year period, and for each of the
twenty 26-year periods. We used the
average of each year across the twenty
26-year periods to determine the average
building and fixed equipment vintage
weights for the FY 2008-based RPL
market basket.
For the proposed 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. This is the same proxy used
for the FY 2002-based RPL market
basket. Based on our determination that
movable equipment has an expected life
of 11 years, the vintage weights for
movable equipment represent the
average expenditure for movable
equipment over an 11-year period. With
real movable equipment purchase
estimates available from 2008 back to
1963, thirty-five 11-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 11year period are calculated by dividing
the real movable capital purchase
amount for any given year by the total
amount of purchases in the 11-year
period. This calculation was done for
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each year in the 11-year period and for
each of the thirty-five 11-year periods.
We used the average of each year across
the thirty-five 11-year periods to
determine the average movable
equipment vintage weights for the FY
2008-based RPL market basket.
For the proposed 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 26
years, the vintage weights for interest
are deemed to represent the average
purchase pattern of total equipment
over 26-year periods. With nominal total
equipment purchase estimates available
from 2008 back to 1963, twenty 26-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 26-year period are
calculated by dividing the nominal total
capital purchase amount for any given
year by the total amount of purchases in
the 26-year period. This calculation is
done for each year in the 26-year period
and for each of the twenty 26-year
periods. We used the average of each
year across the twenty 26-year periods
to determine the average interest vintage
weights for the FY 2008-based RPL
market basket. The vintage weights for
the capital portion of the FY 2002-based
RPL market basket and the FY 2008based RPL market basket are presented
in Table VII.D–4 below.
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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. We are proposing
to use the same price proxies for the
capital portion of the proposed FY 2008based RPL market basket that were used
in the FY 2002-based RPL market basket
with the exception of the Boeckh
Construction Index. 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
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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 price proxies (prior to any vintage
weighting) for each of the capital cost
categories are the same as those used for
the FY 2006-based Capital Input Price
Index (CIPI) as described in the FY 2010
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IPPS/RY 2010 LTCH PPS final rule (74
FR 43857).
e. Proposed FY 2012 Market Basket
Update for LTCHs
For FY 2012 (that is, October 1, 2011
through September 30, 2012), we are
proposing to use an estimate of the
proposed FY 2008-based RPL market
basket update based on the best
available data. Consistent with
historical practice, we estimate the RPL
market basket update for the LTCH PPS
based on IHS Global Insight, Inc.’s
(IGI’s) forecast using the most recent
available data. IGI is a nationally
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proposed FY 2012 annual update is
based on the most recent market basket
estimate for the 12-month period
(currently 2.8 percent), we also are
proposing that if more recent data are
subsequently available (for example, a
more recent estimate of the market
basket), we would use such data, if
appropriate, to determine the FY 2012
annual update in the final rule. (As
discussed in greater detail in section
V.A.2. of the Addendum to this
proposed rule, we are proposing an
annual update of 1.5 percent to the
LTCH PPS standard Federal rate for FY
2012 under proposed
§ 412.523(c)(3)(viii) of the regulations.)
Using the current FY 2002-based RPL
market basket and IGI’s first quarter
2011 forecast for the market basket
components, the FY 2012 market basket
update would be 2.8 percent (before
taking into account any statutory
adjustment). Table VII.D–5 below
compares the proposed FY 2008-based
RPL market basket and the FY 2002based RPL market basket percent
changes.
For FY 2012, the proposed FY 2008based RPL market basket update (2.8
percent) is the same as the market
basket update based on the FY 2002based RPL market basket. The lower
total compensation weight in the
proposed FY 2008-based RPL market
basket (62.278 percent) relative to the
FY 2002-based RPL market basket
(65.877 percent), absent other factors,
would have resulted in a slightly lower
market basket update using the FY
2008-based RPL market basket.
However, this impact is partially offset
by 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 RPL market basket is 2.892
percent compared to 6.325 percent in
the proposed FY 2008-based RPL market
basket. The net effect is that the market
basket update is the same for FY 2012
based on the current FY 2002-based RPL
market basket and the proposed FY
2008-based RPL market basket.
of the LTCH PPS standard 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 total 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 labor-intensive and vary with the
local labor market. Given this, based on
our definition of the labor-related share,
we are proposing to include in the
labor-related share the sum of the
relative importance of Wages and
Salaries, Employee Benefits,
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f. Proposed Labor-Related Share
As discussed in section V.B. of the
Addendum to this proposed 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 payments to account for
differences in LTCH area wage levels
(§ 412.525(c)). The labor-related portion
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recognized economic and financial
forecasting firm that contracts with CMS
to forecast the components of the market
baskets.
Based on IGI’s first quarter 2011
forecast with history through the 4th
quarter of 2010, the projected market
basket update for FY 2012 is 2.8
percent. Therefore, consistent with our
historical practice of estimating market
basket increases based on the best
available data, we are proposing a
market basket update of 2.8 percent for
FY 2012. Furthermore, because the
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Professional Fees: Labor-related,
Administrative and Business Support
Services, All Other: Labor-related
Services (previously referred to in the
FY 2002-based RPL market basket as
labor-intensive), and a portion of the
Capital-Related cost weight.
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.
As stated in the RY 2007 LTCH PPS
final rule (71 FR 27829), the laborrelated share was defined as the sum of
the relative importance of the laborrelated share of operating costs (Wages
and Salaries, Employee Benefits,
Professional Fees, and All Other: Laborintensive Services), and capital costs of
the RPL market basket based on FY 2002
data. Therefore, to determine the laborrelated share for the LTCH PPS for FY
2011, we used the FY 2002-based RPL
market basket cost weights relative
importance to determine the laborrelated share for the LTCH PPS.
For the proposed FY 2008-based RPL
market basket rebasing, the proposed
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 proposing to establish 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 RPL 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
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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
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.
With approval from the Office of
Management and Budget (OMB), we
contacted a sample of IPPS hospitals
and received responses to our survey
from 108 hospitals. We believe that
these data serve as an appropriate proxy
for the purchasing patterns of
professional services for LTCHs as they
are also institutional providers of health
care services. Using data on full-time
equivalents (FTEs) to allocate
responding hospitals across strata
(region of the country and urban/rural
status), we calculated post-stratification
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.
• 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 to determine the
Professional Fees: Nonlabor-related
costs. The Professional Fees: Laborrelated costs were determined to be the
difference between the total costs for
each Benchmark I–O category and the
Professional Fees: Nonlabor-related
costs. This is the methodology that we
used to separate the proposed FY 2008based RPL 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
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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 laborrelated 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.
Using data primarily from the
Medicare cost reports and a CMS
database of Home Office Medicare
Records (HOMER) (a database that
provides city and state information
(addresses) for home offices), we were
able to determine that 19 percent of the
total number of freestanding IRFs,
freestanding IPFs, and LTCHs that had
home offices had those home offices
located in their respective local labor
markets—defined as being in the same
Metropolitan Statistical Area (MSA).
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 provider with the location of the
hospital’s home office. We then placed
providers into one of the following three
groups:
• Group 1—Provider and home office
are located in different States.
• Group 2—Provider and home office
are located in the same State and same
city.
• Group 3—Provider and home office
are located in the same State and
different city.
We found that 63 percent of the
providers with home offices were
classified into Group 1 (that is, different
State) and, thus, these providers were
determined to not be located in the
same local labor market as their home
office. Although there were a very
limited number of exceptions (that is,
providers located in different States but
the same MSA as their home office), the
63 percent estimate was unchanged.
We found that 9 percent of all
providers with home offices were
classified into Group 2 (that is, same
State and same city and, therefore, the
same MSA). Consequently, these
providers were determined to be located
in the same local labor market as their
home offices.
We found that 27 percent of all
providers 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 provider
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a different city, but the same MSA). We
are proposing to apportion the NAICS
55 expense data by this percentage.
Thus, we are proposing to classify 19
percent of these costs into the
Professional Fees: Labor-related cost
category and the remaining 81 percent
into the Professional Fees: Nonlaborrelated Services cost category.
Using this proposed method and the
IGI forecast for the first quarter 2011 of
the proposed FY 2008-based RPL market
basket, the proposed LTCH labor-related
share for FY 2012 is the sum of the FY
2012 relative importance of each labor-
related cost category. Consistent with
our proposal to update the labor-related
share with the most recent available
data, the labor-related share for this
proposed rule reflects IGI’s first quarter
2011 forecast of the proposed FY 2008based RPL market basket. Table VII.D–
6 below shows the proposed FY 2012
relative importance labor-related share
using the proposed FY 2008-based RPL
market basket and the FY 2011 relative
importance labor-related share using the
FY 2002-based RPL market basket.
The proposed labor-related share for
FY 2012 is the sum of the proposed FY
2012 relative importance of each laborrelated cost category, and would reflect
the different rates of price change for
these cost categories between the base
year (FY 2008) and FY 2012. The sum
of the proposed relative importance for
FY 2012 for operating costs (Wages and
Salaries, Employee Benefits,
Professional Fees: Labor-Related,
Administrative and Business Support
Services, and All Other: Labor-related
Services) would be 66.689 percent, as
shown in Table VII.D–6 above. We are
proposing that the portion of Capital
that is influenced by the local labor
market is estimated to be 46 percent,
which is the same percentage applied to
the FY 2002-based RPL market basket.
Because the relative importance for
Capital-Related Costs would be 7.923
percent of the proposed FY 2008-based
RPL market basket in FY 2012, we are
proposing to take 46 percent of 7.923
percent to determine the proposed
labor-related share of Capital for FY
2012. The result would be 3.645
percent, which we are proposing to add
to 66.689 percent for the operating cost
amount to determine the total proposed
labor-related share for FY 2012. Thus,
the labor-related share that we are
proposing to use for LTCH PPS in FY
2012 would be 70.344 percent. This
proposed labor-related share is
determined using the same methodology
as employed in calculating all previous
LTCH labor-related shares.
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and its home office, we found that 10
percent of all providers 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 19
percent of providers with home offices
had home offices located within their
local labor market (that is, 9 percent of
providers with home offices had their
home offices in the same State and city
(and, thus, the same MSA), and 10
percent of providers with home offices
had their home offices in the same State,
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E. Proposed Changes to the LTCH
Payment Rates and Other Proposed
Changes to the FY 2012 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. Therefore, beginning
with their FY 2003 cost reporting
period, LTCHs were paid, during a 5year transition period, a total LTCH
prospective payment that was
comprised of an increasing proportion
of the LTCH PPS Federal rate and a
decreasing proportion based on
reasonable cost-based principles, unless
the hospital made 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)) were 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 we
are proposing to use to update the LTCH
PPS standard Federal rate for FY 2012,
that is, effective for LTCH discharges
occurring on or after October 1, 2011
through September 30, 2012.
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). For
subsequent updates to the LTCH PPS
Federal rate, we refer readers to the
following final rules: RY 2004 LTCH
PPS final rule (68 FR 34134 through
34140); RY 2005 LTCH PPS final rule
(68 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); RY 2009 LTCH
PPS final rule (73 FR 26800 through
26804); RY 2010 LTCH PPS final rule
(74 FR 44021 through 44030); and FY
2011 IPPS/LTCH PPS final rule (75 FR
50443 through 50444).
The proposed update to the LTCH
PPS standard Federal rate for FY 2012
is presented in section V.A. of the
Addendum to this proposed rule. The
components of the proposed annual
market basket update to the LTCH PPS
standard Federal rate for FY 2012 are
discussed below. In addition, as
discussed below in section VII.E.3. of
this preamble, beginning in FY 2012, in
addition to the proposed update factor,
we are proposing to make an adjustment
to the standard Federal rate to account
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for the estimated effect of any proposed
changes to the area wage level
adjustment on estimated aggregate
LTCH PPS payments.
2. Proposed FY 2012 LTCH PPS Annual
Market Basket Update
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. With the
initial implementation of the LTCH PPS
for FY 2003, we established the use of
the excluded hospital with capital
market basket as the LTCH PPS market
basket (67 FR 56016 through 56017).
(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).) 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).
Beginning in RY 2007, we adopted the
rehabilitation, psychiatric, long-term
care (RPL) hospital market basket based
on FY 2002 data as the appropriate
market basket of goods and services
under the LTCH PPS for discharges
occurring on or after July 1, 2006. 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 further details on
the development of the FY 2002-based
RPL market basket, we refer readers to
the RY 2007 LTCH PPS final rule (71 FR
27810 through 27817).)
As discussed in greater detail in
section VII.D. of this preamble, we are
proposing to revise and rebase the
market basket used under the LTCH PPS
for FY 2012. Specifically, we are
proposing to adopt a newly created FY
2008-based RPL market basket
(described in section VII.D. of this
preamble). Also, in section VII.D. of this
preamble, we discuss our continued
interest in exploring the possibility of
creating a stand-alone LTCH market
basket that reflects the cost structures of
only LTCH providers.
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b. Revision of Certain Market Basket
Updates as Required by the Affordable
Care Act
Several provisions of the Affordable
Care Act affect the policies and payment
rates under the LTCH PPS. Section
1886(m)(3)(A) of the Act, as added by
section 3401(c) of the Affordable Care
Act, specifies that, for rate year 2010
and each subsequent rate year through
2019, any annual update to the standard
Federal rate shall be reduced:
• For rate year 2010 through 2019, by
the other adjustment specified in
sections 1886(m)(3)(A)(ii) and (m)(4) of
the Act; and
• For rate year 2012 and each
subsequent year, by the productivity
adjustment (which we refer to as ‘‘the
multifactor productivity (MFP)
adjustment’’ as discussed in section
VII.E.2.d. of this preamble) described in
section 1886(b)(3)(B)(xi)(II) of the Act.
Section 1886(m)(3)(B) of the Act
provides that the application of
paragraph (3) of section 1886(m) of the
Act may result in the annual update
being less than zero for a rate year, and
may result in payment rates for a rate
year being less than such payment rates
for the preceding rate year. We note that
because the annual update to the LTCH
PPS policies, rates, and factors now
occurs on October 1, we have adopted
the term ‘‘fiscal year’’ (FY) rather than
‘‘rate year’’ (RY) under the LTCH PPS
beginning October 1, 2010, to conform
with the standard definition of the
Federal fiscal year (October 1 through
September 30) used by other PPSs, such
as the IPPS (75 FR 50396 through
50397). Although the language of
sections 3401(c), 10319, and 1105(b) of
the Affordable Care Act refers to years
2010 and thereafter under the LTCH
PPS as ‘‘rate year,’’ consistent with our
change in the terminology used under
the LTCH PPS from ‘‘rate year’’ to ‘‘fiscal
year,’’ for purposes of clarity, when
discussing the annual update for the
LTCH PPS, including the provisions of
the Affordable Care Act, we employ
‘‘fiscal year’’ rather than ‘‘rate year’’ for
2011 and subsequent years.
c. Proposed Market Basket Under the
LTCH PPS for FY 2012
As noted above and as discussed in
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50389), 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 LTCHs submitting valid
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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
have begun to explore the viability of
creating these market baskets for future
use. However, as we discussed in the
RY 2010 LTCH PPS final rule (74 FR
43967 through 43968), 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,
we do not believe it is appropriate at
this time to propose stand-alone market
baskets for IRFs, IPFs, and LTCHs, and
we believe that it is appropriate to
continue to use the RPL market basket
for LTCHs, IRFs, and IPFs under their
respective PPSs.
We continue to believe that the RPL
market basket appropriately reflects the
cost structure of LTCHs, for the reasons
discussed when we adopted the RPL
market basket for use under the LTCH
PPS in the RY 2007 LTCH PPS final rule
(71 FR 27810 through 27817). For the
reasons explained above, we are
proposing to continue to use the RPL
market basket under the LTCH PPS for
FY 2012. However, as discussed in
greater detail in section VII.D. of this
preamble, we are proposing to rebase
and revise the FY 2002-based RPL
market basket by creating a proposed FY
2008-based RPL market basket.
Currently, we are exploring the viability
of creating two separate market baskets
from the current RPL market basket:
One market basket would include
freestanding IRFs and freestanding IPFs
and would be used to update payments
under both the IPF and IRF payment
systems. The other market basket would
be a stand-alone LTCH market basket.
Depending on the outcome of our
research, we may propose a stand-alone
LTCH market basket in the next LTCH
PPS update cycle. We invite public
comment on the possibility of using this
type of market basket to update LTCH
payments in the future.
Under the authority of section 123 of
the BBRA as amended by section 307(b)
of the BIPA, we are proposing to use the
proposed FY 2008-based RPL market
basket (described in section VII.D. of
this preamble) under the LTCH PPS for
FY 2012, which we continue to believe
appropriately reflects the cost structure
of LTCHs.
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d. Productivity Adjustment
Section 1886(m)(3)(A)(i) of the Act
specifies that, for FY 2012 and
subsequent years, any annual update to
the standard Federal rate shall be
reduced by the productivity adjustment
described in section 1886(b)(3)(B)(xi)(II)
of the Act. Section 1886(b)(3)(B)(xi)(II)
of the Act, as added by section 3401(a)
of the Affordable Care Act, defines the
productivity adjustment as equal to the
10-year moving average of changes in
annual economy-wide, private nonfarm
business multifactor productivity (MFP)
(as projected by the Secretary for the 10year period ending with the applicable
fiscal year, calendar year, cost reporting
period, or other annual period) (the
‘‘MFP adjustment’’). The Bureau of Labor
Statistics (BLS) is the agency that
publishes the official measure of private
non-farm business MFP. We refer
readers to the BLS Web site at https://
www.bls.gov/mfp to obtain the BLS
historical published MFP data.
The proposed MFP adjustment that
would be applied in determining any
annual update to the LTCH PPS
standard Federal rate is the same
adjustment that is required to be applied
in determining the applicable
percentage increase under the IPPS
under section 1886(b)(3)(B)(i) of the Act.
As described in section IV.K.3. of this
preamble, we are proposing to derive
the FY 2012 MFP adjustment applied to
the operating IPPS applicable
percentage increase using a projection of
MFP that is currently produced by IHS
Global Insight, Inc. (IGI). For a detailed
description of the model currently used
by IGI to project MFP, as well as a
description of how the proposed MFP
adjustment is calculated for FY 2012,
we refer readers to section IV.K.3 of this
preamble. The current estimate of the
proposed MFP adjustment for FY 2012
based on IGI’s first quarter 2011 forecast
is 1.2 percent. Consistent with the
statute, we are proposing to reduce the
proposed FY 2012 market basket update
of the LTCH PPS standard Federal rate
using this same proposed FY 2012 MFP
adjustment.
To determine the proposed market
basket update for LTCHs for FY 2012, as
reduced by the MFP adjustment,
consistent with the approach proposed
under the IPPS for FY 2012 (discussed
in section IV.K.3. of this preamble), we
are proposing that the proposed FY
2012 MFP percentage adjustment be
subtracted from the proposed FY 2012
market basket update. We are proposing
that if more recent data are subsequently
available (for example, a more recent
estimate of the market basket and MFP
adjustment), we would use such data, if
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appropriate, to determine the FY 2012
market basket update and MFP
adjustment in the final rule. Following
application of the productivity
adjustment, the proposed adjusted
market basket update (that is, the full
market basket increase less the MFP
adjustment) is then reduced by the
‘‘other adjustment’’ as required by
sections 1886(m)(3)(A)(ii) and
1886(m)(4) of the Act. The proposed
market basket update for FY 2012,
which reflects both the proposed MFP
adjustment and the ‘‘other adjustment’’
as required by sections 1886(m)(3)(A)(ii)
and 1886(m)(4) of the Act, is described
in section VII.E.2.e. of this preamble.
e. Proposed Annual Market Basket
Update for LTCHs for FY 2012
Consistent with our historical
practice, we are proposing to estimate
the proposed market basket update
based on IGI’s forecast using the most
recent available data.Based on IGI’s first
quarter 2011 forecast, the proposed FY
2012 market basket estimate for the
LTCH PPS using the proposed FY 2008based RPL market basket is 2.8 percent.
Consistent with our historical practice
of using market basket estimates based
on the most recent available data, we are
proposing that if more recent data are
available when we develop the final
rule, we would use such data, if
appropriate.
Section 1886(m)(3)(A)(i) of the Act
specifies that, for FY 2012 (and
subsequent years), any annual update to
the standard Federal rate shall be
reduced by the productivity adjustment
(referred to as ‘‘the MFP adjustment’’)
described in section 1886(b)(3)(B)(xi)(II)
of the Act. Furthermore, section
1886(m)(3)(A)(ii) of the Act specifies
that, for each of RYs 2010 through 2019,
any annual update to the standard
Federal rate shall be reduced by the
other adjustment specified in section
1886(m)(4) of the Act. Specifically,
section 1886(m)(4)(C) of the Act requires
a 0.1 percentage point reduction to the
annual update to the LTCH PPS
standard Federal rate for FY 2012.
In accordance with section
1886(m)(3)(A)(i) of the Act, we are
proposing to reduce the proposed FY
2012 full market basket estimate of 2.8
percent (based on the first quarter 2011
forecast of the proposed FY 2008-based
RPL market basket) by the proposed FY
2012 MFP adjustment (that is, the 10year moving average of MFP for the
period ending FY 2012, as described in
section VII.E.2.d of this preamble) of 1.2
percent (based on IGI’s first quarter 2011
forecast). Following application of the
productivity adjustment, the proposed
adjusted market basket update of 1.6
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percent (2.8 percent minus 1.2
percentage points) is then reduced by
0.1 percentage point, as required by
sections 1886(m)(3)(A)(ii) and
1886(m)(4)(C) of the Act.
Therefore, in this proposed rule, we
are proposing to establish an annual
market basket update under the LTCH
PPS for FY 2012 of 1.5 percent (that is,
the most recent estimate of the proposed
LTCH PPS market basket update at this
time of 2.8 percent less the proposed
MFP adjustment of 1.2 percentage
points less the 0.1 percentage point
required under section 1886(m)(4)(C) of
the Act). Accordingly, we are proposing
to revise § 412.523(c)(3) by adding a
new paragraph (viii), which would
specify that the standard Federal rate for
FY 2012 is the standard Federal rate for
the previous long-term care hospital
prospective payment system fiscal year
updated by 1.5 percent. Again,
consistent with our historical practice of
using the most recent available data, we
are proposing that if more recent data
are available when we develop the final
rule, we would use such data, if
appropriate, in determining the final
market basket update under the LTCH
PPS for FY 2012. (We note that in
section VII.E.3. of this preamble, for FY
2012, we are proposing to adjust the
standard Federal rate by an area wage
level budget neutrality factor of 0.99723
in accordance with proposed
§ 412.523(d)(4).)
3. Proposed Budget Neutrality
Adjustment for the Changes to the Area
Wage Level Adjustment
As described in section V.B. of the
Addendum to this proposed rule, when
the LTCH PPS was implemented, 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 laborrelated share of the LTCH PPS standard
Federal rate 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. Historically, in general, the
LTCH PPS wage index and labor-related
share are updated annually based on the
latest available data. However, there are
currently no statutory or regulatory
requirements that state that any updates
or adjustments to the LTCH PPS area
wage level adjustment (that is, the wage
index or the labor-related share) be
budget neutral, such that estimated
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aggregate LTCH PPS payments would be
neither greater than nor less than
estimated aggregate LTCH PPS
payments without such changes to the
area wage level adjustment.
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 area wage level
adjustment. The area wage level
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 full LTCH PPS
wage index values are used to make
payments under the LTCH PPS. As
discussed in section VII.D. of this
preamble, we are proposing to revise
and rebase the market basket used under
the LTCH PPS for FY 2012, and we are
also proposing to update the laborrelated share for FY 2012 based on this
proposed market basket. We are taking
this opportunity to revisit our approach
for annually updating the area wage
level adjustment. In order to mitigate
estimated yearly fluctuations in
estimated aggregate LTCH PPS
payments, as have been suggested in the
past, we have given further
consideration to the issue of
establishing a budget neutrality
requirement for any changes to the area
wage level adjustment. Therefore, in
this proposed rule, under the broad
authority conferred upon the Secretary
under section 123 of the BBRA, as
amended by section 307(b) of the BIPA,
to develop the LTCH PPS, we are
proposing that, beginning with the
proposed adjustment for area wage
levels for FY 2012 (discussed in section
V.B. of the Addendum to this proposed
rule), any changes to the wage index
values or labor-related share would be
made 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 such changes to the area wage
level adjustment. Accordingly, under
§ 412.525(c), we are proposing to specify
that, beginning in FY 2012, any
adjustments or updates made to the area
wage level adjustment under this
section will be made in a budget neutral
manner such that estimated aggregate
LTCH PPS payments are not affected.
Under this proposal, we would
determine an area wage level
adjustment budget neutrality factor that
would be applied to the standard
Federal rate to ensure that any changes
to the area wage level adjustment would
be budget neutral such that any changes
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26007
to the wage index values or labor-related
share would not result in any change
(increase or decrease) in estimated
aggregate LTCH PPS payments.
Specifically, we are proposing to use the
following steps to determine a proposed
area wage level adjustment budget
neutrality factor that would be applied
to the standard Federal rate that would
ensure that the proposed FY 2012
update to the wage index values and to
the labor-related share are adopted in a
budget neutral manner.
• Step 1—We would simulate
estimated aggregate LTCH PPS
payments using the FY 2011 wage index
values as established in Tables 12A and
12B of the Addendum to the FY 2011
IPPS/LTCH PPS final rule (75 FR 50627
through 50646) and the FY 2011 laborrelated share of 75.271 percent as
established in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50391 and 50445).
• Step 2—We would simulate
estimated aggregate LTCH PPS
payments using the proposed FY 2012
wage index values as shown in Tables
12A and 12B of the Addendum to this
proposed rule and the proposed FY
2012 labor-related share of 70.334
percent as discussed in section VII.D.3.f.
of this proposed rule.
• Step 3—We would calculate the
ratio of these estimated total LTCH PPS
payments by dividing the estimated
total LTCH PPS payments using the FY
2011 area wage level adjustments
(calculated in Step 1) by the estimated
total LTCH PPS payments using the
proposed FY 2012 area wage level
adjustments (calculated in Step 2) to
determine the area wage level
adjustment budget neutrality factor.
• Step 4—We would then apply the
proposed FY 2012 area wage level
adjustment budget neutrality factor from
Step 3 to determine the proposed FY
2012 LTCH PPS standard Federal rate
after the application of the proposed FY
2012 annual update (discussed in
section V.A.2. of the Addendum to this
proposed rule). We are proposing to
revise the existing regulations at
§ 412.523(d) to add a new paragraph (4),
which would specify that, beginning in
FY 2012, we would adjust the standard
Federal rate by a factor that accounts for
the estimated effect of any adjustments
or updates to the area wage level
adjustment under § 412.525(c)(1) on
estimated aggregate LTCH PPS
payments. In this proposed rule, we also
are proposing to revise existing
§ 412.525(c) to reflect our current policy
of updating the labor-related share
annually.
For this proposed rule, using the steps
in the proposed methodology described
above, we have determined a proposed
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FY 2012 area wage level adjustment
budget neutrality factor of 0.99723.
Accordingly, in section V.A.2. of the
Addendum to this proposed rule, to
determine the proposed FY 2012 LTCH
PPS standard Federal rate, we are
proposing to apply an area wage level
adjustment budget neutrality factor of
0.99723, in accordance with proposed
§ 412.523(d)(4), and therefore, the
proposed FY 2012 LTCH PPS standard
Federal rate shown in Table 1E reflects
this proposed adjustment.
4. Greater Than 25-Day Average Length
of Stay Requirement for LTCHs
Section 1886(d)(1)(B) of the Act lists
hospitals that are excluded from the
IPPS. Section 1886(d)(1)(B)(iv) of the
Act specifies the exclusion from the
IPPS for ‘‘a hospital which has an
average inpatient length of stay (as
determined by the Secretary) of greater
than 25 days.’’ The average length of
stay requirement was established as the
sole prerequisite for a hospital seeking
to be excluded from the IPPS under this
provider category. Section 114(a) of the
MMSEA of 2007 amended section 1861
of the Act by adding a new subsection
(ccc), which further defined LTCHs.
Thus, a hospital’s classification as an
LTCH has depended, in large part, upon
whether an acute care hospital met the
greater than 25 days average length of
stay requirement. Once the hospital was
classified as such under this criterion,
the ability for the hospital to continue
its exclusion from the IPPS and be paid
as an LTCH depended, in part, upon its
continuing to meet that criterion.
The regulations at 42 CFR 412.23(e)(1)
and (e)(2) set forth the requirements a
hospital must meet in order to be
excluded from the IPPS and be paid as
an LTCH. Specifically, § 412.23(e)(1)
requires that a hospital must have a
provider agreement under 42 CFR Part
489 to participate as a Medicare
hospital, and § 412.23(e)(2) provides
that a hospital must meet the LTCH
average length of stay of greater than 25
days policy. The methodology for
calculating the average length of stay is
specified at § 412.23(e)(3). A detailed
explanation of the procedural features of
the average length of stay policy was
included in the FY 2003 LTCH PPS final
rule, which implemented the LTCH PPS
(67 FR 55970 through 55974)).
In this proposed rule, we are
proposing to clarify two existing CMS
policies related to the greater than 25
days average length of stay requirement
policy: (1) the determination of the
average length of stay for a hospital
seeking exclusion under the IPPS to be
paid as an LTCH or an existing LTCH
undergoes a change of ownership; and
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(2) the inclusion of Medicare Advantage
days in calculating the average length of
stay.
a. Determination of the Average Length
of Stay When There is a Change of
Ownership
Under § 412.23(e)(3)(iv) of the
regulations, we implemented a policy
regarding the application of the average
length of stay methodology, where a
hospital (that is either seeking LTCH
status, or is an existing LTCH) has
undergone a change of ownership.
Specifically, in the event of a change of
ownership, the regulation provides:
‘‘If a hospital has undergone a change
of ownership (as described in § 489.18
of this chapter) at the start of a cost
reporting period or at any time within
the period of at least 5 months of the
preceding 6-month period, the hospital
may be excluded from the prospective
payment system as a long-term care
hospital for a cost reporting period if,
for the period of at least 5 months of the
6 months immediately preceding the
start of the period (including time before
the change of ownership), the hospital
has the required average length of stay,
continuously operated as a hospital, and
continuously participated as a hospital
in Medicare.’’
Section 412.23(e)(3)(iv) institutes a
procedure by which the average length
of stay of a hospital seeking LTCH status
or an existing LTCH is evaluated by its
fiscal intermediary or MAC to determine
whether or not the facility that is being
sold meets the requirements for LTCH
status. Because the sale of the facility,
in effect, ends the seller’s cost reporting
period (§ 413.24(f)(1)), and triggers the
beginning of the purchaser’s first cost
reporting period, the period of time that
is evaluated is the ‘‘at least 5 months of
the 6 months immediately preceding the
period (including time before the
change of ownership’’ to determine the
average length of stay that will result in
the hospital that meets the requirements
for LTCH status. If the average length of
stay data indicates that, for this period
of time, the hospital met the required
average length of stay of greater than 25
days, then the new owner’s hospital will
achieve IPPS exclusion and LTCH
status. On the other hand, if the data
indicate that the hospital does not meet
the required average length of stay, the
hospital will instead be paid under the
IPPS under its new ownership. We
understand that there has been some
confusion in the provider community
regarding the specific applicability of
this regulation to a change of ownership
of an existing LTCH. Accordingly, in
this proposed rule, we are proposing to
clarify this policy in regulation text by
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revising § 412.23(e)(3)(iv) to specifically
address the circumstance of a hospital
that has not as yet been classified as an
LTCH and wishes to be classified as an
LTCH based on data from the hospital’s
discharges occurring both before and
after the change of ownership.
Moreover, in an effort to provide greater
clarity, we are also proposing to
establish a separate provision in the
regulations (proposed paragraph
(e)(3)(v) under § 412.23) to directly
address LTCH status where there is a
change of ownership of an existing
LTCH. The sale of an existing LTCH,
which triggers the beginning of a new
cost reporting period under the new
owner (413.24(f)(1)), is a situation where
we believe it is appropriate to review
whether the hospital that is being sold
has been functioning as an LTCH, that
is, has been treating patients for on
average length of stay of greater than 25
days, before allowing the new owner to
continue to be paid for services
provided at the hospital under the
LTCH PPS. Therefore, we are proposing
that where there has been a change of
ownership of an existing LTCH, the
hospital will continue to be excluded
from the inpatient prospective payment
system as a long-term care hospital for
the cost reporting period beginning with
the change of ownership only if for the
period of at least 5 months of the 6
months immediately preceding the
change of ownership, the hospital meets
the required average length of stay. We
note that, conversely, under this
proposed policy, if the hospital fails to
meet the required average length of stay
criterion, after this evaluation, and if it
is an acute-care hospital, it will be paid
instead under the IPPS effective with
the day of the change of ownership, that
is, the start of the new owner’s cost
reporting period.
Accordingly, we are proposing to
clarify our existing policy as described
above by (1) revising existing
§ 412.23(e)(3)(iv), to specifically address
LTCH status in instances where a
hospital is seeking IPPS exclusion and
payment under the LTCH PPS but a
change of ownership has occurred, and
(2) proposing to establish a new
§ 412.23(e)(3)(v) to specifically address
the issue of LTCH status for existing
LTCHs undergoing a change of
ownership.
b. Inclusion of Medicare Advantage
(MA) Days in the Average Length of
Stay Calculation
With the passage of the Balanced
Budget Act of 1997, Medicare
beneficiaries were given the option to
receive their Medicare benefits through
private health insurance plans instead
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of through the original Medicare plan
(Parts A and B). These programs were
known as Medicare+Choice or Part C
plans (Section 1851 through 1859 of the
Act, implemented in 42 CFR part 422).
Pursuant to the Medicare Prescription
Drug, Improvement, and Modernization
Act of 2003, the compensation and
business practices changed for insurers
that offer these plans, and
‘‘Medicare+Choice’’ plans became
known as Medicare Advantage (MA)
plans.
When CMS implemented the LTCH
PPS beginning in FY 2003, we revised
the then-existing policy for calculating
the average length of stay for LTCHs
described at then § 412.23(e)(2)(i).
Under the TEFRA payment system, the
average length of stay was determined
by ‘‘* * * dividing the number of total
inpatient days * * * by the total
discharges for the hospital’s most recent
complete cost reporting period * * *’’
However, beginning with FY 2003,
under the newly implemented LTCH
PPS, the calculation was based on
‘‘dividing the total number of covered
and noncovered days of stay of
Medicare inpatients * * * by the total
Medicare discharges for the hospital’s
most recent complete cost reporting
period’’ (§ 412.23(e)(3)(i)). The rationale
for this change, as noted in the preamble
to the FY 2003 LTCH PPS final rule, is
that ‘‘LTCHs exist as a provider type in
order to treat Medicare patients
requiring complex long-term hospitallevel care. We believe that a hospital’s
right to qualify for payments under the
prospective payment system for LTCHs
should result from the actual provision
of clinically appropriate care to
Medicare LTCH patients * * *’’ (67 FR
55971).
Although the policy since the start of
the LTCH PPS has been for all LTCH
patients being paid for by Medicare to
be included in the average length of stay
calculation, until recently, we were
unable to include data for Medicare
Advantage (MA) patients in our
calculations because our database did
not capture discharge data on claims
paid by an MA plan. (In contrast,
patients who still had private insurance
as their primary health coverage and for
whom Medicare was a secondary payer,
were included in the calculations
because the portion of their claims
covered by Medicare was paid by Part
A and was therefore included in our
database.)
On July 20, 2007, we issued Change
Request 5647 that required the
submission by hospitals (IPPS, IRFs,
and LTCHs) of ‘‘information only’’ (not
for payment) bills for their MA patients
to their fiscal intermediaries or MACs
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beginning with FY 2007. The stated goal
of capturing these MA data was that the
data were needed for disproportionate
share payments (DSH) under the IPPS,
low-income patient (LIP) payments
under the IRF PPS, and for short-stay
outlier (SSO) payments under the LTCH
PPS. An additional one-time
notification, Change Request 6821,
issued on June 7, 2010, reiterated the
requirements of Change Request 5647
for the reporting of MA days for DHS
and LIP data and also noted ‘‘[i]n
addition, this data is used for other
purposes such as determining LTCH
short stay outlier payments and
evaluating the greater than 25 days
length of stay requirement of Medicare
patients for LTCHs.’’
Although the inclusion of MA days in
the average length of stay calculation
has been CMS’ policy under the LTCH
PPS because, at the outset of the LTCH
PPS, we specified that the average
length of stay calculation was based on
‘‘all covered’’ and on ‘‘all covered days
of stay of Medicare patients’’
(§ 412.23(e)(2)). We acknowledge that,
in practice, MA days were not included
due to limitations in our ability to
capture the data. We have been
informed by some members of the
provider community that it was not
their understanding that MA data
should be included in determining a
LTCH’s average length of stay, and that,
in some cases, the inclusion of these
data could substantially lower their
average length of stay, thus threatening
their status as LTCHs. Therefore, we are
proposing to clarify our existing policy
at 42 CFR 412.23(e)(3) on the
calculation of the average length of stay
to specify that all data on all Medicare
inpatient days, including MA days,
shall be included in the average length
of stay calculation.
F. Proposed Application of LTCH
Moratorium on the Increase in Beds at
Section 114(d)(1)(B) of Public Law 110–
173 (MMSEA) to LTCHs and LTCH
Satellite Facilities Established or
Classified as Such Under Section
114(d)(2) of Public Law 110–173
Under section 114(d) of the Medicare,
Medicaid, and SCHIP Extension Act of
2007 (MMSEA) (Pub. L. 110–173),
Congress established one moratorium on
the establishment or classification of
new LTCHs and LTCH satellite facilities
and a second moratorium on the
increase in the number of LTCH beds in
‘‘existing hospitals and satellite
facilities.’’ This section 114(d) provision
was amended by section 4302(b) of the
American Recovery and Reinvestment
Act of 2009 (ARRA) (Pub. L. 111–5) and
implemented in interim final rules
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26009
issued in the Federal Register on May
22, 2008, and August 27, 2009 (73 FR
29704 through 29707 and 74 FR 43990
through 43992, respectively), and
finalized in the FY 2010 and FY 2011
IPPS/LTCH PPS final rules (74 FR 43985
through 43990 and 75 FR 50397 through
50399, respectively). With the passage
of the Affordable Care Act on March 23,
2010, these moratoria were extended
under sections 3016 and 10312 for an
additional 2 years, through December
29, 2012, and implemented in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50400).
Specific exceptions to each
moratorium are included in the statute
and permit both the continued
establishment or classification of an
LTCH or LTCH satellite facility and an
increase in LTCH beds at a statutorily
defined ‘‘existing’’ hospital or satellite
facility, respectively. Under section
114(d)(2) of the MMSEA, as of
December 29, 2007, the preclusion on
the establishment or classification of a
new LTCH or LTCH satellite facility
would not apply if the circumstance met
one of the following three exceptions:
• The LTCH began its qualifying
period for payment as a LTCH under 42
CFR 412.23(e) on or before the date of
enactment of the MMSEA (section
114(d)(2)(A)).
• The LTCH has a binding written
agreement with an outside, unrelated
party for the actual construction,
renovation, lease, or demolition for a
LTCH and had expended before
December 29, 2007, at least 10 percent
of the estimated cost of the project or,
if less, $2.5 million (section
114(d)(2)(B)).
• The LTCH has obtained an
approved certificate of need (CON) in a
State where one is required on or before
December 29, 2007 (section
114(d)(2)(C)).
Section 114(d)(3) of the MMSEA, as
originally enacted, provided an
exception to the moratorium on increase
in beds at an existing LTCH or LTCH
satellite facility, if an existing LTCH or
satellite facility is located in a State
where there is only one other LTCH;
and the LTCH or satellite facility
requests an increase in beds following
the closure or decrease in the number of
beds of another LTCH in the State.
Section 4302(b) of the ARRA amended
this MMSEA provision to specify an
additional exception to the moratorium
on the increase in bed number 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.
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In implementing these two
moratorium provisions, we required that
each hospital or entity submit details of
its individual circumstance for
evaluation by CMS regional offices and
contractors in order to determine
whether a specific statutory exception
was applicable to the particular
situation (74 FR 43985 through 43990).
We note that, based upon these
exceptions (73 FR 29707), CMS records
indicate that, as of January 1, 2011, 50
new LTCHs and 8 new LTCH satellites
have been established or classified after
December 29, 2007, the date MMSEA
was enacted. (Data on additional beds
developed in existing LTCHs and LTCH
satellite facilities under the CON
exception provided by section 4302(b)
of the ARRA are maintained by States.)
Sections 3106 and 10312 of the
Affordable Care Act provided a 2-year
extension of both moratoria initially
established by section 114(d)(1) of the
MMSEA (which provided for an original
3-year application), indicating that
Congress continues to believe that it is
appropriate to continue to stem the
increase in the number of LTCHs and
LTCH satellite facilities and LTCH beds.
As noted above, section 114(d)(1)(B)
of the MMSEA established a
moratorium on the increase of LTCH
beds in existing LTCHs or satellite
facilities. Section 114(d)(4) of the
MMSEA defines ‘‘an existing hospital or
satellite facility’’ as a hospital or satellite
facility that received payment under the
LTCH PPS as of December 29, 2007, the
date of enactment of the MMSEA. By
definition, LTCHs or satellite facilities
that were established or classified as
such under an exception at section
114(d)(2) to the moratorium under
section 114(d)(1)(A) first received
payments under the LTCH PPS after
December 29, 2007, and therefore,
would not fall under the definition of
‘‘an existing hospital or satellite facility’’
to whom the moratorium on the
increase in bed numbers at section
114(d)(1)(B) applies. However, we do
not believe that it was Congress’ intent
to allow this subset of hospitals and
satellite facilities established or
classified after the enactment of
MMSEA unlimited bed growth and
expansion. Continued Congressional
concern regarding the increase in the
number of LTCHs and satellite facilities
and LTCH beds is indicated in the 2-
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year extension of the moratorium
provided by sections 3106 and 10312 of
the Affordable Care Act.
Section 123 of the Medicare,
Medicaid, and SCHIP [State Children’s
Health Insurance Program] Balanced
Budget Refinement Act of 1999 (BBRA
of 1999) (Pub. L. 106–113), as amended
by section 307 (b) of the Medicare,
Medicaid, and SCHIP [State Children’s
Health Insurance Program] Benefits
Improvement and Protection Act of
2000 (BIPA) (Pub. L. 106–554), confers
upon the Secretary discretion in
creating the LTCH PPS as the payment
system for LTCHs beginning in FY 2003.
Furthermore, the Secretary has
authority, under the general rulemaking
authority of sections 1102(a) and
1871(a) of the Act, to establish rules and
regulations as necessary to administer
the Medicare program and for the
efficient administration of the Medicare
program. Consistent with these
authorities, therefore, we are proposing
that, effective October 1, 2011, the
moratorium established under section
114(d)(1)(B) of the MMSEA, and
implemented at 42 CFR 412.23(e)(7) be
applied to those LTCHs and LTCH
satellite facilities established or
classified as such pursuant to the
exceptions at section 114(d)(2) to the
moratorium specified under section
114(d)(1)(B) of the MMSEA, as
implemented at 42 CFR 412.23(e)(6).
Specifically, we are proposing to limit
the number of beds in these facilities to
the number of beds that were certified
by Medicare at the LTCH or satellite
facility when it was first paid under the
LTCH PPS. We are proposing to amend
§ 412.23 by adding a new paragraph
(e)(8) to specify this proposed policy.
We believe that this proposed policy
captures the essence of the original
statutory moratoria—which was to limit
growth in the number of LTCHs and
LTCH satellite facilities and LTCH beds
payable under Medicare—while
recognizing the inherent fairness in
allowing those projects already
underway that represented substantial
investment, planning, and State
commitment to be completed.
VIII. MedPAC Recommendations
Under section 1886(e)(4)(B) of the
Act, the Secretary must consider
MedPAC’s recommendations regarding
hospital inpatient payments. Under
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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 2011
‘‘Report to the Congress: Medicare
Payment Policy’’ and have given the
recommendations in the report
consideration in conjunction with the
policies set forth in this proposed rule.
MedPAC recommendations for the IPPS
for FY 2012 are addressed in Appendix
B to this proposed rule.
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.
IX. Other Required Information
A. Requests for Data From the Public
In order to respond promptly to
public requests for data related to the
prospective payment system, we have
established a process under which
commenters can gain access to raw data
on an expedited basis. Generally, the
data are now available on compact disc
(CD) format. However, many of the files
are available on the Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS.
Data files and the cost for each file, if
applicable, are listed below. Anyone
wishing to purchase data tapes,
cartridges, or diskettes should submit a
written request along with a company
check or money order (payable to CMS–
PUF) to cover the cost of the following
address: Centers for Medicare &
Medicaid Services, Public Use Files,
Accounting Division, P.O. Box 7520,
Baltimore, MD 21207–0520, (410) 786–
3691. Files on the Internet may be
downloaded without charge.
1. CMS Wage Data Public Use File
This file contains the hospital hours
and salaries from Worksheet S–3, Parts
II and III from FY 2008 Medicare cost
reports used to create the proposed FY
2012 prospective payment system wage
index. Multiple versions of this file are
created each year. For a complete
schedule on the release of different
versions of this file, we refer readers to
the wage index schedule in section III.K.
of the preamble of this proposed rule.
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2. CMS Occupational Mix Data Public
Use File
This file contains the 2007–2008
occupational mix survey data to be used
to compute the occupational mix
adjustment wage indexes. Multiple
versions of this file are created each
year. For a complete schedule on the
release of different versions of this file,
we refer readers to the wage index
schedule in section III.K. of the
preamble of this proposed rule.
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
WIFN/list.asp#TopOfPage.
Period Available: FY 2012 IPPS
Update.
Standards (FIPS), county name, and a
historical list of Metropolitan Statistical
Areas (MSAs).
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
FFD/list.asp#TopOfPage.
Period Available: FY 2012 IPPS
Update.
6. HCRIS Cost Report Data
The data included in this file contain
cost reports with fiscal years ending on
or after September 30, 1996. These data
files contain the highest level of cost
report status.
Media: Internet at:
https://www.cms.hhs.gov/CostReports/
02_HospitalCostReport.asp and
Compact Disc (CD).
File Cost: $100.00 per year.
7. Provider-Specific File
This file contains each hospital’s
occupational mix adjustment factors by
occupational category. Two versions of
these files are created each year. They
support the following:
• Notice of proposed rulemaking
published in the Federal Register.
• Final rule published in the Federal
Register.
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
WIFN/list.asp#TopOfPage.
Period Available: FY 2012 IPPS
Update.
This file is a component of the
PRICER program used in the fiscal
intermediary’s or the MAC’s system to
compute DRG/MS–DRG payments for
individual bills. The file contains
records for all prospective payment
system eligible hospitals, including
hospitals in waiver States, and data
elements used in the prospective
payment system recalibration processes
and related activities. Beginning with
December 1988, the individual records
were enlarged to include pass-through
per diems and other elements.
Media: Internet at: https://
www.cms.hhs.gov/
ProspMedicareFeeSvcPmtGen/
03_psf_text.asp
Period Available: Quarterly Update.
4. Other Wage Index Files
8. CMS Medicare Case-Mix Index File
CMS releases other wage index
analysis files after each proposed and
final rule.
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
WIFN/list.asp#TopOfPage.
Periods Available: FY 2005 through
FY 2012 IPPS Update.
This file contains the Medicare casemix index by provider number as
published in each year’s update of the
Medicare hospital inpatient prospective
payment system. The case-mix index is
a measure of the costliness of cases
treated by a hospital relative to the cost
of the national average of all Medicare
hospital cases, using DRG/MS–DRG
weights as a measure of relative
costliness of cases. Two versions of this
file are created each year. They support
the following:
• Notice of proposed rulemaking
published in the Federal Register.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
3. Provider Occupational Mix
Adjustment Factors for Each
Occupational Category Public Use File
5. FY 2012 IPPS SSA/FIPS CBSA State
and County Crosswalk
This file contains a crosswalk of State
and county codes used by the Social
Security Administration (SSA) and the
Federal Information Processing
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• Final rule published in the Federal
Register.
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
FFD/list.asp#TopOfPage
Periods Available: FY 1985 through
FY 2012.
9. MS–DRG Relative Weights (Also
Table 5—MS–DRGs)
This file contains a listing of MS–
DRGs, MS–DRG narrative descriptions,
relative weights, and geometric and
arithmetic mean lengths of stay as
published in the Federal Register. There
are two versions of this file as published
in the Federal Register.
• Notice of proposed rulemaking.
• Final rule.
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
FFD/list.asp#TopOfPage
Periods Available: FY 2005 through
2012 IPPS Update.
10. IPPS Payment Impact File
This file contains data used to
estimate payments under Medicare’s
hospital impatient prospective payment
systems for operating and capital-related
costs. The data are taken from various
sources, including the Provider-Specific
File, Minimum Data Sets, and prior
impact files. The data set is abstracted
from an internal file used for the impact
analysis of the changes to the
prospective payment systems published
in the Federal Register. Two versions of
this file are created each year. They
support the following:
• Notice of proposed rulemaking.
• Final rule.
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
FFD/list.asp#TopOfPage and https://
www.cms.hhs.gov/AcuteInpatientPPS/
HIF/list.asp#TopOfPage
Periods Available: FY 1994 through
FY 2012 IPPS Update.
11. AOR/BOR Tables
This file contains data used to
develop the MS–DRG relative weights. It
contains mean, maximum, minimum,
standard deviation, and coefficient of
variation statistics by MS–DRG for
length of stay and standardized charges.
The BOR tables are ‘‘Before Outliers
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Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
WIFN/list.asp#TopOfPage.
Periods Available: FY 2007 through
FY 2012 IPPS Update.
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Removed’’ and the AOR is ‘‘After
Outliers Removed.’’ (Outliers refer to
statistical outliers, not payment
outliers.)
Two versions of this file are created
each year. They support the following:
• Notice of proposed rulemaking
published in the Federal Register.
• Final rule published in the Federal
Register.
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
FFD/list.asp#TopOfPage.
Periods Available: FY 2006 through
FY 2012 IPPS Update.
12. Prospective Payment System (PPS)
Standardizing File
This file contains information that
standardizes the charges used to
calculate relative weights to determine
payments under the hospital inpatient
operating and capital prospective
payment systems. Variables include
wage index, cost-of-living adjustment
(COLA), case-mix index, indirect
medical education (IME) adjustment,
disproportionate share, and the Corebased Statistical Area (CBSA). The file
supports the following:
• Notice of proposed rulemaking
published in the Federal Register.
• Final rule published in the Federal
Register.
Media: Internet at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
FFD/list.asp#TopOfPage.
Period Available: FY 2012 IPPS
Update.
For further information concerning
these data tapes, contact the CMS Public
Use Files Hotline at (410) 786–3691.
Commenters interested in discussing
any data used in constructing this
proposed rule should contact Nisha
Bhat at (410) 786–5320.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
B. Collection of Information
Requirements
1. Legislative Requirement for
Solicitation of Comments
Under the Paperwork Reduction Act
of 1995, we are required to provide
60-day notice in the Federal Register
and solicit public comment before a
collection of information requirement is
submitted to the Office of Management
and Budget (OMB) for review and
approval. In order to fairly evaluate
whether an information collection
should be approved by OMB, section
3506(c)(2)(A) of the Paperwork
Reduction Act of 1995 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.
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• 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.
We are soliciting public comment on
each of these issues for the following
sections of this document that contain
information collection requirements
(ICRs).
2. ICRs for Add-On Payments for New
Services and Technologies
Section II.I.1. of the preamble of this
proposed 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 2012 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, 2010, 2011, and 2012, we
received 1, 4, 5, 3, and 3 applications,
respectively.
3. ICRs for the Hospital Inpatient
Quality Reporting (IQR) Program
The Hospital Inpatient Quality
Reporting (IQR) Program (formerly
referred to as the Reporting Hospital
Quality Data for Annual Payment
(RHQDAPU) Program) was originally
established to implement section 501(b)
of the MMA, Public Law 108–173. This
Program expanded our voluntary
Hospital Quality Initiative. The Hospital
IQR Program originally consisted of a
‘‘starter set’’ of 10 quality measures.
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OMB approved the collection of
information associated with the original
starter set of quality measures under
OMB control number 0938–0918.
We added additional quality measures
to the Hospital IQR Program and
submitted the information collection
request to OMB for approval. This
expansion of the Hospital IQR measures
was part of our implementation of
section 5001(a) of the DRA. New 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.’’ The burden
associated with these reporting
requirements is currently approved
under OMB control number 0938–1022.
For the FY 2014 and FY 2015 payment
updates, we intend to seek OMB
approval for a revised information
collection request using the same OMB
control number (0938–1022). In the
revised request, we will add five
measures that we adopted in the FY
2011 IPPS/LTCH PPS final rule (four
chart-abstracted measures and an HAI
measure (Surgical Site Infection (SSI)) to
be collected via NSHN for the FY 2014
payment determination. In addition, we
are proposing to add two HAI measures
(CLIP and CAUTI) also to be collected
via NHSN, one structural measure and
one claims-based measure that we are
proposing in this proposed rule to adopt
for the FY 2014 payment determination.
We estimate that the proposed changes
to our FY 2014 payment determination
measure set would increase the
collection burden on hospitals by
approximately 4,250,175 hours per year.
Because the currently approved CDC
information collection request for the
NHSN (OCN: 0920–0666) does not
include all of the respondents
associated with the IQR program, we
intend to request a separate OMB
control number for the NHSN proposal.
With respect to the four new chartabstracted measures for the FY 2014
payment determination, hospitals
would be required to submit data on
patients who receive inpatient acute
care hospital services. Specifically, with
respect to the two EDT measures and
two Global Immunization measures,
hospitals would need to collect
information on patients who receive
inpatient acute care hospital services
regarding EDT, as well as flu and
pneumonia vaccinations information for
all inpatients for which hospitals
currently collect only for patients
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admitted for pneumonia. We estimate
that hospitals would incur an additional
3,500,000 burden hours resulting from
the addition of these four measures for
the FY 2014 payment determination. We
estimate that hospitals would submit
approximately 3,500,000 cases annually
for these 4 measures, and the
information needed to calculate these
measures requires an average of 1 hour
to abstract from medical records for
each case.
The HAI measure (Surgical Site
Infection (SSI)) that we adopted in the
FY 2011 IPPS/LTCH PPS final rule for
the FY 2014 payment determination and
the two HAI measures that we are
proposing to add for the FY 2014
payment determination (CLIP and
CAUTI) are structured to keep
additional burden to a minimum
because they are to be collected via
NHSN. More than 4,000 hospitals in
29 States are already using NHSN to
comply with State-mandated reporting.
Although this will add burden for
hospitals, we believe that the additional
burden will be lessened because
hospitals will already be using NHSN to
report the CLABSI measure for the FY
2013 payment determination. In
addition, as mentioned above, not all
hospitals will experience any additional
burden because many hospitals already
submit data to this system either
voluntarily or as part of mandatory State
reporting requirements for HAIs. The
burden associated with these proposals
is the time and effort associated with
collecting and submitting the additional
data. We estimate that hospitals will
need about 750,000 additional hours to
report Surgical Site Infection (SSI),
CLIP, and CAUTI event data and
denominator information into the
system.
The structural measure we are
proposing to add for the FY 2014
payment determination would require
hospitals to indicate whether they are
participating in a systematic qualified
clinical database for registry for General
Surgery and, if so, to identify the
registry. If this measure is finalized, we
estimate that 3,500 hospitals will spend
about 5 minutes each to answer this
question each year, resulting in an
estimated total increase of 175 hours in
terms of the total burden to hospitals
each year.
We are also proposing to add one new
claims-based measure for the FY 2014
payment determination. We do not
believe that this proposed claims-based
measure, if finalized, will create any
additional burden for hospitals because
it would be collected and calculated by
CMS based on the Medicare FFS claims
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the hospitals have already submitted to
CMS.
We believe that the overall burden on
hospitals will be reduced to some extent
by the policy we finalized in the FY
2011 IPPS/LTCH PPS final rule to retire
two measures (PN–2 and PN–7)
beginning with the FY 2014 payment
determination. Burden will be further
reduced by our proposal in this
proposed rule to retire eight additional
measures (AMI–1 Aspirin at Arrival,
AMI–3 ACE/ARB, AMI–4 Smoking
Cessation, AMI–5 Beta-Blocker at
Discharge, HF–4 Smoking Cessation,
PN–4 Smoking Cessation, PN–5c
Antibiotic within 6 Hours of Arrival and
SCIP Inf-6 Appropriate Hair Removal)
beginning with the FY 2014 payment
determination. We estimate that if we
finalize these proposals, the burden to
hospitals will be reduced by a total of
740,000 hours as a result of retiring
these eight measures, including
reductions of 170,000 hours for
abstracting AMI measures, 220,000
hours for abstracting PN measures,
50,000 hours for abstracting HF
measures, and 300,000 hours for
abstracting SCIP measures.
We also are proposing to add two new
chart-abstracted measure sets to the
Hospital IQR Program for FY 2015:
Stroke (eight measures) and Venous
Thromboembolism (VTE) (six
measures). Both measure sets are of
great importance to the Medicare
population, with stroke affecting about
795,000 people each year (American
Stroke Association). Both stroke and
VTE measures are currently collected by
the Joint Commission for accreditation
and certification purposes. Both
measure sets use complimentary data
elements to our current SCIP, VTE, and
AMI measure sets, thus reducing the
chart-abstraction burden. The burden
associated with this proposal is the time
and effort associated with collecting and
submitting the additional data. We
estimate that each proposed chart
abstracted measure set will require
about 1 hour to abstract. We anticipate
the number of subsection (d) hospitals
participating in the Hospital IQR
Program to be approximately 3,500. The
number of charts to be abstracted by all
participating hospitals is estimated to be
180,000 per year for the proposed Stroke
measure set, and 6,000,000 per year for
the proposed VTE measure set. In total,
our proposal to add Stroke and VTE
measures is estimated to increase the
burden to hospitals by 6,180,000 hours
per year.
We also are proposing to add three
new HAI measures to be collected via
NHSN to the Hospital IQR Program for
FY 2015: (1) Methicillin-resistant
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Staphylococcus aureus (MRSA)
Bacteremia measure; (2) C. Difficile SIR
measure; and (3) Healthcare Personnel
Influenza vaccination measure. The
information needed for these measures
would be collected via NHSN, and,
therefore, is structured to keep
additional burden to a minimum
because more than 4,000 hospitals in
29 States are already using NHSN to
comply with State-mandated reporting.
Although this will add burden to
hospitals, the initial setup and
acclimation to the NHSN system will
have already occurred with the adoption
of the CLABSI measure for all hospital
IQR for the FY 2013 payment
determination. In addition, as
mentioned above, not all hospitals will
experience any additional burden since
many hospitals already submit data to
this system either voluntarily or as part
of mandatory State reporting
requirements for HAIs. The burden
associated with this section is the time
and effort associated with collecting and
submitting the additional data. With
respect to the new HAI proposed
measures for the FY 2015 payment
determination, we estimate that an
additional 1,500,000 burden hours per
year (500,000 hours per measure) would
be incurred by hospitals to report data
on these measures.
We estimate that our proposed
changes to our FY 2015 Hospital IQR
Program measure set will increase the
collection burden to hospitals by
approximately 6,780,000 hours per year.
We have stated our intention to
explore mechanisms for data
submission using electronic health
records (EHRs) (73 FR 48614; 74 FR
43866, 43892; 75 FR 50189).
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 capturing, formatting,
and transmitting the 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 Hospital IQR Program
measure set with less cost and burden
to hospitals. We believe that automatic
collection and reporting of data through
EHRs will greatly simplify and
streamline reporting for various CMS
quality reporting programs, and that at
a future date, such as FY 2015, hospitals
will be able to switch solely to EHRbased reporting of data that are
currently manually chart-abstracted and
submitted to CMS for the Hospital IQR
Program.
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4. ICRs for the Occupational Mix
Adjustment to the Proposed FY 2012
Index (Hospital Wage Index
Occupational Mix Survey)
Section II.D. of the preamble of this
proposed rule discusses the
occupational mix adjustment to the
proposed FY 2012 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, 2013.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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,
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,
the associated burden is currently
approved under OMB control number
0938–0573, with an expiration date of
December 31, 2011.
6. ICRs for the Proposed Quality
Reporting Program for LTCHs
In section VII.C. of this preamble, we
are proposing three quality reporting
measures for LTCHs for FY 2014:
(1) Catheter Associated Urinary Tract
Infections (CAUTI); (2) Central Line
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Associated Blood Stream Infection
Event (CLABSI); and (3) Pressure Ulcers
that are New or Have Worsened.
We are proposing to collect the
proposed HAI CLABSI and CAUTI
quality measures through the use of the
CDC/NHSN (https://www.cdc.gov/nhsn/).
We will require that LTCH facilities
report data on each patient in their
facility who has been diagnosed with
either a catheter associated urinary tract
infection or a central line associated
bloodstream infection.
The NHSN is a secure, Internet-based
surveillance system which is
maintained and managed by CDC. Many
LTCHs already submit data to the NHSN
either voluntarily or as part of
mandatory State reporting requirements
for HAIs. There are currently 435 LTCHs
in operation in the United States and,
according to CDC, 80 of these LTCHs
already submit HAI data to NHSN. For
these LTCHs, the burden of complying
with the requirements of the proposed
quality reporting program will be
reduced because of familiarity with the
NHSN submission process.
We require IPPS hospitals to report
data regarding certain HAIs via NHSN
as part of the Hospital IQR Program. We
adopted the CLABSI quality measure
under the Hospital IQR Program for the
FY 2013 payment determination and are
proposing to adopt the CAUTI measure
for the FY 2014 payment determination.
In addition, hospitals in 29 States are
already using NHSN, and CDC supports
more than 4,000 hospitals that are
already using NHSN. Many LTCHs are
integrated into or are part of large
inpatient hospital systems. We believe
that these hospital systems have gained
the requisite knowledge and experience
with the submission of data about HAIs
via NHSN, under the Hospital IQR
Program, State law, or voluntarily.
Therefore, the transition to reporting
HAIs via the NHSN for these LTCHs
may be less burdensome.
The burden associated with these
proposed quality measures is the time
and effort associated with collecting and
submitting the data concerning CAUTI
and CLABSI to NHSN for LTCHs that
are not currently reporting such data.
For LTCHs that already submit data
regarding these HAIs to NHSN, there
should be little, if any, additional
burden. For LTCHs who submit data to
NHSN for other HAIs, but not CAUTI
and CLABSI data, then there may be
some burden. However, we believe that
this burden will be significantly
decreased because these LTCHs are
already enrolled in the NHSN system
and are already familiar with the NHSN
data submission process.
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There are currently 435 LTCHs in the
United States paid under the LTCH PPS.
We estimate that each LTCH would
submit approximately 12 NHSN
submissions (6 CAUTI and 6 CLABSI)
per month (144 per LTCH annually).
This equates to a total of approximately
62,640 submissions of HAI data to
NHSN from all LTCHs per year. We
estimate that each NHSN assessment
will take approximately 25 minutes to
complete. This time estimate consists of
10 minutes of clinical (for example,
nursing time) needed to collect the
clinical data and 15 minutes of clerical
time necessary to enter the data into the
NHSN data base. Based on this estimate,
we expect each LTCH would expend
300 minutes (5 hours) per month and 60
hours per year reporting to NHSN.
Therefore, the total estimated annual
hourly burden to all LTCHs in the U.S.
for reporting to NHSN is 26,100 hours.
The estimated cost per submission is
estimated at $12.07. These costs are
estimated using an hourly wage for a
Registered Nurse of $41.59 and a
Medical Billing Clerk/Data Entry person
of $20.57 (U.S. Bureau of Labor
Statistics data). Therefore, we estimate
that the annual cost per each LTCH
provider would be $1,739 and the total
yearly cost to all LTCHs for the
submission of CAUTI and CLABSI data
to NHSN would be $760,676.60 While
the aforementioned requirements are
subject to the PRA, we believe the
associated burden hours are accounted
for in the information collection request
currently approved OCN 0920–0666.
With respect to the proposed pressure
ulcer measure, we are proposing that we
would post the specification for the
pressure ulcer measure on our Web site
along with the specific data elements
necessary to be collected. We expect
that the specific data items needed are
part of the Continuity Assessment
Record & Evaluation (CARE) instrument.
We developed the CARE as required by
section 5008 of the Deficit Reduction
Act of 2005. CARE is a standardized
assessment instrument that could be
used across all postacute care sites to
measure functional status and other
factors during treatment and at
discharge from each provider.
Because the CMS CARE pressure
ulcer data set has not previously been
introduced in the LTCH setting, there
will be some initial burdens associated
with the introduction of this data
assessment tool. These initial costs
would mainly be incurred in the
60 Nursing Time—24 hours @ $41.59 per hour =
$998.16/$998.16 × 435 LTCHs = $434,200. Admin
Time—36 hours @ $20.57 per hour = $740.52/
$740.52 × 435 LTCHs = $326,476. TOTAL =
$434,200 + $326,476 = $760,676.
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training of the facility staff. However,
there should be little, if any, additional
education required, in regards to the
collection of the data, because pressure
ulcer assessment should be a vital part
of good patient care and daily in-house
patient chart documentation.
We are proposing to require that the
CARE pressure ulcer assessment be
performed on each patient in a LTCH
upon admission and again upon
discharge. We believe that it is
necessary to obtain admission and
discharge pressure ulcer assessments on
all patients admitted to LTCH facilities
in order to obtain full and complete
statistical data regarding the quality of
care provided by the facility to the
patients receiving care in that facility.
The delivery of high quality care in the
LTCH setting is imperative. We believe
that collecting quality data on all
patients in the LTCH setting supports
CMS’ mission to insure quality care for
Medicare beneficiaries. Collecting data
on all patients provides the most robust
and accurate reflection of quality in the
LTCH setting. Accurate representation
of quality provided in LTCHs is best
conveyed using data related to pressure
ulcers on all LTCH patients regardless of
payor, using a subset of the CARE data
set. An admission assessment is
necessary in order to assess for either
the presence or absence of pressure
ulcers upon admission. If pressure
ulcers are detected upon admission,
then they must be properly assessed,
staged and documented. Upon
discharge, an assessment is needed to
determine if any worsening of the
pressure ulcers occurred during the
LTCH stay. If no pressure ulcers had
been noted on the admission
assessment, then a discharge pressure
ulcer assessment would be necessary in
order to assess whether the patient had
developed any new pressure ulcers
during the LTCH stay.
At this time, CMS has not completed
development of the information
collection instrument that LTCHs would
have to submit to comply with the
aforementioned reporting requirements
regarding the CARE pressure ulcer
assessment. Because the forms are still
under development, we cannot assign a
complete burden estimate at this time.
Once the forms are available, we will
publish the required 60-day and 30-day
Federal Register notices to solicit public
comments on the instrument and to
announce the submission of the
information collection request to OMB
for its review and approval.
If you comment on these information
collection and recordkeeping
requirements, please do either of the
following:
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1. Submit your comments
electronically as specified in the
ADDRESSES section of this proposed rule;
or
2. Submit your comments to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Attention: CMS Desk Officer,
CMS–1518–P, Fax: (202) 395–6974; or
E-mail: OIRA_submission@omb.eop.gov.
C. Response to Comments
Because of the large number of public
comments we normally receive on
Federal Register documents, we are not
able to acknowledge or respond to them
individually. We will consider all
comments we receive by the date and
time specified in the DATES section of
this preamble, and, when we proceed
with a subsequent document, we will
respond to the comments in the
preamble to that document.
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 476
Health care, Health professional,
Health record, Peer Review
Organization (PRO), Penalties, Privacy,
Reporting and recordkeeping
requirements.
For the reasons stated in the preamble
of this proposed rule, the Centers for
Medicare & Medicaid Services is
proposing to amend 42 CFR Chapter IV
as follows:
PART 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 Pub. L. 106–113
(113 Stat. 1501A–332).
2. Section 412.23 is amended by—
a. In paragraph (e)(3)(i), removing the
cross-reference ‘‘paragraph (e)(3)(ii)
through (e)(3)(iv) of this section’’ and
adding in its place the cross-reference
‘‘paragraphs (e)(3)(ii) through (e)(3)(v) of
this section’’.
b. Revising paragraph (e)(3)(iv).
c. Adding a new paragraph (e)(3)(v).
d. Adding a new paragraph (e)(8).
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The revision and additions read as
follows:
§ 412.23 Excluded hospitals:
Classifications.
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*
*
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*
(e) * * *
(3) * * *
(iv) If a hospital seeks exclusion from
the inpatient prospective payment
system as a long-term care hospital and
a change of ownership (as described in
§ 489.18 of this chapter) occurs within
the period of at least 5 months of the 6month period preceding its petition for
long-term care hospital status, the
hospital may be excluded from the
inpatient prospective payment system
as a long-term care hospital for the next
cost reporting period if, for the period
of at least 5 months of the 6 months
immediately preceding the start of the
cost reporting period for which the
hospital is seeking exclusion from the
inpatient prospective payment system
as a long-term care hospital (including
time before the change of ownership),
the hospital has met the required
average length of stay, has continuously
operated as a hospital, and has
continuously participated as a hospital
in Medicare.
(v) For periods beginning on or after
October 1, 2011, a hospital that is
excluded from the prospective payment
system as a long-term care hospital that
plans to undergo a change of ownership
(as described in § 489.18 of this chapter)
must notify its fiscal intermediary or
MAC within 30 days of the effective
date of such change of ownership, as
specified in § 424.516(d)(1)(i) of this
subchapter. The hospital will continue
to be excluded from the inpatient
prospective payment system as a longterm care hospital for the cost reporting
period following the change of
ownership only if, for the period of at
least 5 months of the 6 months
immediately preceding the start of the
hospital’s next cost reporting period
before the change of ownership, the
hospital meets the required average
length of stay (calculated in accordance
with paragraph (e)(3)(i) of this section).
*
*
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*
(8) Application of LTCH moratorium
on the increase in beds at section
114(d)(1)(B) of Public Law 110–173 to
LTCHs and LTCH satellite facilities
established or classified as such under
section 114(d)(2) of Public Law 110–173.
Effective for the period beginning
October 1, 2011, and ending December
28, 2012, for long-term care hospitals
and long-term care hospital satellite
facilities established under paragraph
(e)(6)((ii) of this section for the period
beginning December 29, 2007, and
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ending September 30, 2011, the
moratorium at paragraph (e)(7) applies
and the number of Medicare-certified
beds must not be increased beyond the
initial number of Medicare-certified
beds established under paragraph
(e)(6)(ii) of this section.
*
*
*
*
*
3. Section 412.64 is amended by
adding a new paragraph (d)(1)(iv) to
read as follows:
§ 412.64 Federal rates for inpatient
operating costs for Federal fiscal year 2005
and subsequent fiscal years.
*
*
*
*
*
(d) * * *
(1) * * *
(iv) For fiscal year 2012, the
percentage increase in the market basket
index less a multifactor productivity
adjustment (as determined by CMS) and
less 0.1 percentage points for
prospective payment hospitals (as
defined in § 413.40(a) of this
subchapter) for hospitals in all areas.
*
*
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*
4. 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, skilled nursing
swing-bed services, ancillary labor/
delivery services, or inpatient hospice
services;
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*
*
*
*
5. Section 412.106 is amended by
revising paragraph (a)(1)(ii)(B) to read as
follows:
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§ 412.106 Special treatment: Hospitals that
service a disproportionate share of low
income patients.
(a) * * *
(1) * * *
(ii) * * *
(B) Beds otherwise countable under
this section used for outpatient
observation services, skilled nursing
swing-bed services, or inpatient hospice
services;
*
*
*
*
*
6. A new § 412.140 is added to
Subpart H to read as follows:
§ 412.140 Participation, data submission,
and validation requirements under the
Hospital Inpatient Quality Review (IQR)
Program.
(a) Participation in the Hospital IQR
Program. In order to participate in the
Hospital IQR Program, a subsection (d)
hospital must—
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(1) Register on QualityNet.org, before
it begins to report data;
(2) Identify and register a QualityNet
Administrator as part of the registration
process under paragraph (a)(1) of this
section; and
(3) Submit a completed Notice of
Participation Form to CMS if the
hospital is participating in the program
for the first time, has previously
withdrawn from the program and would
like to participate again, or has received
a new CMS Certification Number (CNN).
(i) A hospital that would like to
participate in the program for the first
time (and to which paragraph (a)(3)(ii)
of this section does not apply), or that
previously withdrew from the program
and would now like to participate again,
must submit to CMS a completed Notice
of Participation Form by December 31 of
the fiscal year preceding the fiscal year
in which it wishes to participate.
(ii) A hospital that has received a new
CCN and would like to participate in the
program must submit a completed
Notice of Participation Form to CMS no
later than 180 days from the date
identified as the open date on the
approved CMS OSCAR system.
(b) Withdrawal from the Hospital IQR
Program. CMS will accept Hospital IQR
Program withdrawal forms from
hospitals on or before August 15 of the
fiscal year preceding the fiscal year for
which a Hospital IQR payment
determination will be made.
(c) Submission and validation of
Hospital IQR Program data.
(1) General rule. Except as provided
in paragraph (c)(2) of this section,
subsection (d) hospitals that participate
in the Hospital IQR Program must
submit to CMS data on measures
selected under section
1886(b)(3)(B)(viii) of the Act in a form
and manner, and at a time, specified by
CMS. A hospital must begin submitting
data on the first day of the quarter
following the date that the hospital
submits a completed Notice of
Participation form under paragraph
(a)(3) of this section.
(2) Exception. Upon request by a
hospital, CMS may grant an extension or
waiver of one or more data submission
deadlines in the event of extraordinary
circumstances beyond the control of the
hospital. Specific requirements for
submission of a request for an extension
or waiver are available
onQualityNet.org.
(d) Validation of Hospital IQR
Program data. CMS may validate one or
more measures selected under section
1886(b)(3)(B)(viii) of the Act by
reviewing patient charts submitted by
selected participating hospitals.
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(1) Upon written request by CMS or
its contractor, a hospital must submit to
CMS a sample of patient charts that the
hospital used for purposes of data
submission under the program. The
specific sample that a hospital must
submit will be identified in the written
request. A hospital must submit the
patient charts to CMS or its contractor
within 30 days of the date identified on
the written request.
(2) A hospital meets the validation
requirement with respect to a fiscal year
if it achieves a 75-percent score, as
determined by CMS.
(e) Reconsiderations and appeals of
Hospital IQR Program decisions.
(1) A hospital may request
reconsideration of a decision by CMS
that the hospital has not met the
requirements of the Hospital IQR
Program for a particular fiscal year.
Except as provided in paragraph (c)(2)
of this section, a hospital must submit
a reconsideration request to CMS no
later than 30 days from the date
identified on the Hospital Inpatient
Quality Reporting Program Annual
Payment Update Notification Letter
provided to the hospital.
(2) A reconsideration request must
contain the following information:
(i) The hospital’s CMS Certification
Number (CCN);
(ii) The name of the hospital;
(iii) Contact information for the
hospital’s chief executive officer and
QualityNet system administrator,
including each individual’s name,
e-mail address, telephone number, and
physical mailing address;
(iv) A summary of the reason(s), as set
forth in the Hospital Inpatient Quality
Reporting Program Annual Payment
Update Notification Letter, that CMS
concluded the hospital did not meet the
requirements of the Hospital IQR
Program;
(v) A detailed explanation of why the
hospital believes that it complied with
the requirements of the Hospital IQR
Program for the applicable fiscal year;
(vi) Any evidence that supports the
hospital’s reconsideration request,
including copies of patient charts,
e-mails and other documents; and
(vii) If the hospital has requested
reconsideration on the basis that CMS
concluded it did not meet the validation
requirement set forth in paragraph (d) of
this section, the reconsideration request
must contain the following additional
information:
(A) A copy of each patient chart that
the hospital timely submitted to CMS or
its contractor in response to a request
made under paragraph (d)(1) of this
section; and
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(B) A detailed explanation identifying
which data the hospital believes was
improperly validated by CMS and why
the hospital believes that such data are
correct.
(3) A hospital that is dissatisfied with
a decision made by CMS on its
reconsideration request may file an
appeal with the Provider
Reimbursement Review Board under
Part 405, Subpart R of this chapter.
7. Section 412.211 is amended by
adding a new paragraph (c)(4) to read as
follows:
§ 412.211 Puerto Rico rates for Federal
fiscal year 2004 and subsequent fiscal
years.
*
*
*
*
*
(c) * * *
(4) For fiscal year 2012 and
subsequent fiscal years, the applicable
percentage increase specified in
§ 412.64(d).
*
*
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*
8. Section 412.523 is amended by—
a. Adding a new paragraph (c)(3)(viii).
b. Adding a new paragraph (d)(4).
The additions to read as follows:
§ 412.523 Methodology for calculating the
Federal prospective payment rates.
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*
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(c) * * *
(3) * * *
(viii) For long-term care hospital
prospective payment system fiscal year
beginning October 1, 2011, and ending
September 30, 2012. The standard
Federal rate for the long-term care
hospital prospective payment system
beginning October 1, 2011, and ending
September 30, 2012, is the standard
Federal rate for the previous long-term
care hospital prospective payment
system fiscal year updated by 1.5
percent. The standard Federal rate is
adjusted, as appropriate, as described in
paragraph (d) of this section.
*
*
*
*
*
(d) * * *
(4) Changes to the adjustment for area
wage levels. Beginning in FY 2012, CMS
adjusts the standard Federal rate by a
factor that accounts for the estimated
effect of any adjustments or updates to
the area wage level adjustment under
§ 412.525(c)(1) on estimated aggregate
LTCH PPS payments.
*
*
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*
*
9. Section 412.525 is amended by
revising paragraph (c) to read as follows:
§ 412.525 Adjustments to the Federal
prospective payment.
*
*
*
*
*
(c) Adjustments for area wage levels.
(1) The labor portion of a long-term care
hospital’s Federal prospective payment
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is adjusted to account for geographical
differences in the area wage levels using
an appropriate wage index (established
by CMS), which reflects the relative
level of hospital wages and wage-related
costs in the geographic area (that is,
urban or rural area as determined in
accordance with the definitions set forth
in § 412.503) of the hospital compared
to the national average level of hospital
wages and wage-related costs. The
appropriate wage index that is
established by CMS is updated
annually. The labor portion of a longterm care hospital’s Federal prospective
payment is established by CMS and is
updated annually.
(2) Beginning in FY 2012, any
adjustments or updates to the area wage
level adjustment under this paragraph
(c) will be made in a budget neutral
manner such that estimated aggregate
LTCH PPS payments are not affected.
*
*
*
*
*
PART 413—PRINCIPLES OF
REASONABLE COST
REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE
SERVICES; OPTIONAL
PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED
NURSING FACILITIES
26017
payment for ambulance services
furnished by a CAH or an entity that is
owned and operated by a CAH is 101
percent of the reasonable costs of the
CAH or the entity in furnishing those
services, but only if the CAH or the
entity is the only provider or supplier of
ambulance services located within a 35mile drive of the CAH. If there is no
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH and there is an entity that
is owned and operated by a CAH that
is more than a
35-mile drive from the CAH, payment
for ambulance services furnished by that
entity is 101 percent of the reasonable
costs of the entity in furnishing those
services, but only if the entity is the
closest provider or supplier of
ambulance services to the CAH.
*
*
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*
*
PART 476—UTILIZATION AND
QUALITY CONTROL REVIEW
12. The authority citation for Part 476
continues to read as follows:
Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395(hh)).
10. 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 Pub. L. 106–133 (113 Stat. 1501A–
332).
13. Section 476.78 is amended by—
a. In paragraph (a), removing the
reference ‘‘§ 466.71’’ and adding in its
place the reference ‘‘§ 476.71’’.
b. Revising paragraph (b).
The revision reads as follows:
§ 476.78 Responsibilities of health care
facilities.
11. Section 413.70 is amended by—
a. Revising paragraph (b)(5)(i)(B).
b. Adding a new paragraph
(b)(5)(i)(C).
The revision and addition read as
follows:
§ 413.70
Payment for services of a CAH.
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*
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*
*
(b) * * *
(5) * * *
(i) * * *
(B) Effective for cost reporting periods
beginning on or after January 1, 2004
and on or before September 30, 2011,
payment for ambulance services
furnished by a CAH or an entity that is
owned and operated by a CAH is 101
percent of the reasonable costs of the
CAH or the entity in furnishing those
services, but only if the CAH or the
entity is the only provider or supplier of
ambulance services located within a
35-mile drive of the CAH or the entity.
(C) Effective for cost reporting periods
beginning on or after October 1, 2011,
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*
*
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*
(b) Cooperation with QIOs. Health
care providers that submit Medicare
claims must cooperate in the
assumption and conduct of QIO review.
(1) Providers must allocate adequate
space to the QIO for its conduct of
review at the times the QIO is
conducting review.
(2) Providers must provide patient
care data and other pertinent data to the
QIO at the time the QIO is collecting
review information that is required for
the QIO to make its determinations.
QIOs pay providers paid under the
prospective payment system for the
costs of photocopying records requested
by the QIO in accordance with the
payment rate determined under the
methodology described in paragraph (c)
of this section and for first class postage
for mailing the records to the QIO.
When the QIO does postadmission,
preprocedure review, the facility must
provide the necessary information
before the procedure is performed,
unless it must be performed on an
emergency basis. Providers must—
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(i) Photocopy and deliver to the QIO
all required information within 30
calendar days of a request;
(ii) Deliver all required medical
information to the QIO within 21
calendar days from the date of the
request in those situations where a
potential ‘‘serious reportable event’’ has
been identified or where other
circumstances as deemed by the QIO
warrant earlier receipt of all required
medical information. For purposes of
this paragraph, a serious reportable
event is defined as a preventable,
serious, and unambiguous adverse event
that should never occur.
(3) Providers must inform Medicare
beneficiaries at the time of admission, in
writing, that the care for which
Medicare payment is sought will be
subject to QIO review and indicate the
potential outcomes of that review.
Furnishing this information to the
patient does not constitute notice, under
§ 405.332(a) of this chapter, that can
support a finding that the beneficiary
knew the services were not covered.
(4) When the provider has issued a
written determination in accordance
with § 412.42(c)(3) of this chapter that a
beneficiary no longer requires inpatient
hospital care, it must submit a copy of
its determination to the QIO within 3
working days.
(5) Providers must assure, in
accordance with the provisions of their
agreements with the QIO, that each case
subject to preadmission review has been
reviewed and approved by the QIO
before admission to the hospital or a
timely request has been made for QIO
review.
(6)(i) Providers must agree to accept
financial liability for any admission
subject to preadmission review that was
not reviewed by the QIO and is
subsequently determined to be
inappropriate or not medically
necessary.
(ii) The provisions of paragraph
(b)(6)(i) of this section do not apply if
a provider, in accordance with its
agreement with a QIO, makes a timely
request for preadmission review and the
QIO does not review the case timely.
Cases of this type are subject to
retrospective prepayment review under
paragraph (b)(7) of this section.
(7) Hospitals must agree that, if the
hospital admits a case subject to
preadmission review without
certification, the case must receive
retrospective prepayment review,
according to the review priority
established by the QIO.
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*
(Catalog of Federal Domestic Assistance
Program No. 93.773, Medicare—
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Hospital Insurance; Program No. 93.774,
Medicare—Supplementary Medical
Insurance Program; and Program No.
93.778, Medical Assistance)
Dated: April 7, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare &
Medicaid Services.
Dated: April 15, 2011.
Kathleen Sebelius,
Secretary.
Note: The following Addendum and
Appendixes will not appear in the Code of
Federal Regulations.
Addendum—Proposed Schedule of
Standardized Amounts, Update
Factors, and Rate-of-Increase
Percentages Effective With Cost
Reporting Periods Beginning on or
After October 1, 2011
I. Summary and Background
In this Addendum, we are setting forth a
description of the methods and data we used
to determine the proposed prospective
payment rates for Medicare hospital inpatient
operating costs and Medicare hospital
inpatient capital-related costs for FY 2012 for
acute care hospitals. We also are setting forth
the proposed rate-of-increase percentages for
updating the target amounts for certain
hospitals excluded from the IPPS for FY
2012. We note that, because certain hospitals
excluded from the IPPS are paid on a
reasonable cost basis subject to a rate-ofincrease 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
proposed rule, we are proposing the rate-ofincrease 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,
2011.
In addition, we are setting forth a
description of the methods and data we used
to determine the proposed standard Federal
rate that will be applicable to Medicare
LTCHs for FY 2012.
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 the updated hospitalspecific 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
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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. However, section
5003(a)(1) of Pub. L. 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. Section 3124(a) of the
Affordable Care Act amended sections
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II) of
the Act to extend the MDH program and
payment methodology from the end of FY
2011 to the end of FY 2012, by striking
‘‘October 1, 2011’’ and inserting ‘‘October 1,
2012’’. Section 3124(b) of the Affordable Care
Act also made conforming amendments to
sections 1886(b)(3)(D) and 1886(b)(3)(D)(iv)
of the Act. Section 3124(b)(2) of the
Affordable Care Act also amended section
13501(e)(2) of OBRA 1993 to extend the
provision permitting hospitals to decline
reclassification as an MDH through FY 2012.
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 Public Law 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 proposing to make
changes in the determination of the
prospective payment rates for Medicare
inpatient operating costs for acute care
hospitals for FY 2012. In section III. of this
Addendum, we discuss our proposed policy
changes for determining the prospective
payment rates for Medicare inpatient capitalrelated costs for FY 2012. In section IV. of
this Addendum, we are setting forth our
proposed changes for determining the rate-ofincrease limits for certain hospitals excluded
from the IPPS for FY 2012. In section V. of
this Addendum, we are proposing to make
changes in the determination of the standard
Federal rate for LTCHs under the LTCH PPS
for FY 2012. The tables to which we refer in
the preamble of this proposed rule are listed
in section VI. of this Addendum and are
available via the Internet.
II. Proposed Changes to Prospective Payment
Rates for Hospital Inpatient Operating Costs
for Acute Care Hospitals for FY 2012
The basic methodology for determining
prospective payment rates for hospital
inpatient operating costs for acute care
hospitals for FY 2005 and subsequent fiscal
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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 proposed prospective payment rates for
FY 2012.
In summary, the proposed standardized
amounts set forth in Tables 1A, 1B, and 1C
that are listed and published in section VI.
of this Addendum (and available via the
Internet) 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.
• 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.
• Proposed updates of 1.5 percent for all
areas (that is, the FY 2012 estimate of the
market basket rate-of-increase of 2.8 percent
less an adjustment of 1.2 percentage points
for multifactor productivity and less 0.1
percentage point), as required by section
1886(b)(3)(B)(i) of the Act, as amended by
sections 3401(a) and10319(a) of the
Affordable Care Act. For hospitals that fail 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, pursuant to section
1886(b)(3)(B)(viii) of the Act, the proposed
update is ¥0.5 percent (that is, the FY 2012
estimate of the market basket rate-of-increase
of 2.8 percent, less 2.0 percentage points for
failure to submit data under the Hospital IQR
Program, less an adjustment of 1.2 percentage
points for multifactor productivity, and less
0.1 percentage point).
• A proposed update of 1.5 percent to the
Puerto Rico-specific standardized amount
(that is, the FY 2012 estimate of the market
basket rate-of-increase of 2.8 percent less an
adjustment of 1.2 percentage points for
multifactor productivity and less 0.1
percentage point), in accordance with section
1886(d)(9)(C)(i) of the Act, as amended by
section 401(c) of Public Law 108–173, which
sets the update to the Puerto Rico-specific
standardized amount equal to the applicable
percentage increase set forth in section
1886(b)(3)(B)(i) of the Act.
• 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
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 when we compute such budget
neutrality, we assume that the provisions of
section 1886(d)(3)(E)(ii) of the Act (requiring
a 62 percent labor-related share in certain
circumstances) had not been enacted.
• An adjustment to ensure the effects of
geographic reclassification are budget
neutral, as provided for in section
1886(d)(8)(D) of the Act, by removing the FY
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2011 budget neutrality factor and applying a
revised factor.
• An adjustment to ensure the effects of
the rural community hospital demonstration
required under section 410A of Public Law
108–173, as amended by sections 3123 and
10313 of Public Law 111–148, which
extended the demonstration for an additional
5 years are budget neutral, as required under
section 410A(c)(2) of Public Law 108–173.
• An adjustment in light of the court’s
decision in Cape Cod v. Sebelius (630 F.3d
203 (D.C. Cir. 2011)).
• An adjustment to remove the FY 2011
outlier offset and apply an offset for FY 2012,
as provided for in section 1886(d)(3)(B) of the
Act.
• As discussed below and in section II.D.
of the preamble to this proposed rule, an
adjustment to meet the requirements of
sections 7(b)(1)(A) and 7(b)(1)(B) of Pub. L.
110–90 to adjust the standardized amounts to
offset the estimated amount of the increase in
aggregate payments (including interest) due
to the effect of documentation and coding
that did not reflect real changes in case-mix
for discharges occurring during FY 2008 and
FY 2009.
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
2011, for FY 2012, we are proposing to
continue to apply the rural floor budget
neutrality adjustment to hospital wage
indices rather than the standardized amount.
Consistent with section 3141 of the
Affordable Care Act, instead of applying a
State level rural floor budget neutrality
adjustment on the wage index, we are
proposing to apply a uniform, national
budget neutrality adjustment to the FY 2012
wage index for the rural floor. We note that,
as proposed in section III.F.2 of the preamble
of this proposed rule, we are not proposing
to extend the imputed floor as this policy is
set to expire with the FY 2011 wage index.
Thus, the imputed floor is not reflected in the
proposed FY 2012 wage index.
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
September 1, 1987 final rule (52 FR 33043
and 33066) contains a detailed explanation of
how the target amounts were determined and
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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 2012, we are proposing to continue
to use a labor-related share of 68.8 percent for
discharges occurring on or after October 1,
2011, 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 IPPS hospitals
whose wage index values are less than or
equal to 1.0000. For all IPPS 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 FY 2012, all Puerto
Rico hospitals have a wage index less than
1.0. Therefore, the national labor-related
share will always be 62 percent because the
wage index for all Puerto Rico hospitals is
less than 1.0.
For hospitals located in Puerto Rico, we are
applying a labor-related share of 62.1 percent
if its Puerto Rico-specific wage index is
greater than 1.0000. For hospitals located in
Puerto Rico whose Puerto-Rico specific wage
index values are less than or equal to 1.0000,
we are applying a labor share of 62 percent.
The proposed standardized amounts for
operating costs appear in Table 1A, 1B, and
1C that are listed and published in section
VI. of the Addendum to this proposed rule
and are available via the Internet.
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
proposing to calculate the FY 2012 national
and Puerto Rico standardized amounts
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irrespective of whether a hospital is located
in an urban or rural location.
3. Updating the Average Standardized
Amount
Section 1886(b)(3)(B) of the Act specifies
the applicable percentage increase used to
update the standardized amount for payment
for inpatient hospital operating costs. As
discussed in section IV.K.3. of the preamble
of this proposed rule, in accordance with
section 1886(b)(3)(B) of the Act, as amended
by section 3401(a) of the Affordable Care Act,
we are proposing to reduce the FY 2012
applicable percentage increase (which is
based on the first quarter 2011 forecast of the
FY 2006-based IPPS market basket) by the
multifactor productivity (MFP) adjustment
(the 10-year moving average of MFP for the
period ending FY 2012) of 1.2 percent, which
is calculated based on IHS Global Insight,
Inc.’s (IGI’s) first quarter 2011 forecast. In
addition, in accordance with section
1886(b)(3)(B)(i) of the Act, as amended by
sections 3401(a) and 10319(a) of the
Affordable Care Act, we are proposing to
further update the standardized amount for
FY 2012 by the estimated market basket
percentage increase less 0.1 percentage point
for hospitals in all areas. Sections
1886(b)(3)(B)(xi) and (xii) of Act, as added
and amended by sections 3401(a) and
10319(a) of the Affordable Care Act, further
state that these adjustments may result in the
applicable percentage increase being less
than zero. 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. Based on IGI’s
2011 first quarter forecast of the hospital
market basket increase (as discussed in
Appendix B of this proposed rule), the most
recent forecast of the hospital market basket
increase for FY 2012 is 2.8 percent. Thus, for
FY 2012, the proposed update to the average
standardized amount is 1.5 percent for
hospitals in all areas (that is, the FY 2012
estimate of the market basket rate-of-increase
of 2.8 percent less an adjustment of 1.2
percentage points for multifactor
productivity and less 0.1 percentage point).
For hospitals that do not submit quality data
pursuant to section 1886(b)(3)(B)(viii), the
estimated update to the operating
standardized amount is ¥0.5 percent (that is,
the FY 2012 estimate of the market basket
rate-of-increase of 2.8 percent, less 2.0
percentage points for failure to submit data
under the IQR program, less an adjustment of
1.2 percentage points for multifactor
productivity, and less 0.1 percentage point).
The proposed standardized amounts in
Tables 1A through 1C that are published in
section VI. of this Addendum and available
via the Internet reflect these differential
amounts.
Section 401(c) of Public Law 108–173
amended section 1886(d)(9)(C)(i) of the Act
and states that, for discharges occurring in a
fiscal year (beginning with FY 2004), the
Secretary shall compute an average
standardized amount for hospitals located in
any area of Puerto Rico that is equal to the
average standardized amount computed
under subclause (I) for FY 2003 for hospitals
in a large urban area (or, beginning with FY
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2005, for all hospitals in the previous fiscal
year) increased by the applicable percentage
increase under subsection (b)(3)(B) for the
fiscal year involved. Therefore, the update to
the Puerto Rico-specific operating
standardized amount is subject to the
applicable percentage increase set forth in
section 1886(b)(3)(B)(i) of the Act, as
amended by sections 3401(a) and 10319(a) of
the Affordable Care Act (that is, the same
update factor as for all other hospitals subject
to the IPPS). Accordingly, we are proposing
an applicable percentage increase to the
Puerto Rico-specific standardized amount of
1.5 percent.
Although the update factors for FY 2012
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 2012 for
both IPPS hospitals and hospitals and
hospital units excluded from the IPPS.
Section 1886(e)(5)(A) of the Act requires that
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 proposed rule.
4. Other Adjustments to the Average
Standardized Amount
As in the past, we are proposing to adjust
the FY 2012 standardized amount to remove
the effects of the FY 2011 geographic
reclassifications and outlier payments before
applying the FY 2012 updates. We then
apply budget neutrality offsets for outliers
and geographic reclassifications to the
standardized amount based on FY 2012
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.
Consistent with our methodology
established in the FY 2011 IPPS/LTCH final
rule (75 FR 50422 through 50433), 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
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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.
Consistent with our methodology established
in the FY 2011 IPPS/LTCH final rule (75 FR
50422–50423), we first searched the MedPAR
file for all claims with an IME payment
greater than zero. We then filtered these
claims for a subset of claims with a GHO Paid
indicator with a value of ‘‘1’’ or if the IME
payment field was equal to the DRG payment
field. The GHO Paid indicator with a value
of ‘‘1’’ in 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 transfer-adjusted
CMI by provider based on the FY 2011 MS–
DRG GROUPER Version 28.0 assignment and
relative weights. We also computed a
transfer-adjusted CMI for these Medicare
Advantage claims from IPPS teaching
hospitals based on the proposed FY 2012
MS–DRG GROUPER Version 29.0
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.
Additionally, consistent with our
methodology established in the FY 2011
IPPS/LTCH final rule (75 FR 50422–50423),
we examined the MedPAR and removed
pharmacy charges for antihemophilic blood
factor (which are paid separately under the
IPPS) with an indicator of ‘‘3’’ for blood
clotting with a revenue code of ‘‘0636’’from
the covered charge field for the budget
neutrality adjustments. We also removed
organ acquisition charges from the covered
charge field for the budget neutrality
adjustments because organ acquisition is a
pass-through payment not paid under the
IPPS.
a. Proposed 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 proposed
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
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because payments to hospitals are affected by
factors other than average case weight.
Therefore, as we have done in past years, we
are proposing to make 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. 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 laborrelated 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 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, this section of
the statute requires that we implement the
updates to the wage index 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 2012, we are proposing to adjust 100
percent of the wage index factor for
occupational mix. We describe the
occupational mix adjustment in section III.C.
of the preamble of this proposed rule.
For FY 2012, 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 2010 discharge data to simulate
payments and compared aggregate payments
using the FY 2011 labor-related share
percentages, the FY 2011 relative weights,
and the FY 2011 pre-reclassified wage data
to aggregate payments using the FY 2011
labor-related share percentages, the proposed
FY 2012 relative weights, and the FY 2011
pre-reclassified wage data. Based on this
comparison, we computed a budget
neutrality adjustment factor equal to
0.998419. As discussed in section IV. of this
Addendum, we also would apply the
proposed DRG reclassification and
recalibration budget neutrality factor of
0.998419 to the hospital-specific rates that
are to be effective for cost reporting periods
beginning on or after October 1, 2011.
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, 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
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and labor-related share have no effect on
aggregate payments for IPPS hospitals. We
first determined a proposed DRG
reclassification and recalibration budget
neutrality factor of 0.998419 by using the
same methodology described above to
determine the proposed 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 2010
discharge data to simulate payments and
compared aggregate payments using
proposed FY 2012 relative weights and FY
2011 pre-reclassified wage indices, and
applied the FY 2011 labor-related share of
68.8 percent to all hospitals (regardless of
whether the hospital’s wage index was above
or below 1.0) to aggregate payments using the
proposed FY 2012 relative weights and the
proposed FY 2012 pre-reclassified wage
indices, and applied the proposed laborrelated share for FY 2012 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 proposed
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 2011 to FY 2012. By applying this
methodology, we determined a proposed
budget neutrality factor of 1.000113 for
changes to the wage index. Finally, we
multiplied the proposed DRG reclassification
and recalibration budget neutrality factor of
0.998419 (derived in the first step) by the
proposed budget neutrality factor of 1.000113
for changes to the wage index (derived in the
second step) to determine the proposed DRG
reclassification and recalibration and
updated wage index budget neutrality factor
of 0.998532.
b. Reclassified Hospitals—Proposed 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 proposed budget neutrality factor for FY
2012, we used FY 2010 discharge data to
simulate payments and compared total IPPS
payments with proposed FY 2012 relative
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weights, FY 2012 labor-related share
percentages, and proposed FY 2012 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 proposed FY 2012 relative weights, FY
2012 labor-related share percentages, and
proposed FY 2012 wage data after such
reclassifications. Based on these simulations,
we calculated a proposed adjustment factor
of 0.991528 to ensure that the effects of these
provisions are budget neutral, consistent
with the statute.
The proposed FY 2012 budget neutrality
adjustment factor is applied to the
standardized amount after removing the
effects of the FY 2011 budget neutrality
adjustment factor. We note that the proposed
FY 2012 budget neutrality adjustment reflects
proposed FY 2012 wage index
reclassifications approved by the MGCRB or
the Administrator. We note that, for this
proposed rule, as discussed in section III.B.
of the preamble to this proposed rule, section
3137(c) of the Affordable Care Act resulted in
some additional hospitals receiving
reclassifications, or some hospitals receiving
reclassifications to a different area. These
reclassifications are included in the
calculation of reclassification budget
neutrality.
c. Proposed Rural Floor Budget Neutrality
Adjustment
We make an adjustment to the wage index
to ensure that aggregate payments to
hospitals after implementation of the rural
floor under section 4410 of the BBA (Pub. L.
105–33) are not affected. As discussed in
section III.F. of the preamble of this proposed
rule, consistent with section 3141 of the
Affordable Care Act, the budget neutrality
adjustment for the rural and imputed floors
is a national adjustment to the wage index.
As discussed in section III.F.2. of the
preamble of this proposed rule, for the FY
2012 wage index, there are wage data for one
new hospital in rural Puerto Rico when
previously there were none. Therefore, for FY
2012, we are proposing to calculate a
national rural Puerto Rico wage index (used
to adjust the labor-related share of the
national standardized amount for hospitals in
Puerto Rico which receive 75 percent of the
national standardized amount) and a rural
Puerto Rico-specific wage index (which will
be used to adjust the labor-related share of
the Puerto Rico-specific standardized amount
for hospitals in Puerto Rico which receive 25
percent of the Puerto Rico-specific
standardized amount). Our calculation is
based on the policy adopted in the FY 2008
IPPS final rule with comment period (72 FR
47323). A complete discussion on the
computation of the rural Puerto Rico wage
index can be found in section III.G. of the
preamble of this proposed rule. In past fiscal
years, when there was no rural Puerto Rico
wage index, we applied the national rural
floor budget neutrality wage index factor to
the national wage indices used to adjust the
labor-related share for the national
standardized amount (including the national
Puerto Rico wage indexes) but did not apply
this factor to the Puerto Rico-specific wage
indices. We did not apply the national rural
floor budget neutrality wage index factor to
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the Puerto Rico-specific wage indices (nor
did we compute a Puerto Rico-specific rural
floor budget neutrality wage index factor)
because there were no rural hospitals in
Puerto Rico. As mentioned above, for FY
2012, there is now one rural Puerto Rico
hospital and, therefore, it is necessary to
compute and propose a Puerto Rico-specific
rural floor budget neutrality wage index
factor (in addition to the national factor).
To calculate both the national and Puerto
Rico-specific rural floor budget neutrality
adjustment factors, we used FY 2010
discharge data and proposed FY 2012 postreclassified national and Puerto Rico-specific
wage indices to simulate IPPS payments.
First, we compared the national and Puerto
Rico-specific simulated payments without
the national and Puerto Rico-specific rural
floor applied to national and Puerto Ricospecific simulated payments with the
national and Puerto Rico-specific rural floor
applied to determine the proposed national
rural budget neutrality adjustment factor of
0.993834 and the proposed Puerto Ricospecific budget neutrality adjustment factor
of 0.989226. The proposed national
adjustment was applied to the national wage
indices to produce a national rural floor
budget neutral wage index and the proposed
Puerto Rico-specific adjustment was then
applied to the Puerto Rico-specific wage
indices to produce a Puerto Rico-specific
rural floor budget neutral wage index.
d. Proposed Adjustment in Light of Court
Decision in Cape Cod v. Sebelius
We are proposing a 1.1 percent adjustment
to the standardized amount in recognition of
the decision of Cape Cod v. Sebelius (630
F.3d 203 (D.C. Cir. 2011)), (here after referred
to as ‘‘Cape Cod’’). However, we emphasize
that remand proceedings in that case are not
complete and this proposal reflects the
timing of the development of this proposed
rule and not a final decision as to how the
remand will proceed. In Cape Cod, the
plaintiff hospitals challenged the rural floor
budget neutrality adjustments for FY 2007
and FY 2008. In its opinion, the D.C. Circuit
Court found that section 4410 of the
Balanced Budget Act of 1997 (BBA) Public
Law 105–33, which authorized both the rural
floor and rural floor budget neutrality, would
not permit CMS to ignore prior year errors in
calculating rural floor budget neutrality
adjustments. The case has now been
remanded to CMS for further proceedings
consistent with the DC Circuit Court’s
opinion.
While Cape Cod involved only FYs 2007
and 2008, the decision may have
implications for FY 2012 payment rates,
depending on the ultimate result of the
remand proceedings. In light of that opinion
and the timing of the rulemaking
development process, we are proposing to
restore to the FY 2012 standardized amount
the offset for the rural floor and imputed
floor on the standardized amount over FY
1998 through 2006. By making this proposal
for FY 2012, all affected parties will have an
opportunity to consider and comment on this
proposed adjustment. Given that the court
has remanded the case to the Secretary for
FYs 2007 and 2008 and those remand
proceedings are not yet complete, we may
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decide to take a different approach in the
final rule, depending on public comments or
developments in the remand proceedings.
To assess the overall impact of applying
the rural floor budget neutrality adjustment
to the standardized amount for the years
between FY 1998 and FY 2006, we
remodeled the recalibration/wage index
budget neutrality factor for the years at issue
(for which data were available), excluding
the effect of the rural floor adjustment. For
example, to compute the revised
recalibration/wage index budget neutrality
factor for FY 2000, we compared the FY 1999
pre-reclassified wage data with no rural floor
to FY 2000 pre-reclassified wage data with no
rural floor. We then compared the revised
factor to the wage/recalibration budget
neutrality factor derived under the original
modeling logic; that is, where the current
year’s pre-reclassified wage data had a rural
floor applied. The percent change in these
two factors was then calculated for each
remodeled year.
Remodeled years from FY 1998 to FY 2004
showed an approximate 0.1 percentage point
increase between the factors for each year.
This increase results in a total 0.7 percentage
points, which, based on the court’s
comments, we believe should be returned to
the standardized amount. Beginning with FY
2005 through FY 2006, the number of States
for which a floor wage index was available
was extended via the imputed floor policy.
With additional States receiving increases in
payment due to the application of the
imputed floor, we estimated the combined
effects of the rural and imputed floor to be
approximately 0.2 percentage points per year.
This resulted in a total of 0.4 percentage
points, which we believe should be returned
to the standardized amount. Therefore, to
remove the effects of the rural floor from the
standardized amount for FY 1998 through FY
2006, we are proposing to apply a onetime
adjustment of 1.1 percentage points, which
would increase the standardized amount (0.7
percentage points plus 0.4 percentage points
for a factor of 1.011). We note that, in the FY
2008 IPPS final rule with comment period,
we applied a onetime adjustment of 1.002214
to the FY 2008 standardized amount to
address a single year transition (from FY
2007 to FY 2008) to a noncumulative system
of the rural floor budget neutrality
adjustment. This adjustment of 1.002214 to
the FY 2008 standardized amount reflected
the increase to the rates to remove the effects
of the rural floor budget neutrality
adjustment from FY 2007. Because this
1.002214 factor remains on the rate, we are
not including an adjustment for FY 2007 in
our calculation above.
e. Proposed Case-Mix Budget Neutrality
Adjustment
(1) Proposed Adjustment to the FY 2012 IPPS
Standardized Amount for the Prospective
Adjustment for FY 2010 and Subsequent
Years Authorized by Section 7(b)(1)(A) of
Public Law 110–90 and Section
1886(d)(3)(A)(vi) of the Act
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
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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 FY 2010 IPPS proposed and final
rules (74 FR 24092 through 24101 and 43768
through 43772), we discussed our analysis of
FY 2008 claims data and did not apply any
additional documentation and coding
adjustments to the average standardized
amounts under section 1886(d) of the Act.
We refer readers to these rules for a detailed
description of our analysis, responses to
comments, and final policy respectively.
After analysis of the FY 2009 claims data for
the FY 2011 IPPS/LTCH PPS final rule (75 FR
50057 through 50073), we found a total
prospective documentation and coding effect
of 1.054. After accounting for the ¥0.6
percent and the ¥0.9 percent documentation
and coding adjustments in FYs 2008 and
2009, we found a remaining documentation
and coding effect of 3.9 percent. Therefore,
an additional cumulative adjustment of ¥3.9
percent would be necessary to meet the
requirements of section 7(b)(1)(A) of Pub. L.
110–90 to make an adjustment to the average
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standardized amounts in order to eliminate
the full effect of the documentation and
coding changes on future payments. As we
discussed in the FY 2011 IPPS/LTCH PPS
final rule, we did not propose a prospective
adjustment under section 7(b)(1)(A) of Public
Law 110–90 for FY 2011 (75 FR 23868
through 23870). We note that, as a result,
payments in FY 2011 (and in each future year
until we implement the requisite adjustment)
were 3.9 percent higher than they would
have been if we had implemented an
adjustment under section 7(b)(1)(A) of Public
Law 110–90. Our actuaries estimate that this
3.9 percentage point increase will result in an
aggregate payment of approximately $4
billion. We refer readers to the FY 2011 IPPS/
LTCH PPS final rule for a detailed
description of our analysis, responses to
comments, and final policy (75 FR 50057
through 50073).
Because further delay of this prospective
adjustment will result in a continued accrual
of unrecoverable overpayments, we consider
it imperative that CMS propose a prospective
adjustment for FY 2012, while recognizing
CMS’ continued desire to mitigate the effects
of any significant downward adjustments to
hospitals. Therefore, we are proposing a
¥3.15 percent prospective adjustment to the
standardized amount to partially eliminate
the full effect of the documentation and
coding changes on future payments. Due to
the offsetting nature of the remaining
recoupment adjustment under section
7(b)(1)(B) of Public Law 110–90 (described
below), and after considering other positive
payment adjustments to FY 2012 rates
proposed elsewhere in this proposed rule, we
believe that the proposed ¥3.15 percent
adjustment would allow for a significant
reduction in potential unrecoverable
overpayments, yet will maintain a
comparable adjustment level between FY
2011 and FY 2012, reflecting the applicable
percentage increase with a documentation
and coding adjustment. This proposal
recognized that an additional adjustment of
¥0.75 percent (3.9 minus 3.15) will be
required in future rulemaking to complete
the statutory requirement under section
7(b)(1)(A) of Public Law 110–90. At this time,
we are not proposing a timeline to implement
the remainder of this adjustment. We refer
the reader to section II.D. of the preamble of
this proposed rule for more discussion. In
addition, for a complete discussion on our
proposed documentation and coding
adjustment to the hospital-specific rates, we
refer readers to section II.D.2.c. of this
Addendum.
(2) Proposed Adjustment to the FY 2012 IPPS
Standardized Amount for the Recoupment or
Repayment Adjustment for FY 2010
Authorized by Section 7(b)(1)(B) of Public
Law 110–90
As indicated in section II.D.4. in the
preamble to this proposed rule, the change
due to documentation and coding that did
not reflect real changes in case-mix for
discharges occurring during FY 2008 and FY
2009 exceeded the ¥0.6 and ¥0.9 percent
prospective documentation and coding
adjustment applied under section 7(a) of
Public Law 110–90 for those 2 years
respectively by 1.9 percentage points in FY
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2008 and 3.9 percentage points in FY 2009.
In total, this change exceeded the cumulative
prospective adjustments by 5.8 percentage
points. Our actuaries estimated that this 5.8
percentage point increase resulted in an
increase in aggregate payments of
approximately $6.9 billion. In the FY 2011
IPPS/LTCH PPS final rule, we determined
that an aggregate adjustment of ¥5.8 percent
in FYs 2011 and 2012, subject to actuarial
adjustment to reflect accumulated interest,
would be necessary in order to meet the
requirements of section 7(b)(1)(B) of Public
Law 110–90 to adjust the standardized
amounts for discharges occurring in FYs
2010, 2011, and/or 2012 to offset the
estimated amount of the increase in aggregate
payments (including interest) in FYs 2008
and 2009.
It is often our practice to phase in rate
adjustments over more than one year in order
to moderate the effect on rates in any one
year. Therefore, as we specified in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50425), we made an adjustment in FY 2011
to the standardized amount of ¥2.9 percent,
representing half of the aggregate adjustment
required under section 7(b)(1)(B) of Public
Law 110–90, for FY 2011. As we have
previously noted, unlike the prospective
adjustment to the standardized amounts
under section 7(b)(1)(A) of Public Law 110–
90 described earlier, the recoupment or
repayment adjustment to the standardized
amounts under section 7(b)(1)(B) of Public
Law 110–90 is not 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. We
refer readers to the FY 2011 IPPS/LTCH PPS
final rule for a detailed description of our
analysis, responses to comments, and final
policy (75 FR 50057 through 50073).
While we stated in the FY 2011 IPPS/LTCH
PPS final rule the need to potentially adjust
the remaining ¥2.9 percent estimate to
account for accumulated interest, our
actuaries have determined that there has
been no significant interest accumulation and
that no additional adjustment will be
required. Therefore, we are proposing to
complete the recoupment adjustment
according to the timeframes set forth by
section 7(b)(1)(B) of Public Law 110–90 by
implementing the remaining ¥2.9 percent
adjustment, in addition to removing the
effect of the ¥2.9 percent adjustment to the
standardized amount finalized in FY 2011.
Because these adjustments will, in effect,
balance out, there will be no year-to-year
change in the standardized amount due to
this recoupment adjustment. As this
adjustment will complete the required
recoupment for overpayments due to
documentation and coding effects on
discharges occurring in FYs 2008 and 2009,
we anticipate removing the effect of this
adjustment by adding 2.9 percent to the
standardized amount in FY 2013. We
continue to believe that this is a reasonable
and fair approach that satisfies the
requirements of the statute while
substantially moderating the financial impact
on hospitals. We refer the reader to section
II.D. of the preamble to this proposed rule for
more discussion.
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26023
(3) Proposed Adjustment to the FY 2012
Puerto Rico Standardized Amount
As discussed in section II.D.9. of the
preamble of this proposed rule, in the FY
2011 IPPS/LTCH PPS final rule (75 FR 50071
through 50073), using the same methodology
we applied to estimate documentation and
coding changes under IPPS for non-Puerto
Rico hospitals, our best estimate, based on
the then most recently available data (FY
2009 claims paid through March 2010), was
that for documentation and coding changes
that occurred over FY 2008 and FY 2009, a
cumulative adjustment of ¥2.6 percent was
required to eliminate the full effect of the
documentation and coding changes on future
payments from the Puerto Rico-specific rate.
In FY 2011, as finalized in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50071 through
50073), we applied an adjustment of ¥2.6
percent to the Puerto Rico-specific rate.
Therefore, because the Puerto Rico-specific
rate received a full prospective adjustment of
¥2.6 percent in FY 2011, we are proposing
no further adjustment in this proposed rule
for FY 2012. For a complete discussion on
this proposal, we refer readers to section
II.D.9. of the preamble of this proposed rule.
f. Rural Community Hospital Demonstration
Program Adjustment
As discussed in section IV.N. of the
preamble to this proposed rule, section 410A
of Public Law 108–173 originally required
the Secretary to establish a demonstration
that modifies 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.’’
Sections 3123 and 10313 of the Affordable
Care Act extended the demonstration for an
additional 5-year period, and allow up to 30
hospitals to participate in 20 States with low
population densities determined by the
Secretary. (In determining which States to
include in the expansion, the Secretary is
required to use the same criteria and data
that the Secretary used to determine the
States for purposes of the initial 5-year
period.) In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50426), in order to achieve
budget neutrality, we adjusted the national
IPPS rates by an amount sufficient to account
for the added costs of this demonstration as
described in section IV.K. of that final rule.
In other words, we applied budget neutrality
across the payment system as a whole rather
than merely across the participants of this
demonstration, consistent with past practice.
We stated that 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.
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For FY 2012, we are proposing the
estimated amount for the adjustment to the
national IPPS rates for FY 2012 to be
$52,642,213. Accordingly, to account for the
estimated costs of the demonstration for the
specific time periods as explained in detail
in section IV.N. of the preamble of this
proposed rule, for FY 2012, we computed a
proposed factor of 0.999479 for the rural
community hospital demonstration program
budget neutrality adjustment that would be
applied to the IPPS standardized rate.
We note that because the settlement
process for the demonstration hospitals’ third
and fourth year cost reports, that is, for cost
reporting periods starting in FYs 2007 and
2008, has experienced a delay, for this
proposed rule, we are unable to state the
costs of the demonstration corresponding to
FYs 2007 and 2008 for purposes of
determining the amount by which the costs
of the demonstration corresponding to FYs
2007 and 2008 exceeded the amount offset by
the budget neutrality adjustments for FYs
and 2008. As a result, we are unable to
propose the specific numeric adjustment
representing this offsetting process that
would be a component of the budget
neutrality adjustment and that would be
applied to the national IPPS rates. Therefore,
the estimated budget neutrality adjustment to
the national IPPS rate in this proposed rule
does not include a component to account for
these costs. We anticipate that this
information may be available for the FY 2012
IPPS/LTCH PPS final rule, at which time, if
data from settled cost reports are available,
under our proposal, we would incorporate a
component into the budget neutrality
adjustment to the national IPPS rates to
account for the amount by which the
demonstration costs corresponding to FY
2007 and FY 2008 exceeded the amount
offset by the budget neutrality adjustments
for FYs 2007 and 2008.
g. Proposed 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
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 2012 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
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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/
AcuteInpatientPPS/04_outlier.
asp#TopOfPage.
(1) Proposed FY 2012 Outlier Fixed-Loss Cost
Threshold
For FY 2012, we are proposing 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 2012, we are proposing 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 2012 outlier
threshold, we simulated payments by
applying proposed FY 2012 rates and
policies using cases from the FY 2010
MedPAR files. Therefore, in order to
determine the proposed FY 2012 outlier
threshold, we inflated the charges on the
MedPAR claims by 2 years, from FY 2010 to
FY 2012.
We are proposing to continue to use a
refined methodology that takes into account
the 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 2009 in combination with the
first quarter of FY 2010 (July 1, 2009 through
December 31, 2009) to the last quarter of FY
2010 in combination with the first quarter of
FY 2011 (July 1, 2010 through December 31,
2010). This rate-of-change was 4.43 percent
(1.044394) or 9.07 percent (1.090759) over 2
years. As we have done in the past, we
established the proposed FY 2012 outlier
threshold using hospital CCRs from the
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December 2010 update to the ProviderSpecific File (PSF)—the most recent available
data at the time of this proposed rule.
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 2012, we are proposing to continue
to use the same methodology to calculate the
CCR adjustment by using the FY 2010
operating cost per discharge increase in
combination with the actual FY 2010
operating market basket percentage increase
determined by IHS Global Insight, Inc. (IGI),
as well as the charge inflation factor
described above to estimate the adjustment to
the CCRs. (We note that the FY 2010 actual
(otherwise referred to as ‘‘final’’) operating
market basket percentage increase reflects
historical data, whereas the published FY
2010 operating market basket update factor
was based on IGI’s 2009 second quarter
forecast with historical data through the first
quarter of 2009. We also note that while the
FY 2010 published operating market basket
update was based on the FY 2002-based IPPS
market basket, the actual or ‘‘final’’ market
basket percentage increase is based on the FY
2006-based IPPS market basket. Similarly,
the FY 2010 published capital market basket
update factor was based on the FY 2002based capital market basket and the actual or
‘‘final’’ capital market basket percentage
increase is based on the FY 2006-based
capital market basket.) 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
2012, we determined the adjustment by
taking the percentage increase in the
operating costs per discharge from FY 2008
to FY 2009 (1.0285) from the cost report and
dividing it by the final operating market
basket percentage increase from FY 2009
(1.0260). 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 2006 to FY 2007
percentage increase of operating costs per
discharge of 1.0465 divided by the FY 2007
final operating market basket percentage
increase of 1.036, the FY 2007 to FY 2008
percentage increase of operating costs per
discharge of 1.0506 divided by FY 2008 final
operating market basket percentage increase
of 1.040). For FY 2012, we averaged the
differentials calculated for FY 2007, FY 2008,
and FY 2009, which resulted in a mean ratio
of 1.0076. We multiplied the 3-year average
of 1.0076 by the FY 2010 final operating
market basket percentage increase of 1.021,
which resulted in an operating cost inflation
factor of 2.87 percent or 1.028747. We then
divided the operating cost inflation factor by
the 1-year average change in charges
(1.044394) and applied an adjustment factor
of 0.985018 to the operating CCRs from the
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26025
using cases from the FY 2010 MedPAR files
in calculating the proposed outlier threshold.
As discussed in section III.B.3. of the
preamble to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50160 and 50161) and in
section III.F. of this proposed rule, in
accordance with section 10324(a) of the
Affordable Care Act, beginning in FY 2011,
we created a wage index floor of 1.00 for all
hospitals located in States determined to be
frontier States. We noted that the frontier
State floor adjustments will be calculated and
applied after rural and imputed floor budget
neutrality adjustments are calculated for all
labor market areas, in order to ensure that no
hospital in a frontier State will receive a
wage index lesser than 1.00 due to the rural
and imputed floor adjustment. In accordance
with section 10324(a) of the Affordable Care
Act, the frontier State adjustment will not be
subject to budget neutrality, and will only be
extended to hospitals geographically located
within a frontier State. However, for
purposes of estimating the proposed outlier
threshold for FY 2012, it was necessary to
apply this provision by adjusting the wage
index of those eligible hospitals in a frontier
State when calculating the outlier threshold
that results in outlier payments being 5.1
percent of total payments for FY 2012. If we
did not take into account this provision, our
estimate of total FY 2012 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.
For this proposed rule, we are using the FY
2010 claims data to calculate the FY 2012
proposed outlier threshold. Our estimate of
the cumulative effect of changes in
documentation and coding due to the
adoption of the MS–DRGs through FY 2010
is 5.4 percent, which is already included
within the claims data (FY 2010 MedPAR
files) used to calculate the proposed FY 2012
outlier threshold. Furthermore, we currently
estimate that there would be no continued
changes in documentation and coding in FYs
2011 and 2012. Therefore, the cumulative
effect of documentation and coding that has
occurred is already reflected within the FY
2010 MedPAR claims data, and we do not
believe there is any need to inflate FY 2010
claims data for any additional case-mix
growth projected to have occurred since FY
2010.
Using this methodology, we are proposing
an outlier fixed-loss cost threshold for FY
2012 equal to the prospective payment rate
for the DRG, plus any IME and DSH
payments, and any add-on payments for new
technology, plus $23,375.
As we did in establishing the FY 2009
outlier threshold (73 FR 57891), in our
projection of FY 2012 outlier payments, we
are not proposing to 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 note
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 proposing not to make any assumptions
about the effects of reconciliation on the
outlier threshold calculation.
We are proposing to apply the outlier
adjustment factors to the proposed FY 2012
rates after removing the effects of the FY
2011 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.
Under our current policy at § 412.84, for
hospitals for which the fiscal intermediary or
MAC computes operating CCRs greater than
1.147 or capital CCRs greater than 0.158, or
hospitals for which the fiscal intermediary or
MAC is unable to calculate a CCR (as
described at § 412.84(i)(3) of our regulations),
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(2) Other Proposed 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 2012 will result in outlier
payments that will equal 5.1 percent of
operating DRG payments and 5.93 percent of
capital payments based on the Federal rate.
In accordance with section 1886(d)(3)(B) of
the Act, we are proposing to reduce the FY
2012 standardized amount by the same
percentage to account for the projected
proportion of payments paid as outliers.
The outlier adjustment factors that would
be applied to the standardized amount based
on the proposed FY 2012 outlier threshold
are as follows:
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PSF (calculation performed on unrounded
numbers).
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 2008 to
FY 2009 (1.0508) from the cost report and
dividing it by the final capital market basket
percentage increase from FY 2009 (1.015).
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 2006 to FY 2007 percentage increase
of capital costs per discharge of 1.0507
divided by the FY 2007 final capital market
basket percentage increase of 1.013, the FY
2007 to FY 2008 percentage increase of
capital costs per discharge of 1.0811 divided
by the FY 2008 final capital market basket
percentage increase of 1.015). For FY 2012,
we averaged the differentials calculated for
FY 2007, FY 2008, and FY 2009, which
resulted in a mean ratio of 1.0459. We
multiplied the 3-year average of 1.0459 by
the FY 2010 final capital market basket
percentage increase of 1.010, which resulted
in a capital cost inflation factor of 5.63
percent or 1.056329. We then divided the
capital cost inflation factor by the
1-year average change in charges (1.044394)
and applied an adjustment factor of 1.011428
to the capital CCRs from the PSF (calculation
performed on unrounded numbers). We are
proposing to use 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 2012, we applied
the proposed FY 2012 rates and policies
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we use statewide average CCRs to determine
whether a hospital qualifies for outlier
payments.61 Table 8A listed in section VI. of
this Addendum (and available only via the
Internet) contains the proposed 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, 2011, these statewide
average ratios would replace the ratios
published in the IPPS final rule for FY 2011
(75 FR 50390–50392). Table 8B listed in
section VI. of this Addendum (and available
via the Internet) contains the proposed
comparable statewide average capital CCRs.
Again, the proposed CCRs in Tables 8A and
8B would be used during FY 2012 when
hospital-specific CCRs based on the latest
settled cost report are either not available or
are outside the range noted above. Table 8C
listed in section VI. of this Addendum (and
available via the Internet) contains the
proposed statewide average total CCRs used
under the LTCH PPS as discussed in 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. Additionally, we published an
additional manual update (Change Request
7192) to our outlier policy on December 3,
2010 which also updated Chapter 3, Section
20.1.2 of the Medicare Claims Processing
Manual. The manual update outlines the
outlier reconciliation process for hospitals
and Medicare contractors. To download and
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61 These figures represent 3.0 standard deviations
from the mean of the log distribution of CCRs for
all hospitals.
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view the manual instructions on outlier
reconciliation, we refer readers to the CMS
Web site: https://www.cms.hhs.gov/manuals/
downloads/clm104c03.pdf.
(3) FY 2010 and FY 2011 Outlier Payments
In the FY 2011 IPPS final rule (75 FR
50431), we stated that, based on available
data, we estimated that actual FY 2010
outlier payments would be approximately 4.7
percent of actual total DRG payments. This
estimate was computed based on simulations
using the FY 2009 MedPAR file (discharge
data for FY 2009 claims). That is, the
estimate of actual outlier payments did not
reflect actual FY 2010 claims, but instead
reflected the application of FY 2010 rates and
policies to available FY 2009 claims.
Our current estimate, using available FY
2010 claims data, is that actual outlier
payments for FY 2010 were approximately
4.7 percent of actual total DRG payments.
Thus, the data indicate that, for FY 2010, the
percentage of actual outlier payments relative
to actual total payments is lower than we
projected for FY 2010. 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 2010 are
equal to 5.1 percent of total DRG payments.
We currently estimate that actual outlier
payments for FY 2011 will be approximately
4.9 percent of actual total DRG payments,
approximately 0.2 percentage points lower
than the 5.1 percent we projected when
setting the outlier policies for FY 2011. This
estimate of 4.9 percent is based on
simulations using the FY 2010 MedPAR file
(discharge data for FY 2010 claims).
5. Proposed FY 2012 Standardized Amount
The adjusted standardized amount is
divided into labor-related and nonlaborrelated portions. Tables 1A and 1B listed and
published in section VI. of this Addendum
(and available via the Internet) contain the
national standardized amounts that we are
proposing to apply to all hospitals, except
hospitals located in Puerto Rico, for FY 2012.
The proposed Puerto Rico-specific amounts
are shown in Table 1C listed and published
in section VI. of this Addendum (and
available via the Internet). The proposed
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
labor-related share of 68.8 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
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would result in lower payments to a hospital
than would otherwise be made. In effect, the
statutory provision means that we will apply
a labor-related 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 the
proposed standardized amounts reflecting
the proposed applicable percentage increase
of 1.5 percent for FY 2012, and a proposed
update of ¥0.5 percent 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 proposed national
average standardized amounts for Puerto
Rico hospitals for FY 2011 are set forth in
Table 1C listed and published in section VI.
of this Addendum (and available via the
Internet). This table also includes the
proposed 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 Public Law 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
proposed changes from the FY 2011 national
standardized amount. The second column
shows the proposed changes from the FY
2011 standardized amounts for hospitals that
satisfy the quality data submission
requirement and therefore receive the full
update of 1.5 percent. The third column
shows the proposed changes for hospitals
receiving the reduced update of ¥0.5
percent. The first row of the table shows the
proposed updated (through FY 2011) average
standardized amount after restoring the FY
2011 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 2011 factor is
not removed from this table.
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amounts that are made in determining the
proposed prospective payment rates as
described in this Addendum.
B. Proposed Adjustments for Area Wage
Levels and Cost-of-Living
Tables 1A through 1C, as published in
section VI. of this Addendum (and available
via the Internet), contain the labor-related
and nonlabor-related shares that we are
proposing to use to calculate the prospective
payment rates for hospitals located in the 50
States, the District of Columbia, and Puerto
Rico for FY 2012. This section addresses two
types of adjustments to the standardized
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1. Proposed 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
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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 proposed rule, we discuss
the data and methodology for the proposed
FY 2012 wage index.
2. Proposed 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
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2010 (Pub. L. 111–84, October 28, 2009)
transitions the Alaska and Hawaii COLAs to
locality pay. Under section 1914 of Public
Law 111–84, locality pay is being phased in
over a 3-year period beginning in January
2010 with COLA rates frozen as of the date
of enactment, October 28, 2009, and then
proportionately reduced to reflect the phasein of locality pay.
We do not believe it is appropriate to
propose to use either the 2010 or 2011
reduced factors for adjusting the nonlaborrelated portion of the standardized amount
for hospitals in Alaska and Hawaii for
Medicare payment purposes. Therefore, for
FY 2012, we are proposing to continue to use
the same COLA factors (published by OPM)
that we used to adjust payments in FY 2011
(which are based on OPMs 2009 COLA
factors) to adjust the nonlabor-related portion
of the standardized amount for hospitals
located in Alaska and Hawaii. We believe
using these COLAs will appropriately adjust
the nonlabor-related portion of the
standardized amount for hospitals in Alaska
and Hawaii consistent with section
1886(d)(5)(H) of the Act. We invite public
comments on this proposal.
Below is a table of factors obtained from
OPM that we are proposing for FY 2012,
which are the same as the factors currently
in use under the IPPS for FY 2011.
C. Proposed MS–DRG Relative Weights
SCHs and MDHs, for FY 2012 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 the updated hospitalspecific 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 2012 equals the higher of the applicable
Federal rate, or the hospital-specific rate as
described below. The prospective payment
rate for MDHs for FY 2012 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. For MDHs, the updated
hospital-specific rate is based on FY 1982, FY
1987 or FY 2002 costs per discharge,
whichever yields the greatest aggregate
payment.
The prospective payment rate for hospitals
located in Puerto Rico for FY 2012 equals 25
percent of the Puerto Rico rate plus 75
percent of the applicable national rate.
As discussed in section II.H. of the
preamble of this proposed rule, we have
developed relative weights for each MS–DRG
that reflect the resource utilization of cases
in each MS–DRG relative to Medicare cases
in other MS–DRGs. Table 5 listed in section
VI. of this Addendum (and available via the
Internet) contains the relative weights that
we are proposing to apply to discharges
occurring in FY 2012. These factors have
been recalibrated as explained in section II.
of the preamble of this proposed rule.
D. Calculation of the Proposed Prospective
Payment Rates
General Formula for Calculation of the
Proposed Prospective Payment Rates for FY
2012
In general, the operating prospective
payment rate for all hospitals paid under the
IPPS located outside of Puerto Rico, except
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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 hospitals submitting quality
data; update including a ¥2.0 percent
adjustment for hospitals that did not submit
these data).
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
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hospitals located in Alaska and Hawaii.
Higher labor-related costs for these two States
are taken into account in the adjustment for
area wages described above. For FY 2011 and
in prior fiscal years, we used the most recent
updated cost of living adjustment (COLA)
factors obtained from the U.S. Office of
Personnel Management (OPM) Web site at
https://www.opm.gov/oca/cola/rates.asp. We
multiply the nonlabor-related portion of the
standardized amount by the applicable
adjustment factor.
Sections 1911 through 1919 of the
Nonforeign Area Retirement Equity
Assurance Act, as contained in subtitle B of
title XIX of the National Defense
Authorization Act (NDAA) for Fiscal Year
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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 (Table 5 listed in
section VI. of this Addendum and available
via the Internet).
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 the formula described in
section IV.E. of the preamble of this proposed
rule.
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 currently 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
the FY 2006 costs per discharge to determine
the rate that yields the greatest aggregate
payment.
As discussed previously, currently 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 greater of the updated
hospital-specific rates based on either FY
1982, FY 1987 or FY 2002 costs per
discharge.
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).
b. Updating the FY 1982, FY 1987, FY 1996,
FY 2002, and FY 2006 Hospital-Specific
Rates for FY 2012
Section 1886(b)(3)(B)(iv) of the Act
provides that the applicable percentage
increase applicable to the hospital-specific
rates for SCHs and MDHs equals the
applicable percentage increase 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). Because the Act sets the
update factor for SCHs and MDHs equal to
the update factor for all other IPPS hospitals,
the update to the hospital specific rates for
SCHs and MDHs is subject to the
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amendments to section 1886(b)(3)(B) of the
Act made by sections 3401(a) and 10319(a) of
the Affordable Care Act. Accordingly, the
proposed applicable percentage increase to
the hospital-specific rates applicable to SCHs
and MDHs is 1.5 percent (that is, the FY 2012
estimate of the market basket rate-of-increase
of 2.8 percent less an adjustment of 1.2
percentage points for multifactor
productivity and less 0.1 percentage point)
for hospitals that submit quality data or ¥0.5
percent (that is, the FY 2012 estimate of the
market basket rate-of-increase of 2.8 percent,
less 2.0 percentage points for failure to
submit data under the Hospital IQR Program,
less an adjustment of 1.2 percentage points
for multifactor productivity, and less 0.1
percentage points) for hospitals that fail to
submit quality data. For a complete
discussion of the applicable percentage
increase applicable to the hospital-specific
rates for SCHs and MDHs, we refer readers
to section IV.H. of the preamble of this
proposed rule.
In addition, because SCHs and MDHs use
the same MS–DRGs as other hospitals when
they are paid based in whole or in part on
the hospital-specific rate, the hospitalspecific rate is adjusted by a budget
neutrality factor to ensure that changes to the
DRG classifications and the recalibration of
the DRG relative weights are made in a
manner so that aggregate IPPS payments are
unaffected. Therefore, for both SCHs and
MDHs, the hospital-specific rate is adjusted
by the proposed DRG reclassification and
recalibration budget neutrality factor of
0.998419, as discussed in section III. of this
Addendum. The resulting rate would be used
in determining the payment rate an SCH or
MDH will receive for its discharges beginning
on or after October 1, 2011.
c. Documentation and Coding Adjustment to
the FY 2012 Hospital-Specific Rates for SCHs
and MDHs
As discussed in section II.D. of the
preamble of this proposed rule, because
hospitals (SCHs and MDHs) paid based in
whole or in part 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. 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. Therefore, as discussed in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50426) and in section II.D. of the preamble
of this proposed rule, we believe they should
be equally subject to a prospective budget
neutrality adjustment that we are applying
for adoption of the MS–DRGs to all other
hospitals. While we continue to believe that
section 1886(d)(3)(A)(vi) of the Act does not
provide explicit authority for application of
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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 we discuss in section II.D. of the
preamble of this proposed rule, our best
estimate, based on the most recently
available data, is that a cumulative
adjustment of ¥5.4 percent is required to
eliminate the full effect of the documentation
and coding changes on future payments to
SCHs and MDHs. Unlike the case of
standardized amounts paid to IPPS hospitals,
prior to FY 2011 we had not made any
previous adjustments to the hospital specific
rates paid to SCHs and MDHs to account for
documentation and coding changes.
Consequently, in order to maintain
consistency as far as possible with the
adjustments applied to IPPS hospitals, we
made an adjustment of ¥2.9 percent in FY
2011 to the hospital-specific rates paid to
SCHs and MDHs.
As discussed above, we are proposing a
¥3.15 percent documentation and coding
adjustment for IPPS hospitals in FY 2012
(¥3.15 percent prospective adjustment plus
a ¥2.9 percent recoupment adjustment in FY
2012, offset by the removal of the ¥2.9
percent recoupment adjustment for FY 2011).
The proposed IPPS documentation and
coding adjustment exceeds the remaining
¥2.5 percent documentation and coding
adjustment for hospitals receiving a hospitalspecific rate (that is, the entire ¥5.4 percent
adjustment, minus the ¥2.9 percent
adjustment finalized for FY 2011). We
believe that any adjustment to the hospitalspecific rate due to documentation and
coding effect should be as similar as possible
to adjustments to the IPPS rate. Accordingly,
we are proposing a ¥2.5 percent payment
adjustment to the hospital-specific rate. We
believe that proposing the entire remaining
prospective adjustment of ¥2.5 percent
allows CMS to maintain, to the extent
possible, similarity and consistency in
payment rates for different IPPS hospitals
paid using the MS–DRG.
d. Proposed Adjustment to Restore Prior
Rural Floor Budget Neutrality Offsets
As discussed in section II.A.4.d. of this
Addendum, in light of the Cape Cod
decision, we are proposing to adjust hospitalspecific amounts by 0.9 percent to restore to
these amounts the offset for the rural floor
and imputed floor in prior years. Our
rationale and methodology for such
adjustment are explained in section II.A.4.d
of this Addendum. As with the standardized
amount, we are proposing to return 0.7
percentage points for FYs 1998 through 2004,
and 0.2 percentage points for FY 2005 to the
hospital-specific rates. We note that, in the
FY 2006 IPPS final rule (70 FR 47429 and
47430), beginning in FY 2006, we changed
our methodology and began applying only
the DRG reclassification and recalibration
budget neutrality factor to the hospitalspecific rates. Because the rural floor budget
neutrality adjustment was not applied to the
hospital-specific rates in FYs 2006 and 2007,
we are not including FY 2006 and FY 2007
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in our assessment. Therefore, to remove the
effects of the rural floor from the hospitalspecific rates for FYs 1998 through 2005, we
are proposing to apply a onetime permanent
adjustment of 0.9 percent to the hospitalspecific rates (that is, a factor of 1.009).
3. General Formula for Calculation of
Prospective Payment Rates for Hospitals
Located in Puerto Rico Beginning on or after
October 1, 2011, and before October 1, 2012
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 published
in section VI. of this Addendum and
available via the Internet).
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 listed in section VI. of this
Addendum and available via the Internet).
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 listed in section VI. of this
Addendum and available via the Internet).
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. Proposed Changes to Payment Rates for
Acute Care Hospital Inpatient CapitalRelated Costs for FY 2012
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
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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
in the regulations at 42 CFR 412.308 through
412.352. Below we discuss the factors that
we used to determine the proposed capital
Federal rate for FY 2012, which would be
effective for discharges occurring on or after
October 1, 2011.
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) also
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
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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
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
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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
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 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 (69 FR 49185).
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
A. Determination of Proposed Federal
Hospital Inpatient Capital-Related
Prospective Payment Rate Update
In the discussion that follows, we explain
the factors that we used to determine the
proposed capital Federal rate for FY 2012. In
particular, we explain why the proposed FY
2012 capital Federal rate would increase
approximately 0.60 percent, compared to the
FY 2011 capital Federal rate. As discussed in
the impact analysis in Appendix A of this
proposed rule, we estimate that capital
payments per discharge would increase 1.7
percent during that same period. Because
capital payments constitute about 10 percent
of hospital payments, a 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 adjust 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
proposed update factor for FY 2012 under
that framework is 1.5 percent based on the
best data available at this time. The proposed
update factor under that framework is based
on a projected 1.5 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 2010 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 2012 CIPI
projection in that same section of this
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Addendum. We note, as discussed in section
VI.E.1. of the preamble of this proposed rule,
we are proposing to apply a ¥1.0 percent
adjustment to the capital rate in FY 2012 to
account for the effect of 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 are proposing to apply in the update
framework for FY 2012.
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).)
For FY 2012, we are projecting a 1.0
percent total increase in the case-mix index.
We estimated that the real case-mix increase
would also equal 1.0 percent for FY 2012.
The proposed net adjustment for change in
case-mix is the difference between the
projected real increase in case-mix and the
projected total increase in case-mix.
Therefore, the proposed net adjustment for
case-mix change in FY 2012 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 2010 DRG
reclassification and recalibration as part of
our update for FY 2012. To adjust for
reclassification and recalibration effects,
under our historical methodology, we would
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run the FY 2010 cases through the FY 2009
GROUPER and through the FY 2010
GROUPER. If the resulting ratio of the casemix indices did not equate to 1.0, in the
update framework for FY 2012, we would
propose to make an adjustment to account for
the reclassification and recalibration effects
in FY 2010. In the update framework for FY
2011 (the FY 2011 IPPS final rule (75 FR
50435)), we did not adjust for reclassification
and recalibration effects from FY 2009
because it was accounted for in the
documentation and coding adjustment to the
capital Federal rates for FY 2011. For FY
2012, we are proposing not to perform an
analysis of changes in case-mix in FY 2010
due to the effect of documentation and
coding, as this would be most consistent with
our approach under the operating IPPS.
Therefore, at this time, under our broad
authority in section 1886(g) of the Act, we are
proposing a 0.0 percent adjustment for
reclassification and recalibration in the
update framework. We may evaluate the
effect of FY 2010 reclassification and
recalibration if we perform an analysis of the
documentation and coding effect in FY 2010
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 point 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 ¥0.2
percentage point was calculated for the
proposed FY 2012 update. That is, current
historical data indicate that the forecasted FY
2010 CIPI (1.2 percent) used in calculating
the FY 2010 update factor was 0.2 percentage
point higher than the actual realized price
increases (1.0 percent). The two primary
contributing factors for the FY 2011 CIPI
forecast being slightly higher than the actual
FY 2011 increase in the CIPI were that the
prices for the nonprofit and government
interest cost category grew slower than what
had been forecasted, and the prices for the
other capital expenses cost category also
grew slower than what had been forecasted.
Because the estimation of the change in the
CIPI is not greater than 0.25 percentage point,
we are proposing to make a 0.0 percent
adjustment for forecast error in the update for
FY 2012.
Under the capital IPPS update framework,
we also make an adjustment for changes in
intensity. Historically, we calculated 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
reflected how hospital services are utilized to
produce the final product, that is, the
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operating cost. As discussed in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50436), we
believe that using changes in capital costs per
discharge as the basis for the intensity
adjustment in lieu of changes in charges will
decrease some of the variability of this
adjustment. In this proposed rule, for FY
2012, we are proposing to use an intensity
measure that is based on a 5-year adjusted
average of cost per discharge, as we did for
FY 2011. Therefore, the proposed intensity
measure for FY 2012 is based on an average
of cost per discharge data from the 5-year
period beginning with FY 2005 and
extending through FY 2009. Based on these
data, we estimated that case-mix constant
intensity declined during FYs 2005 through
2009. In the past, when we found intensity
to be declining, we believed a zero (rather
than negative) intensity adjustment was
appropriate. Consistent with this approach,
because we estimate that intensity declined
during that 5-year period, we believe it is
appropriate to continue to apply a zero
intensity adjustment for FY 2012. Therefore,
we are proposing to make a 0.0 percent
adjustment for intensity in the update for FY
2012.
Above, we described the basis of the
components used to develop the proposed
1.5 percent capital update factor under the
capital update framework for FY 2012 as
shown in the table below.
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.
For FY 2011, we estimated that outlier
payments for capital would equal 5.96
percent of inpatient capital-related payments
based on the capital Federal rate in FY 2011.
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 5.94 percent for inpatient capitalrelated payments based on the proposed
capital Federal rate in FY 2012. Therefore,
we are proposing to apply an outlier
adjustment factor of 0.9406 in determining
the capital Federal rate. Thus, we estimate
that the percentage of capital outlier
payments to total capital standard payments
for FY 2012 would be slightly lower than the
percentage for FY 2011. This slight decrease
in estimated capital outlier payments is
primarily due to the estimated increase in
capital IPPS payments per discharge. That is,
because capital payments per discharge are
projected to be higher in FY 2012 compared
to FY 2011, as shown in Table III. in section
VIII. of Appendix A to this proposed rule,
fewer cases would qualify for outlier
payments.
The outlier reduction factors are not built
permanently into the capital rates; that is,
they are not applied cumulatively in
In its March 2011 Report to Congress,
MedPAC did not make a specific update
recommendation for capital IPPS payments
for FY 2012. (MedPAC’s Report to the
Congress: Medicare Payment Policy, March
2011, Chapter 3.)
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
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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.
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, as noted above. For much of the last
decade, we found that the charge data
appeared to be skewed as a result of hospitals
attempting to maximize outlier payments,
while lessening costs, and we established a
0.0 percent adjustment for intensity in each
of those years. Therefore, for FY 2011, in an
effort to further refine the intensity
adjustment and more accurately reflect
allowable changes in hospital intensity, we
revised our intensity measure to use changes
in hospital costs per discharge over a 5-year
average rather than changes in hospital
charges, which had been the basis of the
intensity adjustment in prior years. The
unique nature of capital—how and when it
is purchased, its longevity, and how it is
financed—creates a greater degree of variance
in capital cost among hospitals than does
b. Comparison of CMS and MedPAC Update
Recommendation
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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 non-cost-effective
services. Our intensity measure is based on
a 5-year average.
Historically, we calculated 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 casemix. 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 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–
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
determining the capital Federal rate. The
proposed FY 2012 outlier adjustment of
0.9406 is a 0.02 percent change from the FY
2011 outlier adjustment of 0.9404. Therefore,
the proposed net change in the outlier
adjustment to the capital Federal rate for FY
2012 is 1.0002 (0.9406/0.9404). Thus, the
proposed outlier adjustment would increase
the FY 2012 capital Federal rate by 0.02
percent compared with the FY 2011 outlier
adjustment.
3. Proposed Budget Neutrality Adjustment
Factor for Changes in DRG Classifications
and Weights and the GAF
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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
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.
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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 explained
in section III.A. of this Addendum, beginning
in FY 2002, an adjustment for regular
exception payments was no longer necessary.
Therefore, we no longer use the capital cost
model. Furthermore, as discussed below,
special exceptions payments will no longer
be made in FY 2012, and an exceptions
payment adjustment factor will no longer be
necessary, as there are no remaining
hospitals eligible to receive special
exceptions payments.
To determine the proposed factors for FY
2012, we compared (separately for the
national capital rate and the Puerto Rico
capital rate) estimated aggregate capital
Federal rate payments based on the FY 2011
MS–DRG classifications and relative weights
and the FY 2011 GAF to estimated aggregate
capital Federal rate payments based on the
FY 2011 MS–DRG classifications and relative
weights and the proposed FY 2012 GAFs. To
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26033
achieve budget neutrality for the changes in
the national GAFs, based on calculations
using updated data, we are proposing to
apply an incremental budget neutrality
adjustment of 1.0005 for FY 2012 to the
previous cumulative FY 2011 adjustment of
0.9902, yielding an adjustment of 0.9906,
through FY 2012. For the Puerto Rico GAFs,
we are proposing to apply an incremental
budget neutrality adjustment of 1.0087 for FY
2012 to the previous cumulative FY 2011
adjustment of 0.9965, yielding a cumulative
adjustment of 1.0052 through FY 2012.
We then compared estimated aggregate
capital Federal rate payments based on the
FY 2011 DRG relative weights and the
proposed FY 2012 GAFs to estimate aggregate
capital Federal rate payments based on the
cumulative effects of the proposed FY 2012
MS–DRG classifications and relative weights
and the proposed FY 2012 GAFs. The
proposed incremental adjustment for DRG
classifications and proposed changes in
relative weights is 1.0000 both nationally and
for Puerto Rico. The proposed cumulative
adjustments for MS–DRG classifications and
proposed changes in relative weights and for
proposed changes in the GAFs through FY
2012 are 0.9906 nationally and 1.0052 for
Puerto Rico. We note that all the values are
calculated with unrounded numbers. The
following table summarizes the adjustment
factors for each fiscal year:
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The methodology used to determine the
recalibration and geographic adjustment
factor (GAF/DRG) 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 GAF/DRG 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 2011, we established a GAF/DRG
budget neutrality factor of 0.9990 (75 FR
50437). For FY 2012, we are proposing to
establish a GAF/DRG budget neutrality factor
of 1.0005. 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 proposed
adjustment from FY 2011 to FY 2012 is
1.0005. The proposed cumulative change in
the capital Federal rate due to this proposed
adjustment is 0.9906 (the product of the
incremental factors for FYs 1995 through
2011 and the proposed incremental factor of
1.0005 for FY 2012). (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 0.9906 for FY 2012.)
The proposed factor accounts for the
proposed MS–DRG reclassifications and
recalibration and for proposed changes in the
GAFs. It also incorporates the effects on the
proposed GAFs of FY 2012 geographic
reclassification decisions made by the
MGCRB compared to FY 2011 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.
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Since FY 2002, an adjustment for regular
exception payments was no longer necessary
in determining the 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, in FY 2002 and
subsequent fiscal years, no payments are
made under the regular exceptions provision
(66 FR 39949). Furthermore, there are no
longer any remaining hospitals eligible to
receive a special exceptions payment under
§ 412.348(g) because they have reached the
limitation on the period for exception
payments under § 412.348(g)(7). A hospital
qualifying for a special exceptions payment
could receive exceptions payments for up to
10 years from the year in which it completed
a project that met the applicable criteria
under § 412.348(g). However, the project had
to be completed no later than the end of the
hospital’s last cost reporting period
beginning before October 1, 2001. Therefore,
FY 2012 would be the final year any hospital
could have received a special exceptions
payment. However, as we indicated above,
based on the date the projects were
completed, there are no remaining hospitals
eligible to receive a special exceptions
payment in FY 2012, which negates the need
for a special exceptions adjustment for FY
2012. Furthermore, we note that special
exceptions adjustments will no longer be
made in subsequent years because FY 2012
is the final year payments could have been
made to eligible hospitals in accordance with
§ 412.348(g)(7).
In the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50439), we estimated that total
(special) exceptions payments for FY 2011
would equal 0.04 percent of aggregate
payments based on the capital Federal rate.
Therefore, we applied an exceptions
adjustment factor of 0.9996 (1 ¥ 0.0004) to
determine the FY 2011 capital Federal rate.
As we stated above, because there are no
special exceptions payments in FY 2012, we
are proposing to no longer apply an
exceptions payment adjustment factor to the
proposed capital Federal rate for FY 2012.
However, the exceptions reduction factors
were not built permanently into the capital
rates; that is, the factors were not applied
cumulatively in determining the capital
Federal rate. Therefore, we are proposing to
apply a factor of 1.0004 (1/0.9996) in
determining the proposed FY 2012 capital
Federal rate to restore the reduction that
resulted from the 0.9996 exceptions
adjustment factor that was applied in
determining the FY 2011 capital Federal rate.
5. Proposed Capital Standard Federal Rate for
FY 2012
For FY 2011, we established a capital
Federal rate of $420.01 (75 FR 50439). We are
proposing to establish an update of 1.5
percent in determining the proposed FY 2012
capital Federal rate for all hospitals.
However, as discussed in greater detail in
section V.E. of the preamble of this proposed
rule, under the statutory authority at section
1886(g) of the Act, consistent with section
1886(d)(3)(A)(vi) of the Act and section 7(b)
of Public Law 110–90, we are proposing to
make an additional 1.0 percent reduction to
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the national capital Federal payment rate in
FY 2012 to account for the effect of changes
in case-mix resulting from documentation
and coding changes that do not reflect real
changes in the case-mix in light of the
adoption of MS–DRGs. Accordingly, we are
proposing to apply a cumulative
documentation and coding adjustment factor
of 0.9479 in determining the proposed FY
2012 capital Federal rate (that is, the existing
¥0.6 percent adjustment in FY 2008 plus the
¥0.9 percent adjustment in FY 2009, plus
the ¥2.9 percent adjustment for FY 2011,
plus the proposed ¥1.0 percent adjustment
for FY 2012, computed as 1 divided by (1.006
× 1.009 × 1.029 × 1.010). (We note that we
did not apply a documentation and coding
adjustment to the capital Federal rate in FY
2010 (74 FR 43927).) As a result of the
proposed 1.5 percent update and other
budget neutrality factors discussed above, we
are proposing to establish a national capital
Federal rate of $422.54 for FY 2012. The
proposed national capital Federal rate for FY
2012 was calculated as follows:
• The proposed FY 2012 update factor is
1.0150, that is, the proposed update is 1.5
percent.
• The proposed FY 2012 budget neutrality
adjustment factor that is applied to the
capital standard Federal payment rate for
proposed changes in the MS–DRG
classifications and relative weights and
proposed changes in the GAFs is 1.0005.
• The proposed FY 2012 outlier
adjustment factor is 0.9406.
• The proposed FY 2012 (special)
exceptions payment adjustment factor is
1.0000 because we project that there will be
no exceptions payments made in FY 2012 as
discussed above in section III.A. of this
Addendum. However, we are proposing to
apply a factor of 1.0004 (1/0.9996) in
determining the proposed FY 2012 capital
Federal rate to restore the reduction that
resulted from the 0.9996 exceptions
adjustment factor applied in determining the
FY 2011 capital Federal rate.
• The proposed cumulative adjustment
factor for FY 2012 applied to the national
capital Federal rate for proposed changes in
documentation and coding under the MS–
DRGs is 0.9479.
Because the proposed capital Federal rate
has already been adjusted for differences in
case-mix, wages, cost-of-living, indirect
medical education costs, and payments to
hospitals serving a disproportionate share of
low-income patients, we are not proposing to
make additional adjustments in the capital
standard Federal rate for these factors, other
than the proposed budget neutrality factor for
proposed changes in the MS–DRG
classifications and relative weights and for
proposed changes in the GAFs.
We are providing the following chart that
shows how each of the proposed factors and
adjustments for FY 2012 affects the
computation of the proposed FY 2012
national capital Federal rate in comparison to
the FY 2011 national capital Federal rate.
The proposed FY 2012 update factor has the
effect of increasing the capital Federal rate by
1.5 percent compared to the FY 2011 capital
Federal rate. The proposed GAF/DRG budget
neutrality factor of 1.0005 has the effect of
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all the proposed changes would increase the
proposed national capital Federal rate by
approximately 0.60 percent compared to the
FY 2011 national capital Federal rate.
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.
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.
The proposed national GAF budget neutrality
factor is 1.0088 and the proposed DRG
adjustment is 1.0000, for a combined
proposed cumulative adjustment of 1.0052
for FY 2012.
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 2011, the special capital rate for
hospitals located in Puerto Rico was $197.66
(75 FR 50441). Consistent with our
adjustment to the FY 2011 Puerto Ricospecific standardized amount, under the
Secretary’s broad authority under section
1886(g) of the Act, we established an
adjustment to the Puerto Rico-specific capital
rate of –2.6 percent in FY 2011 for the
cumulative increase in case-mix due to
changes in documentation and coding under
the MS–DRGs for FYs 2008 and 2009. The
¥2.6 percent adjustment to the capital
Puerto Rico-specific rate that we made in FY
2011 reflects the entire amount of our current
estimate of the effects of documentation and
coding that did not reflect real changes in
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 V.
of the preamble of this proposed 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
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payment adjustment factor to restore the FY
2011 exceptions adjustment factor of 0.9996
has the net effect of increasing the proposed
FY 2012 national capital Federal rate by 0.04
percent as compared to the FY 2011 national
capital Federal rate. The combined effect of
6. Proposed Special Capital Rate for Puerto
Rico Hospitals
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increasing the capital Federal rate by 0.05
percent. The proposed FY 2012 outlier
adjustment factor has the effect of increasing
the capital Federal rate by 0.02 percent
compared to the FY 2011 capital Federal rate.
The proposed FY 2012 special exceptions
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed Rules
case-mix for discharges occurring during FYs
2008 and 2009 from hospitals located in
Puerto Rico. Consequently, in this proposed
rule, we are not proposing to make any
additional adjustments for the effect of
documentation and coding that did not
reflect real changes in case-mix to the capital
Puerto Rico-specific rate for FY 2012.
Therefore, with the changes we are proposing
to make to the other factors used to
determine the capital rate, the proposed FY
2012 special capital rate for hospitals in
Puerto Rico is $205.01.
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B. Calculation of the Proposed Inpatient
Capital-Related Prospective Payments for FY
2012
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
2012.
For purposes of calculating payments for
each discharge during FY 2012, the capital
standard Federal rate is adjusted 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). The result is the adjusted capital
Federal rate.
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 proposed
outlier thresholds for FY 2012 are in section
II.A. of this Addendum. For FY 2012, a case
would 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
proposed fixed-loss amount of $23,375.
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
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
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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 the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74
FR 44021), 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. of the preamble of
that final rule.
2. Forecast of the CIPI for FY 2012
Based on the latest forecast by IHS Global
Insight, Inc. (first quarter of 2011), we are
forecasting the FY 2006-based CIPI to
increase 1.5 percent in FY 2012. This reflects
a projected 1.9 percent increase in vintageweighted depreciation prices (building and
fixed equipment, and movable equipment),
and a projected 2.1 percent increase in other
capital expense prices in FY 2012, partially
offset by a projected 0.9 percent decline in
vintage-weighted interest expenses in FY
2012. The weighted average of these three
factors produces the 1.5 percent increase for
the FY 2006-based CIPI as a whole in FY
2012.
IV. Proposed 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, and updated
annually by a rate-of-increase percentage.
The updated target amount for that period
was multiplied by the Medicare discharges
during that period 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.)
We are proposing that the FY 2012 rate-ofincrease percentage for updating the target
amounts for cancer and children’s hospitals
and RNHCIs be the estimated percentage
increase in the FY 2012 IPPS operating
market basket, estimated to be 2.8 percent, in
accordance with applicable regulations at
§ 413.40. We also are proposing to use the
most recent data available to determine the
estimated percentage increase for the FY
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26037
2012 IPPS operating market basket. Based on
IHS Global Insight, Inc.’s first quarter 2011
forecast, with historical data through the
2010 fourth quarter, the IPPS operating
market basket is 2.8 percent for FY 2012.
Therefore, for cancer and children’s hospitals
and RNHCIs, the proposed FY 2012 rate-ofincrease percentage that would be applied to
the FY 2011 target amounts in order to
determine the FY 2012 target amount is 2.8
percent. (We are proposing to use more
recent data when determining the estimated
percentage increase for the FY 2012 IPPS
operating market basket for the final rule, to
the extent that these data are available.)
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 VII. of
the preamble and section V. of the
Addendum to this proposed rule for the
proposed update changes to the Federal
payment rates for LTCHs under the LTCH
PPS for FY 2012. The annual updates for the
IRF PPS and the IPF PPS are issued by the
agency in separate Federal Register
documents.
V. Proposed Changes to the Payment Rate for
the LTCH PPS for FY 2012
A. Proposed LTCH PPS Standard Federal
Rate for FY 2012
1. Background
In section VII. of the preamble of this
proposed rule, we discuss our proposed
changes to the payment rates, factors, and
specific policies under the LTCH PPS for FY
2012.
Under § 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 annually by a 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 this 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 for years after the
initial implementation of the LTCH PPS in
FY 2003. Thus, under § 412.523(c)(3)(ii), for
RYs 2004 through 2006, the annual update to
the LTCH PPS standard Federal rate was
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.
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In determining the annual update to the
standard Federal rate for RY 2007, based on
our ongoing monitoring activity, we believed
that, rather than solely using the most recent
estimate of the LTCH PPS market basket as
the basis of the annual update factor, it was
appropriate to adjust the standard Federal
rate to account for the effect of
documentation and coding in a prior period
that was unrelated to patients’ severity of
illness (71 FR 27818). Accordingly, we
established under § 412.523(c)(3)(iii) that the
annual update to the standard Federal rate
for RY 2007 was zero percent based on the
most recent estimate of the LTCH PPS market
basket at that time, offset by an adjustment
to account for changes in case-mix in prior
periods due to the effect of documentation
and coding that were unrelated to patients’
severity of illness. For RY 2008 through FY
2011, we also considered the effect of
documentation and coding that was
unrelated to patients’ severity of illness in
establishing the annual update to the
standard Federal rate as set forth in the
regulations at § 412.523(c)(3)(iv) through
(c)(3)(vii).
Several provisions of the Affordable Care
Act revised the annual update to the standard
Federal rate, beginning in RY 2010.
Specifically, section 1886(m)(3)(A) of the
Act, as added by section 3401(c) of the
Affordable Care Act, specifies that, for rate
year 2010 and each subsequent rate year, any
annual update to the standard Federal rate
shall be reduced:
• For rate year 2010 through 2019, by the
other adjustment specified in section
1886(m)(3)(A)(ii) and (m)(4) of the Act; and
• For rate year 2012 and each subsequent
year, by the productivity adjustment (which
we refer to as ‘‘the multifactor productivity
(MFP) adjustment’’ as discussed in section
VII.E.2.d. of the preamble of this proposed
rule) described in section 1886(b)(3)(B)(xi)(II)
of the Act.
Section 1886(m)(3)(B) of the Act provides
that the application of paragraph (3) of
section 1886(m) of the Act may result in the
annual update being less than zero for a rate
year, and may result in payment rates for a
rate year being less than such payment rates
for the preceding rate year. (As noted in
section VII.E.2.d. of the preamble of this
proposed rule, the annual update to the
LTCH PPS occurs on October 1 and we have
adopted the term ‘‘fiscal year’’ (FY) rather
than ‘‘rate year’’ (RY) under the LTCH PPS
beginning October 1, 2010. Therefore, for
purposes of clarity, when discussing the
annual update for the LTCH PPS, including
the provisions of the Affordable Care Act, we
employ ‘‘fiscal year’’ rather than ‘‘rate year’’
for 2011 and subsequent years.)
For FY 2011, consistent with our historical
practice, we established an update to the
LTCH PPS standard Federal rate based on the
full estimated LTCH PPS market basket
increase, including the 0.50 percentage point
reduction required by sections
1886(m)(3)(A)(i) and (m)(4)(B) of the Act, of
2.0 percent and an adjustment to account for
the increase in case-mix in prior periods (FYs
2008 and 2009) that resulted from the effect
of documentation and coding practices of
¥2.5 percent. Accordingly, at
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§ 412.523(c)(vii) of the regulations, we
established an annual update of ¥0.49
percent to the standard Federal rate for FY
2011 (75 FR 50443 through 50444).
In this proposed rule, for FY 2012, as
discussed in greater detail in section VII.E.2.
of the preamble of this proposed rule, we are
proposing to establish an annual update to
the LTCH PPS standard Federal rate of 1.5
percent based on the full estimated increase
in the proposed LTCH PPS market basket of
2.8 percent less the proposed MFP
adjustment of 1.2 percentage points required
under 1886(m)(3)(A)(ii) of the Act and less
the 0.1 percentage point required by sections
1886(m)(3)(A)(i) and (m)(4)(C) of the Act. As
discussed in greater detail below, for FY
2012, we are not proposing to make an
adjustment to account for the increase in
case-mix in a prior period (FY 2010) resulting
from the effect of documentation and coding.
2. Development of the Proposed FY 2012
LTCH PPS Standard Federal Rate
We continue to believe that the annual
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, including any statutory
adjustments. We also continue to believe it
is appropriate that the standard Federal rate
be offset by an adjustment to account for any
effect of documentation and coding practices
that does not reflect increased 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. Consistent with past LTCH payment
policy, we have continued to monitor the
most recent available LTCH data. Based on
an analysis of FY 2010 LTCH claims from the
December 2010 update of the MedPAR files,
it does not appear that an adjustment for the
effect of documentation and coding in FY
2010 is warranted. Therefore, in this
proposed rule, we are not proposing to make
an adjustment for the effect of documentation
and coding during FY 2010 in our proposed
annual update to the LTCH PPS standard
Federal rate for FY 2012. Furthermore, we are
proposing that, consistent with our historical
practice of using the best available data, if
more recent data subsequently become
available, we would examine such data for
the final rule to determine if an adjustment
for the effect of documentation and coding
during FY 2010 is warranted.
In the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50443 through 50444), we established
an annual update to the LTCH PPS standard
Federal rate for FY 2011 based on the full
estimated LTCH PPS market basket increase,
including the 0.50 percentage point
reduction required by sections
1886(m)(3)(A)(i), (m)(3)(A)(ii), and (m)(4)(B)
of the Act, of 2.0 percent and an adjustment
to account for the increase in case-mix in
prior periods (FYs 2008 and 2009) that
resulted from the effect of documentation
and coding practices of ¥2.5 percent.
Accordingly, at § 412.523(c)(vii), we
established an annual update to the standard
Federal rate for FY 2011 of ¥0.49 percent.
That is, we applied an update factor of
0.9951 (calculated as 1.020 × 1 divided by
1.025 = 0.9951 or ¥0.49 percent) to the RY
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2010 Federal rate of $39,794.95 (as
established in the June 2, 2010 FY 2010 IPPS/
RY 2010 LTCH PPS notice (75 FR 31128
through 31129)) to determine the FY 2011
standard Federal rate. Consequently, we
established a standard Federal rate for FY
2011 of $39,599.95, which is applicable to
LTCH PPS discharges occurring on or after
October 1, 2010, through September 30, 2011.
In this proposed rule, for FY 2012, as noted
above and as discussed in greater detail in
section VII.E.2. of the preamble of this
proposed rule, consistent with our historical
practice, we are proposing to establish an
annual update to the LTCH PPS standard
Federal rate of 1.5 percent, based on the full
estimated increase in the proposed LTCH
PPS market basket of 2.8 percent less the
proposed MFP adjustment of 1.2 percentage
points required under 1886(m)(3)(A)(ii) and
less the 0.1 percentage point required by
sections 1886(m)(3)(A)(i) and(m)(4)(C) of the
Act. Accordingly, the proposed update factor
to the standard Federal rate for FY 2012 is
1.5 percent. That is, under proposed
§ 412.523(c)(viii), we are proposing to apply
a factor of 1.015 to the FY 2011 standard
Federal rate of $39,599.95 (as established in
the FY 2011 IPPS/LTCH PPS final rule (75 FR
50444)) to determine the FY 2012 standard
Federal rate. Furthermore, as discussed in
greater detail in section VII.E.3. of the
preamble of this proposed rule, for FY 2012,
we are proposing to apply an area wage level
budget neutrality factor of 0.99723 to the
standard Federal rate to ensure that any
changes to the area wage level adjustment
(that is, the proposed annual update of the
wage index values and labor-related share)
would not result in any change (increase or
decrease) in estimated aggregate LTCH PPS
payments. Consequently, we are proposing to
establish a standard Federal rate for FY 2012
of $40,082.61 (calculated as $39,599.95 ×
1.015 × 0.99723), which would be applicable
to LTCH PPS discharges occurring on or after
October 1, 2011, through September 30, 2012.
B. Proposed Adjustment for Area Wage
Levels Under the LTCH PPS for FY 2012
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 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 area wage index
level adjustment. The area wage level
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 LTCH PPS wage index values calculated
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emcdonald on DSK2BSOYB1PROD with PROPOSALS2
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 area wage level 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. Geographic Classifications/Labor Market
Area Definitions
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, 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. Specifically, the application of the
LTCH PPS area wage level adjustment at
existing § 412.525(c) 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.
Currently under the LTCH PPS at § 412.503,
an ‘‘urban area’’ is defined as a Metropolitan
Statistical Area (which would include a
metropolitan division, where applicable) as
defined by the Executive OMB and a ‘‘rural
area’’ is defined as any area outside of an
urban area.
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 readers to the
RY 2006 LTCH PPS final rule (70 FR 24182
through 24191).) We have updated the LTCH
PPS CBSA-based labor market area
definitions annually since they were adopted
for RY 2006 (73 FR 26812 through 26814, 74
FR 44023 through 44204, and 75 FR 50444
through 50445).
In OMB Bulletin No. 10–2, issued on
December 1, 2009, OMB announced that the
CBSA changes in that bulletin would be the
final update prior to the 2010 Census of
Population and Housing. We adopted those
changes under the LTCH PPS in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50444
through 50445), effective beginning October
1, 2010, and they are also reflected in this FY
2012 proposed rule. In 2013, OMB plans to
announce new area delineations based on its
2010 standards (75 FR 37246) and the 2010
Census data.
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The OMB bulletin is available on the OMB
Web site at https://www.whitehouse.gov/
OMB—go to ‘‘Agency Information’’ and click
on ‘‘Bulletins’’.
3. Proposed LTCH PPS Labor-Related Share
Under the adjustment for differences in
area wage levels at § 412.525(c), the laborrelated share of a LTCH’s PPS Federal
prospective payment is adjusted by the
applicable wage index for the labor market
area in which the LTCH is located. The LTCH
PPS labor-related share currently represents
the sum of the labor-related portion of
operating costs (wages and salaries, employee
benefits, professional fees, and all other
labor-intensive services) and a labor-related
portion of capital costs using the applicable
LTCH PPS market basket. Currently, as
established in the RY 2007 LTCH PPS final
rule (71 FR 27829 through 27830), the LTCH
PPS labor-related share is based on the
relative importance of the labor-related share
of operating costs and capital costs of the
rehabilitation, psychiatric, and long-term
care hospital (RPL) market basket based on
FY 2002 data, as those were the best available
data at that time that reflected the cost
structure of LTCHs. For the past 4 years (RY
2008, RY 2009, RY 2010, and FY 2011), we
updated the LTCH PPS labor-related share
annually based on the latest available data for
the FY 2002-based RPL market basket. For FY
2011, in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 20445), we established a laborrelated share of 75.271 percent based on the
best available data at that time for the FY
2002-based RPL market basket for FY 2011.
(Additional background information on the
historical development of the labor-related
share under the LTCH PPS and the
development of the RPL market basket can be
found in the RY 2007 LTCH PPS final rule
(71 FR 27810 through 27817 and 27829
through 27830).)
In section VII.D. of the preamble of this
proposed rule, we are proposing to revise and
rebase the market basket used under the
LTCH PPS beginning in FY 2012.
Specifically, we are proposing to adopt the
newly created FY 2008-based RPL market
basket. We are not proposing to change our
definition of the labor-related share.
However, we are proposing to rename our
aggregate cost categories from ‘‘laborintensive’’ and ‘‘nonlabor-intensive’’ services
to ‘‘labor-related’’ and ‘‘nonlabor-related’’
services (as discussed. in section VII.D.3.b. of
the preamble of this proposed rule). As
discussed in section VII.D.3.f. of the
preamble of this proposed rule, we are
proposing a labor-related share under the
LTCH PPS for FY 2012 based on IHS Global
Insight, Inc.’s first quarter 2011 forecast of
the proposed FY 2008-based RPL market
basket for FY 2012, as these are the most
recent available data at this time that reflect
the cost structure of LTCHs. We are also
proposing that the labor-related share for FY
2012 is the sum of the proposed FY 2012
relative importance of each labor-related cost
category of the proposed FY 2008-based RPL
market basket, and reflects the different rates
of price change for these cost categories
between the proposed base year (FY 2008)
and FY 2012.
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As discussed in greater detail in section
VII.D.3.f. of the preamble of this proposed
rule, the sum of the proposed relative
importance for FY 2012 for operating costs
(Wages and Salaries, Employee Benefits,
Professional Fees: Labor-Related,
Administrative and Business Support
Services, and All-Other: Labor-related
Services) is 66.689 percent and the proposed
labor-related share of capital costs is 3.645
percent. Thus, under the authority set forth
in section 123 of the BBRA as amended by
section 307(b) of the BIPA, we are proposing
to establish a labor-related share of 70.334
percent (66.689 percent + 3.645 percent)
under the LTCH PPS for the FY 2012, which
would be effective for discharges occurring
on or after October 1, 2011, and through
September 30, 2012. Consistent with our
historical practice of using the best data
available, we also are proposing that if more
recent data are available to determine the
labor-related share used under the LTCH PPS
for FY 2012, we would use these data for
determining the FY 2012 LTCH PPS laborrelated share in the final rule.
4. Proposed LTCH PPS Wage Index for FY
2012
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 (67 FR
56019). The area wage level 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.
In the FY 2011 LTCH PPS final rule (75 FR
50445 through 50446), we calculated the FY
2011 LTCH PPS wage index values using the
same data used for the FY 2011 acute care
hospital IPPS (that is, data from cost
reporting periods beginning during FY 2007),
without taking into account geographic
reclassification under sections 1886(d)(8) and
1886(d)(10) of the Act, as these were the most
recent complete data available at that time.
In that same final rule, we indicated that we
computed the FY 2011 LTCH PPS wage
index values consistent with the urban and
rural geographic classifications (labor market
areas) and consistent with the prereclassified IPPS wage index policy (that is,
our historical policy of not taking into
account IPPS geographic reclassifications in
determining payments under the LTCH PPS).
We also continued to use our existing policy
for determining wage index values in areas
where there are no IPPS wage data.
Consistent with our historical
methodology, to determine the applicable
wage index values under the LTCH PPS for
FY 2012, 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 proposing to use wage
data collected from cost reports submitted by
IPPS hospitals for cost reporting periods
beginning during FY 2008, without taking
into account geographic reclassification
under sections 1886(d)(8) and 1886(d)(10) of
the Act. We are proposing to use FY 2008
data because these data are the most recent
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complete data available. These are the same
data used to compute the proposed FY 2012
acute care hospital inpatient wage index, as
discussed in section III. of the preamble of
this proposed rule. (For our rationale for
using IPPS hospital wage data as a proxy for
determining the wage index values used
under the LTCH PPS, we refer readers to the
FY 2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 44024 through 44025).)
The proposed FY 2012 LTCH PPS wage
index values we are presenting in this
proposed rule are computed consistent with
the urban and rural geographic classifications
(labor market areas) discussed above in
section V.B.2. of the Addendum to this
proposed rule and consistent with the prereclassified IPPS wage index policy (that is,
our historical policy of not taking into
account IPPS geographic reclassifications
under sections 1886(d)(8) and 1886(d)(10) of
the Act in determining payments under the
LTCH PPS). As with the IPPS wage index,
wage data for multicampus hospitals with
campuses located in different labor market
areas (CBSAs) are apportioned to each CBSA
where the campus or campuses are located
(as discussed in section III.F. of the preamble
of this proposed rule). Furthermore, we are
proposing that, in determining the FY 2012
LTCH PPS wage index values in this
proposed rule, we continue to use our
existing policy for determining wage index
values in areas where there are no IPPS wage
data.
As discussed in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50446), we established
a methodology for determining LTCH PPS
wage index values for areas that have no IPPS
wage data in the RY 2009 LTCH PPS final
rule, and we are proposing to continue to use
this methodology for FY 2012. (We refer
readers to 73 FR 26817 through 26818 for an
explanation of and rationale for our policy.)
Under this methodology, the LTCH PPS wage
index value for urban CBSAs with no IPPS
wage data is determined by using an average
of all of the urban areas within the State. As
was the case in FY 2011, there are currently
no LTCHs located in labor areas without IPPS
hospital wage data (or IPPS hospitals) for FY
2012. However, we calculate proposed 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.
Based on the FY 2008 IPPS wage data that
we are proposing to use to determine the
proposed FY 2012 LTCH PPS wage index
values in this proposed rule, there are no
IPPS wage data for the urban area HinesvilleFort Stewart, GA (CBSA 25980). Consistent
with the methodology discussed above, we
are proposing to calculate the FY 2012 wage
index value for CBSA 25980 as the average
of the proposed 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), as
shown in Table 12A, which is listed in
section VI. of the Addendum to this proposed
rule and available via the Internet). We note
that, as IPPS wage data are dynamic, it is
possible that urban areas without IPPS wage
data will vary in the future.
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For FY 2012, using our established
methodology, we are proposing to calculate
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 (for an explanation
of this policy, we refer readers to 73 FR
26818). For this purpose, we define
‘‘contiguous’’ as sharing a border. Based on
the FY 2008 IPPS wage data that we are
proposing to use to determine the proposed
FY 2012 LTCH PPS wage index values in this
proposed rule, there are no IPPS wage data
for the rural area of Massachusetts (CBSA
code 22). Consistent with the methodology
described above, the proposed FY 2012 wage
index value for rural Massachusetts is
computed using the unweighted average of
the wage indices from all of the CBSAs
contiguous to the rural counties in that State.
Specifically, the entire Massachusetts rural
area consists of Dukes and Nantucket
counties. The borders of Dukes and
Nantucket counties are ‘‘contiguous’’ with
Barnstable County, MA, and Bristol County,
MA. Therefore, the proposed FY 2012 LTCH
PPS wage index value for rural
Massachusetts is computed as the
unweighted average of the proposed FY 2012
wage indexes for Barnstable County and
Bristol County, which are shown in Table
12A in the Addendum to this proposed rule).
As noted above, as IPPS wage data are
dynamic, it is possible that rural areas
without IPPS wage data will vary in the
future.
The proposed FY 2012 LTCH wage index
values that would be applicable for LTCH
discharges occurring on or after October 1,
2011, through September 30, 2012, are
presented in Table 12A (for urban areas) and
Table 12B (for rural areas) in the Addendum
of this proposed rule.
5. Proposed Budget Neutrality Adjustment
for Changes to the Area Wage Level
Adjustment
Historically, the LTCH PPS wage index and
labor-related share are updated annually
based on the latest available data. However,
there are currently no statutory or regulatory
requirements that the annual update to the
LTCH PPS area wage level adjustment at
existing § 412.525(c) (that is, the wage index
and the labor-related share) be budget neutral
such that estimated aggregate LTCH PPS
payments would be unaffected (that is,
would be neither greater than nor less than
estimated aggregate LTCH PPS payments
without such changes). In section VII.E.3. of
the preamble of this proposed rule, under
§ 412.525(c), we are proposing that,
beginning in FY 2012, any changes to the
wage index values or labor-related share be
made in a budget neutral manner such that
estimated aggregate LTCH PPS payments are
unaffected, that is, would be neither greater
than nor less than estimated aggregate LTCH
PPS payments without such changes to the
area wage level adjustment. Under this
proposal, we are also proposing to determine
an area wage level adjustment budget
neutrality factor that would be applied to the
standard Federal rate to ensure that any
changes to the area wage level adjustment
would be budget neutral such that any
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changes to the wage index values or laborrelated share would not result in any change
(increase or decrease) in estimated aggregate
LTCH PPS payments. Therefore, under
proposed § 412.523(d)(4), we are proposing to
apply an area wage level adjustment budget
neutrality factor of 0.99723 (determined
under the proposed methodology described
in section VII.E.3. of the preamble of this
proposed rule) to determine the proposed FY
2012 LTCH PPS standard Federal rate. (The
development of the proposed LTCH PPS
standard Federal rate for FY 2012 is
discussed in section V.A.2. of this
Addendum.)
C. Proposed 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.
Specifically, we apply a COLA to payments
to LTCHs located in Alaska and Hawaii by
multiplying the nonlabor-related portion of
the standard Federal payment rate by the
applicable COLA factors established annually
by CMS. Higher labor-related costs for LTCHs
located in Alaska and Hawaii are taken into
account in the adjustment for area wage
levels described above.
For FY 2011 and in prior years, we used
the most recent updated COLA factors
obtained from the U.S. Office of Personnel
Management (OPM) Web site at https://
www.opm.gov/oca/cola/rates.asp to adjust
the payments for LTCHs in Alaska and
Hawaii. Sections 1911 through 1919 of the
Nonforeign Area Retirement Equity
Assurance Act, as contained in subtitle B of
title XIX of the National Defense
Authorization Act (NDAA) for Fiscal Year
2010 (Pub. L. 111–84, October 28, 2009)
transitions the Alaska and Hawaii COLAs to
locality pay. Under section 1914 of Public
Law 111–84, locality pay is being phased in
over a 3-year period beginning in January
2010 with COLA rates frozen as of the date
of enactment, October 28, 2009, and then
proportionately reduced to reflect the phasein of locality.
We do not believe it is appropriate to
propose to use either the 2010 or 2011
reduced factors for adjusting the nonlaborrelated portion of the standard Federal rate
for LTCHs in Alaska or Hawaii.
Therefore, for FY 2012, we are proposing
to continue to use the same COLA factors
(published by OPM) that we used to adjust
payments in FY 2011 (which are based on
OPM’s 2009 COLA factors) to adjust the
nonlabor-related portion of the standard
Federal rate for LTCHs located in Alaska and
Hawaii. We believe using these COLA factors
would appropriately adjust the nonlaborrelated portion of the standard Federal rate
for LTCHs in Alaska and Hawaii consistent
with § 412.525(b). (We note that this proposal
is consistent with the proposed adjustment
for cost-of-living in Alaska and Hawaii for
IPPS hospitals discussed in section II.B.2. of
this Addendum.) We invite public comment
on this proposal.
In this proposed rule, for FY 2012, under
the broad authority conferred upon the
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26041
payments to LTCHs located in Alaska and
Hawaii by multiplying the nonlabor-related
portion of the standard Federal payment rate
by the proposed factors listed in the chart
below because they are the most recent
available data at this time. As discussed
above, these factors were obtained from the
OPM and are also proposed to be used under
the IPPS for FY 2012.
D. Proposed Adjustment for LTCH PPS HighCost Outlier (HCO) Cases
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
equal 8 percent of total estimated payments
under the LTCH PPS.
Under § 412.525(a) in the regulations (in
conjunction with § 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
§ 412.503), we make an additional payment
to an HCO case that is equal to 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
to the fixed-loss amount and a fixed
percentage of costs above the outlier
threshold (adjusted 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 cost-to-charge ratio (CCR).
Under the LTCH PPS HCO policy at
§ 412.525(a), 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
to establish a fixed-loss threshold amount
under the LTCH PPS.
2. Determining LTCH CCRs Under the LTCH
PPS
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(f)(4)(ii)
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(f)(4)(iii),
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(f)(4)(i).)
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 Section 150.24, Chapter 3, of the
Medicare Claims Processing Manual (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
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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
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Secretary by section 123 of the BBRA, as
amended by section 307(b) of BIPA, to
determine appropriate adjustments under the
LTCH PPS, consistent with our current
policy, we are proposing to apply a COLA to
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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.
In accordance with § 412.525(a)(4)(iv)(C)(2)
for HCOs and § 412.529(f)(4)(iii)(B) for SSOs,
using our established methodology for
determining the LTCH total CCR ceiling
(described above), based on IPPS total CCR
data from the December 2010 update of the
PSF, we are proposing to establish a total
CCR ceiling of 1.210 under the LTCH PPS
that would be effective for discharges
occurring on or after October 1, 2011,
through September 30, 2012. Consistent with
our historical policy of using the best
available data, we also are proposing that if
more recent data become available, we would
use such data to establish a total CCR ceiling
for FY 2012 in the final rule.
c. Proposed 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(f)(4)(iii), the fiscal intermediary or
MAC may use a statewide average CCR,
which is established annually by CMS, if it
is unable to determine an accurate CCR for
a LTCH in one of the following
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;
and (3) other LTCHs for whom data with
which to calculate a CCR are not available
(for example, missing or faulty data). (Other
sources of data that the fiscal intermediary or
MAC may consider in determining a LTCH’s
CCR include data from a different cost
reporting period for the LTCH, data from the
cost reporting period preceding the period in
which the hospital began to be paid as a
LTCH (that is, the period of at least 6 months
that it was paid as a short-term, acute care
hospital), or data from other comparable
LTCHs, such as LTCHs in the same chain or
in the same region.)
Consistent with our historical practice of
using the best available data and using our
established methodology for determining the
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LTCH statewide average CCRs, based on the
most recent complete IPPS total CCR data
from the December 2010 update of the PSF,
we are proposing to establish LTCH PPS
statewide average total CCRs for urban and
rural hospitals that would be effective for
discharges occurring on or after October 1,
2011, through September 30, 2012, in Table
8C of the Addendum to this proposed rule.
Consistent with our historical policy of using
the best available data, we also are proposing
that if more recent data become available, we
would use such data to establish LTCH PPS
statewide average total CCRs for FY 2012 in
the final rule.
All areas in the District of Columbia, New
Jersey, and Rhode Island are classified as
urban. Therefore, there are no rural statewide
average total CCRs listed for those
jurisdictions in Table 8C listed in section VI.
of the Addendum to this proposed rule and
available via the Internet. 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 North Dakota
and Puerto have areas that are designated as
rural, there are no short-term, acute care IPPS
hospitals or LTCHs located in those areas as
of March 2011. Therefore, there is no rural
statewide average total CCR listed for rural
North Dakota in Table 8C listed in section VI.
of the Addendum to this proposed rule and
available via the Internet.
In addition, consistent with our existing
methodology, in determining the urban and
rural statewide average total CCRs for
Maryland LTCHs paid under the LTCH PPS,
in this proposed rule, we are using, as a
proxy, the national average total CCR for
urban IPPS hospitals and the national
average total CCR for rural IPPS hospitals,
respectively. We use this proxy because we
believe that the CCR data on the PSF for
Maryland hospitals may not be entirely
accurate (as discussed in greater detail in the
FY 2007 IPPS final rule (71 FR 48120)).
d. Reconciliation of LTCH HCO and SSO
Payments
We note that under the LTCH PPS HCO
policy at § 412.525(a)(4)(iv)(D) and the LTCH
PPS SSO policy at § 412.529(f)(4)(iv), 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 cost-to-charge
data computed from the relevant cost report
determined at the time the cost report
coinciding with the discharge is settled. For
additional information, we refer readers to
sections 150.26 through 150.28 of the
Medicare Claims Processing Manual (Pub.
100–4) as added by Change Request 7192
(Transmittal 2111; December 3, 2010) and the
RY 2009 LTCH PPS final rule (73 FR 26820
through 26821).
3. Establishment of the Proposed LTCH PPS
Fixed-Loss Amount for FY 2012
When we implemented the LTCH PPS, as
discussed in the August 30, 2002 LTCH PPS
final rule (67 FR 56022 through 56026),
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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
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 LTCH’s CCR. Under § 412.525(a)(3) (in
conjunction with § 412.503), if the estimated
cost of the case exceeds the outlier threshold,
we make an outlier payment equal to 80
percent of the difference between the
estimated cost of the case and the outlier
threshold (that is, the sum of the adjusted
Federal prospective payment for the MS–
LTC–DRG and the fixed-loss amount).
In this proposed rule, we are proposing to
continue to use our existing methodology to
calculate the proposed fixed-loss amount for
FY 2012 (based on updated data and the
proposed rates and policies presented in this
proposed rule) in order to maintain estimated
HCO payments at the projected 8 percent of
total estimated LTCH PPS payments. (For an
explanation of our rationale for establishing
an HCO payment ‘‘target’’ of 8 percent of total
estimated LTCH payments, we refer readers
to the August 30, 2002 LTCH PPS final rule
(67 FR 56022 through 56024).) Consistent
with our historical practice of using the best
data available, in determining the proposed
fixed-loss amount for FY 2012, we are using
the most recent available LTCH claims data
and CCR data at this time. Specifically, we
are using LTCH claims data from the
December 2010 update of the FY 2010
MedPAR files and CCRs from the December
2010 update of the PSF to determine a fixedloss amount that would result in estimated
outlier payments projected to be equal to 8
percent of total estimated payments in FY
2012 because these data are the most recent
complete LTCH data currently available.
Consistent with the historical practice of
using the best available data, we also are
proposing that if more recent LTCH claims
data become available, we would use them
for determining the fixed-loss amount for FY
2012 in the final rule. Furthermore, we are
proposing to determine the proposed FY
2012 fixed-loss amount based on the
proposed MS–LTC–DRG classifications and
relative weights from the version of the
GROUPER that would be in effect as of the
beginning of FY 2012, that is, proposed
Version 29.0 of the GROUPER.
Under the broad authority of section
123(a)(1) of the BBRA and section 307(b)(1)
of BIPA, we are proposing to establish a
fixed-loss amount of $19,270 for FY 2012.
Thus, we would make an additional payment
to an HCO case that is equal to 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 proposed fixedloss amount of $19.270). We also note that
the proposed fixed-loss amount of $19,270
for FY 2012 is slightly higher than the FY
2011 fixed-loss amount of $18,785. Based on
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and yet incur extraordinarily high treatment
costs. If the estimated 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 FY 2012, the HCO payment
would be 80 percent of the difference
between the estimated cost of the case and
the outlier threshold (the sum of the
proposed fixed-loss amount of $19,270 and
the amount paid under the SSO policy as
specified in § 412.529).
VI. Tables Referenced in this Proposed Rule
and Available Only Through the Internet on
the CMS Web Site
4C, 4D, 4E, 4F, 4J, 5, 6A, 6B, 6C, 6D, 6E, 6F,
7A, 7B, 8A, 8B, 9A, 9C, and 10, and LTCH
PPS tables 8C, 11, 12A, and 12B will no
longer be published as part of the annual
IPPS/LTCH PPS proposed and final
rulemakings. Instead, these tables, along with
new LTCH PPS tables 13A and 13B, and new
IPPS table 14 will be available only through
the Internet. IPPS tables 1A, 1B, 1C, and 1D,
and LTCH PPS table 1E, displayed at the end
This section lists the tables referred to
throughout the preamble of this proposed
rule and in this Addendum. In the past, a
majority of these tables were published in the
Federal Register as part of the annual
proposed and final rules. However, beginning
in FY 2012, IPPS tables 2, 3A, 3B, 4A, 4B,
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E. Computing the Proposed Adjusted LTCH
PPS Federal Prospective Payments for FY
2012
Section 412.525 sets forth the adjustments
to the LTCH PPS standard Federal rate.
Under § 412.525(c), 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 listed in section VI.
of the Addendum of this proposed rule and
available via the Internet). The standard
Federal rate is also adjusted to account for
the higher costs of hospitals in Alaska and
Hawaii by multiplying the nonlabor-related
portion 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 proposed rule) in accordance with
§ 412.525(b). In this proposed rule, we are
proposing to establish a proposed standard
Federal rate for FY 2012 of $40,082.61, as
discussed above in section V.A.2. of the
Addendum of this proposed rule. We
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illustrate the methodology to adjust the
proposed LTCH PPS Federal rate for FY 2012
in the following example:
Example:
During FY 2012, a Medicare patient is in
a LTCH located in Chicago, Illinois (CBSA
16974). The FY 2012 LTCH PPS wage index
value for CBSA 16974 is 1.0632 (Table 12A
listed in section VI. of the Addendum of this
proposed rule and available via the Internet).
The Medicare patient is classified into
proposed MS–LTC–DRG 28 (Spinal
Procedures with MCC), which has a proposed
relative weight for FY 2012 of 1.7360 (Table
11 listed in section VI. of the Addendum of
this proposed rule and available via the
Internet).
To calculate the LTCH’s total adjusted
Federal prospective payment for this
Medicare patient, we compute the wageadjusted Federal prospective payment
amount by multiplying the unadjusted
proposed standard Federal rate ($40,082.61)
by the proposed labor-related share (70.334
percent) and the proposed wage index value
(1.0632). This wage-adjusted amount is then
added to the nonlabor-related portion of the
unadjusted proposed standard Federal rate
(29.666 percent; adjusted for cost of living, if
applicable) to determine the adjusted Federal
rate, which is then multiplied by the
proposed MS–LTC–DRG relative weight
(1.7360) to calculate the total adjusted
proposed Federal LTCH PPS prospective
payment for FY 2012 ($72,676.47). The table
below illustrates the components of the
calculations in this example.
of this section, will continue to be published
in the Federal Register as part of the annual
and final rules. We note that previously
tables 6G, 6H, 6I, 6I.1, 6I.2, 6J, 6J.1, 6J.2, and
6K were already made available only through
the Internet. We will continue to post these
tables through the Internet.
Readers who experience any problems
accessing any of the tables that are posted on
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our payment simulations using the most
recent available data at this time, the
proposed increase in the fixed-loss amount
for FY 2012 would be necessary to maintain
the existing requirement that estimated
outlier payments would equal 8 percent of
estimated total LTCH PPS payments. (For
further information on the existing 8 percent
HCO ‘‘target’’ requirement, as noted above, we
refer readers to the August 30, 2002 LTCH
PPS final rule (67 FR 56022 through 56024.)
Maintaining the fixed-loss amount at the
current level would result in HCO payments
that are greater than the current regulatory 8percent requirement because a higher fixedloss amount would result in fewer cases
qualifying as outlier cases as well as a
decrease in the amount of the additional
payment for an HCO case because the
maximum loss that a LTCH must incur before
receiving an HCO payment (that is, the fixedloss amount) would be larger. For these
reasons, we believed that proposing a slight
increase in the fixed-loss amount is
appropriate and necessary to maintain that
estimated outlier payments would equal 8
percent of estimated total LTCH PPS
payments as required under § 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
§ 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,
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the CMS Web sites identified below should
contact Ing Jye Cheng at (410) 786–4548.
The following IPPS tables for this FY 2012
proposed rule are available only through the
Internet on the CMS Web site at: https://
www.cms.hhs.gov/AcuteInpatientPPS/
01_overview.asp. Click on the link on the left
side of the screen titled, ‘‘FY 2012 IPPS
Proposed Rule Home Page’’ or ‘‘Acute
Inpatient—Files for Download’’.
Table 2.—Acute Care Hospitals Case-Mix
Indexes for Discharges Occurring in
Federal Fiscal Year 2010; Proposed
Hospital Wage Indexes for Federal Fiscal
Year 2012; Hospital Average Hourly
Wages for Federal Fiscal Years 2010
(2006 Wage Data), 2011 (2007 Wage
Data), and 2012 (2008 Wage Data); and
3-Year Average of Hospital Average
Hourly Wages
Table 3A.—Proposed FY 2012 and 3-Year
Average Hourly Wage for Acute Care
Hospitals in Urban Areas by CBSA
Table 3B.—Proposed FY 2012 and 3-Year
Average Hourly Wage for Acute Care
Hospitals in Rural Areas by CBSA
Table 4A.—Proposed Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals in Urban Areas by
CBSA and by State—FY 2012
Table 4B.—Proposed Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals in Rural Areas by
CBSA and by State—FY 2012
Table 4C.—Proposed Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals That Are
Reclassified by CBSA and by State—FY
2012
Table 4D.—States Designated as Frontier,
with Acute Care Hospitals Receiving at
a Minimum the Frontier State Floor
Wage Index 1; Urban Areas with Acute
Care Hospitals Receiving the Proposed
Statewide Rural Floor Wage Index—FY
2012
Table 4E.—Urban CBSAs and Constituent
Counties for Acute Care Hospitals—FY
2012
Table 4F.—Proposed Puerto Rico Wage Index
and Capital Geographic Adjustment
Factor (GAF) for Acute Care Hospitals by
CBSA—FY 2012
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Table 4J.—Proposed Out-Migration
Adjustment for Acute Care Hospitals—
FY 2012
Table 5.—List of Proposed Medicare Severity
Diagnosis-Related Groups (MS–DRGs),
Relative Weighting Factors, and
Geometric and Arithmetic Mean Length
of Stay—FY 2012
Table 6A.—Proposed New Diagnosis Codes—
FY 2012
Table 6B.—Proposed New Procedure Codes—
FY 2012
Table 6C.—Proposed Invalid Diagnosis
Codes—FY 2012
Table 6D.— Proposed Invalid Procedure
Codes—FY 2012
Table 6E.—Proposed Revised Diagnosis Code
Titles—FY 2012
Table 6F.—Proposed Revised Procedure Code
Titles—FY 2012
Table 6G.—Proposed Additions to the CC
Exclusions List—FY 2012
Table 6H.—Proposed Deletions from the CC
Exclusions List—FY 2012
Table 6I.—Proposed Complete MCC List—FY
2012
Table 6I.1.—Proposed Additions to the MCC
List—FY 2012
Table 6I.2.—Proposed Deletions to the MCC
List—FY 2012
Table 6J.—Proposed Complete CC List—FY
2012
Table 6J.1.—Proposed Additions to the CC
List—FY 2012
Table 6J.2.—Proposed Deletions to the CC
List—FY 2012
Table 6K.—Proposed Complete List of CC
Exclusions—FY 2012
Table 7A.—Medicare Prospective Payment
System Selected Percentile Lengths of
Stay: FY 2010 MedPAR Update—
December 2010 GROUPER V28.0 MS–
DRGs
Table 7B.—Medicare Prospective Payment
System Selected Percentile Lengths of
Stay: FY 2010 MedPAR Update—
December 2010 GROUPER V29.0 MS–
DRGs
Table 8A.—Proposed FY 2012 Statewide
Average Operating Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals (Urban
and Rural)
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Table 8B.—Proposed FY 2012 Statewide
Average Capital Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals
Table 9A.—Hospital Reclassifications and
Redesignations—FY 2012
Table 9C.—Hospitals Redesignated as Rural
under Section 1886(d)(8)(E) of the Act—
FY 2012
Table 10.—Proposed 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)
Table 14.—List of Hospitals with Fewer than
1,600 Medicare Discharges Based on the
December 2010 Update of the FY 2010
MedPAR File and Their Proposed FY
2012 Low-Volume Payment Adjustment
The following LTCH PPS tables for this FY
2012 proposed rule are available only
through the Internet on the CMS Web site at
https://www.cms.gov/
LongTermCareHospitalPPS/LTCHPPSRN/
list.asp under the list item for Regulation
Number CMS–1518–P.
Table 8C.—Proposed FY 2012 Statewide
Average Total Cost-to-Charge Ratios
(CCRs) for LTCHs (Urban and Rural)
Table 11.—Proposed MS–LTC–DRGs,
Relative Weights, Geometric Average
Length of Stay, and Short-Stay Outlier
(SSO) Threshold for Discharges
Occurring from October 1, 2011 through
September 30, 2012 under the LTCH PPS
Table 12A.—Proposed LTCH PPS Wage
Index for Urban Areas for Discharges
Occurring from October 1, 2011 through
September 30, 2012
Table 12B.—Proposed LTCH PPS Wage Index
for Rural Areas for Discharges Occurring
From October 1, 2011 through September
20, 2012
Table 13A.—Composition of Proposed LowVolume Quintiles for MS–LTC–DRGs—
FY 2012
Table 13B.—Proposed No-Volume MS–LTC–
DRG Crosswalk for FY 2012
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Appendix A: Regulatory Impact
Analysis
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
I. Introduction
A. Overall Impact
We have examined the impacts of this
proposed rule as required by Executive Order
12866 on Regulatory Planning and Review
(September 30, 1993), Executive Order 13563
on Improving Regulation and Regulatory
Review (February 2, 2011) the Regulatory
Flexibility Act (RFA) (September 19, 1980,
Pub. L. 96–354), section 1102(b) of the Social
Security Act, section 202 of the Unfunded
Mandates Reform Act of 1995 (March 22,
1995, Pub. L. 104–4), Executive Order 13132
on Federalism (August 4, 1999), and the
Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct
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).
Executive Order 13563 emphasizes the
importance of quantifying both costs and
benefits, of reducing costs, of harmonizing
rules, and of promoting flexibility. 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 proposed
rule is a major rule as defined in 5 U.S.C.
804(2). We estimate that the proposed
changes for FY 2012 acute care hospital
operating and capital payments will
redistribute amounts in excess of $100
million among different types of inpatient
cases. The proposed applicable percentage
increase to the IPPS rates required by the
statute, in conjunction with other proposed
payment changes in this proposed rule,
would result in an estimated $498 million
decrease in FY 2012 operating payments (or
¥0.5 percent change) and an estimated $146
million increase in FY 2012 capital payments
(or 1.8 percent change). The impact 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 a change
in payments by $95 million (or 1.9 percent).
Our operating impact estimate includes the
proposed ¥2.5 percent documentation and
coding adjustment applied to the hospitalspecific rates and the proposed –3.15 percent
adjustment for documentation and coding
changes to the IPPS standardized amounts. In
addition, our operating impact estimate
includes the proposed 1.5 percent hospital
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update to the standardized amount (which
includes the proposed 2.8 percent market
basket update with the reduction of 1.2
percentage point for the multifactor
productivity adjustment and the 0.1
percentage point reduction required under
the Affordable Care Act). Finally, our
operating impact estimate includes the
proposed 1.1 percent update to the
standardized amount and the 0.9 percent
update to the hospital-specific rates in light
of DC Circuit’s decision in Cape Cod v.
Sebelius (630 F.3d 203 (D.C. Cir. 2011)). The
estimates of IPPS operating payments to
acute care hospitals do not reflect any
changes in hospital admissions or real casemix intensity, which would also affect
overall payment changes.
The RFA requires agencies to analyze
options for regulatory relief of small entities.
For purposes of the RFA, small entities
include small businesses, nonprofit
organizations, and small government
jurisdictions. We estimate that most hospitals
and most other providers and suppliers are
small entities as that term is used in the RFA.
The great majority of hospitals and most
other health care providers and suppliers are
small entities, either by being nonprofit
organizations or by meeting the SBA
definition of a small business (having
revenues of less than $7.5 million to $34.5
million in any 1 year). (For details on the
latest standards for health care providers, we
refer readers to page 33 of the Table of Small
Business Size Standards for NAIC 622 found
on the SBA Web site at: https://www.sba.gov/
contractingopportunities/sizestandardtopics/
tableofsize/.)
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
proposed 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
proposed rule constitutes our proposed
regulatory flexibility analysis. Therefore, we
are soliciting public comments on our
estimates and analysis of the impact of our
proposals on those small entities.
In addition, section 1102(b) of the Social
Security Act requires us to prepare a
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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 I and section VI. of this
Appendix for the quantitative effects of the
proposed 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. In 2011, that threshold
level is approximately $136 million. This
proposed rule would not mandate any
requirements for State, local, or tribal
governments, nor would it affect private
sector costs.
The analysis that begins in section II of this
Appendix, in conjunction with the remainder
of this document, demonstrates that this
proposed rule is consistent with the
regulatory philosophy and principles
identified in Executive Orders 12866 and
13563, the RFA, and section 1102(b) of the
Act. The proposed rule would 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.
B. Need
This proposed rule is necessary in order to
make payment and policy changes under the
Medicare IPPS for Medicare acute care
hospital inpatient services for operating and
capital-related costs as well as for certain
hospitals and hospital units excluded from
the IPPS. This proposed rule also is
necessary to make payment and policy
changes for Medicare hospitals under the
LTCH PPS payment system.
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
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costs. In addition, we share national goals of
preserving the Medicare Hospital Insurance
Trust Fund.
We believe the changes in this proposed
rule would 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 proposed
changes would ensure that the outcomes of
the prospective payment systems are
reasonable and equitable while avoiding or
minimizing unintended adverse
consequences.
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III. Limitations of Our Analysis
The following quantitative analysis
presents the projected effects of our proposed
policy changes, as well as statutory changes
effective for FY 2012, 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.
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 32 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 March 2011, there are 3,419 IPPS
acute care hospitals to be included in our
analysis. This represents about 64 percent of
all Medicare-participating hospitals. The
majority of this impact analysis focuses on
this set of hospitals. There also are
approximately 1,342 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.M. of
this Appendix for a further description of the
impact of CAH-related proposed policy
changes.) There are also 1,290 IPPS-excluded
hospitals and 2,119 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 IPPS-excluded hospitals and units are
not included in this proposed rule. The
impact of the proposed update and policy
changes to the LTCH PPS for FY 2012 are
discussed in section IX. of this Appendix.
V. Effects on Hospitals and Hospital Units
Excluded From the IPPS
As of March 2011, there were 3,409
hospitals and hospital units excluded from
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the IPPS. Of these, 78 children’s hospitals, 11
cancer hospitals, and 17 RNHCIs are being
paid on a reasonable cost basis subject to the
rate-of-increase ceiling under § 413.40. The
remaining providers, 235 rehabilitation
hospitals and 940 rehabilitation units, and
437 LTCHs, are paid the Federal prospective
per discharge rate under the IRF PPS and the
LTCH PPS, respectively, and 512 psychiatric
hospitals and 1,179 psychiatric units are paid
the Federal per diem amount under the IPF
PPS. As stated above, IRFs and IPFs are not
affected by proposed rate updates discussed
in this proposed rule. The impacts of the
changes to LTCHs are discussed in section
IX. of this Appendix.
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 2012. 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
FY 2012 percentage increase in the IPPS
operating market basket. In compliance with
section 404 of the MMA, in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR
43930), we replaced the FY 2002-based IPPS
operating and capital market baskets with the
revised and rebased FY 2006-based IPPS
operating and capital market baskets.
Therefore, consistent with current law, based
on IHS Global Insight, Inc.’s 2011 first
quarter forecast, with historical data through
the 2010 fourth quarter, we are estimating
that the FY 2012 update based on the IPPS
operating market basket will be 2.8 percent
(that is, the current estimate of the market
basket rate-of-increase). However, the
Affordable Care Act requires an adjustment
for multifactor productivity (currently
estimated to be ¥1.2 percentage points) and
a 0.1 percentage point reduction to the
market basket update resulting in a proposed
1.5 percent applicable percentage increase for
IPPS hospitals. RNCHIs, children’s hospitals
and cancer hospitals are not subject to the
reduction in the applicable percentage
increase required under the Affordable Care
Act. In accordance with § 403.752(a) of the
regulations, RNHCIs are paid under § 413.40.
Therefore, for RNHCIs, the proposed update
is the same as for children’s and cancer
hospitals, which is the percentage increase in
the FY 2012 IPPS operating market basket,
estimated to be 2.8 percent, without the
reductions required under the Affordable
Care Act.
The impact of the proposed update in the
rate-of-increase 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 rateof-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 percase 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.
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We note that, under § 413.40(d)(3), an
excluded hospital that continues to be paid
under the TEFRA system and 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
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 Proposed
Policy Changes Under the IPPS for
Operating Costs
A. Basis and Methodology of Estimates
In this proposed rule, we are announcing
proposed 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 2012 operating payments would
change by ¥0.5 percent compared to FY
2011, largely due to the documentation and
coding adjustments and the applicable
percentage increase applied to the IPPS rates.
This amount reflects the proposed FY 2012
adjustments for documentation and coding
and recoupment described in section II.D. of
the preamble of this proposed rule: ¥3.15
percent for the IPPS national standardized
amounts and ¥2.5 percent for the IPPS
hospital-specific 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 proposed changes to each system. This
section deals with proposed changes to the
operating inpatient 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
proposed changes in this proposed rule.
However, there are other proposed changes
for which we do not have data available that
would allow us to estimate the payment
impacts using this model. For those proposed
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 2010 MedPAR file and the most current
Provider-Specific File (PSF) that is used for
payment purposes. Although the analyses of
the proposed changes to the operating PPS do
not incorporate cost data, data from the most
recently available hospital cost reports 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
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various data sources 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 the 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 2010 MedPAR
file, we simulated payments under the
operating IPPS given various combinations of
payment parameters. As described above,
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 operating costs,
are not analyzed in this section. Estimated
payment impacts of the capital IPPS for FY
2012 are discussed in section VIII. of this
Appendix.
We discuss the following proposed
changes below:
• Effects of the application of the proposed
documentation and coding adjustment and
applicable percentage increase (including the
proposed market basket update, the
multifactor productivity adjustment and the
applicable percentage reduction in
accordance with the Affordable Care Act) to
the standardized amount and hospitalspecific rates.
• Effects of the proposed increase to the
standardized amount and hospital-specific
rates in light of D.C. Circuit’s decision in
Cape Cod v. Sebelius, 630 F.3d 203 (D.C. Cir.
2011).
• The effects of the proposed 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 proposed changes in
hospitals’ wage index values reflecting
updated wage data from hospitals’ cost
reporting periods beginning during FY 2008,
compared to the FY 2007 wage data.
• The effects of the recalibration of the
MS–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 the proposed geographic
reclassifications by the MGCRB that will be
effective in FY 2012.
• The effects of the rural floor with the
application of the national budget neutrality
factor applied to the wage index, as required
by the Affordable Care Act.
• The effects of the expiration of applying
an imputed floor to States that have no rural
areas and to States that have rural areas but
no IPPS hospitals are located in those areas.
• The effects of the frontier wage index
provision that requires that hospitals located
in States that qualify as frontier States cannot
have a wage index less than 1.0. This
provision is not budget neutral.
• The effects of section 505 of Pub. L. 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 proposed FY 2012 policies
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relative to payments based on FY 2011
policies that include the applicable
percentage increase of 1.5 percent (or 2.8
percent market basket update with a
reduction of 1.2 percentage points for the
multifactor productivity adjustment, and a
0.1 percentage point reduction, as required
under the Affordable Care Act).
To illustrate the impact of the proposed FY
2012 changes, our analysis begins with a FY
2011 baseline simulation model using: the
proposed FY 2012 applicable percentage
increase of 1.5 percent and the proposed
documentation and coding adjustment of
¥3.15 percent; the FY 2011 MS–DRG
GROUPER (Version 28.0); the most current
CBSA designations for hospitals based on
OMB’s MSA definitions; the FY 2011 wage
index; and no MGCRB reclassifications.
Outlier payments are set at 5.1 percent of
total operating MS–DRG and outlier
payments for modeling purposes.
Section 1886(b)(3)(B)(viii) of the Act, as
added by section 5001(a) of Public Law 109–
171, as amended by section 4102(b)(1)(A) of
the ARRA (Pub. L. 111–5) and by section
3401(a)(2) of the Affordable Care Act (Pub. L.
111–148), provides that, for FY 2007 through
FY 2014, the update factor will include a
reduction of 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. (Beginning in FY 2015, the
reduction is one-quarter of such applicable
percentage increase determined without
regard to section 1886(b)(3)(B)(ix), (xi), or
(xii) of the Act.) At the time that this impact
was prepared, 56 hospitals did not receive
the full market basket rate-of-increase for FY
2011 because they failed the quality data
submission process or did not choose to
participate. For purposes of the simulations
shown below, we modeled the proposed
payment changes for FY 2012 using a
reduced update for these 56 hospitals.
However, we do not have enough
information at this time to determine which
hospitals will not receive the full update
factor for FY 2012.
Each proposed policy change, statutory or
otherwise, is then added incrementally to
this baseline, finally arriving at an FY 2012
model incorporating all of the proposed
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
2011 to FY 2012. 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 proposing
to update the standardized amounts for FY
2012 using an applicable percentage increase
of 1.5 percent. This includes our forecasted
IPPS operating hospital market basket
increase of 2.8 percent with a proposed
reduction of 1.2 percentage points for the
multifactor productivity adjustment and a 0.1
percentage point reduction as required under
the Affordable Care Act. (Hospitals that fail
to comply with the quality data submission
requirements will receive a proposed update
of ¥0.5 percent (this update includes the 2.0
percentage point reduction for failure to
submit these data).) Under section
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1886(b)(3)(B)(iv) of the Act, the proposed
updates to the hospital-specific amounts for
SCHs and for MDHs are also equal to the
applicable percentage increase, or 1.5
percent. In addition, we are proposing to
update the Puerto Rico-specific amount by an
applicable percentage increase of 1.5 percent.
A second significant factor that affects the
changes in hospitals’ payments per case from
FY 2011 to FY 2012 is the change in
hospitals’ geographic reclassification status
from one year to the next. That is, payments
may be reduced for hospitals reclassified in
FY 2011 that are no longer reclassified in FY
2012. Conversely, payments may increase for
hospitals not reclassified in FY 2011 that are
reclassified in FY 2012.
A third significant factor is that we
currently estimate that actual outlier
payments during FY 2011 will be 4.9 percent
of total MS–DRG payments. Our updated FY
2011 outlier estimate accounts for changes to
the FY 2011 IPPS payments required under
the Affordable Care Act. When the FY 2011
final rule was published, we projected FY
2011 outlier payments would be 5.1 percent
of total MS–DRG plus outlier payments; the
average standardized amounts were offset
correspondingly. The effects of the lower
than expected outlier payments during FY
2011 (as discussed in the Addendum to this
proposed rule) are reflected in the analyses
below comparing our current estimates of FY
2011 payments per case to estimated FY 2012
payments per case (with outlier payments
projected to equal 5.1 percent of total MS–
DRG payments).
B. Analysis of Table I
Table I displays the results of our analysis
of the proposed changes for FY 2012. 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 3,419 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 2,492 hospitals
located in urban areas included in our
analysis. Among these, there are 1,369
hospitals located in large urban areas
(populations over 1 million), and 1,123
hospitals in other urban areas (populations of
1 million or fewer). In addition, there are 927
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 2012 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 sections 1886(d)(8)(B)
and 1886(d)(8)(E) of the Act that have
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implications for capital payments) are 2,514;
1,382; 1,132; and 905, 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 2,389 nonteaching hospitals in our
analysis, 790 teaching hospitals with fewer
than 100 residents, and 240 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
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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 175 RRCs, 320 SCHs, 195 MDHs,
and 120 hospitals that are both SCHs and
RRCs, and 18 hospitals that are both MDHs
and RRCs.
The next series of groupings are based on
the type of ownership and the hospital’s
Medicare utilization expressed as a percent
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of total patient days. These data were taken
from the FY 2008 or FY 2007 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 2012. The second grouping
shows the MGCRB rural reclassifications.
The final category shows the impact of the
proposed policy changes on the 19 cardiac
hospitals.
BILLING CODE 4120–01–P
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BILLING CODE 4120–01–C
1. Effects of the Proposed Hospital Update
and Documentation and Coding Adjustment
(Column 2)
As discussed in section II.D. of the
preamble of this proposed rule, this column
includes the proposed hospital update
including the 2.8 percent market basket
update, the reduction of 1.2 percentage
points for the multifactor productivity
adjustment and the 0.1 percentage point
reduction in accordance with the Affordable
Care Act. In addition, this column includes
the proposed FY 2012 documentation and
coding adjustment of ¥3.15 percent on the
national standardized amount and the
proposed ¥2.5 percent documentation and
coding adjustment on the hospital-specific
rates. As a result, we are proposing to apply
a ¥1.65 percent adjustment to the national
standardized amount and ¥1.0 percent
adjustment to the hospital specific rate.
Overall, hospitals will experience a ¥1.6
percent decrease in payments due to the
effects of the hospital update and
documentation and coding adjustment on the
national standardized amount. Hospital
categories that experience less than a 1.6
percent decrease in payments have hospitals
that are paid under the hospital-specific rate,
which is reduced by 1.0 percent. In addition,
Puerto Rico hospitals will experience a ¥1.0
percent decrease in payments, a smaller
decrease than average, because we are not
proposing any documentation and coding
adjustment to the Puerto Rico-specific rate,
which is 25 percent of Puerto Rico’s payment
rate.
2. Effects of the Proposed Adjustment to the
Standardized Amount for Cape Cod Hospital
v. Sebelius (Column 3)
Column 3 shows the impact of the
proposed 1.1 percent adjustment to the
national standardized amount and the
proposed 0.9 percent adjustment to the
hospital-specific rate in light of the decision
in Cape Cod Hospital v. Sebelius, as
discussed in section II. of the Addendum to
this proposed rule.
Overall, hospitals will experience a 1.1
percent increase in payments due to the
effects of the adjustment on the national
standardized amount. Hospital categories
that experience less than a 1.1 percent
increase in payments include hospitals that
are paid under the hospital-specific rate,
which we are proposing to increase by 0.9
percent. Rural hospitals will experience a 1.0
percent increase in payments because many
rural hospitals are paid under the hospitalspecific rate, which we are proposing to
increase by 0.9 percent.
3. Effects of the Proposed Changes to the MS–
DRG Reclassifications and Relative CostBased Weights with Recalibration Budget
Neutrality (Column 4)
Column 4 shows the effects of the
proposed changes to the MS–DRGs and
relative weights with the application of the
recalibration budget neutrality factor to the
standardized amounts. Section
1886(d)(4)(C)(i) of the Act requires us
annually to make appropriate classification
changes in order to reflect changes in
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treatment patterns, technology, and any other
factors that may change the relative use of
hospital resources. Consistent with section
1886(d)(4)(C)(iii) of the Act, we are
calculating a recalibration budget neutrality
factor to account for the changes in MS–
DRGs and relative weights to ensure that the
overall payment impact is budget neutral.
As discussed in section II.E. of the
preamble of this proposed rule, the FY 2012
MS–DRG relative weights will be 100 percent
cost-based and 100 percent MS–DRGs. For
FY 2012, the proposed MS–DRGs are
calculated using the FY 2010 MedPAR data
grouped to the Version 29.0 (FY 2012) MS–
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
of this proposed rule.
The ‘‘All Hospitals’’ line in Column 4
indicates that proposed changes due to MS–
DRGs and relative weights will result in a 0.0
percent change in payments with the
application of the recalibration budget
neutrality factor of 0.998413 on to the
standardized amount. The changes in
payments due to the proposed MS–DRGs,
relative weights and GROUPER are modest
with no hospital category seeing an increase
or decrease of more than 0.2 percent.
4. Effects of Proposed Wage Index Changes
(Column 5)
Column 5 shows the impact of updated
wage data with the application of the wage
budget neutrality factor. 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 proposed wage index for
acute care hospitals for FY 2012 is based on
data submitted for hospital cost reporting
periods beginning on or after October 1, 2007
and before October 1, 2008. The estimated
impact of the updated wage data and labor
share on hospital payments is isolated in
Column 5 by holding the other payment
parameters constant in this simulation. That
is, Column 5 shows the percentage change in
payments when going from a model using the
FY 2011 wage index, based on FY 2007 wage
data, the current labor-related share and
having a 100-percent occupational mix
adjustment applied, to a model using the FY
2012 pre-reclassification wage index with the
labor-related share, also having a 100-percent
occupational mix adjustment applied, based
on FY 2008 wage data (while holding other
payment parameters such as use of the
Version 29.0 MS–DRG GROUPER constant).
The occupational mix adjustment is based on
the 2007–2008 occupational mix survey.
In addition, the column shows the impact
of the application of wage budget neutrality
to the national standardized amount. In FY
2010, we began 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
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the Act. Therefore, for FY 2012, we are
calculating the wage budget neutrality factor
to ensure that payments under updated wage
data and the labor-related share are budget
neutral without regard to the lower laborrelated 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 laborrelated share of the standardized amount.
The proposed wage budget neutrality factor
is 1.000113, and the overall payment change
is 0 percent.
Column 5 shows the impacts of updating
the wage data using FY 2008 cost reports.
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. Among the
regions, the largest increase is in the rural
New England region, which experiences a 0.8
percent increase due to increases in the wage
index among rural Connecticut and rural
Massachusetts hospitals. The largest decline
from updating the wage data is seen in the
rural East South Central region (¥0.5 percent
decrease).
In looking at the wage data itself, the
national average hourly wage increased 3.4
percent compared to FY 2011. Therefore, the
only manner in which to maintain or exceed
the previous year’s wage index was to match
or exceed the national 3.4 percent increase in
average hourly wage. Of the 3,424 hospitals
with wage data for both FYs 2011 and 2012,
1,681, or 49.1 percent, experienced an
average hourly wage increase of 3.4 percent
or more.
The following chart compares the shifts in
proposed wage index values for hospitals for
FY 2012 relative to FY 2011. Among urban
hospitals, 37 will experience an increase of
more than 5 percent and less than 10 percent
and 5 will experience an increase of more
than 10 percent. Among rural hospitals, 1
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, 915 rural hospitals will
experience increases or decreases of less than
5 percent, while 2,397 urban hospitals will
experience increases or decreases of less than
5 percent. Fifty-six urban hospitals will
experience decreases in their wage index
values of more than 5 percent and less than
10 percent. Sixteen urban hospitals will
experience decreases in their wage index
values of greater than 10 percent. One rural
hospital will experience a decrease of more
than 10 percent. Ten rural hospitals will
experience decreases in their wage index
values of greater than 5 percent but less than
10 percent. These figures reflect changes in
the wage index which is an adjustment to
either 68.8 percent or 62 percent of the labor
share 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 illustrate 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.
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5. Combined Effects of the Proposed MS–
DRG and Wage Index Changes (Column 6)
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 proposed
wage budget neutrality factor of 1.000113,
and a proposed recalibration budget
neutrality factor of 0.998419 (which is
applied to the Puerto Rico-specific
standardized amount and the hospitalspecific rates). The product of the two
proposed budget neutrality factors is the
proposed cumulative wage and recalibration
budget neutrality factor. The proposed
cumulative wage and recalibration budget
neutrality adjustment is 0.998532, or
approximately ¥0.15 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 proposed rule, we are
estimating that the changes in the MS–DRG
relative weights and updated wage data with
wage and budget neutrality applied will
result in a 0.0 change in payments.
We estimate that the combined impact of
the proposed changes to the relative weights
and MS–DRGs and the proposed updated
wage data with budget neutrality applied will
result in no change in payments for urban or
rural hospitals. Urban West South Central
hospitals would experience a 0.4 percent
increase in payments due to increases in
their wages compared to the national average,
while the urban East South Central and East
North Central area would experience a ¥0.3
decrease in payments because of below
average increases in wages. Among the rural
hospital categories, rural New England
hospitals would experience the greatest
increase in payment (0.7 percent) primarily
due to above average increases in the wage
data, while the rural Pacific area would
experience a 0.4 percent decrease in
payments due to decreases in the wage data.
6. Effects of MGCRB Reclassifications
(Column 7)
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
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provide that certain hospitals receive
payments on other bases than where they are
geographically located). The changes in
Column 7 reflect the per case payment
impact of moving from this baseline to a
simulation incorporating the MGCRB
decisions for FY 2012 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.
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
0.991528 to ensure that the effects of the
section 1886(d)(10) reclassifications are
budget neutral (section II.A. of the
Addendum to this proposed rule).
Geographic reclassification generally benefits
hospitals in rural areas. We estimate that
geographic reclassification will increase
payments to rural hospitals by an average of
1.7 percent. By region, all the rural hospital
categories, with the exception of the one
rural Puerto Rico hospital, will experience
increases in payments due to MGCRB
reclassification. Rural hospitals in the East
South Central region will experience a 2.6
percent increase in payments and rural
hospitals in the Mountain region will
experience a 0.5 percent increase in
payments. Urban hospitals in New England
and the Middle Atlantic will experience an
increase in payments of 0.9 percent and 0.3
percent, respectively, largely due to
reclassifications of hospitals in Connecticut
and New Jersey.
Table 9A listed in section VI. of the
Addendum to this proposed rule and
available via the Internet reflects the
approved reclassifications for FY 2012.
7. Effects of the Rural Floor, Including
Application of National Budget Neutrality
(Column 8)
As discussed in section III.B. of the
preamble of the FY 2009 IPPS final rule, the
FY 2010 IPPS/RY 2010 LTCH PPS final rule,
the FY 2011 IPPS/LTCH PPS final rule and
this proposed rule, section 4410 of Public
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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. Beginning with FY 2008, we
apply a uniform budget neutrality adjustment
is applied to the wage index. For FY 2012
(and in FY 2011), the Affordable Care Act
requires that we apply one rural floor budget
neutrality factor to the wage index,
nationally. The proposed FY 2012 rural floor
budget neutrality factor applied to the wage
index is 0.993834, which would reduce wage
indexes by ¥0.62 percent.
Column 8 shows the projected impact of
the rural floor with the national rural floor
budget neutrality factor applied to the wage
index. The column compares the postreclassification FY 2012 wage index of
providers before the rural floor adjustment
and the post-reclassification FY 2012 wage
index of providers with the rural floor
adjustment. Only urban hospitals can benefit
from the rural floor provision. Because the
provision is budget neutral, all other
hospitals (that is, all rural hospitals and those
urban hospitals to which the adjustment is
not made) experience a decrease in payments
due to the budget neutrality adjustment
applied nationally to their wage index.
We project that, in aggregate, rural
hospitals will experience a ¥0.2 percent
decrease in payments as a result of the
application of rural floor budget neutrality
because the rural 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 0.2 percent
increase in payments because those providers
benefit from the rural floor. Urban hospitals
in the New England region can expect a 5.0
percent increase in payments primarily due
to the application of the rural floor in
Massachusetts and the applicable national
rural floor budget neutrality as required by
the Affordable Care Act. All 60 urban
providers in Massachusetts are expected to
receive the rural floor wage index of 1.3614.
During most past years, there have been no
IPPS hospitals located in rural areas in
Massachusetts. There was one urban IPPS
hospital that was reclassified to rural
Massachusetts (under section 1886(d)(8)(E) of
the Act) which established the Massachusetts
rural floor, but the wage index resulting from
that hospital’s data was not high enough for
any urban hospital to benefit from the rural
floor policy. However, beginning with the FY
2012 wage index, the rural floor for the State
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is established by the conversion of a CAH to
an IPPS hospital that is geographically
located in rural Massachusetts.
Massachusetts hospitals can expect
approximately an 8-percent increase in IPPS
payments due to the application of rural
floor.
Urban Puerto Rico hospitals are expected
to experience a 0.1 percent increase in
payments as a result of the application of a
Puerto Rico rural floor. Similar to
Massachusetts, this is the first year in which
urban Puerto Rico hospitals will receive a
rural floor as a result of a new IPPS hospital
located in rural Puerto Rico setting a rural
floor. We are proposing to apply a rural floor
budget neutrality factor to the Puerto Ricospecific wage index of 0.989226 or 1.1
percent. The Puerto Rico-specific wage index
adjusts the Puerto Rico-specific standardized
amount, which represents 25 percent of
payments to Puerto Rico hospitals.
8. Effects of the Expiration of the Imputed
Floor (Column 9)
As discussed in section III.F.2. of the
preamble of this proposed rule, the imputed
floor, which is budget neutral, is set to expire
with the FY 2011 wage index, and we are not
proposing to extend it.
Column 9 shows the effects of the
expiration of the imputed floor. This column
compares payments that would have been
made if the imputed floor were still in place
to payments that are estimated to be made
with only the rural floor. There are 39
hospitals in New Jersey that are affected by
the expiration of the imputed floor.
Therefore, only urban providers in the
Middle Atlantic Region (New Jersey) will
experience a decrease by 0.4 percent, from
the imputed floor no longer being applied in
that State. Hospitals in other regional
categories will experience an increase in
payments as they will no longer have
payments reduced because of the imputed
floor to ensure budget neutrality.
9. Effects of the Proposed Application of the
Frontier Wage Index (Column 10)
Section 10324(a) of Affordable Care Act
requires that we establish a minimum postreclassified wage-index of 1.00 for all
hospitals located in ‘‘frontier States.’’ The
term ‘‘frontier States’’ is defined in the statute
as States in which at least 50 percent of
counties have a population density less than
6 persons per square mile. Based on these
criteria, five States (Montana, North Dakota,
Nevada, South Dakota, and Wyoming) are
considered frontier States and 47 hospitals
located in those States will receive a frontier
wage index of 1.0. This provision is not
budget neutral and is estimated to increase
IPPS operating payments by approximately
$48 million.
Urban hospitals located in the West North
Central region and urban hospitals located in
the Mountain region will experience an
increase in payments by 0.5 percent and 0.2
percent, respectively because many of the
hospitals located in this region are frontier
hospitals. Similarly, rural hospitals located
in the Mountain region and rural hospitals in
the West North Central region will
experience an increase in payments by 0.6
percent and 0.1 percent, respectively.
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10. Effects of the Proposed Wage Index
Adjustment for Out-Migration (Column 11)
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. Overall, rural hospitals will
experience a 0.1 percent increase in
payments as a result of the outmigration
adjustment. Rural providers with less than 50
beds will experience a 0.2 percent increase
in payments in FY 2012. 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
$14 million.
11. Effects of the Expiration of Section 508
(Column 12)
Column 12 shows our estimate of the
changes in payments due to the expiration of
section 508, a non-budget neutral
reclassification provision, applied under the
MMEA. Because this provision is not budget
neutral, the expiration of this reclassification
provision results in a ¥0.2 percent decrease
in payments, overall. Section 508 hospitals
are generally urban hospitals, resulting in a
¥0.2 percent decrease in payments among
the urban hospital category and a 0.0 percent
change in payments among rural hospitals.
Urban New England and Urban Middle
Atlantic regions will experience a decrease in
payments of ¥0.2 percent and ¥0.4 percent
respectively because many section 508
hospitals are located in those regions. Urban
teaching hospitals that do not receive DSH
will experience a ¥0.3 percent decrease in
payments due to the expiration of section
508.
12. Effects of All Proposed FY 2012 Changes
(Column 13)
Column 13 shows our estimate of the
changes in payments per discharge from FY
2011 and FY 2012, resulting from all
proposed changes reflected in this proposed
rule for FY 2012. It includes combined effects
of the previous columns in the table.
The average decrease in payments under
the IPPS for all hospitals is approximately
¥0.5 percent. As discussed in section II.D. of
the preamble of this proposed rule, this
column includes the proposed FY 2012
documentation and coding adjustment of
¥3.15 percent on the national standardized
amount and ¥2.5 percent on the hospitalspecific rates. In addition, this column
includes the proposed annual hospital
update of 1.5 percent to the national
standardized amount. This annual hospital
update includes the 2.8 percent market
basket update, the reduction of ¥1.2
percentage points for the multifactor
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productivity adjustment, and the ¥0.1
percentage point reduction under section
3401 of the Affordable Care Act. As described
in Column 2, the proposed annual hospital
update, combined with the proposed
documentation and coding adjustment,
results in a ¥1.6 percent decrease in
payments in FY 2012 relative to FY 2011. As
described in Column 3, the proposed 1.1
percent adjustment to the national
standardized amount and the proposed 0.9
percent adjustment to the hospital specific
rate in light of a recent court decision related
to rural floor budget neutrality results in a 1.1
percent increase in payments in FY 2012
relative to FY 2011. In addition, column 12
describes a ¥0.2 percent decrease in
payments due to the expiration of section 508
reclassifications that had been extended for
FY 2011 under the MMEA. Section 508 was
not a budget-neutral provision. 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 13 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 2012 is estimated to decrease by ¥0.5
percent. The payment decreases among the
hospital categories are largely attributed to
the proposed documentation and coding
adjustments. Hospitals in urban areas would
experience an estimated ¥0.4 percent
decrease in payments per discharge in FY
2012 compared to FY 2011. Hospital
payments per discharge in rural areas are
estimated to decrease by ¥0.8 percent in FY
2012 as compared to FY 2011.
Among urban census divisions, the largest
estimated payment decreases will be 1.2
percent in the East North Central region
because many of the urban providers in this
region had benefited from section 508
reclassifications in FY 2011 that have expired
for FY 2012. Urban Middle Atlantic
providers will experience a ¥0.9 percent
decrease in payments due to the expiration
of the imputed floor that had previously
benefited urban hospitals in this region.
Urban hospitals in the New England will see
the largest payment increases (3.6 percent)
because the Massachusetts hospitals are
benefitting from the rural floor in their State.
Furthermore, urban Puerto Rico hospitals
will experience a 0.2 percent increase in
payments due to the application of the rural
floor.
Among the rural regions, the providers in
the East South Central region will experience
the largest decrease in payments of ¥1.6
percent due to decreases in wage data. Rural
hospitals in the West North Central region
will experience a decrease in payments by
¥0.2 percent, which is better than average,
because the rural providers in this region
benefit from MGCRB reclassification and the
frontier State wage index provision,
implemented under the Affordable Care Act.
Among special categories of hospitals,
MDHs will receive an estimated payment
decrease of ¥0.4 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
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the Federal rate, the Federal rate plus 75
percent of the difference between the Federal
rate and the hospital-specific rate. MDHs will
experience a decrease in payments because of
the proposed documentation and coding
adjustments applied to both the Federal rate
and the hospital-specific rate. SCHs are paid
the higher of their Federal rate and the
hospital-specific rate. Overall, SCHs will
experience an estimated decrease in
payments by ¥1.4 percent due to the
proposed documentation and coding
adjustments to the national standardized
amount and the hospital-specific rates.
Rural hospitals reclassified for FY 2012 are
anticipated to receive a ¥0.6 percent
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payment decrease, and rural hospitals that
are not reclassifying are estimated to receive
a payment decrease of ¥1.2 percent. Urban
reclassified hospitals will experience
payment decreases better than average at
¥0.2 percent due to the benefits under
MGCRB reclassification and the rural floor.
Urban non-reclassified hospitals will
experience a payment decrease of ¥0.5
percent.
Cardiac hospitals are expected to
experience a payment decrease of 0.6 percent
in FY 2012 relative to FY 2011.
C. Impact Analysis of Table II
Table II presents the projected impact of
the proposed changes for FY 2012 for urban
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and rural hospitals and for the different
categories of hospitals shown in Table I. It
compares the estimated average payments
per discharge for FY 2011 with the proposed
payments per discharge for FY 2012, as
calculated under our models. Thus, this table
presents, in terms of the average dollar
amounts paid per discharge, the combined
effects of the proposed 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 13 of
Table I.
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A. Effects of Proposed Policy on HACs,
Including Infections
In section II.F. of the preamble of this
proposed 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 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
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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. In addition, as
discussed in section II.F.3.e. of the preamble
of this proposed rule, it is possible to have
two severity levels where the HAC does not
affect the MS–DRG assignment or for an MS–
DRG not to have severity levels. In either of
these circumstances, the case will continue
to be assigned to the higher paying MS–DRG
and there will be no Medicare savings from
that case.
In section II.F. of the preamble of this
proposed rule, we discuss our proposal to
add an additional HAC for FY 2012: ContrastInduced Acute Kidney Injury. In that
discussion, we stated that, in FY 2009, there
were 38,324 inpatient discharges coded as
acute renal failure using ICD–9–CM diagnosis
code 584.9 and reported as not present on
admission (POA status = N) when reported
with one of the above procedure codes
submitted through Medicare claims. These
cases had an average charge of $29,122 for
the entire hospital stay. Further analysis of
the FY 2009 claims showed that the average
charge was approximately $9,122 more than
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the average charge for inpatient discharges
coded as acute renal failure using ICD–9–CM
diagnosis code 584.9 and reported as present
on admission (POA status = Y).
The HAC payment provision went into
effect on October 1, 2008. Our savings
estimates for the next 5 fiscal years are
shown below:
B. Effects of Proposed Policy Relating to New
Medical Service and Technology Add-On
Payments
In section II.I. of the preamble to this
proposed rule, we discuss the three
applications for add-on payments for new
medical services and technologies for FY
2012, as well as the status of the new
technology that was approved to receive new
technology add-on payments in FY 2011. As
explained in that section, add-on payments
for new technology under section
1886(d)(5)(K) of the Act are not required to
be budget neutral. As discussed in section
II.I.4. of the preamble of this proposed rule,
we have yet to determine whether any of the
three applications we received for
consideration for new technology add-on
payments for FY 2012 will meet the specified
criteria. Consequently, it is premature to
estimate the potential payment impact of any
potential new technology add-on payments
for FY 2012. We note that if any of the three
applications are found to be eligible for new
technology add-on payments for FY 2012 in
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VII. Effects of Other Proposed Policy
Changes
In addition to those proposed policy
changes discussed above that we are able to
model using our IPPS payment simulation
model, we are proposing to make various
other changes in this proposed rule.
Generally, we have limited or no specific
data available with which to estimate the
impacts of these proposed changes. Our
estimates of the likely impacts associated
with these other proposed changes are
discussed below.
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the FY 2012 IPPS/LTCH PPS final rule, we
would discuss the estimated payment impact
for FY 2012 in that final rule.
However, because we are proposing to
continue to make new technology add-on
payments in FY 2012 for the AutoLITTTM
(because the technology is still within the 3year anniversary of the product’s entry onto
the market), we are providing an estimate of
total payments for this technology for FY
2012. 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 2012 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
AutoLITTTM will increase overall FY 2012
payments by $900,000. For FY 2011, the
applicant estimates that approximately 170
Medicare beneficiaries would be eligible for
the AutoLITTTM. Therefore, based on the
applicant’s estimate from FY 2011, we
currently estimate that payments for the
AutoLITTTM will increase overall FY 2012
payments by $900,000.
C. Effects of Proposed Requirements for
Hospital Inpatient Quality Reporting (IQR)
Program
In section VII.C. of Appendix A of the FY
2011 IPPS/LTCH PPS final rule (75 FR 50662
through 50663), we discussed the impact of
the FY 2011 through FY 2014 Hospital
Inpatient Quality Reporting (IQR) Program
requirements we adopted in that final rule.
We estimated that 95 hospitals would not
receive the full payment update in any fiscal
year from FY 2012 through FY 2014. At the
time that analysis was prepared, 104
hospitals did not receive the full payment
update in FY 2010.
In section IV.A. of the preamble of this
proposed rule, we discuss our proposed
requirements for hospitals to report quality
data under the Hospital IQR Program in order
to receive the full update to the standardized
amount for FY 2012 through FY 2015. We
now estimate that approximately 104
hospitals may not receive the full update in
any fiscal year. (In this proposed rule, we are
proposing to retire eight of the FY 2011
measures for the FY 2014 payment
determination. We believe that this proposal
would not have a significant effect on our
estimate.) We believe that most of these
hospitals would be either small rural or small
urban hospitals. However, at this time,
information is not available to determine the
precise number of hospitals that will not
meet the requirements to receive the full
annual percentage increase for FY 2012
through FY 2015.
In section IV.A.7. of the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50225 through
50229), we established Hospital IQR
validation requirements for the FY 2012 and
FY 2013 payment determinations. Beginning
with the FY 2012 payment update, hospitals
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must pass our validation requirement of a
minimum of 75 percent reliability, based
upon our chart-audit validation process, for
four quarters of data from the last quarter of
CY 2011 through the third quarter of CY
2012.
In previous years, charts were requested by
the CMS CDAC contractor and hospitals were
given 45 days from the date of the request to
submit the requested records. In section
IV.A.6.a. of the preamble of this proposed
rule and in proposed § 412.140(d)(1),
beginning with the FY 2012 we are proposing
to reduce the deadline from 45 days to 30
days for hospitals to return requested
medical record documentation to support our
validation requirement. This may be an
additional administrative burden to hospitals
selected for validation. However, this
deadline is in line with our QIO regulations
at § 476.78 and the total burden would be 18
charts for each for the four quarters that must
be copied and mailed in a 30-day period for
FY 2012 and subsequent years.
In addition, we are proposing to add a new
§ 478.78(b)(2)(2) that will require the
submission of medical information within 21
days in those situations in which a ‘‘serious
reportable event’’ or other circumstance has
been identified during the course of a QIO
review. We do not believe this will cause a
significantly higher administrative burden on
the hospitals, since CMS reimburses
providers returning medical records to QIOs
at the rate of 12 cents per page for copying
and approximately $4.00 per chart for
postage. Given that we reimburse for the data
collection effort, we believe that this
proposed requirement represents a minimal
burden to providers. We have continued our
efforts to ensure that QIOs provide assistance
to all hospitals that wish to participate in the
Hospital IQR Program.
In section IV.A.6.b. of the preamble of this
proposed rule, for FY 2014 payment
determinations and subsequent years, we are
proposing to add two strata to the current
Hospital IQR validation sample of SCIP, AMI,
HF, and PN cases. For the first stratum, we
are proposing to select three cases per
selected hospital per quarter to validate the
CLABSI measure using a two step selection
process that would target potential patients
with positive infection from blood culture
results and a Central Venous Catheter. The
requirement of an additional 3 charts per
hospital submitted for validation for the
CLABSI measure would result in
approximately 2,400 total additional charts
per quarter being submitted to CMS by all
selected hospitals. 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 275 pages. Thus,
we would expend approximately $88,800 per
quarter to collect the additional charts we
need to validate the CLASBI measure.
Additionally, we will collect the CLABSIspecific data elements from all charts
currently requested for Hospital IQR
validation. We would validate a total of 15
records per quarter per validated hospital in
5 strata (SCIP, AMI, HF, PN, CLABSI and the
proposed ED/Global Immunization measure).
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In section IV.A.6.b. of the preamble of this
proposed rule, for FY 2014 and subsequent
years, we are proposing to add a second
stratum to our validation sample, which
would enable us to validate the EDT and the
Immunization for Influenza and
Immunization for Pneumonia global
measures. Thus, we would be validating a
total of 18 records per quarter per selected
hospital in 6 strata ((1) SCIP, (2) AMI, (3) HF,
(4) PN, (5) CLABSI, and (6) EDT/
immunization measures). Under the
assumptions outlined above, we would
expend approximately $88,800 per quarter to
collect the additional charts for the EDT/
immunization measures. The proposed total
requirement of 18 charts per hospital (should
we adopt both the proposed CLABSI
validation requirement and the proposed
EDT/immunization validation requirement)
would result in approximately 14,400 charts
per quarter being submitted to CMS. Using
the assumptions discussed above, for the FY
2014 Hospital IQR Program, we estimate that
CMS would have expenditures of
approximately $532,800 per quarter related
to the validation requirement. Additionally,
we will collect the CLABSI-specific data and
the EDT/Immunization data elements from
all charts currently requested for Hospital
IQR validation. We would validate a total of
18 records per quarter per validated hospital
in 6 strata (SCIP, AMI, HF, PN, CLABSI and
the proposed ED/Global Immunization
measure). We do not believe this will be an
additional burden on the hospitals since this
data will be abstracted from records already
submitted.
Given that we reimburse for the data
collection effort, we believe that a
requirement for 18 charts per hospital per
quarter represents a minimal burden to
participating hospitals selected for
validation.
Finally, with respect to our proposed
validation requirements, we also are
proposing for FY 2015 to select additional
hospitals for validation if they were open
under their current CCNs in FY 2012 but not
selected for validation in the three previous
annual Hospital IQR Program validation
selections. This proposal could affect data
collection costs and burdens, but we are
unable to estimate any impact at this time.
We are proposing to adjust the Hospital
IQR Program data submission deadline from
41⁄2 months to 104 days. While the proposed
shortened time frame may create a new
administrative burden for hospitals, we
believe that this burden is reduced because
many hospitals currently report AMI, HF,
SCIP, and PN data to the Joint Commission
within 4 months following a discharge
quarter. We believe that our proposed 104
day deadline is relatively consistent with
other industry submission deadlines.
D. Effects of Additional Proposed Hospital
Value-Based Purchasing (VBP) Program
Requirements
Section 1886(o)(1)(B) of the Act directs the
Secretary to begin making value-based
incentive payments under the Hospital VBP
Program to hospitals for discharges occurring
on or after October 1, 2012. These incentive
payments will be funded for FY 2013 through
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a reduction to the FY 2013 base operating
MS–DRG payment for each discharge of 1
percent, as required by section
1886(o)(7)(B)(i) of the Act. The applicable
percentage for FY 2014 is 1.25 percent, for
FY 2015 is 1.5 percent, for FY 2016 is 1.75
percent, and for FY 2017 and subsequent
years is 2 percent.
In section IV.B. of the preamble of this
proposed rule, we are proposing additional
requirements for the FY 2014 Hospital VBP
Program. Specifically, we are proposing the
addition of a Medicare Spending per
Beneficiary Measure, how the proposed
measure would be scored, and the measure’s
proposed performance period and proposed
baseline period. Because this additional
measure is claims-based and is required for
the Hospital IQR Program, its inclusion in the
Hospital VBP Program does not result in any
additional burden because the Hospital VBP
Program uses data that are required for the
Hospital IQR Program.
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E. Effects of Proposed Requirements for
Hospital Readmissions Reduction Program
In section IV.C. of the preamble of this
proposed rule, we are proposing the selection
of three high cost, high volume conditions for
the Hospital Readmission Reduction Program
FY 2013 payment reduction, and the
definition of readmission for these
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conditions. We also are proposing the use of
the following three measures for these
conditions for the FY 2013 payment
determination:
• Heart failure [HF] 30-day Risk
Standardized Readmission Measure
• Acute Myocardial Infarction [AMI]
30-day Risk Standardized Readmission
Measure
• Pneumonia [PN] 30-day Risk
Standardized Readmission Measure
These three risk-adjusted NQF endorsed
measures will be calculated by CMS for
hospitals subject to this provision using
Medicare FFS Part A and B claims data, and
require no submission of additional data by
the hospital. Therefore, there is no data
collection burden associated with this
provision for FY 2013. These measures also
are used under the Hospital IQR Program,
and have been publicly reported on the
Hospital Compare Web site since 2009.
Therefore, there is a high degree of
familiarity and acceptance among the
stakeholder community with regard to these
measures.
We also are proposing a methodology for
calculating the Excess Readmission Ratio
using these three measures for the FY 2013
payment determination. This would be
defined as a ratio of the number of riskadjusted readmissions (based on actual
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readmissions) for the given condition at a
specified hospital compared with the number
of readmissions that would be expected for
an average hospital caring for the same
patients. Below is a description of this
calculation:
Numerator—Adjusted number of
readmissions at specific hospital
(calculated for each patient and add up
results for all patients):
Hospital-specific readmission effect +
average hospital contribution to
readmission risk + [risk factor weights ×
patient risk factors]
Denominator—Number of readmissions if an
average hospital treated the same
patients (calculated for each patient and
summed for all patients):
Average hospital contribution to readmission
risk + [risk factor weights × patient risk
factors]
We are proposing a minimum case
threshold of 25 cases for a given condition in
order to have an Excess Readmission Ratio
calculated. Using the proposed 25 case
threshold, we have analyzed the distribution
of Excess Readmission Ratio calculations on
various types of IPPS hospitals. The results
of these analyses are shown in the three
tables below.
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The three tables above show the
distribution of Excess Readmission Ratios for
AMI hospitalizations, HF hospitalizations,
and PN hospitalizations respectively. The
data for these tables come from the publiclyreported risk-standardized rates of
readmission reported in 2010 on Hospital
Compare (representing hospitalizations
between July 2006 and June 2009). The
distributions of the ratios are shown only for
hospitals with at least 25 cases included in
the measures over the 3-year period.
The first column of the tables lists hospital
characteristics (census region, bed size,
teaching status, and urban/rural location) and
the second column shows the number of
hospitals included in the distribution for the
particular category. For example, for the first
table, AMI readmission, a total of 2,477
hospitals had at least 25 included
hospitalizations between July 2006 and June
2009. Of these hospitals, 148 were in the
New England region.
The third and fourth columns show the
number and percentage of hospitals (of those
with 25 or more cases) in the particular
category with an Excess Readmission Ratio
less than or equal to 1; such hospitals would
not have their payments adjusted due to the
Readmission Reduction Program because
they would not be found to have ‘‘excess’’
readmissions. For example in the first table,
for AMI readmissions, 72 of the 148 hospitals
in the New England region (that had 25 or
more AMI hospitalizations) had an Excess
Readmission Ratio of less than or equal to 1,
which means that 48.6 percent of the
hospitals in the New England region (with at
least 25 cases of AMI in 3 years) would not
have their payments affected by the Hospital
Readmission Reduction Program, whereas
the remaining hospitals would be at risk of
a payment reduction based on excess
readmissions.
The following eight columns show the
distribution of the excess readmissions. For
example, for AMI, in the New England region
the mean Excess Readmission Ratio is
1.0060, the lowest 5th percentile hospitals
had ratios of 0.9172 or less and the highest
95th percentile of hospitals had Excess
Readmission Ratios of 1.1104 or greater.
The final column of each table shows the
number of hospitals, within the given
category, that are not included in the
distribution based on sample size. For
example, for AMI, in the New England region
30 hospitals are not included in the
distribution because they had fewer than 25
AMI hospitalizations over the 3-year period.
Currently, 25 hospitalizations is the
minimum number of hospitalizations for
public reporting. Hospitals with fewer than
25 cases for a given condition do not have
risk-standardized rates of readmission
reported on Hospital Compare. We are
proposing to use this threshold for inclusion
in the Readmission Reduction Program.
Overall these analyses show, for all three
conditions, that in all hospital categories
approximately half of the hospitals are at risk
of payment reductions based on excess
readmissions. This percentage does not vary
greatly by region; however for all three
measures the Mid-Atlantic region has the
lowest percentage of hospitals with Excess
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Readmission Ratios of less than or equal to
1 and, therefore, the Mid-Atlantic region is
the region with the highest percentage of
hospitals at risk of payment reduction. By
contrast, the Mountain region has the largest
percentage of hospitals with ratios of less
than or equal to 1. The distributions do not
differ greatly by bed size, though the largest
hospitals have slightly lower percentages of
hospitals with ratios less than or equal to 1
for AMI and PN. The distributions do not
vary greatly by teaching status or rural/urban
location for any of the measures.
We also are proposing to publicly report
the readmission rates for these three
measures on the Hospital Compare Web site
using the current processes employed for
public reporting of these measures, which
includes a preview period. We believe that
this also poses no additional burden to
hospitals, as they currently employ this
system for Hospital IQR public reporting.
F. Effects of Proposed Policy Changes
Relating to Payment Adjustments for
Medicare Disproportionate Share Hospitals
(DSHs) and Indirect Medical Education (IME)
In section IV.G. of the preamble of this
proposed rule, we proposed to exclude from
the hospital’s disproportionate patient
percentage (DPP) of the Medicare DSH
calculation and from the available bed day
count used to calculate the DSH payment
adjustment and the IME payment
adjustments, patient days for hospice
patients receiving inpatient hospice services
in a hospital setting. For the purpose of the
DSH payment calculation, the patient days
for hospice patients receiving inpatient
hospice services in the hospital would be
excluded from both the numerator and the
denominator of the Medicare and Medicaid
fractions. As such, the impact on hospitals’
DSH payment adjustment would vary based
on the demographic composition of an
individual hospital’s patient population. In
other words, under this proposal, some
hospitals may receive increased DSH
payment adjustments and other hospitals
may expect to receive lower DSH payment
adjustments, depending on the extent to
which a hospital provides inpatient hospice
services to hospice patients.
The proposed change in policy to exclude
from the available bed count, patient days for
hospice patients receiving hospice services in
an inpatient hospital setting only impacts
DSH payments for limited situations.
Specifically, urban hospitals with fewer than
100 beds or rural hospitals with fewer than
500 beds, with the exception of rural referral
centers or MDHs, are subject to a cap of their
DSH payment adjustment of 12 percent.
Thus, a decrease in the number of available
beds due to the exclusion of beds used to
provide inpatient hospice services only
impacts a provider’s DSH payments if it
results in the hospital’s bed count falling
below the bed count threshold. Should a
hospital fall below the bed count threshold,
it would become subject to the Medicare DSH
payment adjustment cap and its DSH
payment could decrease.
For IME payment purposes, a decrease in
a hospital’s number of available beds results
in an increase in the resident-to-bed ratio.
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The exclusion of bed days associated with
hospice patients from the available bed count
for IME would reduce the available beds,
increase the resident-to-bed ratio, and,
consequently, may increase IME payments to
teaching hospitals depending on the extent to
which these hospitals were providing
inpatient hospice services to hospice
patients.
G. Effects of the FY 2012 Low-Volume
Hospital Payment Adjustment
As discussed in section IV.E. of the
preamble to this proposed rule, we discuss
the provisions of sections 3125 and 10314 of
the Affordable Care Act that expand
eligibility for the low-volume hospital
payment adjustment at section 1886(d)(12) of
the Act for FYs 2011 and 2012 to hospitals
with less than 1,600 Medicare discharges
(instead of the prior requirement of less than
800 total, Medicare and non-Medicare,
discharges) and hospitals that are located
more than 15 miles from other IPPS hospitals
(rather than the prior requirement of more
than 25 miles). The payment adjustment is
also changed from an empirically determined
additional 25 percent payment adjustment to
qualifying hospitals with less than 200 total
discharges (69 FR 49099 through 49102 and
70 FR 47432 through 47434) to a continuous,
linear sliding scale adjustment ranging from
an additional 25 percent payment adjustment
to qualifying hospitals with 200 or fewer
Medicare discharges to no additional
payment to hospitals with 1,600 or more
Medicare discharges (75 FR 50241).
Based on FY 2010 claims data (December
2010 update of the MedPAR file), we
estimate that 492 out of the 502 hospitals in
our database that qualified as a low-volume
hospital for FY 2011 would continue to meet
the Medicare discharges criterion to qualify
as a low-volume hospital for FY 2012. For
purposes of this impact analysis, we are
assuming that all of these 492 hospitals
would continue to meet the distance criterion
in FY 2012. If all 492 hospitals qualified for
the low-volume payment adjustment in FY
2012, we estimate that these hospitals would
receive an additional estimated $280 million
based on the proposed FY 2012 low-volume
payment adjustment (described in section
IV.E. of the preamble of this proposed rule)
as compared to FY 2012 payments without
the proposed low-volume adjustment. (As
discussed in section IV.E. of the preamble of
this proposed rule, for FY 2012, we are
proposing to determine a hospital’s number
of Medicare discharges based on the most
recent update of the FY 2010 MedPAR files
(that is, the December 2010 update for this
proposed rule.)
In addition, we identified an additional 89
hospitals in our database that would meet the
Medicare discharges criterion to qualify as a
low-volume hospital for FY 2012 based on
our proposal set forth in section IV.E. of the
preamble of this proposed rule. (We note that
these 89 hospitals did not meet the discharge
criterion to qualify as a low-volume hospital
for FY 2011.) However, we are not able to
estimate the number of these 89 hospitals
that would also meet the distance criterion.
The actual number of hospitals that would
also meet the distance criterion to qualify as
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a low-volume hospital would very likely be
significantly less than the estimated 89
maximum number of potential additional
low-volume hospitals for FY 2012 (as
compared to FY 2011). (We note that
approximately 40 percent of the hospitals
that met the discharge criterion for FY 2011
also met the mileage criterion and, therefore,
are eligible to receive the low-volume
payment adjustment in FY 2011.) If all these
89 hospitals were to qualify as low-volume
hospitals in FY 2012, we estimate that an
additional $26 million in payments would be
made for the FY 2012 low-volume payment
adjustment at section 1886(d)(12) of the Act.
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H. Effects of Proposed Changes Relating to
MDHs
As discussed in section IV.H. of the
preamble to this proposed rule, section 3124
of Public Law 111–148 extended the MDH
program for 1 additional year, from the end
of FY 2011 (that is, for discharges before
October 1, 2011) to the end of FY 2012 (that
is, for discharges before October 1, 2012). The
extension had no impact on FY 2011. For FY
2012, the extension allows the continuation
of MDH status and the payment
methodology, for an MDH to be paid its
hospital-specific rate, based on its FY 1982,
1987, or 2002 updated costs per discharge,
rather than the Federal rate, if this results in
a greater aggregate payment. Therefore, the
impact of the extension is one additional year
of hospital-specific rate payments, when
greater than Federal rate payments, for these
hospitals as MDHs, rather than Federal rate
payments for these hospitals without special
treatment as MDHs.
I. Effects of Proposed Policy Relating to
CRNA Services Furnished in Rural Hospitals
and CAHs
In section IV.I. of this preamble of this
proposed rule, we discuss the interim final
rule with comment that appeared in the
November 24, 2010 Federal Register (75 FR
72256) regarding pass-through payment for
CRNA services. In that interim final rule with
comment period, we stated that we were
changing the effective date of our policy to
allow hospitals and CAHs that have
reclassified as rural under 42 CFR 412.103 to
be eligible for CRNA pass-through from ‘‘cost
reporting periods beginning on or after
October 1, 2010’’ to ‘‘December 2, 2010.’’ In
section IV.I. of the preamble of this proposed
rule, we state that we intend to respond to
comments received on the interim final rule
with comment period in the FY 2012 IPPS/
LTCH PPS final rule. Also in the interim final
rule with comment (75 FR 72258), we stated
that a change to the effective date would only
affect at most a small subset of hospitals and
CAHs affected by the change to the
regulations adopted in the FY 2010 IPPS/
LTCH PPS final rule and, for this reason, we
expected the change to the effective date in
the interim final rule with comment period
to have a minor impact on Federal
expenditures.
J. Effects of Proposed Changes Relating to
ESRD Add-On Payment
In section IV.L. of the preamble of this
proposed rule, we discuss our proposal to
clarify that the term ‘‘Medicare discharges’’ as
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used in § 412.104(a) refers to discharges of all
beneficiaries entitled to Medicare Part A; that
is, discharges associated with individuals
entitled to Part A, including discharges of
individuals receiving benefits under original
Medicare, discharges of individuals whose
inpatient benefits are exhausted or whose
stay was not covered by Medicare, and
discharges for individuals enrolled in
Medicare Advantage Plans, cost contracts
under section 1876 of the Act (health
maintenance organizations (HMOs)) and
competitive medical plans (CMPs).
We are not able to provide a detailed
analysis of the impact of the clarification of
this definition. We are not proposing any
changes to the existing regulations at
§ 412.104 under which we will continue to
provide an additional Medicare payment to
a hospital for inpatient services provided to
Medicare beneficiaries with ESRD who
receive a dialysis treatment during a hospital
stay, if the hospital has established that ESRD
Medicare beneficiary discharges, excluding
certain MS–DRGs for renal failure, admission
for renal dialysis, and kidney transplant,
where the beneficiary received dialysis
services during the inpatient stay, are 10
percent or more of its total Medicare
discharges. We note that this clarification
could change both the denominator (total
Medicare discharges) and the numerator
(ESRD Medicare beneficiary discharges,
excluding certain MS–DRGs for renal failure,
admission for renal dialysis, and kidney
transplant) associated with this calculation.
As a result of our proposed clarification,
these discharges would be included in the
denominator of the calculation for the
determination of eligibility for the ESRD
additional payment to hospitals. Similarly,
for the numerator of this calculation, we also
would include all discharges of ESRD
beneficiaries who are entitled to Medicare
Part A and who receive inpatient dialysis,
subject to the exclusions of certain MS–DRG
codes described above. Depending on
whether or not the additional discharges are
for ESRD beneficiaries, the calculation may
increase or decrease.
K. Effects of Proposed Changes Relating to
the Reporting Requirements for Pension Costs
for Medicare Cost-Finding and Wage
Reporting Purposes
In sections III.D.3. and IV.M. of the
preamble of this proposed rule, we are
proposing to revise our policy for
determining pension cost for Medicare
purposes. We are setting forth two distinct
proposals: One proposal for determining and
reporting defined benefit pension costs on
the cost report for Medicare cost finding
purposes and the other for determining and
reporting defined benefit pension costs for
Medicare wage index purposes. The
allowable pension cost under the current
rules and the proposed policies are based on
the amount funded. The current rules impose
an actuarially based limit on the allowable
amount and the proposed rules limit the
costs based on historical funding data.
Because the current rules and the proposed
policies are both tied to the amount funded,
we expect that there would be minimal
impact. We note that it is not possible to
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determine a precise impact for Medicare costfinding purposes because we do not currently
have data in the form and manner required
to calculate the pension costs for all
providers under our proposal. Moreover,
because we lack these data, we are unable to
determine a hospital-level impact for the
Medicare wage index. We note that our
proposal may result in redistribution within
the Medicare wage index, but section
1886(d)(3)(E) of the Act requires any
adjustments or updates made to the Medicare
wage index to be budget neutral.
L. Effects of Implementation of Rural
Community Hospital Demonstration Program
In section IV.N. of the preamble of this
proposed rule, we discuss our
implementation of section 410A of Public
Law 108–173, as amended, which, prior to
the amendments made by the Affordable Care
Act, required the Secretary to establish a
demonstration that would 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
implemented.’’ As discussed in section IV.N.
of the preamble of this proposed rule, in the
IPPS final rules for each of the previous 7
fiscal years, we have estimated the additional
payments made by the program for each of
the participating hospitals as a result of the
demonstration. In order to achieve budget
neutrality, we are proposing to adjust the
national IPPS rates by an amount sufficient
to account for the added costs of this
demonstration. In other words, we are
proposing to apply budget neutrality across
the payment system as a whole rather than
merely across the participants of this
demonstration. 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.
An extension of this demonstration was
mandated by the Affordable Care Act. The
demonstration is extended for an additional
5 years and expanded to include up to a total
of 30 hospitals. We are proposing to make an
adjustment in the FY 2012 IPPS final rule of
$52,642,213 to the national IPPS rates. This
amount accounts for an estimate of the
demonstration cost for FY 2012 for the 8
hospitals that are currently participating in
the demonstration and, in addition, an
estimate of the cost of participation in the
demonstration for the 19 additional hospitals
selected to participate as a result of the
expansion of the demonstration under the
Affordable Care Act. In addition, for this FY
2012 proposed rule, we are proposing that
the budget neutrality adjustment also account
for any differences between the cost of the
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demonstration program for hospitals
participating in the demonstration during
FYs 2007 and 2008, represented by their cost
reports beginning in FYs 2007 and 2008, and
the amount that was offset by the budget
neutrality adjustment for FYs 2007 and 2008.
The estimated $52,642,213 that we are
proposing to offset does not account for any
differences between the cost of the
demonstration program for hospitals
participating in the demonstration during
FYs 2007 and 2008 and the amount that was
offset by the budget neutrality adjustment for
FYs 2007 and 2008 because the specific
numeric value associated with this
component of the proposed adjustment to the
national IPPS rates cannot be known at this
time. This is because settled cost reports
beginning in FYs 2007 and 2008 of the
hospitals participating during FYs 2007 and
2008 in the demonstration are not available
yet. We anticipate that those settled cost
reports may be available prior to the
publication of the FY 2012 IPPS/LTCH PPS
final rule. To this extent that they become
available prior to publication of the FY 2012
IPPS/LTCH PPS final rule, under our
proposal these costs would be included in
the amount to be offset by the FY 2012
budget neutrality adjustment.
M. Effects of Proposed Changes to the List of
MS–DRGs Subject To Postacute Care Transfer
and DRG Special Pay Policy
In section IV.P. of the preamble to this
proposed rule, we discuss proposed changes
to the list of MS–DRGs subject to the
postacute care transfer and DRG special
payment policies. As reflected in Table 5
listed in section VI of the Addendum to this
proposed rule and available via the Internet,
using criteria set forth in regulation at
§ 412.4, we evaluated MS–DRG charges,
discharge, and transfer data to determine
which MS–DRGs qualify for the postacute
care transfer and DRG special pay policies.
We note that we are making no proposal to
change these payment policies in this FY
2012 proposed rule. We are proposing to
change the status of certain MS–DRGs as a
result of proposals to revise the MS–DRGs for
FY 2012. We are proposing to change the
status of eight MS–DRGs to qualify for the
postacute care transfer policy in FY 2012,
after not qualifying in FY 2011. An
additional five MS–DRGs that qualified
under the policy in FY 2011 do not qualify
in FY 2012, and we are proposing to change
their statuses accordingly. Finally, three MS–
DRGs now qualify for the MS–DRG special
pay policy in FY 2012 after not qualifying in
FY 2011, and we are proposing to add them
to the list of qualifying MS–DRGs. Column 4
of Table I in this Appendix A shows the
effects of the proposed changes to the MS–
DRGs and relative weights with the
application of the recalibration budget
neutrality factor to the standardized amounts.
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. The analysis and methods
determining the proposed changes due to the
MS–DRGs and relative weights accounts for
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and includes changes in MS–DRG postacute
care transfer and special pay policy statuses.
We refer readers to section VI.D. of this
Appendix for a more detailed discussion of
payment impacts due to MS–DRG
reclassification policies.
N. Effects of Proposed Changes Relating to
Hospital Services Furnished Under
Arrangements
In section VI.B. of the preamble of this
proposed rule, we are proposing to clarify
that only diagnostic and therapeutic services
(that is, ancillary services) may be provided
outside the hospital under arrangement.
Routine services must be provided in the
hospital in which the patient is a registered
inpatient. We are aware of only a few cases
where routine services are being provided
outside the hospital other than where the
patient is a registered inpatient. Therefore,
we have determined that the impact of this
clarification is negligible.
O. Effects of Proposed Change Relating to
CAH Payment for Ambulance Services
In section VI.C. of the preamble of this
proposed rule, we discuss our proposal to
revise the regulations at § 413.70(b)(5) to state
that, effective for cost reporting periods
beginning on or after October 1, 2011,
payment for ambulance services furnished by
a CAH or by a CAH-owned entity is 101
percent of the reasonable costs of the CAH or
the entity in furnishing those services, but
only if the CAH or the entity is the only
provider or supplier of ambulance services
located within a 35-mile drive of the CAH.
In addition, we are proposing to revise the
regulations at § 413.70(b)(5) to state that,
effective for cost reporting periods beginning
on or after October 1, 2011, if there is no
provider or supplier of ambulance services
located within a 35-mile drive of the CAH,
but there is a CAH-owned and operated
entity located more than a 35-mile drive from
the CAH, the CAH owned and operated
entity would be paid at 101 percent of
reasonable cost for its ambulance services as
long as that entity is the closest provider or
supplier of ambulance services to the CAH.
We believe this proposal would continue to
allow for sufficient ambulance services to
CAHs. We do not have sufficient information
or data to determine how many CAH-owned
and operated entities would qualify under
the proposal. As a result, we are unable to
quantify the financial impact of this
proposed for payment based on 101 percent
of reasonable cost. However, even those
entities that do not qualify for payment based
on 101 percent of reasonable cost would be
paid for ambulance services under the
Medicare ambulance fee schedule.
VIII. Effects of Proposed Changes in the
Capital IPPS
A. General Considerations
For the impact analysis presented below,
we used data from the December 2010 update
of the FY 2010 MedPAR file and the
December 2010 update of the ProviderSpecific File (PSF) that is used for payment
purposes. Although the analyses of the
proposed changes to the capital prospective
payment system do not incorporate cost data,
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we used the December 2010 update of the
most recently available hospital cost report
data (FYs 2008 and 2009) 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 V.E. of the
preamble to this proposed rule, we are
proposing to make a ¥1.0 percent
documentation and coding adjustment to the
national capital rate for FY 2012 in addition
to the ¥0.6 percent adjustment established
for FY 2008, the ¥0.9 percent adjustment for
FY 2009, and the ¥2.9 percent adjustment
for FY 2011. This results in a proposed
cumulative adjustment factor of 0.9479 that
we applied in determining the proposed FY
2012 national capital rate to account for
improvements in documentation and coding
that do not reflect real changes in case mix
under the MS–DRGs. We note that we
applied a ¥2.6 percent documentation and
coding adjustment to the Puerto Rico-specific
capital rate in FY 2011, which reflects the
entire amount of our current estimate of the
effects of documentation for FYs 2008 and
2009 that do not reflect real changes in casemix under the MS–DRGs. Therefore, we are
not proposing to adjust the proposed Puerto
Rico-specific capital rate in FY 2012 to
account for changes in documentation and
coding.
Due to the interdependent nature of the
IPPS, it is very difficult to precisely quantify
the impact associated with each proposed
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, it is possible that
some individual hospitals are placed in the
wrong category.
Using cases from the December 2010
update of the FY 2010 MedPAR file, we
simulated payments under the capital IPPS
for FY 2011 and FY 2012 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 methodology for determining a capital
IPPS payment is set forth at § 412.312. The
basic methodology for calculating proposed
capital IPPS payments in FY 2012 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).
In addition to the other proposed
adjustments, hospitals may also receive
outlier payments for those cases that qualify
under the threshold established for each
fiscal year. 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:
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• We estimate that the Medicare case-mix
index would increase by 1.0 percent in both
FYs 2011 and 2012.
• We estimate that the Medicare
discharges would be approximately 11.8
million in FY 2011 and 12.2 million in FY
2012.
• 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
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.A.1.a. of the preamble
of this proposed rule, the proposed update is
1.5 percent for FY 2012.
• In addition to the proposed FY 2012
update factor, the proposed FY 2012 capital
Federal rate was calculated based on a
proposed GAF/DRG budget neutrality factor
of 1.0005, and a proposed outlier adjustment
factor of 0.9406. As discussed in section
III.A.4. of the Addendum to this proposed
rule, an exceptions adjustment factor is not
necessary in FY 2012 because there are no
longer any hospitals eligible to receive
special exceptions payments in FY 2012.
However, the special exceptions adjustment
factor was not built permanently into the
capital rate; that is, was not applied
cumulatively. Therefore, because there will
be no special exceptions payments in FY
2012, we are only applying an adjustment to
restore the special exceptions adjustment that
was applied to the FY 2011 capital rate, that
is, 1.0004 (calculated as 1/0.9996).
• For FY 2012, as discussed above and in
section V.E. of the preamble to this proposed
rule, we are proposing to apply a cumulative
0.9479 adjustment in determining the
proposed FY 2012 national capital rate for
changes in documentation and coding that
are expected to increase case-mix under the
MS–DRGs but do not reflect real case-mix
change. This cumulative adjustment of
0.9479 reflects the proposed additional ¥1.0
percent adjustment in FY 2012 for the effects
of documentation and coding in FYs 2008
and 2009.
B. Results
We used the actuarial model described
above to estimate the potential impact of our
proposed changes for FY 2012 on total
capital payments per case, using a universe
of 3,419 hospitals. As described above, the
individual hospital payment parameters are
taken from the best available data, including
the December 2010 update of the FY 2010
MedPAR file, the December 2010 update to
the PSF, and the most recent cost report data
from the December 2010 update of HCRIS. In
Table III, we present a comparison of
estimated total payments per case for FY
2011 and estimated total payments per case
proposed for FY 2012 based on the proposed
FY 2012 payment policies. Column 2 shows
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estimates of payments per case under our
model for FY 2011. Column 3 shows
estimates of payments per case under our
model for FY 2012. Column 4 shows the total
percentage change in payments from FY 2011
to FY 2012. The proposed change
represented in Column 4 includes the
proposed 1.5 percent update to the capital
Federal rate and other proposed changes in
the adjustments to the capital Federal rate.
The comparisons are provided by: (1)
Geographic location; (2) region; and (3)
payment classification.
The simulation results show that, on
average, proposed capital payments per case
in FY 2012 are expected to increase as
compared to capital payments per case in FY
2011. The proposed capital rate for FY 2012
would increase approximately 0.60 percent
as compared to the FY 2011 capital rate. The
proposed changes to the GAFs are expected
to result, on average, in a slight decrease in
capital payments for most regions with the
following exceptions. We estimate that the
GAFs will result in a slight increase in
capital payments for the West North Central
and West South Central urban and rural
regions, as well as a slight increase for Puerto
Rico and the Pacific rural region. The West
North Central urban and rural regions
include the frontier States that have a wage
index of no less than 1.0 under the
provisions of section 10324 of the Affordable
Care Act, which creates the slight increase in
capital IPPS payments for FY 2012. For the
West South Central urban and rural regions,
increases in their wage data are creating the
estimated increase in their FY 2012 capital
IPPS payments. The GAFs for hospitals
located in Puerto Rico results in a positive
effect in estimated capital IPPS payments in
FY 2012 because of the application of a
Puerto Rico rural floor—FY 2012 is the first
year an IPPS hospital is located in rural
Puerto Rico and, therefore, setting a rural
floor. The most significant increase resulting
from the proposed changes to the GAFs is for
the New England urban region. We estimate
the proposed changes to the GAFs would
result in a 3.9 percent increase in capital
payments per case in FY 2012 compared to
FY 2011 due to the application of the rural
floor in Massachusetts. Previously, there had
been no IPPS hospitals in Massachusett’s
rural areas, but the conversion of a CAH in
rural Massachusetts to an IPPS hospital has
set a rural floor for that State for FY 2012.
We also are estimating a slight decrease in
outlier payments from FY 2011 to FY 2012
due primarily to an estimated increase in
capital IPPS payments per discharge. Because
capital payments per discharge are projected
to be higher in FY 2012 compared to FY
2011, fewer cases would qualify for outlier
payments.
The net impact of these proposed changes,
as discussed above, is an estimated 1.7
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percent change in capital payments per
discharge from FY 2011 to FY 2012 for all
hospitals (as shown below in Table III).
The geographic comparison shows that, on
average, all hospitals, urban and rural, are
expected to experience an increase in capital
IPPS payments per case in FY 2012 as
compared to FY 2011. Capital IPPS payments
per case for urban hospitals are estimated to
increase 1.7 percent, while rural hospitals are
expected to experience a 1.4 percent
increase.
The change comparisons by region shows
that most urban regions would experience,
on average, increases in capital IPPS
payments of between 1.0 percent for the East
North Central urban region, and 5.4 percent
for the New England urban region. As
discussed above, the New England urban
region is estimated to have a larger than
average increase in capital payments per case
in FY 2012 as compared to FY 2011 due to
the application of a rural floor. The rural
regions show estimates of a 0.8 percent
change in capital payments from FY 2011 to
FY 2012 in the East North Central rural
region to a 3.0 percent increase for the Puerto
Rico rural region. This estimated increase in
capital IPPS payments for the Puerto Rico
rural region is due to the application of a
rural floor, as discussed above.
By type of ownership, government
hospitals are estimated to experience a 1.6
percent increase in capital payments per
case; voluntary hospitals, an estimated 1.7
percent increase in capital payments; and
proprietary hospitals, an estimated 1.8
percent increase in capital payments from FY
2011 to FY 2012.
Section 1886(d)(10) of the Act established
the MGCRB. Hospitals may apply for
reclassification for purposes of the wage
index for FY 2012. 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 2012, we show the average
capital payments per case for reclassified
hospitals for FY 2011. All reclassified and
non-reclassified hospitals are expected to
experience an increase in capital payments in
FY 2012 as compared to FY 2011. Urban
reclassified hospitals are estimated to
experience the largest increase of 1.9 percent,
while urban nonreclassified and rural
reclassified are both estimated to have a 1.6
percent increase. For rural nonreclassified
hospitals, the estimated increase in capital
payments per case is 1.2 percent. Other
reclassified hospitals (that is, hospitals
reclassified under section 1886(d)(8)(B) of the
Act) are expected to experience an increase
of 0.7 percent in capital payments from FY
2011 to FY 2012.
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IX. Effects of Proposed Payment Rate
Changes and Policy Changes Under the
LTCH PPS
A. Introduction and General Considerations
In section VII. of the preamble and section
V. of the Addendum to this proposed rule,
we set forth the annual update to the
payment rates for the LTCH PPS for FY 2012.
In the preamble, we specify the statutory
authority for the proposed provisions that are
presented, identify those proposed policies,
and present rationales for our proposed
decisions as well as alternatives that were
considered. In this section of Appendix A to
this proposed rule, we discuss the impact of
the proposed changes to the payment rates,
factors, and other payment rate policies
related to the LTCH PPS that are presented
in the preamble of this proposed rule in
terms of their estimated fiscal impact on the
Medicare budget and on LTCHs.
Currently, our database of 422 LTCHs
includes the data for 82 nonprofit (voluntary
ownership control) LTCHs and 322
proprietary LTCHs. Of the remaining 18
LTCHs, 12 LTCHs are government-owned
and operated and the ownership type of the
other 6 LTCHs is unknown. In the impact
analysis, we used the proposed rates, factors,
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and policies presented in this proposed rule,
including the proposed 1.5 percent annual
update, which is based on the full increase
of the proposed LTCH PPS market basket and
the reductions required by sections
1886(m)(3) and (m)(4) of the Act, the
proposed update to the MS–LTC–DRG
classifications and relative weights, the
proposed update to the wage index values
and labor-related share, including the
proposed application of a budget neutrality
adjustment for changes to the area wage
adjustment, and the best available claims and
CCR data to estimate the change in payments
for FY 2012. The proposed standard Federal
rate for FY 2012 is $40,082.61. This proposed
rate reflects the proposed 1.5 percent annual
update to the standard Federal rate and the
proposed area wage level budget neutrality
factor of 0.99723, which ensures that the
proposed changes in the wage indexes and
labor-related share do not influence
estimated aggregate payments.
Based on the best available data for the 422
LTCHs in our database, we estimate that the
proposed update to the standard Federal rate
for FY 2012 (discussed in section V.A.2. of
the Addendum to this proposed rule) and the
proposed changes to the area wage
adjustment for FY 2012 (discussed in section
V.B. of the Addendum to this proposed rule),
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26075
in addition to an estimated increase in HCO
payments and an estimated increase in SSO
payments, would result in an increase in
estimated payments from FY 2011 of
approximately $95.0 million (or about 1.9
percent). Based on the 422 LTCHs in our
database, we estimate FY 2012 LTCH PPS
payments to be approximately $5.233 billion,
an increase from FY 2011 LTCH PPS
payments which were approximately $5.138
billion. Because the combined distributional
effects and estimated changes to the
Medicare program payments are
approximately $100 million, this proposed
rule is considered a major economic rule, as
defined in this section. We note the
approximately $95 million for the projected
increase in estimated aggregate proposed
LTCH PPS payments from FY 2011 to FY
2012 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 1.9 percent increase in
estimated proposed payments per discharge
from FY 2011 to FY 2012 is attributable to
several factors, including the proposed 1.5
percent annual update to the standard
Federal rate, and projected increases in
proposed estimated HCO and SSO payments.
As Table IV shows, the change attributable
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solely to the proposed update to the standard
Federal rate is projected to result in an
increase of 1.3 percent in estimated payments
per discharge from FY 2011 to FY 2012, on
average, for all LTCHs. Because we are
proposing to apply an area wage level budget
neutrality factor to the standard Federal rate,
the proposed update to the wage data and
labor-related share does not impact the
proposed increase in payments.
As discussed in section V.B. of the
Addendum to this proposed rule, we are
proposing to update the wage index values
for FY 2012 based on the most recent
available data. In addition, we are proposing
a decrease in the labor-related share from
75.271 percent to 70.334 percent under the
LTCH PPS for FY 2012, based on the most
recent available data on the relative
importance of the proposed labor-related
share of operating and capital costs of the
proposed FY 2008-based RPL market basket.
We also are proposing to apply an area wage
level budget neutrality factor to the standard
Federal rate to ensure that annual changes to
the area wage level adjustment (that is, the
wage index and labor-related changes) are
budget neutral. We are proposing an area
wage level budget neutrality factor of
0.99723, which reduces the proposed
standard Federal rate by 0.28 percent.
Therefore, the proposed changes to the wage
data and labor-related share do not result in
a change in aggregate LTCH PPS payments.
Table IV below shows the impact of the
proposed payment rate and proposed policy
changes on LTCH PPS payments for FY 2012
presented in this proposed rule by comparing
estimated FY 2011 payments to estimated FY
2012 payments. The projected increase in
payments per discharge from FY 2011 to FY
2012 is 1.9 percent (shown in Column 8).
This projected increase in payments is
attributable to the impacts of the proposed
change to the standard Federal rate (1.3
percent in Column 6), as well as the effect of
the estimated increase in payments for HCO
cases and SSO cases in FY 2012 as compared
to FY 2011 (0.2 percent and 0.3 percent,
respectively). That is, estimated total HCO
payments are projected to increase from FY
2011 to FY 2012 in order to ensure that
estimated HCO payments would be 8 percent
of the total estimated LTCH PPS payments in
FY 2012. An analysis of the most recent
available LTCH PPS claims data (that is, FY
2010 claims data from the December 2010
update of the MedPAR file) indicates that the
FY 2011 HCO threshold of $18,785 (as
established in the FY 2011 IPPS/LTCH PPS
final rule) may result in HCO payments in FY
2011 that fall slightly below the estimated 8
percent. Specifically, we currently estimate
that HCO payments would be approximately
7.8 percent of the estimated total LTCH PPS
payments in FY 2011. We estimate that the
impact of the increase in HCO payments
would result in approximately a 0.2 percent
increase in estimated payments from FY 2011
to FY 2012, on average, for all LTCHs.
Furthermore, in calculating the estimated
increase in payments from FY 2011 to FY
2012 for HCO and SSO cases, we increased
estimated costs by the applicable market
basket percentage increase as projected by
our actuaries, which increases estimated
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payments by 0.3 percent relative to last year.
We note that estimated payments for all SSO
cases comprise approximately 13 percent of
the estimated total LTCH PPS payments, and
estimated payments for HCO cases comprise
approximately 8 percent of the estimated
total LTCH PPS payments. Payments for HCO
cases are based on 80 percent of the
estimated cost of the case above the HCO
threshold, while the majority of the payments
for SSO cases (over 65 percent) are based on
the estimated cost of the SSO case.
As we discuss in detail throughout this
proposed rule, based on the most recent
available data, we believe that the provisions
of this proposed rule relating to the LTCH
PPS would result in an increase in estimated
aggregate LTCH PPS payments and that the
resulting LTCH PPS payment amounts would
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 an urban area and
has fewer than 100 beds. As shown in Table
IV, we are projecting a 2.8 percent increase
in estimated payments per discharge for FY
2012 as compared to FY 2011 for rural
LTCHs that would result from the proposed
changes presented in this proposed 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 (out of 422 LTCHs) for
which complete data were available.
The estimated increase in LTCH PPS
payments from FY 2011 to FY 2012 for rural
LTCHs is primarily due to the higher than
average impacts from the proposed changes
to the area wage level adjustment,
specifically, the proposed reduction to the
labor-related share from 75.271 to 70.334.
Although we are proposing to apply an area
wage level budget neutrality factor for
proposed changes to the wage indexes and
labor-related share to ensure that there is no
change in aggregate LTCH PPS payments due
to those changes, we estimate rural hospitals
would experience a 0.8 percent increase in
payments due to the proposed changes to the
area wage level adjustment, as shown in
Column 7 below. Rural hospitals generally
have a wage index of less than 1; therefore,
a proposed decrease to the labor-related share
results in their proposed wage index
reducing a smaller portion of the standard
Federal rate, resulting in an estimated
increase in payments in FY 2012 as
compared to FY 2011.
C. Anticipated Effects of Proposed LTCH PPS
Payment Rate Change and Policy Changes
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
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would have been paid if the LTCH PPS had
not been implemented.
As discussed above in section IX.A. of this
Appendix, we project an increase in
aggregate LTCH PPS payments in FY 2012 of
approximately $95 million (or 1.9 percent)
based on the 422 LTCHs in our database.
2. Anticipated Effects of Proposed
Requirements for LTCH Quality Reporting
Program
In section VII.C. of the preamble of this
proposed rule, we discuss our proposed
requirements for LTCHs to report quality data
under the LTCH quality reporting program.
As set forth at section 1886(m)(5)(A) of the
Act, beginning with FY 2014, the Secretary
must reduce by 2.0 percentage points any
annual update to the standard Federal rate
for discharges for any LTCH which does not
comply with the LTCH quality data
submission requirements. When the policy is
implemented for FY 2014, we estimate that
few LTCHs would not receive the full
payment update in any fiscal year. We
believe that most of these LTCHs would be
either small rural or small urban LTCHs.
However, at this time, information is not
available to determine the precise number of
LTCHs that will not meet the requirements
for the full hospital market basket increase
for FY 2014.
In section VII.C. of the preamble of this
proposed rule, we are proposing three quality
reporting measure for LTCHs for FY 2014: (1)
Catheter-Associated Urinary Tract Infections
(CAUTI); (2) Central Line CatheterAssociated Blood Stream Infection Event
(CLABSI); and (3) Pressure Ulcers that are
New or Have Worsened. We estimate that the
total LTCH costs to report these data,
including: NHSN registration and training for
the CAUTI and CLABSI quality measures;
data submission for all three measures, and
monitoring data submission to be $1,128,440.
3. Impact of Proposed Application of LTCH
Moratorium on the Increase in Beds at
Section 114(d)(1)(B) of Public Law 110–173
(MMSEA) to LTCHs and LTCH Satellite
Facilities Established or Classified as Such
Under Section 114(d)(1)(B) of Public Law
110–173
As discussed in section VII.F. of the
preamble of this proposed rule, at proposed
§ 412.23(e)(8), for the period beginning
October 1, 2011, and ending December 28,
2012, we are proposing to apply the
moratorium on the increase in the number of
beds under section 114(d)(1)(B) of the
MMSEA, and specified in paragraph (e)(7) to
LTCHs and LTCH satellite facilities that were
established or classified as such after the
December 29, 2007 under one of the
exceptions to the moratorium at section
114(d)(2) of the MMSEA, as set forth in
paragraph (e)(6)(ii). The proposed regulation
precludes an LTCH or LTCH satellite that
was developed under an exception to the
establishment of new LTCHs and LTCH
satellites from increasing the number of
Medicare-certified beds beyond the initial
number for which the facility was first paid
under the LTCH PPS. Approximately 50
LTCHs and 8 satellite facilities were
developed under the exceptions at
§ 412.23(e)(6)(ii). Because additional
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increases in the number of LTCH beds in
these facilities could result in added costs to
the Medicare program, the impact of
precluding additional growth in the number
of Medicare certified beds in these facilities
is expected to result in no additional
spending under the Medicare program from
these LTCHs and LTCH satellites.
4. Impact of the Proposed Clarification to the
Greater than 25 Day Average Length of Stay
Requirement for LTCHs
In section VII.E.5. of the preamble of this
proposed rule, we have proposed two
clarifications to our existing policy for
determining whether a hospital is meeting
the greater than 25 day average length of stay
requirement for payment under the LTCH
PPS. First, we are proposing to clarify and
revise the regulations at § 412.23(e)(3)(iv)
dealing with the average length of stay
determination when there is a change of
ownership of either a hospital seeking to
qualify as an LTCH or of an existing LTCH.
Second, we describe, and are proposing to
clarify, our existing policy regarding the
inclusion of Medicare Advantage days in the
average length of stay calculation. Because
typically LTCHs track the lengths of stay of
their Medicare patients on an on-going basis
for purposes of maintaining their LTCH
status and Medicare contractors are already
tasked with evaluating each LTCH’s average
length of stay, we do not believe that there
is any actual impact resulting from the
clarification of these existing policies nor do
they impose any additional burdens on either
LTCHs or Medicare contractors.
5. 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 (the
standard Federal rate multiplied by the
MS–LTC–DRG relative weight), we make
adjustments for differences in area wage
levels, the 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 year.
To understand the impact of the proposed
changes to the LTCH PPS payments
presented in this proposed rule on different
categories of LTCHs for FY 2012, it is
necessary to estimate payments per discharge
for FY 2011 using the rates, factors (including
the FY 2011 GROUPER (Version 28.0)), and
relative weights and the policies established
in the FY 2011 IPPS/LTCH PPS final rule (75
FR 50364 through 50400 and 50442 through
50449). It is also necessary to estimate the
payments per discharge that would be made
under the proposed LTCH PPS rates, factors,
policies, and GROUPER (proposed Version
29.0) for FY 2012 (as discussed in VII. of the
preamble and section V. of the Addendum to
this proposed rule). These estimates of FY
2011 and FY 2012 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 proposed change in estimated FY 2011
payments to estimated FY 2012 payments (on
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a per discharge basis) for each category of
LTCHs.
Hospital groups were based on
characteristics provided in the OSCAR data,
FY 2008 through FY 2009 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 proposed
payment rates and policy changes among the
various categories of existing providers, we
used LTCH cases from the FY 2010 MedPAR
file to estimate payments for FY 2011 and to
estimate payments for FY 2012 for 422
LTCHs. We believe that the discharges based
on the FY 2010 MedPAR data for the 422
LTCHs in our database, which includes 322
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.
6. 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 2010 MedPAR files. For modeling
estimated LTCH PPS payments for FY 2011,
we applied the FY 2011 standard Federal rate
(that is, $39,599.95, under which LTCH
discharges occurring on or after October 1,
2010, to September 30, 2011 are paid). For
modeling estimated LTCH PPS payments for
FY 2012, we applied the proposed FY 2012
standard Federal rate of $40,082.61, which
would be effective for LTCH discharges
occurring on or after October 1, 2011, and
through September 30, 2012. The proposed
FY 2012 standard Federal rate of $40,082.61
includes the proposed application of an area
wage level budget neutrality factor of 0.99723
(as discussed in section VII.E.4. of the
preamble of this proposed rule).
Furthermore, in modeling estimated LTCH
PPS payments for both FY 2011 and FY 2012
in this impact analysis, we applied the FY
2011 and the proposed FY 2012 adjustments
for area wage levels and the proposed COLA
for Alaska and Hawaii. Specifically, we
adjusted for differences in area wage levels
in determining estimated FY 2011 payments
using the current LTCH PPS labor-related
share of 75.271 percent (75 FR 50445) and
the wage index values established in the
Tables 12A and 12B of the Addendum to the
FY 2011 IPPS/LTCH PPS final rule (75 FR
50627 through 50646). We also applied the
FY 2011 COLA factors shown in the table in
section V.B.5. of the Addendum to that final
rule (75 FR 50446) to the FY 2011 nonlaborrelated share (24.729 percent) for LTCHs
located in Alaska and Hawaii. Similarly, we
adjusted for differences in area wage levels
in determining estimated FY 2012 payments
using the proposed LTCH PPS FY 2012 laborrelated share of 70.334 percent and the
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proposed FY 2012 wage index values
presented in Tables 12A and 12B listed in
section VI. of the Addendum to this proposed
rule (and available via the Internet). We also
applied the proposed FY 2012 COLA factors
shown in the table in section V.B.5. of the
Addendum to the FY 2011 IPPS/LTCH PPS
final rule to the proposed FY 2012 nonlaborrelated share (29.666 percent) for LTCHs
located in Alaska and Hawaii.
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
proposed rule). In modeling proposed
payments for SSO and HCO cases in FY
2012, we applied an inflation factor of 1.055
(determined by OACT) to the estimated costs
of each case determined from the charges
reported on the claims in the FY 2010
MedPAR files and the best available CCRs
from the December 2010 update of the PSF.
Furthermore, in modeling estimated LTCH
PPS payments for FY 2012 in this impact
analysis, we used the proposed FY 2012
fixed-loss amount of $19,270 (as discussed in
section V.C. of the Addendum to this
proposed rule).
These impacts reflect the estimated
‘‘losses’’ or ‘‘gains’’ among the various
classifications of LTCHs from the FY 2011 to
FY 2012 based on the proposed payment
rates and policy changes presented in this
proposed 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.
• 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 FY 2011 (as
described above).
• The fifth column shows the estimated
payment per discharge for FY 2012 (as
described above).
• The sixth column shows the percentage
change in estimated payments per discharge
from FY 2011 to FY 2012 due to the proposed
update to the standard Federal rate (as
discussed in section V.A.2. of the Addendum
to this proposed rule).
• The seventh column shows the
percentage change in estimated payments per
discharge from FY 2011 to FY 2012 for
proposed changes to the area wage level
adjustment (that is, the proposed wage
indexes and proposed labor-related share)
including the proposed application of an area
wage level budget neutrality factor (as
discussed in section V.B.5. of the Addendum
to the proposed rule).
• The eighth column shows the percentage
change in estimated payments per discharge
from FY 2011 (Column 4) to FY 2012
(Column 5) for all proposed changes (and
includes the effect of estimated proposed
changes to HCO and SSO payments).
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7. Results
Based on the most recent available data for
422 LTCHs, we have prepared the following
summary of the impact (as shown above in
Table IV) of the proposed LTCH PPS
payment rate and policy changes presented
in this proposed rule. The impact analysis in
Table IV shows that estimated payments per
discharge are expected to increase
approximately 1.9 percent, on average, for all
LTCHs from FY 2011 to FY 2012 as a result
of the proposed payment rate and policy
changes presented in this proposed rule, as
well as estimated increases in HCO and SSO
payments. We note that we applied a
proposed 1.5 percent annual update in
determining the proposed standard Federal
rate for FY 2012, based on the latest estimate
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of the proposed LTCH PPS market basket
increase (2.8 percent), the proposed
reduction of 1.2 percentage points for the
multifactor productivity adjustment and the
0.1 percentage point reduction required
under sections 1886(m)(3) and (m)(4) of the
Act. 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
approximately 1.5 percent for the proposed
annual update to the standard Federal rate is
projected to result in approximately a 1.3
percent change in estimated payments per
discharge for all LTCHs from FY 2011 to FY
2012. Because payments to cost-based SSO
cases and a portion of payments to SSO cases
that are paid based on the ‘‘blend’’ option of
the SSO payment formula at
§ 412.529(c)(2)(iv) are not affected by the
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proposed annual update to the standard
Federal rate, we estimate that the effect of the
proposed 1.5 percent annual update to the
standard Federal rate would result in a 1.3
percent increase on estimated aggregate
LTCH PPS payments to all LTCH PPS cases,
including SSO cases. Furthermore, as
discussed previously in this regulatory
impact analysis, the average increase in
estimated payments per discharge from the
FY 2011 to FY 2012 for all LTCHs of
approximately 1.9 percent (as shown in Table
IV) was determined by comparing estimated
FY 2012 LTCH PPS payments (using the
proposed rates and policies discussed in this
proposed rule) to estimated FY 2011 LTCH
PPS payments (as described above in section
IX.C.5. of this Appendix).
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a. Location
Based on the most recent available data,
the vast majority of LTCHs are located in
urban areas. Only approximately 6 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 FY 2011 to FY 2012 for all hospitals is
1.9 percent for all proposed changes. For
rural LTCHs, the percent change for all
proposed changes is estimated to be 2.8
percent, while for urban LTCHs, we estimate
the increase to be 1.8 percent. Large urban
LTCHs are projected to experience an
increase of 1.6 percent in estimated payments
per discharge from FY 2011 to FY 2012,
while other urban LTCHs are projected to
experience an increase of 2.2 percent in
estimated payments per discharge from FY
2011 to FY 2012, 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 47 percent) of the
LTCH cases are in hospitals that began
participating in the Medicare program
between October 1993 and September 2002,
and are projected to experience nearly the
average increase (1.9 percent) in estimated
payments per discharge from FY 2011 to FY
2012, as shown in Table IV.
In the participation category where LTCHs
began participating in the Medicare program
before October 1983, LTCHs are projected to
experience a lower than average percent
increase (1.2 percent) in estimated payments
per discharge from FY 2011 to FY 2012, as
shown in Table IV. Approximately 4 percent
of LTCHs began participating in Medicare
before October 1983. The LTCHs in this
category are projected to experience a lower
than average increase in estimated payments
because of decreases in payments due to the
proposed changes to the area wage
adjustment. Approximately 10 percent of
LTCHs began participating in Medicare
between October 1983 and September 1993.
These LTCHs are also projected to experience
a slightly lower than average increase (1.7
percent) in estimated payments from FY 2011
to FY 2012. LTCHs that began participating
in Medicare after October 2002 currently
represent approximately 41 percent of all
LTCHs, and are projected to experience an
average increase (1.9 percent) in estimated
payments from FY 2011 to FY 2012.
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 19 percent of
LTCHs are identified as voluntary (Table IV).
We expect that, for these LTCHs in the
voluntary category, estimated FY 2012 LTCH
payments per discharge would increase
higher than the average (2.1 percent) in
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comparison to estimated payments in FY
2011 primarily because we project an
increase in estimated HCO payments and
SSO payments to be higher than the average
for these LTCHs. The majority (76 percent) of
LTCHs are identified as proprietary and these
LTCHs are projected to experience a nearly
average increase (1.8 percent) in estimated
payments per discharge from FY 2011 to FY
2012. Finally, government-owned and
operated LTCHs (3 percent) are also expected
to experience a nearly average increase in
payments of 1.8 percent in estimated
payments per discharge from FY 2011 to FY
2012.
d. Census Region
Estimated payments per discharge for FY
2012 are projected to increase for LTCHs
located in all regions in comparison to FY
2011. Of the 9 census regions, we project that
the increase in estimated payments per
discharge would have the largest positive
impact on LTCHs in the West South Central
region (2.4 percent, as shown in Table IV).
The estimated percent increase in payments
per discharge from FY 2011 to FY 2012 for
the West South Central is largely attributable
to the proposed changes in the area wage
level adjustment.
In contrast, LTCHs located in the New
England region are projected to experience
the smallest increase in estimated payments
per discharge from FY 2011 to FY 2012. The
average estimated increase in payments of 1.0
percent for LTCHs in the New England region
is primarily due to estimated decreases in
payments associated with the area wage level
adjustment.
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 project that payments for small LTCHs
(0–24 beds) would experience a 2.5 percent
increase in payments due to increases in the
proposed area wage adjustment while large
LTCHs (200+ beds) would experience a 1.8
percent increase in payments. LTCHs with
between 75 and 124 beds and between 125
and 199 beds are expected to experience a
slightly below average increase in payments
per discharge from FY 2011 to FY 2012 (1.6
percent and 1.7 percent, respectively)
primarily due to an estimated decreases in
their payments from FY 2011 to FY 2012 due
to the proposed area wage level adjustment.
D. Effect on the Medicare Program
As noted previously, we project that the
provisions of this proposed rule would result
in an increase in estimated aggregate LTCH
PPS payments in FY 2012 of approximately
$95.0 million (or about 1.9 percent) for the
422 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
continue to expect that paying prospectively
for LTCH services would enhance the
efficiency of the Medicare program.
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X. Alternatives Considered
A. General
This proposed rule contains a range of
policies. It also provides descriptions of the
statutory provisions that are addressed,
identifies proposed policies, and presents
rationales for our decisions and, where
relevant, alternatives that were considered.
B. Alternative Considered for Hospital
Inpatient Quality Review (IQR) and ValueBased Purchasing (VBP) Programs: Medicare
Spending per Beneficiary Measure
In section IV.A.3.b.(ii)(B) of the preamble
to this proposed rule, we are proposing to
adopt a claims-based Medicare spending per
beneficiary measure for the FY 2014 Hospital
IQR Program. In section IV.B.3.b.(iii) of the
preamble of this proposed rule, we are
proposing to adopt this claims-based
Medicare spending per beneficiary measure
for the FY 2014 Hospital VBP Program. For
the Medicare spending per beneficiary
measure, we considered an alternative
approach based on the principle that
Medicare spending per beneficiary
benchmarks for lower quality hospitals
should not exceed the benchmarks for higher
quality hospitals. This alternative approach
is more complex than our proposal. Due to
its increased complexity, we are including
the discussion of this alternative approach
here rather than earlier in the preamble for
ease of presentation: both the efficiency
measure and its scoring as part of the
Hospital VBP Program can be presented in a
continuous narrative.
As noted earlier, the NQF has not endorsed
a Medicare spending per beneficiary
measure. However, its 2009 report
‘‘Measurement Framework: Evaluating
Efficiency Across Patient-Focused Episodes
of Care’’ (NQF 2009), discusses four general
terms that are helpful in framing the
discussion of an alternative Medicare
Spending per Beneficiary measure.
• Quality of care is a measure of
performance on the Institute of Medicine’s
(IOM) six aims for healthcare: safety,
timeliness, effectiveness, efficiency, equity,
and patient centeredness.
• Cost of care is a measure of the total
healthcare spending, including total resource
use and unit price(s), by payor or consumer,
for a healthcare service or group of healthcare
services associated with a specified patient
population, time period, and unit(s) of
clinical accountability.
• Efficiency of care is a measure of cost of
care associated with a specified level of
quality of care. ‘‘Efficiency of care’’ is a
measure of the relationship of the cost of care
associated with a specific level of
performance measured with respect to the
other five IOM aims of quality.
• Value of care is a measure of a specified
stakeholder’s (such as an individual
patient’s, consumer organization’s, payor’s,
provider’s, government’s, or society’s)
preference-weighted assessment of a
particular combination of quality and cost of
care performance.’’ (p. 6, Measurement
Framework: Evaluating Efficiency Across
Patient-Focused Episodes of Care, NQF 2009)
We will examine each of these four terms
(Quality of Care, Cost of Care, Efficiency of
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Step 4: Calculate the efficiency ratio
threshold and benchmark.
Step 4a. Calculate the efficiency ratio
threshold.
The efficiency ratio threshold is the point
at which hospitals can begin to earn
efficiency points based on achievement. It is
the median efficiency ratio across all
hospitals.
Efficiency ratio threshold = Median
efficiency ratio across all hospitals
Step 4b. Calculate the efficiency ratio
benchmark.
The efficiency ratio benchmark is the point
at which hospitals earn the maximum
efficiency points (10) based on achievement.
It is the 10th percentile of the efficiency
ratios across all hospitals.
Efficiency ratio benchmark = 10th percentile
efficiency ratio across all hospitals
Step 5: Calculate the efficiency points
based on achievement.
Calculate the efficiency points based on
achievement for hospital k.
Achievement Efficiency Points k =
Step 6: Calculate the efficiency points
based on improvement.
Calculate the efficiency points based on
improvement for hospital k.
The performance period has a
corresponding base period, analogous to the
base period for other Hospital VBP measures.
In order to calculate efficiency points based
on improvement, an efficiency ratio would be
determined for each hospital k using only the
data from the base period and following Step
1 to Step 3 above. Using this base period
efficiency ratio for hospital k, the
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Note that {Q1} ⊂ {Q2} ⊂ {Q3}, meaning
{Q2} is a subset of {Q3}.
It continues with successively lower
quality scores until the hospitals with a TQS
of 1 are added.
{QualityN } = {QN} = Last Quality Group N
= Hospitals with a TQS ≥ 1
Note that {Q1} ⊂ {Q2} ⊂ {Q3}........, ⊂ {QN},
so all Quality Groups are subsets of {QN}
since {QN} contains all hospitals with a TQS
greater than or equal to 1.
Step 2: Determine the cost benchmarks for
each hospital.
Step 2a—Determine the cost benchmark for
the top Quality Group.
The cost benchmark for the hospitals in the
top Quality Group is the mean Medicare
spending per beneficiary for the hospitals in
the top Quality Group.
Step 2b.—Determine the cost benchmarks
for all hospitals that are not in the top
Quality Group.
The cost benchmark for each hospital with
TQS of j is the lower of: (1) the 10th
percentile of Medicare spending per
beneficiary for all hospitals in the smallest
(in terms of the number of hospitals in the
group) Quality Group that contains hospitals
with a TQS score of j; and (2) the benchmark
for the group of hospitals of next higher
quality.
EP05MY11.119
spending per beneficiary amount) and quality
of care (that is, the TQS). The result of this
measurement is an efficiency score for each
hospital.
Steps in Measuring the Efficiency of Care
Under the Alternative Approach
Step 1:—Hospitals are grouped by total
quality score (TQS).
Step 1a.—Define the first (highest) Quality
Group.
The first Quality Group consists of
hospitals with a TQS in the top decile of the
TQSs.
{Quality1} = {Q1} = Quality Group 1 =
Hospitals in the top decile of quality =
Hospitals with a TQS of 100, 99, ...a1
Step 1b.—Define the remaining Quality
Groups.
Beginning with the first TQS not included
in the first Quality Group (TQS = a1–1), add
hospitals with this TQS to the hospitals in
the first Quality Group. This group of
hospitals forms the second Quality Group:
{Quality2} = {Q2} = Quality Group 2 =
Hospitals with a TQS ≥ (a1–1)
Note that {Q1} ⊂ {Q2}, meaning {Q1} is a
subset of {Q2}.
The process repeats for the next Quality
Group:
{Quality3} = {Q3} = Quality Group 3 =
Hospitals with a TQS ≥ (a1–2)
Step 3: Calculate the efficiency ratio for
each hospital.
Calculate the efficiency ratio for hospital k
with TQS j.
The efficiency ratio for hospital k with
TQS j is the ratio of the Medicare spending
per beneficiary for hospital k to the cost
benchmark for TQS j.
Costk = Medicare spending per beneficiary
for hospital k
Efficiency ratiok = Efficiency ratio for
hospital k = Costk/Cost Benchmarkj
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Care, and Value of Care) in the context of an
alternative to our proposed Medicare
Spending per Beneficiary measure.
1. Quality of Care
As discussed in the Hospital VBP Program
proposed rule, a hospital’s performance on
the quality measures (based on the higher of
achievement or improvement) is
consolidated into a single Total Performance
Score for that hospital. For purposes of this
discussion, we will refer to the Total
Performance Score discussed in the Hospital
VBP Program proposed rule as the ‘‘total
quality score (TQS).’’
2. Cost of Care
For purposes of this discussion, we are
considering the cost of care to be the
Medicare spending per beneficiary amount
described in section IV.B.3.b.(3) of the
preamble of this proposed rule.
3. Efficiency of Care
The term ‘‘efficiency of care’’ is discussed
in the NQF report as a measure of cost of care
associated with a specified level of quality of
care. ‘‘Efficiency of care’’ is a measure of the
relationship of the cost of care associated
with a specific level of performance
measured with respect to the other five IOM
aims of quality. We considered the following
approach to measuring the relationship
between the cost of care (that is, Medicare
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Improvement Efficiency Points k =
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The efficiency score for hospital k is the
higher of the achievement or improvement
efficiency points.
4. Value of Care
The term ‘‘value of care’’ is discussed in the
NQF report as a measure of a specified
stakeholder’s (such as an individual
patient’s, consumer organization’s, payor’s,
provider’s, government’s, or society’s)
preference-weighted assessment of a
particular combination of quality and cost of
care performance. Under our alternative
Medicare spending per beneficiary approach,
we considered creating an efficiency
adjustment to the TQS for a hospital using a
function of the general form:
Efficiency adjustment to the total quality
score = A*TQS + B*(efficiency score*10) +
C, where A is the weight given to the quality
score, B is the weight given to the efficiency
score, and C is a constant.
We multiply the efficiency score by 10 to
put it on the same scale as the TQS (0 to 100).
Depending on the parameters chosen,
adopting such a function for valuing
efficiency could allow the TQS for a hospital
to be adjusted upwards or downwards
depending on the hospital’s TQS and its
efficiency score. For example, suppose two
hospitals both have an efficiency score of 5,
but one hospital has a much higher TQS than
the other. We could choose parameters that
would result in a negative efficiency
adjustment to the TQS for the lower quality
hospital and a positive efficiency adjustment
to the TQS for the higher quality hospital.
Under this approach, we value the efficiency
score of 5 for the higher quality hospital more
than the efficiency score of 5 for the lower
quality hospital, hence the positive
adjustment to the TQS for the higher quality
hospital and the negative adjustment to the
TQS for the lower quality hospital.
Using the TQS adjusted for efficiency,
meaning after we apply the efficiency
adjustment the TQS, the linear exchange
function approach previously proposed in
the Hospital VBP Program proposed rule for
the hospital VBP system would be used to
determine each hospital’s VBP incentive
payment such that the overall hospital VBP
program remains budget neutral.
B. LTCHs
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 proposed rule as they relate to
proposed changes to the LTCH PPS. Table VI
As discussed in section IX. of this
Appendix, the impact analysis for the
proposed changes under the LTCH PPS for
this proposed rule projects an increase in
estimated aggregate payments of
approximately $95 million (or about 1.9
percent) for the 422 LTCHs in our database
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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 proposed MS–DRG and
wage index changes, and for the wage index
reclassifications under the MGCRB. Table I
also shows an overall proposed decrease of
0.5 percent in operating payments. We
estimate that operating payments would
decrease by approximately $498 million in
FY 2012. For FY 2012, we are proposing to
distribute $250 million to hospitals that
qualify to receive additional payment under
section 1109 of Pub. L. 111–152, which is an
additional $100 million than what we had
distributed under this provision in FY 2011.
In addition, we estimate a savings of $23
million associated with the HACs policies.
These estimates, added to our proposed FY
2012 operating estimate of ¥$498 million,
would result in a decrease of $421.2 million
for FY 2012. We estimate that capital
payments will experience a 1.8 percent
increase in payments per case, as shown in
Table III of section VIII. of this Appendix. We
project that there would be a $146 million
increase in capital payments in FY 2012
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Fmt 4701
Sfmt 4702
compared to FY 2011. The proposed
cumulative operating and capital payments
should result in a net decrease of $275
million to IPPS providers. The discussions
presented in the previous pages, in
combination with the rest of this proposed
rule, constitute a regulatory impact analysis.
B. LTCHs
Overall, LTCHs are projected to experience
an increase in estimated payments per
discharge in FY 2012. In the impact analysis,
we are using the proposed rates, factors, and
policies presented in this proposed rule,
including proposed updated wage index
values and relative weights, and the best
available claims and CCR data to estimate the
proposed change in payments under the
LTCH PPS for FY 2012. Accordingly, based
on the best available data for the 422 LTCHs
in our database, we estimate that proposed
FY 2012 LTCH PPS payments would increase
approximately $95 million (or about 1.9
percent).
XII. Accounting Statements and Tables
A. Acute Care Hospitals
As required by OMB Circular A–4
(available at https://www.whitehouse.gov/
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 proposed rule as they relate to acute
care hospitals. This table provides our best
estimate of the proposed change in Medicare
payments to providers as a result of the
proposed changes to the IPPS presented in
this proposed rule. All expenditures are
classified as transfers to Medicare providers.
provides our best estimate of the estimated
increase in Medicare payments under the
LTCH PPS as a result of the proposed
provisions presented in this proposed rule
based on the data for the 422 LTCHs in our
database. All expenditures are classified as
transfers to Medicare providers (that is,
LTCHs).
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improvement points for hospital k are
calculated as:
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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 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.
emcdonald on DSK2BSOYB1PROD with PROPOSALS2
II. Inpatient Hospital Update for FY 2012
A. Proposed FY 2012 Inpatient Hospital
Update
Section 1886(b)(3)(B) of the Act, as
amended by sections 3401(a) and 10319(a) of
the Affordable Care Act, sets the applicable
percentage increase under the IPPS for FY
2012 as equal to the rate-of-increase in the
hospital market basket for IPPS hospitals in
all areas (which is based on IHS Global
Insight Inc.’s (IGI’s) first quarter 2011 forecast
of the FY 2006-based IPPS market basket),
subject to a reduction of 2.0 percentage
points if the hospital fails to submit quality
information under rules established by the
Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act, and then
subject to an adjustment based on changes in
economy-wide productivity and an
additional reduction of 0.1 percentage point.
Sections 1886(b)(3)(B)(xi) and (b)(3)(B)(xii) of
the Affordable Care Act, as added by section
3401(a) of the Affordable Care Act, state that
the application of the multifactor
productivity adjustment and the additional
FY 2012 adjustment of 0.1 percentage point
may result in the applicable percentage
increase being less than zero.
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In accordance with section 1886(b)(3)(B) of
the Act, as amended by section 3401(a) of the
Affordable Care Act, in section IV.K.3. of the
preamble of this proposed rule, we are
proposing a multifactor productivity (MFP)
adjustment (the 10-year moving average of
MFP for the period ending FY 2012) of 1.2
percent.
Therefore, based on IGI’s first quarter 2011
forecast of the FY 2012 market basket
increase, we are proposing an applicable
percentage increase to the FY 2012 operating
standardized amount of 1.5 percent (that is,
the FY 2012 estimate of the market basket
rate-of-increase of 2.8 percent less an
adjustment of 1.2 percentage points for
economy-wide productivity and less 0.1
percentage point) for hospitals in all areas,
provided the hospital submits quality data in
accordance with section 1886(b)(3)(B)(vii) of
the Act and our rules. For hospitals that fail
to submit quality data, we are proposing an
applicable percentage increase to the
operating standardized amount of ¥0.5
percent (that is, the FY 2012 estimate of the
market basket rate-of increase of 2.8 percent
less 2.0 percentage points for failure to
submit quality data, less an adjustment of 1.2
percentage points for economy-wide
productivity, and less an additional
adjustment of 0.1 percentage point).
B. Proposed Update for SCHs and MDHs for
FY 2012
Section 1886(b)(3)(B)(iv) of the Act
provides that the FY 2012 applicable
percentage increase in the hospital-specific
rates for SCHs and MDHs equals the
applicable percentage increase 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). Therefore, the update to
the hospital specific rates for SCHs and
MDHs is subject to section 1886(b)(3)(B)(i) of
the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act.
Accordingly, we are proposing an applicable
percentage increase to the hospital-specific
rates applicable to SCHs and MDHs of 1.5
percent for hospitals that submit quality data
or ¥0.5 percent for hospitals that fail to
submit quality data.
C. Proposed FY 2012 Puerto Rico Hospital
Update
Section 401(c) of Public Law 108–173
amended section 1886(d)(9)(C)(i) of the Act
and states that, for discharges occurring in a
fiscal year (beginning with FY 2004), the
Secretary shall compute an average
standardized amount for hospitals located in
any area of Puerto Rico that is equal to the
average standardized amount computed
under subclause (I) for FY 2003 for hospitals
in a large urban area (or, beginning with FY
PO 00000
Frm 00297
Fmt 4701
Sfmt 4702
2005, for all hospitals in the previous fiscal
year) increased by the applicable percentage
increase under subsection (b)(3)(B) for the
fiscal year involved. Therefore, the update to
the Puerto Rico-specific operating
standardized amount is subject to the
applicable percentage increase set forth in
section 1886(b)(3)(B)(i) of the Act as
amended by sections 3401(a) and 10319(a) of
the Affordable Care Act (that is, the same
update factor as for all other hospitals subject
to the IPPS). Accordingly, we are proposing
an applicable percentage increase to the
Puerto Rico-specific standardized amount of
1.5 percent.
D. Proposed Update for Hospitals Excluded
From the IPPS
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 (and codified at
section 1886(m)(1) of the Act), 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.
Currently, children’s hospitals, cancer
hospitals, and RNHCIs are the remaining
three types of hospitals still reimbursed
under the reasonable cost methodology. We
are proposing to provide our current estimate
of the FY 2012 IPPS operating market basket
percentage increase (2.8 percent) to update
the target limits for children’s hospitals,
cancer hospitals, and RNHCIs.
For FY 2012, as discussed in section VII.
of the preamble to this proposed rule, we are
proposing to establish an update to the LTCH
PPS standard Federal rate for FY 2012 based
on the full proposed LTCH PPS market
basket increase estimate (2.8 percent). The
proposed annual update also includes the
requirement at section 1886(m)(3)(A)(i) of the
Act to reduce the annual update by the
productivity adjustment described in section
1886(b)(3)(B)(xi)(ii) of the Act, which is
currently estimated to be 1.2 percent. In
addition, the statute at section
1886(m)(3)(A)(ii) of the Act requires that any
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EP05MY11.123
XII. Executive Order 12866
In accordance with the provisions of
Executive Order 12866, the Executive Office
of Management and Budget reviewed this
proposed rule.
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emcdonald on DSK2BSOYB1PROD with PROPOSALS2
annual update for FY 2012 be reduced by the
‘‘other adjustment’’ at section 1886(m)(4)(C)
of the Act, which is 0.1 percentage point.
Accordingly, the proposed update factor to
the standard Federal rate for FY 2012 is 1.5
percent (that is, we are proposing to apply a
factor of 1.015 in determining the proposed
LTCH PPS standard Federal rate for FY
2012).
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. In the RY 2012 IPF PPS
proposed rule (76 FR 5000 through 5001), we
proposed to extend the IPF PPS RY 2012 by
3 months (a total of 15 months instead of 12
months) through September 30, 2012. Based
on IGI’s fourth quarter 2010 forecast, with
history through the third quarter of 2010, the
projected 15-month market basket update
based on the proposed FY 2008-based RPL
market basket for the proposed 15-month RY
2012 (July 1, 2011 through September 30,
2012) is 3.0 percent. However, if we were not
proposing to extend the 2012 IPF PPS rate
year by 3 months, we would have proposed
a market basket update of 2.6 percent for a
12-month RY 2012. In accordance with
section 1886(s)(2)(A)(ii) of the Act, which
requires the application of an ‘‘other
adjustment,’’ described in section 1886(s)(3)
of the Act (specifically, section 1886(s)(3)(A)
for RYs 2011 and 2012), that reduces the
update to the IPF PPS base rate for the rate
year beginning in CY 2011, we proposed to
adjust the IPF PPS update by 0.25 percentage
point for RY 2012. Therefore, we proposed to
apply the 15-month FY 2008-based RPL
market basket increase of 3.0 percent, which
is then adjusted by the ‘‘other adjustment’’ of
0.25 percentage point.
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). Sections 1886(j)(3)(C)(ii)(II) and
1886(j)(3)(D)(ii) of the Act require the
application of a 0.1 percentage point
reduction to the market basket increase factor
for FYs 2012 and 2013. In addition, section
1886(j)(3)(C)(ii)(I) of the Act requires the
application of a productivity adjustment.
Increase factors for the IRF PPS will be
discussed in future notice and comment
rulemaking.
III. Secretary’s Recommendations
MedPAC is recommending an inpatient
hospital update equal to one percent for FY
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17:47 May 04, 2011
Jkt 223001
2012. MedPAC’s rationale for this update
recommendation is described in more detail
below. As mentioned above, section
1886(e)(4)(A) of the Act requires that the
Secretary, taking into consideration the
recommendations of 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. Consistent
with current law, we are recommending an
applicable percentage increase to the
standardized amount of 1.5 percent (that is,
the FY 2012 estimate of the market basket
rate-of-increase of 2.8 percent less an MFP
adjustment of 1.2 percentage points for MFP
and less 0.1 percentage point). We are
recommending that the same applicable
percentage increase apply to SCHs and MDHs
and the Puerto Rico-specific standardized
amount.
In addition to making a recommendation
for IPPS hospitals, in accordance with
section 1886(e)(4)(A) of the Act, we are
recommending update factors for all other
types of hospitals. Consistent with our
proposal for these facilities, we are
recommending an update for children’s
hospitals, cancer hospitals, and RNHCIs of
2.8 percent.
For FY 2012, consistent with policy
proposal set forth in section VII. of the
preamble of this proposed rule, we are
recommending an update of 1.5 percent to
the LTCH PPS standard Federal rate. In
addition, consistent with the proposed
update specified in the FY 2012 IRF PPS
proposed rule (as described above), we are
recommending an update of 1.5 percent (that
is, the market basket increase factor of 2.8
percent less 1.2 percentage points for
economy-wide productivity and less 0.1
percentage point in accordance with sections
1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the
Act) to the IRF PPS Federal rate for FY 2012.
Finally, consistent with the proposed update
specified in the FY 2012 IPF PPS proposed
rule (as described above), we are
recommending an update of 3.0 percent
reduced by 0.25 percentage point to the IPF
PPS Federal rate for RY 2012 for the Federal
per diem payment amount.
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating Payments
in Traditional Medicare
In its March 2011 Report to Congress,
MedPAC assessed the adequacy of current
payments and costs, and the relationship
between payments and an appropriate cost
base. MedPAC recommended an update to
the hospital inpatient rates equal to one
percent. MedPAC expects Medicare margins
to remain low in 2012. At the same time
though, MedPAC’s analysis finds that
efficient hospitals have been able to maintain
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Frm 00298
Fmt 4701
Sfmt 9990
positive Medicare margins while maintaining
a relatively high quality of care. MedPAC
also recommended that Congress should
require the Secretary to make adjustments to
inpatient payment rates in future years to
recover all overpayments due to
documentation and coding improvements.
MedPAC noted that priority should be given
to preventing future overpayments.
Response: With regard to MedPAC’s
recommendation of an update to the hospital
inpatient rates equal to one percent, for FY
2012, as discussed above, sections 3401(a)
and 10319(a) of the Affordable Care Act
amended section 1886(b)(3)(B) of the Act.
Section 1886(b)(3)(B), as amended by these
sections, sets the requirements for the FY
2012 applicable percentage increase.
Therefore, we have proposed an applicable
percentage increase for FY 2012 of 1.5
percent, provided the hospital submits
quality data, consistent with these statutory
requirements.
Similar to our response last year, we agree
with MedPAC that hospitals should control
costs rather than have Medicare
accommodate the current rate of growth. 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.
With regard to MedPAC’s recommendation
that Congress should require the Secretary to
make adjustments to inpatient payment rates
in future years to recover all overpayments
due to diagnosis and coding improvements,
we refer the reader to section III. D. of the
preamble to this proposed rule for a complete
discussion on the proposed FY 2012 MS–
DRG documentation and coding adjustment.
In section III. D. of the preamble to this
proposed rule, we are proposing a
prospective adjustment of 3.15 percent and a
recoupment of 2.9 percent to the FY 2012
inpatient payment rates to recover
overpayments due to documentation and
coding improvements. We note that any
recoupments for overpayments due to
documentation and coding improvements
beyond the authority of section 7(b)(1)(B) of
Public Law 110–90 would require additional
changes to current law by Congress.
Therefore, without a change to current law,
our ability to recoup all overpayments due to
documentation and coding improvements is
limited.
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 proposed
rule.
[FR Doc. 2011–9644 Filed 4–19–11; 4:15 pm]
BILLING CODE 4120–01–P
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Agencies
[Federal Register Volume 76, Number 87 (Thursday, May 5, 2011)]
[Proposed Rules]
[Pages 25788-26084]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-9644]
[[Page 25787]]
Vol. 76
Thursday,
No. 87
May 5, 2011
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, and 476
Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems for Acute Care Hospitals and the Long-Term
Care Hospital Prospective Payment System and Fiscal Year 2012 Rates;
Proposed Rule
Federal Register / Vol. 76, No. 87 / Thursday, May 5, 2011 / Proposed
Rules
[[Page 25788]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 412, 413, and 476
[CMS-1518-P]
RIN 0938-AQ24
Medicare Program; Proposed Changes to the Hospital Inpatient
Prospective Payment Systems for Acute Care Hospitals and the Long-Term
Care Hospital Prospective Payment System and Fiscal Year 2012 Rates
AGENCY: Centers for Medicare and Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: We are proposing to revise 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
statutory provisions contained in the Patient Protection and Affordable
Care Act and the Health Care and Education Reconciliation Act of 2010
(collectively known as the Affordable Care Act) and other legislation.
These changes would be applicable to discharges occurring on or after
October 1, 2011. We also are setting forth the proposed 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
proposed updated rate-of-increase limits would be effective for cost
reporting periods beginning on or after October 1, 2011.
We are proposing to update 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) and implement certain statutory changes made by the Affordable
Care Act. These changes would be applicable to discharges occurring on
or after October 1, 2011.
DATES: Comment Period: To be assured consideration, comments must be
received at one of the addresses provided below, no later than 5 p.m.
EDT on June 20, 2011.
ADDRESSES: When commenting, please refer to file code CMS-1518-P.
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-1518-P to submit
comments on this proposed 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-1518-P, P.O. Box 8011, Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address only: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-1518-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to 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.
FOR FURTHER INFORMATION CONTACT:
Tzvi Hefter, (410) 786-4487, and Ing-Jye Cheng, (410) 786-4548,
Operating Prospective Payment, MS-DRGs, Hospital Acquired Conditions
(HAC), Wage Index, New Medical Service and Technology Add-On Payments,
Hospital Geographic Reclassifications, Capital Prospective Payment,
Excluded Hospitals, Medicare Disproportionate Share Hospital (DSH), and
Postacute Care Transfer 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 Issues.
Bridget Dickensheets, (410) 786-8670, Rebasing and Revising of the
Market Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786-6673, Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786-2261, Inpatient Quality Reporting--Program
Administration, Validation, and Reconsideration Issues.
Shaheen Halim, (410) 786-0641, Inpatient Quality Reporting--Measures
Issues Except Hospital Consumer Assessment of Healthcare Providers and
Systems Issues; and Readmission Measures for Hospitals Issues.
Elizabeth Goldstein, (410) 786-6665, Inpatient Quality Reporting--
Hospital Consumer Assessment of Healthcare Providers and Systems
Measures Issues.
Mary Pratt, (410) 786-6867, LTCH Quality Data Reporting Issues.
Kim Spaulding Bush, (410) 786-3232, Hospital Value-Based Purchasing
Efficiency Measures Issues.
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 4:00 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
[[Page 25789]]
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).
Tables Available Only Through the Internet on the CMS Web Site
In the past, a majority of the tables referred to throughout this
preamble and in the Addendum to this proposed rule were published in
the Federal Register as part of the annual proposed and final rules.
However, beginning in FY 2012, some of the IPPS tables and LTCH PPS
tables will no longer be published as part of the annual IPPS/LTCH PPS
proposed and final rules. Instead, these tables will be available only
through the Internet. The IPPS tables for this proposed rule are
available only through the Internet on the CMS Web site at: https://www.cms.hhs.gov/AcuteInpatientPPS/01_overview.asp. Click on the link
on the left side of the screen titled, ``FY 2012 IPPS Proposed Rule
Home Page'' or ``Acute Inpatient--Files for Download''. The LTCH PPS
tables for this FY 2012 proposed rule are available only through the
Internet on the CMS Web site at: https://www.cms.gov/LongTermCareHospitalPPS/LTCHPPSRN/list.asp under the list item for
Regulation Number CMS-1518-P. For complete details on the availability
of the tables referenced in this proposed rule, we refer readers to
section VI. of the Addendum to this proposed rule. Readers who
experience any problems accessing any of the tables that are posted on
the CMS Web sites identified above should contact Nisha Bhat at (410)
786-4487.
Acronyms
3M 3M Health Information System
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
CRNA Certified Registered Nurse Anesthetist
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
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
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
HICAN Health Insurance Claims Account Number
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
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
IGI IHS Global Insight, Inc.
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
IQR Inpatient Quality Reporting
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
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
[[Page 25790]]
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
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
(Public Law 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]
PMSAs Primary metropolitan statistical areas
POA Present on admission
PPACA Patient Protection and Affordable Care Act, Public Law 111-148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment Commission
PRRB Provider Reimbursement Review Board
PRTFs Psychiatric residential treatment facilities
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
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 Patient Protection and Affordable Care Act
(Pub. L. 111-148) and the Health Care and Education Reconciliation
Act of 2010 (Pub. L. 111-152) Applicable to FY 2012
C. Major Contents of This Proposed Rule
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. Other Decisions and Proposed Changes to the IPPS for
Operating Costs and GME Costs
4. Proposed FY 2012 Policy Governing the IPPS for Capital-
Related Costs
5. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
6. Proposed Changes to the LTCH PPS
7. Proposed Changes to the Electronic Prescribing (eRx)
Incentive Program
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
II. Proposed 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. Proposed FY 2012 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 Pub. L. 110-90
4. Retrospective Evaluation of FY 2008 and FY 2009 Claims Data
5. Prospective Adjustment 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. Recoupment or Repayment 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 2011 and Subsequent Fiscal Years
9. Application of the Documentation and Coding Adjustment to the
Puerto Rico-Specific Standardized Amount
E. Refinement of the MS-DRG Relative Weight Calculation
1. Background
2. Summary of the RTI Study of Charge Compression and CCR
Refinement
3. Summary of Policy Changes Made in FY 2011
4. Discussion for FY 2012
F. Preventable Hospital-Acquired Conditions (HACs), Including
Infections
1. Background
a. Statutory Authority
b. HAC Selection
c. Collaborative Process
d. Application of HAC Payment Policy to MS-DRG Classifications
e. Public Input Regarding Selected and Potential Candidate HACs
f. POA Indicator Reporting
2. Proposed Additions and Revisions to the HAC Policy for FY
2012
a. Contrast-Induced Acute Kidney Injury
b. New Diagnosis Codes Proposed To Be Added to Existing HACs
c. Revision to HAC Subcategory Title
d. Conclusion
3. RTI Program Evaluation Summary
a. Background
b. FY 2009 Data Analysis
c. FY 2010 Data Analysis
G. Proposed Changes to Specific MS-DRG Classifications
1. Pre-Major Diagnostic Categories (Pre-MDCs)
a. Noninvasive Mechanical Ventilation
b. Debridement With Mechanical Ventilation Greater Than 96 Hours
With Major Operating Room (O.R.) Procedure
c. Autologous Bone Marrow Transplant
2. MDC 1 (Diseases and Disorders of the Nervous System):
Rechargeable Dual Array Deep Brain Stimulation System
3. MDC 3 (Diseases and Disorders of the Ear, Nose, Mouth, and
Throat): Skull Based Surgeries
[[Page 25791]]
4. MDC 5 (Diseases and Disorders of the Circulatory System)
a. Percutaneous Mitral Valve Repair With Implant
b. Aneurysm Repair Procedure Codes
5. MDC 8 (Diseases and Disorders of the Musculoskeletal System
and Connective Tissue)
a. Artificial Discs
b. Major Joint Replacement or Reattachment of Lower Extremities
c. Combined Anterior/Posterior Spinal Fusion
6. MDC 9 (Diseases and Disorders of the Skin, Subcutaneous
Tissue, and Breast): Excisional Debridement of Wound, Infection, or
Burn
7. MDC 10 (Endocrine, Nutritional, and Metabolic Diseases and
Disorders)
a. Nutritional and Metabolic Diseases: Update of MS-DRG Titles
b. Sleeve Gastrectomy Procedure for Morbid Obesity
8. MDC 15 (Newborns and Other Neonates with Conditions
Originating in the Perinatal Period): Discharge Status Code 66
(Discharged/Transferred to Critical Access Hospital (CAH))
9. Proposed Medicare Code Editor (MCE) Changes
10. Surgical Hierarchies
11. Complications or Comorbidity (CC) Exclusions List
a. Background
b. Proposed CC Exclusions List for FY 2012
12. 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 Into 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
13. Changes to the ICD-9-CM Coding System, Including Discussion
of the Replacement of the ICD-9-CM System With the ICD-10-CM and
ICD-10-PCS Systems in FY 2014
a. ICD-9-CM Coding System
b. Code Freeze
c. Processing of 25 Diagnosis Codes and 25 Procedure Codes on
Hospital Inpatient Claims
d. ICD-10 MS-DRGs
14. Other Issues
a. O.R./Non-O.R. Status of Procedures
b. IPPS Recalled Device Policy Clarification
H. Recalibration of MS-DRG Weights
I. Proposed 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 2012 Status of Technologies Approved for FY 2011 Add-On
Payments
a. Spiration[supreg] IBV Valve System
b. Cardio WestTM Temporary Artificial Heart System
(Cardio WestTM TAH-t)
c. Auto Laser Interstitial Thermal Therapy
(AutoLITTTM) System
4. FY 2012 Applications for New Technology Add-On Payments
a. AxiaLIF[supreg] 2L+TM System
b. ChampionTM HF Monitoring System
c. PerfectCLEAN With Micrillon[supreg]
III. Proposed Changes to the Hospital Wage Index for Acute Care
Hospitals
A. Background
B. Core-Based Statistical Areas for the Hospital Wage Index
C. Proposed Occupational Mix Adjustment to the FY 2012 Wage
Index
1. Development of Data for the Proposed FY 2012 Occupational Mix
Adjustment Based on the 2007-2008 Occupational Mix Survey
2. New 2010 Occupational Mix Survey for the FY 2013 Wage Index
3. Calculation of the Proposed Occupational Mix Adjustment for
FY 2012
D. Worksheet S-3 Wage Data for the Proposed FY 2012 Wage Index
1. Included Categories of Costs
2. Proposal for Changes to the Reporting Requirements for
Pension Costs for the Medicare Wage Index
a. Background
b. Proposal for Allowable Pension Cost for the Medicare Wage
Index
3. Excluded Categories of Costs
4. Use of Wage Index Data by Providers Other Than Acute Care
Hospitals Under the IPPS
E. Verification of Worksheet S-3 Wage Data
F. Method for Computing the Proposed FY 2012 Unadjusted Wage
Index
1. Steps for Computation
2. Expiration of the Imputed Floor Policy
3. Proposed FY 2012 Puerto Rico Wage Index
G. Analysis and Implementation of the Proposed Occupational Mix
Adjustment and the Proposed FY 2012 Occupational Mix Adjusted Wage
Index
H. Revisions to the Wage Index Based on Hospital Redesignations
and Reclassifications
1. General
2. Effects of Reclassification/Redesignation
3. FY 2012 MGCRB Reclassifications
a. FY 2012 Reclassification Requirements and Approvals
b. Applications for Reclassifications for FY 2013
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
7. Waiving Lugar Redesignation for the Out-Migration Adjustment
8. Other Geographic Reclassification Issues
a. Requested Reclassification for Single Hospital MSAs
b. Requests for Exceptions to Geographic Reclassification Rules
I. Proposed FY 2012 Wage Index Adjustment Based on Commuting
Patterns of Hospital Employees
J. Process for Requests for Wage Index Data Corrections
K. Labor-Related Share for the Proposed FY 2012 Wage Index
IV. Other Proposed Decisions and Changes to the IPPS for Operating
Costs and GME Costs
A. Hospital Inpatient Quality Reporting Program
1. Background
a. Overview
b. Statutory History and History of Measures Adopted for the
Hospital IQR Program
c. Maintenance of Technical Specifications for Quality Measures
d. Public Display of Quality Measures
2. Retirement of Hospital IQR Program Measures
a. Considerations in Retiring Quality Measures from the Hospital
IQR Program
b. Proposed Retirement of Quality Measures under the Hospital
IQR Program for the FY 2014 Payment Determination and Subsequent
Years
3. Proposed Quality Measures for the FY 2014 and FY 2015 Payment
Determinations
a. Considerations in Expanding and Updating Quality Measures
Under the Hospital IQR Program
b. Proposed Hospital IQR Program Quality Measures for the FY
2014 Payment Determination
c. Proposed Hospital IQR Program Quality Measures for the FY
2015 Payment Determination
4. Possible New Quality Measures and Measure Topics for Future
Years
5. Form, Manner, and Timing of Quality Data Submission
a. Background
b. Proposed Procedural Requirements for FY 2013 and Subsequent
Years
c. Proposed General Data Collection and Submission Requirements
d. Proposed Data Submission Requirements for Chart-Abstracted
Measures
e. Proposed Sampling and Case Thresholds
f. Proposed HCAHPS Requirements for the FY 2013, FY 2014, and FY
2015 Payment Determinations
g. Proposed Procedures for Claims-Based Measures
h. Proposed Data Submission Requirements for Structural Measures
i. Proposed Data Submission and Reporting Requirements for
Healthcare-Associated Infection (HAI) Measures Reported via NHSN
6. Proposed Chart Validation Requirements for Chart-Abstracted
Measures
a. Proposed Chart Validation Requirements and Methods for the FY
2012 Payment Determination
b. Proposed Supplements to the Chart Validation Process for the
FY 2013 Payment Determination and Subsequent Years
7. Proposed QIO Regulation Changes for Provider Medical Record
Deadlines Possibly Including Serious Reportable Events
8. Proposed Data Accuracy and Completeness Acknowledgement
Requirements for the FY 2012 Payment Determination and Subsequent
Years
9. Proposed Public Display Requirements for the FY 2013 Payment
Determination and Subsequent Years
10. Proposed Reconsideration and Appeal Procedures for the FY
2012 Payment Determination
[[Page 25792]]
11. Proposed Hospital IQR Program Disaster Waivers
12. Electronic Health Records
a. Background
b. HITECH Act EHR Provisions
B. Hospital Value-Based Purchasing (VBP) Program
1. Background
2. Overview of the Hospital VBP Program Proposed Rule
3. Proposed FY 2014 Hospital VBP Program Measures
a. Background
b. Proposed Efficiency Measure--Medicare Spending per
Beneficiary Measure--for the FY 2014 Hospital VBP Program
4. Proposed Efficiency Domain (Medicare Spending per Beneficiary
Measure) Performance Period and Baseline Period
C. Hospital Readmission Reduction Program
1. Background
a. Overview
b. Statutory Basis for the Hospital Readmission Reduction
Program
2. Implementation of the Hospital Readmission Reduction Program
a. Overview
b. Proposed Provisions in the FY 2012 IPPS/LTCH PPS Rulemaking
c. Proposed Provisions To Be Included in the FY 2013 IPPS/LTCH
PPS Proposed Rule
d. Proposed Expansion of the Applicable Conditions To Be
Included in the Future Rulemaking
3. Proposed Provisions of the Hospital Readmission Reduction
Program
a. Proposed Applicable Conditions for FY 2013 Hospital
Readmission Reduction Program
b. Proposed Definition of ``Readmissions''
c. Proposed Readmission Measures and Related Methodology
D. Rural Referral Centers (RRCs) (Sec. 412.96)
1. Case-Mix Index (CMI)
2. Discharges
E. Payment Adjustment for Low-Volume Hospitals (Sec. 412.101)
1. Background
2. Temporary Changes for FYs 2011 and 2012
3. Proposed Discharge Data Source to Identify Qualifying Low-
Volume Hospitals and Calculate the Payment Adjustment (Percentage
Increase) for FY 2012
F. Indirect Medical Education (IME) Adjustment
1. Background
2. IME Adjustment Factor for FY 2012
G. Payment Adjustment for Medicare Disproportionate Share
Hospitals (DSHs) and Indirect Medical Education (IME) (Sec. Sec.
412.105 and 412.106)
1. Background
2. Proposed Policy Change Relating to Exclusion of Hospice Beds
and Patient Days From the Medicare DSH Calculation
H. Medicare-Dependent, Small Rural Hospitals (MDHs) (Sec.
412.108)
1. Background
2. Extension of the MDH Program
I. Certified Register Nurse Anesthetists (CRNA) Services
Furnished in Rural Hospitals and CAHs (Sec. 412.113)
J. Additional Payments for Qualifying Hospitals with Lowest per
Enrollee Medicare Spending
1. Background
2. Method for Identifying Qualifying Hospitals and Eligible
Counties
3. Determination of Annual Payment Amounts
4. Eligible Counties and Qualifying Hospitals
5. Payment Determination and Distributions for FY 2011 and FY
2012
K. Proposed Changes in the Inpatient Hospital Update
1. FY 2012 Inpatient Hospital Update
2. FY 2012 Puerto Rico Hospital Update
3. Productivity Adjustment
L. Additional Payments to Hospitals With High Percentage of End-
Stage Renal Disease (ESRD) Discharges (Sec. 412.104)
M. Proposal for Changes to the Reporting Requirements for
Pension Costs for Medicare Cost-Finding Purposes
1. Background
2. Proposal for Allowable Defined Benefit Pension Plan Cost for
Medicare Cost-Finding Purposes
N. Rural Community Hospital Demonstration Program
1. Background
2. Changes to the Demonstration Program Made by the Affordable
Care Act
3. Proposed FY 2012 Budget Neutrality Adjustment
a. Component of the Proposed FY 2012 Budget Neutrality
Adjustment That Accounts for Estimated Demonstration Program Costs
of the ``Pre-Expansion'' Participating Hospitals
b. Portion of the Proposed FY 2012 Budget Neutrality Adjustment
That Accounts for Estimated FY 2012 Demonstration Program Costs for
Hospitals Newly Selected to Participate in the Demonstration Program
c. Portion of the Proposed FY 2012 Budget Neutrality Adjustment
to Offset the Amount by Which the Costs of the Demonstration Program
in FYs 2007 and 2008 Exceeded the Amount That Was Identified in the
FYs 2007 and 2008 IPPS Final Rules as the Budget Neutrality Offset
for FYs 2007 and 2008
O. Bundling of Payments for Services Provided to Outpatients Who
Later Are Admitted as Inpatients: 3-Day Payment Window
1. Background
2. Establishment of Condition Code 51 (Attestation of Unrelated
Outpatient Nondiagnostic Services)
3. Applicability of the Payment Window Policy to Services
Furnished at Physicians' Practices
P. Proposed Changes to MS-DRGs Subject to the Postacute Care
Transfer Policy
Q. Hospital Services Furnished under Arrangements
V. Proposed Changes to the IPPS for Capital-Related Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Proposed Changes for FY 2012: MS-DRG Documentation and Coding
Adjustment
F. Other Proposed Changes for FY 2012
VI. Proposed Changes for Hospitals Excluded From the IPPS
A. Excluded Hospitals
B. Critical Access Hospital (CAH) Payment for Ambulance Services
1. Background
2. Requirement for CAH Ambulance Within a 35-Mile Location of a
CAH or Entity
VII. Proposed Changes to the Long-Term Care Hospital Prospective
Payment System (LTCH PPS) for FY 2012
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. Proposed 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. Proposed Changes to the MS-LTC-DRGs for FY 2012
3. Development of the Proposed FY 2012 MS-LTC-DRG Relative
Weights
a. General Overview of the Development of the MS-LTC-DRG
Relative Weights
b. Development of the Proposed MS-LTC-DRG Relative Weights for
FY 2012
c. Data
d. Hospital-Specific Relative Value (HSRV) Methodology
e. Proposed Treatment of Severity Levels in Developing the MS-
LTC-DRG Relative Weights
f. Proposed Low-Volume MS-LTC-DRGs--Steps for Determining the
Proposed FY 2012 MS-LTC-DRG Relative Weights
C. Proposed Quality Reporting Program for LTCHs
1. Background and Statutory Authority
2. Proposed Quality Measures for the LTCH Quality Reporting
Program for FY 2014
a. Considerations in the Selection of the Proposed Quality
Measures
b. Proposed LTCH Quality Measures for FY 2014 Payment
Determination
3. Possible LTCH Quality Measures under Consideration for Future
Years
4. Proposed Data Submission Methods and Timelines
a. Proposed Method of Data Submission for HAIs
b. Proposed Timeline for Data Reporting Related to HAIs
c. Proposed Method of Data Collection and Submission for the
Pressure Ulcer Measure Data
d. Proposed Timeline for Data Reporting Related to Pressure
Ulcers
5. Public Reporting and Availability of Data Submitted
D. Proposed Rebasing and Revising of the Market Basket Used
Under the LTCH PPS
1. Background
[[Page 25793]]
2. Overview of the Proposed FY 2008-Based RPL Market Basket
3. Proposed Rebasing and Revising of the RPL Market Basket
a. Development of Cost Categories
b. Final Cost Category Computation
c. Selection of Price Proxies
d. Proposed Methodology for Capital Portion of the RPL Market
Basket
e. Proposed FY 2012 Market Basket Update for LTCHs
f. Proposed Labor-Related Share
E. Proposed Changes to the LTCH Payment Rates and Other Proposed
Changes to the FY 2012 LTCH PPS
1. Overview of Development of the LTCH Payment Rates
2. Proposed FY 2012 LTCH PPS Annual Market Basket Update
a. Overview
b. Revision of Certain Market Basket Updates as Required by the
Affordable Care Act
c. Proposed Market Basket Under the LTCH PPS for FY 2012
d. Productivity Adjustment
e. Proposed Annual Market Basket Update for LTCHs for FY 2012
3. Proposed Budget Neutrality Adjustment for the Changes to the
Area Wage Level Adjustment
4. Proposed Budget Neutrality Adjustment for the Changes to the
Area Wage Level Adjustment
5. Greater Than 25 Day Average Length of Stay Requirement for
LTCHs
a. Determining the Average Length of Stay When There Is a Change
of Ownership
b. Inclusion of Medicare Advantage (MA) Days in the Average
Length of Stay Calculation
F. Proposed Application of LTCH Moratorium on the Increase in
Beds at Section 114(d)(1)(B) of Public Law 110-173 (MMSEA) to LTCHs
and LTCH Satellite Facilities Established or Classified as Such
Under Section 114(d)(2) of Public Law 110-173
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Legislative Requirement for Solicitation of Comments
2. ICRs for Add-On Payments for New Services and Technologies
3. ICRs for the Hospital Inpatient Quality Reporting (IQR)
Program
4. ICRs for the Occupational Mix Adjustment to the Proposed FY
2012 Index (Hospital Wage Index Occupational Mix Survey)
5. Hospital Applications for Geographic Reclassifications by the
MGCRB
6. ICRs for the Proposed Quality Reporting Program for LTCHs
C. Response to Public Comments
Regulation Text
Addendum--Proposed Schedule of Standardized Amounts, Update Factors,
and Rate-of-Increase Percentages Effective With Cost Reporting
Periods Beginning on or After October 1, 2011
I. Summary and Background
II. Proposed Changes to the Prospective Payment Rates for Hospital
Inpatient Operating Costs for Acute Care Hospitals for FY 2012
A. Calculation of the Proposed Adjusted Standardized Amount
B. Proposed Adjustments for Area Wage Levels and Cost-of-Living
C. Proposed MS-DRG Relative Weights
D. Calculation of the Proposed Prospective Payment Rates
III. Proposed Changes to Payment Rates for Acute Care Hospital
Inpatient Capital-Related Costs for FY 2012
A. Determination of Federal Hospital Inpatient Capital-Related
Prospective Payment Rate Update
B. Calculation of the Proposed Inpatient Capital-Related
Prospective Payments for FY 2012
C. Capital Input Price Index
IV. Proposed Changes to Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages for FY 2012
V. Proposed Changes to the Payment Rates for the LTCH PPS for FY
2012
A. Proposed LTCH PPS Standard Federal Rate for FY 2012
B. Proposed Adjustment for Area Wage Levels Under the LTCH PPS
for FY 2012
C. Proposed Adjustment for LTCH PPS High-Cost Outlier (HCO)
Cases
D. Computing the Proposed Adjusted LTCH PPS Federal Prospective
Payments for FY 2012
VI. Tables Referenced in This Proposed Rulemaking and Available
Through the Internet on the CMS Web Site
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 and Hospital Units Excluded From the IPPS
VI. Quantitative Effects of the Proposed Policy Changes Under the
IPPS for Operating Costs
A. Basis and Methodology of Estimates
B. Analysis of Table I
C. Impact Analysis of Table II
VII. Effects of Other Proposed Policy Changes
A. Effects of Proposed Policy on HACs, Including Infections
B. Effects of Proposed Policy Changes Relating to New Medical
Service and Technology Add-On Payments
C. Effects of Requirements for Hospital Inpatient Quality
Reporting (IQR) Program
D. Effects of Additional Proposed Hospital Value-Based
Purchasing (VBP) Program Requirements
E. Effects of Proposed Requirements for Hospital Readmissions
Reduction Program
F. Effects of Proposed Policy Changes Relating to Payment
Adjustments for Medicare Disproportionate Share Hospitals (DSHs) and
Indirect Medical Education (IME)
G. Effects of the FY 2012 Low-Volume Hospital Payment Adjustment
H. Effects of Proposed Changes Relating to MDHs
I. Effects of Proposed Policy Relating to CRNA Services
Furnished in Rural Hospitals and CAHs
J. Effects of Proposed Changes Relating to ESRD Add-On Payment
K. Effects of Proposed Changes Relating to the Reporting
Requirements for Pension Costs for Medicare Cost-Finding and Wage
Reporting Purposes
L. Effects of Implementation of Rural Community Hospital
Demonstration Program
M. Effects of Proposed Changes to List of MS-DRGs Subject to the
Postacute Care Transfer and DRG Special Pay Policy
N. Effects of Proposed Changes Relating to Hospital Services
Furnished Under Arrangements
O. Effects of Proposed Change Relating to CAH Payment for
Ambulance Services
VIII. Effects of Proposed Changes in the Capital IPPS
A. General Considerations
B. Results
IX. Effects of Proposed Payment Rate Changes and Policy Changes
Under the LTCH PPS
A. Introduction and General Considerations
B. Impact on Rural Hospitals
C. Anticipated Effects of Proposed 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 2012
A. Proposed FY 2012 Inpatient Hospital Update
B. Proposed Update for SCHs and MDHs for FY 2012
C. Proposed FY 2012 Puerto Rico Hospital Update
D. Proposed Update for Hospitals Excluded From the IPPS
III. Secretary's Recommendation
IV. MedPAC Recommendation for Assessing Payment Adequacy and
Updating Payments in Traditional Medicare
I. Background
A. Summary
1. Acute Care Hospital Inpatient Prospective Payment System (IPPS)
Section 1886(d) of the Social Security Act (the Act) sets forth a
system of payment for the operating costs of acute care hospital
inpatient stays under Medicare Part A (Hospital Insurance) based on
prospectively set rates. Section 1886(g) of the Act requires the
Secretary to pay for the capital-related costs of hospital inpatient
stays under a prospective payment system (PPS). Under these PPSs,
Medicare payment
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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 certain 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 varies 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, which
is determined from 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
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, 2012, 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. 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 (as
codified under section 1886(m)(1) of the Act). 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
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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
October 1, 2009, we issue 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 Patient Protection and Affordable Care Act (Pub.
L. 111-148) and the Health Care and Education Reconciliation Act of
2010 (Pub. L. 111-152) Applicable to FY 2012
The Patient Protection and Affordable Care Act (Pub. L. 111-148),
enacted on March 23, 2010, and the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30,
2010, made a number of changes that affect the IPPS and the LTCH PPS.
(Pub. L. 111-148 and Pub. L. 111-152 are collectively referred to as
the ``Affordable Care Act.'') A number of the provisions of the
Affordable Care Act affect the updates to the IPPS and the LTCH PPS and
providers and suppliers. The provisions of the Affordable Care Act that
were applicable to the IPPS and the LTCH PPS for FYs 2010 and 2011 were
implemented in the following documents:
On June 2, 2010, we issued in the Federal Register a notice (75 FR
31118) that contained the final wage indices, hospital
reclassifications, payment rates, impacts, and other related tables,
effective for the FY 2010 IPPS and the RY 2010 LTCH PPS, which were
required by or directly resulted from implementation of provisions of
the Affordable Care Act.
On August 16, 2010, we issued in the Federal Register a final rule
(75 FR 50042) that implemented provisions of the Affordable Care Act
applicable to the IPPS and LTCH/PPS for FY 2011.
In this proposed rule, we are proposing to implement the following
provisions (or portions of the following provisions) of the Affordable
Care Act that are applicable to the IPPS and LTCH PPS for FY 2012:
Section 3001 of Public Law 111-148, which provides for
establishment of a hospital value-based purchasing program and
applicable measures for value-based incentive payments with respect to
discharges occurring during FY 2013.
Section 3004 of Public Law 111-148, which provides for the
submission of quality data for LTCHs in order to receive the full
annual update to the payment rates and the establishment of quality
data measures.
Section 3025 of Public Law 111-148, which provides for a
hospital readmissions reduction program and related quality data
reporting measures.
Section 3124 of Public Law 111-148, which provides for
extension of the Medicare-dependent, small rural hospital (MDH) program
through FY 2012.
Section 3401 of Public Law 111-148, which provides for the
incorporation of productivity improvements into the market basket
updates for IPPS hospitals and LTCHs.
In addition, we are proposing to continue in FY 2012 to implement
the following provisions, which were initiated in FY 2011:
Section 10324 of Public Law 111-148, which provided for a
wage adjustment for hospitals located in frontier States.
Sections 3401 and 10319 of Public Law 111-148 and section
1105 of Public Law 111-152, which revise certain market basket update
percentages for IPPS and LTCH PPS payment rates for FY 2012.
Sections 3125 and 10314 of Public Law 111-148, which
provides for temporary percentage increases in payment adjustments to
low-volume hospitals for discharges occurring in FY 2012.
Section 1109 of Public Law 111-152, which provides for
additional payments in FY 2012 for qualifying hospitals in the lowest
quartile of per capita Medicare spending.
C. Major Contents of This Proposed Rule
In this proposed rule, we are setting forth proposed changes to the
Medicare IPPS for operating costs and for capital-related costs of
acute care hospitals in FY 2012. We also are setting forth proposed
changes relating to payments for IME costs and payments to certain
hospitals that continue to be excluded from the IPPS and paid on a
reasonable cost basis.
In addition, in this proposed rule, we are setting forth proposed
changes to the payment rates, factors, and other payment rate policies
under the LTCH PPS for FY 2012.
Below is a summary of the major changes that we are proposing to
make:
1. Proposed Changes to MS-DRG Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of the proposed rule, we include--
Proposed changes to MS-DRG classifications based on our
yearly review.
Proposed application of the documentation and coding
adjustment for FY 2012 resulting from implementation of the MS-DRG
system.
A discussion of the Research Triangle International, Inc.
(RTI) reports and recommendations relating to charge compression.
Proposed recalibrations of the MS-DRG relative weights.
Proposed changes to hospital-acquired conditions (HACs)
and a listing and discussion of HACs, including infections, that would
be subject to the statutorily required quality adjustment in MS-DRG
payments for FY 2012.
We discussed the FY 2012 status of new technologies approved for
add-on payments for FY 2011 and present our evaluation and analysis of
the FY 2012 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 this proposed rule, we are
proposing revisions to the wage index for acute care hospitals and the
annual update of the wage data. Specific issues addressed include the
following:
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The proposed FY 2012 wage index update using wage data
from cost reporting periods beginning in FY 2008.
Analysis and implementation of the proposed FY 2012
occupational mix adjustment to the wage index for acute care hospitals,
including discussion of the 2010 occupational mix survey.
A proposal to change the reporting requirements for
pension costs for the Medicare wage index.
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 2012 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 2012 hospital wage index.
Determination of the labor-related share for the proposed
FY 2012 wage index.
3. Other Decisions and Proposed Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble of this proposed rule, we discuss a
number of the provisions of the regulations in 42 CFR parts 412, 413,
and 476, including the following:
The reporting of hospital quality data under the Hospital
Inpatient Quality Reporting (IQR) Program as a condition for receiving
the full annual payment update increase.
The proposed implementation of the Hospital Value-Based
Purchasing Program measures.
The proposed establishment of hospital readmisssion
measures for reporting of hospital quality data.
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
2012.
Proposed payment adjustment for low-volume hospitals.
Proposal for counting hospice days in the formula for
determining the payment adjustment for disproportionate share
hospitals.
Proposal for making additional payments for qualifying
hospitals with lowest per enrollee Medicare spending for FY 2012.
Proposal to clarify ESRD add-on payment requirements based
on cost report requirements.
Proposal relating to changes to the reporting requirements
for pension costs for Medicare cost-finding purposes.
Proposal to implement statutory change to the hospital
payment update, including incorporation of a productivity adjustment.
Discussion of the Rural Community Hospital Demonstration
Program and a proposal for making a budget neutrality adjustment for
the demonstration program.
Discussion of August 2010 interim final rule with comment
period and further proposed changes relating to the 3-day payment
window for payments for services provided to outpatients who are later
admitted as inpatients.
4. Proposed FY 2012 Policy Governing the IPPS for Capital-Related Costs
In section V. of the preamble to this proposed rule, we discuss the
proposed payment policy requirements for capital-related costs and
capital payments to hospitals for FY 2012 and the proposed MS-DRG
documentation and coding adjustment for FY 2012.
5. Proposed Changes to the Payment Rates for Certain Excluded
Hospitals: Rate-of-Increase Percentages
In section VI. of the preamble of this proposed rule, we discuss
proposed changes to payments to certain excluded hospitals. In
addition, we discuss proposed changes relating to payment for TEFRA
services furnished under arrangements and payment for ambulance
services furnished by CAH-owned and operated entities.
6. Proposed Changes to the LTCH PPS
In section VII. of the preamble of this proposed rule, we set forth
proposed changes to the payment rates, factors, and other payment rate
policies under the LTCH PPS for FY 2012, including the annual update of
the MS-LTC-DRG classifications and relative weights for use under the
LTCH PPS for FY 2012, the proposed documentation and coding adjustment
under the LTCH PPS for FY 2012, and the proposed rebasing and revising
of the market basket for LTCHs. In addition, we are setting forth
proposals for implementing the quality data reporting program for
LTCHs. We also are proposing to clarify two policies regarding the
calculation of the average length of stay requirement for LTCHs, and
proposing a policy to address a LTCH moratorium issue.
7. Determining Proposed Prospective Payment Operating and Capital Rates
and Rate-of-Increase Limits for Acute Care Hospitals
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the proposed FY 2012
prospective payment rates for operating costs and capital-related costs
for acute care hospitals. We also are proposing to establish the
threshold amounts for outlier cases. In addition, we address the
proposed update factors for determining the rate-of-increase limits for
cost reporting periods beginning in FY 2012 for certain hospitals
excluded from the IPPS.
8. Determining Proposed Prospective Payment Rates for LTCHs
In the Addendum to this proposed rule, we set forth proposed
changes to the amounts and factors for determining the proposed FY 2012
prospective standard Federal rate. We also are proposing to establish
the proposed adjustments for wage levels, the labor-related share, the
cost-of-living adjustment, and high-cost outliers, including the fixed-
loss amount, and the LTCH cost-to-charge ratios (CCRs) under the LTCH
PPS.
9. Impact Analysis
In Appendix A of this proposed rule, we set forth an analysis of
the impact that the proposed changes would have on affected acute care
hospitals and LTCHs.
10. Recommendation of Update Factors for Operating Cost Rates of
Payment for Hospital Inpatient Services
In Appendix B of this proposed rule, as required by sections
1886(e)(4) and (e)(5) of the Act, we provide our recommendations of the
appropriate percentage changes for FY 2012 for the following:
A single average standardized amount for all areas for
hospital 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 LTC