Medicaid Program; Payment Adjustment for Provider-Preventable Conditions Including Health Care-Acquired Conditions, 32816-32838 [2011-13819]

Agencies

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

[Federal Register Volume 76, Number 108 (Monday, June 6, 2011)]
[Rules and Regulations]
[Pages 32816-32838]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13819]



[[Page 32815]]

Vol. 76

Monday,

No. 108

June 6, 2011

Part III





Department of Health and Human Services





-----------------------------------------------------------------------



Centers for Medicare & Medicaid Services



-----------------------------------------------------------------------



42 CFR Parts 434, 438, and 447



Medicaid Program; Payment Adjustment for Provider-Preventable 
Conditions Including Health Care-Acquired Conditions; Final Rule

Federal Register / Vol. 76 , No. 108 / Monday, June 6, 2011 / Rules 
and Regulations

[[Page 32816]]


-----------------------------------------------------------------------

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 434, 438, and 447

[CMS-2400-F]
RIN 0938-AQ34


Medicaid Program; Payment Adjustment for Provider-Preventable 
Conditions Including Health Care-Acquired Conditions

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This final rule will implement section 2702 of the Patient 
Protection and Affordable Care Act which directs the Secretary of 
Health and Human Services to issue Medicaid regulations effective as of 
July 1, 2011 prohibiting Federal payments to States under section 1903 
of the Social Security Act for any amounts expended for providing 
medical assistance for health care-acquired conditions specified in the 
regulation. It will also authorize States to identify other provider-
preventable conditions for which Medicaid payment will be prohibited.

DATES: These regulations are effective on July 1, 2011.

FOR FURTHER INFORMATION CONTACT: Venesa Day, (410) 786-8281, or Marsha 
Lillie-Blanton, (410) 786-8856.

SUPPLEMENTARY INFORMATION:

Acronyms

    To assist the reader, the following list of the acronyms are 
used in this final rule:

AHRQ Agency for Healthcare Research and Quality
BPM Benefit Policy Manual
CABG Coronary artery bypass graft
CBO Congressional Budget Office
CDC Centers for Disease Control and Prevention
DVT Deep vein thrombosis
ESRD End-stage renal disease
DRA Deficit Reduction Act of 2005 (Pub. L. 109-171, enacted on 
February 8, 2006)
FFP Federal financial participation
FY Fiscal year
HAC Hospital-acquired condition
HCAC Health care-acquired condition
ICR Information collection requirement
IH Inpatient Hospital
IPPS Inpatient prospective payment system
MS-DRG Diagnosis-related group
NCA National coverage analysis
NDC National coverage determination
NQF National Quality Forum
OACT [CMS] Office of the Actuary
OIG Office of Inspector General
OMB Office of Management and Budget
OPPC Other provider-preventable condition
PE Pulmonary embolism
POA Present on admission
PPC Provider-preventable condition
PRA Paperwork Reduction Act
RFA Regulatory Flexibility Act (September 19, 1980, Pub. L. 96-354)
RIA Regulatory impact analysis
SMDL State Medicaid Director Letter
SPA State plan amendment
UMRA Unfunded Mandates Reform Act of 1995 (Pub. L. 104-04, enacted 
on March 22, 1995)
UTI Urinary tract infection

I. Background

    Title XIX of the Social Security Act (the Act) authorizes Federal 
grants to the States for Medicaid programs to provide medical 
assistance to persons with limited income and resources. While Medicaid 
programs are administered by the States, they are jointly financed by 
the Federal and State governments. Each State establishes its own 
eligibility standards, benefits packages, payment rates, and program 
administration for Medicaid in accordance with Federal statutory and 
regulatory requirements. Operating within broad Federal parameters, 
States select eligibility groups, types, and range of services, payment 
levels for services, and administrative and operating procedures. Each 
State Medicaid program must be described and administered in accordance 
with a Federally-approved ``State plan.'' This comprehensive document 
describes the nature and scope of the State's Medicaid program, and 
provides assurances that it will be administered in conformity with all 
Federal requirements.
    The Federal government pays its share of medical assistance 
expenditures to the State on a quarterly basis according to a formula 
described in sections 1903 and 1905(b) of the Act. Specifically, 
section 1903 of the Act requires that the Secretary (except as 
otherwise provided) pay to each State which has a plan approved under 
title XIX, for each quarter, an amount equal to the Federal medical 
assistance percentage of the total amount expended during such quarter 
as medical assistance under the State plan.
    Among the statutory requirements for Medicaid State plans, section 
1902(a)(4) of the Act requires that State plans provide for methods of 
administration as are found to be necessary by the Secretary for the 
proper and efficient operation of the plan. Section 1902(a)(6) of the 
Act requires that a State plan for medical assistance provide that the 
State agency will make such reports, in such form and containing such 
information, as the Secretary may from time-to-time require, and comply 
with such provisions as the Secretary may from time-to-time find 
necessary to assure the correctness and verification of such reports. 
In addition, section 1902(a)(19) of the Act requires that a State plan 
for medical assistance provide such safeguards as may be necessary to 
assure that eligibility for care and services under the plan will be 
determined, and such care and services will be provided, in a manner 
consistent with simplicity of administration and the best interests of 
the recipients.

A. The Medicare Program and Quality Improvements Made in the Deficit 
Reduction Act of 2005 (DRA) (Pub. L. 109-171)

    Title XVIII of the Act provides authority for the Secretary to 
operate the Medicare program, which provides payment for certain 
medical expenses for persons 65 years of age or older, certain disabled 
individuals, and persons with end-stage renal disease (ESRD). Medicare 
benefits include inpatient care, a wide range of medical services, and 
outpatient prescription drugs.
    The Medicare statute authorizes the Secretary, in the course of 
operating the Medicare program, to develop, implement, and monitor 
quality measures, as well as take other actions, to ensure the quality 
of the care and services received by Medicare beneficiaries.
    Payment under the Medicare program for inpatient hospital services 
is generally based on the ``inpatient prospective payment system'' 
(IPPS) described in section 1886(d) of the Act. Hospitals receive a 
payment for each inpatient discharge based in part on diagnosis codes 
that identify a ``diagnosis-related group'' (MS-DRG). Assignment of an 
MS-DRG can take into account the presence of secondary diagnoses, and 
payment levels are also adjusted to account for a number of hospital-
specific factors.
    Section 5001(a) of the Deficit Reduction Act of 2005 (Pub. L. 109-
171, enacted on February 8, 2006) (DRA) amended section 1886(b)(3)(B) 
of the Act to expand the set of hospital quality measures collected by 
Medicare. In particular, this provision directed the Secretary to start 
collecting baseline measures set forth by the Institute of Medicine in 
its November 2005 report. In FY 2008 and subsequent years, the 
Secretary was required to add other measures that reflect consensus 
among affected parties. The provision also allowed the Secretary to 
replace and update existing quality measures. The statute mandates that 
the Secretary establish a process for hospitals to review data that 
will be made public

[[Page 32817]]

and, after that process is complete, requires the Secretary to post 
measures on the Hospital Compare Internet Web site.
    Section 5001(c) of the DRA amended section 1886(d)(4) of the Act to 
adjust payment to hospitals for certain preventable hospital-acquired 
conditions (HACs) identified by the Secretary. Specifically, under 
section 1886(d)(4)(D)(iv) of the Act, the Secretary is required to 
select codes associated with at least two conditions to be identified 
as HACs. These conditions are required to have the following 
characteristics: (a) High cost or high volume or both; (b) result in 
the assignment of a case to a MS-DRG that has a higher payment when 
present as a secondary diagnosis; and (c) could reasonably have been 
prevented through the application of evidence-based guidelines. Section 
5001(c) of the DRA provides for revision of the list of conditions from 
time to time, as long as it contains at least two conditions.

B. Previously Specified Medicare HACs

    Under the provisions of section 1886(d)(4)(D)(ii) of the Act, when 
a HAC is not present on admission (POA), but is reported as a secondary 
diagnosis associated with the hospitalization, the Medicare payment 
under IPPS to the hospital may be reduced to reflect that the condition 
was hospital-acquired. More specifically, the hospital discharge cannot 
be assigned to a higher paying MS-DRG if the secondary diagnosis 
associated with the HAC was the only reason for this assignment.
    Since October 1, 2007, hospitals subject to the IPPS have been 
required to submit information on Medicare claims specifying whether 
diagnoses were POA. The POA indicator reporting requirement and the HAC 
payment provision apply to IPPS hospitals only. This requirement does 
not apply to hospitals exempt from the IPPS.
    The following is a list of the Medicare HACs for FY 2011 (75 FR 
50084 through 50085):

 Foreign Object Retained After Surgery.
 Air Embolism.
 Blood Incompatibility.
 Stage III and IV Pressure Ulcers.
 Falls and Trauma.
    + Fractures.
    + Dislocations.
    + Intracranial Injuries.
    + Crushing Injuries.
    + Burns.
    + Electric Shock.
 Manifestations of Poor Glycemic Control.
    + Diabetic Ketoacidosis.
    + Nonketotic Hyperosmolar Coma.
    + Hypoglycemic Coma.
    + Secondary Diabetes with Ketoacidosis.
    + Secondary Diabetes with Hyperosmolarity.
 Catheter-Associated Urinary Tract Infection (UTI).
 Vascular Catheter-Associated Infection.
 Surgical Site Infection Following:
    + Coronary Artery Bypass Graft (CABG)--Mediastinitis.
    + Bariatric Surgery.
    --Laparoscopic Gastric Bypass.
    --Gastroenterostomy.
    --Laparoscopic Gastric Restrictive Surgery.
    + Orthopedic Procedures.
    --Spine.
    --Neck.
    --Shoulder.
    --Elbow.
 Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE).
    + Total Knee Replacement.
    + Hip Replacement.

    The Secretary may revise this list upon review and does so through 
notice and comment rulemaking.

C. Previously Specified Medicare National Coverage Determinations (NCD)

    In 2002, the National Quality Forum (NQF) published ``Serious 
Reportable Events in Healthcare: A Consensus Report'', which listed 27 
adverse events that were ``serious, largely preventable and of concern 
to both the public and health care providers.'' These events and 
subsequent revisions to the list became known as ``never events.'' This 
concept and need for the proposed reporting led to NQF's ``Consensus 
Standards Maintenance Committee on Serious Reportable Events,'' which 
maintains and updates the list which currently contains 29 items.
    The Medicare program has addressed certain ``never events'' through 
national coverage determinations (NCDs). Similar to any other patient 
population, Medicare beneficiaries may experience serious injury and/or 
death if they undergo erroneous surgical or other invasive procedures 
and may require additional healthcare to correct adverse outcomes that 
may result from such errors. To address and reduce the occurrence of 
these surgeries, CMS issued three NCDs. Under these NCDs, CMS does not 
cover a particular surgical or other invasive procedure to treat a 
particular medical condition when the practitioner erroneously 
performs: (1) A different procedure altogether; (2) the correct 
procedure but on the wrong body part; or (3) the correct procedure but 
on the wrong patient. Medicare will also not cover hospitalizations and 
other services related to these non-covered procedures.

D. Prior Guidance on Medicaid HACs and NCDs in Response to Medicare's 
Policy

    Section 5001(c) of the DRA addressed only payment under the 
Medicare IPPS and did not require that Medicaid implement nonpayment 
policies for HACs. However, in light of the Medicare requirements, we 
encouraged States to adopt payment prohibitions on provider claims for 
HACs to coordinate with the Medicare prohibitions under section 
1886(d)(4)(D) of the Act. To accomplish this task, we issued State 
Medicaid Director Letter (SMDL) 08-004 on July 31, 2008. In 
the July 31, 2008 SMDL, we noted that there was variation in how State 
Medicaid programs had addressed such claims in the past. The letter 
noted that nearly 20 States already had, or were considering, 
eliminating payment for some or all of the 28 conditions on the NQF's 
list of Serious Reported Events. Other States had more limited efforts 
to deny payment for services related to such conditions because the 
services were ``medically unnecessary'' in light of the primary 
diagnosis.
    Recognizing this variation and addressing the immediate concern of 
the States over Federal cost-shifting that could result from the 
Medicare HAC policy as applied to those who are dually-eligible for 
Medicare and Medicaid, we took a flexible position in the July 31, 2008 
SMDL guidance on State Medicaid handling of the issue. The SMDL 
indicated that States seeking to implement HAC nonpayment policies 
could do so by amending their Medicaid State plans to specify the 
extent to which they would deny payment for an HAC. Those interested 
only in avoiding secondary liability for Federal Medicare denials of 
HACs and NCDs in the case of dual-eligibles could do so by amending 
their State Plan to indicate that payment would not be available for 
HACs and the procedures described in the three NCDs that are not paid 
by Medicare. States that wanted broader payment prohibitions could 
indicate that payment would not be available for conditions specified 
in the State plan amendment (SPA), or that meet criteria identified in 
the SPA.

E. Section 2702 of the Affordable Care Act

    Section 2702 of the Affordable Care Act requires that the Secretary 
implement Medicaid payment adjustments for health care-acquired 
conditions (HCACs). Section 2702 of the

[[Page 32818]]

Affordable Care Act did not grant the Secretary new authorities, 
indicating that existing statutory authorities are sufficient to 
fulfill the obligation. Section 2702(a) of the Affordable Care Act sets 
out a general framework for application of Medicare prohibitions on 
payment for HCACs to the Medicaid program. Section 2702(a) of the 
Affordable Care Act first directs the Secretary to identify current 
State practices that prohibit payment for HCACs and to incorporate the 
practices identified, or elements of such practices, which the 
Secretary determines appropriate for application to the Medicaid 
program in regulations. Section 2702(a) of the Affordable Care Act then 
requires that, effective as of July 1, 2011, the Secretary prohibit 
payments to States under section 1903 of the Act for any amounts 
expended for providing medical assistance for HCACs specified in 
regulations. Such regulations must ensure that the prohibition on 
payment for HCACs shall not result in a loss of access to care or 
services for Medicaid beneficiaries.
    Section 2702(b) of the Affordable Care Act defines the term 
``health care-acquired condition'' as ``a medical condition for which 
an individual was diagnosed that could be identified by a secondary 
diagnostic code described in section 1886(d)(4)(D)(iv) of the Act.''
    Section 2702(c) of the Affordable Care Act specifically requires 
that the Secretary, in carrying out section 2702 of the Affordable Care 
Act, apply the regulations issued under section 1886(d)(4)(D) of the 
Act relating to the prohibition of payments based on the presence of a 
secondary diagnosis code specified by the Secretary in such 
regulations, as appropriate for the Medicaid program. The Secretary may 
exclude certain conditions identified under title XVIII of the Act for 
nonpayment under title XIX of the Act when the Secretary finds the 
inclusion of such conditions to be inapplicable to beneficiaries under 
title XIX of the Act.
    We believe, and confirmed through public comment, that 
incorporating Medicare's HACs in Medicaid's policy is inherently 
complex because of population differences across programs. We fully 
understand that the HACs developed for Medicare's population will not 
directly apply to various subsets of Medicaid's population. While we 
have established Medicare as a baseline, we understand that States 
will, through their payment policies, appropriately address these 
differences.

F. Requirement To Review Existing State Practices Prohibiting 
Nonpayment Policies for HCACs

    Section 2702 of the Affordable Care Act requires that the Secretary 
identify current State practices that prohibit payment for HCACs and 
incorporate those practices, as appropriate, into Medicaid regulations.
    To fulfill the statutory direction, we reviewed existing SPAs 
originally submitted in response to the July 31, 2008 SMDL 
(08-004). We also researched State HCAC-related nonpayment 
policies that had been implemented outside of Medicaid State plans. We 
reviewed State quality assurance programs, pay-for-performance 
programs, reporting requirements and procedures, and payment systems.
    We reviewed various articles, reports, summaries, and data bases 
pertaining to States' existing practices concerning hospital and HCACs 
and infections. For a list of the items considered, see the February 
17, 2011 proposed rule (76 FR 9283, 9286 through 9287).
    We discussed internally within CMS, as well as with interagency 
partners at the Agency for Healthcare Research and Quality (AHRQ) and 
the CDC to ensure that the proposed regulations were consistent with 
other regulations, policies, and procedures currently in existence 
surrounding this issue. We also met with them to gain information on 
areas where we could mirror existing processes to eliminate undue 
burdens on States or providers.
    We issued a State survey to capture data from all related payment 
policies regardless of whether they were implemented as a result of the 
July 31, 2008 SMDL or whether such practices are currently detailed in 
the State plan. We have received helpful information from a few States 
through the survey and have reviewed other information that has been 
helpful in explaining current State processes for making payment 
adjustments for HCACs. Subsequent to the publication of the survey, we 
held all-State calls where we answered questions in response to the 
survey, had States with existing policies talk about their experiences, 
and listened to discussion regarding the implementation of the HCAC 
policy.
    We met with nongovernmental partners including the NQF, the 
National Academy for State Health Policy, the National Association of 
Children's Hospitals, the Joint Commission, and State Medicaid Medical 
Directors. Most of these organizations are primarily focused on State 
program development and/or quality issues. We reached out to them to 
ensure that the proposed policies were consistent with current industry 
understanding of both State payment and quality improvement goals. In 
our discussions with these organizations, we were able to discuss State 
experiences on a broad, national level that had been gained from 
working with States. During these meetings, we discussed a number of 
issues related to the proposed rule and State concerns in implementing 
this provision. For instance, it was clear from many of our discussions 
that States hoped to be able to look to this provision to provide 
additional definition regarding the types of conditions to identify for 
nonpayment, as well as to provide some support in working with provider 
communities to which these policies would be applied.

G. Current State Practices Prohibiting Payment for HACs, HCACs, and 
Other Similar Events

    We found that 29 States do not have existing HCAC-related 
nonpayment policies. Most of the 21 States that currently have HCAC-
related nonpayment policies identify at least Medicare's HACs for 
nonpayment in hospitals. However, it is important to note that at least 
half of the existing policies we reviewed exceeded Medicare's current 
HAC requirements and policies, either in the conditions identified, the 
systems used to indicate the conditions, or the settings to which the 
nonpayment policies applied. These policies vary tremendously from 
State to State in the authority used to enact the policies, the 
terminology used, the conditions identified, State's utilization of the 
current Medicare HAC list, the service settings to which nonpayment 
policies are applied, reporting requirements, and the claims processing 
of the nonpayment policies.
    All of the States with HCAC-related nonpayment policies have 
implemented provisions that would protect the State from dual-eligible 
liability either by directly prohibiting payment for Medicare crossover 
claims or by relying on existing State plan authority to deny payment 
for claims previously denied by Medicare.
    We found that 17 of the States implemented Medicaid specific 
policies that reduce payment for services provided to Medicaid 
beneficiaries. Most of the States implementing Medicaid specific 
policies identify at least Medicare's current list of HACs, and nearly 
half of those States defined a list that was different from Medicare's 
current list of HACs for nonpayment.

[[Page 32819]]

    Similar variation exists in States' plan language identifying 
Medicare's NCD for nonpayment ranging from mirroring Medicare to 
completely breaking from Medicare. We do note, however, that the nature 
of the NQF serious reportable events, like surgery on the wrong body 
part, proper surgery wrong patient, and wrong surgery, is so severe 
that States were likely to have relied on State coverage provisions and 
appropriate care requirements to deny payment for these events.
    We also found that States use different general terminology for 
HCAC-related nonpayment policies even though many of the conditions 
identified overlap, are from the same sources, and do not generally 
vary in medical definition from one list to the other. For example, 3 
States identify ``air embolism'' as a condition for nonpayment under 
its plans with the condition understood to be consistently defined for 
medical purposes. However, one State includes air embolisms on its list 
of ``HACs''; another includes the same condition as a ``Serious Adverse 
Event''; and the third includes it on a list of ``Medical Errors.''
    We also found that at least 7 of the States with HCAC-related 
nonpayment policies apply those policies to settings other than the 
inpatient hospital setting required by Medicare, including both 
physicians and ambulatory surgical centers.
    Variation across States is not surprising given the States have 
been permitted broad flexibility in defining their HCAC policies and 
programs. However, we attribute some of the variety on this issue to 
the wealth of information and evidence-based guidelines available to 
States, either through their own experiences and resources or through 
industry researched and developed resources related to health system 
quality. Data gathered on the conditions identified, reporting 
strategies, and implementation guidelines indicate that States have 
relied heavily on existing health system quality improvement research 
to define requirements while tailoring policies appropriate to their 
own systems. In addition, our research indicates that States' HCAC-
related nonpayment policies are mainly intended to drive broader health 
system agendas to promote quality outcomes. We believe the use of 
evidence-based measures and the push for health system quality are an 
appropriate foundation for the proposed regulation. We proposed to 
implement Medicaid HCAC regulations that would provide some consistency 
across health care payers (Medicare and Medicaid). At the same time, we 
also proposed to accommodate State flexibility to design individual 
HCAC policies for nonpayment, quality-related programs suitable for 
their own Medicaid program and health marketplace to the extent such 
policies go beyond Federally-established minimum standards. The July 
31, 2008 SMDL (08-004) instructed States to submit SPAs to 
enact nonpayment provisions. Thirteen States submitted SPAs to include 
PPC related nonpayment provisions in their Medicaid State plans. Other 
States that implemented these policies through some other authority 
like State law or administrative procedures will be required to submit 
new SPAs for review and work with CMS to ensure their policies, 
effective July 1, 2011, are in line with the final provisions of this 
rule.

H. Provider Preventable Conditions

    The final rule includes the umbrella term, ``Provider-Preventable 
Conditions (PPC)'' which is defined as two distinct categories, Health 
Care-Acquired Conditions (HCAC) and Other Provider-Preventable 
Conditions (OPPC).
    Health Care Acquired Conditions:
     Apply to Medicaid inpatient hospital settings; and
     Are defined as the full list of Medicare's HAC, with the 
exception of Deep Vein Thrombosis/Pulmonary Embolism following total 
knee replacement or hip replacement in pediatric and obstetric 
patients, as the minimum requirements for States' PPC non-payment 
programs.
    Other Provider-Preventable Conditions include the following:
     Apply broadly to Medicaid inpatient and outpatient health 
care settings where these events may occur;
     Are defined to include at a minimum, the three Medicare 
National Coverage Determinations (surgery on the wrong patient, wrong 
surgery on a patient, and wrong site surgery);
     Would allow States to expand to settings other than IH 
with CMS approval by nature of identifying events that occur in other 
settings; and
     Would allow States to expand the conditions identified for 
non-payment with CMS approval, based on criteria set forth in the 
regulation.
    The final rule requires that States revise Medicaid plans to comply 
with this provision and mandates that States implement provider self 
reporting through claims systems. The final rule protects beneficiary 
access to care by eliminating States' ability to unduly impact 
providers for the occurrence of conditions identified. The final rule 
requires that:
     No reduction in payment for a provider preventable 
condition will be imposed on a provider when the condition defined as a 
PPC for a particular patient existed prior to the initiation of 
treatment for that patient by that provider.
     Reductions in provider payment may be limited to the 
extent that the identified provider-preventable conditions would 
otherwise result in an increase in payment; and the State can 
reasonably isolate for nonpayment the portion of the payment directly 
related to treatment for, and related to, the provider-preventable 
conditions.
    While the Statutory effective date is July 1, 2011, CMS intends to 
delay compliance action on these provisions until July 1, 2012.
    We proposed to exercise our authority under sections 1902(a)(4), 
1902(a)(19), and 1902(a)(30)(A) of the Act to provide for 
identification of provider preventable conditions (PPCs) as an umbrella 
term for hospital and nonhospital acquired conditions identified by the 
State for nonpayment to ensure the high quality of Medicaid services. 
These statutory provisions authorize requirements that States use 
methods and procedures determined by the Secretary to be necessary for 
the proper and efficient administration of the State plan, to provide 
care and services in the best interests of beneficiaries, and to 
provide for payment that is consistent with quality of care, 
efficiency, and economy.
    With the introduction of this term, we proposed to include two 
categories of PPCs--HCACs and other provider-preventable conditions 
(OPPCs). HCACs would apply as required under the statute. OPPCs would 
be applicable to other conditions that States identify and have 
approved through their Medicaid State plans.
    The inclusion of the new terms, PPCs and OPPCs, is consistent with 
the implementation of a broader application of this policy which allows 
us to appropriately incorporate existing State practices. The adoption 
of a new term is necessary because the term, ``health care-acquired 
condition'' is very narrowly defined in the Statute and does not 
provide for the inclusion of conditions other than those identified as 
HACs for Medicare, even excludes the three Medicare NCDs. Additionally, 
the Affordable Care Act definition of HCACs only applies to the 
inpatient hospital setting.
    We considered a broader definition of the term, ``health care-
acquired conditions,'' attempting to isolate the idea of the actual 
condition from the setting in which it occurred. Section

[[Page 32820]]

1886(d)(4)(D)(iv) of the Act applies specifically to conditions 
applicable to inpatient hospital patients and reimbursed under the 
IPPS. We did look to the Affordable Care Act in creating the terms PPCs 
and OPPCs.
    We did look to the Affordable Care Act in creating the terms PPC 
and OPPC. Section 3008(b) of the Affordable Care Act, ``Study And 
Report On Expansion Of Healthcare Acquired Conditions Policy To Other 
Providers,'' requires that Medicare study the effects of expanding its 
existing policy to other providers. We adopted the ``Other Providers'' 
term to remain consistent with Medicare in the potential expansion of 
its policy.
    In looking to expand the overall policy, we considered a number of 
other terms but determined that many of them like ``adverse events'' or 
``serious reportable events'' would generate confusion because they had 
existing industry definitions that did not necessarily overlap with our 
policy aims. We adopted the term ``Provider Preventable Condition'' for 
use in Medicaid because it appropriately identified the scope of the 
conditions and could act as a ``catch-all.'' Also, the term had not 
been narrowly defined by use in Medicare, Medicaid, or in the industry 
at-large.

I. Reporting of Results

    After researching State, industry, and Federal information related 
to the importance of reporting of quality data in driving improved 
health outcomes, we proposed that a simplified level of reporting is 
essential to creating a successful nonpayment policy both from the 
payment and quality perspectives. We believe that any requirements for 
provider reporting should provide a consistent format for States to 
report State-specific measures; require that providers report 
conditions identified for nonpayment when they occur regardless of a 
provider's intention to bill; and not cause undue burden on States or 
providers.
    Quality reporting related to PPCs across States is inconsistent. 
There are 27 States that require reporting of either hospital-acquired 
infections, conditions, or some combination of both. Some of those 
States require quality reporting but have not implemented associated 
HCAC-related nonpayment policies. Others have HCAC-related nonpayment 
policies, but have not implemented quality reporting requirements.
    Existing national quality reporting formats do not support the 
collection of data on HCACs and OPPCs for Medicaid beneficiaries. 
Providers, mainly hospitals, are subject to reporting requirements in 
addition to those imposed by States. For instance, most hospitals 
report some quality measures to CMS, the Joint Commission, or the CDC. 
We considered requiring hospitals to report to CMS or the National 
Health Safety Network, but decided against this because of concerns 
about the capacity within these systems to accommodate State specific 
reporting of varied measures and the fact that this might not be 
consistent with what most States are currently requiring providers to 
report.
    HACs, HCACs, and related policies represent liabilities for 
providers beyond nonpayment provisions. In fact, Medicare and the 
industry-at-large, have experienced nonclaiming or nonbilling on the 
part of providers seeking to escape the liability that could come with 
any type of notification of a particular event or to avoid negative 
health outcome indicators.
    In consideration of our research, we proposed a requirement that 
existing claims systems be used as a platform for provider self-
reporting. We also proposed to include reporting provisions that would 
require provider reporting in instances when there is no associated 
bill. For instance, States could employ the widely used POA system in 
combination with including edits in their Medicaid claims systems that 
would indicate an associated claim and flag it for medical review.

J. States' Use of Payment Systems Other Than MS-DRG

    We also found that States' payment systems will dictate the manner 
in which States are able to operationalize PPCs related nonpayment 
policies. For instance, some States reimburse using MS-DRG or some 
other type of grouper software to price claims. As with Medicare, these 
States may use the POA indicator system to identify claims and reduce 
payments by programming the grouper to reduce payment through the 
grouper. We note that a considerable number of States do not use 
grouper systems to reimburse providers. These States may identify and 
reduce payment for HCACs using methods appropriate to the specific 
reimbursement system used within that State. We believe that the 
proposed provision allows States this type of flexibility in designing 
methodologies that would isolate amounts for nonpayment and allow 
provider payment to be reduced based on a CMS-approved State plan 
methodology that is prospective in nature.

II. Summary of the Provisions of the Proposed Rule and Analysis of and 
Responses to Public Comments

A. General Discussion

    We proposed to codify provisions that would allow States 
flexibility in identifying PPCs that include, at a minimum, the HACs 
identified by Medicare, but may also include other State-identified 
conditions. This flexibility will extend to applying nonpayment 
provisions to service settings beyond the inpatient hospital setting. 
We believe that establishing Medicare as the minimum for the 
application of this policy is appropriate at this point.
    We encouraged States to consider the benefits and quality 
implications of expanding HCAC quality and nonpayment policies as more 
information becomes available from Medicare and State Medicaid 
programs.
    We proposed that PPCs are defined under two categories: HCACs and 
OPPCs. We proposed to define the category of PPCs that would be 
referred to using the term ``health care-acquired conditions'' (HCACs) 
based on the definition of that term in section 2702(b) of the 
Affordable Care Act. We also noted that the Secretary has authority to 
update the Medicare HAC list as appropriate. As such, States are 
required to comply with subsequent updates or revisions in accordance 
with section 1886(d)(4)(D) of the Act.
    We proposed to require that States implement requirements for 
provider self-reporting of HCACs in the Medicaid claims payment 
process. We also proposed to provide that States may identify similar 
OPPCs related to services furnished in settings other than inpatient 
hospitals, which would also be subject to a payment prohibition.
    We further proposed that the treatment of these OPPCs will be 
similar to the treatment of HCACs. State plans must provide for 
nonpayment for care and services related to these OPPCs, and Federal 
financial participation (FFP) will not be available in State 
expenditures for such care and services related to OPPCs.
    We received the following comments in response to our general 
discussion.
1. General Comments
    Comment: One commenter expressed the view that the original 
Medicare HAC policy adopted by CMS in FY 2008 for hospitals subject to 
the Medicare Inpatient Prospective Payment System (IPPS hospitals), in 
response to the requirements of the DRA, was flawed policy and that 
many physicians disagreed with the notion that some of

[[Page 32821]]

the identified Medicare HACs are reasonably preventable. The commenter 
was opposed to extending these provisions to Medicaid and suggested 
that CMS abandon the notion of a nonpayment policy for HACs in both 
Medicare and Medicaid and replace it with a policy encouraging 
compliance with evidence-based guidelines.
    Response: We disagree. The Medicare HAC payment policy was 
established under the authority of section 5001(c) of the DRA and has 
been in place since FY 2008. Section 2702 of the Affordable Care Act 
requires that CMS adopt similar regulations for the Medicaid program 
taking into consideration existing State practices and the appropriate 
application to the Medicaid program. This regulation, like the Medicare 
HAC rule that preceded it, was developed in direct response to the 
enactment of that provision. While we recognize that some of the PPCs 
are not entirely preventable and should therefore be excluded from the 
program. However, most of these PPCs are never events, which means they 
should never happen, in the first place, and they are entirely 
preventable if providers follow best medical practices. This is true 
regardless of whether a patient is a senior citizen on Medicare or a 
child on Medicaid. PPCs that used to be regarded as not entirely 
preventable, like CLABSI (or CAUTI), have been shown to be preventable 
by providers. We believe that the provisions of this rule will provide 
a strong incentive for the provider to apply best medical practice and 
seek innovative methods to prevent adverse outcomes. The HACs were 
adopted by Medicare through an evidence-based process. In addition, the 
definition used for OPPC in new Sec.  447.26 provides that States must 
consider evidence-based guidelines in adopting optional PPCs.
    Comment: Some commenters supported the policy of payment adjustment 
when conditions were demonstrated to be reasonably preventable based on 
the evidence, but thought that the population differences between 
Medicare and Medicaid may present distinct issues and considerations in 
considering events for nonpayment. Some commenters questioned the 
appropriateness of the application of Medicare HACs to Medicaid 
populations, specifically children and pregnant women.
    Response: We agree that Medicare's population is generally 
different than Medicaid's and that those differences may present 
distinct issues and considerations. We realize that some categories of 
Medicare's HACs, like Surgical Site Infection following CABG or 
Bariatric surgery, are not typically applicable to pediatric or 
obstetric populations because the underlying conditions associated with 
each of Medicare's HACs will not typically occur in those populations, 
thus limiting the frequency and relevance of the HAC. We reviewed each 
of Medicare's HACs and the related evidence-based prevention protocols 
to determine whether the final rule should specifically exclude any of 
the conditions identified by Medicare, with respect to populations more 
characteristic of Medicaid, particularly children and pregnant women. 
We considered each in relation to the following:
    (1) Clinical applicability. That is, does this condition occur in 
pediatric and obstetric populations enough to significantly impact the 
populations or provider reimbursement?
    (2) Availability of evidence based guidelines appropriate to 
prevention for the pediatric and obstetric populations. Are there 
bundles specific to preventing these conditions and infections in the 
pediatric and obstetric populations? If bundles do not exist, are there 
other bundles that can be appropriately applied to these populations?
    (3) Reasonable preventability. Can the conditions or infections be 
reasonably prevented through the use of evidence based guidelines to 
warrant financial penalties? Our research determined that certain 
Medicare HACs, such as Foreign Objects Retained After Surgery, Air 
Embolism, Blood Incompatibility, Stage 3 and 4 Pressure Ulcers, Falls 
and Trauma, and Manifestations of Poor Glycemic Control, Catheter 
Associated Urinary Tract Infections, and Vascular-Catheter Associated 
Blood Stream Infections, are clinically applicable to all Medicaid 
populations, including children and pregnant women. We determined that 
there are evidence-based guidelines to support the reasonable 
preventability of these conditions in pediatric and obstetric 
populations, and that there is no indication that these prevention 
guidelines would cause harm if appropriately applied. There was no 
evidence to indicate that a provider adhering to these evidence based 
guidelines could not reasonably prevent, though not absolutely prevent 
these infections in every case in Medicaid populations.
    Our research determined that Surgical Site Infection following 
CABG, Bariatric Surgery, or Orthopedic procedures is not typically 
applicable to children and pregnant women because it is not likely that 
these populations would be subject to some of the primary surgical 
procedures. However, we determined that there are evidence-based 
guidelines to support the reasonable preventability of Surgical Site 
Infection following the specified procedures when they do occur in 
these populations. Furthermore, there is no indication that these 
prevention guidelines would cause harm when appropriately applied. 
There is no evidence to indicate that a provider adhering to these 
evidence based guidelines could not reasonably prevent, though not 
absolutely prevent, these infections in every case in Medicaid 
populations.
    Our research also determined that the Medicare HAC Deep Vein 
Thrombosis/Pulmonary Embolism (DVT/PE) as related to a total knee 
replacement or hip replacement is not a common occurrence for children 
or pregnant women because it is not likely that these populations would 
be subject to the primary surgical procedures of total knee replacement 
or hip replacement. We determined that evidence-based guidelines 
available support the reasonable preventability of DVT/PE in most 
cases, however, the related prevention protocols have not been proven 
appropriate for application in children and pregnant women. Therefore, 
we are not identifying the Medicare HAC, DVT/PE as related to total 
knee replacement, or hip replacement for pediatric or obstetric 
populations under Medicaid's PPC policy. We have revised the final rule 
to reflect this determination.
    We remind commenters that the Medicare HACs serve as a baseline, 
and that States electing to expand their policies to consider other 
conditions associated with children and pediatric quality measures may 
do so through the SPA process. We encourage States to collaborate both 
with CMS and other States, as well as their provider communities and 
stakeholders like CDC and AHRQ to implement informed policies 
appropriate to their Medicaid populations. We will support State 
efforts and cross-educate, through the State plan amendment process and 
by providing information that we gather from States and other programs.
    Comment: One commenter believed that the expansion of PPCs for 
Medicaid under the proposed rule goes beyond any previous guidance 
shared by CMS with the State during Affordable Care Act-related 
conference calls.
    Response: Discussions held with the States, stakeholder groups and 
various provider communities regarding this policy were necessary to 
determine existing State practices regarding non-payment for health 
care-acquired conditions. They were informational for

[[Page 32822]]

CMS and did not in any way commit the Secretary to a particular policy 
direction. They were also a first effort in allowing States without 
existing policies to gather some general information from and network 
with States with existing policies.
    The final regulation incorporates conditions identified as 
Medicare's HACs, with the exception of DVT/PE as related to total knee 
replacement and total hip replacement for pediatric and obstetric 
populations, and 3 NCDs as the minimum requirement for State PPC 
nonpayment policies. The rule allows States the flexibility, if 
desired, but does not require, States to identify additional conditions 
as PPCs under their Medicaid programs. Additionally, States have 
already begun to develop PPC-related non-payment policies and this rule 
would allow that work to continue.
    Comment: A few commenters believed that there was not sufficient 
time to implement these provisions for providers that had not already 
been subject to Medicare's policy, and were particularly concerned with 
the implementation timeframes for reporting.
    Response: We anticipate that States and providers, especially those 
groups of providers that have not been subject to Medicare's HAC 
policy, will need to work collaboratively to develop policies and 
implement reporting systems that would complement existing payment 
structures. We believe given the timeframes involved and the need for 
States to provide guidance to providers, it would be appropriate to 
delay compliance action on the provisions of the rule until July 1, 
2012.
    Comment: One commenter requested that we strike Sec.  447.26(c)(4) 
because they believed the access requirements proposed there were 
already reflected in 447.204 which requires that payment be sufficient 
to assure beneficiary access. The commenter thought that any dual 
interpretations could lead to unwarranted litigation risks.
    Response: We thank the commenter for this comment. We have revised 
the language at 447.26(c)(4) to clarify that, ``A State plan must 
ensure that non-payment for provider-preventable conditions does not 
prevent access to services for Medicaid beneficiaries.''
2. Conditions Identified and Providers Affected
    Comment: Some commenters pointed out that Medicare's HAC policy 
applies only to Medicare IPPS hospitals. These commenters believed that 
CMS should limit Medicaid PPC payment restrictions to Medicaid 
participating hospitals that are similar to Medicare IPPS hospitals. 
Other commenters asked for clarification on this same point. Most of 
these commenters also believed that we should limit States ability to 
identify other PPCs, proposing that the set of Medicare's HACs and 3 
NCDs be used as a ceiling instead of as a floor for Medicaid's PPC 
policy.
    Response: The Affordable Care Act requires that HACs identified 
under the Medicare IPPS are applicable to all entities that operate as 
Medicaid inpatient hospitals. We do not have the authority to exempt 
any Medicaid inpatient hospital providers from these requirements. 
States currently have the authority to extend PPC-related non-payment 
policies to other conditions.
    Comment: Some commenters objected to the entire category of OPPC 
(affecting providers other than hospitals) included in the proposed 
regulation. Commenters recommended that CMS consider and impose a 
number of parameters related to States' implementation and selection of 
the OPPC category.
    Response: In preparing this regulation, the Statute required that 
CMS consider existing State practices and determine whether, as a 
matter of policy, it was appropriate to include those established 
practices in these final regulations. We determined that, in some 
instances, States had implemented provisions that applied to providers 
in settings other than inpatient hospital settings, including 
outpatient hospital settings. We did not believe that it was prudent to 
require of all States what had been done in a few, but we wanted to 
provide States the flexibility to do so. Accordingly, we designed the 
PPC provisions to allow the expansion of State policies to other care 
settings, and other conditions. In light of the differences between the 
types of participating providers and the enrollee populations in 
Medicare and Medicaid, we provided flexibility for States in the 
identification and application of OPPCs. We anticipate that States will 
consider arguments made by particular providers that these OPPCs should 
be defined so that they do not apply to them. We believe this is the 
appropriate forum for consideration of the unique circumstances of 
particular providers.
    Comment: Some commenters recommended that we consider the benefits 
of and establish a nationally consistent set of conditions identifiable 
as PPCs for Medicaid.
    Response: We determined that the conditions identified as 
Medicare's HACs, with the exception of DVT/PE as related to total knee 
replacement and total hip replacement for pediatric and obstetric 
populations, and 3 NCDs are appropriate to serve as the baseline for 
Medicaid's PPC policy. We are strongly committed to permitting State 
flexibility to innovate in this area. State innovation has been a 
significant driver of Federal policy, and States have direct experience 
with utilization and claims review with respect to Medicaid services.
    Comment: Some commenters suggested that the initial set of 
conditions be more limited and targeted, and that they be expanded 
incrementally over time.
    Response: Section 2702(b) of the Affordable Care Act defines the 
term ``health care-acquired condition'' as ``a medical condition for 
which an individual was diagnosed that could be identified by a 
secondary diagnostic code described in section 1886(d)(4)(D)(iv) of the 
Act.'' The provision also allows the Secretary to exclude conditions 
not appropriate for application in Medicaid. As such, the final 
regulation incorporates conditions identified as Medicare's HACs, with 
the exception of DVT/PE as related to total knee replacement and total 
hip replacement for pediatric and obstetric populations, and 3 NCDs. 
Additionally, we believe that the flexibility provided States in 
developing additional PPCs, beyond those established as the floor in 
the final rule, allow for the type of incremental expansion of this 
policy that the commenters suggest.
    Comment: Other commenters recommended that Medicaid PPCs focus on 
conditions specific to the Medicaid population. A few commenters 
offered that it would be ideal for CMS to evaluate other Medicaid 
specific conditions that would apply specifically to pregnant women or 
children.
    Response: We believe that the flexibility provided States in the 
final rule will facilitate the development of additional Medicaid 
specific conditions to be identified for nonpayment. Some State 
Medicaid programs with existing policies have identified conditions 
specific to certain populations like Obstetrical Hemorrhage with 
Transfusion, which is a condition specific to pregnant women. We 
encourage States to follow CMS's example in identifying conditions by 
working with provider communities and industry partners.
    Comment: A few commenters suggested that CMS coordinate Federal 
PPCs policies across agencies and with other organizations developing 
quality measures specific to Medicaid populations.
    Response: We are actively working to coordinate with other health 
reform initiatives such as the pediatric core quality measures, 
accountable care

[[Page 32823]]

organizations, and health insurance exchanges to develop coordinated 
Federal policy in the area of Health System Quality. We continue to 
collaborate with States, providers, and other stakeholders to inform 
policy decisions related to this area.
    Comment: Some commenters stated that any extension of PPC beyond 
the hospital setting was premature, and emphasized that application of 
PPC to other providers was not feasible because of the different 
patient populations, payment structures and conditions that applied in 
different environments. These commenters stated unique issues in 
various provider settings including long-term care settings, dialysis 
clinics, and skilled nursing facilities.
    Response: We disagree with the point that the PPC provisions should 
be limited to the hospital environment. This rule requires that States 
adopt minimum requirements for each category of PPC. States have the 
flexibility to identify additional OPPCs if desired, but there is no 
requirement to do so. Many States have already identified conditions 
beyond the minimum requirements in this final rule. We understand 
clearly that the category of OPPCs would allow expansion beyond the 
hospital environment and must be done in close consultation with 
affected providers and limited to situations where a State has made a 
finding that the condition could reasonably have been prevented in 
ordinary cases. We have revised regulatory text to make clear that 
these are State determinations that must be made based on State 
findings that the condition is reasonably preventable using procedures 
supported by evidence-based guidelines. The identification of PPCs in 
settings other than the hospital setting makes sense because, from the 
perspective of the patient, it matters very little whether a wrong site 
surgery occurred in a hospital, an ambulatory surgery center, or in a 
minor surgery done in the physician's office. Moreover, States have 
already gone beyond the hospital setting in their individual PPC 
policies. All that this Federal regulation adds is the HCAC category 
which requires nonpayment for the full list of Medicare's HACs, with 
the exception of Deep Vein Thrombosis/Pulmonary Embolism following 
total knee replacement or hip replacement in pediatric and obstetric 
patients and the OPPC category which requires the minimum mandatory 
inclusion of what are now the three Medicare NCDs: Surgery on the wrong 
patient, wrong surgery on a patient, and wrong site surgery. We are 
simply replicating the mandatory provisions in the Medicare program, 
and adding these to the existing State flexibility under Medicaid to 
establish payment and quality standards.
    We encourage States to collaborate both with CMS and other States, 
as well as their provider communities and stakeholders like CDC and 
AHRQ to implement informed policies appropriate to their Medicaid 
populations. We will support State efforts and cross-educate, through 
the SPA process and by providing information that we gather from States 
and other programs.
    Comment: A number of commenters requested that CMS clarify that the 
HCAC category applies only to inpatient hospitals.
    Response: This final rule has revised regulatory language to 
clarify that the HCAC category applies to all inpatient hospital 
settings under Medicaid. The OPPC category minimum requirements 
(Medicare's 3 NCDs) are applicable in any healthcare service setting 
where these events may occur.
    Comment: One commenter expressed concern that expansion of PPC to 
nonhospital providers threatened the access of Medicaid beneficiaries 
to care. In particular, the commenter asked CMS to clarify that 
Medicaid payment disallowance for PPC would not apply when the PPC was 
present at the time the provider commenced treatment of the patient.
    Response: The language in the proposed regulation was intended to 
cover only situations where payment reduction was being applied to 
treatment for a condition not present on admission or commencement of 
treatment by that provider. However, we understand that clarifying the 
language of the regulation to emphasize this point would be helpful and 
have done so in this final regulation. New Sec.  447.26 (c)(2) 
explicitly states that ``* * * no reduction in payment for a PPC will 
be imposed on a provider when the condition defined as a PPC for a 
particular patient existed prior to the initiation of treatment for 
that patient by that provider.'' This was implied in the previous 
language, but has now been made explicit. CMS agrees with the comment 
and is providing this clarification.
    CMS disagrees with the commenter's point that the expansion of 
State PPC policies beyond the hospital environment will limit access. 
We understand clearly that expansion beyond the hospital environment 
must be done in close consultation with affected providers and limited 
to situations where a provider could reasonably have prevented the PPC. 
However, from the perspective of the patient, it matters very little 
whether a wrong site surgery occurred in a hospital, an ambulatory 
surgery center, or in a minor surgery done in the physician's office. 
Moreover, as the commenter notes, States have already gone beyond the 
hospital setting in their individual PPC policies.
    Comment: One commenter requested that CMS provide States additional 
guidance on applying the Medicare HAC criteria to Medicaid providers 
and conditions. This commenter believed that we should partner with 
States to have continued dialogue on evidence-based guidelines.
    Response: As stated throughout the rule, we intend to continue 
dialogue with States and other Agencies related to this issue.
3. PPC Terminology
    Comment: A few commenters believed that the distinctions among the 
terms in the proposed rule were confusing and made it difficult to 
understand which term applied to which criteria.
    Response: We have revised the regulatory text to clarify that PPCs 
are clearly defined into two separate categories, HCACs (conditions 
identified as Medicare's HACs (with the exception of DVT/PE following 
total knee replacement or hip replacement in pediatric and obstetric 
patients) for IPPS purposes, applied broadly to Medicaid inpatient 
hospitals) and OPPCs (conditions applicable in any healthcare service 
setting minimally defined as Medicare's 3 NCDs).
    Comment: A few commenters objected to the use of the term PPC. One 
proposed the use of the alternative term ``Preventable Healthcare 
Related Conditions.'' The commenters noted that one proprietary 
organization is currently utilizing the acronym PPC for ``Potentially 
Preventable Conditions.''
    The commenters also questioned our use of the term other provider 
preventable condition and stated their biggest concern was with 
creating a new term that encompassed 3 NCDs so closely related with the 
NQF's ``Serious Reportable Events in Healthcare.'' The commenters 
recommended that CMS not create explicit category titles under the PPC 
umbrella term.
    Response: As stated in the preamble, the designation of these terms 
is necessary to a policy that meets statutory requirements in setting 
Medicare's policy as the minimum and allowing States the flexibility to 
expand beyond that minimum. We do not believe that the term PPC has 
been

[[Page 32824]]

narrowly defined across the industry to include a specific set of 
policy provisions as would be required by this final rule. In addition, 
we do not believe that the use of the PPC acronym will infringe on any 
proprietary organizations' ability to continue to use that acronym. We 
have not made any revisions to this final rule to reflect this comment.
    Comment: One commenter had questions regarding the definition of 
OPPC. The commenter questioned which evidence-based guidelines would be 
used and recommended that the regulation be expanded to include exact 
definitions of the guidelines.
    Response: It would be difficult to determine a singular set of 
guidelines to be identified for the various conditions that States may 
identify under these provisions. The rule provides States flexibility 
in determining the conditions identified for nonpayment under their 
individual State plans. As States submit plans for approval, we will 
evaluate the conditions proposed by States and determine their 
appropriateness for the Medicaid program. Additionally, we would remind 
commenters that the Secretary has the authority to revisit these 
provisions and may do so as this policy area develops. We reject the 
commenters recommendation and have made no changes to the final 
provisions regarding this issue.
    Comment: Many commenters recommended that more research be done by 
Medicare and Medicaid on applying PPC nonpayment policies to outpatient 
settings before conditions that occur in those settings are 
incorporated into PPC nonpayment policies or expanded. Some commenters 
objected to the designation of the 3 NCDs as a baseline for the 
Medicaid policy.
    Response: Medicare is conducting additional research to inform its 
policy on applying its HAC provisions beyond its IPPS hospitals. In 
preparing this regulation, CMS was required to consider existing State 
practices and determine whether, as a matter of policy, it was 
appropriate to include those established practices in these final 
regulations. We determined that, in some instances, States had 
implemented provisions that applied to providers in settings other than 
inpatient hospital settings, including outpatient hospital settings. We 
did not believe that it was prudent to require of all States what had 
been done in a few, but we wanted to provide States the flexibility to 
do so. Accordingly, we designed the PPC provisions to allow the 
expansion of State policies to other care settings, and other 
conditions. We agree that States should do additional research to 
evaluate the impact of applying nonpayment policies in outpatient 
settings before adopting such policies. It should also be noted that 
States with existing policies that do not meet the minimum provisions 
of this final rule and those without existing policies will need to 
submit for CMS approval SPAs implementing these policies.
    The three events that we are requiring that States include in their 
OPPC are those events which already trigger payment reductions in the 
Medicare program as national coverage determinations (NCDs). In the 
Medicare program, NCDs are already applied to all providers, not just 
to specified hospitals. Medicare NCDs are detailed, evidence-based 
determinations that are supported by substantial data. Therefore, 
inclusion of these three events merely replicates evidence-based 
determinations that are already in effect in the Medicare program.
    Comment: One commenter stated that the expansion of State PPC 
policies into non-inpatient settings will be extremely difficult to 
implement due to the very characteristics that are inherent to the 
outpatient setting, such as: The types of care and services provided; 
numerous providers and provider-types involved in care; periodic 
episodes of care provided by numerous providers over lengthy periods of 
time; and lack of systems and infrastructure to adequately coordinate 
care between visits and providers, among others. The wide variety of 
payment systems create enormous challenges for provider reporting, 
according to this commenter.
    Response: We are encouraging States to work with provider 
communities and other stakeholders to carefully examine nonpayment 
policies in non-inpatient settings. Additionally, we are requiring that 
States submit for approval Medicaid State plan amendments that would 
implement PPC nonpayment policies. To support these Medicaid State plan 
amendments, we are clarifying that the State must have made findings 
that the proposed PPC is reasonably preventable through the application 
of evidence-based guidelines. The SPA review process will give CMS and 
providers the opportunity to consider State policy before it is 
implemented and to provide guidance and input based on our knowledge of 
the issues.
4. POA and Coding Systems
    Comment: Several commenters objected to the burden of creating a 
POA system and the potential for variation in the different State PPC 
policies. Commenters are concerned that the POA requirement and its 
impact on reimbursement may result in extraneous testing, delayed care, 
and further access issues for Medicaid patients. In emergency 
situations, it is often impossible to provide optimal patient care and 
simultaneously determine POA status, it was noted. One commenter also 
noted that many hospitals were not familiar with the intricacies of POA 
coding and would require CMS guidance and time to implement it.
    Response: The POA system is not required by this final regulation, 
but obviously providers will need to carefully document the physical 
status of their patients on admission. That documentation is not simply 
done for legal purposes, but serves