1. Acute Care & Long-term Acute Care Hos

Vol. 77

Friday,

No. 170

August 31, 2012

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services
42 CFR Parts 412, 413, 424, et al.
Medicare Program; Hospital Inpatient Prospective Payment Systems for
Acute Care Hospitals and the Long-Term Care Hospital Prospective
Payment System and Fiscal Year 2013 Rates; Hospitals’ Resident Caps
for Graduate Medical Education Payment Purposes; Quality Reporting
Requirements for Specific Providers and for Ambulatory Surgical Centers;
Final Rule

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 412, 413, 424, and 476
[CMS–1588–F]
RIN 0938–AR12

Medicare Program; Hospital Inpatient
Prospective Payment Systems for
Acute Care Hospitals and the LongTerm Care Hospital Prospective
Payment System and Fiscal Year 2013
Rates; Hospitals’ Resident Caps for
Graduate Medical Education Payment
Purposes; Quality Reporting
Requirements for Specific Providers
and for Ambulatory Surgical Centers
Centers for Medicare and
Medicaid Services (CMS), HHS.
ACTION: Final rule.
AGENCY:

We are revising the Medicare
hospital inpatient prospective payment
systems (IPPS) for operating and capitalrelated costs of acute care hospitals to
implement changes arising from our
continuing experience with these
systems. Some of the changes
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 will be
applicable to discharges occurring on or
after October 1, 2012, unless otherwise
specified in this final rule. We also are
updating the rate-of-increase limits for
certain hospitals excluded from the
IPPS that are paid on a reasonable cost
basis subject to these limits. The
updated rate-of-increase limits will be
effective for cost reporting periods
beginning on or after October 1, 2012.
We are updating the payment policies
and the annual payment rates for the
Medicare prospective payment system
(PPS) for inpatient hospital services
provided by long-term care hospitals
(LTCHs) and implementing certain
statutory changes made by the
Affordable Care Act. Generally, these
changes will be applicable to discharges
occurring on or after October 1, 2012,
unless otherwise specified in this final
rule.
In addition, we are implementing
changes relating to determining a
hospital’s full-time equivalent (FTE)
resident cap for the purpose of graduate
medical education (GME) and indirect
medical education (IME) payments. We
are establishing new requirements or

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SUMMARY:

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revised requirements for quality
reporting by specific providers (acute
care hospitals, PPS-exempt cancer
hospitals, LTCHs, and inpatient
psychiatric facilities (IPFs)) that are
participating in Medicare. We also are
establishing new administrative, data
completeness, and extraordinary
circumstance waivers or extension
requests requirements, as well as a
reconsideration process, for quality
reporting by ambulatory surgical centers
(ASCs) that are participating in
Medicare.
We are establishing requirements for
the Hospital Value-Based Purchasing
(VBP) Program and the Hospital
Readmissions Reduction Program.
DATES: Effective date: This final rule is
effective on October 1, 2012.
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,
Graduate Medical Education, 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,
Market Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786–6673,
Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786–2261, Hospital
Inpatient Quality Reporting and
Hospital Value-Based Purchasing—
Program Administration, Validation,
and Reconsideration Issues.
Shaheen Halim, (410) 786–0641,
Hospital 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,
Hospital Inpatient Quality
Reporting—Hospital Consumer
Assessment of Healthcare Providers
and Systems Measures Issues.
Mary Pratt, (410) 786–6867, LTCH
Quality Data Reporting Issues.
Kim Spalding Bush, (410) 786–3232,
Hospital Value-Based Purchasing
Efficiency Measures Issues.
James Poyer, (410) 786–2261, and
Barbara Choo, (410) 786–4449,
Inpatient Psychiatric Facility Quality

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Reporting Issues and PPS-Exempt
Cancer Hospital Quality Reporting
Issues.
Anita Bhatia, (410) 786–7236,
Ambulatory Surgical Center Quality
Reporting (ASCQR) Program Issues.
SUPPLEMENTARY INFORMATION:
Electronic Access
This Federal Register document is
also available from the Federal Register
online database through the U.S.
Government Printing Office Web page
at: http://www.gpo.gov/fdsys/browse/
collection.action?collectionCode=FR.
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),
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 final 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 are no longer published in the
Federal Register. Instead, these tables
will be available only through the
Internet. The IPPS tables for this final
rule are available only through the
Internet on the CMS Web site at:
http://www.cms.hhs.gov/Medicare/
medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html. Click on
the link on the left side of the screen
titled, ‘‘FY 2013 IPPS Final Rule Home
Page’’ or ‘‘Acute Inpatient—Files for
Download’’. The LTCH PPS tables for
this FY 2013 final rule are available
only through the Internet on the CMS
Web site at: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/LongTermCareHospitalPPS/
index.html under the list item for
Regulation Number CMS–1588–F. For
complete details on the availability of
the tables referenced in this final rule,
we refer readers to section VI. of the
Addendum to this final 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.

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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
ASCQR Ambulatory Surgical Center
Quality Reporting
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
CDC Center for Disease Control and
Prevention
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

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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
LTCHQR Long-Term Care Hospital Quality
Reporting
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor

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MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural
hospital
MedPAC Medicare Payment Advisory
Commission
MedPAR Medicare Provider Analysis and
Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification
Review Board
MIEA–TRHCA Medicare Improvements and
Extension Act, Division B of the Tax Relief
and Health Care Act of 2006, Public Law
109–432
MIPPA Medicare Improvements for Patients
and Providers Act of 2008, Public Law
110–275
MMA Medicare Prescription Drug,
Improvement, and Modernization Act of
2003, Public Law 108–173
MMEA Medicare and Medicaid Extenders
Act of 2010, Public Law 111–309
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
NHSN National Healthcare Safety Network
NQF National Quality Forum
NTIS National Technical Information
Service
NTTAA National Technology Transfer and
Advancement Act of 1991 (Pub. L. 104–
113)
NVHRI National Voluntary Hospital
Reporting Initiative
OACT [CMS’] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation
Act of 1986, 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]
PCH PPS-exempt cancer hospital
PCHQR PPS-exempt cancer hospital quality
reporting
PMSAs Primary metropolitan statistical
areas
POA Present on admission
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual

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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
TPS Total Performance Score
UHDDS Uniform hospital discharge data set

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Table of Contents
I. Executive Summary and Background
A. Executive Summary
1. Purpose and Legal Authority
2. Summary of the Major Provisions
3. Summary of Costs and Benefits
B. 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)
C. 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 2013
D. Issuance of a Notice of Proposed
Rulemaking
II. Changes to Medicare Severity DiagnosisRelated Group (MS–DRG) Classifications
and Relative Weights
A. Background
B. MS–DRG Reclassifications
C. Adoption of the MS–DRGs in FY 2008
D. FY 2013 MS–DRG Documentation and
Coding Adjustment, Including the
Applicability to the Hospital-Specific
Rates and the Puerto Rico-Specific
Standardized Amount

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1. Background on the Prospective MS–DRG
Documentation and Coding Adjustments
for FY 2008 and FY 2009 Authorized by
Public Law 110–90
2. Prospective Adjustment to the Average
Standardized Amounts Required by
Section 7(b)(1)(A) of Public Law 110–90
3. Recoupment or Repayment Adjustments
in FYs 2010 through 2012 Required by
Public Law 110–90
4. Retrospective Evaluation of FY 2008 and
FY 2009 Claims Data
5. Prospective Adjustment for FY 2008 and
FY 2009 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
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
a. Background
b. Documentation and Coding Adjustment
to the Puerto Rico-Specific Standard
Amount
10. Prospective Adjustments for FY 2010
Documentation and Coding Effect
E. Refinement of the MS–DRG Relative
Weight Calculation
1. Background
2. Summary of Policy Discussions in FY
2012
3. Discussion for FY 2013
F. Preventable Hospital-Acquired
Conditions (HACs), Including Infections
1. Background
2. HAC Selection
3. Present on Admission (POA) Indicator
Reporting
4. HACs and POA Reporting in ICD–10–
CM and ICD–10–PCS
5. Changes to the HAC Policy for FY 2013
a. Additional Diagnosis Codes to Existing
HACs
b. New Candidate HAC Condition: Surgical
Site Infection (SSI) Following Cardiac
Implantable Electronic Device (CIED)
Procedures
c. New Candidate HAC Condition:
Iatrogenic Pneumothorax With Venous
Catheterization
6. RTI Program Evaluation Summary
a. RTI Analysis of FY 2011 POA Indicator
Reporting Across Medicare Discharges
b. RTI Analysis of FY 2011 POA Indicator
Reporting of Current HACs
c. RTI Analysis of FY 2011 Frequency of
Discharges and POA Indicator Reporting
for Current HACs
d. RTI Analysis of Circumstances When
Application of HAC Provisions Would
Not Result in MS–DRG Reassignment for
Current HACs
e. RTI Analysis of Coding Changes for
HAC–Associated Secondary Diagnoses
for Current HACs
f. RTI Analysis of Estimated Net Savings
for Current HACs

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g. Previously Considered Candidate
HACs—RTI Analysis of Frequency of
Discharges and POA Indicator Reporting
h. Current and Previously Considered
Candidate HACs—RTI Report on
Evidence-Based Guidelines
i. Proposals Regarding Current HACs and
Previously Considered Candidate HACs
G. Changes to Specific MS–DRG
Classifications
1. Pre-Major Diagnostic Categories (PreMDCs)
a. Ventricular Assist Device
b. Allogeneic Bone Marrow Transplant
2. MDC 4 (Diseases and Disorders of the
Ear, Nose, Mouth and Throat): Influenza
With Pneumonia
3. MDC 5 (Diseases and Disorders of the
Circulatory System)
a. Percutaneous Mitral Valve Repair With
Implant
b. Endovascular Implantation of Branching
or Fenestrated Grafts in Aorta
4. MDC 10 (Endocrine, Nutritional, and
Metabolic Diseases and Disorders):
Disorders of Porphyrin Metabolism
5. Medicare Code Editor (MCE) Changes
a. MCE New Length of Stay Edit for
Continuous Invasive Mechanical
Ventilation for 96 Consecutive Hours or
More
b. Sleeve Gastrectomy Procedure for
Morbid Obesity
6. Surgical Hierarchies
7. Complications or Comorbidity (CC)
Exclusions List
a. Background
b. CC Exclusions List for FY 2013
(1) No Revisions Based on Changes to the
ICD–9–CM Diagnosis Codes for FY 2013
(2) Suggested Changes to MS–DRG Severity
Levels for Diagnosis Codes for FY 2013
(A) Protein-Calorie Malnutrition
(B) Antineoplastic Chemotherapy Induced
Anemia
(C) Cardiomyopathy and Congestive Heart
Failure, Unspecified
(D) Chronic Total Occlusion of Artery of
the Extremities
(E) Acute Kidney Failure With Other
Specified Pathological Lesion in Kidney
(F) Pressure Ulcer, Unstageable
8. 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
9. 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
10. Public Comments on Issues Not
Addressed in the Proposed Rule

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H. Recalibration of MS–DRG Weights
1. Data Sources for Developing the
Proposed Weights
2. Methodology for Calculation of the
Proposed Relative Weights
3. Development of National Average CCRs
4. Bundled Payments for Care
Improvement (BPCI) Initiative
a. Background
b. Treatment of Data from Hospitals
Participating in the BPCI Initiative
I. Add-On Payments for New Services and
Technologies
1. Background
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
3. FY 2013 Status of Technology Approved
for FY 2012 Add-On Payments:
AutoLaser Interstitial Thermal Therapy
(AutoLITTTM)
4. FY 2013 Applications for New
Technology Add-On Payments
a. Glucarpidase (Trade Brand Voraxaze®)
b. DIFICIDTM (Fidaxomicin) Tablets
c. Zilver® PTX® Drug-Eluting Stent
d. Zenith® Fenestrated Abdominal Aortic
Aneurysm (AAA) Endovascular Graft
III. Changes to the Hospital Wage Index for
Acute Care Hospitals
A. Background
B. Core-Based Statistical Areas for the
Hospital Wage Index
C. Worksheet S–3 Wage Data for the FY
2013 Wage Index
1. Included Categories of Costs
2. Excluded Categories of Costs
3. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals Under
the IPPS
D. Verification of Worksheet S–3 Wage
Data
E. Method for Computing the FY 2013
Unadjusted Wage Index
F. Occupational Mix Adjustment to the FY
2013 Wage Index
1. Development of Data for the FY 2013
Occupational Mix Adjustment Based on
the 2010 Occupational Mix Survey
2. Calculation of the Occupational Mix
Adjustment for FY 2013
G. Analysis and Implementation of the
Occupational Mix Adjustment and the
FY 2013 Occupational Mix Adjusted
Wage Index
1. Analysis of the Occupational Mix
Adjustment and the Occupational Mix
Adjusted Wage Index
2. Application of the Rural, Imputed, and
Frontier Floors
a. Rural Floor
b. Imputed Floor and Proposal for an
Alternative, Temporary Methodology for
Computing the Imputed Floor
c. Frontier Floor
3. FY 2013 Wage Index Tables
H. Revisions to the Wage Index Based on
Hospital Redesignations and
Reclassifications
1. General Policies and Effects of
Reclassification/Redesignation
2. FY 2013 MGCRB Reclassifications
a. FY 2013 Reclassification Requirements
and Approvals
b. Applications for Reclassifications for FY
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3. Redesignations of Hospitals Under
Section 1886(d)(8)(B) of the Act
4. Reclassifications Under Section
1886(d)(8)(B) of the Act
5. Reclassifications Under Section 508 of
Public Law 108–173
6. Waiving Lugar Redesignation for the
Out-Migration Adjustment
7. Cancellation of Acquired Rural Status
Due to MDH Expiration
I. FY 2013 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 FY 2013
Wage Index
IV. Other Decisions and Changes to the IPPS
for Operating Costs and Graduate
Medical Education (GME) Costs
A. Hospital Readmission Reduction
Program
1. Statutory Basis for the Hospital
Readmissions Reduction Program
2. Overview
3. FY 2013 Proposed and Final Policies for
the Hospital Readmissions Reduction
Program
a. Overview
b. Base Operating DRG Payment Amount,
Including Special Rules for SCHs and
MDHs and Hospitals Paid Under Section
1814 of the Act
c. Adjustment Factor (Both the Ratio and
Floor Adjustment Factor)
d. Aggregate Payments for Excess
Readmissions and Aggregate Payment for
All Discharges
e. Applicable Hospital
4. Limitations on Review
5. Reporting Hospital-Specific Information,
Including Opportunity To Review and
Submit Corrections
B. Sole Community Hospitals (SCHs)
(§ 412.92)
1. Background
2. Reporting Requirement and Clarification
of Duration of Classification for
Hospitals Incorrectly Classified as Sole
Community Hospitals
3. Change to Effective Date of Classification
for MDHs Applying for SCH Status Upon
the Expiration of the MDH Program
C. Rural Referral Centers (RRCs): Annual
Update to Case-Mix Index (CMI) and
Discharge Criteria (§ 412.96)
1. Case-Mix Index (CMI)
2. Discharges
D. Payment Adjustment for Low-Volume
Hospitals (§ 412.101)
1. Expiration of the Affordable Care Act
Provision for FYs 2011 and 2012
2. Background
3. Affordable Care Act Provisions for FYs
2011 and 2012
4. Payment Adjustment for FY 2013 and
Subsequent Years
E. Indirect Medical Education (IME)
Adjustment (§ 412.105)
1. IME Adjustment Factor for FY 2013
2. Timely Filing Requirements under Feefor-Service Medicare
a. IME and Direct GME
b. Nursing and Allied Health Education
c. Disproportionate Share Hospital (DSH)
Payments

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d. Summary of Public Comments, Our
Responses, and Final Policies
3. Other Related Policy Changes
F. Payment Adjustment for Medicare
Disproportionate Share Hospitals (DSHs)
and Indirect Medical Education (IME)
(§§ 412.105 and 412.106)
1. Background
2. Policy Change Relating to Treatment of
Labor and Delivery Beds in the
Calculation of the Medicare DSH
Payment Adjustment and the IME
Payment Adjustment
G. Expiration of the Medicare-Dependent,
Small Rural Hospital (MDH) Program
(§ 412.108)
H. Changes in the Inpatient Hospital
Update
1. FY 2013 Inpatient Hospital Update
2. FY 2013 Puerto Rico Hospital Update
I. Payment for Graduate Medical Education
(GME) and Indirect Medical Education
(IME) Costs (§§ 412.105, 413.75 through
413.83)
1. Background
2. Teaching Hospitals: Change in New
Program Growth from 3 Years to 5 Years
3. Policies and Clarifications Related to 5Year Period Following Implementation
of Reductions and Increases to Hospitals’
FTE Resident Caps for GME Payment
Purposes Under Section 5503 of the
Affordable Care Act
4. Preservation of Resident Cap Positions
From Closed Hospitals (Section 5506 of
the Affordable Care Act)
a. Background
b. Change in Amount of Time Provided for
Submitting Applications Under Section
5506 of the Affordable Care Act
c. Change to the Ranking Criteria Under
Section 5506
d. Effective Dates of Slots Awarded Under
Section 5506
e. Clarification of Relationship Between
Ranking Criteria One, Two, and Three
f. Modifications to the Section 5506 CMS
Evaluation Form
5. Notice of Closure of Teaching Hospitals
and Opportunity to Apply for Available
Slots
a. Background
b. Notice of Closure of Teaching Hospitals
c. Application Process for Available
Resident Slots
J. Changes to the Reporting Requirements
for Pension Costs for Medicare CostFinding Purposes
K. Rural Community Hospital
Demonstration Program
1. Background
2. Budget Neutrality Offset Amount for FY
2013
L. Hospital Routine Services Furnished
Under Arrangements
M. Technical Change
V. Changes to the IPPS for Capital-Related
Costs
A. Overview
B. Additional Provisions
1. Exception Payments
2. New Hospitals
3. Hospitals Located in Puerto Rico
C. Prospective Adjustment for the FY 2010
Documentation and Coding Effect
1. Background

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2. Prospective Adjustment for the Effect of
Documentation and Coding in FY 2010
3. Documentation and Coding Adjustment
to the Puerto Rico-Specific Capital Rate
D. Changes for Annual Update for FY 2013
VI. Changes for Hospitals Excluded From the
IPPS
A. Excluded Hospitals
B. Report of Adjustment (Exceptions)
Payments
VII. Changes to the Long-Term Care Hospital
Prospective Payment System (LTCH PPS)
for FY 2013
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded From the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification
Compliance Act (ASCA) and Health
Insurance Portability and Accountability
Act (HIPAA) Compliance
B. Medicare Severity Long-Term Care
Diagnosis-Related Group (MS–LTC–
DRG) Classifications and Relative
Weights for FY 2013
1. Background
2. Patient Classifications into MS–LTC–
DRGs
a. Background
b. Changes to the MS–LTC–DRGs for FY
2013
3. Development of the FY 2013 MS–LTC–
DRG Relative Weights
a. General Overview of the Development of
the MS–LTC–DRG Relative Weights
b. Development of the MS–LTC–DRG
Relative Weights for FY 2013
c. Data
d. Hospital-Specific Relative Value (HSRV)
Methodology
e. Treatment of Severity Levels in
Developing the MS–LTC–DRG Relative
Weights
f. Low-Volume MS–LTC–DRGs
g. Steps for Determining the FY 2013 MS–
LTC–DRG Relative Weights
C. Use of a LTCH-Specific Market Basket
Under the LTCH PPS
1. Background
2. Overview of the FY 2009-Based LTCHSpecific Market Basket
3. Development of a LTCH-Specific Market
Basket
a. Development of Cost Categories
b. Cost Category Computation
c. Selection of Price Proxies
d. Methodology for the Capital Portion of
the FY 2009-Based LTCH-Specific
Market Basket
e. FY 2013 Market Basket for LTCHs
f. FY 2013 Labor-Related Share
D. Changes to the LTCH Payment Rates for
FY 2013 and Other Changes to the LTCH
PPS for FY 2013
1. Overview of Development of the LTCH
Payment Rates
2. FY 2013 LTCH PPS Annual Market
Basket Update
a. Overview
b. Revision of Certain Market Basket
Updates as Required by the Affordable
Care Act
c. Market Basket Under the LTCH PPS for
FY 2013

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d. Annual Market Basket Update for LTCHs
for FY 2013
3. LTCH PPS Cost-of-Living Adjustment
(COLA) for LTCHs Located in Alaska and
Hawaii
E. Expiration of Certain Payment Rules for
LTCH Services and the Moratorium on
the Establishment of Certain Hospitals
and Facilities and the Increase in
Number of Beds in LTCHs and LTCH
Satellite Facilities
1. Background
2. The 25-Percent Payment Adjustment
Threshold
3. The ‘‘IPPS Comparable Per Diem
Amount’’ Payment Option for Very Short
Stays Under the Short-Stay Outlier (SSO)
Policy
4. One-Time Prospective Adjustment to the
Standard Federal Rate Under
§ 412.523(d)(3)
a. Overview
b. Data Used to Estimate Aggregate FY
2003 TEFRA Payments
c. Data Used to Estimate Aggregate FY 2003
LTCH PPS Payments
d. Methodology to Evaluate Whether a
One-Time Prospective Adjustment
Under § 412.523(d)(3) is Warranted
e. Methodology to Estimate FY 2003 LTCH
Payments Under the TEFRA Payment
System
f. Methodology to Estimate FY 2003 LTCH
PPS Payments
g. Methodology for Calculating the OneTime Prospective Adjustment Under
§ 412.523(d)(3)
h. Public Comments and CMS’ Responses
i. Final Policy Regarding the One-Time
Prospective Adjustment Under
§ 412.523(d)(3)
VIII. Quality Data Reporting Requirements for
Specific Providers and Suppliers
A. Hospital Inpatient Quality Reporting
(IQR) Program
1. Background
a. History of Measures Adopted for the
Hospital IQR Program
b. Maintenance of Technical Specifications
for Quality Measures
c. Public Display of Quality Measures
2. Removal and Suspension of Hospital
IQR Program Measures
a. Considerations in Removing Quality
Measures From the Hospital IQR
Program b. Hospital IQR Program
Measures Removed in Previous
Rulemakings
c. Removal of Hospital IQR Program
Measures for the FY 2015 Payment
Determination and Subsequent Years
(1) Removal of One Chart-Abstracted
Measure
(2) Removal of 16 Claims-Based Measures
d. Suspension of Data Collection for the FY
2014 Payment Determination and
Subsequent Years
3. Measures for the FY 2015 and FY 2016
Hospital IQR Program Payment
Determinations
a. Additional Considerations in Expanding
and Updating Quality Measures Under
the Hospital IQR Program
b. Hospital IQR Program Measures for the
FY 2015 Payment Determination and
Subsequent Years

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(1) Process for Retention of Hospital IQR
Program Measures Adopted in Previous
Payment Determinations
(2) Additional Hospital IQR Program
Measures for FY 2015 Payment
Determination and Subsequent Years
c. Hospital IQR Program Quality Measures
for the FY 2016 Payment Determination
and Subsequent Years
4. Possible New Quality Measures and
Measure Topics for Future Years
5. Form, Manner, and Timing of Quality
Data Submission
a. Background
b. Procedural Requirements for the FY
2015 Payment Determination and
Subsequent Years
c. Data Submission Requirements for
Chart-Abstracted Measures
d. Sampling and Case Thresholds
Beginning With the FY 2015 Payment
Determination
e. HCAHPS Requirements for the FY 2014,
FY 2015, and FY 2016 Payment
Determinations
f. Data Submission Requirements for
Structural Measures
g. Data Submission and Reporting
Requirements for Healthcare-Associated
Infection (HAI) Measures Reported via
NHSN
6. Supplements to the Chart Validation
Process for the Hospital IQR Program for
the FY 2015 Payment Determination and
Subsequent Years
a. Separate Processes for Sampling and
Scoring for Chart-Abstracted Clinical
Process of Care and HAI Measures
(1) Background and Rationale
(2) Selection and Sampling of Clinical
Process of Care Measures for Validation
(3) Selection and Sampling of HAI
Measures for Validation
(4) Validation Scoring for Chart-Abstract
Clinical Process of Care and HAI
Measures
(5) Criteria to Evaluate Whether a Score
Passes or Fails
b. Number and Manner of Selection for
Hospitals Included in the Base Annual
Validation Random Sample
c. Targeting Criteria for Selection of
Supplemental Hospitals for Validation
7. Data Accuracy and Completeness
Acknowledgement Requirements for the
FY 2015 Payment Determination and
Subsequent Years
8. Public Display Requirements for the FY
2015 Payment Determination and
Subsequent Years
9. Reconsideration and Appeal Procedures
for the FY 2015 Payment Determination
10. Hospital IQR Program Disaster
Extensions or Waivers
11. Electronic Health Records (EHRs)
a. Background
b. HITECH Act EHR Provisions
B. PPS-Exempt Cancer Hospital Quality
Reporting (PCHQR) Program
1. Statutory Authority
2. Covered Entities
3. Quality Measures for PCHs for FY 2014
Program and Subsequent Program Years
a. Considerations in the Selection of the
Quality Measures

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b. PCHQR Program Quality Measures for
FY 2014 Program and Subsequent
Program Years
(1) CDC/NHSN-Based HealthcareAssociated Infection (HAI) Measures
(2) Cancer-Specific Measures
4. Possible New Quality Measure Topics
for Future Years
5. Maintenance of Technical Specifications
for Quality Measures
6. Public Display Requirements for the FY
2014 Program and Subsequent Program
Years
7. Form, Manner, and Timing of Data
Submission for FY 2014 Program and
Subsequent Program Years
a. Background
b. Procedural Requirements for FY 2014
Program and Subsequent Program Years
c. Reporting Mechanisms for FY 2014
Program and Subsequent Program Years
(1) Reporting Mechanism for the HAI
Measures
(2) Reporting Mechanism for the CancerSpecific Measures
d. Data Submission Timelines for FY 2014
Program and Subsequent Program Years
e. Data Accuracy and Completeness
Acknowledgement (DACA)
Requirements for the FY 2014 Program
and Subsequent Program Years
C. Hospital Value-Based Purchasing (VBP)
Program
1. Statutory Background
2. Overview of the FY 2013 Hospital VBP
Program
3. FY 2014 Hospital VBP Program
Measures
4. Other Previously Finalized
Requirements for the Hospital VBP
Program
5. Hospital VBP Payment Adjustment
Calculation Methodology
a. Definitions of the Term ‘‘Base Operating
DRG Payment Amount’’ for Purposes of
the Hospital VBP Program
b. Calculating the Funding Amount for
Value-Based Incentive Payments Each
Year
c. Methodology To Calculate the ValueBased Incentive Payment Adjustment
Factor
d. Timing of the Base Operating DRG
Payment Amount Reduction and ValueBased Incentive Payment Adjustment for
FY 2013 and Future Hospital VBP
Program Years
e. Process for Reducing the Base Operating
DRG Payment Amount and Applying the
Value-Based Incentive Payment
Adjustment for FY 2013
6. Review and Corrections Processes
a. Background
b. Review and Corrections Process for
Claims-Based Measure Rates
c. Review and Corrections Process for
Condition-Specific Scores, DomainSpecific Scores, and Total Performance
Scores
7. Appeal Process Under the Hospital VBP
Program
a. Background
b. Appeal Process
8. Measures for the FY 2015 Hospital VBP
Program
a. Relationship Between the National
Strategy and the Hospital VBP Program

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b. FY 2015 Measures
c. General Process for Hospital VBP
Program Measure Adoption for Future
Program Years
9. Measures and Domains for the FY 2016
Hospital VBP Program
a. FY 2016 Measures
b. Quality Measure Domains for the FY
2016 Hospital VBP Program
10. Performance Periods and Baseline
Periods for the FY 2015 Hospital VBP
Program
a. Clinical Process of Care Domain
Performance Period and Baseline Periods
for FY 2015
b. Patient Experience of Care Domain
Performance Period and Baseline Period
for FY 2015
c. Efficiency Domain Measure Performance
Period and Baseline Period for FY 2015
d. Outcome Domain Performance Periods
for FY 2015
(1) Mortality Measures
(2) AHRQ PSI Composite Measure
(3) CLABSI Measure
e. Performance Periods for FY 2016
Measures
11. Performance Standards for the Hospital
VBP Program for FY 2015 and FY 2016
a. Background
b. Performance Standards for the FY 2015
Hospital VBP Program Measures
c. Performance Standards for FY 2016
Hospital VBP Program Measures
d. Adopting Performance Periods and
Standards for Future Program Years
12. FY 2015 Hospital VBP Program Scoring
Methodology
a. General Hospital VBP Program Scoring
Methodology
b. Domain Weighting for the FY 2015
Hospital VBP Program for Hospitals That
Receive a Score on all Four Proposed
Domains
c. Domain Weighting for Hospitals
Receiving Scores on Fewer Than Four
Domains
13. Applicability of the Hospital VBP
Program to Hospitals
a. Background
b. Exemption Request Process for Maryland
Hospitals
14. Minimum Numbers of Cases and
Measures for the FY 2015 Program
a. Background
b. Minimum Numbers of Cases and
Measures for the FY 2015 Outcome
Domain
c. Medicare Spending Per Beneficiary
Measure Case Minimum
15. Immediate Jeopardy Citations
D. Long-Term Care Hospital Quality
Reporting (LTCHQR) Program
1. Statutory History
2. LTCH Program Measures for the FY 2014
Payment Determination and Subsequent
Fiscal Years Payment Determinations
a. Process for Retention of LTCHQR
Program Measures Adopted in Previous
Payment Determinations
b. Process for Adopting Changes to
LTCHQR Program Measures
3. CLABSI, CAUTI, AND Pressure Ulcer
Measures
4. LTCHQR Program Quality Measures for
the FY 2016 Payment Determinations

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and Subsequent Fiscal Years Payment
Determinations
a. Considerations in Updating and
Expanding Quality Measures Under the
LTCHQR Program for FY 2016 and
Subsequent Payment Update
Determinations
b. New LTCHQR Program Quality
Measures Beginning With the FY 2016
Payment Determination
(1) Quality Measure #1 for the FY 2016
Payment Determination and Subsequent
Fiscal Years Payment Determinations:
Percent of Nursing Home Residents who
Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine (ShortStay) (NQF #0680)
(2) LTCH Quality Measure #2 for the FY
2016 Payment Determination and
Subsequent Fiscal Years Payment
Determinations: Percentage of Residents
or Patients who Were Assessed and
Appropriately Given the Pneumococcal
Vaccine (Short-Stay) (NQF #0682)
(3) LTCH Quality Measure #3 for the FY
2016 Payment Determination and
Subsequent Fiscal Years Payment
Determinations: Influenza Vaccination
Coverage Among Healthcare Personnel
(NQF #0431)
(4) LTCH Quality Measure #4 for the FY
2016 Payment Determination and
Subsequent Fiscal Years Payment
Determinations: Ventilator Bundle
(Application of NQF #0302)
(5) LTCH Quality Measure #5 for the FY
2016 Payment Determination and
Subsequent Fiscal Years Payment
Determinations: Restraint Rate per 1,000
Patient Days
5. Timeline for Data Submission Under the
LTCHQR Program for the FY 2015
Payment Determination
6. Timeline for Data Submission Under the
LTCHQR Program for the FY 2016
Payment Determination
7. Public Display of Data Quality Measures
E. Quality Reporting Requirements Under
the Ambulatory Surgical Centers Quality
Reporting (ASCQR) Program
1. Background
2. Requirements for Reporting Under the
ASCQR Program
a. Administrative Requirements
(1) Requirements Regarding QualityNet
Account and Administrator for the CYs
2014 and 2015 Payment Determinations
(2) Requirements Regarding Participation
Status for the CY 2014 Payment
Determination and Subsequent Payment
Determination Years
b. Requirements Regarding Form, Manner,
and Timing for Claims-Based Measures
for CYs 2014 and 2015 Payment
Determinations
(1) Background
(2) Minimum Threshold for Claims-Based
Measures Using QDCs
c. ASCQR Program Validation of ClaimsBased and Structural Measures
3. Extraordinary Circumstances Extension
or Waiver for the CY 2014 Payment
Determination and Subsequent Payment
Determination Years
4. ASCQR Program Reconsideration
Procedures for the CY 2014 Payment

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Determination and Subsequent Payment
Determination Years
F. Inpatient Psychiatric Facilities Quality
Reporting (IPFQR) Program
1. Statutory Authority
2. Application of the Payment Update
Reduction for Failure To Report for FY
2014 Payment Determination and
Subsequent Years
3. Covered Entities
4. Quality Measures
a. Considerations in Selecting Quality
Measures
b. Quality Measures Beginning With FY
2014 Payment Determination and
Subsequent Years
(1) HBIPS–2 (Hours of Physical Restraint
Use)
(2) HBIPS–3 (Hours of Seclusion Use)
(3) HBIPS–4 (Patients Discharged on
Multiple Antipsychotic Medications)
(4) HBIPS–5 (Patients Discharged on
Multiple Antipsychotic Medications
With Appropriate Justification)
(5) HBIPS–6 (Post Discharge Continuing
Care Plan Created)
(6) HBIPS–7 (Post Discharge Continuing
Care Plan Transmitted to the Next Level
of Care Provider Upon Discharge)
c. Maintenance of Technical Specifications
for Quality Measures
5. Possible New Quality Measures for
Future Years
6. Public Display Requirements for the FY
2014 Payment Determination and
Subsequent Years
7. Form, Manner, and Timing of Quality
Data Submission for the FY 2014
Payment Determination and Subsequent
Years
a. Background
b. Procedural Requirements for the FY
2014 Payment Determination and
Subsequent Years
c. Reporting and Submission Requirements
for the FY 2014 Payment Determination
d. Reporting and Submission Requirements
for the FY 2015 and FY 2016 Payment
Determinations
e. Population, Sampling, and Minimum
Case Threshold for FY 2014 and
Subsequent Years
f. Data Accuracy and Completeness
Acknowledgement Requirements for the
FY 2014 Payment Determination and
Subsequent Years
8. Reconsideration and Appeals Procedure
for the FY 2014 Payment Determination
and Subsequent Years
9. Waivers From Quality Reporting
Requirements for the FY 2014 Payment
Determination and Subsequent Years
10. Electronic Health Records (EHRs)
IX. MedPAC Recommendations and Other
Related Reports and Studies for the IPPS
and LTCH PPS
A. MedPAC Recommendations for the IPPS
for FY 2013
B. Studies and Reports on Reforming the
Hospital Wage Index
1. Secretary’s Report to Congress on Wage
Index Reform
2. Institute of Medicine (IOM) Study on
Medicare’s Approach to Measuring
Geographic Variations in Hospitals’
Wage Costs

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X. Quality Improvement Organization (QIO)
Regulation Changes Relating to Provider
and Practitioner Medical Record
Deadlines and Claim Denials
XI. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Statutory Requirement for Solicitation of
Comments
2. ICRs for Add-On Payments for New
Services and Technologies
3. ICRs for the Occupational Mix
Adjustment to the FY 2013 Index
(Hospital Wage Index Occupational Mix
Survey)
4. Hospital Applications for Geographic
Reclassifications by the MGCRB
5. ICRs for Application for GME Resident
Slots
6. ICRs for the Hospital Inpatient Quality
Reporting (IQR) Program
7. ICRs for PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program
8. ICRs for Hospital Value-Based
Purchasing (VBP) Program
9. ICRs for the Long-Term Care Hospital
Quality Reporting (LTCHQR) Program
10. ICRs for the Ambulatory Surgical
Center (ASC) Quality Reporting Program
11. ICRs for the Inpatient Psychiatric
Facilities Quality Reporting (IPFQR)
Program
Regulation Text
Addendum—Schedule of Standardized
Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With Cost
Reporting Periods Beginning on or After
October 1, 2012 and Payment Rates for
LTCHs Effective With Discharges
Occurring on or After October 1, 2012
I. Summary and Background
II. Changes to the Prospective Payment Rates
for Hospital Inpatient Operating Costs for
Acute Care Hospitals for FY 2013
A. Calculation of the Adjusted
Standardized Amount
B. Adjustments for Area Wage Levels and
Cost-of-Living
C. Calculation of the Prospective Payment
Rates
III. Changes to Payment Rates for Acute Care
Hospital Inpatient Capital-Related Costs
for FY 2013
A. Determination of Federal Hospital
Inpatient Capital-Related Prospective
Payment Rate Update
B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY
2013
C. Capital Input Price Index
IV. Changes to Payment Rates for Excluded
Hospitals: Rate-of-Increase Percentages
for FY 2013
V. Changes to the Payment Rates for the
LTCH PPS for FY 2013
A. LTCH PPS Standard Federal Rate for FY
2013
B. Adjustment for Area Wage Levels Under
the LTCH PPS for FY 2013
1. Background
2. Geographic Classifications/Labor Market
Area Definitions
3. LTCH PPS Labor-Related Share
4. LTCH PPS Wage Index for FY 2013
5. Budget Neutrality Adjustment for
Changes to the Area Wage Level
Adjustment

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C. LTCH PPS Cost-of-Living Adjustment
for LTCHs Located in Alaska and Hawaii
D. Adjustment for LTCH PPS High-Cost
Outlier (HCO) Cases
E. Computing the Adjusted LTCH PPS
Federal Prospective Payments for FY
2013
VI. Tables Referenced in this Final
Rulemaking and Available Through the
Internet on the CMS Web Site
Appendix A—Economic Analyses
I. Regulatory Impact Analysis
A. Introduction
B. Need
C. Objectives of the IPPS
D. Limitations of Our Analysis
E. Hospitals Included in and Excluded
From the IPPS
F. Effects on Hospitals and Hospital Units
Excluded From the IPPS
G. Quantitative Effects of the Policy
Changes Under the IPPS for Operating
Costs
1. Basis and Methodology of Estimates
2. Analysis of Table I
3. Impact Analysis of Table II
H. Effects of Other Policy Changes
1. Effects of Policy on HACs, Including
Infections
2. Effects of Policy Relating to New
Medical Service and Technology AddOn Payments
3. Effects of Policy Changes Relating to
SCHs
4. Effects of Payment Adjustment for LowVolume Hospitals for FY 2013
5. Effects of Policy Changes Relating to
Payment Adjustments for Medicare
Disproportionate Share Hospitals (DSHs)
and Indirect Medical Education (IME)
6. Effects of the Policy Changes Relating to
Direct GME and IME
a. Effects of Clarification and Policy
Regarding Timely Filing Requirements
for Claims for Medicare Advantage
Enrollees Under Fee-for-Service
Medicare
b. Effects of Policy Changes Relating to
New Teaching Hospitals: New Program
Growth From 3 Years to 5 Years
c. Effects of Changes Relating to 5-Year
Period Following Implementation of
Reductions and Increases to Hospitals’
FTE Resident Caps for GME Payment
Purposes Under Section 5503 of The
Affordable Care Act
d. Preservation of Resident Cap Positions
From Closed Hospitals (Section 5506 of
the Affordable Care Act)
7. Effects of Changes Relating to the
Reporting Requirements for Pension
Costs for Medicare Cost-Finding
Purposes
8. Effects of Implementation of Rural
Community Hospital Demonstration
Program
9. Effects of Change in Effective Date for
Policies Relating to Hospital Services
Furnished Under Arrangements
I. Effects of Changes in the Capital IPPS
1. General Considerations
2. Results
J. Effects of Payment Rate Changes and
Policy Changes Under the LTCH PPS
1. Introduction and General Considerations
2. Impact on Rural Hospitals

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3. Anticipated Effects of LTCH PPS
Payment Rate Change and Policy
Changes
4. Effect on the Medicare Program
5. Effect on Medicare Beneficiaries
K. Effects of Requirements for Hospital
Inpatient Quality Reporting (IQR)
Program
L. Effects of PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program
M. Effects of Hospital Value-Based
Purchasing (VBP) Program Requirements
N. Effects of New Measures Added to the
LTCH Quality Reporting (LTCHQR)
Program
O. Effects of Quality Reporting
Requirements for Ambulatory Surgical
Centers
P. Effects of Requirements for the Inpatient
Psychiatric Facilities Quality Reporting
(IPFQR) Program
Q. Effects of Requirements for Provider and
Practitioner Medical Record Deadlines
and Claims Denials
R. Alternatives Considered
S. Overall Conclusion
1. Acute Care Hospitals
2. LTCHs
II. Accounting Statements and Tables
A. Acute Care Hospitals
B. LTCHs
III. Regulatory Flexibility Act (RFA) Analysis
IV. Impact on Small Rural Hospitals
V. Unfunded Mandate Reform Act (UMRA)
Analysis
VI. 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 2013
A. FY 2013 Inpatient Hospital Update
B. Update for SCHs for FY 2013
C. FY 2013 Puerto Rico Hospital Update
D. Update for Hospitals Excluded From the
IPPS
E. Update for LTCHs
III. Secretary’s Recommendation
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating
Payments in Traditional Medicare

I. Executive Summary and Background

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A. Executive Summary
1. Purpose and Legal Authority
This final rule makes payment and
policy changes under the Medicare
inpatient prospective payment systems
(IPPS) for operating and capital-related
costs of acute care hospitals as well as
for certain hospitals and hospital units
excluded from the IPPS. In addition, it
makes payment and policy changes for
inpatient hospital services provided by
long-term care hospitals (LTCHs) under
the long-term care hospital prospective
payment system (LTCH PPS). It also
makes policy changes to programs
associated with Medicare IPPS hospitals
and LTCHs.
Under various statutory authorities,
we are making changes to the Medicare
IPPS, to the LTCH PPS, and to other

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related payment methodologies and
programs for FY 2013. These statutory
authorities include, but are not limited
to, the following:
• Section 1886(d) of the Social
Security Act (the Act), which 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
that, instead of paying for capital-related
costs of inpatient hospital services on a
reasonable cost basis, the Secretary use
a prospective payment system (PPS).
• Section 1886(d)(1)(B) of the Act,
which specifies that certain hospitals
and hospital units are excluded from the
IPPS. These hospitals and units are:
Rehabilitation hospitals and units;
LTCHs; psychiatric hospitals and units;
children’s hospitals; and cancer
hospitals. Religious nonmedical health
care institutions (RNHCIs) are also
excluded from the IPPS.
• 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), which
provide for the development and
implementation of a prospective
payment system for payment for
inpatient hospital services of long-term
care hospitals (LTCHs) described in
section 1886(d)(1)(B)(iv) of the Act.
• Sections 1814(l), 1820, and 1834(g)
of the Act, which specifies that
payments are made to critical access
hospitals (CAHs) (that is, rural hospitals
or facilities that meet certain statutory
requirements) for inpatient and
outpatient services and that these
payments are generally based on 101
percent of reasonable cost.
• 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.
• Section 1886(d)(4)(D) of the Act,
which addresses certain hospitalacquired 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

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53265

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.
• Section 1886(a)(4) of the Act, which
specifies that 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.
• Section 1886(b)(3)(B)(viii) of the
Act, which requires the Secretary to
reduce the applicable percentage
increase in payments to a subsection (d)
hospital for a fiscal year if the hospital
does not submit data on measures in a
form and manner, and at a time,
specified by the Secretary.
• Section 1886(o) of the Act, which
requires the Secretary to establish a
Hospital Value-Based Purchasing (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 valuebased incentive payments under the
Hospital Inpatient VBP Program to
hospitals for discharges occurring on or
after October 1, 2012.
• Section 1886(q) of the Act, as added
by section 3025 of the Affordable Care
Act and amended by section 10309 of
the Affordable Care Act, which
establishes the ‘‘Hospital Readmissions
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.

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2. Summary of the Major Provisions
a. MS–DRG Documentation and Coding
Adjustment, Including the Applicability
to the Hospital-Specific Rates and the
Puerto Rico-Specific Standardized
Amount
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 prospective
adjustment under section
1886(d)(3)(A)(vi) of the Act.
Section 7(b)(1)(B) of Public Law 110–
90 requires the Secretary to make an
additional one-time adjustment to the
standardized amounts to offset the
estimated increase or decrease in
aggregate payments for FYs 2008 and
2009 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.
After accounting for adjustments
made in FYs 2008 and 2009, we have
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.
Without making this adjustment, our
actuaries estimated that annual
aggregate payments would be increased
by approximately $4 billion.
Furthermore, an additional one-time
adjustment of ¥5.8 percent would be
required to fully recapture
overpayments (estimated at
approximately $6.9 billion) due to
documentation and coding that
occurred in FY 2008 and FY 2009, as
required by section 7(b)(1)(B) of Public
Law 110–90.
CMS has thus far implemented a ¥2.0
percent (of a required ¥3.9 percent)
prospective adjustment, and completed
the full one-time ¥5.8 percent
recoupment adjustment (¥2.9 percent
in both FYs 2011 and 2012). In FY 2013,
we are completing the remaining ¥1.9
percent prospective adjustment, while
also making a + 2.9 percent adjustment
to remove the effect of the FY 2012 onetime recoupment adjustment. We have
also determined that a cumulative
adjustment of ¥5.4 percent is required
to eliminate the full effect of
documentation and coding changes on

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future payments to SCHs and MDHs.
After accounting for adjustments made
to the hospital-specific rate in FY 2011
and FY 2012, an additional prospective
adjustment of ¥0.5 percent is necessary
to complete the full ¥5.4 adjustment.
For FY 2013, we are making a full ¥0.5
percent adjustment to the hospitalspecific rate, in keeping with our policy
of applying equivalent adjustments,
when applicable, to other subsection (d)
hospital payment systems.
In the FY 2013 IPPS/LTCH PPS
proposed rule, we proposed to make an
additional adjustment to account for
documentation and coding effects that
occurred in FY 2010. After review of
comments and recommendations from
MedPAC, CMS analyzed FY 2010 claims
using the same methodology as
previously applied to FYs 2008 and
2009 claims. CMS estimated that there
was a 0.8 percentage point effect due to
documentation and coding that did not
reflect an actual increase in patient
severity. However, in light of public
comments we received on the proposed
rule, we are not making an adjustment
to account for this effect at this time.
Therefore, the total documentation and
coding adjustment for FY 2013 is a + 1.0
percent adjustment (¥1.9 plus + 2.9) to
the standardized amount and a ¥0.5
percent adjustment to the hospitalspecific rate.
b. Hospital-Acquired Conditions (HACs)
Section 1886(d)(4)(D) 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 evidence-based
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.
In this final rule, we are adding two
new conditions, Surgical Site Infection
(SSI) Following Cardiac Implantable
Electronic Device (CIED) Procedures
and Pneumothorax with Venous
Catheterization, for the HAC payment
provisions for FY 2013 under section
1886(d)(4)(D) of the Act. We note that
the SSI Following CEID Procedures
condition will be a new subcategory of
the SSI HAC category. We also are
adding diagnosis codes 999.32
(Bloodstream infection due to central

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venous catheter) and 999.33 (Local
infection due to central venous catheter)
to the existing Vascular CatheterAssociated Infection HAC category for
FY 2013.
c. Reduction of Hospital Payments for
Excess Readmissions
We are finalizing a number of policies
to implement section 1886(q) of the Act,
as added by section 3025 of the
Affordable Care Act, which establishes
the Hospital Readmissions Reduction
Program. The Hospital Readmissions
Reduction Program requires a reduction
to a hospital’s base operating DRG
payments to account for excess
readmissions of selected applicable
conditions, which are acute myocardial
infarction, heart failure, and
pneumonia. We are finalizing
provisions related to the applicable
hospitals that are included in the
Hospital Readmissions Reduction
Program, the methodology to calculate
the adjustment factor, the portion of the
hospital’s payment that is reduced by
the adjustment factor, and the process
under which the hospitals have the
opportunity to review and submit
corrections for their readmissions
information prior to the information
being posted on the Hospital Compare
Web site.
d. Long-Term Care Hospital-Specific
Market Basket
We are updating LTCH payment rates
with a separate market basket comprised
of data from only LTCHs, which we
refer to as a ‘‘LTCH-specific market
basket.’’ We are implementing a standalone LTCH market basket based on FY
2009 Medicare cost report data. The
method used to calculate the cost
weights and the price proxies used are
generally similar to those used in the FY
2008-based RPL market basket that was
finalized for the FY 2012 IPPS/LTCH
PPS final rule. The primary difference is
that we are using data from LTCH
providers only.
e. Expiration of Certain Payment Rules
for LTCH Services and the Moratorium
on the Establishment of Certain
Hospitals and Satellite Facilities and the
Increase in the Number of Beds in
LTCHs and LTCH Satellite Facilities
Moratoria on the implementation of
certain LTCH payment policies and on
the development of new LTCHs and
LTCH satellite facilities and on bed
increases in existing LTCHs and LTCH
satellite facilities established under
sections 114(c) and (d) of the MMSEA
(Pub. L. 110–173) as amended by
section 4302 of the ARRA (Pub. L. 111–
5) and further amended by sections

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3106 and 10312 of the Affordable Care
Act are set to expire during CY 2012,
under current law.
The moratoria established by these
provisions delayed the full
implementation of the following
policies for 5 years beginning at various
times in CY 2007:
• The full application of the ‘‘25percent payment adjustment threshold’’
to certain LTCHs, including hospitalswithin-hospitals (HwHs) and LTCH
satellite facilities for cost reporting
periods beginning on or after July 1,
2007, and before July 1, 2012, or cost
reporting periods beginning on or after
October 1, 2007, and before October 1,
2012, as applicable under the
regulations at §§ 412.534 and 412.536.
• The inclusion of an ‘‘IPPS
comparable per diem amount’’ option
for payment determinations under the
short stay outlier (SSO) adjustment at
§ 412.529 of the regulations for LTCH
discharges occurring on or after
December 29, 2007, but prior to
December 29, 2012.
• The application of any one-time
budget neutrality adjustment to the
LTCH PPS standard Federal rate
provided for in § 412.523(d)(3) of the
regulations from December 29, 2007,
through December 28, 2012.
• In general, the development of new
LTCHs and LTCH satellite facilities, or
increases in the number of beds in
existing LTCHs and LTCH satellite
facilities from December 29, 2007,
through December 28, 2012, unless one
of the specified exceptions to the
particular moratorium was met.
In this final rule, we are extending the
existing delay of the full
implementation of the 25-percent
payment adjustment threshold for an
additional year; that is, for cost
reporting periods beginning on or after
October 1, 2012, and before October 1,
2013, as applicable. We are providing a
1-year moratorium on the application of
the ‘‘25-percent threshold’’ payment
adjustment for cost reporting periods
beginning on or after October 1, 2012,
and before October 1, 2013. However,
the moratorium will expire for several
types of LTCHs with cost reporting
periods beginning before July 1, 2012
and September 30, 2012, prior to the
effective date of the moratorium
finalized in this rule. This gap in the
continued application of the
moratorium is a result of the July 1,
2007 effective date of section 114(c)(1)
of the MMSEA, as amended by section
4302(a)(1) of the ARRA, which was
based on the former July 1 through June
30 regulatory cycle for the LTCH PPS.
In order to address this situation for this
group of LTCHs, we are finalizing a

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policy that applies a supplemental
moratorium on a per discharge basis
beginning with discharges occurring on
or after October 1, 2012, and continuing
through the LTCH’s cost reporting
period.
We are providing for an additional 1year extension in the delay of the full
application of the 25-percent payment
adjustment threshold policy because we
believe that, based on a recent research
initiative, we could soon be in a
position to propose revisions to our
payment policies that could render the
25-percent payment adjustment
threshold policy unnecessary. In light of
this potential result, we believe it is
prudent to avoid requiring LTCHs (or
CMS systems) to implement the full
reinstatement of the policy for what
could be a relatively short period of
time.
We are not making any changes to the
SSO policy as it currently exists in the
regulations at § 412.529. Accordingly,
consistent with the existing regulations
at § 412.529(c)(3), for SSO discharges
occurring on or after December 29, 2012,
the ‘‘IPPS comparable per diem
amount’’ option at § 412.529(c)(3)(i)(D)
will apply to payment determinations
for cases with a covered length of stay
that was equal to or less than one
standard deviation from the geometric
average length of stay for the same MS–
DRG under the IPPS (that is, the ‘‘IPPS
comparable threshold’’).
The moratoria on the development of
new LTCHs or LTCH satellite facilities
and on an increase in the number of
beds in existing LTCHs or LTCH
satellite facilities are set to expire on
December 29, 2012, under current law.
We are making a one-time prospective
adjustment under § 412.523(d)(3) of the
regulations (which will not apply to
payments for discharges occurring on or
before December 28, 2012, consistent
with the statute) and to transition the
application of this adjustment over a 3year period. Regulations at
§ 412.523(d)(3) provide for the
possibility of making a one-time
prospective adjustment to the LTCH
PPS rates so that the effect of any
significant difference between the data
used in the original computations of
budget neutrality for FY 2003 and more
recent data to determine budget
neutrality for FY 2003 is not
perpetuated in the prospective payment
rates for future years.
f. Hospital Inpatient Quality Reporting
(IQR) Program
Under section 1886(b)(3)(B)(viii) of
the Act, hospitals are required to report
data on measures selected by the
Secretary for the Hospital IQR Program

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53267

in order to receive the full annual
percentage increase. In past rules, we
have established measures for reporting
and the process for submittal and
validation of the data.
In this final rule, we are making
programmatic changes to the Hospital
IQR Program for the FY 2015 payment
determination and subsequent years.
These changes will streamline and
simplify the process for hospitals and
reduce burden. We are reducing the
number of measures in the Hospital IQR
Program from 72 to 59 for the FY 2015
payment determination. We are
removing 1 chart-abstracted measure
and 16 claims-based measures from the
program for the FY 2015 payment
determination and subsequent years. We
are removing these measures for a
number of reasons, including that these
measures are losing NQF endorsement,
are included in an existing composite
measure, are duplicative of other
measures in the Hospital IQR Program,
or could otherwise be reported on
Hospital Compare in the future under
the authority of section 3008 of the
Affordable Care Act. In addition, we are
adopting three claims-based measures,
one chart-abstracted measure and a
survey-based measure regarding care
transitions, which we will collect using
the existing HCAHPS survey, to the
measure set for the FY 2015 payment
determination and subsequent years. We
are adopting a structural measure for the
FY 2016 payment determination and
subsequent years.
In an effort to streamline the
rulemaking process, we are retaining
measures for all subsequent payment
determinations, unless specifically
stated otherwise, through rulemaking.
We are adopting a policy under which
we will use a subregulatory process to
make nonsubstantive updates to the
Hospital IQR Program measures. To
ensure that hospitals that participate in
the Hospital IQR Program are submitting
data for a full year, we are providing
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 a
completed Notice of Participation by
December 31 of the calendar year
preceding the first quarter of the
calendar year in which chart-abstracted
data submission is required for any
given fiscal year. In addition, if a
hospital wishes to withdraw from the
program, it will have until May 15 prior
to the start of the payment year affected
to do so. In order to reduce the burden
associated with validation, we are
reducing the base annual validation
sample from 800 to 400, with an

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additional targeted sample of up to 200
hospitals. All hospitals failing
validation in a previous year will be
included in the 200 hospital
supplement, with a random sample
drawn from hospitals meeting one or
more additional targeting criteria. We
are calculating scores for both the chartabstracted clinical process of care and
HAC measure sets and then calculating
a total score reflecting a weighted
average of each of the two individual
scores. Hospitals must achieve a total
score of 75 percent to pass validation.

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g. Hospital Value-Based Purchasing
(VBP) Program
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. 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.
We previously published the
requirements and related measures to
implement the Hospital Inpatient VBP
Program in a final rule issued in the
Federal Register on April 29, 2011 (76
FR 26490, May 6, 2011), in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51653
through 51660), and in the CY 2012
OPPS/ASC final rule (76 FR 74527
through 74547). In this final rule, we are
adding requirements for the Hospital
VBP Program. Specifically, we are
adding for the FY 2015 program two
additional outcome measures—an
AHRQ Patient Safety Indicators
composite measure and CLABSI: Central
Line-Associated Blood Stream Infection.
We are adding a measure of Medicare
Spending per Beneficiary in the
Efficiency domain. We are also
finalizing a number of other
requirements for the program, including
an appeals process, case minimums, a
review and corrections process for
claims-based measures, and the scoring
methodology for FY 2015.
3. Summary of Costs and Benefits
• FY 2013 Documentation and
Coding Adjustment: Section 7(b)(1)(A)
of Public Law 110–90 requires that, if
the Secretary determines that
implementation of the MS–DRG system
resulted in changes in documentation
and coding that did not reflect real
changes in case-mix for discharges
occurring during FY 2008 or FY 2009

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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 prospective adjustment
under section 1886(d)(3)(A)(vi) of the
Act. Section 7(b)(1)(B) of Public Law
110–90 requires the Secretary to make
an additional one-time adjustment to
the standardized amounts to offset the
estimated increase or decrease in
aggregate payments for FYs 2008 and
2009 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.
After accounting for adjustments
made in FYs 2008 and 2009, we have
found a remaining documentation and
coding effect of 3.9 percent. As we have
discussed in prior rules, an additional
cumulative adjustment of ¥3.9 percent
will be necessary to meet the
requirements of section 7(b)(1)(A) of
Public Law 110–90. Without making
this adjustment, our actuaries estimated
that annual aggregate payments would
be increased by approximately $4
billion. Furthermore, an additional onetime adjustment of ¥5.8 percent will be
required to fully recapture
overpayments (estimated at
approximately $6.9 billion) due to
documentation and coding that
occurred in FY 2008 and FY 2009, as
required by section 7(b)(1)(B) of Public
Law 110–90.
CMS has thus far implemented a ¥2.0
percent (of a required ¥3.9 percent)
prospective adjustment, and completed
the full one-time ¥5.8 percent
recoupment adjustment (¥2.9 percent
in both FYs 2011 and 2012). In FY 2013,
we are completing the remaining ¥1.9
percent prospective adjustment, while
also making a +2.9 percent adjustment
to remove the effect of the FY 2012 onetime recoupment adjustment. We have
also determined that a cumulative
adjustment of ¥5.4 percent is required
to eliminate the full effect of
documentation and coding changes on
future payments to SCHs and MDHs.
After accounting for adjustments made
to the hospital-specific rate in FY 2011
and FY 2012, an additional prospective
adjustment of ¥0.5 percent is necessary
to complete the full ¥5.4 percent
adjustment. We are making a full ¥0.5
percent adjustment to the hospitalspecific rate, in keeping with our policy
of applying equivalent adjustments,
when applicable, to other subsection (d)
hospital payment systems.
In addition, in the FY 2013 IPPS/
LTCH PPS proposed rule, we proposed
to make an additional adjustment to

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account for documentation and coding
effects that occurred in FY 2010. After
review of comments and
recommendations from MedPAC, CMS
analyzed FY 2010 claims using the same
methodology as previously applied to
FYs 2008 and 2009 claims. CMS
estimated that there was a 0.8
percentage point effect due to
documentation and coding that did not
reflect an actual increase in patient
severity. However, in light of the public
comments that we received on the
proposed rule, we are not making an
adjustment to account for this effect at
this time. Therefore, the total IPPS
documentation and coding adjustment
of +1.0 percent (¥1.9 plus +2.9) will
increase total payments by
approximately $1.069 billion. The total
adjustment to the hospital-specific rate
will be ¥0.5, and will decrease total
payment by $22.7 million. The
combined impact of the final FY 2013
documentation and coding adjustments
will increase total payments by
approximately $1.042 billion.
• Hospital-Acquired Conditions
(HACs). For FY 2013, we are continuing
to implement section 1886(d)(4)(D) of
the Act that addresses certain hospitalacquired conditions (HACs), including
infections. We are adding two
additional conditions for FY 2013,
Surgical Site Infection (SSI) Following
Cardiac Implantable Electronic Device
(CIED) Procedures and Iatrogenic
Pneumothorax with Venous
Catheterization. The projected savings
estimate for these two conditions is less
than $1 million, with the total estimated
savings from HACs for FY 2013
projected at $24 million dollars.
• Reduction to Hospital Payments for
Excess Readmissions. We are making a
number of policies to implement section
1886(q) of the Act, as added by section
3025 of the Affordable Care Act, which
establishes the Hospital Readmissions
Reduction Program. The Hospital
Readmissions Reduction Program
requires a reduction to a hospital’s base
operating DRG payment amount to
account for excess readmissions of
selected applicable conditions, which
are acute myocardial infarction, heart
failure, and pneumonia. This provision
is not budget neutral. A hospital’s
readmission payment adjustment is the
higher of a ratio of a hospital’s aggregate
dollars for excess readmissions to their
aggregate dollars for all discharges, or
0.99 (that is, or a 1-percent reduction)
for FY 2013. In this final rule, we
estimate that the Hospital Readmissions
Reduction Program will result in a 0.3
percent decrease, or approximately $280
million, in payments to hospitals.

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• Long-Term Care Hospital-Specific
Market Basket. The FY 2009-based
LTCH-specific market basket update (as
measured by percentage increase) for FY
2013 is currently estimated to be 2.6
percent, which is slightly lower than the
market basket update based on the FY
2008-based RPL market basket at 2.7
percent (currently used under the LTCH
PPS). Therefore, we project that there
will be no significant fiscal impact on
the LTCH PPS payment rates in FY 2013
as a result of this policy. In addition, we
are updating the labor-related share
under the LTCH PPS for FY 2013 based
on the relative importance of each laborrelated cost category in the FY 2009based LTCH-specific market basket.
Although this policy will result in a
decrease in the LTCH PPS labor-related
share for FY 2013, we are projecting that
there will be no effect on aggregate
LTCH PPS payments due to the
regulatory requirement that any changes
to the LTCH area wage adjustment
(including the labor-related share) are
adopted in a budget neutral manner.
•Update to the LTCH PPS Standard
Federal Rate, including the Expiration
of Certain Payment Rules for LTCH
Services and the Moratorium on the
Establishment of Certain Hospitals and
Satellite Facilities and the Increase in
the Number of Beds in LTCHs and LTCH
Satellite Facilities. Based on the best
available data for the 428 LTCHs in our
database, we estimate that the changes
we are presenting in the preamble and
Addendum of this final rule, including
the update to the standard Federal rate
for FY 2013, the changes to the area
wage adjustment for FY 2013, and
changes to short-stay outliers and highcost outliers will result in an increase in
estimated payments from FY 2012 of
approximately $92 million (or
approximately 1.7 percent). Although
we generally project an increase in
payments for all LTCHs in FY 2013 as
compared to FY 2012, we expect rural
LTCHs to experience a larger than
average increase in payments (3.3
percent) primarily due to the changes to
the area wage level adjustment. Rural
hospitals generally have a wage index of
less than 1; therefore, the decrease to the
labor-related share results in their wage
index reducing a smaller portion of the
standard Federal rate, resulting in an
estimated increase in payments in FY
2013 as compared to FY 2012. In
addition, the effect of the extension of
the moratorium on the application of
the ‘‘25 percent threshold’’ payment
adjustment policy, as provided by
section 114(c) of the MMSEA, as
amended by section 4302(a) of the
ARRA and sections 3106(a) and

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10312(a) of the Affordable Care Act, that
is generally effective for cost reporting
periods beginning on or after October 1,
2012, and before October 1, 2013, is
estimated to result in a payment impact
of approximately $170 million to
LTCHs. (We note that, for certain LTCHs
and LTCH satellite facilities with cost
reporting periods beginning or after July
1, 2012, and before October 1, 2012, we
are providing a supplemental
moratorium for discharges beginning on
or after October 1, 2012, and through the
end of the cost reporting period.
Overall, we estimate that the increase in
aggregate LTCH PPS payments in FY
2013 will be $262 million.
• Hospital Inpatient Quality
Reporting (IQR) Program. In this final
rule, we discuss our requirements for
hospitals to report quality data under
the Hospital IQR Program in order to
receive the full annual percentage
increase for FY 2015. We estimate that
approximately 95 hospitals may not
receive the full annual percentage
increase in any fiscal year. 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 2015.
We are adding supplements to the
chart validation process for the Hospital
IQR Program. Starting with the FY 2015
payment determination, we are
finalizing a modest increase to the
current Hospital IQR Program validation
sample of 18 cases per quarter to 27
cases per quarter in order to capture
data on CLABSI, CAUTI, and SSI
measures. However, in order not to
increase the Hospital IQR validation
program’s overall burden to hospitals,
we are reducing the total sample size of
hospitals included in the annual
validation sample from 800 eligible
hospitals to up to 600 eligible hospitals.
We provide payment to 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. The
requirement of an additional 9 charts
per hospital submitted for validation,
combined with the decreased sample
size, will result in approximately 1,800
additional charts per quarter being
submitted to CMS by all selected
hospitals. Thus, we estimate that we
would expend approximately $66,600
per quarter to collect the additional
charts we need to validate all measures.
• Hospital VBP Program. The
Hospital VBP Program is statutorily
mandated to be budget neutral. We

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believe that the program’s benefits will
be seen in improved patient outcomes,
safety, and experience of care. We
cannot estimate these benefits in actual
dollars and improved quality of care
because the payment adjustments based
on hospital performance will not begin
to be made until FY 2013.
B. 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 use a prospective payment system
(PPS) to pay for the capital-related costs
of inpatient hospital services for these
‘‘subsection (d) hospitals.’’ Under these
PPSs, Medicare payment for hospital
inpatient operating and capital-related
costs is made at predetermined, specific
rates for each hospital discharge.
Discharges are classified according to a
list of diagnosis-related groups (DRGs).
The base payment rate is comprised of
a standardized amount that is divided
into a labor-related share and a
nonlabor-related share. The 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.

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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
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. (We note that the
statutory provision for payments to
MDHs expires at the end of FY 2012,
that is, after September 30, 2012.) 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

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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; 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

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under a reasonable cost-based system
subject to a rate-of-increase ceiling on
inpatient operating costs.
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) of the Act 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
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

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various types of hospitals are located in
42 CFR Part 413.
C. 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 2013
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, 2011, and 2012 were
implemented in the June 2, 2010
Federal Register notice (75 FR 31118),
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50042) and the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51476).
In this final rule, we are
implementing, or continuing in FY 2013
to implement, the following provisions
(or portions of the following provisions)
of the Affordable Care Act that are
applicable to the IPPS, the LTCH PPS,
and PPS-exempt cancer hospitals:
• Section 3001 of Public Law 111–
148, which provides for establishment
of a hospital inpatient value-based
purchasing program under which valuebased incentive payments will be made
in a fiscal year to hospitals that meet
performance standards for the
performance period for that fiscal year.
• 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 beginning with the FY
2014 rate year.
• Section 3005 of Public Law 111–
148, which provides for the
establishment of a quality reporting
program for PPS-exempt cancer
hospitals with respect to FY 2014, and
for subsequent program years.
• Section 3025 of Public Law 111–
148, which establishes a hospital
readmissions reduction program and
requires the Secretary to reduce
payments to applicable hospitals with
excess readmissions effective for
discharges beginning on or after October
1, 2012.
• Section 3125 and 10314 of Public
Law 111–148, which modified the
definition of a low-volume hospital and
the methodology for calculating the

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payment adjustment for low-volume
hospitals, effective only for discharges
occurring during FYs 2011 and 2012.
Beginning with FY 2013, the preexisting
low-volume hospital qualifying criteria
and payment adjustment, as
implemented in FY 2005, will resume.
• Section 3401 of Public Law 111–
148, which provides for the
incorporation of productivity
adjustments into the market basket
updates for IPPS hospitals and LTCHs.
• Section 10324 of Public Law 111–
148, which provides 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 2013.
• Section 3137 of Public Law 111–
148, which requires the Secretary to
submit to Congress a report that
includes a plan to comprehensively
reform the Medicare wage index under
the IPPS. In developing the plan, the
Secretary was directed to take into
consideration the goals for reforming the
wage index that were set forth by
MedPAC in its June 2007 Report to
Congress and to consult with relevant
affected parties.
• Section 5503 of Public Law 111–
148, as amended by Public Law 111–152
and section 203 of Public Law 111–309,
which provides for the reduction in FTE
resident caps for direct GME under
Medicare for certain hospitals, and the
‘‘redistribution’’ of the estimated
number of FTE resident slots to other
qualified hospitals. In addition, section
5503 requires the application of these
provisions to IME in the same manner
as the FTE resident caps for direct GME.
• Section 5506 of Public Law 111–
148, which added a provision to the Act
that instructs the Secretary to establish
a process by regulation under which, in
the event a teaching hospital closes, the
Secretary will permanently increase the
FTE resident caps for hospitals that
meet certain criteria up to the number
of the closed hospital’s FTE resident
caps. The Secretary is directed to ensure
that the aggregate number of FTE
resident cap slots distributed is equal to
the amount of slots in the closed
hospital’s direct GME and IME FTE
resident caps, respectively.
D. Issuance of a Notice of Proposed
Rulemaking
On May 11, 2012, we published in the
Federal Register (77 FR 27870), a
proposed rule that set forth proposed
changes to the Medicare IPPS for
operating costs and for capital-related

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costs of acute care hospitals in FY 2013.
We also set 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 the proposed rule, we set
forth proposed changes to the payment
rates, factors, and other payment rate
policies under the LTCH PPS for FY
2013.
Below is a summary of the major
changes that we proposed to make:
1. 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 2013 resulting from
implementation of the MS–DRG system.
• A discussion of the Research
Triangle Institute, International (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
adjustment in MS–DRG payments for
FY 2013.
• A discussion of the FY 2013 status
of new technologies approved for addon payments for FY 2012 and a
presentation of our evaluation and
analysis of the FY 2013 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. Changes to the Hospital Wage Index
for Acute Care Hospitals
In section III. of the preamble to the
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:
• The proposed FY 2013 wage index
update using wage data from cost
reporting periods beginning in FY 2009.
• Analysis and implementation of the
proposed FY 2013 occupational mix
adjustment to the wage index for acute
care hospitals.
• 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

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FY 2013 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 2013 hospital wage
index.
• Determination of the labor-related
share for the proposed FY 2013 wage
index.
3. Other Decisions and Proposed
Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble of the
proposed rule, we discussed proposed
changes or clarifications of a number of
the provisions of the regulations in 42
CFR Parts 412, 413, and 476, including
the following:
• The proposed rules for payment
adjustments under the Hospital
Readmissions Reduction Program based
on hospital readmission measures and
the process for hospital review and
correction of those rates.
• Proposed clarification regarding the
duration of the classification status of
SCHs.
• The proposed updated national and
regional case-mix values and discharges
for purposes of determining RRC status.
• Proposed payment adjustment for
low-volume hospitals for FY 2013.
• The statutorily required IME
adjustment factor for FY 2013, a
clarification of the requirements of
timely filing of claims for Medicare
Advantage enrollees for IME, direct
GME, and nursing and allied health
education payment purposes, and a
proposal to apply the timely filing
requirements to the submission of nopay bills for purposes of calculating the
DSH payment adjustment.
• Proposal for counting labor and
delivery beds in the formula for
determining the payment adjustment for
disproportionate share hospitals and
IME payments.
• Discussion of the expiration of the
MDH program in FY 2012.
• Proposed changes to the inpatient
hospital update for FY 2013, including
incorporation of a productivity
adjustment.
• Proposed changes relating to GME
and IME payments, including proposed
changes in new growth period for new
residency programs from 3 years to 5
years for new teaching hospitals;
proposals and clarifications related to
the 5-year period following
implementation of reductions and
increases to hospitals’ FTE resident
caps; and proposals and clarifications
related to the preservation of resident
cap positions from closed hospitals.

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• Proposed conforming changes to
regulations relating to reporting
requirements for pension costs for
Medicare cost-finding purposes.
• Discussion of the Rural Community
Hospital Demonstration Program and a
proposal for making a budget neutrality
adjustment for the demonstration
program.
• Proposed delay in the effective date
of policies relating to hospital routine
services furnished under arrangements.
4. FY 2013 Policy Governing the IPPS
for Capital-Related Costs
In section V. of the preamble to the
proposed rule, we discussed the
proposed payment policy requirements
for capital-related costs and capital
payments to hospitals for FY 2013 and
the proposed MS–DRG documentation
and coding adjustment for FY 2013.
5. Changes to the Payment Rates for
Certain Excluded Hospitals: Rate-ofIncrease Percentages
In section VI. of the preamble of the
proposed rule, we discuss proposed
changes to payments to certain excluded
hospitals.
6. Changes to the LTCH PPS
In section VII. of the preamble of the
proposed rule, we set forth proposed
changes to the payment rates, factors,
and other payment rate policies under
the LTCH PPS for FY 2013. Specifically,
we proposed the following major
changes: A 1-year extension of the
moratorium on the full implementation
of the ‘‘25-percent threshold’’ payment
adjustment at 42 CFR 412.534 and
412.536; a ‘‘one-time prospective
adjustment’’ to the standard Federal rate
phased in over a 3-year period (which
would not be applicable to payments for
discharges occurring on or before
December 28, 2012, consistent with the
statute); an LTCH-specific market
basket; and annual updates to the LTCH
PPS standard Federal rate and to other
payment factors.
7. Changes Relating to Quality Data
Reporting for Specific Providers and
Suppliers
In section VIII. of the preamble of the
proposed rule, we address—
• Proposed requirements for the
Hospital Inpatient Quality Reporting
(IQR) Program as a condition for
receiving the full applicable percentage
increase.
• The proposed establishment of a
quality reporting program for PPSexempt cancer hospitals.
• Proposed requirements for the
Hospital Value-Based Purchasing
Program.

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• Proposed requirements for the
quality reporting measures under the
LTCH Quality Reporting (LTCHQR)
Program.
• Proposed quality data reporting and
other requirements for the Ambulatory
Surgical Center Quality Reporting
(ASCQR) Program.
• The establishment of the Inpatient
Psychiatric Facility Quality Reporting
Program (IPFQRP).
8. Determining Prospective Payment
Operating and Capital Rates and Rate-ofIncrease Limits for Acute Care Hospitals
In the Addendum to the proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2013 prospective
payment rates for operating costs and
capital-related costs for acute care
hospitals. We proposed to establish the
threshold amounts for outlier cases. In
addition, we addressed the proposed
update factors for determining the rateof-increase limits for cost reporting
periods beginning in FY 2013 for certain
hospitals excluded from the IPPS.
9. Determining Prospective Payment
Rates for LTCHs
In the Addendum to the proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2013 prospective
standard Federal rate. We proposed to
establish the adjustments for wage
levels, the labor-related share, the costof-living adjustment, and high-cost
outliers, including the fixed-loss
amount, and the LTCH cost-to-charge
ratios (CCRs) under the LTCH PPS.
10. Impact Analysis
In Appendix A of the proposed rule,
we set forth an analysis of the impact
that the proposed changes would have
on affected acute care hospitals, LTCHs,
ASCs, and IPFs.
11. Recommendation of Update Factors
for Operating Cost Rates of Payment for
Hospital Inpatient Services
In Appendix B of the proposed rule,
as required by sections 1886(e)(4) and
(e)(5) of the Act, we provided our
recommendations of the appropriate
percentage changes for FY 2013 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).
• Target rate-of-increase limits to the
allowable operating costs of hospital
inpatient services furnished by certain
hospitals excluded from the IPPS.

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• The standard Federal rate for
hospital inpatient services furnished by
LTCHs.
12. Discussion of Medicare Payment
Advisory Commission
Recommendations

B. MS–DRG Reclassifications

Under section 1805(b) of the Act,
MedPAC is required to submit a report
to Congress, no later than March 15 of
each year, in which MedPAC reviews
and makes recommendations on
Medicare payment policies. MedPAC’s
March 2012 recommendations
concerning hospital inpatient payment
policies address the update factor for
hospital inpatient operating costs and
capital-related costs under the IPPS, for
hospitals and distinct part hospital units
excluded from the IPPS. We addressed
these recommendations in Appendix B
of the proposed rule. For further
information relating specifically to the
MedPAC March 2012 report or to obtain
a copy of the report, contact MedPAC at
(202) 220–3700 or visit MedPAC’s Web
site at: http://www.medpac.gov.
We received approximately 436
timely pieces of correspondence from
the public in response to the FY 2013
IPPS/LTCH PPS proposed rule. We
summarize these public comments and
present our responses under the specific
subject areas of this final rule.
II. Changes to Medicare Severity
Diagnosis-Related Group (MS–DRG)
Classifications and Relative Weights

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A. Background
Section 1886(d) of the Act specifies
that the Secretary shall establish a
classification system (referred to as
DRGs) for inpatient discharges and
adjust payments under the IPPS based
on appropriate weighting factors
assigned to each DRG. Therefore, under
the IPPS, 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

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adjustments are made to reflect changes
in treatment patterns, technology, and
any other factors that may change the
relative use of hospital resources.
For general information about the
MS–DRG system, including yearly
reviews and changes to the MS–DRGs,
we refer readers to the previous
discussions in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR 43764
through 43766), the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50053 through
50055), and the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51485 through
51487).
C. Adoption of the MS–DRGs in FY 2008
For information on the adoption of
the MS–DRGs in FY 2008, we refer
readers to the FY 2008 IPPS final rule
with comment period (72 FR 47140
through 47189).
D. FY 2013 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
In the FY 2008 IPPS final rule with
comment period (72 FR 47140 through
47189), we adopted the MS–DRG
patient classification system for the
IPPS, effective October 1, 2007, to better
recognize severity of illness in Medicare
payment rates for acute care hospitals.
The adoption of the MS–DRG system
resulted in the expansion of the number
of DRGs from 538 in FY 2007 to 745 in
FY 2008. (Currently, there are 751 MS–
DRGs. 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

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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, and we
finalized the FY 2008 adjustment
through rulemaking, effective October 1,
2007 (72 FR 66886).
For FY 2009, section 7(a) of Public
Law 110–90 required a documentation
and coding adjustment of ¥0.9 percent,
and we finalized that adjustment
through rulemaking (73 FR 48447). The
documentation and coding adjustments
established in the FY 2008 IPPS final
rule with comment period, which
reflected the amendments made by
Public Law 110–90, are cumulative. As
a result, the ¥0.9 percent
documentation and coding adjustment
for FY 2009 was in addition to the ¥0.6
percent adjustment for FY 2008,
yielding a combined effect of ¥1.5
percent.
2. Prospective Adjustment to the
Average Standardized Amounts
Required by Section 7(b)(1)(A) of Public
Law 110–90
Section 7(b)(1)(A) of Public Law 110–
90 requires that, if the Secretary
determines that implementation of the
MS–DRG system resulted in changes in
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008 or
FY 2009 that are different than the
prospective documentation and coding
adjustments applied under section 7(a)
of Public Law 110–90, the Secretary
shall make an appropriate adjustment
under section 1886(d)(3)(A)(vi) of the
Act. Section 1886(d)(3)(A)(vi) of the Act
authorizes adjustments to the average
standardized amounts for subsequent
fiscal years in order to eliminate the
effect of such coding or classification
changes. These adjustments are
intended to ensure that future annual

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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.

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3. Recoupment or Repayment
Adjustments in FYs 2010 Through 2012
Required by Public Law 110–90
If, based on a retroactive evaluation of
claims data, the Secretary determines
that implementation of the MS–DRG
system resulted in changes in
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008 or
FY 2009 that are different from the
prospective documentation and coding
adjustments applied under section 7(a)
of Public Law 110–90, section 7(b)(1)(B)
of Public Law 110–90 requires the
Secretary to make an additional
adjustment to the standardized amounts
under section 1886(d) of the Act. This
adjustment must offset the estimated
increase or decrease in aggregate
payments for FYs 2008 and 2009
(including interest) resulting from the
difference between the estimated actual
documentation and coding effect and
the documentation and coding
adjustment applied under section 7(a) of
Public Law 110–90. This adjustment is
in addition to making an appropriate
adjustment to the standardized amounts
under section 1886(d)(3)(A)(vi) of the
Act as required by section 7(b)(1)(A) of
Public Law 110–90. That is, these
adjustments are intended to recoup (or
repay, 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 only 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 performed a retrospective
evaluation of the FY 2008 data for
claims paid through December 2008
using the methodology first described in
the FY 2009 IPPS/LTCH PPS final rule
(73 FR 43768 and 43775) and later
discussed in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43768
through 43772). We performed the same
analysis for FY 2009 claims data using
the same methodology as we did for FY

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2008 claims (75 FR 50057 through
50068). The results of the analysis for
the FY 2011 proposed and final rules,
and subsequent evaluations in FY 2012,
supported that the 5.4 percent estimate
accurately reflected the FY 2009
increases in documentation and coding
under the MS–DRG system. We were
persuaded by both MedPAC’s analysis
(as discussed in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50064 through
50065)) and our own review of the
methodologies recommended by various
commenters that the methodology we
employed to determine the required
documentation and coding adjustments
was sound.
5. Prospective Adjustments for FY 2008
and FY 2009 Authorized by Section
7(b)(1)(A) of Public Law 110–90 and
Section 1886(d)(3)(A)(vi) of the Act
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43767 through
43777), we opted to delay the
implementation of any documentation
and coding adjustment until a full
analysis of case-mix changes based on
FY 2009 claims data could be
completed. We refer readers to the FY
2010 IPPS/RY LTCH PPS final rule 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 percent. 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 that
do not reflect real changes in case-mix
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

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below) would require an aggregate
adjustment of ¥6.8 percent. As we
discussed 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.
Therefore, we stated that we believed it
was appropriate to not implement the
¥3.9 percent prospective adjustment in
FY 2011 because we finalized a ¥2.9
percent recoupment adjustment for that
year. Accordingly, 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)
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.
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51489 and 51497), we
indicated that because further delay of
this prospective adjustment will result
in a continued accrual of unrecoverable
overpayments, it was imperative that we
implement a prospective adjustment for
FY 2012, while recognizing CMS’
continued desire to mitigate the effects
of any significant downward
adjustments to hospitals. Therefore, we
implemented a ¥2.0 percent
prospective adjustment (a reduction of a
proposed ¥3.15 percent adjustment) to
the standardized amount to partially
eliminate the full effect of the
documentation and coding changes that
do not reflect real changes in case-mix
on future payments.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27887), for FY
2013, we proposed to complete the
prospective portion of the adjustment
required under section 7(b)(1)(B) of
Public Law 110–90. We proposed a
¥1.9 percent adjustment to the
standardized amount for FY 2013. We
stated that this adjustment would
remove the remaining effect of the
documentation and coding changes that
do not reflect real changes in case-mix
that occurred in FY 2008 and FY 2009.

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We indicated we believe it is imperative
to implement the full remaining
adjustment, as any further delay would
result in an overstated standardized
amount in FY 2013 and any future years
until a full adjustment is made. We
believe that the offsetting nature of the
FY 2012 recoupment adjustment
(described in section II.D.6. of the
proposed rule (77 FR 27887 through
27888) and the preamble of this final
rule) will mitigate any negative financial
impacts of this prospective adjustment.
Comment: MedPAC submitted a
comment fully supporting the proposed
documentation and coding adjustments,
citing its 2011 comment letter regarding
the FY 2012 IPPS/LTCH PPS proposed
rule for its support of the CMS
methodology and the calculation of
documentation and coding effect
estimates. MedPAC reiterated its
recommendation that Congress grant the
Secretary the authority to recapture
overpayments due to documentation
and coding effects that occurred after FY
2009.
Response: We appreciate MedPAC’s
analysis and continued support of the
methodology to calculate the impact of
documentation and coding on hospital
payments. As stated in the proposed
rule, at this point, we only have the
authority to prospectively adjust the
standardized amount to prevent future
overpayments due to the effects of
documentation and coding. We believe
that any overpayments made in FY 2008
and FY 2009 have already been
recaptured, and any additional past
overpayments cannot be recovered
without additional statutory authority.
Comment: Many commenters,
including national hospital associations,
continue to argue that the methodology
employed by CMS significantly
overstated the impact of documentation
and coding changes. Commenters
believed that the CMS methodology
assumes that case-mix index has held
constant over several fiscal years, and
they view this as a flawed assumption.
Commenters submitted a case-mix trend
analysis, noting that this analysis was
updated for new claims data and revised
relative to similar analyses submitted as
public comment on documentation and
coding in prior IPPS rulemaking.
According to the commenters, their
case-mix trend analysis indicated only a
3.5 percent documentation and coding
increase, which equals the total
adjustment already implemented by
CMS. These commenters argued that no
further cuts are necessary to the
standardized amount, and that the
proposed adjustments are excessive.
Response: We disagree that the
presented trend analysis provides a

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more accurate estimate of the
documentation and coding effect. We
continue to believe that the proposed
methodology, which removes real-case
mix growth from the calculation, yields
a more straightforward and direct
estimate. We also believe that the
estimates obtained using our
methodology are consistent with real
case-mix growth as demonstrated by
MedPAC in its 2011 public comment
submitted on the FY 2012 IPPS/LTCH
PPS proposed rule. We refer readers to
our response in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51494–51496) for
a more detailed response.
Comment: One commenter, a national
hospital association, disagreed with
CMS’ response from prior year
rulemaking that ‘‘changes in case-mix
do not necessarily follow a consistent
pattern over time.’’ The commenter
indicated that the simple linear
regression of case-mix growth it
submitted was the most conservative
estimate of potential documentation and
coding effect, and that more advanced,
nonlinear statistical methods were
better statistical fits, and suggested an
even smaller impact due to
documentation and coding.
Response: We are not convinced that
further statistical testing of a case-mix
trend based analysis would yield more
accurate results, nor did we intend to
suggest that nonlinear regression of
case-mix growth would be a more
appropriate measure of documentation
and coding effects. The estimates
submitted by the commenter presented
a theoretical documentation and coding
effect ranging from +3.5 percent to ¥1.9
percent. As discussed in prior year
rulemaking, the inclusion of additional
years in the suggested CMI trend based
analysis caused documentation and
coding effect estimates to vary
significantly, and now the commenter
argues that different statistical
interpretations also may cause large
fluctuations. With respect to the trend
analysis, we continue to believe that the
determination of an appropriate
historical trend is less straightforward
than our proposed methodology, which
removes real case-mix growth from the
calculation. Again, we refer readers to
our more detailed response to public
comments in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51494 through
51496).
Comment: One commenter stated that
coding offsets exceeding total case-mix
growth duplicate the productivity
adjustment mandated by the Affordable
Care Act and should not be
implemented. The commenter stated
that decreases in real case-mix represent
an improvement in productivity already

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adjusted for in the productivity
adjustment.
Response: Section 3401(a) of the
Affordable Care Act requires that the
IPPS operating market basket update be
adjusted by changes in economy-wide
productivity for FY 2012 (and each
subsequent fiscal year). The statute
defines the productivity adjustment to
be equal to the 10-year moving average
of changes in annual economy-wide
private nonfarm business multifactor
productivity (as projected by the
Secretary for the 10-year period ending
with the applicable fiscal year, cost
reporting period, or other annual
period). We disagree with the
commenter that this statutory provision
somehow interacts with our
documentation and coding adjustment
authority. This statutory provision does
not in any way reference our statutory
documentation and coding adjustment
authority, nor does our documentation
and coding authority in any way
reference the market basket adjustment
for economy-wide productivity. The
methodology used for determining the
IPPS rates, and specifically our
methodology for estimating
documentation and coding effects was
made available to the general public
(through notice and comment
rulemaking) prior to the enactment of
the Affordable Care Act. However the
law did not reference nor change our
authority in light of the productivity
adjustment.
In addition, as we have previously
indicated, our methodology for
estimating documentation and coding
removes changes in real case-mix from
the calculation. Although we disagree
that decreases in real case-mix represent
an improvement in productivity in the
context of section 3401(a), even if for
purposes of discussion one were to
accept this assertion, this is not a
documentation and coding adjustment
issue. The proper place for any offset
would be to the productivity
adjustment. Section 3401(a) of the
Affordable Care Act provides no
authority for such an adjustment for
decreases in real case-mix.
After consideration of the public
comments we received, we do not
believe that any alternative
methodologies would produce more
accurate estimates of documentation
and coding effects. We are finalizing, as
proposed, a ¥1.9 percent
documentation and coding adjustment
to the standardized amount. This
adjustment will complete our statutory
obligation to account for remainder of
documentation and coding that did not
reflect real changes in case-mix for

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discharges occurring during FY 2008 or
FY 2009.
6. Recoupment or Repayment
Adjustment Authorized by Section
7(b)(1)(B) of Public Law 110–90
As discussed in section II.D.3. of this
preamble, section 7(b)(1)(B) of Public
Law 110–90 requires the Secretary to
make an adjustment to the standardized
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.
Our actuaries estimated that this 5.8
percentage point increase resulted in an
increase in aggregate payments of
approximately $6.9 billion. Therefore,
as discussed in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50062 through
50067), we determined that an aggregate
adjustment of ¥5.8 percent in FYs 2011
and 2012 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, consistent with
the policies that we have adopted in
many similar cases, in the FY 2011
IPPS/LTCH PPS final rule, we made 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
allowed 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).
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

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to apply the remaining approximately
¥2.9 percent adjustment required by
section 7(b)(1)(B) of Public Law 110–90.
Therefore, for FY 2012, in accordance
with 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
completed 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 (76 FR 51489 and
51498). Because these adjustments, in
effect, balanced out, there was no yearto-year change in the standardized
amount due to this recoupment
adjustment for FY 2012.
The ¥2.9 percent adjustment in each
of the two previous fiscal years
completed the required recoupment for
overpayments due to documentation
and coding effects on discharges
occurring in FYs 2008 and 2009. In the
FY 2013 IPPS/LTCH PPS proposed rule
(77 FR 27888), we proposed to make a
final +2.9 percent adjustment to the
standardized amount. This adjustment
would remove the effect of the one-time
¥2.9 percent adjustment implemented
in FY 2012. As stated in the proposed
rule, 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 did not receive any specific public
comments regarding this adjustment.
We did receive public comments
requesting an additional +0.72 percent
adjustment to account for cumulative
overestimates of documentation and
coding effects. We will address these
comments in a later section. We are
finalizing a +2.9 percent adjustment, as
proposed, completing the recoupment
portion of section 7(b)(1)(B) of Public
Law 110–90. We note that with this
positive adjustment, according to our
estimates, all overpayments made in FY
2008 and FY 2009 have been fully
recaptured with appropriate interest,
and the standardized amount has been
returned to the appropriate baseline.
7. Background on the Application of the
Documentation and Coding Adjustment
to the Hospital-Specific Rates
Under section 1886(d)(5)(D)(i) of the
Act, SCHs are paid based on whichever
of the following rates yields the greatest
aggregate payment: the Federal rate; the
updated hospital-specific rate based on
FY 1982 costs per discharge; the
updated hospital-specific rate based on
FY 1987 costs per discharge; the
updated hospital-specific rate based on
FY 1996 costs per discharge; or the

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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. (We
note that, under current law, the MDH
program expires at the end of FY 2012,
as discussed in section IV.G. of this final
rule.) 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 hospitalspecific 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
documentation and coding that do not
reflect real changes in case-mix.
However, in the final rule that
appeared in the Federal Register on
November 27, 2007 (72 FR 66887
through 67888), we rescinded the
application of the documentation and
coding adjustment to the hospitalspecific rates effective 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 hospitalspecific rates, upon further review, we
decided that the application of the
documentation and coding adjustment
to the hospital-specific 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 have their
Medicare claims grouped using the
same MS–DRG system as 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. In section
1886(d)(3)(A)(vi) of the Act, Congress
stipulated that hospitals paid based on
the standardized amount should not

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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
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/RY 2010 LTCH PPS
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, we
discussed our retrospective evaluation

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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 FY 2010 proposed and final
rules for a more complete discussion (74
FR 24098 through 24100 and 74 FR
43775 through 43776, respectively).
As we have noted previously, because
hospitals paid on the basis of their
hospital-specific rate, including SCHs
(and MDHs until the end of FY 2012),
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 were 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. 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 hospitals
paid on the basis of their hospitalspecific rate. We note that, for FY 2013,
this adjustment would only apply to the
SCHs because the MDH program expires
in FY 2012 (as discussed in section
IV.G. of this preamble). 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 adjustment needed
to be made, as opposed to a ¥3.9
percent remaining adjustment for IPPS
hospitals.
After finalizing a ¥2.9 percent
prospective adjustment in FY 2011 (75
FR 50067 through 50071), we finalized
a prospective adjustment to the
hospital-specific rate of ¥2.0 percent
for FY 2012 (76 FR 51499) instead of our

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53277

proposed adjustment of ¥2.5 percent.
Making this level of adjustment allowed
CMS to maintain, for FY 2012,
consistency in payment rates for
different IPPS hospitals paid using the
MS–DRG. We indicated in the final rule
that because this ¥2.0 percent
adjustment no longer reflects the entire
remaining required adjustment amount
of ¥2.5 percent, an additional ¥0.5
percent adjustment to the hospitalspecific payment rates would be
required in future rulemaking.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27889), we
proposed to complete the remaining
prospective adjustment to account for
the documentation and coding effect
that occurred in FY 2008 and FY 2009
by applying a ¥0.5 percent adjustment
to the hospital-specific rate. We
continue to believe that SCHs had the
same opportunity to benefit from
improvements in documentation and
coding that did not reflect an increase
in patient severity, and we continue to
believe that any resulting adjustments
should be applied similarly to all
subsection (d) hospitals, when possible.
For FY 2013, we proposed a prospective
adjustment of ¥1.9 percent to the
standardized amount. Therefore, we
stated in the proposed rule (77 FR
27889) that we believed it was also
appropriate to propose a ¥0.5 percent
adjustment to the hospital-specific rate
for FY 2013.
Comment: Commenters questioned
CMS’ statutory authority to apply
documentation and coding adjustments
to hospitals receiving the hospitalspecific rate. The commenters stated
that section 1886(d)(3)(A)(vi) of the Act
specifically required the Secretary to
determine if overpayments were made,
and make appropriate adjustments to
the standardized amount. The
commenters contended that the broad
authority granted under section
1886(d)(5)(I)(i) of the Act is not so broad
as to permit CMS to extend the scope of
a legislative directive that was
specifically limited to hospitals paid
under a prospective payment system.
Response: We continue to disagree
that we do not have the authority to
make prospective documentation and
coding adjustments to the hospitalspecific rate. We refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51499) for further discussion on our
authority granted under section
1886(d)(5)(I)(i) of the Act. We do not
believe that specific discretionary
authority under section
1886(d)(3)(A)(iv) of the Act creates a
limit on the broad authority granted
under section 1886(d)(5)(I) of the Act. In
this final rule, we are finalizing a

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prospective ¥0.5 percent adjustment to
the hospital-specific rate to account for
documentation and coding effects for
discharges occurring in FY 2008 and FY
2009.
9. Application of the Documentation
and Coding Adjustment to the Puerto
Rico-Specific Standardized Amount

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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
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
documentation and coding 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.
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 that are paid based on
the hospital-specific rate, we believe
that Puerto Rico hospitals that are paid
based on the Puerto Rico-specific
standardized amount should not have
the potential to realize increased
payments due to documentation and
coding changes that do not reflect real
increases in 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 case-mix for patients
treated in these hospitals, we would
consider proposing to apply
documentation and coding adjustments
to the FY 2010 Puerto Rico-specific
standardized amount under our
authority in section 1886(d)(5)(I)(i) of
the Act.

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b. Documentation and Coding
Adjustment to the Puerto Rico-Specific
Standardized Amount
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 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 that do not reflect real changes
in case-mix on future payments from the
Puerto Rico-specific rate. As we stated
above, we believe it is 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.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50072 through 50073), 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.
Because the Puerto Rico-specific rate
received a full prospective adjustment
of ¥2.6 percent in FY 2011, we
proposed no further adjustment in the
proposed rule for FY 2012. For FY 2013,
in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27889), we also
did not propose any adjustment to the
Puerto Rico-specific rate.
10. Prospective Adjustments for FY
2010 Documentation and Coding Effect
Section 7(b)(1)(A) of Public Law 110–
90 required CMS to make prospective
documentation and coding adjustments
under section 1886(d)(3)(A)(iv) of the
Act if, based upon a review of FY 2008
and FY 2009 discharges, we determined
that implementation of the MS–DRG
system resulted in changes in
documentation and coding that did not
reflect real changes in case-mix during
FY 2008 or FY 2009 and that were
different than the prospective
documentation and coding adjustments
applied under section 7(a) of Public Law
110–90. However, section
1886(d)(3)(A)(vi) of the Act authorizes
adjustments to the average standardized
amounts if the Secretary determines

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such adjustments to be necessary for
any subsequent fiscal years in order to
eliminate the effect of coding or
classification changes that do not reflect
real changes in case-mix. After review of
comments and recommendations
received in a FY 2012 comment letter
from MedPAC (available on the Internet
at: http://www.medpac.gov/documents/
06172011_FY12IPPS_MedPAC_
COMMENT.pdf), we analyzed claims
data in FY 2010 to determine whether
any additional adjustment would be
required to ensure that the introduction
of MS–DRGs was implemented in a
budget neutral manner. While we expect
that the impacts of documentation and
coding behavior in response to the
introduction of MS–DRGs in FY 2008
will eventually decline to insignificant
levels, we analyzed FY 2010 data on
claims paid through December 2011
using the same claims-based
methodology as described in previous
rulemaking (73 FR 43768 and 43775).
We determined a total prospective
documentation and coding effect of
1.008 for FY 2010. Our actuaries have
estimated that this 0.8 percentage point
increase resulted in an increase in
aggregate payments of approximately
$1.19 billion in FY 2010. Therefore, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 27890), we proposed an
additional ¥0.8 percent adjustment to
account for the effects of documentation
and coding changes that did not reflect
real changes in case-mix in FY 2010.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27890), we stated
that the combined total prospective
adjustment to the standardized amount
proposed for FY 2013 under Public Law
110–90 to account for documentation
and coding effects in FY 2008 and FY
2009 and under section
1886(d)(3)(A)(vi) of the Act to account
for documentation and coding effect in
FY 2010 was ¥2.7 percent (¥1.9
percent plus ¥0.8 percent). We
indicated that the proposed adjustment
would eliminate the effect of
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FYs 2008,
2009, and 2010. While we did not make
proposals regarding future fiscal years
in the proposed rule, we plan to
continue to monitor and analyze
additional claims data and make
adjustments, when necessary, as
authorized under section
1886(d)(3)(A)(vi) of the Act. We noted
that the proposed total adjustment to the
proposed FY 2013 standardized amount
would be +0.2 percent because these
prospective adjustments will be offset
by the completion of the recoupment

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
adjustment under section 7(b)(1)(B) of
Public Law 110–90, as discussed below.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27890), we noted
that while we have decided to review
FY 2010 claims data to determine
whether additional prospective
adjustments are necessary (as discussed
earlier), section 7(b)(1)(B) of Public Law
110–90 does not authorize CMS to
calculate any retrospective adjustment
for overpayments made in FY 2010, nor
to recover any related overpayments
beyond FY 2012. The Secretary’s
authority under section
1886(d)(3)(A)(vi) of the Act is limited to
prospective adjustments.
Consistent with our proposal for IPPS
hospitals paid on the basis of the
standardized amount, our special
exceptions and adjustment authority
under section 1886(d)(5)(I)(i) of the Act,
and based upon our review of FY 2010
claims data, in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 27890), we
also proposed an additional ¥0.8
percent adjustment to the hospitalspecific rate to account for
documentation and coding changes in
FY 2010 that did not reflect real changes
in case-mix. We indicated that we
believed that a full prospective
adjustment for hospitals paid based on
the hospital-specific rate is the most
appropriate means to take into 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. Therefore,
we proposed a combined adjustment of
¥1.3 percent (¥0.5 percent + ¥0.8
percent) to the hospital-specific rate,
accounting for all documentation and
coding effects observed between FY
2008 though FY 2010.
Based upon our analysis of FY 2010
claims data, we found no significant
additional effect of documentation and
coding in FY 2010 that would warrant
any additional adjustment to the Puerto
Rico-specific rate.
Comment: Numerous comments
objected to the CMS proposal to make
an adjustment under section
1886(d)(3)(A)(vi) of the Act to account
for payment increases due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2010.
Commenters pointed to MedPAC’s
analysis in its public comment letter in
response to the FY 2011 IPPS/LTCH
PPS proposed rule that suggested that
‘‘negative documentation and coding’’
may have occurred under the CMS–
DRGs, creating an overestimation of
documentation and coding due to the
introduction of MS–DRGs. MedPAC

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estimated that the magnitude of this
effect could reach 0.36 percent in FY
2008, 0.36 percent in FY 2009, and 0.25
percent in FY 2010. CMS responded to
these findings in the FY 2011 IPPS/
LTCH PPS final rule by stating that
MedPAC characterized this impact of
any potential overestimate as ‘‘small’’
and could not be corroborated with any
specific examples or analysis.
Commenters indicated that they did not
consider the potential impacts to be
‘‘small’’ and pointed out that if such
estimates are true, hospitals would be
due an additional +0.72 percent
adjustment to account for overestimated
recoupments (as well as similar positive
adjustments to the hospital-specific and
Puerto Rico-specific rate). Some
commenters asserted that there are
numerous examples of changes in
documentation and coding that may
have decreased the CMI under the
CMS–DRGs, and provided five specific
examples.
One commenter, compared the FY
2007 CC list to the FY 2008 CC list,
identifying examples of chronic
conditions that were CCs under the
CMS–DRGs, but are no longer
considered CCs or MCCs under the MS–
DRGs, and that would also necessarily
result in a lower MS–DRG assignment
because more specific codes related to
that condition were not developed. The
commenter expressed surprise that
CMS’ medical coding experts were
unable to do the same. The commenter
identified the following common,
chronic conditions which were CCs
under the CMS–DRGs, but are not a CC
or MCC under the MS–DRGs: atrial
fibrillation; chronic blood loss anemia;
mitral valve disorder; and aortic valve
disorder. The commenter stated that
removing these chronic conditions from
the CC list under the MS–DRGs led to
a substantial decrease in the reporting of
these conditions as a secondary
diagnosis when the MS–DRGs were
implemented in FY 2008.
Specifically, after 10 years in which
the proportion of IPPS cases that
included atrial fibrillation as a
secondary diagnosis increased each
year, the proportion decreased by 20
percent immediately upon
implementation of the MS–DRGs in FY
2008. This decrease in coding of atrial
fibrillation would cause the CMI as
measured by the FY 2007 DRG
GROUPER to go down, while having no
effect on the CMI as measured by the
MS–DRG GROUPER. The commenter
stated that if this negative
documentation and coding effect is not
taken into account in CMS’ analysis, it
will inappropriately increase CMS’
estimate of documentation and coding

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53279

change. The commenter also found that
the secondary diagnoses of chronic
blood loss anemia, mitral valve disorder
and aortic valve disorder decreased in
proportion immediately upon
implementation of the MS–DRGs in FY
2008.
In addition, the commenter stated that
hyperpotassemia was a CC under the
CMS–DRGs, but is not a CC or MCC
under the MS–DRGs. Because of this,
there was a substantial decrease in the
reporting of hyperpotassemia as a
secondary diagnosis when the MS–
DRGs were implemented in FY 2008.
Specifically, after 9 consecutive years in
which the proportion of IPPS cases that
included hyperpotassemia as a
secondary diagnosis increased, the
proportion decreased by 37 percent
immediately upon implementation of
the MS–DRGs in FY 2008.
In responding to MedPAC’s analysis,
the commenter stated that CMS
concluded that it did not believe it
would be appropriate to revise its
estimates based solely on MedPAC’s
analysis without knowing of any
specific examples. Given that the
commenter is now providing such
specific examples, the commenter urged
the agency to revise its analysis to
account for what the commenter
believed to be overestimation of
documentation and coding as identified
by MedPAC and the AHA. Specifically,
the commenter recommended that CMS
subtract 0.25 percentage points from its
estimate of a 6.2 percent cumulative
documentation and coding effect; which
yields a revised cumulative effect of
5.95 percent. Under this methodology,
because CMS has already implemented
documentation and coding cuts of 3.5
percent, the commenter stated that the
cut remaining is actually only 2.45
percent, instead of the 2.7 percent the
agency proposed.
Response: We disagree with the
commenter’s suggestion that the
removal of the codes for the chronic
conditions of atrial fibrillation, chronic
blood loss anemia, mitral valve disorder
and aortic valve disorder from the CC
list upon the implementation of MS–
DRGs and the subsequent decrease in
hospital reporting are examples of a
‘‘negative’’ documentation and coding
effect. We note that what the commenter
provided are examples of an immediate
change in coding and reporting
practices based on incentives under the
MS–DRGs. It did not suggest that
patients had fewer occurrences of the
chronic conditions identified. They do
suggest that hospitals were immediately
aware of the incentives provided by the
CC and MCC lists under MS–DRGs and
began focusing on identifying and

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reporting codes on the MS–DRG CC and
MCC lists.
We believe the commenters’
suggestions of immediate changes in
coding and reporting based on
incentives provided by the MS–DRGs
CC and MCC lists support our view that
coding practices have changed in
response to incentives, which we have
shown lead to increases in the case-mix

index that were not based on actual
changes in patient severity.
We further believe that while the
MedPAC analysis suggested that a
potential overestimate could have, in
theory, occurred in the methodology,
the estimates are theoretical maximums.
It is not clear at this time, based on the
information submitted, to what extent
the five examples provided by
commenters substantiate these
Remaining
prospective
adjustment for
FYs 2008–2009

Prospective
adjustment for
FY 2010

Prospective
adjustment for
FY 2013

Removal of
onetime
recoupment
adjustment in
FY 2013

Combined
documentation
& coding
adjustment
for FY 2013

¥1.9%

¥0.0%

¥1.9%

+2.9%

+1.0%

Level of Adjustments .......................................

As in prior years, the FY 2008, FY
2009, and FY 2010 MedPAR files are
available to the public to allow
independent analysis of the FY 2008
and FY 2009 documentation and coding
effects. Interested individuals may still
order these files through the Web site at:
http://www.cms.gov/Research-StatisticsData-and-Systems/Files-for-Order/
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.

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E. Refinement of the MS–DRG Relative
Weight Calculation
1. Background
Beginning in FY 2007, we
implemented relative weights for DRGs
based on cost report data instead of
charge information. We refer readers to
the FY 2007 IPPS final rule (71 FR
47882) for a detailed discussion of our
final policy for calculating the costbased 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.

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theoretical maximums or any change in
adjustments.
Nonetheless, we recognize that the
methodological issues that surround
this question are complex, and may
merit further consideration. Therefore,
we are not finalizing the proposed ¥0.8
percent adjustment to the standardized
amount and the hospital-specific rate at
this time until more analysis can be
completed.

As we implemented 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 the Research
Triangle Institute, International (RTI) to
study the effects of charge compression
in calculating the relative weights and
to consider methods to reduce the
variation in the cost-to-charge ratios
(CCRs) across services within cost
centers. For a detailed summary of RTI’s
findings, recommendations, and public
comments that we received on the
report, we refer readers to the FY 2009
IPPS/LTCH PPS final rule (73 FR 48452
through 48453).
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, we
discussed our decision to pursue
changes to the cost report to split the
cost center for Medical Supplies
Charged to Patients into one line for
‘‘Medical Supplies Charged to Patients’’
and another line for ‘‘Implantable
Devices Charged to Patients.’’ We
acknowledged, as RTI had found, that
charge compression occurs in several
cost centers that exist on the Medicare
cost report. However, as we stated in the
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

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MS–DRG relative weights could result
from correcting charge compression for
devices and implants. In determining
the items that should be reported in
these respective cost centers, we
adopted the commenters’
recommendations that hospitals should
use revenue codes established by the
AHA’s National Uniform Billing
Committee to determine the items that
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 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.
As we discussed in the FY 2009 IPPS
final rule (73 FR 48458) and in the CY
2009 OPPS/ASC final rule with
comment period (73 FR 68519 through
68527), in addition to the findings
regarding implantable devices, RTI also
found that the costs and charges of
computed tomography (CT) scans,
magnetic resonance imaging (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 the
OPPS relative weights would better
estimate the costs of those services if
CMS were to add standard cost 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
costs from charges on claims data. In the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50075 through 50080), we finalized

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our proposal to create standard cost
centers for CT scans, MRI, and cardiac
catheterization, and to require that
hospitals report the costs and charges
for these services under new cost
centers on the revised Medicare cost
report Form CMS 2552–10. (We refer
readers to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50075 through 50080)
for a detailed discussion of the reasons
for the creation of standard cost centers
for CT scans, MRI, and cardiac
catheterization.) The new standard cost
centers for CT scans, MRI, 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.
2. Summary of Policy Discussion in FY
2012
In the FY 2009 IPPS 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.
However, as noted in the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR
43782), due to delays in the issuance of
the revised cost report CMS 2552–10,
we determined that a new CCR for
Implantable Devices Charged to Patients
might not be available before FY 2013.
Similarly, when we finalized the
decision in the FY 2011 IPPS/LTCH PPS
final rule to add new cost centers for CT
scans, MRI, 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).
Accordingly, during the FY 2012 IPPS
rulemaking (76 FR 51502), we 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 was necessary to have a
critical mass of cost reports filed with
data in this cost center. We checked the
availability of data in the ‘‘Implantable
Devices Charged to Patients’’ cost center
on the FY 2009 cost reports, but we did
not believe that there was a sufficient
amount of data from which to generate
a meaningful analysis in this particular
situation. Therefore, we did not propose
to use data from the ‘‘Implantable
Devices Charged to Patients’’ cost center
to create a distinct CCR for ‘‘Implantable
Devices Charged to Patients’’ for use in

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calculating the MS–DRG relative
weights for FY 2012. We indicated that
we would reassess the availability of
data for the ‘‘Implantable Devices
Charged to Patients’’ cost center for the
FY 2013 IPPS/LTCH PPS rulemaking
cycle and, if appropriate, we would
propose to create a distinct CCR at that
time.
3. Discussion for FY 2013
To calculate the MS–DRG relative
weights, we use two data sources: the
MedPAR file as the claims data source
and the HCRIS as the cost data source.
We adjust the charges from the claims
to costs by applying the 15 national
average CCRs developed from the cost
reports. In the past several years, we
have made progress in changing the cost
report to add the ‘‘Implantable Devices
Charged to Patients’’ cost center. At the
time of development of the FY 2013
IPPS/LTCH PPS proposed rule, there
was a sizeable number of hospitals in
the FY 2010 HCRIS that had reported
data for ‘‘Implantable Devices Charged
to Patients’’ on their cost reports
beginning during FY 2010. However,
during the development of the proposed
rule, we were able to access only those
cost reports in the FY 2010 HCRIS with
fiscal year begin dates on or after
October 1, 2009, and before May 1,
2010. This is because cost reports with
fiscal year begin dates of May 1, 2010,
through September 30, 2010, were filed
on the new cost report Form 2552–10,
and cost reports filed on the Form 2552–
10 were not accessible in the HCRIS.
Normally, we pull the HCRIS dataset
that is 3 years prior to the IPPS fiscal
year (that is, for the FY 2013 relative
weights, we would use the FY 2010
HCRIS, which includes data from cost
reports that begin on or after October 1,
2009, and before October 1, 2010).
However, because data from the Form
2552–10 cost reports were not available,
to ensure that the relative weights are
calculated with a data set that is as
comprehensive and accurate as possible,
in the proposed rule, we proposed to
calculate the FY 2013 relative weights
with data from FY 2010 cost reports for
providers with fiscal year begin dates of
on or after October 1, 2009, and before
May 1, 2010, and to back fill with data
from FY 2009 cost reports for those
providers that have fiscal year begin
dates on or after May 1, 2010 through
September 30, 2010. Further
complicating matters was that, due to
additional unforeseen technical
difficulties, the corresponding
information regarding charges for
implantable devices on hospital claims
was not yet available to us in the
MedPAR file. Without the breakout in

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the MedPAR file of charges associated
with implantable devices to correspond
to the costs of implantable devices on
the cost report, we believed that we had
no choice but to propose to continue
computing the relative weights with the
current CCR that combines the costs and
charges for supplies and implantable
devices. We stated in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27892)
that when we do have the necessary
supplies and implantable device data on
the claims in the MedPAR file to create
distinct CCRs for supplies and
implantable devices, perhaps for FY
2014, we also hoped that we would
have data for an analysis of creating
distinct CCRs for MRI, CT scans, and
cardiac catheterization. Prior to
proposing to create these CCRs, we
would first thoroughly analyze and
determine the impacts of the data.
Distinct CCRs for implantable devices,
MRIs, and CT scans would be used in
the calculation of the relative weights
only if they were first finalized through
rulemaking.
Comment: Commenters expressed
concern that CMS had proposed not to
use the data available from the new
‘‘Implantable Devices Charged to
Patients’’ cost center for FY 2013. The
commenters were concerned about the
continued delays in the utilization of
the new cost center data, and stated that
such delays only prolong the payment
inaccuracies associated with charge
compression. Two commenters
suggested a short-term fix to account for
the lack of data and to create a CCR for
implantable devices. The commenters
suggested that CMS calculate a DRG-byDRG estimate of the split of
standardized supplies charges into
implantable devices and routine
supplies. They stated that once supplies
charges are apportioned in each DRG,
separate national average CCRs for
implantable devices and other supplies
could be applied, based on the existing
cost reports. The commenters
recommended using the CY 2010
Inpatient Standard Analytic File (SAF)
to calculate the DRG-level factors for
apportioning the supplies charges, as
the file has information on charges by
revenue center, allowing implantable
devices to be split from routine
supplies. They further suggested that
CMS could calculate the CY 2010 ratios
of routine supply charges to implantable
device charges by DRG, apply those
ratios to the FY 2011 MedPAR supplies
charges, and then utilize the separate
CCRs for supplies and implantable
devices to estimate costs within each
DRG. The commenters added that the
remainder of the DRG weight

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calculation would proceed at this point,
now with 16 CCRs, including the
implantable devices CCR. The
commenters stated that CMS has
information required for DRG
assignment, and could run the data
through the latest MS–DRG GROUPER if
MS–DRG definition changes are an
issue.
Several commenters requested that
CMS adopt a regression-based CCR for
implantable devices due to the delay in
using the cost report and claims data to
calculate an implantable device CCR.
The commenters suggested that CMS
implement this approach, which was a
recommendation made by RTI and
MedPAC, to the statistical
disaggregation of CCRs in the ‘‘Medical
Supplies Charged to Patients’’ cost
center, as it would immediately address
charge compression until data from the
new cost centers become available.
One commenter requested that CMS
use the data from the hospitals that are
compliant in using the ‘‘Implantable
Devices Charged to Patients’’ cost center
data to establish an implantable device
CCR for establishing FY 2013 relative
weights. The commenter suggested that,
despite data limitations of the current
data, CMS continue to revise this CCR
in subsequent years, as the agency does
for all cost centers as more robust data
are available, without further delaying
needed improvements in the interim
period.
Response: We acknowledge the
commenters’ concern that we did not
propose a distinct CCR for implantable
devices charged to patients for FY 2013.
Nevertheless, we believe it would be
inappropriate to finalize a specific CCR
for implantable devices charged to
patients for FY 2013 (using SAF data, a
regression-based methodology, or the
limited implantable devices cost report
data that we do have), without an
opportunity for the public to review and
comment on our analysis. Rather, we
believe that it is appropriate to wait
until FY 2014, when we hope to be able
to provide a proper impact analysis of
the addition of a CCR for implantable
devices charged to patients in the
relative weights calculation.
Accordingly, we are not implementing a
regression-based CCR for implantable
devices at this time, nor are we
implementing any new CCRs for use in
the relative weights calculation for FY
2013.
Comment: Several commenters
expressed concern that CMS may not
have sufficient data to establish an
implantable device cost center to use in
the calculation of the relative weights
for FY 2014. Two commenters requested
that CMS develop and discuss in this

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FY 2013 IPPS final rule an action plan
for ensuring that FY 2011 HCRIS and
MedPAR data will be available for
allowing the ‘‘Implantable Devices
Charged to Patients’’ cost center to be
used for calculating MS–DRG relative
weights for FY 2014. Another
commenter requested that, rather than
waiting for the next rulemaking cycle,
CMS should determine if it will have
the necessary data available prior to the
FY 2014 proposed rule and inform
stakeholders if there continues to be
administrative issues with the data. The
commenter believed that this will allow
stakeholders to weigh in on potential
solutions to avoid another year of delay
in establishing the implantable device
CCR.
Response: We understand the
commenters’ desire for reassurance that
the FY 2014 rulemaking cycle will not
present further unanticipated delays in
the availability of both HCRIS and
MedPAR data required to create distinct
CCRs for implantable devices charged to
patients and supplies charged to
patients, respectively. We expect to
have the necessary data available to
begin modeling the additional CCRs
before the end of calendar year 2012.
Therefore, we are optimistic that, for the
FY 2014 proposed rule, we will be able
to provide a detailed impact analysis of
the relative weights using distinct CCRs
for implantable devices, MRIs, CT scans,
and cardiac catheterization. If, for some
reason, additional delays are
encountered toward the end of calendar
year 2012, we will consider informing
stakeholders of this delay, if
appropriate, and hosting a national
conference call, so that alternative
solutions to establishing additional
CCRs can be considered in a timely
fashion.
Comment: Some commenters
supported our proposal of not making
major refinements in the MS–DRG
relative weight methodology.
Response: We appreciate the
commenters’ support for our proposal of
not making major refinements to the
MS–DRG relative weights.
Comment: One commenter
recommended that, despite the delay in
the implementation of the ‘‘Implantable
Devices Charged to Patients’’ cost center
for the IPPS relative weights, CMS
should proceed with the
implementation of the implantable
devices cost center in the calculation of
OPPS rates for CY 2013. The commenter
requested that CMS work toward a
solution to combine data from the two
different cost reporting forms in the
HCRIS data so that OPPS rates can be
calculated using the cost difference

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reported in the ‘‘Implantable Devices
Charged to Patients’’ cost center.
Response: We note that the CY 2013
OPPS/ASC proposed rule, which went
on public display at the Office of the
Federal Register on July 6, 2012
(available at: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/HospitalOutpatientPPS/
Hospital-Outpatient-Regulations-andNotices-Items/CMS-1589-P.html), in
fact, includes a proposal to use data
from the ‘‘Implantable Devices Charged
to Patients’’ cost center to create a
distinct CCR for use in calculating the
OPPS relative weights for CY 2013.
Comment: Two commenters
expressed continued concern about the
accuracy of establishing new CT and
MRI cost centers using cost report and
claims data. The commenters were
concerned that the data reported in the
CT and MRI cost centers will not
represent hospitals’ full cost of
providing CT and MRI for some time.
The commenters stated that a large
portion of the capital costs for CT and
MRI equipment may have been
allocated across the entire hospital,
rather than to the radiology cost center,
which would result in the
understatement of costs of CT and MRI
reported in the radiology cost center.
Response: We received similar
comments regarding the allocation of
capital costs for radiology equipment on
the FY 2011 IPPS/LTCH PPS proposed
rule. In the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50078), we provided a
detailed response for CMS’ longstanding
policy on the proper reporting of such
capital costs. Specifically, we stated that
‘‘section 104 of the PRM–I contains
definitions of buildings (section 104.2),
building equipment (section 104.3),
major moveable equipment (section
104.4), and minor equipment (section
104.5) that apply for purposes of cost
report completion. We believe that it is
clear that CT and MRI equipment are
‘major moveable equipment’ and are
neither a building cost nor a building
equipment cost. Specifically, section
104.4 of the PRM–I defines ‘major
moveable equipment’ as follows: ‘The
general characteristics of this equipment
are: (a) a relatively fixed location in the
building; (b) capable of being moved, as
distinguished from building equipment;
(c) a unit cost sufficient to justify ledger
control; (d) sufficient size and identity
to make control feasible by means of
identification tags; and (e) a minimum
life of approximately three years. Major
moveable equipment includes such
items as accounting machines, beds,
wheelchairs, desks, vehicles, x-ray
machines, etc.’ In addition to this
longstanding instruction, we believe

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that our view that CT scanning and MRI
equipment are major moveable
equipment is supported by the 2008
edition of ‘Estimated Useful Lives of
Depreciable Hospital Assets,’ which
states that the estimated useful life of a
CT scanner is 5 years, an MRI is 5 years,
and an X-ray unit is 7 years. Therefore,
we believe that our longstanding policy
makes it clear that CT scanning and MRI
equipment [are] major moveable
equipment and should be reported as
such on the cost report. As major
moveable equipment, the costs should
be reported together with the rest of the
hospital’s major moveable equipment
cost in the ‘Capital Related CostsMoveable Equipment’ cost center(s) on
Worksheet A (lines 2 and 4 [on the CMS
Form 2552–96 and line 2 on the CMS
Form 2552–10]). The costs in this cost
center are allocated to all the hospital’s
cost centers that use major moveable
equipment (including CT and MRI)
using ‘dollar value’ or ‘square feet’ if the
provider obtained the contractor’s
approval under Provider
Reimbursement Manual Part II (PRM–
II), Section 3617, to use the simplified
cost allocation methodology. However, a
hospital that is concerned that this
method of allocation may result in
inaccurate CCRs (on Worksheet C, Part
I) for the CT scan, MRI, and other
ancillary cost centers may request
contractor approval under Section 2307
of the PRM–I to directly assign the cost
of moveable equipment to all of the
hospital’s cost centers that use moveable
equipment, including CT scans and
MRIs. If the hospital meets all of the
criteria in Section 2307 of the PRM–I,
the contractor may approve the direct
assignment method. This would ensure
that the high cost of the CT scanning
and MRI equipment would be reflected
in the CCR that would be calculated for
those departments and that would be
used to estimate the cost of CT scanning
and MRI services. In any case, hospitals
with accounting systems that include
the cost of CT scanning and MRI
equipment in the ‘Capital Related
Costs—Building and Fixtures’ cost
center should correct their cost
reporting practices to come into
compliance with CMS’ longstanding
policy in this regard. Reporting of costs
and charges on the Medicare cost report
must be compliant with Medicare cost
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differing payment structures and
incentives of other payers or State
reporting requirements’’ (75 FR 50078).
Hospitals that still need to correct their
cost reporting practices in this regard
should do so soon, so that when we
propose distinct CCRs for MRI and CT
scans, hopefully for FY 2014, these
CCRs will represent fairly accurately the
costs of these radiology services.
In summary, in this final rule, we are
finalizing our proposal to continue to
use the existing 15 CCRs to calculate the
MS–DRG relative weights for FY 2013.
For this final rule, as we did for the
proposed rule, because data from the
CMS Form 2552–10 continue to be
unavailable, we are using data from FY
2010 cost reports for providers with
fiscal year begin dates of on or after
October 1, 2009, and before May 1,
2010, and we are backfilling with data
from FY 2009 cost reports for those
providers that have fiscal year begin
dates on or after May 1, 2010 through
September 30, 2010. Depending on the
availability of necessary data, we hope
to be able to propose, if appropriate, for
FY 2014 to use distinct CCRs for
implantable devices charged to patients
and supplies charged to patients, and
possibly distinct CCRs for MRI, CT
scans, and cardiac catheterization as
well.
F. Preventable Hospital-Acquired
Conditions (HACs), Including Infections
1. Background
Section 1886(d)(4)(D) of the Act
addresses certain hospital-acquired
conditions (HACs), including infections.
This provision is part of an array of
Medicare tools that we are using to
promote increased quality and
efficiency of care. 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

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hospital incurs exceptionally high costs
treating a patient, the hospital stay may
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 261 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.
Section 1886(d)(4)(D) 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 evidence-based
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.
Effective for discharges occurring on
or after October 1, 2008, pursuant to the
authority of section 1886(d)(4)(D) of the
Act, Medicare no longer assigns an
inpatient hospital discharge to a higher
paying MS–DRG if a selected condition
is not present on admission (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 during the
hospital stay, if any nonselected CC/
MCC appears on the claim, the claim
will be paid at the higher MS–DRG rate.
In addition, Medicare continues to
assign a discharge to a higher paying
MS–DRG if a selected condition is POA.
When a HAC is not POA, payment can
be effected in a manner shown in the
diagram below.

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http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
HospitalAcqCond/HospitalAcquired_Conditions.html.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25813 through
25814) and FY 2012 IPPS/LTCH PPS
final rule (76 FR 51507 through 50509),
we proposed but did not finalize the
candidate condition Contrast-Induced
Acute Kidney Injury. Instead, we
deferred the decision making on this
condition as a selected HAC until future
rulemaking and such a time when
improved coding for the condition is
available.
3. Present on Admission (POA)
Indicator Reporting
Collection of POA indicator data is
necessary to identify which conditions
were acquired during hospitalization for
the HAC payment provision as well as
for broader public health uses of
Medicare data. In previous rulemaking,
we provided both CMS and CDC Web
site resources that are available to
hospitals for assistance in this reporting
effort. For detailed information
regarding these sites and materials,
including the application and use of

POA indicators, we refer the reader to
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51506 through 51507).
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.
Under the HAC policy, we treat HACs
coded with ‘‘Y’’ and ‘‘W’’ indicators as
POA and allow the condition on its own
to cause an increased payment at the
CC/MCC level. We treat HACs coded
with ‘‘N’’ and ‘‘U’’ indicators as Not
Present on Admission (NPOA) and do
not allow the condition on its own to
cause an increased payment at the CC/
MCC level. We refer readers to the
following rules for a detailed
discussion: the FY 2009 IPPS proposed
rule (73 FR 23559) and final rule (73 FR
48486 through 48487); the FY 2010
IPPS/RY 2010 LTCH PPS proposed rule
(74 FR 24106) and final rule (74 FR
43784 through 43785); the FY 2011
IPPS/LTCH PPS proposed rule (75 FR
23881 through 23882) and final rule (75
FR 50081 through 50082); and the FY
2012 IPPS/LTCH PPS proposed rule (76
FR 25812 through 25813) and final rule
(76 FR 51506 through 51507).

Indicator

Descriptor

Y ....................................
W ...................................

Indicates that the condition was present on admission.
Affirms that the hospital has determined that, based on data and clinical judgment, it is not possible to document
when the onset of the condition occurred.
Indicates that the condition was not present on admission.
Indicates that the documentation is insufficient to determine if the condition was present at the time of admission.
Signifies exemption from POA reporting. CMS established this code as a workaround to blank reporting on the electronic 4010A1. A list of exempt ICD–9–CM diagnosis codes is available in the ICD–9–CM Official Guidelines for
Coding and Reporting.

N ....................................
U ....................................
1 ....................................

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2. HAC Selection
Beginning in FY 2007, we have set
forth proposals, and solicited and
responded to public comments, to
implement section 1886(d)(4)(D) of the
Act through the IPPS annual rulemaking
process. For specific policies addressed
in each rulemaking cycle, including a
detailed discussion of the collaborative
interdepartmental process and public
input regarding selected and potential
candidate HACs, we refer readers to the
following rules: 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);
the FY 2011 IPPS/LTCH PPS proposed
rule (75 FR 23880) and final rule (75 FR
50080); and the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25810
through 25816) and final rule (76 FR
51504 through 51522). A complete list
of the 10 current categories of HACs is
included on the CMS Web site at:

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Beginning on or after January 1, 2011,
hospitals were 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. 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,
which can be located at the following
link on the CMS Web site: http://
www.cms.gov/Regulations-andGuidance/Guidance/Transmittals/
downloads/R756OTN.pdf. 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.
In addition, as discussed in section
II.G.9. of the preamble of this final rule,
the 5010 format allows the reporting
and, effective January 1, 2011, the
processing of up to 25 diagnoses and 25
procedure codes. As such, it is
necessary to report a valid POA
indicator for each diagnosis code,
including the principal and all
secondary diagnoses up to 25.

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4. HACs and POA Reporting in ICD–10–
CM and ICD–10–PCS
As we stated in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51506 and
51507) and in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 27894), in
preparation for the transition to the
ICD–10–CM and ICD–10–PCS code sets,
further information regarding the use of
the POA indicator with the ICD–10–CM/
ICD–10–PCS classifications as they
pertain to the HAC policy will be
discussed in future rulemaking.
At the March 5, 2012 meeting of the
ICD–9–CM Coordination and
Maintenance Committee, an
announcement was made with regard to

the availability of the ICD–9–CM HAC
list translation to ICD–10–CM and ICD–
10–PCS code sets. Participants were
informed that the list of the current
ICD–9–CM selected HACs has been
translated into codes using the ICD–10–
CM and ICD–10–PCS classification
system. It was recommended that the
public review this list of ICD–10–CM/
ICD–10–PCS code translations of the
current selected HACs. The translation
list is available on the CMS Web page
at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
HospitalAcqCond/icd10_hacs.html. We
encourage the public to submit
comments on these translations through
the HACs Web page using the CMS ICD–
10–CM/PCS HAC Translation Feedback
Mailbox that has been set up for this
purpose under the Related Links section
titled ‘‘CMS HAC Feedback.’’ The final
HAC list translation from ICD–9–CM to
ICD–10–CM/ICD–10–PCS will be
subject to formal rulemaking.
In the meantime, we continue to
encourage readers to review the
educational materials and draft code
sets currently available for ICD–10–CM/
ICD–10–PCS on the CMS Web site at:
http://www.cms.gov/Medicare/Coding/
ICD10/index.html. In addition, the draft
ICD–10–CM/ICD–10–PCS coding
guidelines can be viewed on the CDC
Web site at: http://www.cdc.gov/nchs/
icd/icd10cm.html.
Comment: Commenters expressed
appreciation for CMS’ decision to make
this crosswalk available. Commenters
noted that they would continue to
review the crosswalk and provide
additional comments, as warranted.
Response: We appreciate the
commenters’ support and continued
feedback.
5. Changes to the HAC Policy for FY
2013
a. Additional Diagnosis Codes to
Existing HACs
As discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27894),

as changes to diagnosis codes and new
diagnosis codes have been proposed and
finalized for the list of CCs and MCCs,
we have modified the list of selected
HACs to reflect these changes. While
there were not any new diagnosis codes
proposed for FY 2013, there were new
and revised diagnosis codes effective
October 1, 2011 (FY 2012) that were not
finalized in time for inclusion in the FY
2012 IPPS rulemaking. Therefore, in the
proposed rule (77 FR 27894), we
proposed to add two of these codes to
an existing HAC category. We proposed
to add diagnosis codes 999.32
(Bloodstream infection due to central
venous catheter) and 999.33 (Local
infection due to central venous catheter)
to the Vascular Catheter-Associated
Infection HAC category for FY 2013.
These codes were created in response to
a request discussed at the March 9–10,
2011 ICD–9–CM Coordination and
Maintenance Committee meeting to
better identify specific types of
infections (systemic versus local) that
occur as a result of central venous
catheter placement.
Previously, there was only one
existing HAC code (999.31 (Infection
due to central venous catheter)) in the
Vascular Catheter-Associated Infection
HAC category. With the creation of
codes 999.32 and 999.33, effective
October 1, 2011, the title for code 999.31
was revised to ‘‘Other and unspecified
infection due to central venous
catheter.’’ Therefore, codes 999.32 and
999.33 provide further specificity as to
the type of infection due to a central
venous catheter. We refer readers to
page 45 of the topic packet found at the
following link on the CDC ICD–9–CM
Web page at http://www.cdc.gov/nchs/
data/icd9/
TopicpacketforMarch2011_HA1.pdf for
further information.
Shown in the table below are the two
diagnosis codes that we proposed with
their corresponding descriptions and
their CC/MCC designations.

ICD–9–CM
Code

Code descriptor

999.32 .........................................................
999.33 .........................................................

Bloodstream infection due to central venous catheter .................................................
Local infection due to central venous catheter .............................................................

We invited public comments on the
proposed adoption of these two ICD–9–
CM diagnosis codes designated as CC/
MCCs that are listed above, to be added
to the Vascular Catheter-Associated
Infection HAC category as indicated for
FY 2013.
Comment: Several commenters
supported the addition of these two

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codes. One commenter, a State program,
indicated that it uses these codes in a
statewide HAC payment incentive
program.
Response: We appreciate the
commenters’ support.
Comment: Some commenters opposed
the addition of these two diagnosis
codes. Commenters also urged CMS to

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CC/MCC
Designation
CC
CC

remove the one existing HAC code
(999.31) in the Vascular CatheterAssociated Infection HAC category.
They stated that CMS is proposing to
add a quality measure on central line
associated bloodstream infection
(CLABSI), which would capture
vascular catheter-associated infections

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and asserted that ‘‘this could penalize
hospitals twice for the same event.’’ (We
note that the commenters may be
referring to two different CMS programs,
the Hospital IQR Program and the
Hospital VBP Program.) Commenters
stated that their opposition to the
proposed inclusion of the two codes is
not specific to the particular codes that
were proposed, but that their opposition
is predicated on the ‘‘expansion of this
HAC [Vascular Catheter-Associated
Infection].’’ Commenters also stated that
they supported reducing the incidence
of CLABSI as a patient safety goal and
urged CMS to ‘‘select only one program
in which to measure hospital
performance for vascular catheterassociated infection.’’
Response: The HAC–POA Program is
part of an array of tools used by the
Medicare program to promote increased
quality and efficiency of care. These
tools include quality measurement as
well as payment adjustments. Because
of their importance, HACs have been
included in multiple tools used by the
Medicare program to measure quality of
services provided and performance, and
to determine payment adjustments.
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, such as when any
nonselected CC/MCC appears on the
claim, 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 and would not generally
‘‘penalize hospitals twice.’’
Because of their importance, measures
of HACs have historically been included
in the Hospital IQR Program and are
simultaneously monitored by different
CMS programs. The HAC/POA policy
authorized under section 1886(D)(4)(d)
of the Act is a claims-based payment
policy, and in many cases, even if a
HAC manifests during a hospital stay, if
any nonselected CC/MCC appears on
the claim, the claim will be paid at the
higher MS–DRG rate.
Comment: One commenter supported
the addition of diagnosis code 999.32,
Bloodstream infection due to central
venous catheter, to the Vascular
Catheter-Associated Infection HAC
category, however, the commenter
expressed concern with the inclusion of
diagnosis code 999.33, Local infection
due to central venous catheter, as a
condition under this same HAC category

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to be subject to the HAC payment
policy. According to the commenter,
diagnosis code 999.33 identifies and
describes local infections related to the
soft tissues versus infections in the
central bloodstream. As such, the
commenter asserted that the Vascular
Catheter-Associated Infection HAC
category should only include central
bloodstream infections. Therefore, the
commenter did not support the addition
of code 999.33 to the Vascular CatheterAssociated Infection HAC category.
In addition, this same commenter
recommended that CMS publish data
analyses for the Vascular CatheterAssociated Infection HAC category.
Specifically, the commenter requested
that volume and cost data be made
publicly available for diagnosis codes
999.31, Other and unspecified infection
due to central venous catheter; 999.32,
Bloodstream infection due to central
venous catheter; and 999.33, Local
infection due to central venous catheter.
The commenter reiterated that they do
not support the inclusion of code 999.33
as a condition under the Vascular
Catheter-Associated Infection HAC
category, however, the commenter
stated the additional information would
assist in identifying potential shifts in
volume among the newer, more specific
codes of 999.32 and 999.33.
Response: We appreciate the
commenter’s support for the addition of
diagnosis code 999.32, Bloodstream
infection due to central venous catheter,
to the Vascular Catheter-Associated
Infection HAC category. With respect to
the concern expressed regarding
diagnosis code 999.33, Local infection
due to central venous catheter, we
believe the commenter may be
confused. The title of the HAC category
is Vascular Catheter-Associated
Infection; therefore, the emphasis is on
the fact that the patient had a central
venous catheter placed and
subsequently developed an infection
due to the presence of that catheter. We
acknowledge there is widespread
interest particularly in bloodstream
infections due to central venous
catheters, as several initiatives have
been undertaken focusing on
surveillance and prevention. However,
for this HAC payment provision, it is
our belief that local infections resulting
from a central venous catheter are also
of importance and deserve similar
efforts among the provider community
and healthcare industry with regard to
surveillance and prevention, as do the
other selected HAC conditions. While
the condition being described by
diagnosis code 999.33, Local infection
due to central venous catheter is a local
infection, it identifies the fact that a

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patient acquired the infection as a result
of a central venous catheter. Therefore,
we continue to believe it is appropriate
to finalize this code for inclusion in this
HAC category.
In response to the recommendation
that CMS conduct and publish data
analyses to provide further detailed
information related to volume and cost
for codes 999.31, 999.32 and 999.33, we
note that we have provided the results
for each selected condition within each
HAC category beginning with FY 2009
data analysis presented in FY 2011. We
refer the commenter and readers to the
RTI evaluation of the HAC–POA
program for years FY 2009 through FY
2011 on the following Web site:
http://www.rti.org/reports/cms/. As
codes 999.32 and 999.33 became
effective October 1, 2011 (FY 2012),
results of the FY 2012 data analysis are
not currently available.
After consideration of the public
comments we received, we are
finalizing our proposal to add diagnosis
codes 999.32 (Bloodstream infection
due to central venous catheter) and
999.33 (Local infection due to central
venous catheter) to the Vascular
Catheter-Associated Infection HAC
category for discharges occurring on or
after October 1, 2012.
b. New Candidate HAC Condition:
Surgical Site Infection (SSI) Following
Cardiac Implantable Electronic Device
(CIED) Procedures
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27894 through
27896), we discussed our rationale for
proposing a new condition, Surgical
Site Infection (SSI) Following Cardiac
Implantable Electronic Device (CIED)
Procedures, for selection for FY 2013 as
a HAC under section 1886(d)(4)(D) of
the Act. As described in more detail in
section II.F.1. 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

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admission, making it difficult to
determine whether the condition was
reasonably preventable. In the proposed
rule, we invited public comment on the
degree to which these conditions fulfill
these statutory requirements, as well as
clinical, coding, and prevention issues
on our proposal to add SSI Following
CIED Procedures as a condition subject
to the HAC payment provision for
discharges occurring on or after October
1, 2012.
CIED therapy reduces morbidity and
mortality in selected patients with
cardiac rhythm disturbances.1 More
than 500,000 CIEDs are implanted each
year in the United States and 70 percent
of CIED recipients are age 65 or older.2
However, this benefit with regard to the
treatment of cardiac rhythm
disturbances is somewhat reduced by
complications following device
placement, including infections.
Patients can present with early or late
infections because of CIED placement.3
Two-thirds of these infections are
caused by Staphylococcus aureus and
coagulase-negative Staphylococcus
species. Treatment of these infections
usually entails surgical explantation of
the device, sometimes under general
anesthesia and a prolonged course of
intravenous antibiotics, along with
external electrical support in a
monitored intensive care setting. The
rate of CIED infection is increasing
faster than the rate of CIED
implantation,4 and there are published
data on the mortality and cost
associated with CIED infection or the
1 Epstein, A. E., J. P. DiMarco, et al. (2008). ‘‘ACC/
AHA/HRS 2008 Guidelines for Device-Based
Therapy of Cardiac Rhythm Abnormalities: a report
of the American College of Cardiology/American
Heart Association Task Force on Practice
Guidelines (Writing Committee to Revise the ACC/
AHA/NASPE 2002 Guideline Update for
Implantation of Cardiac Pacemakers and
Antiarrhythmia Devices): developed in
collaboration with the American Association for
Thoracic Surgery and Society of Thoracic
Surgeons.’’ Circulation 117(21): e350–408.
2 Zhan, C., W. B. Baine, et al. (2007). ‘‘Cardiac
device implantation in the United States from 1997
through 2004: a population-based analysis.’’ J Gen
Intern Med, 23 Suppl 1: 13–19.
3 Baddour, L. M., A. E. Epstein, et al. (2010).
‘‘Update on cardiovascular implantable electronic
device infections and their management: a scientific
statement from the American Heart Association.’’
Circulation, 121(20048212): 458–477.
Baddour, L. M., A. E. Epstein, et al. (2010).
‘‘Update on Cardiovascular Implantable Electronic
Device Infections and Their Management: A
Scientific Statement From the American Heart
Association.’’ Circulation, 121(3): 458–477.
4 Greenspon, A. J., J. D. Patel, et al. (2011). ‘‘16Year Trends in the Infection Burden for Pacemakers
and Implantable Cardioverter-Defibrillators in the
United States 1993 to 2008.’’ Journal of the
American College of Cardiology 58(10): 1001–1006.

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relationship of these outcomes to
different CIED types.
There is not a unique code that
identifies SSI Following CIED
Procedures. However, the condition can
be identified as a subset of discharges
with ICD–9–CM diagnosis code 996.61
(Infection and inflammatory reaction
due to cardiac device, implant and graft)
or 998.59 (Other postoperative
infection). Our clinical advisors believe
that diagnosis code 996.61 or 998.59, in
combination with the associated
procedure codes below, can accurately
identify SSI Following CIED Procedures.
The procedure codes are:
• 00.50 (Implantation of cardiac
resynchronization pacemaker without
mention of defibrillation, total system
[CRT–P]);
• 00.51 (Implantation of cardiac
resynchronization defibrillator, total
system [CRT–D]);
• 00.52 (Implantation or replacement
of transvenous lead [electrode] into left
ventricular coronary venous system);
• 00.53 (Implantation or replacement
of cardiac resynchronization pacemaker
pulse generator only [CRT–P]);
• 00.54 (Implantation or replacement
of cardiac resynchronization
defibrillator pulse generator device only
[CRT–D]);
• 37.80 (Insertion of permanent
pacemaker, initial or replacement, type
of device not specified);
• 37.81 (Initial insertion of singlechamber device, not specified as rate
responsive);
• 37.82 (Initial insertion of singlechamber device, rate responsive);
• 37.83 (Initial insertion of dualchamber device);
• 37.85 (Replacement of any type
pacemaker device with single-chamber
device, not specified as rate responsive);
• 37.86 (Replacement of any type of
pacemaker device with single-chamber
device, rate responsive);
• 37.87 (Replacement of any type
pacemaker device with dual-chamber
device);
• 37.94 (Implantation or replacement
of automatic cardioverter/defibrillator,
total system [AICD]);
• 37.96 (Implantation of automatic
cardioverter/defibrillator pulse
generator only);
• 37.98 (Replacement of automatic
cardioverter/defibrillator pulse
generator only);
• 37.74 (Insertion or replacement of
epicardial lead [electrode] into
epicardium);
• 37.75 (Revision of lead [electrode]);
• 37.76 (Replacement of transvenous
atrial and/or ventricular lead(s)
[electrode]);
• 37.77 (Removal of lead(s)
[electrode] without replacement);

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• 37.79 (Revision or relocation of
cardiac device pocket); and
• 37.89 (Revision or removal of
pacemaker device).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27894 through
27896), we proposed to identify SSI
Following CIED Procedures with
diagnosis code 996.61 or 998.59 in
combination with one or more of the
above associated procedure codes. We
believe the condition meets the three
criteria for inclusion on the HAC list, as
discussed in greater detail below.
First, the condition is one that is high
cost and high volume. We reviewed
Medicare claims data in the FY 2011
MedPAR file. For FY 2011, we found
that there were 859 inpatient discharges
coded with SSI Following CIED
Procedures as specified by diagnosis
code 996.61 or 998.59 when reported
with one or more of the above cited
associated procedure codes submitted
through Medicare claims. The cases had
an average cost of $51,795 for the entire
hospital stay. We found that there were
583 inpatient discharges coded with SSI
Following CIED Procedures as specified
by diagnosis code 996.61 or 998.59
when reported with one or more of the
above cited associated procedure codes
submitted through Medicare claims
reported as POA. These POA cases had
an average cost of $41,999. We also
found that there were 276 inpatient
discharges coded with SSI Following
CIED Procedures as specified by
diagnosis code 996.61 or 998.59 when
reported with one or more of the above
cited associated procedure codes
submitted through Medicare claims
reported as NPOA. These NPOA cases
had an average cost of $72,485. We note
that these data are consistent with other
data presented for current HACs.
Therefore, we believe this condition is
high cost and high volume.
In addition, we reviewed the
literature regarding this condition.
Infection associated with CIED
procedures resulted in a substantial
incremental increase in admission
mortality and long-term mortality and
varies with the type of CIED. For the
purposes of the proposal, we considered
CIED procedures in the aggregate.
Several large studies showed CIED
infection associated with an
approximately 5 percent to 8 percent
inhospital mortality as well as a 17.5
percent to 35.1 percent one year
mortality.5 Additionally, there is a
significant cost impact for patients who
5 Tarakji, K. G., E. J. Chan, et al. (2010). ‘‘Cardiac
implantable electronic device infections:
Presentation, management, and patient outcomes.’’
Heart Rhythm 7(8): 1043–1047.

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suffer infections after CIED
implantation. A recent large analysis of
2007 data on over 200,000 Medicare
beneficiaries demonstrated the mean
hospital cost of CIED infections ranges
from $28,676 to $53,349, compared with
a mean hospital cost ranging from
$12,468 to $36,851 for beneficiaries
without infection.6 This additional
information supports our conclusion
from our analysis of data in the
MedPAR file that this condition is high
cost.
Second, the condition of SSI
Following CIED Procedures, as specified
in our proposal, is a CC under the MS–
DRG system. We did not identify any
additional administrative or operational
difficulties associated with proposing
this condition as a HAC.
Third, because there are widely
recognized guidelines for the prevention
of SSI Following CIED Procedures, we
believe the condition is reasonably
preventable through application of
evidence-based guidelines. A large
randomized controlled trial
demonstrated that prophylactic
preoperative antibiotics reduced CIED
infection by 81 percent in patients who
received them.7 Well-accepted
guidelines for the prevention and
prophylaxis of CIED infection now exist
supporting the use of prophylactic
antibiotics.
In the proposed rule, we invited
public comment on whether SSI
Following CIED Procedures 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 condition
as a proposed condition subject to the
HAC payment provision for FY 2013
(for discharges occurring on or after
October 1, 2012). We indicated that we
were particularly interested in receiving
comments on the degree to which SSI
Following CIED Procedures is
reasonably preventable through the
application of evidence-based
guidelines.
Comment: The majority of
commenters supported SSI Following
CIED Procedures as a new addition to
the HAC/POA condition list, citing its
clinical relevance to the Medicare
beneficiary population and concerns
about the increasing incidence of these
6 Sohail, M. R., C. A. Henrikson, et al. (2011).
‘‘Mortality and cost associated with cardiovascular
implantable electronic device infections.’’ Arch
Intern Med 171(20): 1821–1828.
7 de Oliveira, J. C., M. Martinelli, et al. (2009).
‘‘Efficacy of Antibiotic Prophylaxis Before the
Implantation of Pacemakers and CardioverterDefibrillators: Results of a Large, Prospective,
Randomized, Double-Blinded, Placebo-Controlled
Trial.’’ Circ Arrhythm Electrophysiol, 2(1): 29–34.

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infections in conjunction with increased
morbidity and mortality, and the
associated costs with these infections.
One commenter, a State program,
indicated that it uses these codes in a
statewide HAC payment incentive
program.
Response: We appreciate the
commenters’ support.
Comment: Some commenters raised
concerns that the inclusion of SSI
Following CIED Procedures as a HAC
candidate does not meet the statutory
conditions of section 1886(d)(4)(D) of
the Act because ‘‘CMS points out that
there were only 859 cases of SSI
Following CIED Procedures during FY
2011. This constitutes only 0.25 percent
of all CIED cases.’’ These commenters
asserted that the HAC candidate
condition does not meet the highvolume criterion and, therefore, should
not be included as a HAC.
Response: We appreciate the
commenters’ concern regarding whether
this candidate condition meets the
standards of the statutory criteria. We
note that we consider all cases where
HAC codes are on the claim as a
secondary diagnosis, regardless of their
POA indicator, in evaluating conditions
based on cost and volume and also use
external data sources when available.
With regard to cost, the proposed rule
included data analyses that showed that
the average cost per case of SSI
Following CIED Procedures is $51,795
and also included literature that
describes the increase in the mean cost
of admissions with CIED infection to
those CIED placements without
infection. Therefore, we reiterate our
belief that this condition meets the highcost criterion. As discussed previously,
section 1886(d)(4)(D) of the Act
specifies that a condition on the HAC
list may be high-volume or high-cost or
both. It does not require the condition
to be both, and a condition that is only
high-cost would meet this statutory
criterion. Therefore, we believe that the
statutory criterion has been met.
In the proposed rule, we characterized
this condition as ‘‘high-cost and highvolume’’ and described an analysis that
showed 859 cases. While 859 cases may
seem like a small number of cases as the
commenters pointed out, we note that,
in past rules, we have had similar
numbers for HACs, such as in FY 2008,
where we stated that there were ‘‘764
cases reported of Medicare patients who
had an object left in during surgery
reported as a secondary diagnosis’’ (72
FR 24720). Therefore, a volume of 859
cases is not as high as the volume for
some other HACs and is higher than the
volume for some HACs.

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Comment: Some commenters were
opposed to the SSI Following CIED
Procedures becoming a HAC because
they believed that this HAC selection
‘‘will result in hospitals dedicating time
and effort to avoiding this extremely
low-incidence adverse event (when
resources could have been devoted to
more highly prevalent safety concerns).’’
Response: We appreciate and
understand the concern of the
commenters. We note that SSIs are an
established HAC category and that a
similar condition has been identified by
public commenters in prior rulemaking.
In the FY 2008 IPPS final rule with
comment period (72 FR 47213), SSIs
were identified as a broad category for
consideration. However, at the time, we
determined that coding of SSI with only
ICD–9–CM code 998.59 (Other
postoperative infection) did not meet
the statutory criteria for being subject to
the provision because it does not
uniquely identify SSIs. We stated that
we would explore ways to identify SSIs
and would reevaluate the condition in
FY 2009. In response to public comment
in the FY 2008 final rule with comment
period, we finalized one SSI,
mediastinitis after coronary artery
bypass graft (CABG) surgery, and
continued to ask for public input so that
further specific SSIs could be identified.
In FY 2009, we expanded our
selection of the SSI for elective
procedures as HACs. In the FY 2009
IPPS final rule (73 FR 48477 through
48479), we discussed how, in response
to commenters’ suggestions, we selected
certain orthopedic procedures in the
HAC SSI category using ICD–9–CM
diagnosis code 996.67 (Infection and
inflammatory reaction due to other
orthopedic device and implant graft) or
998.59 (Other postoperative infection)
and selected 81.XX orthopedic ICD–9–
CM procedure codes. Another SSI
condition that was proposed and
finalized during FY 2009 based on
public comment was ‘‘Surgical Site
Infection Following Bariatric Surgery for
Obesity.’’ The ICD–9–CM codes that are
used to describe ‘‘Surgical Site Infection
Following Bariatric Surgery for Obesity’’
are: 278.01 (Morbid Obesity) and 998.59
(Other postoperative infection), and
procedure code 44.38 (Laparoscopic
gastroenterostomy) or 44.39 (Other
gastroenterostomy), or 44.95
(Laparoscopic gastri restrictive
procedure).
As discussed in that same final rule
for FY 2009 (73 FR 48478 through
48479), a commenter recommended
adding Surgical Site Infection following
Implantation of Cardiac Devices as a
HAC. The commenter provided the

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following information regarding this
recommended HAC:
• A recent estimate that
approximately 300,000 pacemaker
implants had been performed in 2007.
• A reference stating that the
estimated rate of infection following
cardiac device implantation is 4 percent
and that the cost to treat each
pacemaker infection is approximately
$25,000.
• Evidence-based guidelines for
preventing these infections.
Our response in that FY 2009 final
rule was that ‘‘surgical site infection
following certain cardiac device
procedures is a strong candidate HAC.’’
We stated the condition is high-cost,
high-volume, triggers a higher-paying
MS–DRG, and may be considered
reasonably preventable through the
application of evidence-based
guidelines. We further explained that
we did not propose this specific
condition in the FY 2009 IPPS proposed
rule; however, we expect to propose
surgical site infection following certain
cardiac device procedures, as well as
surgical site infection following other
types of device procedures, as future
candidates. We also stated that we
looked forward to working with
stakeholders to identify additional
procedures, such as device procedures,
in which SSIs could be considered
reasonably preventable through the
application of evidence-based
guidelines. We continue to agree with
public commenters from FY 2009 that
SSI Following Implantation of Cardiac
Device Procedures is a strong candidate
and made this specific proposal for FY
2013 for that reason.
In light of the public comments we
received, and given our prior
establishment of a broad HAC category
for SSIs in relation to HACs and
historical discussion of SSI following
certain cardiac device procedures as a
strong candidate, in this final rule, we
are modifying our proposal so that,
rather than this procedure being a new
HAC category, we are finalizing SSI
Following CIED Procedures as a new
subcategory under SSIs (for example,
HAC 9D Surgical Site Infection
Following Cardiac Implantation).
Comment: Some commenters opposed
the use of administrative/claims data to
identify HAIs in the HAC/POA Program
and noted that the proposed rule stated
that there is no unique code that
identifies SSI Following CIED
procedures, and thus CMS proposed to
use a combination of codes to capture
these data. The commenters believed
the use of claims data for the
determination of HAIs/HACs has
limited value in improving patient care

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because claims data do not provide
precise identification of HAIs, nor do
they provide information in a timely
manner to provide effective treatment.
Response: We appreciate the
commenters’ concern that
administrative data may not provide the
most precise identification of HAIs and
their comments about the codes used to
identify the conditions proposed for
addition to the HAC list. However, we
point out that the statute establishes this
policy as a payment policy, which is
implemented on a per claim basis by
adjusting the MS–DRG assignment. The
statute further requires that the
conditions on the HAC list must be
identifiable through ICD–9–CM codes.
The conditions identified on the HAC
list and the corresponding codes or
combinations of codes used to make a
payment adjustment are not intended to
provide information in a timely manner
to provide treatment to any particular
individual. The statute establishes a
payment adjustment that can encourage
hospitals to make improvements with
regard to a limited number of conditions
that, if they did not occur, could have
otherwise resulted in an increased
payment for a reasonably avoidable
complication.
Comment: One commenter did not
believe that punitive payment
mechanisms coupled with the lack of
risk adjustment for the conditions on
the HACs list is the most appropriate or
effective method to reduce
complications. Commenters also
asserted that CMS is expanding the HAC
program ‘‘without fully understanding
the impact of appropriate risk
adjustment.’’
Response: We appreciate the
commenters’ response, but disagree
with their assumptions. We received
similar comments regarding the
addition of two new codes to another
existing HAC category. We note that our
response is similar. The HAC/POA
Program is part of an array of tools used
by the Medicare program to promote
increased quality and efficiency of care.
These tools include quality
measurement, as well as payment
adjustments. Because of their
importance, HACs have been included
in multiple tools used by Medicare to
measure quality of services provided
and performance, and to determine
payment adjustments. 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, such
as when a nonselected CC/MCC appears

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on a claim, 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.
With regard to risk adjustment, risk
adjustment is not a requirement under
section 1886(d)(4)(D) of the Act for
inclusion of a condition on the HAC list
for payment adjustment. We believe the
commenters may be confusing the HAC
payment adjustment policy with quality
measurement policies, where risk
adjustment is sometimes used. We
believe meeting the statutory criteria as
specified encourages hospitals to
promote measures to protect all patients
from reasonably preventable HACs.
Comment: One commenter stated: ‘‘It
is inappropriate for CMS to deny
payment for HAC related complications
without taking into consideration
whether a patient did, in fact, receive
optimal evidence-based care given that
the rates of many of the HACs cannot
reach zero.’’
Response: We appreciate the
commenter’s response. We believe that,
although it may be difficult to reduce
the incidence of conditions on the HAC
list to zero, the incidence of conditions
can be significantly reduced in cases
where evidence-based guidelines for the
prevention of the condition exist and
are used. Additionally, we point out
that payment is not denied, but could be
made at a lower paying MS–DRG rate.
If any nonselected CC/MCC appears on
the claim when a HAC is not present on
admission, the claim will be paid at the
higher MS–DRG rate, so the hospital
would not receive a lower payment.
Finally, in accordance with 42 CFR
412.60(d), hospitals may appeal the
DRG assignment on a claim within 60
days of the initial notice of the DRG
assignment. This may be of interest to
the public, as the commenter expressed
concern about those cases where a HAC
occurs and a lower paying MS–DRG
assignment is made.
After consideration of the public
comments we received, in this final
rule, we are modifying our proposal to
add SSI Following CIED Procedures as
a HAC condition. Our final policy
makes SSI following CIED Procedures a
sub-HAC condition within the SSI HAC
category subject to the HAC payment
provision for discharges occurring on or
after October 1, 2012.
c. New Candidate HAC Condition:
Iatrogenic Pneumothorax With Venous
Catheterization
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27896 through

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27897), we discussed our rationale for
proposing a new condition, Iatrogenic
Pneumothorax with Venous
Catheterization, for selection as a HAC
for FY 2013 under section 1886(d)(4)(D)
of the Act. We previously proposed
Iatrogenic Pneumothorax more generally
as a HAC in the FY 2009 IPPS
rulemaking (73 FR 48485).
In the FY 2009 IPPS final rule (73 FR
48485), we considered Iatrogenic
Pneumothorax as a condition but did
not finalize it due to commenters’
concerns about the preventability of the
condition when following the evidencebased guidelines. Most commenters
opposed the selection of Iatrogenic
Pneumothorax as a HAC and indicated
that the evidence-based guidelines often
acknowledge that Iatrogenic
Pneumothorax is a known relatively
common risk for certain procedures.
Further, with regard to evidence-based
guidelines, many commenters opposed
designation of this condition as a HAC
due to a lack of consensus within the
medical community regarding its
preventability.8 Some commenters
offered suggestions to exclude certain
procedures or situations, including
central line placement, thoracotomy,
and the use of a ventilator, if Iatrogenic
Pneumothorax were to be selected as a
HAC. In that rule, we noted that we
would continue to review the
development of evidence-based
guidelines for the prevention of
Iatrogenic Pneumothorax if evidence
warranted and consider Iatrogenic
Pneumothorax as a HAC in the future.
We refer readers to that final rule for a
more detailed discussion (73 FR 48485).
To address concerns raised by
commenters in FY 2009, we reviewed
changes in the standard of care and
evidence-based guidelines to identify
specific situations where Iatrogenic
Pneumothorax would be considered
reasonably preventable and identified
venous catheterization as one such
instance.
Pneumothorax is defined as the
presence of air or gas in the pleural
cavity, which is the space between the
covering of the tissue of the lung and
parietal pleura, or the part of the pleura
that lines the chest wall. The presence
of air in this space partially or
completely collapses the lung and is life
threatening. Air can enter the
intrapleural space through a passage
through the chest wall. Iatrogenic
Pneumothorax is a type of traumatic
pneumothorax that results from
incursion into the pleural space
8 Ahan,

et al.: Accidental Iatrogenic
Pneumothorax in Hospitalized Patients, Medical
Care, 44(2):182–6, Feb. 2006.

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secondary to diagnostic or therapeutic
medical intervention, such as needle
placement for central line catheter
guidance.
There is no unique code that
identifies Iatrogenic Pneumothorax with
Venous Catheterization. However,
Iatrogenic Pneumothorax with Venous
Catheterization can be identified as a
subset of discharges with ICD–9–CM
diagnosis code 512.1 (Iatrogenic
pneumothorax). Our clinical advisors
believe that diagnosis code 512.1, in
combination with the associated
procedure code 38.93 (Venous
catheterization NEC), can accurately
identify Iatrogenic Pneumothorax with
Venous Catheterization. In the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
27896 through 27897), we proposed to
identify Iatrogenic Pneumothorax with
Venous Catheterization reported in
combination with diagnosis code 512.1
(Iatrogenic pneumothorax) and
procedure code 38.93 (Venous
catheterization NEC). We recognize that,
in quality measurement such as with the
Agency for Healthcare Research and
Quality (AHRQ) Patient Safety Indicator
(PSI) Number 6 (Iatrogenic
Pneumothorax Rate), exclusion criteria
are used to increase the accuracy of
identifying these cases. We believe that,
by limiting our proposal to include
Iatrogenic Pneumothorax as a HAC only
in the context of venous catheterization,
we have improved our ability to
accurately identify these cases. While
we did not propose exclusion criteria,
we welcomed public comment in this
regard. In addition, we believe this more
narrowly tailored condition meets the
three criteria for inclusion on the HAC
list, as discussed in greater detail below.
First, the condition is one that is high
cost and high volume. We reviewed
Medicare claims data in the FY 2011
MedPAR file. We found that there were
4,467 inpatient discharge cases coded
for Iatrogenic Pneumothorax with
Venous Catheterization as specified by
diagnosis code 512.1 reported with
procedure code 38.93. The cases had an
average cost of $39,128 for the entire
hospital stay. We found that there were
612 inpatient discharge cases coded for
Iatrogenic Pneumothorax with Venous
Catheterization as specified by diagnosis
code 512.1 reported with procedure
code 38.93 submitted through Medicare
claims reported as POA. These POA
cases had an average cost of $26,693.
We also found that there were 3,855
inpatient discharge cases coded for
Iatrogenic Pneumothorax with Venous
Catheterization as specified by diagnosis
code 512.1 reported with procedure
code 38.93 submitted through Medicare
claims reported as NPOA. These NPOA

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cases had an average cost of $41,102.
We note that these data are consistent
with other data presented for current
HACs. Therefore, we believe this
condition is high cost and high volume.
In addition, we reviewed the
literature regarding this condition. The
cannulation of veins (that is, insertion of
a catheter) with central venous
catheterization is an important aspect of
patient care for the administration of
fluids and medications and for
monitoring purposes. Eight percent of
hospitalized patients receive a central
venous catheter, and more than 5
million central venous catheters are
inserted in the United States each year.
Indwelling catheters have several
known complications and side effects
associated with their use, such as
infections or vessel damage.
Additionally, there are risks associated
with the placement of central venous
catheters including the risk of
pneumothorax for central catheters
placed in the upper area of the patient’s
neck or chest when placed in the
internal jugular or subclavian veins.
Mechanical complications associated
with Iatrogenic Pneumothorax are
reported to occur in 5 to 19 percent of
patients.9
Second, the condition of Iatrogenic
Pneumothorax with Venous
Catheterization as specified in our
proposal is a CC under the MS–DRGs.
Third, there are widely recognized
guidelines that address the prevention
of Iatrogenic Pneumothorax with
Venous Catheterization, and we believe
that Iatrogenic Pneumothorax in the
context of venous catheterization is
reasonably preventable through
application of these evidence-based
guidelines.
In terms of guidelines, the AHRQ, in
a 2001 report ‘‘Making Health Care
Safer: A Critical Analysis of Patient
Safety Practices’’ (AHRQ Publication
No. 01–EO58) recommended the use of
ultrasound for the placement of all
central venous catheters as one of its 11
practices aimed at improving patient
care. Current standard placement
techniques for these venous catheters
rely on the knowledge of anatomic
landmarks and other indicators to guide
the initial cannulation of the vein. The
increase in the number of small,
advanced, and portable 2D ultrasound
devices has inspired the use of these
newer ultrasound devices in central
venous line placement, as now direct
visualization of the target vessel can be
9 McGee, D. C. and M. K. Gould (2003).
‘‘Preventing Complications of Central Venous
Catheterization.’’ New England Journal of Medicine,
348(12): 1123–1133.

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achieved, making it easier to avoid these
complications. Recommendations for
the use of ultrasound as an adjunct to
central venous line placement now exist
and are based on supportive literature
Category A (Randomized controlled
trials report statistically significant (P >
.01) differences between clinical
interventions for a specified clinical
outcome) with a Level 1 weight of
scientific evidence (multiple
randomized controlled trials with the
aggregated findings supported by metaanalysis).10 Several studies have shown
a decrease in the mechanical
complication rate with the use of
ultrasound during line placement.11
Guidelines for performing ultrasound
guided vascular cannulation have been
recently published.12
We believe new evidence-based
guidelines provide substantial clinical
guidance for reasonable prevention
when this condition occurs in the
context of venous catheterization. In the
proposed rule, we invited public
comment on whether Iatrogenic
Pneumothorax with Venous
Catheterization 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 proposed
condition, as a condition subject to the
HAC payment provision for discharges
occurring on or after October 1, 2012.
We stated that we were particularly
interested in public comment on how
limiting the condition to situations in
which it occurs in conjunction with
venous catheterization influences
preventability, and whether additional
limits should be considered in the
context of venous catheterization.
Comment: Some commenters
supported CMS’ proposal to include
Iatrogenic Pneumothorax with Venous
Catheterization as a candidate condition
for the HAC list. Some commenters
noted that this proposal aligns with and
encourages use of ‘‘widely recognized’’
guidelines based in research evidence,
10 Echoc, A. U. R. b. t. A. S. o. A. a. t. S. o. C.
A. T. F. o. T. (2010). ‘‘Practice Guidelines for
Perioperative Transesophageal Echocardiography.’’
Anesthesiology, 112(5): 1084–1096 1010.1097/
ALN.1080b1013e3181c1051e1090.
11 Hind, D.: ‘‘Ultrasonic device for central venous
cannulation: Meta-analysis.’’ BJM, 2003, vol. 327,
7411:361–364; and Troianos, C. A., G. S. Hartman,
et al. (2012). ‘‘Guidelines for Performing Ultrasound
Guided Vascular Cannulation: Recommendations of
the American Society of Echocardiography and the
Society of Cardiovascular Anesthesiologists.’’
Anesthesia and Analgesia, 114(1): 46–72.
12 Troianos, C. A., G. S. Hartman, et al. (2012).
‘‘Guidelines for Performing Ultrasound Guided
Vascular Cannulation: Recommendations of the
American Society of Echocardiography and the
Society of Cardiovascular Anesthesiologists.’’
Anesthesia and Analgesia, 114(1): 46–72.

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including AHRQ’s 2001 published
report, ‘‘Making Healthcare Safer: A
Critical Analysis of Patient Safety
Practices’’ (AHRQ Publication No. 01–
E058), that shows iatrogenic
pneumothorax can be a reasonably
preventable complication when
performing the venous catheterization
using an ultrasound. One commenter
stated, ‘‘Recent studies have highlighted
the cost savings and increased quality of
care that ultrasound guided
catheterization can provide * * * [and
that] fewer complications from needle
placement result in improved patient
outcomes and greater clinician
efficiency.’’Another commenter listed
additional guidelines, such as the 2002
guidance from CDC regarding the use of
ultrasound and the prevention of
intravascular catheter-related
complications, the 2002 guidance from
the National Institute for Health and
Clinical Excellence (NICE) on the use of
ultrasound for placing central venous
catheters, the 2001 (revised in 2008)
guidance from the American College of
Emergency Physicians which represents
the first specialty specific
comprehensive guidelines for the use of
ultrasound in emergency medicine, and
the 2012 practice guideline from the
American Society of Anesthesiologists
(ASA) Taskforce on Central Venous
Access for central venous access defined
as placement of a catheter such that the
catheter is inserted into a venous great
vessel.
Another commenter noted that ‘‘Since
2001, controlled trials have been
published evaluating ultrasound guided
central venous catheterization in
various types of patient populations
* * * and found significantly higher
success rates and reduced complication
rates in all studies.’’
Response: We agree with commenters’
input and appreciate the commenters’
support.
Comment: One commenter
encouraged CMS to add exclusion
criteria ‘‘to prevent reporting errors’’ of
the Iatrogenic Pneumothorax with
Venous Catheterization HAC. Another
commenter recommended that CMS add
the following exclusion codes to
distinguish iatrogenic and spontaneous
pneumothorax; pneumothorax and air
leaks: ICD–9–CM codes 512.2
(Postoperative air leak), 512.81 (Primary
Spontaneous Pneumothorax), 512.82
(Secondary spontaneous
pneumothorax), 512.83 Chronic
pneumothorax), 512.84 (Other air leak),
and 512.89 (Other Pneumothorax). One
of the commenters noted that Iatrogenic
Pneumothorax does not have an ICD–9–
CM code.

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Response: We thank the commenters
for their response. At this time, we
continue to believe that, by limiting our
proposal to include Iatrogenic
Pneumothorax as a HAC only in the
context of venous catheterization, we
have improved our ability to accurately
identify these cases and that no further
exclusion criteria are needed. We
believe that the commenter may have
misunderstood our proposed policy in
offering the specific suggestions for
exclusion codes. First, the commenter is
mistaken about there not being a code
for Iatrogenic Pneumothorax in ICD–9–
CM. The condition is indexed clearly to
diagnosis code 512.1 (Iatrogenic
pneumothorax). Also, as specified, this
HAC would not include the codes for
spontaneous pneumothorax because it is
not a complication as a result of a
medical intervention and, therefore, is
not iatrogenic. ICD–9–CM diagnosis
code 512.1 is specific enough to capture
those complications that have been
caused through medical intervention in
the context of venous catheterization.
Comment: Some commenters opposed
the addition of the Iatrogenic
Pneumothorax with Venous
Catheterization condition ‘‘because it
puts hospitals at risk of being penalized
twice for the same event.’’ Commenters
pointed out that CMS proposed to add
a patient safety composite measure that
includes Iatrogenic Pneumothorax with
Venous Catheterization to the Hospital
VBP Program. In the commenters’ view,
this penalizes hospitals twice for the
same event. The commenters noted that
they supported reducing iatrogenic
pneumothorax as a patient safety goal
for CMS, and urged CMS to ‘‘select only
one program in which to measure
hospitals’ performance on IPs with
venous catheterization.’’ In addition, the
commenters stated that ‘‘CMS has
continued to add additional
components to the HAC list without
fully understanding the impact of
appropriate risk adjustment.’’
Response: We received similar public
comments regarding our proposal to
include SSI Following CIED Procedures
in the existing HAC category, and,
similarly, we appreciate the
commenters’ response but disagree with
their assumptions. As we responded
above with regard to the SSI Following
CIED Procedures condition, the HAC/
POA program is part of an array of tools
used by the Medicare program to
promote increased quality and
efficiency of care. These tools include
quality measurement, as well as
payment adjustments. Because of their
importance, HACs have been included
in multiple tools used by the Medicare
program to measure quality of services

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provided and performance, and to
determine payment adjustments. 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, such
as when a nonselected CC/MCC appears
on a claim, 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 and would not generally
‘‘penalize hospitals twice.’’
With regard to risk adjustment, risk
adjustment is not a requirement under
section 1886(d)(4)(D) of the Act for
inclusion of a condition on the HAC list
for payment adjustment. We believe the
commenters may be confusing the HAC
payment adjustment policy with quality
measurement policies, where risk
adjustment is sometimes used. We
believe meeting the statutory criteria as
specified encourages hospitals to
promote measures to protect all patients
from reasonably preventable hospitalacquired conditions.
Comment: Some commenters opposed
the inclusion of Iatrogenic
Pneumothorax with Venous
Catheterization as a HAC candidate
condition because they did not believe
that this proposed HAC condition is
high-volume.
Response: We received similar
comments with regard to our proposal
to include SSI Following CIED
Procedures as a HAC candidate
condition. We similarly point out that
our proposal characterized this
condition as ‘‘high-cost and highvolume’’ and described analysis that
showed 4,467 cases and an average cost
of $39,128. Furthermore, as discussed
previously, section 1886(d)(4)(D) of the
Act specifies that a condition on the
HAC list may be high-volume or highcost or both. It does not require the
condition to be both and a condition
that was only high-cost would still meet
this statutory criterion.
Comment: Other commenters
‘‘recommended that CMS work with
CDC and other quality organizations to
identify more robust measures for
HAC[s] prior to implementing these two
proposed conditions, as their inclusion
is not currently endorsed by national
quality organizations.’’
Response: In establishing the HAC
payment policy under section
1886(d)(4)(D) of the Act, our experts
have worked closely with the public
health and infectious disease

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professionals from across the
Department of Health and Human
Services to identify the candidate
preventable HACs. New HAC proposals
are made in consultation with the CDC
to ensure the clinical soundness of the
proposal.
Comment: A few commenters stated
that ‘‘For many conditions on the HAC
list, occurrence rates cannot be reduced
to zero or near zero even when the
evidence-based guidelines are
followed.’’ In addition, one commenter
stated ‘‘We believe that effective
preventive measures make Iatrogenic
Pneumothorax reducible but not 100
percent preventable. However, the same
report states that these prevention
strategies may reduce the incidence but
not necessarily eliminate it. CMS should
recognize the reality that a target rate of
zero (‘‘never event’’) is perhaps not
attainable with this condition at this
time.’’
Response: We appreciate the
commenters’ response. We believe that,
although it may be difficult to reduce
the incidence of conditions on the HAC
list to zero, the incidence of conditions
can be significantly reduced in cases
where evidence-based guidelines for the
prevention of the condition exist and
are used. For Iatrogenic Pneumothorax
with Venous Catheterization, the use of
the improved newly published
evidence-based guidelines has shown
the complication rate can be markedly
reduced in the placement of the venous
catheter into the internal jugular vein.
Comment: A few commenters
expressed that the inclusion of the
Iatrogenic Pneumothorax with Venous
Catheterization condition may have
unintended and deleterious
consequences, which may lead
providers toward using alternative sites
for central line placement that are less
prone to pneumothorax, but carry
increased risk of mechanical and
infectious complications. They
indicated that alternative sites could be
the internal jugular or femoral veins.
Because of these consequences, these
commenters did not support the
addition of Iatrogenic Pneumothorax
with Venous Catheterization to the HAC
list.
Response: We believe the commenters
may have misunderstood our proposal.
The new HAC condition will apply to
a population of patients who have
iatrogenic pneumothorax as a
complication of central venous
placement of a catheter in the internal
jugular vein. We do not believe
hospitals will be led to consider
alternative, suboptimal sites for central
venous access because of this new
addition to the HAC list.

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Comment: Some commenters
expressed concerns regarding the use of
ultrasound in academic medical centers
and Level 1 Trauma Centers for venous
catheter placement versus the use of
ultrasound for venous catheter
placement in small community
hospitals. They stated that ‘‘there is
little to no data on how often ultrasound
guidance is used in small community
medical centers.’’ Furthermore, they
stated that ‘‘ultrasound guidance is less
commonly used in procedures involving
central venous access via the subclavian
vein, and is often impossible to use in
trauma cases.’’
Response: We believe that, in
applying evidence-based guidelines,
hospitals will have appropriately
trained hospital personnel. Also, we
point out that the lesser paying MS–
DRG is not assigned when additional
nonselected CC/MCCs appear on a
claim, and that trauma cases may likely
involve additional nonselected CC/
MCCs.
As we indicated in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27897),
with the exception of the condition of
Iatrogenic Pneumothorax with Venous
Catheterization, at this time, we do not
believe that additional analysis exists
that would require us to change our
previous determinations regarding the
previously considered candidate HACs
in the FY 2008 IPPS final rule with
comment period (72 FR 47200 through
47218), the FY 2009 IPPS final rule (73
FR 48471 through 48491), the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74
FR 43782 through 43785), and the FY
2012 IPPS/LTCH PPS final rule (76 FR
51510 through 51511). We refer readers
to these rules for a detailed discussion
that supports our determination
regarding each of the previously
considered candidate HACs and
continue to encourage public dialogue
about refinements to the HAC list.
After consideration of the public
comments we received, we are
finalizing our proposal to add Iatrogenic
Pneumothorax with Venous
Catheterization with the codes specified
above as a condition subject to the HAC
payment provision for discharges
occurring on or after October 1, 2012.
6. RTI Program Evaluation Summary
On September 30, 2009, a contract
was awarded to Research Triangle
Institute, International (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

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rates. This is an intra-agency project
with funding and technical support
coming from CMS, the Office of Public
Health and Science (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.
The evaluation includes conditions that
are currently treated as HACs and also
previously considered candidate
conditions. We refer readers to the FY
2011 IPPS/LTCH PPS final rule (75 FR
50085 through 50101) and the FY 2012
IPPS/LTCH PPS final rule (76 FR 51512
through 51522) for a fuller description
of this evaluation and findings to date
regarding analysis of FY 2009 and FY
2010 data, respectively. Summary and
detailed data were made publicly

available on the CMS Web site at:
http://www.cms.gov/HospitalAcqCond/
01_Overview.asp and the RTI Web site
at: http://www.rti.org/reports/cms/.
RTI’s analysis of the FY 2011
MedPAR data file for the HAC–POA
program evaluation is included as
follows in this FY 2013 IPPS/LTCH PPS
final rule. These summary and detailed
data are available on the CMS Web site
at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
HospitalAcqCond/HospitalAcquired_Conditions.html and the RTI
Web site at: http://www.rti.org/reports/
cms/.
a. RTI Analysis of FY 2011 POA
Indicator Reporting Across Medicare
Discharges
To better understand the impact of
HACs on the Medicare program, it is

necessary to first examine the incidence
of POA indicator reporting across all
eligible Medicare discharges. As
mentioned previously, only IPPS
hospitals are required to submit POA
indicator data for all diagnosis codes on
Medicare claims. Therefore, all nonIPPS hospitals were excluded, as well as
providers in waiver States (Maryland)
and territories other than Puerto Rico.
Using MedPAR claims data from
October 2010 through September 2011,
RTI found a total of approximately 89.3
million secondary diagnoses across
approximately 8.94 million discharges.
As shown in Chart A below, the
majority of all secondary diagnoses
(77.57 percent) were reported with a
POA indicator of ‘‘Y,’’ meaning the
condition was POA.

CHART A—POA CODE DISTRIBUTION ACROSS ALL SECONDARY DIAGNOSES
Number
Total Discharges in Final File

8,941,507

........................

89,252,194

100.00

........................
69,231,189
21,796
5,748,769
207,258
14,043,182

........................
77.57
0.02
6.44
0.23
15.73

Total Number of Secondary Diagnoses Across Total Discharges
POA
Y ..........
W .........
N .........
U .........
1 ..........

Indicator Description
Condition present on admission .............................................................................................................
Status cannot be clinically determined ..................................................................................................
Condition not present on admission ......................................................................................................
Documentation not adequate to determine if condition was present on admission ..............................
Exempted ICD–9–CM code ...................................................................................................................

Percentage

Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

b. RTI Analysis of FY 2011 POA
Indicator Reporting of Current HACs
Following the initial analysis of POA
indicator reporting for all secondary
diagnoses, RTI evaluated POA indicator
reporting for specific HAC-associated
secondary diagnoses. The term ‘‘HACassociated secondary diagnosis’’ refers
to those diagnoses that are on the
selected HAC list and were reported as
a secondary diagnosis. Chart B below
shows a summary of the HAC categories
with the frequency in which each HAC
was reported as a secondary diagnosis
and the corresponding POA indicators

assigned on the claims. It is important
to note that, because more than one
HAC-associated diagnosis code can be
reported per discharge (that is, on a
single claim), the frequency of HACassociated diagnosis codes may be more
than the actual number of discharges
that have a HAC-associated diagnosis
code reported as a secondary diagnosis.
Below we discuss the frequency of each
HAC-associated diagnosis code and the
POA indicators assigned to those
claims.
RTI analyzed the frequency of each
reported HAC-associated secondary
diagnosis (across all 8.94 million

discharges) and the POA indicator
assigned to the claim. Chart B below
shows that the most frequently reported
conditions were in the Falls and Trauma
HAC category, with a total of 181,157
HAC-associated diagnosis codes being
reported for that HAC category. Of these
181,157 diagnoses, 4,738 reported a
POA indicator of ‘‘N’’ for not POA and
175,831 diagnoses reported a POA
indicator of ‘‘Y’’ for POA. The lowest
frequency appears in the Blood
Incompatibility HAC category with only
22 HAC-associated secondary diagnosis
codes reported.

EMCDONALD on DSK67QTVN1PROD with RULES2

CHART B—POA STATUS OF CURRENT HACS: OCTOBER 2010 THROUGH SEPTEMBER 2011

Selected HAC

1. Foreign Object Retained
After Surgery (CC) ................
2. Air Embolism (MCC) ............
3. Blood Incompatibility (CC) ...
4. Pressure Ulcer Stages III &
IV (MCC) ..............................

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Frequency
as a
secondary
diagnosis

Not present on admission
POA = N
Number

Present on admission

POA = U

Percent

Number

POA = Y

Percent

Number

POA = W

Percent

Number

Percent

606
45
22

283
34
10

46.7
75.6
45.5

1
0
1

0.2
0.0
4.5

321
11
11

53.0
24.4
50.0

1
0
0

0.2
0.0
0.0

102,172

1,742

1.7

75

0.1

100,328

98.2

27

0.0

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53294

Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
CHART B—POA STATUS OF CURRENT HACS: OCTOBER 2010 THROUGH SEPTEMBER 2011—Continued

Selected HAC

5. Falls and Trauma (MCC &
CC) .......................................
6. Catheter-Associated UTI
(CC) ......................................
7. Vascular Catheter-Associated Infection (CC) ...............
8. Poor Glycemic Control
(MCC) ...................................
9A. Surgical Site Infection Mediastinitis CABG (CC) ...........
9B. Surgical Site Infection Following Certain Orthopedic
Procedures (CC) ..................
9C. Surgical Site Infection Following Bariatric Surgery for
Obesity (CC) .........................
10. Pulmonary Embolism &
DVT Orthopedic (MCC) ........
Total * ...............................

Frequency
as a
secondary
diagnosis

Not present on admission
POA = N
Number

Present on admission

POA = U

Percent

Number

POA = Y

Percent

Number

POA = W

Percent

Number

Percent

181,157

4,738

2.6

510

0.3

175,831

97.1

78

0.0

16,807

3,906

23.2

32

0.2

12,835

76.4

34

0.2

11,324

5,910

52.2

25

0.2

5,366

47.4

23

0.2

15,360

612

4.0

7

0.0

14,734

95.9

7

0.0

58

50

86.2

0

0.0

8

13.8

0

0.0

356

247

69.4

0

0.0

109

30.6

0

0.0

25

24

96.0

0

0.0

1

4.0

0

0.0

3,368

2,715

80.6

20

0.6

611

18.1

22

0.7

331,300

20,271

6.1

671

0.2

310,166

93.6

192

0.1

EMCDONALD on DSK67QTVN1PROD with RULES2

* More than one HAC-associated diagnosis code can be reported per discharge; therefore, frequency of HAC-associated diagnosis codes may
be more than the actual number of discharges that have a HAC-associated diagnosis code reported as a secondary diagnosis.

In the FY 2009 IPPS final rule (73 FR
48486 through 48487), we adopted as
final our proposal 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. We also discussed the
comments we received urging CMS to
strongly consider changing the policy
and to pay for those HACs assigned a
POA indicator of ‘‘U’’ (documentation is
insufficient to determine if the
condition was present at the time of
admission). We stated we would
monitor the extent to which and under
what circumstances the ‘‘U’’ POA
reporting option is used. In the FY 2010
IPPS/RY 2010 LTCH PPS final rule, we
also discussed and responded to
comments regarding HACs coded with
the ‘‘U’’ indicator (74 FR 43784 and
43785). As shown in Chart B above,
RTI’s analysis provides data on a total
of 671 HAC-associated secondary
diagnoses reported with a POA
indicator of ‘‘U.’’ Of those diagnoses,
510 (0.3 percent) were assigned to the
Falls and Trauma HAC category.
We continue to believe that better
documentation will result in more
accurate public health data. We did not
propose to change our policy under
which CMS does not pay at the higher
CC/MCC amount when a selected HAC
diagnosis code is reported with a POA
indicator of ‘‘U.’’
We encourage readers to further
review the RTI detailed report which

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demonstrates the frequency of each
individual HAC-associated diagnosis
code within the HAC categories. For
example, in the Foreign Object Retained
After Surgery HAC category, there are
two unique ICD–9–CM diagnosis codes
to identify that condition: Code 998.4
(Foreign body accidentally left during a
procedure) and code 998.7 (Acute
reaction to foreign substance
accidentally left during a procedure). In
the detailed RTI report, readers can
view that code 998.4 was reported 591
times and code 998.7 was reported 15
times, across all MS–DRGs, for a total of
606 times. The RTI detailed report is
available at the following Web site:
http://www.rti.org/reports/cms/.
c. RTI Analysis of FY 2011 Frequency
of Discharges and POA Indicator
Reporting for Current HACs
RTI further analyzed the effect of the
HAC provision by studying the
frequency in which a HAC-associated
diagnosis was reported as a secondary
diagnosis with a POA indicator of ‘‘N’’
or ‘‘U’’ and, of that number, how many
resulted in MS–DRG reassignment. In
Chart C below, Column A shows the
number of discharges for each HAC
category where the HAC-associated
diagnosis was reported as a secondary
diagnosis. For example, there were 45
discharges that reported Air Embolism
as a secondary diagnosis. Column C
shows the number of discharges for each
HAC reported with a POA indicator of
‘‘N’’ or ‘‘U.’’ Continuing with the

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example of Air Embolism, the chart
shows that, of the 45 reported
discharges, 34 discharges (75.56
percent) had a POA indicator of ‘‘N’’ or
‘‘U’’ and were identified as a HAC
discharge. There were a total of 34
discharges to which the HAC policy
applied and that could, therefore, have
had an MS–DRG reassignment. Column
E shows the number of discharges
where an actual MS–DRG reassignment
occurred. As shown in Column E, the
number of discharges with an Air
Embolism that resulted in actual MS–
DRG reassignments was 14 (41.18
percent of the 34 discharges with a POA
indicator of ‘‘N’’ or ‘‘U’’). Thus, while
there were 34 discharges (75.56 percent
of the original 45) with an Air Embolism
reported with a POA indicator of ‘‘N’’ or
‘‘U’’ identified as a HAC discharge that
could have caused MS–DRG
reassignment, the end result was 14
(41.18 percent) actual MS–DRG
reassignments. There are a number of
reasons why a selected HAC reported
with a POA indicator of ‘‘N’’ or ‘‘U’’ will
not result in MS–DRG reassignment.
These reasons were illustrated with the
diagram in section II.F.1. of the
preamble of this final rule and will be
discussed in further detail in section
II.F.3.e. of this preamble.
Chart C below also shows that, of the
287,993 discharges with a HACassociated diagnosis as a secondary
diagnosis, 3,006 discharges ultimately
resulted in MS–DRG reassignment. As
will be discussed below, there were 15

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
claims that resulted in MS–DRG
reassignment where 2 HACs were
reported on the same admission. The
four HAC categories that had the most
discharges resulting in MS–DRG
reassignment were: (1) Falls and
Trauma; (2) Pulmonary Embolism and
DVT Orthopedic (Orthopedic PE/DVT);
(3) Pressure Ulcer Stages III & IV; and (4)
Catheter-Associated Urinary Tract
Infection (CAUTI). Codes falling under
the Falls and Trauma HAC category
were the most frequently reported
secondary diagnoses with 143,920
discharges. Of these 143,920 discharges,
4,555 (3.16 percent) were coded as not
POA and identified as HAC discharges.
This category also contained the greatest
number of discharges that resulted in an
MS–DRG reassignment. Of the 4,555
discharges within this HAC category
that were not POA, 1,241 (27.24
percent) resulted in an MS–DRG
reassignment.
Of the 287,993 total discharges
reporting HAC-associated diagnoses as a
secondary diagnosis, 3,044 discharges
were coded with a secondary diagnosis
of Orthopedic PE/DVT. Of these 3,044
discharges, 2,473 (81.24 percent) were
coded as not POA and identified as
HAC discharges. This category
contained the second greatest number of
discharges resulting in an MS–DRG
reassignment. Of the 2,473 discharges in
this HAC category that were not POA,
1,082 discharges (43.75 percent)
resulted in an MS–DRG reassignment.
The Pressure Ulcer Stages III & IV
category had the second most frequently
coded secondary diagnoses, with 96,646
discharges. Of these discharges, 1,770
(1.83 percent) were coded as not POA
and identified as HAC discharges. This
category contained the third greatest
number of discharges resulting in an

MS–DRG reassignment. Of the 1,770
discharges in this HAC category that
were not POA, 286 discharges (16.16
percent) resulted in an MS–DRG
reassignment.
The Catheter-Associated UTI category
had the third most frequently coded
secondary diagnoses, with 16,807
discharges. Of these discharges, 3,918
(23.31 percent) were coded as not POA
and identified as HAC discharges. This
category contained the fourth greatest
number of discharges resulting in an
MS–DRG reassignment. Of the 3,918
discharges in this HAC category that
were not POA, 160 discharges (4.08
percent) resulted in an MS–DRG
reassignment.
The remaining 6 HAC categories only
had 237 discharges that ultimately
resulted in MS–DRG reassignment. We
note that, even in cases where a large
number of HAC-associated secondary
diagnoses were coded as not POA, this
finding did not necessarily translate into
a large number of discharges that
resulted in MS–DRG reassignment. For
example, only 20 of the 5,921 Vascular
Catheter-Associated Infection secondary
diagnoses that were coded as not POA
and identified as HAC discharges
resulted in an MS–DRG reassignment.
There were a total of 431 discharges
with a HAC-associated secondary
diagnosis reporting a POA indicator of
‘‘N’’ or ‘‘U’’ that were excluded from
acting as a HAC discharge (subject to
MS–DRG reassignment) due to the CC
Exclusion List logic within the
GROUPER. The CC Exclusion List
identifies secondary diagnosis codes
designated as a CC or an MCC that are
disregarded by the GROUPER logic
when reported with certain principal
diagnoses. For example, a claim with a
principal diagnosis code of 250.83

53295

(Diabetes with other specified
manifestations, type 1 [juvenile type],
uncontrolled) and a secondary diagnosis
code of 250.13 (Diabetes with
ketoacidosis, type 1, [juvenile type],
uncontrolled) with a POA indicator of
‘‘N’’ would result in the HAC-associated
secondary diagnosis code 250.13 being
ignored as a CC. According to the CC
Exclusion List, code 250.13 is excluded
from acting as a CC when code 250.83
is the principal diagnosis. As a result,
the HAC logic would not be applicable
to that case. For a detailed discussion on
the CC Exclusion List, we refer readers
to section II.G.9. of this preamble.
Discharges where the HAC logic was
not applicable due to the CC Exclusion
List occurred among the following 5
HAC categories: Pressure Ulcer Stages
III and IV (30 cases), Falls and Trauma
(303 cases), Catheter-Associated UTI (20
cases), Vascular Catheter-Associated
Infection (14 cases), and Manifestations
of Poor Glycemic Control (64 cases).
Further information regarding the
specific number of cases that were
excluded for each HAC-associated
secondary diagnosis code within each of
the above mentioned HAC categories is
also available. We refer readers to the
RTI detailed report at the following Web
site: http://www.rti.org/reports/cms/.
In summary, Chart C below
demonstrates that there were a total of
287,993 discharges with a reported
HAC-associated secondary diagnosis. Of
the total 287,993 discharges, 19,839
(6.54 percent) discharges were HACs
reported with a POA indicator of ‘‘N’’ or
‘‘U’’ that were identified as a HAC
discharge. Of these 19,839 discharges,
the number of discharges resulting in
MS–DRG reassignments was 3,006
(15.96 percent).

CHART C—DISCHARGE FREQUENCIES OF CURRENT CMS HACS OCTOBER 2010 THROUGH SEPTEMBER 2011
Discharges with this
condition as secondary
diagnosis

Selected HAC category

Number
(column A)

EMCDONALD on DSK67QTVN1PROD with RULES2

1.
2.
3.
4.
5.

Foreign Object Retained After Surgery .......................
Air Embolism ................................................................
Blood Incompatibility ....................................................
Pressure Ulcer Stages III & IV ....................................
Falls and Trauma .........................................................
a. Fracture ................................................................
b. Dislocation ............................................................
c. Intracranial Injury ..................................................
d. Crushing Injury .....................................................
e. Burn ......................................................................
f. Electric Shock ........................................................
Less: Discharges with multiple Falls & Trauma ..............
5. Falls & Trauma: Unduplicated Total ............................
6. Catheter-Associated UTI .............................................
7. Vascular Catheter-Associated Infection ......................

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606
45
22
96,646
147,684
128,065
1,014
15,478
55
2,147
925
3,764
143,920
16,807
11,324

Fmt 4701

Discharges Identified as a
HAC

Percent 2
(column B)
0.01
0.00
0.00
1.08
1.65
1.43
0.01
0.17
0.00
0.02
0.01
0.04
1.61
0.19
0.13

Sfmt 4700

Number
(column C)

Percent 3
(column D)

284
34
11
1,770
4,596
3,829
22
694
1
42
8
41
4,555
3,918
5,921

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46.86
75.56
50.00
1.83
3.11
2.99
2.17
4.48
1.82
1.96
0.86
1.09
3.16
23.31
52.29

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Discharges that change
MS–DRG due to HAC
Number
(column E)
37
14
1
286
1,259
996
2
258
0
3
0
18
1,241
160
20

Percent 4
(column F)
13.03
41.18
9.09
16.16
27.39
26.01
9.09
37.18
0.00
7.14
0.00
43.90
27.24
4.08
0.34

53296

Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

CHART C—DISCHARGE FREQUENCIES OF CURRENT CMS HACS OCTOBER 2010 THROUGH SEPTEMBER 2011—
Continued
Discharges with this
condition as secondary
diagnosis

Selected HAC category

Number
(column A)

Discharges Identified as a
HAC

Percent 2
(column B)

Number
(column C)

Percent 3
(column D)

Discharges that change
MS–DRG due to HAC
Number
(column E)

Percent 4
(column F)

8. Poor Glycemic Control .................................................
9a. SSI Mediastinitis CABG .............................................
9b. SSI Orthopedic ..........................................................
9c. SSI Bariatric ...............................................................
10. Pulmonary Embolism & DVT Orthopedic ..................

15,145
58
351
25
3,044

0.17
0.07
0.31
0.19
0.76

555
50
244
24
2,473

3.66
86.21
69.52
96.00
81.24

152
5
6
2
1,082

27.39
10.00
2.44
8.33
43.75

Total 1 .................................................................

287,993

3.22

19,839

6.54

3,006

15.96

1 Discharges

can appear in more than one row. The total figure is not adjusted for the 207 discharges with more than one HAC that appear as
secondary diagnoses (15 of these resulted in MS–DRG reassignment).
2 Percent computed relative to total discharges ‘‘at risk’’ for this HAC. For HACs 1–8, this is 8,941,507. For HAC 9a, this is 77,744. For HAC
9b, this is 112,951. For HAC 9c, this is 13,404. For HAC 10, this is 401,246.
3 Percent computed relative to discharges with condition as a secondary diagnosis.
4 Percent computed relative to discharges with this HAC (Column C).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

A small number of discharges had
multiple HAC categories reported
during the same stay. In reviewing the
8.94 million claims, RTI found 207
cases in which at least two different
HAC categories were reported on the
same discharge. Chart D below
summarizes these cases. The Vascular
Catheter-Associated Infection HAC
category had the highest number of
discharges involving another HAC
category with 126 total discharges. Of

these 126 discharges, 47 involved a code
from the Pressure Ulcer Stages III & IV
HAC category and 62 discharges
involved a code from the CatheterAssociated UTI HAC category.
Some of these cases with multiple
HACs reported had both HAC codes
ignored in the MS–DRG assignment. Of
these 207 claims, 15 did not receive
higher payments based on the presence
of these reported HACs and we describe
these claims below in section II.F.3.f.(2)

of this preamble. Depending on the MS–
DRG to which the cases were originally
assigned, ignoring the HAC codes would
have led to a MS–DRG reassignment if
there were no other MCCs or CCs
reported, if the MS–DRG was
subdivided into severity levels, and if
the case were not already in the lowest
severity level prior to ignoring the HAC
codes.

CHART D—CLAIMS WITH MORE THAN ONE HAC SECONDARY DIAGNOSIS OCTOBER 2010 THROUGH SEPTEMBER 2011
1. Foreign
object
retained
after
surgery
(CC)

HAC

EMCDONALD on DSK67QTVN1PROD with RULES2

3.
5.
6.
7.

4. Pressure
ulcer Stages
III & IV
(MCC)

5. Falls and
trauma
(MCC &
CC)

6. Catheterassociated
UTI
(CC)

7. Vascular
catheterassociated
infection
(CC)

8. Poor
glycemic
control
(MCC)

Total

Blood Incompatibility (CC) ...................
Falls and Trauma (MCC & CC) ...........
Catheter-Associated UTI (CC) .............
Vascular Catheter-Associated Infection
(CC) ......................................................
8. Poor Glycemic Control (MCC) .............
9A. Surgical Site Infection Mediastinities
CABG (CC) ...........................................
9B. Surgical Site Infection Following Certain Orthopedic Procedures (CC) .........
10. Pulmonary Embolism & DVT Orthopedic (MCC) .........................................

....................
....................
1

1
8
17

....................
....................
8

....................
....................
....................

....................
....................
....................

....................
....................
....................

1
8
26

2
1

47
2

15
1

62
4

....................
5

....................
....................

126
13

....................

1

1

....................

3

....................

5

....................

1

....................

3

2

....................

6

....................

....................

10

7

....................

1

18

Total Discharges with 2 HACs * ..............

4

77

35

76

10

1

203

*In total, there were 207 discharges with more than one HAC secondary diagnosis. However, there were 4 discharges involving 3 HAC secondary diagnoses. These discharges included the following HAC secondary diagnoses:
Discharge 1: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter-Associated Infection
(CC);
Discharge 2: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter Associated Infection
(CC);
Discharge 3: Pressure Ulcer Stages III & IV (MCC & CC), Catheter-Associated Infection (CC), and Vascular Catheter Associated Infection
(CC);
Discharge 4: Catheter-Associated Infection (CC), Vascular Catheter Associated Infection (CC), and Poor Glycemic Control (MCC).

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

EMCDONALD on DSK67QTVN1PROD with RULES2

d. RTI Analysis of Circumstances When
Application of HAC Provisions Would
Not Result in MS–DRG Reassignment
for Current HACs
As discussed in section II.F.1. and
illustrated in the diagram in section
II.F.1. of this preamble, there are
instances when the MS–DRG
assignment does not change even when
a HAC-associated secondary diagnosis
has a POA indicator of either ‘‘N’’ or
‘‘U.’’ In analyzing our claims data, RTI
identified four main reasons why an
MS–DRG assignment would not change
despite the presence of a HAC. Those
four reasons are described below and
are shown in Chart E below. Column A
shows the frequency of discharges that
included a HAC-associated secondary
diagnosis. Column B shows the
frequency of discharges where the HACassociated secondary diagnosis was
coded as not POA and identified as a
HAC discharge. Column C shows the
frequency of discharges in which the
HAC-associated secondary diagnosis
coded as not POA resulted in a change
in MS–DRG. Columns D, E, F, and G
show the frequency of discharges in
which the HAC-associated secondary
diagnosis coded as not POA did not
result in a change in MS–DRG
assignment. Columns D, E, F, and G are
explained in more detail below.
(1) Other MCCs/CCs Prevent
Reassignment
Column D (Other MCC/CCs that
Prevent Reassignment) in Chart E below
indicates the number of cases reporting
a HAC-associated secondary diagnosis
code that did not have an MS–DRG
reassignment because of the presence of
other secondary diagnoses on the MCC
or CC list. A claim that is coded with
a HAC-associated secondary diagnosis
and a POA status of either ‘‘N’’ or ‘‘U’’
may have other secondary diagnoses
that are classified as an MCC or a CC.
In such cases, the presence of these
other MCC and CC diagnoses will still
lead to the assignment of a higher
severity level, despite the fact that the
GROUPER software is disregarding the
ICD–9–CM code that identifies the
selected HAC in making the MS–DRG
assignment for that claim. For example,
there were 175 cases in which the ICD–
9–CM codes for the Foreign Object
Retained After Surgery HAC category
were present, but the presence of other
secondary diagnoses that were MCCs or
CCs resulted in no change to the MS–
DRG assignment. Chart E shows that a
total of 12,335 cases did not have a
change in the MS–DRG assignment
because of the presence of other
reported MCCs and CCs.

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(2) Two Severity Levels Where HAC
Does Not Impact MS–DRG Assignment
Column E (Number of MS–DRGs with
Two Severity Levels Where HAC Does
Not Impact MS–DRG Assignment)
shows the frequency with which
discharges with a HAC as a secondary
diagnosis coded as not POA did not
result in an MS–DRG change because
the MS–DRG is subdivided solely by the
presence or absence of an MCC. A claim
with a HAC and a POA indicator of
either ‘‘N’’ or ‘‘U’’ may be assigned to
an MS–DRG that is subdivided solely by
the presence or absence of an MCC. In
such cases, removing a HAC ICD–9–CM
CC code will not lead to further changes
in the MS–DRG assignment. Examples
of these MS–DRG subdivisions are
shown in the footnotes to the chart and
include the following examples:
• MS–DRGs 100 and 101 (Seizures
with or without MCC, respectively); and
• MS–DRGs 102 and 103 (Headaches
with or without MCC, respectively).
The codes that fall under the HAC
category of Foreign Object Retained
After Surgery are CCs. If this case were
assigned to an MS–DRG with an MCC
subdivision such as MS–DRGs 100 and
101, the presence of the HAC code
would not affect the MS–DRG severity
level assignment. In other words, if the
Foreign Object Retained After Surgery
code was the only secondary diagnosis
reported, the case would be assigned to
MS–DRG 101. If the POA indicator was
‘‘N,’’ the HAC Foreign Object Retained
After Surgery code would be ignored in
the MS–DRG assignment logic. Despite
the fact that the code was ignored, the
case would still be assigned to the same
lower severity level MS–DRG.
Therefore, there would be no impact on
the MS–DRG assignment.
Column E in Chart E below shows
that there were 1,922 cases where the
HAC code was ‘‘N’’ or ‘‘U’’ and the MS–
DRG assignment did not change because
the case was already assigned to the
lowest severity level.
(3) No Severity Levels
Column F (Number of MS–DRGs with
No Severity Levels) shows the frequency
with which discharges with a HAC as a
secondary diagnosis coded as not POA
did not result in an MS–DRG change
because the MS–DRG is not subdivided
by severity levels. A claim with a HAC
and a POA of ‘‘N’’ or ‘‘U’’ may be
assigned to an MS–DRG with no
severity levels. For instance, MS–DRG
311 (Angina Pectoris) has no severity
level subdivisions; this MS–DRG is not
split based on the presence of an MCC
or a CC. If a patient assigned to this MS–
DRG develops a secondary diagnosis

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53297

such as a Stage III pressure ulcer after
admission, the condition would be
considered to be a HAC. The code for
the Stage III pressure ulcer would be
ignored in the MS–DRG assignment
because the condition developed after
the admission (the POA indicator was
‘‘N’’). Despite the fact that the ICD–9–
CM code for the HAC Stage III pressure
ulcer was ignored, the MS–DRG
assignment would not change. The case
would still be assigned to MS–DRG 311.
Chart E below shows that 2,570 cases
reporting a HAC-associated secondary
diagnosis did not undergo a change in
the MS–DRG assignment based on the
fact that the case was assigned to an
MS–DRG that had no severity
subdivisions (that is, the MS–DRG is not
subdivided based on the presence or
absence of an MCC or a CC, rendering
the presence of the HAC irrelevant for
payment purposes).
(4) MS–DRG Logic
Column G (MS–DRG Logic Issues)
shows the frequency with which a HAC
as a secondary diagnosis coded as not
POA did not result in an MS–DRG
change because of MS–DRG assignment
logic. There were six discharges where
the HAC criteria were met and the HAC
logic was applied, however, due to the
structure of the MS–DRG logic, these
cases did not result in MS–DRG
reassignment. These cases may appear
similar to those discharges where the
MS–DRG is subdivided into two
severity levels by the presence or
absence of an MCC and did not result
in MS–DRG reassignment; however,
these discharges differ slightly in that
the MS–DRG logic also considers
specific procedures that were reported
on the claim. In other words, for certain
MS–DRGs, a procedure may be
considered the equivalent of an MCC or
CC. The presence of the procedure code
dictates the MS–DRG assignment
despite the presence of the HACassociated secondary diagnosis code
with a POA indicator of ‘‘N’’ or ‘‘U.’’
For example, a claim with a principal
diagnosis code of 724.02 (Spinal
stenosis, lumbar region, without
neurogenic claudication) with a HACassociated secondary diagnosis code of
996.64 (Infection and inflammatory
reaction due to indwelling urinary
catheter) and diagnosis code 599.0
(Urinary tract infection, site not
specified), having POA indicators of
‘‘Y,’’ ‘‘N,’’ and ‘‘N,’’ respectively, and
procedure code 84.80 (Insertion or
replacement of interspinous process
device(s)) results in an assignment to
MS–DRG 490 (Back and Neck
Procedures Except Spinal Fusion with
CC/MCC or Disc Device/

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Neurostimulator). In this case, the disc
device (code 84.80) is what dictated the
MS–DRG assignment and the presence
of the HAC-associated secondary
diagnosis code, 996.64, did not affect
the MS–DRG assigned. Other examples
of MS–DRGs that are subdivided in this
same manner are as follows:
• MS–DRG 029 (Spinal procedures
with CC or Spinal Neurostimulators);
• MS–DRG 129 (Major Head & Neck
Procedures with CC/MCC or Major
Device); and

• MS–DRG 246 (Percutaneous
Cardiovascular Procedure with DrugEluting Stent with MCC or 4+ Vessels/
Stents).
Column G in the chart below shows
that three of the six cases that did not
result in MS–DRG reassignment due to
the MS–DRG logic were in the CatheterAssociated UTI HAC category, two cases
were in the Falls and Trauma HAC
Category, and one case was in the
Vascular Catheter-Associated Infection
HAC Category.

In conclusion, a total of 16,833 cases
(12,335 + 1,922 +2,570 + 6) did not have
a change in MS–DRG assignment,
regardless of the presence of a HAC. The
reasons described above explain why
only 3,006 cases had a change in MS–
DRG assignment despite the fact that
there were 19,839 HAC cases with a
POA of ‘‘N’’ or ‘‘U.’’

CHART E—REASONS HAC DID NOT CHANGE MS–DRG ASSIGNMENT
[October 2010 through September 2011]
HAC discharges that do not change MS–DRG

Selected HAC category

Number of
discharges
with this
condition as
secondary
diagnosis

Number of
discharges
identified as a
HAC

Number of
HAC
discharges
that change
MS–DRG due
to HAC

(Column A)

(Column B)

(Column C)

EMCDONALD on DSK67QTVN1PROD with RULES2

1. Foreign Object Retained After Surgery—CC ..................
2. Air Embolism—MCC
3. Blood Incompatibility—CC ..................
4. Pressure Ulcer
Stages III & IV—
MCC .........................
5. Falls and Trauma—
MCC & CC ...............
6. Catheter-Associated
UTI-CC .....................
7. Vascular CatheterAssociated Infection—CC ...................
8. Poor Glycemic Control—MCC & CC .......
9A. Surgical Site Infection, Mediastinitis,
Following Coronary
Artery Bypass Graft
(CABG)—MCC .........
9B. Surgical Site Infection Following Certain
Orthopedic Procedures—CC ................
9C. Surgical Site Infection Following
Bariatric Surgery for
Obesity—CC .............
10. Pulmonary Embolism & DVT Orthopedic—MCC & CC ...
Total1 ....................

Number of
other MCCs/
CCs
that prevent
reassignment

Number of
MS–DRGs
with two
severity levels
where HAC
does not
impact
MS–DRG
Assignment*

Number of
MS–DRGs
with No
Severity
Levels

Other
MS–DRG
logic issues **

(Column D)

(Column E)

(Column F)

(Column G)

606
45

284
34

37
14

175
17

56
0

16
3

0
0

22

11

1

7

1

2

0

96,646

1,770

286

991

0

493

0

143,920

4,555

1,241

2,449

488

375

2

16,807

3,918

160

2,952

424

379

3

11,324

5,921

20

4,551

158

1,191

1

15,145

555

152

358

0

45

0

58

50

5

28

0

17

0

351

244

6

155

67

16

0

25

24

2

19

0

3

0

3,044

2,473

1,082

633

728

30

0

287,993

19,839

3,006

12,335

1,922

2,570

6

1

Discharges can appear in more than one row. The total figure is not adjusted for the 207 discharges with more than one HAC that appear as
secondary diagnoses (15 of these resulted in MS–DRG reassignment).
*Examples where an HAC classified as a CC would not impact the DRG assignment if it were removed. The MS–DRG is subdivided by the
presence or absence of an MCC. A CC would not impact this DRG assignment.
MS–DRGs 100 and 101 (Seizures with or without MCC, respectively).
MS–DRGs 102 and 103 (Headaches with or without MCC, respectively).
**Cases where HAC did not change MS–DRG assignment because of the MS–DRG logic.
MS–DRG 029 (Spinal Procedures with CC or Spinal Neurostimulators).
MS–DRG 129 (Major Head & Neck Procedures with CC/MCC or Major Device).

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53299

Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

e. RTI Analysis of Coding Changes for
HAC–Associated Secondary Diagnoses
for Current HACs
In addition to studying claims from
October 2010 through September 2011
(FY 2011), RTI evaluated claims data
from 4 years prior to determine if there
were significant changes in the number
of discharges with a HAC being reported
as a secondary diagnosis. RTI examined
claims from FY 2007 through FY 2010
and compared these data to the FY 2011
data.
We refer readers to the RTI detailed
report for all the conditions in each
fiscal year (FY 2007 through FY 2011)
as described above at the following Web
site: http://www.rti.org/reports/cms/.

EMCDONALD on DSK67QTVN1PROD with RULES2

f. RTI Analysis of Estimated Net Savings
for Current HACs
RTI determined estimates of the net
savings generated by the HAC payment
policy based on MedPAR claims from
October 2010 through September 2011.
(1) Net Savings Estimation Methodology
The payment impact of a HAC is the
difference between the IPPS payment
amount under the initially assigned
MS–DRG and the amount under the
reassigned MS–DRG. The amount for
the reassigned MS–DRG appears on the
MedPAR files. To construct this, RTI
modeled the IPPS payments for each
MS–DRG following the same approach
that we use to model the impact of IPPS
annual rule changes. Specifically, RTI
replicated the payment computations
carried out in the IPPS PRICER program
using payment factors for IPPS
providers as identified in various CMS
downloaded files. The files used are as
follows:
• Version 28 of the Medicare Severity
GROUPER software (applicable to
discharges between October 1, 2010 and
September 30, 2011). IPPS MedPAR
claims were run through this file to
obtain needed HAC–POA output
variables.
• The FY 2011 MS–DRG payment
weight file. This file includes the
weights, geometric mean length of stay
(GLOS), and the postacute transfer
payment indicators.
• CMS standardized operating and
capital rates. Tables 1A through 1C, as
downloaded from the Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Acute-InpatientFiles-for-Download-Items/
CMS1255464.html, include the full
update and reduced update amounts, as
well as the information needed to

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compute the blended amount for
providers located in Puerto Rico.
• The IPPS impact files for FY 2011,
also as downloaded from the Web site
at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Acute-InpatientFiles-for-Download-Items/
CMS1255464.html. This file includes
the wage index and geographic
adjustment factors in effect at the start
of FY 2011, plus the provider type
variable to identify providers qualifying
for alternative hospital-specific amounts
and their respective hospital-specific
rates.
• The IPPS impact files for FY 2012,
as downloaded from the Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Acute-InpatientFiles-for-Download-Items/
CMS1255464.html. This file is created
for a subsequent payment year, but the
file includes IME and DSH percent
adjustments that were in effect as of
March 2011. For providers that did not
appear in the FY 2012 file, we defaulted
to the IME and DSH rates from the FY
2011 file.
• CMS historical provider-specific
files (PSF). This includes the indicator
to identify providers subject to the full
or reduced standardized rates and the
applicable operating and capital CCRs.
A SAS version was downloaded from
the Web site at: http://
www.cms.hhs.gov/
ProspMedicareFeeSvcPmtGen/
04_psf_SAS.asp.
There were three providers with
discharges in the final HAC analysis file
that did not appear in either of the
impact files. For these providers, we
identified the geographic CBSA from the
historical PSF and assigned the wage
index using values from Tables 4A and
4C as downloaded from the Web site at:
http://www.cms.hhs.gov/
AcuteInpatientPPS/IPPS2009/List.asp.
These three providers were not eligible
for IME or DSH adjustments.
The steps for estimating the HAC
payment impact are as follows:
Step 1: Re-run the Medicare Severity
GROUPER on all records in the analysis
file. This is needed to obtain
information on actual HAC-related MS–
DRG reassignments in the file, and to
identify the CCs and MCCs that
contribute to each MS–DRG assignment.
Step 2: Model the base payment and
outlier amounts associated with the
initial MS–DRG (including all
secondary diagnoses in the file) using
the computations laid out in the CMS

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file ‘‘Outlier Example FY 2007 new.xls,’’
as downloaded from the Web site at:
http://www.cms.hhs.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/
index.html?redirect=/04_outlier/
ASP#TopOfPage, and modified to
accommodate FY 2011 factors. RTI’s
first round of computations treated all
claims as though paid under standard
IPPS rules without adjusting for shortstay transfers or HSP amounts.
Step 3: Model the base payment and
outlier amounts associated with the
final MS–DRG (excluding the HACrelated secondary diagnoses) using the
computations laid out in the CMS file
‘‘Outlier Example FY 2007 new.xls,’’ as
downloaded from the Web site at:
http://www.cms.hhs.gov/Medicare/
Medicare-Fee-for-Payment/
AcuteInpatientPPS/
index.html?redirect=/
04_outlier.asp#TopOfPage and modified
to accommodate FY 2011 factors. RTI’s
first round of computations treated all
claims as though paid under standard
IPPS rules without adjusting for shortstay transfers or hospital-specific
amounts.
Step 4: Compute MS–DRG base
savings as the difference between the
nonoutlier payments for the initial and
final MS–DRGs. Compute outlier
amounts as the difference in outlier
amounts due under the initial and final
reassigned MS–DRG. Compute net
savings due to HAC reassignment as the
sum of base savings plus outlier
amounts.
Step 5: Adjust the model to
incorporate short-stay transfer payment
adjustments.
Step 6: Adjust the model to
incorporate hospital-specific payments
for qualifying rural providers receiving
the hospital-specific payment rates.
It is important to mention that using
the methods described above, the MS–
DRG and outlier payment amounts that
are modeled for the final assigned MS–
DRG do not always match the DRG price
and outlier amounts that appear in the
MedPAR record. There are several
reasons for this. Some discrepancies are
caused by using single wage index, IME
and DSH factors for the full period
covered by the discharges, when in
practice these payment factors can be
adjusted for individual providers during
the course of the fiscal year. In addition,
RTI’s approach disregards any Part A
coinsurance amounts owed by
individual beneficiaries with greater
than sixty covered days in a spell of
illness. Ten percent of all FY 2011 HAC

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discharges showed at least some Part A
coinsurance amount due from the
beneficiary, although less than 2 percent
of reassigned discharges (43 cases in the
analysis file) showed Part A coinsurance
amounts due. Any Part A coinsurance
payments would reduce the actual
savings incurred by the Medicare
program.
There are also a number of less
common special IPPS payment
situations that are not factored into
RTI’s modeling. These could include
new technology add-on payments,
payments for blood clotting factors,

reductions for replacement medical
devices, adjustments to the capital rate
for new providers, and adjustments to
the capital rate for certain classes of
providers who are subject to a minimum
payment level relative to capital cost.
(2) Net Savings Estimate
Chart F below summarizes the
estimated net savings of current HACs
based on MedPAR claims from October
2010 through September 2011, based on
the methodology described above.
Column A shows the number of
discharges where an MS–DRG
reassignment for each HAC category

occurred. For example, there were 14
discharges with an Air Embolism that
resulted in an actual MS–DRG
reassignment. Column B shows the total
net savings caused by MS–DRG
reassignments for each HAC category.
Continuing with the example of Air
Embolism, the chart shows that the 14
discharges with an MS–DRG
reassignment resulted in a total net
savings of $124,620. Column C shows
the net savings per discharge for each
HAC category. For the Air Embolism
HAC category, the net savings per
discharge is $8,901.

CHART F—ESTIMATED NET SAVINGS OF CURRENT HACS
[October 2010 Through September 2011]

Selected HAC

Number of
discharges that
change
MS–DRG due to
HAC

Net savings
(in dollars)

Net savings
per discharge
(in dollars)

(Column A)

(Column B)

(Column C)

1.
2.
3.
4.
5.

Foreign Object Retained After Surgery .......................................................................
Air Embolism ...............................................................................................................
Blood Incompatibility ....................................................................................................
Pressure Ulcer Stages III & IV ....................................................................................
Falls and Trauma:
a. Fracture ................................................................................................................
b. Dislocation ............................................................................................................
c. Intracranial Injury ..................................................................................................
d. Crushing Injury .....................................................................................................
e. Burn ......................................................................................................................
f. Other injuries .........................................................................................................
Less: Discharges with multiple Falls & Trauma .......................................................
5. Falls & Trauma: Unduplicated Total ............................................................................
6. Catheter-Associated UTI .............................................................................................
7. Vascular Catheter-Associated Infection ......................................................................
8. Poor Glycemic Control ................................................................................................
9a. SSI Mediastinitis CABG .............................................................................................
9b. SSI Orthopedic ..........................................................................................................
9c. SSI Bariatric ...............................................................................................................
10. Pulmonary Embolism & DVT Orthopedic ..................................................................

37
14
1
286

$167,818
124,620
7,115
1,846,449

$4,536
8,901
0
6,456

996
2
258
0
3
0
¥18
1,241
160
20
152
5
6
2
1,082

6,232,020
9,075
1,222,290
0
4,583
0
¥105,430
7,362,538
491,053
92,100
1,002,378
60,438
41,503
3,312
8,313,098

6,257
4,538
4,738
0
1,528
0
¥5,857
5,933
3,069
4,605
6,595
12,088
6,917
0
7,683

Total 1 ........................................................................................................................
Less: Discharges with Multiple HACs 2 .............................................................

3,006
¥15

19,512,422
¥136,645

6,491
¥9,110

Unduplicated Total .....................................................................................

2,991

19,375,777

6,478

1 Discharges

can have more than one Falls and Trauma subcategory HAC and therefore appear in more than one row.
net savings is adjusted by $136,645 for 15 claims that have multiple HACs.
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.

EMCDONALD on DSK67QTVN1PROD with RULES2

2 Total

As shown in Chart F above, the total
net savings calculated for October 2010
through September 2011 was roughly
$19.4 million. The three HACs with the
largest number of discharges resulting in
MS–DRG reassignment, Falls and
Trauma, Orthopedic PE/DVT, and
Pressure Ulcer Stages III & IV, generated
$17.5 million of net savings for the
fiscal year. Estimated net savings for FY
2011 associated with the Falls and
Trauma category were $7.4 million.
Estimated net savings associated with
Orthopedic PE/DVT for the fiscal year

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were $8.3 million and for Pressure Ulcer
Stages III & IV were $1.85 million.
The mean net savings per discharge
calculated for October 2010 through
September 2011 was roughly $6,478.
The HAC category of SSI, Mediastinitis,
Following Coronary Artery Bypass Graft
(CABG) had the highest net savings per
discharge, but represented a small
proportion of total net savings because
the number of discharges that resulted
in MS–DRG reassignment for this HAC
was low. The HAC categories of Blood
Incompatibility, where only one

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discharge resulted in MS–DRG
reassignment, and SSI Following
Bariatric Surgery for Obesity, where
only two discharges resulted in MS–
DRG reassignment had the lowest net
savings per discharge. We refer readers
to the RTI detailed report available at
the following Web site: http://
www.rti.org/reports/cms/.
As we discuss in section II.F.1. of this
preamble, implementation of this policy
is part of an array of Medicare VBP tools
that we are using to promote increased
quality and efficiency of care. We point

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
out that a decrease over time in the
number of discharges where these
conditions are not POA is a desired
consequence. We recognize that
estimated net savings would likely
decline as the number of such
discharges decline. However, we believe
that the sentinel effect resulting from
CMS identifying these conditions is
critical. It is our intention to continue to
monitor trends associated with the

II.F.3.g.(2) of this preamble. Of these 207
claims, 15 resulted in MS–DRG
reassignment. Chart G below
summarizes these cases. There were 15
cases that had two HACs not POA that
resulted in an MS–DRG reassignment.
Of these, seven discharges involved
Orthopedic PE/DVT, while four
discharges involved the Pressure Ulcer
Stages III & IV and Falls and Trauma
HAC categories.

frequency of these HACs and the
estimated net payment impact through
RTI’s program evaluation and possibly
beyond.
As mentioned previously, a small
number of cases analyzed by RTI for FY
2011 had multiple HACs during the
same stay. In reviewing our 8.94 million
claims, RTI found 207 cases where at
least two HACs were reported on the
same admission as noted in section

CHART G—CLAIMS WITH MORE THAN ONE HAC SECONDARY DIAGNOSIS WHERE MS–DRG REASSIGNMENT OCCURRED
[October 2010 Through September 2011]
4. Pressure
ulcer stages III
& IV—MCC

5. Falls and
trauma—MCC
& CC

10. Pulmonary
embolism &
DVT
orthopedic
(MCC)

Falls and Trauma—MCC & CC ...................................................................
Catheter-Associated Urinary Tract Infection (UTI)—CC .............................
Vascular Catheter-Associated Infection—CC ..............................................
Poor Glycemic Control (MCC) .....................................................................

1
2
1
........................

........................
3
1
........................

3
3
........................
1

4
8
2
1

Total ..........................................................................................................

4

4

7

15

Selected HAC

5.
6.
7.
8.

g. Previously Considered Candidate
HACs—RTI Analysis of Frequency of
Discharges and POA Indicator Reporting
RTI evaluated the frequency of
conditions previously considered, but
not adopted as HACs in prior
rulemaking, that were reported as
secondary diagnoses (across all 8.94
million discharges) as well as the POA
indicator assignments for these
conditions. Chart H below indicates that
the three previously considered
candidate conditions most frequently
reported as a secondary diagnosis were:
(1) Clostridium Difficile-Associated
Disease (CDAD), which demonstrated

the highest frequency, with a total of
90,347 secondary diagnoses codes being
reported for that condition, of which
30,176 reported a POA indicator of ‘‘N’’;
(2) Methicillin Resistant Staphylococcus
aureus, with a total of 83,976 secondary
diagnosis codes being reported for that
condition, with 3,498 of those reporting
a POA indicator of ‘‘N’’; and (3)
Iatrogenic Pneumothorax, with a total of
20,309 secondary diagnoses codes being
reported for that condition, with 17,828
of those reporting a POA indicator of
‘‘N.’’ As these three conditions had the
most significant impact for reporting a
POA indicator of ‘‘N,’’ it is reasonable
to believe that these same three

Total

conditions would have the greatest
number of potential MS–DRG
reassignments. The frequency of
discharges for the previously considered
HACs that could lead to potential
changes in MS–DRG assignment is
discussed in the next section. We take
this opportunity to remind readers that,
because more than one previously
considered HAC diagnosis code can be
reported per discharge (on a single
claim), the frequency of these diagnosis
codes may be more than the actual
number of discharges with a previously
considered candidate condition
reported as a secondary diagnosis.

CHART H—POA STATUS OF PREVIOUSLY CONSIDERED ‘‘CANDIDATE’’ HAC CONDITIONS—OCTOBER 2010 THROUGH
SEPTEMBER 2011

EMCDONALD on DSK67QTVN1PROD with RULES2

Previously considered HAC
condition

1. Clostridium Difficile-Associated Disease (CDAD) ...........
2. Delirium ................................
3. Legionnaire’s Disease .........
4. Staphylococcus aureus Septicemia ..................................
5. Methicillin-Resistant Staphylococcus aureus ...................
6. Iatrogenic Pneumothorax .....
7. Ventilator-Associated Pneumonia ....................................

Frequency
as a
secondary
diagnosis

15:02 Aug 30, 2012

POA = N
Number

Present on admission

POA = U

Percent

Number

POA = Y

Percent

Number

POA = W

Percent

Number

Percent

90,347
752
520

30,176
246
29

33.40
32.71
5.58

354
2
3

0.39
0.27
0.58

59,700
504
488

66.08
67.02
93.85

117
0
0

0.13
0.00
0.00

18,844

4,043

21.46

37

0.20

14,736

78.20

28

0.15

83,976
20,309

3,498
17,828

4.17
87.78

173
5

0.21
0.02

80,280
1,476

95.60
7.27

25
0

0.03
0.00

4,715

3,634

77.07

4

0.08

1,074

22.78

3

0.06

In Chart I below, Column A shows the
number of discharges for each

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previously considered candidate HAC
category when the condition was

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reported as a secondary diagnosis. For
example, there were 90,347 discharges

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that reported CDAD as a secondary
diagnosis. Previously considered
candidate HACs reported with a POA
indicator of ‘‘N’’ or ‘‘U’’ may cause MS–
DRG reassignment (which would result
in reduced payment to the facility).
Column C shows the discharges for each
previously considered candidate HAC
reported with a POA indicator of ‘‘N’’ or
‘‘U.’’ Continuing with the example of
CDAD, Chart I shows that, of the 90,347
discharges, 30,530 discharges (33.79
percent) had a POA indicator of ‘‘N’’ or
‘‘U.’’ Therefore, there were a total of
30,530 discharges that could potentially

have had an MS–DRG reassignment.
Column E shows the number of
discharges where an actual MS–DRG
reassignment could have occurred; the
number of discharges with CDAD that
could have resulted in actual MS–DRG
reassignments is 784 (2.57 percent).
Thus, while there were 30,530
discharges with CDAD reported with a
POA indicator of ‘‘N’’ or ‘‘U’’ that could
potentially have had an MS–DRG
reassignment, the result was 784 (2.57
percent) potential MS–DRG
reassignments. As discussed above,
there are a number of reasons why a

condition reported with a POA indicator
of ‘‘N’’ or ‘‘U’’ would not result in an
MS–DRG reassignment.
In summary, Chart I below
demonstrates there were a total of
219,397 discharges with a previously
considered candidate HAC reported as a
secondary diagnosis. Of those, 60,025
discharges were reported with a POA
indicator of ‘‘N’’ or ‘‘U.’’ The total
number of discharges that could have
resulted in MS–DRG reassignments is
3,544.

CHART I—PREVIOUSLY CONSIDERED ‘‘CANDIDATE’’ HAC DISCHARGE FREQUENCIES—OCTOBER 2010 THROUGH
SEPTEMBER 2011
Discharges with this
condition not present on
admission
(POA = ‘‘N’’ or ‘‘U’’) 3

Discharges with this
condition as secondary
diagnosis 2
Previously considered HAC condition

1.
2.
3.
4.
5.
6.
7.

Cases that could change
MS–DRG due to
previously considered
candidate HAC 4

Number
(Column A)

Percent
(Column B)

Number
(Column C)

Percent
(Column D)

Number
(Column E)

Percent
(Column F)

Clostridium Difficile-Associated Disease (CDAD) .......
Delirium ........................................................................
Legionnaire’s Disease .................................................
Staphylococcus aureus Septicemia .............................
Methicillin-Resistant Staphylococcus aureus (MRSA)
Iatrogenic Pneumothorax .............................................
Ventilator-Associated Pneumonia ................................

90,347
752
520
18,806
83,948
20,309
4,715

1.01
0.01
0.01
0.21
0.94
0.23
0.05

30,530
248
32
4,073
3,671
17,833
3,638

33.79
32.98
6.15
21.66
4.37
87.81
77.16

784
18
3
84
1
2,652
2

2.57
7.26
9.38
2.06
0.03
14.87
0.05

Total 1 ........................................................................

219,397

2.45

60,025

27.36

3,544

5.90

1 Discharges

can appear in more than one row.
computed relative to total cases ‘‘at risk,’’ which is 8,941,507 for all candidate conditions.
computed relative to discharges with condition as a secondary diagnosis.
4 Percent computed relative to discharges with condition as a secondary diagnosis and identified as a previously considered HAC (that is,
coded as not present on admission).
Source: RTI Analysis of MedPAR IPPS Claims, October 2010 through September 2011.
2 Percent
3 Percent

EMCDONALD on DSK67QTVN1PROD with RULES2

h. Current and Previously Considered
Candidate HACs—RTI Report on
Evidence-Based Guidelines
The RTI program evaluation includes
a report that provides references for all
evidence-based guidelines available for
each of the selected and previously
considered candidate HACs that provide
recommendations for the prevention of
the corresponding conditions.
Guidelines were primarily identified
using the AHRQ National Guidelines
Clearing House (NGCH) and the CDC,
along with relevant professional
societies. Guidelines published in the
United States were used, if available. In
the absence of U.S. guidelines for a
specific condition, international
guidelines were included.
Evidence-based guidelines that
included specific recommendations for
the prevention of the condition were
identified for each of the 10 selected
conditions. In addition, evidence-based
guidelines were also found for the
previously considered candidate
conditions.

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RTI prepared a final report to
summarize its findings regarding
evidence-based guidelines, which can
be found on the Web site at: http://
www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/HospitalAcqCond/
Hospital-Acquired_Conditions.html.
i. Proposals Regarding Current HACs
and Previously Considered Candidate
HACs
We believe that the RTI analysis
summarized above does not provide
additional information that would
require us to change our previous
determinations regarding current HACs.
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 48491)
for detailed discussion supporting our
determination regarding each of these
conditions.
In the FY 2013 IPPS/LTCH PPS
proposed rule, we discussed our
rationale for proposing two new
conditions, Surgical Site Infection (SSI)

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Following Cardiac Implantable
Electronic Device (CIED) procedures (77
FR 27894 through 27896), and
Iatrogenic Pneumothorax with Venous
Catheterization (77 FR 27896 through
27897) for selection as HACs under
section 1886(d)(4)(D) of the Act. (We
previously proposed Iatrogenic
Pneumothorax more generally as a HAC
in the FY 2009 IPPS rulemaking (73 FR
48485).) We also discussed a proposal to
revise the Vascular Catheter-Associated
Infection HAC category with the
addition of two new diagnosis codes
999.32 (Bloodstream infection due to
central venous catheter), and 999.33
(Local infection due to central venous
catheter) (77 FR 27894). Accordingly,
we are finalizing those proposals as
discussed in section II.F.5. of this
preamble.
In addition to the evaluation of HAC
and POA MedPAR claims data, RTI has
conducted analyses on readmissions
due to HACs and the incremental costs
of HACs to the health care system, a
study of spillover effects and

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
unintended consequences, as well as an
analysis on the accuracy of coding of
HACs and POA indicators. Reports on
these analyses are publicly available on
the CMS Web site at: http://
www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/HospitalAcqCond/
Hospital-Acquired_Conditions.html.
Comment: Commenters encouraged
CMS to more carefully evaluate this
program and its potential for
unintended consequences, and to
explore how information learned from
POA coding could be used to better
understand and prevent HACs before it
considers the inclusion of any
additional categories of HACs.
Response: We appreciate the
commenters’ response. We routinely,
either internally or through our
contractors, review the significant
aspects of the HAC/POA Program.
G. Changes to Specific MS–DRG
Classifications
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27898), we invited
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
proposed changes to the MS–DRG
classifications based on our analysis of
claims data. In other cases, we proposed
to maintain the existing MS–DRG
classification based on our analysis of
claims data.
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 2013,
comments and suggestions should have
been submitted by early December 2011.
The comments that were submitted in a
timely manner are discussed below in
this section.
Below we summarize the public
comments we received on the FY 2013
proposed rule, if any, present our
responses, and state our final policies.

EMCDONALD on DSK67QTVN1PROD with RULES2

1. Pre-Major Diagnostic Categories (PreMDCs)
a. Ventricular Assist Devices (VADs)
A ventricular assist device (VAD) is a
mechanical circulatory device or pump
that is used to partially or completely
support heart function and blood flow
in patients with a damaged or weakened

heart. The device takes blood from the
ventricles of the heart and helps pump
the blood to the rest of the body.
Some VADs are intended for shortterm use, often for patients who are
recovering from heart attacks or heart
surgery, while other VADs are intended
for long-term use (months to years and,
in some cases, for life). VADs are not the
same device as artificial hearts, which
are designed to completely take over
cardiac function and generally require
the removal of the patient’s native heart.
VADs are designed to assist the
ventricles, either the right (RVAD) or the
left (LVAD), and, in some cases, both
ventricles at once (BiVAD). The type of
VAD used depends on the patient’s
underlying heart disease and the
pulmonary arterial resistance that
determines the load on the right
ventricle. LVADs are the most
commonly used, but when pulmonary
arterial resistance is high, right
ventricular assistance becomes
necessary and an RVAD may be
inserted. Long-term VADs are normally
used to help maintain a patient’s quality
of life while he or she awaits a heart
transplant. This process is known as a
‘‘bridge to transplant.’’ However,
sometimes the insertion of an LVAD
becomes the final treatment for the
patient, which is known as ‘‘destination
therapy.’’ In this case, the VAD is a
permanent implant, and no heart
transplantation occurs. In a smaller
number of cases, the implantation of a
VAD, combined with pharmaceutical
therapy, has enabled the native heart to
recover sufficiently to allow the VAD to
be explanted, a ‘‘bridge to recovery.’’
CMS has issued a national coverage
determination (NCD) entitled ‘‘Artificial
Hearts and Related Devices’’ under
Section 20.9 of the Medicare Coverage
Manual (Pub. No. 100–3). This NCD,
which describes CMS’ requirements for
coverage of medical services provided to
Medicare beneficiaries for the insertion
of VADs, can be found at the CMS Web
site at: https://www.cms.gov/medicarecoverage-database/details/ncddetails.aspx?NCDId=246&
ncdver=5&NCAId=211&ver=20&
NcaName=Artificial+Hearts&
bc=ACAAAAAAIAAA&. We refer
readers to this Web page for the
complete viewing of the NCD for the
insertion of VADs.
The assignment of procedure codes
used to describe the insertion of VADs
has been discussed repeatedly in IPPS
rulemaking, for the CMS–DRGs (in

MS–DRG 001—All Cases .....................................................................................................

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PO 00000

effect prior to FY 2008) and more
recently for the MS–DRGs (FY 2008 to
present). We refer readers to the FY
2003 IPPS final rule (67 FR 49989) for
a complete discussion of the assignment
of these procedure codes up to that date.
In addition, the topic was discussed in
FY 2005; we refer readers to the FY
2005 IPPS final rule (69 FR 48927
through 48930) for a complete
discussion regarding the assignment of
these procedure codes for FY 2005.
Specifically, for FY 2005, we moved
ICD–9–CM procedure code 37.66
(Insertion of implantable heart assist
system) from CMS–DRG 525 (Other
Heart Assist System Implant) to CMS–
DRG 103 (Heart Transplant). When we
adopted the MS–DRG classification
system in FY 2008, former CMS–DRG
103 remained in the Pre-MDC section
but was renamed and subdivided into
MS–DRG 001 (Heart Transplant or
Implant of Heart Assist System with
MCC) and MS–DRG 002 (Heart
Transplant or Implant of Heart Assist
System without MCC).
For FY 2013, we received a request to
restructure MS–DRGs 001 and 002 by
removing all of the procedure codes that
describe the insertion of a device,
leaving only procedure codes 33.6
(Combined heart-lung transplantation)
and 37.51 (Heart transplantation) in the
heart transplant DRGs. The requestor
further asked that the remaining device
codes be assigned to newly created MS–
DRGs. The requestor believed that,
within the existing MS–DRG grouping,
CMS is underpaying for services to
patients who have a VAD implanted and
overpaying for services to patients who
have heart transplantations. The
requestor believed that the
recommended restructuring ‘‘would
allow defined grouping of cases with the
higher level of resource [sic] required
reflected in payment.’’
In the FY 2013 IPPS/LTCH PPS
proposed rule, we indicated that we had
reviewed data in the September 2011
update of the FY 2011 MedPAR file and
found that the average length of stay for
heart transplantations and VAD
implantation cases are very similar (35.1
days for heart transplantations and
36.63 days for VAD implantations). We
also found that the average cost for VAD
implantation cases alone is higher than
the average cost of heart transplantation
cases. The table below includes our
findings.

Number of
cases

MS–DRG

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53303

Average length
of stay

1,235

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36.97

Average cost
$164,846

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
Number of
cases

MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG

001—Cases with Heart Transplant without VAD ..................................................
001—Cases with VAD Insertion Alone .................................................................
002—All Cases .....................................................................................................
002—Cases with Heart Transplant without VAD ..................................................
002—Cases with VAD Insertion Alone .................................................................

We believe that this higher average
cost could be attributable to the cost of
the device itself. There are very few
VADs approved by FDA; therefore, we
believe this small group of
manufacturers is able to set their own
charges in the market. We pointed out
that the IPPS is not designed to pay
solely for the cost of devices. The MS–
DRG classification system (and more
importantly, the IPPS) is not based
solely on the cost of devices.
Rather, the MS–DRG system is a
patient classification system that
provides an average means of relating
the type of patients a hospital treats
(that is, case-mix) to the costs incurred
by the hospital. We have previously

stated that, ‘‘Central to the success of
the Medicare inpatient hospital
prospective payment system is that
DRGs have remained a clinical
description of why the patient required
hospitalization. We believe it would be
undesirable to transform DRGs into
detailed descriptions of the technology
and processes used by the hospital to
treat the patient. If such a
transformation were to happen, the
DRGs would become largely a
repackaging of fee-for-service without
the management and communication
benefits. The separation of the clinical
and payment weight methodologies
allows a stable clinical methodology to

Code

Average length
of stay

384
811
313
172
140

35.1
36.85
19.66
15.1
25.31

Average cost
123,472
181,915
89,818
58,890
128,069

be maintained, while the payment
weights evolve in response to changing
practice patterns. The packaging of all
services associated with the care of a
particular type of patient into a single
payment amount provides the incentive
for efficiency inherent in a DRG-based
prospective payment system.
Substantial disaggregation of the DRGs
into smaller units of payment, or a
substantial number of cases receiving
extra payments, would undermine the
incentives and communication value in
the DRG system.’’ (66 FR 46904)
The results of our review of the claims
data for MS–DRGs 001 and 002 are
summarized in the following table.
Number of
cases

Description of code(s)
MS–DRG 001 (Heart Transplant or Implant of Heart Assist System with MCC)

All codes .............................
33.6 or 37.51 ......................
33.6 or 37.51 with 37.66 ....
37.52 ...................................
37.66 ...................................
37.60 with 37.64 .................
37.63 with 37.64 .................
37.64 with 37.65 .................

.............................................................................................................................................................
Combined heart-lung transplantation or Heart transplantation ..........................................................
Combined heart-lung transplantation or Heart transplantation with Insertion of implantable heart
assist system (VAD).
Implantation of total internal biventricular heart replacement system (Artificial heart) ......................
Insertion of implantable heart assist system (VAD) ...........................................................................
Implantation or insertion of biventricular external heart assist system + Removal of external heart
assist system(s) or device(s).
Repair of heart assist system + Removal of external heart assist system(s) or device(s) ...............
Removal of external heart assist system(s) or device(s) + plant of single ventricular
(extracorporeal) external heart assist system.
Multiple VADs without heart transplant ..............................................................................................

1,235
384
11
2
811
1
0
22
22

MS–DRG 002 (Heart Transplant or Implant of Heart Assist System without MCC)
All codes .............................
33.6 or 37.51 ......................
33.6 or 37.51 with 37.66 ....
37.52 ...................................
37.66 ...................................
37.60 with 37.64 .................

EMCDONALD on DSK67QTVN1PROD with RULES2

37.63 with 37.64 .................
37.64 with 37.65 .................

.............................................................................................................................................................
Combined heart-lung transplantation or Heart transplantation ..........................................................
Combined heart-lung transplantation or Heart transplantation with Insertion of implantable heart
assist system (VAD).
Implantation of total internal biventricular heart replacement system (Artificial heart) ......................
Insertion of implantable heart assist system (VAD) ...........................................................................
Implantation or insertion of biventricular external heart assist system plus Removal of external
heart assist system(s) or device(s).
Repair of heart assist system + Removal of external heart assist system(s) or device(s) ...............
Removal of external heart assist system(s) or device(s) + plant of single ventricular
(extracorporeal) external heart assist system.
Multiple VADs without heart transplant ..............................................................................................

In the proposed rule, we stated that
we believe that the IPPS should
accurately recognize differences in
utilization for clinically distinct
procedures. However, we also reiterated
the language in the FY 2009 IPPS final
rule that the payments under a
prospective payment system are
predicated on averages (73 FR 48443).

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We believe that to create a new MS–
DRG specific to VAD implantation
would require basing that MS–DRG
almost exclusively on the presence of
procedure code 37.66, representing a
single procedure and currently one
manufacturer with FDA approval.
Currently, other manufacturers are
reported to be in clinical trials with

PO 00000

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313
172
0
0
140
0
0
1
4

their VADs. We indicated that this
approach negates our longstanding
method of grouping like procedures and
diminishes the concept of averaging.
Further, we are concerned that ignoring
the structure of the MS–DRG system
solely for the purpose of increasing
payment for one device would set an
unwarranted precedent for defining all

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
of the other MS–DRGs in the system (73
FR 48497 and 48498).
The commenter requested that we
create two new MS–DRGs for the VADs
and that the requested MS–DRGs be
divided based on the presence or
absence of an MCC. We pointed out that
the final rule establishing the MS–DRGs
sets forth five criteria, all five of which
are required to be met in order to
warrant creation of a CC or an MCC
subgroup within a base MS–DRG. The
criteria can be found in the FY 2008

IPPS final rule with comment period (72
FR 47169). The original criteria were
based on average charges; we now use
average costs (FY 2007 IPPS final rule
(71 FR 47882)). To reiterate, these
criteria are as follows:
• 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 cost between subgroups.
As procedure code 37.66
predominates in our claims data for
VAD implantations, as we did in the
proposed rule, we are including the
following table to demonstrate the cost
difference between MS–DRG 001 and
MS–DRG 002.
Number of
cases

MS–DRG

EMCDONALD on DSK67QTVN1PROD with RULES2

001—Cases with procedure code 37.66 .................................................................................................................
002—Cases with procedure code 37.66 .................................................................................................................

As stated in the FY 2008 IPPS final
rule with comment period, all five
criteria must be met in order to
subdivide an MS–DRG into MCC and
non-MCC severity levels. In this
instance, the number of cases in MS–
DRG 002 containing procedure code
37.66 is 140, not the minimum number
of 500 cases as established by the MS–
DRG severity criteria. Therefore, even if
we were to create a new MS–DRG for
VAD implantation, unless we further
divided the MS–DRG based on the
presence of an MCC, we would
substantially overpay approximately 15
percent of total VAD cases. However, we
could not create multiple MS–DRGs for
VAD implantation without ignoring our
rules for subdividing MS–DRGs.
For these reasons, for FY 2013, we did
not propose to make any changes to the
structure of MS–DRGs 001 and 002. We
invited public comment on our
proposal.
Comment: Several commenters stated
that they had no objections to CMS’
proposal to maintain the current
structure of MS–DRG 001 and MS–DRG
002 and not create separate MS–DRGs
for VAD and heart transplants. The
commenters stated that this proposal
seems reasonable given the data and
information provided.
One commenter stated that MS–DRG
weights should reflect the overall costs
of all of the services involved in an
admission and that it would be
inappropriate to bifurcate these MS–
DRGs solely due to the cost of a single
device, especially when that device is
currently distributed by a single
manufacturer. The commenter agreed
with our proposal to maintain the
existing structure of MS–DRGs 001 and
002, but urged CMS to continue to
monitor the composition and costs of
these MS–DRGs moving forward,

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especially as new VAD devices are
approved for implantation.
Response: We appreciate the
commenters’ support for our proposal to
maintain the existing structure of MS–
DRG 001 and MS–DRG 002 for FY 2013.
We will continue to monitor the
composition and costs of these MS–
DRGs as new VAD devices are approved
for implantation.
Comment: One commenter stated that
keeping the existing MS–DRG 001 and
MS–DRG 002 structure may ultimately
be a deterrent for appropriate provision
of care to Medicare beneficiaries
because of the discrepancy of cost
between cardiac transplantation and
implantation of VADs. The commenter
stated that the cost of the VAD
implantation is commonly more than
$50,000 greater than the cost of a
cardiac transplantation. The commenter
stated that providing two MS–DRGs for
heart transplants and two for VAD
implantations will assure access to the
best available technology.
Response: We acknowledge the
commenter’s concern about the
potential for problems with future
beneficiary access to VAD implantations
and heart transplants. There are
currently a limited number of FDAapproved VADs on the market. We will
continue to monitor these MS–DRGs as
additional VADs come onto the market
and technologies change. We believe
that creating separate MS–DRGs for
VAD implantations and heart
transplants could lead to significant
reductions in the payment for heart
transplants. Considering the limited
number of FDA-approved VADs and the
negative impact that creating separate
MS–DRGs for VAD implantations and
heart transplants would have on heart
transplant cases, we do not believe the
creation of separate MS–DRGs for VAD

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53305

811
140

Average cost
$181,915
128,069

implantations and heart transplants is
appropriate at this time.
After consideration of the public
comments we received, we are
finalizing our proposal to make no
changes to MS–DRG 001 and MS–DRG
002 for FY 2013.
b. Allogeneic Bone Marrow Transplant
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50101), 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 MS–DRGs 014 and 015
because of differences in costs
associated with the procedures in these
two MS–DRGs. In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51525
through 51526), we further subdivided
MS–DRG 015 into two severity levels,
by deleting MS–DRG 015 and creating
MS–DRG 016 (Autologous Bone Marrow
Transplant with CC/MCC); and MS–
DRG 017 (Autologous Bone Marrow
Transplant without CC/MCC). We
created MS–DRGs 014 and 015 as these
groups meet all five criteria for
subdivision by severity level that we
established in the FY 2008 IPPS final
rule with comment period (72 FR
47169). As we discussed in the FY 2012
IPPS/LTCH PPS final rule, MS–DRG 014
did not meet the criteria for subdivision
by severity level.
During the comment period for the FY
2012 IPPS/LTCH PPS proposed rule, we
received a public comment regarding
related and unrelated allogeneic bone
marrow transplants (which are captured
in MS–DRG 014) that had not been the
subject of a proposal in that proposed
rule. This issue was referred to briefly
in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51557), but we did not
address the issue because we considered

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the comment to be out of the scope of
provisions of the proposed rule.
However, we addressed this issue in the
FY 2013 proposed rule. The commenter
recommended that MS–DRG 014 be
subdivided into two MS–DRGs based on
related and unrelated transplant donor
source.
Allogeneic bone marrow
transplantation utilizes the blood stem
cells in bone marrow, umbilical cord
blood, or peripheral blood from a donor
that is either biologically related (sibling
or other biologically close family
member) or biologically unrelated (not a
biologically close family member of the
recipient) in the treatment of certain
cancers and bone marrow diseases.
Allogeneic transplant recipients must
have a tissue type that matches the
donor. According to the commenter, a
related donor will typically be managed
by the transplant facility from human

leukocyte antigen (HLA) molecular
typing through mobilization and
collection, while an unrelated donor
requires the use of donor registry for
searching and collection process.
According to the commenter, the
unrelated donor setting adds significant
costs to the transplant that would not be
incurred in the related transplant
setting.
Currently, there are three ICD–9–CM
procedure codes that identify the
transplant donor source:
• 00.91 (Transplant from live related
donor)
• 00.92 (Transplant from live nonrelated donor)
• 00.93 (Transplant from cadaver)
In our analysis of data in the FY 2011
MedPAR file, we found 467 cases
assigned to MS–DRG 014 with average
costs of approximately $64,403 and an
average length of stay of approximately

Number of
cases

MS–DRG

EMCDONALD on DSK67QTVN1PROD with RULES2

MS–DRG
MS–DRG
MS–DRG
MS–DRG

24.8 days. There were 125 cases that
reported procedure code 00.91 on the
claim as the related transplant donor
source with average costs of
approximately $55,969 and an average
length of stay of approximately 24.1
days. In our analysis of the unrelated
donor source, we included the cases
reported with the transplant from a
cadaver donor source (code 00.93) with
the transplant from a live nonrelated
donor source (code 00.92). There were
213 cases that reported either code
00.92 or 00.93 as the transplant donor
source with average costs of
approximately $64,837 and an average
length of stay of approximately 23 days.
There were 129 cases that did not report
a transplant donor source with average
costs of approximately $71,859 and an
average length of stay of approximately
28.5 days. The following table illustrates
our findings:

014—All cases ..........................................................................................................
014—Live related donor (code 00.91) ......................................................................
014—Live nonrelated donor (code 00.92) or cadaver (code 00.93) ........................
014—No donor source ..............................................................................................

As we noted in the proposed rule, one
quarter of the cases (129 out of 467
cases) that did not report a transplant
donor source code had the highest
average costs of approximately $71,859,
compared to $55,969 for live related
donors and $64,837 for live nonrelated
or cadaver donors and $64,403 for the
overall average cost of cases within MS–
DRG 014. The cases without a transplant
donor source code also had a longer
length of stay (28.5 days) than the liverelated donor cases (24.1 days), the live
nonrelated or cadaver cases (23 days),
and the overall cases (24.8 days)
assigned to MS–DRG 014.
Based on these findings, we stated
that we believe that it would not be
advisable to include cases without a
transplant donor source code with the
live nonrelated or cadaver donor cases,
as we believe it would encourage
providers not to report the transplant
donor source code. All possible options
must be included in any MS–DRG
reconfiguration. Therefore, cases with
no reported transplant donor source
code must be included in the updated
logic because this is the group with the
highest average costs. Our clinical
advisors reviewed this issue and do not
support splitting MS–DRG 014 into two
MS–DRGs because a quarter of the cases
did not provide a transplant donor
source. Therefore, we concluded that
the cases reported with a transplant

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donor source code are appropriately
assigned to MS–DRG 014 and that MS–
DRG does not warrant further
subdivision. Without more complete
information on donor source, we did not
propose that MS–DRG 014 be
subdivided in the proposed rule. We
invited public comment on our proposal
not to subdivide MS–DRG 014 into two
MS–DRGs based on related and
unrelated donor source.
Comment: Several commenters stated
that they had no objections to CMS’
proposal to maintain the current
structure of MS–DRG 014. The
commenters stated that the proposal
seems reasonable based on the data and
information provided. One commenter
supported the subdivision to distinguish
between related and unrelated
allogeneic bone marrow transplants.
However, the commenter stated that if
CMS continues to believe that there is
not sufficient data to support a split,
CMS should require data collection of
search and procurement costs. The
commenter suggested that CMS
establish a specific revenue code or line
item on the hospital cost report to
require hospitals to document the
search and procurement costs in order
to receive payment.
Response: We agree with the
commenters that stated that, based on
data and our analysis, we should not
subdivide MS–DRG 014 without more

PO 00000

Frm 00050

Fmt 4701

Sfmt 4700

Average length
of stay

Average costs

24.8
24.1
23
28.5

$64,403
55,969
64,837
71,859

467
125
213
129

complete information on the donor
source. As stated previously, one
quarter of the cases (129 out of 467
cases) did not report a transplant donor
source code. We believe that we have
sufficient methods of reporting donor
source on the claim by reporting ICD–
9–CM code 00.91, 00.92, or 00.93 and
associated costs.
After consideration of the public
comments we received, we are not
making any changes to MS–DRG 014 for
FY 2013.
2. MDC 4 (Diseases and Disorders of the
Ear, Nose, Mouth and Throat): Influenza
With Pneumonia
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51557), we discussed a
public comment that we considered out
of the scope of the FY 2012 proposed
rule. Therefore, we did not address the
issues in the final rule. The commenter
requested that we consider reassigning
cases with a combined diagnosis of
influenza with pneumonia from a set of
simple pneumonia MS–DRGs to a set of
MS–DRGs that captures a more severe
type of pneumonia. The specific request
involves cases now assigned to MS–
DRGs 193 (Simple Pneumonia and
Pleurisy with MCC), 194 (Simple
Pneumonia and Pleurisy with CC), and
195 (Simple Pneumonia and Pleurisy
without MCC/CC) being moved to MS–
DRGs 177 (Respiratory Infections and

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Inflammations with MCC), 178
(Respiratory Infections and
Inflammations with CC), and 179
(Respiratory Infections and
Inflammations without MCC/CC).
For the FY 2013 proposed rule, we
examined data in the FY 2011 MedPAR
file on cases that reported diagnosis
code 487.0 (Influenza with pneumonia)
as the principal diagnosis with an
additional secondary diagnosis code for
one of the following types of
pneumonia:
• 482.0 (Pneumonia due to Klebsiella
pneumoniae)
• 482.1 (Pneumonia due to
Pseudomonas)
• 482.40 (Pneumonia due to
Staphylococcus, unspecified)
• 482.41 (Methicillin susceptible
pneumonia due to Staphylococcus
aureus)

• 482.42 (Methicillin resistant
pneumonia due to Staphylococcus
aureus)
• 482.49 (Other Staphylococcus
pneumonia)
• 482.81 (Pneumonia due to anaerobes)
• 482.82 (Pneumonia due to Escherichia
coli [E. coli])
• 482.83 (Pneumonia due to other gramnegative bacteria)
• 482.84 (Pneumonia due to
Legionnaires’ disease)
• 482.89 (Pneumonia due to other
specified bacteria)
Currently, when one of the
pneumonia codes listed above is
reported as a principal diagnosis, the
case is assigned to MS–DRG 177, 178, or
179. However, when the patient has
been diagnosed with one of these types
of pneumonia and also has influenza,
the ICD–9–CM coding book directs the

EMCDONALD on DSK67QTVN1PROD with RULES2

MS–DRG 177—All cases ......................................................................................................
MS–DRG 178—All cases ......................................................................................................
MS–DRG 179—All cases ......................................................................................................
MS–DRG 193—All cases ......................................................................................................
MS–DRG 193—Cases with principal diagnosis code 487.0 and with a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83,
482.84, or 482.89 ...............................................................................................................
MS–DRG 193—Cases with principal diagnosis code 487.0 and without a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83,
482.84, or 482.89 ...............................................................................................................
MS–DRG 194—All cases ......................................................................................................
MS–DRG 194—Cases with principal diagnosis code 487.0 and with a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83,
482.84, or 482.89 ...............................................................................................................
MS–DRG 194—Principal diagnosis code 487.0 and without a secondary diagnosis code
of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84, or
482.89 ................................................................................................................................
MS–DRG 195—All cases ......................................................................................................
MS–DRG 195—Cases with a principal diagnosis code 487.0 and a secondary diagnosis
code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83, 482.84,
or 482.89 ............................................................................................................................
MS–DRG 195—Cases with principal diagnosis code 487.0 and without a secondary diagnosis code of 482.0, 482.1, 482.40, 482.41, 482.42, 482.49, 482.81, 482.82, 482.83,
482.84, or 482.89 ...............................................................................................................

The data showed that cases reporting
a principal diagnosis code 487.0 with
one of the pneumonia codes listed
above as a secondary diagnosis have
significantly higher average costs
($15,867 in MS–DRG 193, $9,752 in
MS–DRG 194, and $5,842 in MS–DRG
195) than those cases reported without
one of the pneumonia codes listed
above as a secondary diagnosis ($10,416
in MS–DRG 193, $6,871 in MS–DRG
194, and $4,580 in MS–DRG 195), and
also the overall average costs for all
cases in MS–DRGs 193, 194, and 195
($9,589, $6,524, and $4,660,
respectively). The influenza and
pneumonia cases had average costs that
more closely align with the average
costs of cases currently assigned to MS–

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DRGs 177, 178, and 179 ($13,002,
$9,193, and $6,365, respectively).
As a result of our analysis, the data
support the commenter’s request that
we reassign cases reporting a principal
diagnosis code 487.0 and an additional
secondary diagnosis code for one of the
pneumonia codes listed above, from
MS–DRGs 193, 194, and 195 to MS–
DRGs 177, 178, and 179. Our clinical
advisors also support reassigning these
cases to MS–DRGs 177, 178, and 179.
Therefore, for FY 2013, we proposed to
reassign cases with a principal diagnosis
code 487.0 and an additional secondary
diagnosis code of one of the following
pneumonia codes listed as a secondary
diagnosis codes from MS–DRGs 193,
194, and 195 to MS–DRGs 177, 178, and

PO 00000

coder to report diagnosis code 487.0 as
the principal diagnosis and to assign an
additional secondary code to describe
the specific type of pneumonia. This
reporting results in cases with diagnoses
of both influenza and specific types of
pneumonia being assigned to MS–DRG
193, 194, or 195 (Simple Pneumonia
and Pleurisy with MCC, with CC, or
without CC/MCC, respectively), instead
of MS–DRG 177, 178, or 179. The
commenter requested that we reassign
cases reporting code 487.0 as the
principal diagnosis with one of the
specific pneumonia codes listed above
as a secondary diagnosis to MS–DRGs
177, 178, and 179.
We analyzed data from the MedPAR
file on cases with patients with
pneumonia and found the following:

Number
of cases

MS–DRG

Frm 00051

Fmt 4701

Sfmt 4700

53307

Average length of
stay

69,128
59,559
14,108
125,892
57
1,320
191,030
59
2,088
80,253
12
1,065

Average cost

8.20
6.40
4.65
6.28

$13,002
9,193
6,365
9,589

9.3

15,867

6.93
4.73

10,416
6,524

6.9

9,752

5.16
3.53

6,871
4,660

4.8

5,842

3.78

4,580

179: 482.0; 482.1; 482.40; 482.41;
482.42; 482.49; 482.81; 482.82; 482.83;
482.84; and 482.89.
We invited public comment on our
proposal for FY 2013.
Comment: Commenters supported our
proposal to reassign cases with a
principal diagnosis code of 487.0 with
an additional secondary diagnosis code
for the specified types of pneumonia
from MS–DRGs 193 and 195 to MS–
DRGs 177, 178, and 179. The
commenters stated that these proposed
reassignments better capture the more
severe type of pneumonia that results in
significantly higher average costs. Other
commenters stated the proposed
reassignments were reasonable, given
the data and information provided.

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Response: We appreciate the
commenters’ support of our proposals.
After consideration of the public
comments we received, we are
finalizing our proposal of reassigning
cases with a principal diagnosis code of
487.0 and an additional secondary
diagnosis code of one of the following
pneumonia codes as a secondary
diagnosis code from MS–DRGs 193, 194,
and 195 to MS–DRGs 177, 178, and 179:
482.0; 482.1, 482.40, 482.41, 482.42;
482.49; 482.81; 482.82; 482.83, 482.84;
and 482.89.
3. MDC 5 (Diseases and Disorders of the
Circulatory System)
a. Percutaneous Mitral Valve Repair
With Implant
We received a request to reassign
procedure code 35.97 (Percutaneous
mitral valve repair with implant) to the
following MS–DRGs:
• MS–DRG 216 (Cardiac Valve &
Other Major Cardiothoracic Procedures
with Cardiac with MCC);
• MS–DRG 217 (Cardiac Valve &
Other Major Cardiothoracic Procedures
with Cardiac with CC);
• MS–DRG 218 (Cardiac Valve &
Other Major Cardiothoracic Procedures
with Cardiac without CC/MCC);
• MS–DRG 219 (Cardiac Valve &
Other Major Cardiothoracic Procedures
without Cardiac with MCC);
• MS–DRG 220 (Cardiac Valve &
Other Major Cardiothoracic Procedures
without Cardiac with CC); and
• MS–DRG 221 (Cardiac Valve &
Other Major Cardiothoracic Procedures
without Cardiac without CC/MCC).

In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51528 through 51529), we
discussed reassigning procedure code
35.97 from MS–DRGs 231 and 232
(Coronary Bypass with PTCA with MCC
and without MCC, respectively) and
MS–DRGs 246 (Percutaneous
Cardiovascular Procedure with DrugEluting Stent with MCC or 4+ Vessels/
Stents), 247 (Percutaneous
Cardiovascular Procedure with DrugEluting 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). In that final rule, we stated that
we did not have sufficient claims data
on which to base and evaluate any
proposed changes to the current MS–
DRG assignment. Procedure code 35.97
was created for use beginning October 1,
2010 (FY 2011) after the concept of
percutaneous valve repair was
presented at the March 2010 ICD–9–CM
Coordination and Maintenance
Committee meeting. Procedure code
35.97 was created at that time to
describe the MitraClipTM device and any
other percutaneous mitral valve repair
devices currently on the market. This
procedure code was assigned to the
following MS–DRGs: 231 and 232
(Coronary Bypass with PTCA with MCC
and without MCC, respectively); 246

Number of
cases

EMCDONALD on DSK67QTVN1PROD with RULES2

MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG

216—All Cases ...........................................................................................................
217—All Cases ...........................................................................................................
218—All Cases ...........................................................................................................
219—All Cases ...........................................................................................................
220—All Cases ...........................................................................................................
221—All Cases ...........................................................................................................
231—All Cases ...........................................................................................................
231—Cases with Procedure Code 35.97 ...................................................................
232—All Cases ...........................................................................................................
232—Cases with Procedure Code 35.97 ...................................................................
246—All Cases ...........................................................................................................
247—All Cases ...........................................................................................................
248—All Cases ...........................................................................................................
248—Cases with Procedure Code 35.97 ...................................................................
249—All Cases ...........................................................................................................
250—All Cases ...........................................................................................................
250—Cases with Procedure Code 35.97 ...................................................................
251—All Cases ...........................................................................................................
251—Cases with Procedure Code 35.97 ...................................................................

We note that most of the cases were
found in MS–DRGs 250 and 251, as we
predicted in the FY 2012 IPPS/LTCH

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PPS final rule based on FDA’s terms of
the clinical trial for MitraClipTM. As
stated earlier, the device is to be

PO 00000

(Percutaneous Cardiovascular Procedure
with Drug-Eluting Stent with MCC or 4+
Vessels/Stents); 247 (Percutaneous
Cardiovascular Procedure with DrugEluting 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
stated that while the procedure code is
assigned to MS–DRGs 246 through 251,
the most likely MS–DRG assignments
would be MS–DRGs 250 and 251, as
described above. As we stated in the FY
2012 IPPS/LTCH PPS final rule, because
procedure code 35.97 had only been in
use since October 1, 2010, there were no
claims data in the most recent update of
the MedPAR file at that time to evaluate
any alternative MS–DRG assignments.
Therefore, we did not make any MS–
DRG assignment changes for procedure
code 35.97 for FY 2012.
For the FY 2013 proposed rule, we
analyzed claims data from the FY 2011
MedPAR file on the procedure that
describes mitral valve repair with
implant and found the following:

Frm 00052

Fmt 4701

Sfmt 4700

9,624
5,655
995
15,336
18,455
4,719
1,170
4
1,010
9
29,299
109,661
13,562
1
35,100
8,313
39
31,316
98

Average
length
of stay
16.44
10.24
7.43
12.53
7.53
5.59
12.17
13.75
9.16
13.56
5.20
2.39
6.35
32.00
2.86
7.07
9.77
2.92
2.69

Average costs
$61,015
41,324
34,587
50,176
34,150
29,082
49,728
35,409
37,820
46,008
20,725
13,014
19,785
110,262
11,806
19,673
29,753
12,658
18,651

implanted in patients without any
additional surgeries performed. There
were 39 cases in MS–DRG 250 with

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average costs of $29,753 (which
includes cases with an MCC). These
average costs are significantly lower
than the average costs of $61,015 for
cases in MS–DRG 216, and the average
costs of $50,176 for cases in MS–DRG
219 (which includes cases with an
MCC). There were 98 cases in MS–DRG
251 (without MCC) with average costs of
$18,651. These average costs also are
lower than the average costs of
comparable cases in MS–DRGs 217, 218,
220, and 221, whose average costs range
from a high of $41,324 to a low of
$29,082. While the average costs of
mitral valve repair cases are higher than
the average costs of other cases assigned
to MS–DRGs 250 and 251, they are
significantly less than the average costs
of cardiac valve replacement cases
assigned to MS–DRGs 216 through 221.
Our analysis of the claims data does not
support reassigning the procedure that
describes percutaneous mitral valve
repair with implant from MS–DRGs 250
and 251 to MS–DRGs 216 through 221.
Our clinical advisors also support
maintaining the current assignment of
this procedure in MS–DRGs 250 and
251. Therefore, based on our findings,
we did not propose to reassign
procedure code 35.97 from MS–DRGs
250 and 251 to MS–DRGs 216 through
221.
We invited public comment on our
proposal to maintain the current
assignment of procedure code 35.97 in
MS–DRGs 250 and 251 and not to
reassign the procedure code to MS–
DRGs 217 through 221.
Comment: Several commenters
supported our proposal not to make any
MS–DRG modifications for procedure
code 35.97 cases, which are currently
assigned to MS–DRGs 250 and 251. The
commenters stated that the proposal
was reasonable, given the data and
information provided.
Response: We appreciate the
commenters’ support for our proposal
for FY 2013.
Comment: A number of commenters
recommended that CMS reassign code
35.97 to MS–DRGs 216, 217, and 218.
The commenters stated that
percutaneous mitral valve repair offers
an alternative to open surgery and is
used in high risk patients. The
commenters believed that the current
payment is too low and that their
hospitals may decide not to perform
these procedures if the payment is not
increased. The commenters stated that
MS–DRGs 216, 217, and 218 more
accurately reflect the associated
comorbidities and the intensity of
resources required to perform
percutaneous mitral valve repairs with
implant. Commenters also stated that

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the procedure is complex and requires
a complex team of surgeon, imaging
specialist, anesthesiologist, and
interventionalist. Given this team
approach, complexity, and lengthy
procedure time, the commenters stated
that MS–DRGs 216, 217, and 218 were
more appropriate MS–DRG assignments.
One commenter, a manufacturer of a
mitral valve repair device, echoed the
comments above. The manufacturer also
expressed concern that CMS’ claims
data may not fully reflect the costs of
the mitral valve repair devices. The
manufacturer stated that the data
analyzed may have included some
mitral valve repair cases that were
performed in clinical trials and reflected
trial-only device prices that were much
lower than the planned commercial
device prices.
Response: We note that MS–DRGs
216, 217, 218 currently include the
requirement that a cardiac
catheterization be performed during the
hospital stay. We assume that the
commenters meant to include the
complete range of MS–DRGs for cardiac
valve and other major cardiothoracic
procedures (that is, MS–DRG 219
(Cardiac Valve & Other Major
Cardiothoracic Procedures without
Cardiac with MCC), MS–DRG 220
(Cardiac Valve & Other Major
Cardiothoracic Procedures without
Cardiac with CC), and MS–DRG 221
(Cardiac Valve & Other Major
Cardiothoracic Procedures without
Cardiac without CC/MCC), in addition
to MS–DRGs 216, 217, and 218). MS–
DRGs 216, 217, and 218 include the
provision of cardiac catheterizations,
while MS–DRGs 219, 220, and 221 do
not include the use of a cardiac
catheterization.
The claims data do not support
adding percutaneous mitral valve
repairs with implant to MS–DRGs 216,
217, and 218 (those with cardiac
catheterizations) or to the complete
range of DRGs that includes both those
with and without cardiac
catheterization (MS–DRGs 216 through
221). As stated earlier, there were 39
cases in MS–DRG 250 with average
costs of $29,753 (which includes an
MCC). These average costs are
significantly lower than the $61,015
average costs for cases in MS–DRG 216
and the $50,176 average costs for cases
in MS–DRG 219, which includes an
MCC. There were 98 cases in MS–DRG
251 (without MCC) with average costs of
$18,651. These average costs are also
lower than the average costs of
comparable cases in MS–DRG 217, 218,
220, and 221 whose average costs range
from a high of $41,324 to a low of
$29,082. While the average costs for

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these cases are higher than for others in
MS–DRGs 250 and 251, they are
significantly less than those cardiac
replacement valve cases assigned to
MS–DRGs 216 through 221. Our data
indicate that the average cost for this
procedure, including the significant cost
of the devices, is much closer to the
average cost of the percutaneous
procedures that comprise the remaining
99 percent of the claims in the MS–
DRGs 250 and 251 than it is to the
proposed MS–DRGs, where payments
are twice the reported cost of this
procedure.
In this case it is true that costs of the
percutaneous mitral valve implantations
are more than the average for MS–DRGs
250 and 251. However it is a
fundamental principle of an averaged
payment system that half of the
procedures in a group will have above
average costs. It is expected that there
will be higher cost and lower cost
subsets, especially when a subset has
low numbers. In this case the other
ninety-nine percent of the claims that
make up the assigned DRG will be
expected to continue to include cases
with similar costs but also include many
cases with below average costs. In an
average payment system, the ‘‘profit’’ of
low-cost cases balances the ‘‘loss’’ of the
high-cost cases, and hospitals and
manufacturers cannot expect to see
‘‘profit’’ on every possible subset of
cases in a DRG.
Our clinical advisors state that the
current MS–DRG assignment is
reasonable because the operating room
resource utilizations of percutaneous
procedures, such as those found in MS–
DRGs 250 and 251, tend to group
together, and are generally less costly
than open procedures, such as those
found in MS–DRGs 216 through 221.
Percutaneous procedures by organ
system represent groupings that are
reasonably clinically coherent. More
significantly, our clinical advisors state
that postoperative resource utilization is
significantly higher for open procedures
with the much greater morbidity and
consequent recovery needs. Because the
equipment, technique, staff, patient
populations and physician specialty all
tend to group by type of procedure
(percutaneous versus open), separately
grouping percutaneous and open
procedures is more clinically consistent.
Therefore, our clinical advisors
recommend that we not move
percutaneous mitral valve repairs with
implants into MS–DRGs 216 through
221. Based on the claims data and the
advice of our clinical advisors, we do
not believe the findings warrant moving
code 35.97 from MS–DRGs 250 and 251
to MS–DRGs 216 though 221.

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After consideration of the public
comments we received, we are
finalizing our proposal to not make any
MS–DRG modifications for procedure
code 35.97 cases, which currently are
assigned to MS–DRGs 250 and 251, for
FY 2013.
b. Endovascular Implantation of
Branching or Fenestrated Grafts in Aorta
The fenestrated (with holes) graft
device is designed to treat patients with
abdominal aortic aneurysms (AAA).
Current treatment options for patients
with AAAs include open surgical repair,
endovascular repair using stent-grafts,
or medical management.
Aneurysmal disease that extends
proximally to the level of the renal
arteries is usually indicative of more
extensive aortic disease and
comorbidities. As a result, many of
these patients are at a higher overall risk
when undergoing open surgical repair.
In addition, these patients are often not
suitable for endovascular treatment with
currently available endografts because
the length of healthy aorta is insufficient
to provide an adequate seal at the
proximal end. The indications for use
for many of the standard endografts call
for an aortic neck length greater than or
equal to 15 millimeters.
Published industry reports estimate
that 8 percent to 30 percent of patients
with AAAs that need repair have aortic
necks of less than 15 millimeters in
length. One institution has reported that
over half of its patients with AAAs were
considered ineligible for endovascular
aneurysm repair or endovascular aortic
repair (EVAR) due to an inadequate
length of nondiseased aorta. These
patients also were predominantly
contraindicated for open repair.
Prior to the development of a
fenestrated graft device, the only
treatment option available to a large
number of these high-risk patients
would have been medical management.
Open surgical repair is too challenging
to frail patients, as it requires
supraceliac clamping of the aorta and
may result in renal ischemia, mesenteric
ischemia, or atheroembolization of the
visceral vessels of the aorta. EVAR with
a standard endograft is not a viable
option either because the shortened
neck precludes an adequate proximal
end seal, which can lead to type I
endoleaks (leaking of blood around the
device into the aneurysm resulting in
continued pressurization of the
aneurysm). Medical management alone
leaves these patients at high risk for
AAA-related morbidity and mortality.
These suboptimal choices led to the
creation of fenestrated endografts that
can seal above the renal arteries while

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maintaining access and uninterrupted
blood flow to branch vessels of the
aorta.
The fenestrated graft is currently
under clinical trial in the United States.
Effective April 4, 2012, the Zenith®
Fenestrated AAA Endovascular Graft
(Cook® Medical) received FDA
approval. Another manufacturer of
fenestrated grafts expects to receive FDA
approval for its device within 3 years.
At the September 15, 2010 meeting of
the ICD–9–CM Coordination and
Maintenance Committee, the topic of
fenestrated graft was presented with a
request for a unique procedure code. As
a result of that meeting, and additional
meetings with manufacturers
throughout the year, procedure code
39.78 (Endovascular implantation of
branching or fenestrated graft(s) in
aorta) was created for use beginning
October 1, 2011 (FY 2012). This code is
assigned to MS–DRGs 252, 253, and 254
(Other Vascular Procedures with MCC,
with CC, and without CC/MCC,
respectively).
We have received a request from a
manufacturer to reassign procedure
code 39.78 from MS–DRGs 252, 253,
and 254 to MS–DRGs 237 and 238
(Major Cardiovascular Procedures with
MCC and without MCC, respectively).
The requestor stated that the assignment
to MS–DRGs 252, 253, and 254 violates
both of CMS’ stated principles regarding
assigning new codes to MS–DRGs that
reflect both clinical coherence and
similar consumption of resources.
From the standpoint of clinical
coherence, the requestor noted that,
while procedures in MS–DRGs 252, 253,
and 254 are vascular procedures, the
procedures do not involve the aorta. The
requestor further noted that AAA
repairs, both open and endovascular, are
assigned to MS–DRGs 237 and 238.
From the standpoint of similar
consumption of resources, the requestor
included anticipated device costs of
$17,424 to $21,824 for a fenestrated
endovascular procedure. The requestor
noted that these costs only represent the
device and do not include any
additional resources required during the
hospitalization. The requestor believed
that the device costs are more similar to
devices used in MS–DRGs 237 and 238.
CMS’ practice is to assign new codes
to MS–DRGs where similar procedures
are also located. In terms of clinical
coherence, CMS assigned the new code
to the vascular procedure MS–DRGs
(252, 253, and 254) where other
noncoronary endovascular procedures
for blood vessel repair also are assigned.
This decision was based on our practice
to group similar procedures together, in
this case repairs to blood vessels,

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especially for new codes when CMS has
no data history.
With regard to resource consumption,
we point out that procedure code 39.78
was created for use effective with
discharges on or after October 1, 2011.
Our review of data in the MedPAR file
shows no utilization of this code
because it is too new. That is, we have
no claims data that would either prove
or disprove the requestor’s supposition
that procedure code 39.78 is not
adequately paid under MS–DRGs 252,
253, and 254. As discussed elsewhere in
this preamble, the MS–DRG system is
not a device classification system.
Therefore, because there are very few
companies currently marketing their
fenestrated graft devices, we are
concerned that these companies are able
to set their own charges in the market.
In addition, the requestor opined that
‘‘an argument could possibly be made
that the increased device costs and
longer procedural times for [procedure
code] 39.78 suggest assignment into
MS–DRG 237 alone would be
appropriate,’’ although the requestor
further stated that, without a significant
volume of actual claims data, it might be
more reasonable [for CMS] to take a
conservative approach and assign these
procedures to either MS–DRG 237 or
MS–DRG 238. We note that MS–DRGs
237 and 238 are paired MS–DRGs, with
both MS–DRGs containing the same
procedure codes, but which have been
subdivided based on the formula for the
presence or absence of comorbid or
complicating conditions. It is not an
inherent part of the GROUPER logic to
assign a code to only one DRG in a set
of paired or triplicate MS–DRGs.
Because there is no data history for
procedure code 39.78 that would justify
a reassignment based on either clinical
coherence or resource consumption, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 27903 and 27904), we did
not propose to make a change to the
MS–DRG assignment of procedure code
39.78 for FY 2013. We stated our belief
that procedure code 39.78 has been
appropriately placed within the MS–
DRG structure. We also stated that we
would continue to evaluate the clinical
coherence and resource consumption
costs that impact this code and the
current MS–DRG assignment. We
invited public comment on our
proposal.
Comment: Many commenters agreed
or did not have any specific objections
regarding our proposal to not reassign
procedure code 39.78 from MS–DRGs
252, 253, and 254 to MS–DRGs 237 and
238 for FY 2013 based on the
information we provided.

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Response: We appreciate the
commenters’ support for our proposal
for FY 2013.
Comment: Numerous commenters
representing various professional
organizations and device manufacturers
disagreed with our proposal to maintain
the current MS–DRG structure for
procedure code 39.78. The commenters
urged CMS to reevaluate the proposal
and reassign procedure code 39.78 to
MS–DRGs 237 and 238 for FY 2013.
The commenters stated that the
proposed MS–DRG assignment for
procedure code 39.78 is not clinically
correct. Specifically, the commenters
stated that the association of a
fenestrated graft procedure to peripheral
arterial endovascular interventions is
not representative of the complexities
involved in performing the fenestrated
graft surgery, nor does it adequately
depict a hospital’s utilization of
resources. The commenters further
noted that the implantation of
fenestrated grafts is more similar, from
a clinical and resource consumption
perspective, to the other endovascular
graft procedures within MS–DRGs 237
and 238 than it is to the vascular
procedures assigned to MS–DRGs 252,
253, and 254.
One commenter provided detailed
information outlining the specific FDAapproved indications for both the
standard and fenestrated endovascular
graft procedures for treatment of
aneurysms to further demonstrate how
clinically similar the procedures
actually are. Other commenters clarified
that fenestrated grafts require all the
resources of a standard endovascular
graft procedure in addition to all the
resources required for placement of
stents in the renal and visceral arteries
to maintain perfusion. Another
commenter reported that the devices
required to perform a fenestrated graft
procedure are ‘‘(1) more complicated,
more numerous, and, in aggregate,
significantly more expensive than those
required for the predecessor [standard]
procedures; and (2) the fenestrated/
branch procedure itself is more complex
and time consuming, requiring
significantly greater hospital operating
room time and resources.’’ Therefore,
according to the commenters, the

resources required to perform
implantation of a fenestrated graft are
far more extensive in comparison to the
resources utilized to perform procedures
assigned to MS–DRGs 252, 253, and
254.
Some commenters also believed that
CMS may have misunderstood some of
the aspects of the fenestrated graft
procedure. The commenters indicated
that if the standard endovascular graft
procedure (for example, procedure code
39.71 (Endovascular implantation of
other graft in abdominal aorta) is
currently assigned to MS–DRGs 237–
238 and the fenestrated endovascular
graft procedure requires greater
utilization of resources, logically
procedure code 39.78 should be
assigned to MS–DRGs 237 and 238.
Other commenters reiterated the
benefits of fenestrated graft procedures
to those patients who are not candidates
for standard endovascular grafts or open
surgical repair. These commenters
indicated that the patients necessitating
fenestrated grafts are a complex patient
population. Some commenters also
stated that, despite the lack of sufficient
MedPAR claims data for procedure code
39.78, CMS should consider the clinical
similarities between fenestrated graft
procedures and the other procedures
that currently group to MS–DRGs 237
and 238.
The commenters stated that, by
reassigning procedure code 39.78 to
MS–DRGs 237 and 238, patients would
no longer be restricted access to this
technology for treatment of juxtarenal/
pararenal (next to or at renal arteries)
aneurysms and hospitals would be more
appropriately paid for the services they
are providing.
Response: Although we did not
propose to reassign procedure code
39.78 from MS–DRGs 252, 253, and 254
to MS–DRGs 237 and 238 for FY 2013,
upon further review and consideration
of the comments received, we agree
with the commenters that the
fenestrated grafts are more similar from
a clinical and resource consumption
perspective to the other endovascular
graft procedures within MS–DRGs 237
and 238.
Therefore, as final policy for FY 2013,
we are reassigning procedure code 39.78

from MS–DRG 252, 253, and 254 to MS–
DRGs 237 and 238.
4. MDC 10 (Endocrine, Nutritional, and
Metabolic Diseases and Disorders):
Disorders of Porphyrin Metabolism
We received a request for the creation
of a new MS–DRG to better identify
cases where patients with disorders of
porphyrin metabolism exist, to
recognize the resource requirements in
caring for these patients, to ensure
appropriate payment for these cases,
and to preserve patient access to
necessary treatments. Porphyria is
defined as a group of rare disorders
(‘‘porphyrias’’) that interfere with the
production of hemoglobin that is
needed for red blood cells. While some
of these disorders are genetic (inborn)
and others can be acquired, they all
result in the abnormal accumulation of
hemoglobin building blocks, called
porphyrins, which can be deposited in
the tissues where they particularly
interfere with the functioning of the
nervous system and the skin.
Treatment for patients suffering from
disorders of porphyrin metabolism
consists of an intravenous injection of
Panhematin® (hemin for injection). In
1984, this pharmaceutical agent became
the first approved drug for a rare disease
to be designated under the Orphan Drug
Act. It is the only FDA-approved
prescription treatment for acute
intermittent porphyria, being approved
for manifestations temporarily related to
the menstrual cycle in susceptible
women.
ICD–9–CM diagnosis code 277.1
(Disorders of porphyrin metabolism)
describes these cases, which are
currently assigned to MS–DRG 642
(Inborn and Other Disorders of
Metabolism). We analyzed data from the
FY 2011 MedPAR file for cases assigned
to this MS–DRG. As shown in the table
below, we found a total of 1,447 cases
in MS–DRG 642 with an average length
of stay of 4.63 days and average costs of
$7,400. We then analyzed the data for
cases reporting diagnosis code 277.1 as
the principal diagnosis in this same
MS–DRG. We found a total of 330 cases,
with an average length of stay of 6.12
days and average costs of $11,476.
Number of
cases

MS–DRG
MS–DRG 642—All cases ............................................................................................................
MS–DRG 642– Cases with principal diagnosis code 277.1 .......................................................

While the average costs for the 330
cases reporting a principal diagnosis

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code of 277.1 were higher than all cases
in MS–DRG 642 ($11,476 versus

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1,447
330

Average
length of stay
4.63
6.12

Average costs
$7,400
11,476

$7,400), the volume of affected cases is
small, representative of approximately

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20 percent of all of the cases in MS–
DRG 642. Under our existing policy (76
FR 51487 and 51488), in deciding
whether to make modifications to the
MS–DRGs, we consider whether the
resource consumption and clinical
characteristics of the patients with a
given set of conditions are significantly
different from the remaining patients in
the MS–DRG. We evaluate the
utilization of resources related to patient
care using average costs and length of
stay and rely 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 consider
both the absolute and percentage
differences in average costs between the
cases we selected for review and the
reminder of cases in the MS–DRG. We

also consider variation in costs within
these groups; that is, whether observed
average differences are consistent across
patients or attributable to cases that
were extreme in terms of costs or length
of stay. Further, we consider the number
of patients who have a given set of
characteristics and generally prefer not
to create a new MS–DRG unless it
would include a substantial number of
cases. Therefore, in the FY 2013
proposed rule, we determined that the
findings do not support the creation of
a new MS–DRG.
We acknowledge the importance of
ensuring that patients diagnosed with a
disorder of porphyrin metabolism have
adequate access to care and receive the
necessary treatment. Despite the fact
that our data analysis did not
demonstrate support for the creation of

Number of
cases

MS–DRG

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MS–DRG 643—Cases with principal diagnosis code 277.1 .......................................................
MS–DRG 644—Cases with principal diagnosis code 277.1 .......................................................
MS–DRG 645—Cases with principal diagnosis code 277.1 .......................................................

Based on these findings, if we were to
reassign cases where disorders of
porphyrin metabolism (diagnosis code
277.1) were reported as the principal
diagnosis with a secondary diagnosis
designated as a CC (MS–DRG 644) or
with a secondary diagnosis that was not
a CC/MCC (MS–DRG 645), Medicare
would pay significantly less for these
cases than they are now paid under MS–
DRG 642. Therefore, it would not be
appropriate to reassign cases reporting a
principal diagnosis code of 277.1 from
MS–DRG 642 to MS–DRGs 643, 644,
and 645. In addition, our clinical
advisors did not support this
reassignment. The MS–DRG
classification system on which the IPPS
is based comprises a system of averages.
As such, it is understood that, in any
particular MS–DRG, it is not unusual for
a small number of cases to demonstrate
higher than average costs, nor is it
unusual for a small number of cases to
demonstrate lower than average costs.
Upon review of the MedPAR data and
the alternative option discussed, our
clinical advisors agree that the current
MS–DRG assignment for diagnoses of
disorders of porphyrin metabolism
(diagnosis code 277.1) to MS–DRG 642
is most appropriate at this time.
In the proposed rule, we
acknowledged and recognized the
severity of symptoms that patients
diagnosed with disorders of porphyrin
metabolism may experience. We also
stated that we are sensitive to concerns
about access to care and treatment for

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these patients. We further indicated that
we would continue to monitor this issue
and determine how to better account for
the variation in resource utilization
within the IPPS for these cases.
In summary, we did not propose to
create a new MS–DRG or to reassign
cases reporting a principal diagnosis
code of 277.1 to MS–DRGs 643, 644, and
645 for FY 2013. We invited public
comment on our proposal.
Comment: Several commenters agreed
with our proposal to not create a new
MS–DRG or to reassign cases reporting
a principal diagnosis code of 277.1 from
MS–DRG 642 to MS–DRGs 643, 644,
and 645 for FY 2013.
Response: We appreciate the
commenters’ support for our proposal.
Comment: Two commenters,
representing organizations dedicated to
the treatment, education, and study of
patients diagnosed with disorders of
porphyrin metabolism, appreciated the
attention that CMS devoted to this issue.
However, these commenters expressed
concern that CMS’ proposal to not
create a new MS–DRG for these cases
would negatively impact beneficiary
access to necessary treatments. For
example, according to one of the
commenters, certain facilities are unable
to provide the needed Panhematin®
therapy as a result of the costs incurred
and the present MS–DRG assignment.
The commenters believed that for
beneficiaries who experience an acute
porphyric attack, there are not any

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a new MS–DRG at this time, we also
explored an alternative option. In
reviewing the medical MS–DRGs in
terms of resources and clinical
coherence that are also located within
MDC 10, we found three MS–DRGs that
we believe are similar to MS–DRG 642.
We analyzed data from the MedPAR file
on cases in MS–DRGs 643, 644, and 645
(Endocrine Disorders with MCC, with
CC, and without CC/MCC, respectively)
to determine if the cases reporting a
principal diagnosis code of 277.1 would
be more appropriately reassigned from
MS–DRG 642 to MS–DRGs 643, 644,
and 645. Upon examination of the data,
we found that the average costs of these
cases were $10,835, $6,816, and $4,762,
respectively, as shown in the table
below.

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6,562
12,769
5,979

Average
length of stay
7.11
4.89
3.40

Average costs
$10,835
6,816
4,762

alternative therapies compared to the
effectiveness of Panhematin®.
One of the commenters also submitted
data from its own analysis indicating
that not only are the average costs of
porphyria cases greater than the average
costs of all cases in MS–DRG 642, but
also that the average costs of porphyria
cases are greater than the average costs
of other cases that contain the top 10
principal diagnoses (by volume of
discharges) assigned to MS–DRG 642.
The commenter asserted that, based on
its analysis, as well as the analysis
conducted and presented by CMS in the
FY 2013 IPPS/LTCH PPS proposed rule
(77 FR 27904 through 27905), porphyria
cases undoubtedly satisfy the criteria to
create a new MS–DRG.
Additionally, the commenters
opposed CMS’ position regarding the
inadequate number of cases in which to
establish a new MS–DRG for porphyria
cases. One of the commenters reported
that, based on its own analysis, the
number of porphyria cases
demonstrated a significant subset of the
total cases that grouped to MS–DRG
642. The other commenter
acknowledged that the number of
porphyria cases is small; however this
commenter maintained that CMS may
inadvertently be sending the message
that rare diseases affecting smaller
populations are not as significant as
those diseases affecting larger
populations by not creating a new MS–
DRG for porphyria cases. The
commenters urged CMS to reconsider

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the proposal and create a new MS–DRG
for cases with a principal diagnosis of
porphyria to ensure these beneficiaries
have access to treatment for this
potentially life-threatening disease.
Response: We acknowledge the
commenters’ concerns. CMS is
committed to improving the lives and
quality of care for Medicare
beneficiaries. We take this opportunity
to note that it is not appropriate for
facilities to deny treatment to
beneficiaries needing a specific type of
therapy or treatment that involves
increased costs. The MS–DRG system is
a system of averages and it is expected
that across the 571 diagnostic related
groups that within certain groups, some
cases may demonstrate higher than
average costs, while other cases may
demonstrate lower than average costs.
As discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27904
through 27905), we recognize the
average costs of the small number of
porphyria cases are greater than all the
cases in MS–DRG 642. While the
commenter’s analysis found that
approximately 50 percent of porphyria
cases were more expensive than the
average cost of the other cases in this
MS–DRG, it is not alarming and, in fact,
is what we would expect (as the
remaining percent of cases are less
expensive than the average). The data
provided by the commenter
demonstrates that it is a subset of the
porphyria cases that has the
significantly higher cost exactly as it is
a subset of the MS–DRG that has
significantly higher costs. An averaged
payment system depends on aggregation
of similar cases with a range of costs,
and these data are not unusual. In fact,
it is usually possible to define subsets
with higher values and subsets with
lower values. We continue to follow our
usual practice of identifying sufficiently
large sets of claims data with a resource/
cost similarity and clinical similarity
and do not wish to abandon our use of
diagnostic related groups in favor of
smaller ‘‘single diagnosis payments’’ or
even, as suggested by the commenter’s
data, subsets within a single diagnosis.
We disagree with the commenter that
our proposal to not create a new MS–
DRG for porphyria cases sends the
message that rare diseases and patient
access to treatment are not a significant
cause for concern to the Agency in
comparison to other well known and
publicly recognized conditions.
Although it was not included as part of
the commenter’s initial request for a
new MS–DRG, we also explored an
alternative option to reassign cases with
a principal diagnosis of porphyria as
was discussed in the FY 2013 IPPS/

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LTCH PPS proposed rule (77 FR 27904
through 27905). Furthermore, we
indicated our intent to continue to
monitor this issue.
As mentioned previously, we are
sensitive to the commenters’ concerns
and access to treatment for beneficiaries
who have been diagnosed with this
condition. However, for the reasons
summarized above, we are finalizing our
proposal for FY 2013 to not create a new
MS–DRG or to reassign cases with a
principal diagnosis of porphyria (code
277.1) from MS–DRG 642 to MS–DRGs
643, 644, and 645.
5. Medicare Code Editor (MCE) Changes
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 an MS–
DRG.
a. MCE New Length of Stay Edit for
Continuous Invasive Mechanical
Ventilation for 96 Consecutive Hours or
More
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27905 and 27906),
we proposed to make a change to the
MCE edits which included the creation
of a new length of stay edit for
continuous invasive mechanical
ventilation for 96 consecutive hours or
more.
It was brought to our attention that a
number of hospitals reporting ICD–9–
CM procedure code 96.72 (Continuous
invasive mechanical ventilation for 96
consecutive hours or more) may be
inaccurately reporting this code. As the
title of the procedure code implies, a
patient must have received continuous
mechanical ventilation for 96 hours or
more in order for this code to be
assigned. This equates to a patient being
hospitalized for at least a 4-day length
of stay and having received continuous
invasive mechanical ventilation for a
minimum of 4 days. Therefore, a patient
with a length of stay less than 4 days
who received continuous invasive
mechanical ventilation should not have
procedure code 96.72 reported on the
claim.
The ICD–9–CM classification system
contains three procedure codes that
identify and describe continuous
invasive mechanical ventilation:
procedure code 96.70 (Continuous
invasive mechanical ventilation of
unspecified duration); procedure code

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96.71 (Continuous invasive mechanical
ventilation for less than 96 consecutive
hours); and procedure code 96.72
(Continuous invasive mechanical
ventilation for 96 consecutive hours or
more). To assist in the accurate
assignment of these codes, guidance in
the form of a ‘‘Note’’ is provided within
the designated procedure section of
ICD–9–CM. This ‘‘Note’’ describes the
calculation of the number of hours
during a hospitalization in which a
patient receives continuous invasive
mechanical ventilation. In addition,
coding advice pertaining to appropriate
code assignment for mechanical
ventilation has been published in
various editions of the American
Hospital Association’s (AHA’s) Coding
Clinic for ICD–9–CM.
For the proposed rule, we analyzed
the FY 2011 MedPAR data to determine
how many cases reported procedure
code 96.72 with a length of stay less
than 4 days. Specifically, we reviewed
cases reporting procedure code 96.72
with a length of stay of 1 day, 2 days,
or 3 days. We found a total of 595 cases
meeting those criteria. The data analysis
showed there were 89 cases reporting
procedure code 96.72 with a length of
stay of 1 day and average costs of
$5,948, 134 cases reporting procedure
code 96.72 with a length of stay of 2
days and average costs of $7,776, and
372 cases reporting procedure code
96.72 with a length of stay of 3 days and
average costs of $11,613.
The data also demonstrated that the
595 cases found were distributed across
a wide range of MS–DRGs, with the top
two (in terms of volume) being MS–DRG
207 (Respiratory System Diagnosis with
Ventilator Support 96+ Hours) and MS–
DRG 870 (Septicemia or Severe Sepsis
with Mechanical Ventilation 96+ hours).
We note that the two MS–DRGs with the
highest volume of cases reporting
procedure code 96.72 and having a
length of stay less than 4 days are the
two MS–DRGs that specifically
reference ‘‘96+ hours’’ in their titles.
More importantly, a large percentage of
these cases reporting procedure code
96.72 in error are being grouped to the
incorrect MS–DRGs, resulting in
significant overpayments. For example,
of the 89 cases reporting procedure code
96.72 with a length of stay of 1 day, 31
cases were grouped to MS–DRGs 207
and 870. Of the 134 cases reporting
procedure code 96.72 with a length of
stay of 2 days, 54 cases were grouped to
MS–DRGs 207 and 870. Lastly, of the
372 cases reporting procedure code
96.72 with a length of stay of 3 days,
160 cases were grouped to MS–DRGs
207 and 870. Therefore, the data show
that a total of 245 cases (41 percent)

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were grouped to MS–DRGs 207 and 870
in error, resulting in approximately
$25,000 in increased payments for each
case (or approximately $6 million in
increased payments for all 245 cases).
Based on the results of these figures for
that portion of the total 595 cases found,
there is an even larger dollar amount
that is being overpaid to hospitals.
These overpayments justify corrective
actions.
However, we also noted that the
presumed amount of overpayments for
claims having a length of stay less than
4 days, as discussed above, is merely an
estimate based on the data analysis that
has been conducted at this time. We are
aware that, for particular circumstances
such as those patients who may require
observation services, it is possible to
have procedure code 96.72 reported on
the claim with a length of stay less than
4 days. Although unlikely, a patient
might be briefly ventilated in an
extended outpatient stay following a
toxic ingestion with loss of protective
reflexes or following outpatient
procedures with a prolonged effect of
anesthesia. A subsequent conversion to
an inpatient stay would cause the costs
to be attributable to the stay, while the
days themselves were not reported in
the inpatient date span on the claim.
Similar effects could occur following an
observation stay for a patient on chronic
home or skilled nursing facility
ventilation. It is for this reason that we
proposed a new edit in which claims
found to have procedure code 96.72
with a length of stay less than 4 days
would be returned to the provider for
validation and resubmission. We
indicated in the proposed rule that we
would issue instructions in the form of
a Change Request (CR) prior to the
implementation date. We invited the
public to comment on our proposal to
create this edit, effective for FY 2013.
Comment: Commenters urged CMS to
reconsider the proposed new edit for
claims reporting procedure code 96.72
with a length of stay less than 4 days
that would result in these claims being
returned to the provider for validation
and resubmission. Although several
commenters agreed with the concept of
the edit, the commenters expressed
concern that the proposed process
would be administratively burdensome
to hospitals that may be accurately
reporting the code according to
established coding rules. For example,
the commenters noted that coding rules
allow the counting of hours a patient is
on mechanical ventilation to begin from
the time ventilation is initiated in the
emergency room department or upon
admission. The commenters also stated
that for those instances where patients

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may require observation services, as
CMS noted in the proposed rule, it is
possible that procedure code 96.72 can
be reported on a claim with a length of
stay less than 4 days. These commenters
recommended that CMS work with the
Medicare administrative contractors
(MACs) to develop a less burdensome
process for providers to implement this
edit.
Response: We appreciate and
acknowledge the commenters’ concerns.
In developing systems requirements, we
will continue to work with MACs.
Recent programming enhancements
now allow the use of data fields that
were not previously available for claims
processing. We believe that these
enhancements will eliminate the
concern regarding additional
administrative burden to hospitals.
After consideration of the public
comments received, for FY 2013, we are
finalizing our proposal to make a change
to the MCE edits to include the creation
of a new length of stay edit for
procedure code 96.72 when reported on
a claim with a length of stay less than
4 days. Detailed instructions will be
issued in a future Change Request (CR)
prior to the implementation date.
b. Sleeve Gastrectomy Procedure for
Morbid Obesity
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51539 through 51541), we
discussed the issue of sleeve
gastrectomy procedures for morbid
obesity under the section of the rule
titled ‘‘MDC 10 (Endocrine, Nutritional,
and Metabolic Diseases and Disorders)’’
as well as under the section for
‘‘Medicare Code Editor (MCE) Changes.’’
We refer the reader to these sections for
additional details and background
information.
Effective October 1, 2011, procedure
code 43.82 (Laparoscopic vertical
(sleeve) gastrectomy) was created and
designated as a noncoverage procedure
in the Medicare Code Editor. A Decision
Memo related to Bariatric Surgery for
the Treatment of Morbid Obesity was
issued effective June 27, 2012, which
describes a change in coverage to
Medicare beneficiaries for this
procedure. Information related to this
decision memo can be located at the
following CMS Web page: http://
www.cms.gov/medicare-coveragedatabase/details/nca-decisionmemo.aspx?NCAId=258&fromdb=true.
As this noncovered procedure edit for
procedure code 43.82 is no longer valid,
we are removing it from the MCE for FY
2013. Instructions in the form of a
Change Request will be issued prior to
October 1, 2012. In addition, updates to
the Medicare National Coverage

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Determinations Manual, Section 100.1,
Nationally Noncovered Indications for
Bariatric Surgery for Treatment of
Morbid Obesity, will be revised to
reflect this change in coverage.
6. 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, for FY 2013, we reviewed
the surgical hierarchy of each MDC, as
we have for previous reclassifications
and recalibrations, to determine if the
ordering of classes coincides with the
intensity of resource utilization.
A surgical class can be composed of
one or more MS–DRGs. For example, in
MDC 11, the surgical class ‘‘kidney
transplant’’ consists of a single MS–DRG
(MS–DRG 652) and the class ‘‘major
bladder procedures’’ consists of three
MS–DRGs (MS–DRGs 653, 654, and
655). Consequently, in many cases, the
surgical hierarchy has an impact on
more than one MS–DRG. The
methodology for determining the most
resource-intensive surgical class
involves weighting the average
resources for each MS–DRG by
frequency to determine the weighted
average resources for each surgical class.
For example, assume surgical class A
includes MS–DRGs 001 and 002 and
surgical class B includes MS–DRGs 003,
004, and 005. Assume also that the
average costs of MS–DRG 001 are higher
than that of MS–DRG 003, but the
average costs of MS–DRGs 004 and 005
are higher than the average costs of MS–
DRG 002. 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

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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
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 lower average
costs than the class ordered below it.
In the FY 2013 IPPS/LTCH PPS
proposed rule, we proposed limited
changes to the MS–DRG classifications
for FY 2013, as discussed in sections
II.G.1. and 4. of this preamble. In our
review of these proposed changes, we
did not identify any needed changes to
the surgical hierarchy. Therefore, in the
proposed rule (77 FR 27906), we did not
propose any changes to the surgical
hierarchy for Pre-MDCs and MDCs for
FY 2013.
Comment: Several commenters stated
that our proposal to make no changes to
the surgical hierarchy seems reasonable,
given the data and information
provided.
Response: Based on these public
comments and our review of the
proposal to make no revisions to the

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surgical hierarchy using the March 2012
update of the FY 2011 MedPAR file and
the revised GROUPER software, we
found that the proposal to make no
revisions is still supported by the data.
Therefore, in this final rule, we are
making no changes to the surgical
hierarchy for FY 2013.
7. Complications or Comorbidity (CC)
Exclusions List
a. Background
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
diagnosis, would cause an increase in
the length of stay by at least 1 day in
at least 75 percent of the patients. We
refer readers to section II.D.2. and 3. of
the preamble of the FY 2008 IPPS final
rule with comment period for a
discussion of the refinement of CCs in
relation to the MS–DRGs we adopted for
FY 2008 (72 FR 47121 through 47152).
b. CC Exclusions List for FY 2013
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:

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53315

• 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
shown not to meet the definition of a
CC.13
(1) No Revisions Based on Changes to
the ICD–9–CM Diagnosis Codes for FY
2013
For FY 2013, we did not propose to
make any revisions to the CC Exclusions
List. There were no changes made to the
ICD–9–CM coding system, effective
October 1, 2012, due to the partial code
freeze. (We refer readers to section
13 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);
the FY 2011 final rule (75 FR 50114); and the FY
2012 final rule (76 FR 51542). 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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II.G.9. of the preamble of this final rule
for a discussion of the ICD–9–CM
coding system.)
(2) Suggested Changes to the MS–DRG
Severity Levels for Diagnosis Codes for
FY 2013
(A) Protein-Calorie Malnutrition
We received a request that we
consider changing the severity levels for
the following protein-calorie
malnutrition diagnosis codes:
• 263.0 (Malnutrition of moderate
degree)
• 263.1 (Malnutrition of mild degree)
• 263.9 (Unspecified protein-calorie
malnutrition)
It was suggested that we change the
severity level for diagnosis codes 263.0
and 263.1 from a non-CC to a CC, while
Code

Diagnosis

Cnt1

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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changing the severity level for diagnosis
code 263.9 from a CC to a non-CC. We
received this comment during the
comment period for the FY 2012 IPPS/
LTCH PPS proposed rule. We referred to
this issue briefly in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51557). We
indicated that we considered this
comment outside of the scope of the
proposed rule, as we did not propose
any severity level changes to these
codes for FY 2012, and did not address
it in the final rule. However, we
addressed this issue in the FY 2013
proposed rule (77 FR 27907 through
27908) and are finalizing our policy in
this final rule.
For the proposed rule, we analyzed
the claims data in the FY 2011 MedPAR
file for diagnosis codes 263.0, 263.1, and
263.9. We used the same approach we
C1

Diagnosis description

263.0 ........
263.1 ........
263.9 ........

Malnutrition of moderate degree ...................
Malnutrition of mild degree ............................
Unspecified protein-calorie malnutrition ........

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C2

The C2 value reflects a patient with at
least one other secondary diagnosis that
is a CC but none that is an MCC. The
C3 value reflects a patient with at least
one other secondary diagnosis that is an
MCC. A value close to 1.0 in the C1 field
suggests 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

Code

We ran the following data as
described in the FY 2008 IPPS final rule
with comment period (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 an MCC.
The chart above shows that the C1
findings ranged from a low of 2.14 to a
high of 2.22. 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 non-CC.
The C2 findings ranged from 2.50 to

Cnt2

CC Level
Non-CC
Non-CC
CC

Cnt 1
6,040
4,139
2,737

Cnt 1
Impact
2.14
2.22
2.16

2.61. A value close to 2.0 suggests the
condition is more like a CC than a nonCC 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. The C2
findings of 2.50 for diagnosis code 263.1
and 2.54 for diagnosis code 263.9
suggest these codes are more similar to
a CC than a non-CC, while the finding
of 2.61 for diagnosis code 263.0 is
borderline more similar to an MCC than
a CC or non-CC when there is at least
one other secondary diagnosis code that
is a CC but none that is an MCC.
CC conditions typically have a C1
value over 1.75, a C2 value under 2.5,
and a C3 value under 3.2. MCC
conditions typically have a C1 value
over 2.4, a C2 value over 2.8, and a C3

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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
with comment period (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:
Cnt3

C3

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 with comment period (72 FR 47158
through 47161).
The following chart shows the
analysis for each of the protein-calorie
malnutrition diagnosis codes:

Cnt 2
Impact

Cnt 2
21,383
11,598
165,825

2.61
2.50
2.54

Cnt 3
21,635
8,921
178,044

Cnt 3
Impact
3.20
3.13
3.34

value over 3.3. We concluded that
diagnosis code 263.0 is more similar to
a CC than an MCC.
Therefore, the C1 and C2 findings
support changing diagnosis codes 263.0
and 263.1 from a non-CC to a CC and
maintaining code 263.9 as a CC. Our
clinical advisors reviewed this issue and
are in support of these findings that
these conditions are more appropriately
classified as CCs. Based on the data and
clinical analysis, we proposed for FY
2013 to change diagnosis codes 263.0
and 263.1 from a non-CC to a CC. We
did not propose any change to the
severity level for diagnosis code 263.9.
We invited public comment on our
proposals.
Comment: Several commenters
supported our proposal to change the
severity level for codes 263.0 and 263.1

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from a non-CC to a CC and to maintain
the severity level of code 263.9 as a CC.
Several commenters stated that the
proposal seems reasonable, given the
data and information provided. Some
commenters expressed appreciation for
CMS’ recognition of the increased costs
of care associated with these conditions
and support efforts to more accurately
reflect its impact.
Response: We appreciate the support
of the commenters.
After consideration of the public
comments we received, we are
finalizing our proposal to change
diagnosis codes 263.0 and 263.1 from a

(B) Antineoplastic Chemotherapy
Induced Anemia
We received a request from a
commenter that the severity level for
diagnosis code 285.3 (Antineoplastic
chemotherapy induced anemia) be
changed from a non-CC to a CC. We
received this comment during the
comment period for the FY 2012 IPPS/
LTCH PPS proposed rule. We referred to
this issue briefly in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51557). In

that rule, we indicated that we
considered this comment outside of the
scope of the proposed rule because we
did not propose any severity level
changes to diagnosis code 285.3 for FY
2012; therefore, we did not address the
issue in the final rule. However, we
addressed this issue in the FY 2013
proposed rule and are finalizing our
policy in this final rule. For the
proposed rule, we examined claims data
in the FY 2011 MedPAR file for
diagnosis code 285.3 according to the
approach that we used in FY 2008 as
described above. The following table
illustrates our findings:

Code

Diagnosis description

CC Level

Cnt 1

Cnt 1
Impact

Cnt 2

Cnt 2
Impact

Cnt 3

Cnt 3
Impact

285.3 ........

Antineoplastic chemotherapy induced anemia.

Non-CC

1,937

1.36

11,858

2.21

6,036

3.11

As discussed above, a value close to
1.0 in the C1 field suggests that the
diagnosis code produces the same
expected value as a non-CC. A value of
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 finding for diagnosis code
285.3 of 1.36 supports the current
severity level of a non-CC. The C2
finding of 2.21 for diagnosis code 285.3
suggests that this code is more similar
to a CC than a non-CC but not as
significant as an MCC when there is at
least one other secondary diagnosis
code that is a CC. CC conditions
typically have a C1 value over 1.75, a C2
value under 2.5, and a C3 value under
3.2.
Therefore, the C1 and C2 findings do
not support changing the severity level
for diagnosis code 285.3 to a CC. In
addition, our clinical advisors reviewed
this issue and support the decision not
to change the severity level for diagnosis
code 285.3 because the anemia is
inherent in the treatment of cancer and
does not qualify as a CC. As a result of
our data analysis as well as the advice
of our clinical advisors, we did not
propose any change to the severity level
for diagnosis code 285.3 for FY 2013.
We invited public comment on our
proposal.
EMCDONALD on DSK67QTVN1PROD with RULES2

non-CC to a CC and to maintain the
severity level of a CC for diagnosis code
263.9 for FY 2013.

53317

Comment: Several commenters stated
that our proposal to maintain the
severity level of a non-CC for code 285.3
seems reasonable, given the data and
information provided.
Response: We appreciate the support
of the commenters for our proposal.
After consideration of the public
comments we received, we are
finalizing our proposal to not change the
severity level for diagnosis code 285.3
for FY 2013.
(C) Cardiomyopathy and Congestive
Heart Failure, Unspecified
We received a comment that
recommended changes to the severity
levels for the cardiomyopathy and
congestive heart failure, unspecified
codes. The commenter recommended
that cardiomyopathy codes, which are
currently classified as CCs, be changed
to non-CCs and diagnosis code 428.0
(Congestive heart failure, unspecified)
be changed from a non-CC to a CC.
According to the commenter, these
recommended changes would better
represent the resources utilized in
caring for this population and reduce
the administrative burden in clarifying
these diagnoses with providers. We
received this comment during the
comment period for the FY 2012 IPPS/
LTCH PPS proposed rule. We referred to
this issue briefly in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51557). We

Code

Diagnosis description

425.4 ....................
425.5 ....................
425.7 ....................

Other primary cardiomyopathies .......
Alcoholic cardiomyopathy ..................
Nutritional and metabolic cardiomyopathy.
Cardiomyopathy in other diseases
classified elsewhere.

425.8 ....................

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PO 00000

CC Level

Frm 00061

Cnt 1

Cnt 1
Impact

indicated that we considered this
comment outside of the scope of the
proposed rule because we did not
propose any severity level changes to
these codes for FY 2012; therefore, we
did not address it in the final rule.
However, we addressed this issue in the
FY 2013 proposed rule and are
finalizing our policy in this final rule.
The commenter did not provide a list
of the cardiomyopathy codes. We
identified the following codes for
analysis of the claims data in the FY
2011 MedPAR file:
• 425.4 (Other primary
cardiomyopathies)
• 425.5 (Alcoholic cardiomyopathy)
• 425.7 (Nutritional and metabolic
cardiomyopathy)
• 425.8 (Cardiomyopathy in other
diseases classified elsewhere)
• 425.9 (Secondary cardiomyopathy,
unspecified)
• 428.0 (Congestive heart failure,
unspecified)
We did not include diagnosis codes
425.11 (Hypertrophic obstructive
cardiomyopathy) and 425.18 (Other
hypertrophic cardiomyopathy) for our
analysis because these two codes were
created in FY 2012 and the data are not
yet available. We examined claims data
according to the approach that we used
in FY 2008 as described above. The
following table illustrates our findings:
Cnt 2
Impact

Cnt 2

Cnt 3

Cnt 3
Impact

CC
CC
CC

39,489
438
60

1.47
1.68
1.18

243,719
2,643
869

2.18
2.19
2.17

139,689
1,670
799

3.20
3.26
3.14

CC

940

1.19

5,967

2.15

5,171

3.14

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

Code

Diagnosis description

425.9 ....................

Secondary cardiomyopathy, unspecified.
Congestive heart failure, unspecified

428.0 ....................

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The table above shows that the C1
findings for the cardiomyopathy codes
ranged from a low of 1.18 to a high of
1.68. A value close to 1.0 in the C1 field
suggests that the diagnosis code
produces the same expected value as a
non-CC. A value of 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 the majority of
these cardiomyopathy codes are more
similar to a non-CC than a CC. The C2
findings ranged from a low of 2.07 to a
high of 2.19. These findings suggest that
these cardiomyopathy codes are more
similar to a CC.
The C1 finding for diagnosis code
428.0 of 1.40 suggests that the condition
is more similar to a non-CC than a CC.
The C2 finding for diagnosis code 428.0
of 2.16 suggests that the secondary
diagnosis is more similar to a CC than
a non-CC.
The data are mixed between the C1
and C2 findings for the cardiomyopathy
codes and do not consistently support a
change in the severity level. Our clinical
advisors reviewed these issues and are
not in support of proposing any changes

CC Level

Cnt 1

Cnt 1
Impact

Cnt 2
Impact

Cnt 2

Cnt 3

Cnt 3
Impact

CC

356

1.56

2,078

2.07

1.372

3.22

Non-CC

304,963

1.40

634,241

2.16

748,649

3.06

to the severity levels for these codes.
Our clinical advisors stated that the
diagnosis of cardiomyopathy (diagnosis
codes 425.4 through 425.9) is generally
severe, with significant impact on the
patient requiring additional monitoring
resources and cognitive effort, and is
appropriately classified as a CC.
The data are mixed between the C1
and C2 findings for the congestive heart
failure, unspecified, diagnosis code
428.0. Our clinical advisors reviewed
these issues and are not in support of
proposing any changes to the severity
level of code 428.0. They indicated that
diagnosis code 428.0 is very nonspecific
and does not identify the severity of the
heart failure, and concluded that the
current classification for code 428.0 as
a non-CC is appropriate. As a result of
our data analysis and clinical advisors’
review of these issues, we did not
propose any changes to the severity
level for the cardiomyopathy and
congestive heart failure, unspecified
codes for FY 2013. We invited public
comment on our proposal.
Comment: Several commenters stated
that our proposal to make no changes to
the severity level for cardiomyopathy

and congestive heart failure, unspecified
codes seems reasonable, given the data
and information provided.
Response: We appreciate the support
of the commenters for our proposal.
After consideration of the public
comments we received, we are
finalizing our proposal to maintain the
current severity level for
cardiomyopathy and congestive heart
failure, unspecified codes for FY 2013.
(D) Chronic Total Occlusion of Artery of
the Extremities
We received a request to change the
severity level designation for diagnosis
code 440.4 (Chronic total occlusion of
artery of the extremities) to a CC.
Currently, the diagnosis code is
classified as a non-CC. Chronic total
occlusion of artery of the extremities
forms when plaque accumulates in an
artery over an extended period of time,
resulting in total cessation of blood
flow. We analyzed claims data in the FY
2011 MedPAR file for this diagnosis
code according to the approach that we
used in FY 2008 as described above.
The following table illustrates our
findings:

Code

Diagnosis description

CC Level

Cnt 1

Cnt 1
Impact

Cnt 2

Cnt 2
Impact

Cnt 3

Cnt 3
Impact

440.4 ....................

Chronic total occlusion of artery of
the extremities.

Non-CC

8,439

1.38

8,057

2.70

5,366

3.23

The C1 finding of 1.38 for diagnosis
code 440.4 supports the current
designation of this diagnosis code as a
non-CC. However, the C2 findings of
2.70 suggests that this code is similar to
a CC or perhaps an MCC, as this value
is near to 3.0, which suggests that this
condition is similar to an MCC.
However, we would expect a higher C1
value such as 2.4 for this condition to
qualify as an MCC.
The C1 and C2 findings support
changing diagnosis code 440.4 from a
non-CC to a CC. Our clinical advisors
reviewed this issue and are in support
of changing the severity level because
this condition behaves as a CC.
Therefore, in the FY 2013 IPPS/LTCH
PPS proposed rule, we proposed to
change the severity level for diagnosis
code 440.4 from a non-CC to a CC for
FY 2013. We invited public comment on
our proposal.

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Comment: Several commenters
supported our proposed change to the
severity level from a non-CC to a CC for
code 440.4. Several commenters stated
that the proposal seems reasonable,
given the data and information
provided.
One commenter stated that crossing a
stenotic occlusive lesion typically
requires manipulation of the guidewire
with a single catheter that remains in
the vessel lumen. In contrast, crossing a
chronic total occlusion typically
requires multiple wires and catheters
whereby the wire leaves the vessel
lumen, dissects through the subintimal
plane around the occlusive lesion, and
then must be manipulated back into the
true outflow lumen. According to the
commenter, the additional time,
intensity of work, and resources
necessary to perform an endovascular
revascularization of a chronic total

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Fmt 4701

Sfmt 4700

occlusion justify the proposed increase
in severity level.
Response: We appreciate the support
of the commenters for our proposal.
After consideration of the public
comments we received, we are
finalizing our proposal to change the
severity level for diagnosis code 440.4
from a non-CC to a CC for FY 2013.
(E) Acute Kidney Failure With Other
Specific Pathological Lesion in Kidney
We received a request to consider
changing the severity level for diagnosis
code 584.8 (Acute kidney failure with
other specified pathological lesion in
kidney). This diagnosis code’s severity
level is currently classified as an MCC.
We examined claims data for this code
in the FY 2011 MedPAR file according
to the approach described above. The
following table illustrates those
findings.

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
Code

Diagnosis description

Severity
level

Cnt 1

Cnt 1
Impact

Cnt 2

Cnt 2
Impact

Cnt 3

Cnt 3
Impact

584.8 ....................

Acute kidney failure with other specified pathological lesion in kidney.

MCC

12

0.98

13

1.89

1,350

3.17

As discussed above, a C1 value close
to 1.0 in the C1 field suggests that the
diagnosis code produces the same
expected value as a diagnosis code that
has been classified as a non-CC. A value
close to 2.0 in the C1 field suggests that
the condition is more similar to a CC
severity level than a non-CC severity
level, but not as significant in resource
usage as an MCC severity level. In this
case, the C1 value finding for diagnosis
code 584.8 of 0.98 suggests that this
diagnosis code is more similar to a nonCC than an MCC. A C2 value close to
3.0 suggests that the condition is more
similar to an MCC than a CC or a nonCC. A C2 value close to 2.0 suggests that
the condition is more similar to a CC
than a non-CC. The C2 value finding for
diagnosis code 584.8 of 1.89 supports
classifying the severity level of this
diagnosis code as a CC. Therefore, the
C1 and C2 value findings support
changing the severity level of diagnosis
code 584.8 from an MCC to a lower
severity level, that is, a CC. Our clinical
advisors reviewed this issue and stated
that this condition behaves as a CC.
Therefore, they supported changing the
severity level of this diagnosis code to
a CC. Based on the clinical analysis and
consistent with supporting claims data,
we believe that the severity level of
diagnosis code 584.8 should be changed
from an MCC to a CC. Therefore, in the
FY 2013 IPPS/LTCH PPS proposed rule,
we proposed to change the severity level
of diagnosis code 584.8 from an MCC to
a CC for FY 2013. We invited public
comment on our proposal.
Comment: Commenters stated CMS’
proposed change to the severity level of

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53319

diagnosis code 584.8 from an MCC to a
CC was reasonable, given the data and
information provided.
Response: We appreciate the support
of the commenters for our proposal.
Comment: One commenter opposed
the proposal to change the severity level
of diagnosis code 584.8 from an MCC to
a CC. The commenter stated that this
downgrade penalizes hospitals willing
to take on sicker patients because
additional care is required to treat
patients with this condition. The
commenter stated that this change
would also hurt hospitals whose clinical
documentation staff, in conjunction
with providers, perform the additional
work of identifying the underlying
cause of the kidney failure.
Response: Information from our
claims data does not support the
commenter’s statement that these are
sicker patients who should be classified
at the MCC severity level. As discussed
above, our claims data suggests that
code 584.8 is more appropriately
classified as a CC. The C1 finding of
0.98 suggests that this code is more like
a non-CC than an MCC. The C2 finding
of 1.89 supports classifying this code as
either a non-CC or CC. Therefore, the C1
and C2 findings support changing code
584.8 from an MCC to a lower severity
level. Our clinical advisors reviewed
this issue and support changing the
severity level of this code to a CC. Our
clinical analysis and consistent claims
data support changing code 584.8 from
an MCC to CC.
We disagree with the commenter’s
statement that this severity level change
would hurt hospitals whose clinical

documentation staff, in conjunction
with providers, perform the additional
work of identifying the underlying
cause of the kidney failure. CMS
supports improved documentation
practices by providers, which leads to
better patient care. Providers should
consistently work on improved clinical
documentation for all patients, not just
those who have a secondary diagnosis
on the MCC list. We do not agree that
changing the severity level of procedure
code 584.8 hurts hospitals who attempt
to improve the clinical document in
their medical records.
After consideration of the public
comments we received, we are
finalizing our proposal to change the
severity level of diagnosis code 584.8
from an MCC to a CC.
(F) Pressure Ulcer, Unstageable
We received a request to consider
changing the severity level for diagnosis
code 707.25 (Pressure ulcer,
unstageable) from its current
classification as a non-CC to an MCC.
This issue was referred to as an out-ofscope public comment in the FY 2012
IPPS/LTCH PPS final rule (76 FR
51557), but was not addressed in that
rule.
For the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27910), we
analyzed claims data for diagnosis code
707.25 from the FY 2011 MedPAR file
according to the process and approach
described above. The following table
illustrates our findings:

Code

Diagnosis description

CC level

Cnt 1

Cnt 1
Impact

Cnt 2

Cnt 2
Impact

Cnt 3

Cnt 3
Impact

707.25 ......

Pressure ulcer, unstageable .........................

Non-CC

1,839

1.87

7,161

2.46

13,285

3.08

As discussed above, a C1 value close
to 2.0 suggests the condition is more
similar to a CC than a non-CC severity
level but not as significant in resource
usage as an MCC. The C1 value finding
of 1.87 for diagnosis code 707.25, which
is near but not that close to a 2.0,
suggests that this code is more similar
to a CC than an MCC. A C2 value of
close to 3.0 suggests the condition is
more similar to an MCC than a CC or
non-CC. The C2 value finding for
diagnosis code 707.25 is 2.46, which is

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not close to 3.0 and, therefore, the data
do not support classifying this as an
MCC. The C1 and C2 findings are more
supportive of a classification as a CC
than an MCC. There is another problem
with this request to change diagnosis
code 707.25 from a non-CC to an MCC.
Currently, only stages III and IV
pressure ulcers are MCCs. This
unstageable code captures a pressure
ulcer whose stage has not been
determined. It would be inappropriate
to assume that a pressure ulcer reported

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with diagnosis code 707.25 might be a
stage III or IV pressure ulcer. Our claims
data C1 and C2 findings do not support
the fact that this code acts as an MCC.
As mentioned earlier, the claims data
are more supportive of a classification
as a CC than an MCC. We asked our
clinical advisors to review this issue.
Our clinical advisors agree that the data
findings and their own clinical
evaluation support not changing the
severity level of this diagnosis code to
a CC or an MCC. Our clinical advisors

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

recommend that unstageable pressure
ulcers should continue to be classified
as a non-CC because the stage is not
clearly designated as a stage III or IV.
Unstageable codes do not delineate
what the stage of the ulcer might be. As
a result of our data analysis as well as
the advice of our clinical advisors, we
believe that unstageable pressure ulcers
should continue to be classified as a
non-CC. Therefore, we proposed that
diagnosis code 707.25 remain a non-CC
for FY 2013.
We invited public comment on our
proposal not to change the severity level
for diagnosis code 707.25 for FY 2013.
Comment: Several commenters
supported our proposal not to change
the severity level for diagnosis code
707.25. The commenters stated the
proposal seems reasonable, given the
data and information provided.
Response: We appreciate the support
of the commenters.
Comment: One commenter questioned
whether a ‘‘not examined ulcer’’ would
be classified the same as unstageable.
The commenter stated that an ulcer
should not be classified as unstageable
simply because it was not examined.
Response: If a pressure ulcer is
documented in the medical record and
the stage is unspecified, code 707.20
(Pressure ulcer, unspecified stage)
would be assigned.
Comment: Some commenters did not
support our proposal. The commenters
pointed out that the National Pressure
Ulcer Advisory Panel defines

unstageable pressure ulcers as at least a
stage III pressure ulcer and suggested
that the resource expenditures
associated with treating this condition
would meet the definition of an MCC.
Another commenter recommended that
the severity level for code 707.25 be
changed to a CC.
Response: Based on the data and our
analysis presented above, we concluded
that diagnosis code 707.25 did not
warrant a change to the severity level.
Our clinical advisors recommend that
unstageable pressure ulcers should
continue to be classified as a non-CC
because the stage is not clearly
designated as a stage III or IV. Without
knowing the stage of the ulcer, an
assumption should not be made.
After consideration of the public
comments we received, we are
finalizing our proposal to not change the
severity level for code 707.25 for FY
2013.
For FY 2013, we proposed changes to
Table 6G (Additions to the CC Exclusion
List). As we discussed earlier, we are
finalizing our proposed changes to the
severity level for diagnosis codes 263.0,
263.1, and 440.4 from a non-CC to a CC.
There are no proposed and finalized
changes to Table 6H (Deletions to the
CC Exclusion List). These tables, which
contain codes that are effective for
discharges occurring on or after October
1, 2012, are not being published in the
Addendum to this final rule because of
the length of the two tables. Instead, we
are making them available through the

Internet on the CMS Web site at:
http://www.cms.hhs.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html. Each of
these principal diagnoses for which
there is a CC exclusion is shown in
Tables 6G and 6H with an asterisk, and
the conditions that will not count as a
CC are provided in an indented column
immediately following the affected
principal diagnosis.
A complete updated MCC, CC, and
Non-CC Exclusions List is available
through the Internet on the CMS Web
site at: http://www.cms.hhs.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html. Beginning with discharges
on or after October 1, 2011, the indented
diagnoses were not 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
occur as a result of our review of
severity levels for several ICD–9–CM
diagnosis codes, we are providing the
following summaries of those MCC and
CC changes for FY 2013. There are no
new, revised, or deleted diagnosis codes
for FY 2013. Therefore, there are no
Tables 6A, 6C, and 6E published for FY
2013.
Summary of Additions to the MS–DRG
MCC List—Table 6I.1
There are no additions to the MS–
DRG MCC List.

SUMMARY OF DELETIONS FROM THE MS–DRG MCC LIST—TABLE 6I.2
Code

Description

584.8 .......................................................................................................

Acute kidney failure with other specified pathological lesion in kidney.

SUMMARY OF ADDITIONS TO THE MS–DRG CC LIST—TABLE 6J.1
Code
263.0
263.1
440.4
584.8

Description

.......................................................................................................
.......................................................................................................
.......................................................................................................
.......................................................................................................

EMCDONALD on DSK67QTVN1PROD with RULES2

Summary of Deletions From the MS–
DRG CC List—Table 6J.2
There are no deletions from the MS–
DRG CC list.
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–

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Malnutrition of moderate degree.
Malnutrition of mild degree.
Chronic total occlusion of artery of the extremities.
Acute kidney failure with other specified pathological lesion in kidney.

DRG Definitions Manual, Version 29.0,
is available on a CD for $225.00. Version
30.0 of this manual, which will include
the final FY 2013 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: http://www.3MHIS.com. Please
specify the revision or revisions
requested.

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8. Review of Procedure Codes in MS
DRGs 981 Through 983; 984 Through
986; and 987 Through 989
Each year, we review cases assigned
to former CMS DRG 468 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis), CMS DRG 476 (Prostatic
O.R. Procedure Unrelated to Principal
Diagnosis), and CMS DRG 477
(Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis) to determine
whether it would be appropriate to

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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
• 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.14
14 The original list of the ICD–9–CM procedure
codes for the procedures we consider nonextensive

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Our review of MedPAR claims data
showed that there were no cases that
merited movement or should logically
be assigned to any of the other MDCs.
Therefore, for FY 2013, we did not
propose to change the procedures
assigned among these MS–DRGs.
We did not receive any public
comments on our proposal. Therefore,
as we proposed, we are not making any
changes to the procedures assigned to
MS–DRGs 981 through 983, MS–DRGs
984 through 986, and MS–DRGs 987
through 989 for FY 2013.
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
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, FY 2011, and FY 2012, 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); the FY 2011 final rule (75 FR 50122); and
the FY 2012 final rule (76 FR 51549).

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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 2013, we did not
propose 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.
We did not receive any public
comments on our proposal. Therefore,
as we proposed, we are not making any
changes to the procedures assigned to
MS–DRGs 981 through 983 or MS–DRGs
987 through 989 for FY 2013.
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 costs and the
length of stay. We look at the data for
trends such as shifts in treatment
practice or reporting practice that would
make the resulting MS–DRG assignment
illogical. If we find these shifts, we
would propose to move cases to keep
the MS–DRGs clinically similar or to
provide payment for the cases in a
similar 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 2013, we did
not propose to move any procedure
codes among these MS–DRGs.
We did not receive any public
comments on our proposal. Therefore,
as we proposed, we are not moving any
procedures assigned to MS–DRGs 981
through 983, MS–DRGs 984 through
986, and MS–DRGs 987 through 989 for
FY 2013.

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c. Adding Diagnosis or Procedure Codes
to MDCs
Based on the review of cases in the
MDCs as described above in sections
II.G.1. through 4. of this preamble, we
did not propose to add any diagnosis or
procedure codes to MDCs for FY 2013.
We did not receive any public
comments on our proposal. Therefore,
as we proposed, we are not adding any
diagnosis or procedure codes to MDCs
for FY 2013.

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9. 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
a. ICD–9–CM Coding System
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 $29.00 by calling (202) 512–
1800.) Complete information on
ordering the CD–ROM is also available
at: http://www.cms.hhs.gov/ICD9
ProviderDiagnosticCodes/05CDROM.
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

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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 2013 at a public meeting held on
September 14, 2011 and finalized the
coding changes after consideration of
comments received at the meetings and
in writing by November 18, 2011.
The Committee held its 2012 meeting
on March 5, 2012. New codes for which
there was consensus of public support
and for which complete tabular and
indexing changes were made by May
2012 are included in the October 1,
2012 update to ICD–9–CM. Code
revisions that were discussed at the
March 5, 2012 Committee meeting but
that could not be finalized in time to
include them in the tables listed in
section VI. of the Addendum to the
proposed rule are included in Table 6B
which is listed in section VI. of the
Addendum to this final rule and
available via the Internet on the CMS
Web site, and are marked with an
asterisk (*).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27912), we stated
that, for FY 2013, there were no changes
to the ICD–9–CM coding system due to
the partial code freeze or for new
technology. However, at the March 5,
2012 meeting there was a request for a
code for a new technology. As discussed
below, only codes for new technologies
or new diagnoses are being considered
during the partial code freeze. After
discussions at the meeting and public
comment received after the meeting, it
was decided that there will be one new
procedure code effective October 1,
2012: new code 00.95 (Injection or
infusion of glucarpidase).
Therefore, there are no new, revised,
or deleted diagnosis codes and no
revised or deleted procedure codes that

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are usually announced in Tables 6A
(New Diagnosis Codes), 6C (Invalid
Diagnosis Codes), 6D (Invalid Procedure
Codes), 6E (Revised Diagnosis Code
Titles), and 6F (Revised Procedure
Codes). The new procedure code is
listed in Table 6B (New Procedure
Codes) for this final rule, which is
available via the Internet on the CMS
Web site.
Copies of the minutes of the
procedure codes discussions at the
Committee’s September 14, 2011
meeting and March 5, 2012 meeting can
be obtained from the CMS Web site at:
http://cms.hhs.gov/Medicare/Coding/
ICD9ProviderDiagnosticCodes/
index.html?redirect=/
icd9ProviderDiagnosticCodes/
03_meetings.asp. The minutes of the
diagnosis codes discussions at the
September 14, 2011 meeting and March
5, 2012 meeting are found at: http://
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 Email to: [email protected].
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
Email to: [email protected].
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.
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

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for the addition of new diagnosis and
procedure codes on April 1 of each year,
but the addition of such codes shall not
require the Secretary to adjust the
payment (or diagnosis-related group
classification) * * * until the fiscal year
that begins after such date.’’ This
requirement improves the recognition of
new technologies under the IPPS system
by providing information on these new
technologies at an earlier date. Data will
be available 6 months earlier than
would be possible with updates
occurring only once a year on October
1.
While section 1886(d)(5)(K)(vii) of the
Act states that the addition of new
diagnosis and procedure codes on April
1 of each year shall not require the
Secretary to adjust the payment, or DRG
classification, under section 1886(d) of
the Act until the fiscal year that begins
after such date, we have to update the
DRG software and other systems in
order to recognize and accept the new
codes. We also publicize the code
changes and the need for a mid-year
systems update by providers to identify
the new codes. Hospitals also have to
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

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December 4–5, 2005 ICD–9–CM
Coordination and Maintenance
Committee minutes. The public agreed
that there was a need to hold the fall
meetings earlier, in September or
October, in order to meet the new
implementation dates. The public
provided comment that additional time
would be needed to update hospital
systems and obtain new code books and
coding software. There was considerable
concern expressed about the impact this
new April update would have on
providers.
In the FY 2005 IPPS final rule, we
implemented section 1886(d)(5)(K)(vii)
of the Act, as added by section 503(a)
of Public Law 108–173, by developing a
mechanism for approving, in time for
the April update, diagnosis and
procedure code revisions needed to
describe new technologies and medical
services for purposes of the new
technology add-on payment process. We
also established the following process
for making these determinations. Topics
considered during the Fall ICD–9–CM
Coordination and Maintenance
Committee meeting are considered for
an April 1 update if a strong and
convincing case is made by the
requester at the Committee’s public
meeting. The request must identify the
reason why a new code is needed in
April for purposes of the new
technology process. The participants at
the meeting and those reviewing the
Committee meeting summary report are
provided the opportunity to comment
on this expedited request. All other
topics are considered for the October 1
update. Participants at the Committee
meeting are encouraged to comment on
all such requests. There were no
requests approved for an expedited
April 1, 2012 implementation of an
ICD–9–CM code at the September 14,
2011 Committee meeting. Therefore,
there were no new ICD–9–CM codes
implemented on April 1, 2012.
Current addendum and code title
information is published on the CMS
Web site at: http://www.cms.hhs.gov/
Medicare/Coding/
ICD9ProviderDiagnosticCodes/
index.html?redirect=/
icd9ProviderDiagnosticCodes/
01overview.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: http://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.

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CMS also sends copies of all ICD–9–
CM coding changes to its Medicare
contractors for use in updating their
systems and providing education to
providers.
These same means of disseminating
information on new, revised, and
deleted ICD–9–CM codes will be used to
notify providers, publishers, software
vendors, contractors, and others of any
changes to the ICD–9–CM codes that are
implemented in April. The code titles
are adopted as part of the ICD–9–CM
Coordination and Maintenance
Committee process. Thus, although we
publish the code titles in the IPPS
proposed and final rules, they are not
subject to comment in the proposed or
final rules. We will continue to publish
the October code updates in this manner
within the IPPS proposed and final
rules. For codes that are implemented in
April, we will assign the new procedure
code to the same 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.
b. Code Freeze
The International Classification of
Diseases, 10th Revision (ICD–10) coding
system applicable to hospital inpatient
services is to be implemented on
October 1, 2013, as described in the
Health Insurance Portability and
Accountability Act of 1996 (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).
However, the Secretary of Health and
Human Services issued a proposed rule
that would delay, from October 1, 2013,
to October 1, 2014, the compliance date
for the International Classification of
Diseases, 10th Edition diagnosis and
procedure codes (ICD–10). The
proposed rule, CMS–0040–P, went on
display at the Office of the Federal
Register on April 9, 2012, and was
published in the Federal Register on
April 17, 2012 (77 FR 22950) and is
available for viewing at: http://
www.gpo.gov/fdsys/browse/
collection.action?collectionCode=FR.

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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 ICM–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
the compliance date, necessitating
additional updates and purchases.
HHS 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, HHS
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 and September 14, 2011 ICD–9–
CM Coordination and Maintenance
Committee meetings that a partial freeze
of both ICD–9–CM and ICD–10 codes
will be implemented as follows:
• The last regular annual update to
both ICD–9–CM and ICD–10 code sets
was 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.
• On October 1, 2013, there were to
be only limited code updates to ICD–10
code sets to capture new technology and
diagnoses as required by section 503(a)
of Public Law 108–173. There were to

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be no updates to ICD–9–CM on October
1, 2013, as the system would no longer
be a HIPAA standard and, therefore, no
longer be used for reporting. With the
proposed ICD–10 implementation delay,
there will be only limited code updates
to both ICD–9–CM and ICD–10 to
capture new technology and new
diagnoses on October 1, 2013.
• On October 1, 2014, regular updates
to ICD–10 were to begin. As stated
earlier, HHS has issued a proposed rule
that would delay the compliance date of
ICD–10 from October 1, 2013, to October
1, 2014. If this delay is implemented as
proposed, there would be only limited
ICD–10 code updates for new
technologies and new diseases on
October 1, 2014. There would be no
updates to ICD–9–CM on October 1,
2014, as the system would no longer be
a HIPAA standard and, therefore, no
longer be used for reporting. Full ICD–
10 updates would begin on October 1,
2015, one year after the implementation
of ICD–10.
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: http://www.cms.gov/Medicare/
Coding/ICD9ProviderDiagnosticCodes/
index.html?redirect=/icd9Provider
DiagnosticCodes/03.asp#TopOfPage. A
summary of the September 14, 2011
Committee meeting, along with both
written and audio transcripts of this
meeting, are posted on the ‘‘Download’’
section of this Web page.
Comment: Several commenters
expressed concern about the delay in
the implementation of ICD–10. Some
commenters supported a delay, while
others opposed any delay.
Response: Proposals on ICD–10
implementation are being addressed
through a separate rulemaking as we
have indicated above. These comments
will be addressed as part of that separate
rulemaking.

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c. Processing of 25 Diagnosis Codes and
25 Procedure Codes on Hospital
Inpatient Claims
CMS is currently processing 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 diagnosis
codes and 6 procedure codes. We
discussed this change in processing
claims in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50127), in the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25843), in a correction notice issued in
the Federal Register on June 14, 2011
(76 FR 24633), and in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51553). As
discussed in these prior rules, CMS
undertook an 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 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. We
will continue to process up to 25
diagnosis codes and 25 procedure codes
when received on the 5010 format.
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 at the same time as ICD–
10 (75 FR 50127 and 50128). As we
stated earlier, the Secretary of Health
and Human Services has issued a
proposed rule that would delay the
compliance date of ICD–10 from
October 1, 2013 to October 1, 2014.
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
to assist other payers and providers in
understanding how to go about their
own conversion projects. We posted
ICD–10 MS–DRGs based on Version
26.0 (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

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CMS Web site at: http://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:
http://www.cms.gov/Medicare/Coding/
ICD9ProviderDiagnosticCodes/
index.html.
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–
DRGs Version 28.0 also included 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: http://www.cms.gov/
Medicare/Coding/ICD9Provider
DiagnosticCodes/index.html.
We reviewed comments on the ICD–
10 MS–DRGs Version 28.0 and made
updates as a result of these comments.
We called the updated version the ICD–
10 MS–DRGs Version 28 R1. We posted
a Definitions Manual of ICD–10 MS–
DRGs Version 28 R1 on our ICD–10 MS–
DRG Conversion Project Web site at:
http://www.cms.gov/ICD10/17_ICD10
_MS_DRG_Conversion_Project.asp. To
make the review of Version 28 R1
updates easier for the public, we also
made available pilot software on a CD
ROM that could be ordered through the
National Technical Information Service
(NTIS). A link to the NTIS ordering page
was provided on the CMS ICD–10 MS–
DRG Web page. We stated that we
believed that, by providing the ICD–10
MS–DRG Version 28 R1 Pilot Software
(distributed on CD ROM), the public
would be able to more easily review and
provide feedback on updates to the ICD–
10 MS–DRGs. We discussed the updated
ICD–10 MS–DRGs Version 28 R1 at the
September 14, 2011 ICD–9–CM
Coordination and Maintenance
Committee meeting. We encouraged the
public to continue to review and
provide comments on the ICD–10 MS–
DRGs so that CMS could continue to
update the system.
In FY 2012, we prepared the ICD–10
MS–DRGs Version 29.0, based on the FY
2012 MS–DRGs (Version 29.0) that we
finalized in the FY 2012 IPPS/LTCH

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PPS final rule. We posted a Definitions
Manual of ICD–10 MS–DRGs Version
29.0 on our ICD–10 MS–DRGs Web site.
We also prepared a document that
describes changes made from Version
28.0 to Version 29.0 to facilitate a
review. The ICD–10 MS–DRGs Version
29.0 was discussed at the ICD–9–CM
Coordination and Maintenance
Committee meeting on March 5, 2012.
Information was provided on the types
of updates made. Once again the public
was encouraged to review and comment
on the most recent update to the ICD–
10 MS–DRGs.
We provided information on a study
conducted on the impact on converting
MS–DRGs to ICD–10. Information on
this study is summarized in a paper
entitled ‘‘Impact of the Transition to
ICD–10 on Medicare Inpatient Hospital
Payments.’’ This paper is posted on the
CMS ICD–10 MS–DRG conversion Web
site at: http://www.cms.gov/ICD10/17
_ICD10_MS_DRG_Conversion
_Project.asp. The paper describes CMS’
approach to the conversion of the MS–
DRGs from ICD–9–CM codes to ICD–10
codes. The study was undertaken using
the ICD–9–CM MS–DRGs Version 27.0
(FY 2010) and converted to the ICD–10
MS–DRGs Version 27.0. The study
estimated the impact on aggregate
payment to hospitals and the
distribution of payments across
hospitals. The paper was distributed
and discussed at the September 15, 2010
ICD–9–CM Coordination and
Maintenance Committee. The impact of
the conversion from ICD–9–CM to ICD–
10 on Medicare MS–DRG hospital
payments was estimated using 2009
Medicare data. The study found a
hospital payment increase of 0.05
percent using the ICD–10 MS–DRGs
Version 27.0. For detailed information
on this study, we refer readers to the
complete report which is posted on the
CMS Web site at: http://www.cms.gov/
ICD10/17_ICD10_MS_DRG_Conversion
_Project.asp.
CMS provided an overview of this
hospital payment impact study at the
March 5, 2012 ICD–9–CM Coordination
and Maintenance Committee meeting.
This presentation followed
presentations on the creation of ICD–10
MS–DRGs Version 29.0. A summary
report of this meeting can be found on
the CMS Web site at: http://
www.cms.gov/Medicare/Coding/
ICD9ProviderDiagnosticCodes/
index.html. At this March 2012 meeting,
CMS announced that it would produce
an update on this impact study based on
an updated version of the ICD–10 MS–
DRGs. This update will provide
additional information to the public as
CMS is evaluating refinements made to

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the ICD–10 MS–DRGs based on public
comments.
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 will be implemented at the
same time as ICD–10 and 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.
10. Public Comments on Issues Not
Addressed in the Proposed Rule
We received a number of public
comments regarding MS–DRG issues
that were outside of the scope of the
proposals included in the FY 2013
IPPS/LTCH PPS proposed rule. We have
summarized these public comments
below. However, because these public
comments were outside of the scope of
the proposed rule, we are not addressing
them in this final rule. As stated in
section II.G. of this preamble, we
encourage individuals with comments
about MS–DRG classifications to submit
these comments no later than December
of each year so they can be considered
for possible inclusion in the annual
proposed rule and, if included, may be
subjected to public review and
comment. We will consider these
comments for possible proposals in
future rulemaking as part of our annual
review process.
Some commenters requested that
CMS create a new MS–DRG for total
ankle replacement procedures. One
commenter requested that CMS
eliminate the severity levels for heart
and liver transplants and implement
one MS–DRG for heart transplants and
one MS–DRG for liver transplants.
One commenter requested that CMS
conduct an analysis of diagnosis code
V45.88 (Status post administration of
tPA (rt-PA) in a different facility within
the last 24 hours prior to admission to
current facility) to determine whether
new data warrant any change in the
MS–DRG structure for these cases.
One commenter recommended that
bronchial valve procedures reported
with ICD–9–CM procedure codes 33.71
(Endoscopic insertion or replacement of
bronchial valve(s), single lobe) and
33.73 (Endoscopic insertion or
replacement of bronchial valve(s),
multiple lobes), that are assigned to
medical MS–DRGs 190 and 192
(Chronic Obstructive Pulmonary Disease
with MCC, with CC, or without MCC/
CC, respectively) be assigned instead to

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surgical MS–DRGs 163 and 165 (Major
Chest Procedures with MCC, with CC, or
without MCC/CC, respectively).

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H. Recalibration of MS–DRG Weights
1. Data Sources for Developing the
Weights
In developing the FY 2013 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 2011 MedPAR data used
in this final rule include discharges
occurring on October 1, 2010, through
September 30, 2011, based on bills
received by CMS through March 31,
2012, 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 2011
MedPAR file used in calculating the
relative weights includes data for
approximately 10,804,695 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. In addition, the
March 31, 2012 update of the FY 2011
MedPAR file complies with version
5010 of the X12 HIPAA Transaction and
Code Set Standards, and includes a
variable called ‘‘claim type.’’ Claim type
‘‘60’’ indicates that the claim was an
inpatient claim paid as fee-for-service.
Claim types ‘‘61,’’ ‘‘62,’’ ‘‘63,’’ and ‘‘64’’
relate to encounter claims, Medicare
Advantage IME claims, and HMO nopay claims. Therefore, the calculation of
the relative weights for FY 2013 also
excludes claims with claim type values
not equal to ‘‘60.’’ 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 Medicare cost report data files from
the HCRIS. Normally, we use the HCRIS
dataset that is 3 years prior to the IPPS
fiscal year (that is, for the calculation of
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we use data from the FY 2010 HCRIS,
which are data from cost reports that
began on or after October 1, 2009 and
before October 1, 2010). However,
during the development of this final
rule, as was the case with the proposed
rule, we have found that those cost
reports in the FY 2010 HCRIS dataset
with fiscal year begin dates that are on
or after May 1, 2010, and before October
1, 2010, are not accessible. This is
because cost reports with fiscal year
begin dates of May 1, 2010, through
September 30, 2010, were filed on the
new cost report Form 2552–10, and cost
reports filed on Form 2552–10 are not
currently accessible in the HCRIS.
However, because data from cost reports
filed on Form 2552–10 are not currently
available, to ensure that the FY 2013
MS–DRG relative weights are calculated
with a dataset that is as comprehensive
and accurate as possible, as we
proposed, we are calculating the final
FY 2013 MS–DRG relative weights with
data from FY 2010 cost reports for
providers with fiscal year begin dates of
on or after October 1, 2009 and before
May 1, 2010, and backfilling with data
from FY 2009 cost reports for those
providers that have fiscal year begin
dates on or after May 1, 2010 through
September 30, 2010. We used cost
report data from the March 31, 2012
update of the HCRIS for FY 2009 and FY
2010 in calculating the FY 2013 costbased relative weights.
2. Methodology for Calculation of the
Relative Weights
The methodology we used to calculate
the FY 2013 MS–DRG cost-based
relative weights based on claims data in
the FY 2011 MedPAR file and data from
the FY 2009 and FY 2010 Medicare cost
reports is as follows:
• To the extent possible, all the
claims were regrouped using the
proposed FY 2013 MS–DRG
classifications discussed in sections II.B.
and G. of the preamble of this final rule.
• The transplant cases that were used
to establish the relative weights for heart
and heart-lung, liver and/or intestinal,
and lung transplants (MS–DRGs 001,
002, 005, 006, and 007, respectively)
were limited to those Medicareapproved transplant centers that have
cases in the FY 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

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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
geometric mean of the log distribution
of both the total charges per case and
the total charges per day for each MS–
DRG.
• Effective October 1, 2008, because
hospital inpatient claims include a POA
indicator field for each diagnosis
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), 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

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encouraging quality care and generates
program savings, it presents an issue for
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 HAC cases
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

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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 an ‘‘N’’ or a
‘‘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
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
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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 and FY
2010 cost report data.
The 15 cost centers that we used in
the relative weight calculation are
shown in the following table. The table
shows the lines on the cost report and
the corresponding revenue codes that
we used to create the 15 national cost
center CCRs.
BILLING CODE 4120–01–P

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3. Development of National Average
CCRs
We developed the national average
CCRs as follows:
Using the FY 2009 and FY 2010 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 because we include
their charges in our claims database. We
then created CCRs for each provider for
each cost center (see prior table for line
items used in the calculations) and
removed any CCRs that were greater
than 10 or less than 0.01. We
normalized the departmental CCRs by
dividing the CCR for each department
by the total CCR for the hospital for the
purpose of trimming the data. We then
took the logs of the normalized cost
center CCRs and removed any cost
center CCRs where the log of the cost
center CCR was greater or less than the
mean log plus/minus 3 times the
standard deviation for the log of that
cost center CCR. Once the cost report
data were trimmed, we calculated a
Medicare-specific CCR. The Medicarespecific CCR was determined by taking
the Medicare charges for each line item
from Worksheet D–4 and deriving the
Medicare-specific costs by applying the
hospital-specific departmental CCRs to
the Medicare-specific charges for each
line item from Worksheet D–4. Once
each hospital’s Medicare-specific costs
were established, we summed the total
Medicare-specific costs and divided by
the sum of the total Medicare-specific
charges to produce national average,
charge-weighted CCRs.
After we multiplied the total charges
for each MS–DRG in each of the 15 cost
centers by the corresponding national
average CCR, we summed the 15 ‘‘costs’’
across each MS–DRG to produce a total
standardized cost for the MS–DRG. The

threshold in recalibrating the MS–DRG
weights for FY 2013. Using data from
the FY 2011 MedPAR file, there were 8
MS–DRGs that contain fewer than 10
cases. Under the MS–DRGs, we have
fewer low-volume DRGs than under the
CMS DRGs because we no longer have
separate DRGs for patients aged 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 aged 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
Group
CCR
applicable to their own patient
Routine Days ........................
0.514 populations, we have received frequent
Intensive Days ......................
0.442 complaints from providers about the use
Drugs ....................................
0.199 of the Medicare relative weights in the
Supplies & Equipment ..........
0.335 pediatric population. We believe that
Therapy Services ..................
0.370
Laboratory .............................
0.143 eliminating this age split in the MS–
Operating Room ...................
0.238 DRGs will provide more stable payment
Cardiology .............................
0.145 for pediatric cases by determining their
Radiology ..............................
0.136 payment using adult cases that are
Emergency Room .................
0.226 much higher in total volume. Newborns
Blood and Blood Products ....
0.389 are unique and require separate MS–
Other Services ......................
0.397
DRGs that are not mirrored in the adult
Labor & Delivery ...................
0.450
Inhalation Therapy ................
0.189 population. Therefore, it remains
Anesthesia ............................
0.109 necessary to retain separate MS–DRGs
for newborns. All of the low-volume
MS–DRGs listed below are for
Since FY 2009, the relative weights
newborns. In FY 2013, because we do
have been based on 100 percent cost
weights based on our MS–DRG grouping not have sufficient MedPAR data to set
accurate and stable cost weights for
system.
When we recalibrated the DRG
these low-volume MS–DRGs, we
weights for previous years, we set a
proposed to compute weights for the
threshold of 10 cases as the minimum
low-volume MS–DRGs by adjusting
number of cases required to compute a
their FY 2012 weights by the percentage
reasonable weight. In the FY 2013 IPPS/ change in the average weight of the
LTCH PPS proposed rule (77 FR 27930), cases in other MS–DRGs. The crosswalk
we proposed to use that same case
table is shown below:

Low-Volume MS–DRG

MS–DRG Title

768 .................................

791 .................................

Vaginal Delivery with O.R. Procedure
Except Sterilization and/or D&C.
Neonates, Died or Transferred to Another Acute Care Facility.
Extreme Immaturity or Respiratory
Distress Syndrome, Neonate.
Prematurity with Major Problems ........

792 .................................

Prematurity without Major Problems ...

793 .................................

Full-Term Neonate with Major Problems.
Neonate with Other Significant Problems.
Normal Newborn .................................

789 .................................
790 .................................

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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 FY 2013 cost-based relative
weights were then normalized by an
adjustment factor of 1.5916044904 so
that the average case weight after
recalibration was equal to the average
case weight before recalibration. The
normalization adjustment is intended to
ensure that recalibration by itself
neither increases nor decreases total
payments under the IPPS, as required by
section 1886(d)(4)(C)(iii) of the Act.
The 15 national average CCRs for FY
2013 are as follows:

794 .................................
795 .................................

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Crosswalk to MS–DRG
FY 2012 FR weight (adjusted
cases in other MS–DRGs).
FY 2012 FR weight (adjusted
cases in other MS–DRGs).
FY 2012 FR weight (adjusted
cases in other MS–DRGs).
FY 2012 FR weight (adjusted
cases in other MS–DRGs).
FY 2012 FR weight (adjusted
cases in other MS–DRGs).
FY 2012 FR weight (adjusted
cases in other MS–DRGs).
FY 2012 FR weight (adjusted
cases in other MS–DRGs).
FY 2012 FR weight (adjusted
cases in other MS–DRGs).

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by percent change in average weight of the
by percent change in average weight of the
by percent change in average weight of the
by percent change in average weight of the
by percent change in average weight of the
by percent change in average weight of the
by percent change in average weight of the
by percent change in average weight of the

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We did not receive any public
comments on this section. In this final
rule, we are adopting the national
average CCRs as proposed without
modification, with the MS–DRG weights
recalibrated based on these CCRs.
4. Bundled Payments for Care
Improvement (BPCI) Initiative

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a. Background
Section 3021 of the Affordable Care
Act, codified at section 1115A of the
Act, authorizes CMS to test innovative
payment and service delivery models
with the goal of reducing Medicare
program expenditures while preserving
or enhancing the quality of care
furnished to individuals. Because
initiatives established under this
authority could result in IPPS hospitals
receiving a payment different than what
they otherwise would receive under the
IPPS, we believe it is important to
identify how these initiatives are
addressed in the context of MS–DRG
recalibration and ratesetting, budget
neutrality, and the impact analysis in
the Addendum of this final rule, as we
did in the proposed rule.
Under the Bundled Payments for Care
Improvement (BPCI) initiative, CMS
would link payments for multiple
services that patients receive during an
episode of care. CMS is working in
partnership with providers to develop
and test models of bundling payments
through the BPCI initiative. On August
23, 2011, CMS invited providers to
apply to help develop and test four
different models of bundling payments.
For additional information, we refer
readers to the CMS Web site at: http://
www.innovations.cms.gov/initiatives/
Bundled-Payments/index.html. We are
providing below a brief overview of
payments under each model. However,
the BPCI initiative Request for
Application and related information on
the CMS Web site at http://
www.innovations.cms.gov/initiatives/
Bundled-Payments/index.html/ provide
more details of this initiative.
As described below and also in the
Addendum to the proposed rule and
this final rule, we generally proposed to
include, and for this final rule are
including, data from hospitals
participating in the BPCI initiative and
to treat these hospitals without regard to
their participation in the BPCI initiative
for the purposes of IPPS ratesetting.
We did not receive any public
comments about our proposals.
Therefore, as discussed in greater detail
below, we are finalizing the treatment of
hospitals participating in the BPCI
initiative as proposed. For hospitals
participating in Models 1, 2, and 4, we

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are finalizing treating these hospitals the
same as prior fiscal years for purposes
of the FY 2013 (and subsequent years)
IPPS payment modeling and ratesetting
process without regard to a hospital’s
participation within these bundled
payment models (that is, as if they are
not participating in those models under
the BPCI initiative).
Model 1
In Model 1, the episode of care is
defined as the inpatient hospital
services for the acute care hospital stay
only. Applicants for this model were
asked to propose discount percentages
for various periods of the 3-year
program, which would be applied to the
IPPS operating MS–DRG payment for
each participating hospital’s MS–DRGs
over the lifetime of the initiative. That
is, for hospitals participating in Model
1, Medicare would continue to pay
participating acute care hospitals under
the IPPS. However, these payments to
participating acute care hospitals would
be at a reduced payment amount that
reflects the applicable discount
percentage for cases in all MS–DRGs for
the specific period of the program. We
note that an adjustment would be made
such that payments for IME, DSH, and
outliers would be calculated based on
the nondiscounted MS–DRG operating
IPPS payment amount and then paid, if
applicable, in addition to the
discounted MS–DRG operating IPPS
payment. The minimum discount
percentage that awardees are expected
to offer would be phased in over time,
with the discount percentage updated as
frequently as every 6 months.
Model 2
In Model 2, the episode of care is
defined as the inpatient acute care
hospital stay for specific clinical
conditions and a specified period of
time following discharge (with a
minimum episode length of at least 30
days following hospital discharge). The
payment bundle for Model 2 would
encompass all Medicare Part A
payments for designated MS–DRGs, Part
B professional services paid under the
Medicare Physician Fee Schedule
(MPFS) during the hospital stay, and
related professional services furnished
after discharge during the episode,
‘‘related readmissions’’ (as defined
under the BPCI initiative), care by a
postacute care provider such as an
HHA, IRF, SNF, LTCH, and other
related services furnished during the
episode (that is, all Medicare Part A and
Part B with the exception of hospice
care). Applicants, which may be a
Medicare supplier or provider, groups of
such entities, or other organizations that

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bring together providers and suppliers
to test the model, were asked to propose
specific MS–DRG(s) for the clinical
condition(s) to be tested in Model 2.
Furthermore, the applicants were asked
to propose the target price on an MS–
DRG basis for the episode that includes
a single rate of discount off of the
expected Medicare payment (including
hospital, postacute care, Medicare Part
B professional services, and other
services, as applicable) for all Model 2
beneficiaries discharged from the
inpatient hospital stay with the
specified MS–DRG(s). We note that,
when proposing the target price,
applicants were instructed to include
IPPS outlier payments in their
calculation; however, IPPS IME and
DSH payments should be excluded from
the target price. In Model 2, payments
would be made at the usual fee-forservice payment rates to the
participating providers through the
regular claims processing system, after
which the aggregate Medicare payment
for the episode would be reconciled
against the target price. If aggregate
Medicare expenditures are less than the
target price, the awardee would be paid
the difference as a reconciliation
payment. Conversely, if aggregate
Medicare expenditures exceed the target
price, CMS would recoup that amount
from the awardee.
Model 3
In Model 3, the episode of care begins
at initiation of postacute services at one
of four postacute care providers (HHAs,
IRFs, SNFs, and LTCHs) within 30 days
after discharge from any acute care
hospital for specific clinical conditions.
As with the other three models,
applicants may be one or more Medicare
providers or supplier or other
organization(s) bringing those entities
together to test the model. Applicants
were asked to propose an episode length
that would extend to at least 30 days
following initiation of care at an HHA,
IRF, SNF, or LTCH. The payment
bundle for Model 3 would encompass
care by a postacute care provider, and
other related services furnished during
the episode, including Medicare Part B
professional services paid under the
MPFS, and inpatient hospital
readmissions (as defined under the BPCI
initiative). In contrast to Model 2, the
payment bundle for Model 3 does not
include services provided in the initial
acute care hospital stay. We note that,
while the episode is initiated at one of
the four postacute care providers rather
than at an acute care hospital,
applicants were asked to specify the
clinical condition(s) to be tested in
Model 3 by proposing relevant MS–

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DRG(s). Therefore, applicable to all
Model 3 beneficiaries discharged from
any inpatient acute care hospital stay
with the specified MS–DRG(s),
applicants were to propose a target price
on an MS–DRG basis for the episode
that includes a single rate of discount
off of the expected Medicare payment,
which includes care by a postacute care
provider, related Medicare Part B
professional services paid under the
MPFS, inpatient hospital readmissions,
and other related services furnished
during the episode. In Model 3,
payments would be made at the usual
fee-for-service payment rates to the
participating providers through the
regular claims processing process, after
which the aggregate Medicare payment
for the episode would be reconciled
against the target price. Like Model 2, if
aggregate Medicare expenditures are
less than the target price, the awardee
would be paid the difference as a
reconciliation payment. Conversely, if
aggregate Medicare expenditures exceed
the target price, CMS would recoup that
amount from the awardee. We note that
Model 3 does address payment for
related hospital readmissions.
Model 4
In Model 4, the episode of care is
defined as the acute care hospital stay
and includes all ‘‘related readmissions’’
(as defined under the BPCI initiative).
The payment bundle for Model 4 would
encompass Medicare inpatient hospital
services, Medicare Part B professional
services paid under the MPFS furnished
during the initial hospitalization, as
well as hospital services and Medicare
Part B professional services during any
related readmissions. Applicants were
asked to propose specific MS–DRG(s)
for the clinical condition(s) to be tested
in Model 4. Applicants for this model
were asked to propose a target price for
the episode that includes a single rate of
discount off of expected Medicare
payment (including both Medicare Part
A hospital services and Part B
professional services) for all
beneficiaries discharged from the
inpatient hospital stay with the
specified MS–DRG(s).
In contrast to Models 2 and 3, where
usual Medicare fee-for-service payments
are made to all providers and
reconciliation of Medicare spending
against the target price for the episode
is conducted retrospectively, under
Model 4, hospitals would receive a
prospectively established bundled
payment for specified MS–DRGs. This
payment would include both the MS–
DRG payment for the hospital and a
fixed payment amount for the Medicare
Part B professional services anticipated

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to be furnished during the episode. That
is, separate payment for providers’
professional services furnished during
the inpatient hospital stay would not be
made. Participating Model 4 hospitals
receiving payment would take
responsibility for distributing payment
to providers that would otherwise be
paid separately. We note that IPPS IME
and DSH payments to Model 4 hospitals
would be calculated based on the
nondiscounted base MS–DRG operating
IPPS payment that would have been
made in the absence of the model. Other
applicable payment adjustors would
also be calculated based on the base
MS–DRG operating IPPS payment
amount that would otherwise have
applied to the case, as opposed to the
prospectively established amount paid
through this initiative, which would be
higher as it includes payment for Part B
services as well as the base MS–DRG
payment. Under Model 4, no separate
IPPS outlier payments would be made.
b. Treatment of Data From Hospitals
Participating in the BPCI Initiative
As discussed above, acute care
hospitals had the opportunity to apply
and participate in the BPCI payment
models described above. As we
discussed in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 27932), for
Model 1 and Model 2, participating
acute care hospitals would continue to
receive an IPPS payment under section
1886(d) of the Act (subject to a
predetermined discount for hospitals
participating in Model 1). For Model 2,
participating hospitals may also receive
a reconciliation payment under the
BPCI initiative (based on their
predetermined target price). Under
Model 3, services provided in the initial
acute care hospital stay are not
included; however, the model does
address payment for possible hospital
readmissions. Under Model 1, hospitals
participate for all MS–DRGs, while,
under Model 2, hospitals participate for
only pre-selected MS–DRGs. We believe
it is appropriate to include all
applicable data from these subsection(d)
hospitals in our IPPS payment modeling
and ratesetting calculations because
these hospitals are still receiving IPPS
payments under section 1886(d) of the
Act (in addition to, with respect to
Model 2 hospitals, any reconciliation
payment the hospital may receive under
the BPCI initiative). Moreover, even if
these hospitals were not receiving IPPS
payments under section 1886(d) of the
Act (and were participating in Models 1
and 2), the Secretary has the authority
to make appropriate adjustments for
payment amounts under section
1886(d)(5)(I)(i) of the Act to include all

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applicable data from these subsection(d)
hospitals in our IPPS ratesetting
calculations. We believe it is
appropriate to use the Secretary’s
authority under section 1886(d)(5)(I)(i)
of the Act to include all IPPS, shortterm, acute care hospitals within the
IPPS ratesetting calculations because
excluding these hospitals would
diminish the number of providers used
to determine the IPPS rates, which
could cause fluctuations in the IPPS
rates and could produce instability to
the IPPS rates. Therefore, because we
believe it is appropriate to include all
claims from hospitals participating
within Models 1 and 2 within the IPPS
ratesetting calculations, using the
Secretary’s authority under section
1886(d)(5)(I)(i) of the Act, in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 27932), we proposed to include all
applicable data from ‘‘subsection (d)’’
hospitals participating in Models 1 and
2 under the BPCI initiative in our IPPS
payment modeling and ratesetting
calculations (which includes
recalibration of the MS–DRG weights,
ratesetting, calculation of the budget
neutrality factors, and the impact
analysis). In essence, we proposed to
continue to treat these hospitals the
same as prior fiscal years for purposes
of the FY 2013 (and subsequent years)
IPPS payment modeling and ratesetting
process without regard to a hospital’s
participation within these two bundled
payment models (that is, we would treat
these hospitals as if they are not
participating in Model 1 or Model 2
under the BPCI initiative). We did not
receive any public comments on our
proposal. Therefore, we are finalizing
treating these hospitals the same as
prior fiscal years for purposes of the FY
2013 (and subsequent years) IPPS
payment modeling and ratesetting
process without regard to a hospital’s
participation within these two bundled
payment models (that is, we would treat
these hospitals as if they are not
participating in Model 1 or Model 2
under the BPCI initiative), as we
proposed.
In contrast to BPCI Models 1 and 2
(wherein participating IPPS hospitals
would receive an IPPS payment under
section 1886(d) of the Act, and, in the
case of Model 2, may also receive a
reconciliation payment under the BPCI
initiative), IPPS hospitals participating
in Model 4 would receive a
predetermined bundled payment for
Medicare Part A and Part B services for
a pre-specified MS–DRG ‘‘episode’’ (and
any ‘‘related readmissions’’ as defined
under the BPCI initiative). These
bundled payments are for certain pre-

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specified MS–DRG(s) episodes (not all
cases) and would be made in
accordance with the terms of the model,
as authorized by section 1115A of the
Act (these IPPS hospitals would also
receive ‘‘regular’’ IPPS payments under
section 1886(d) of the Act for those MS–
DRGs not included in the bundling
model). Similar to Models 1 and 2, we
believe it is appropriate to keep all
applicable data from these ‘‘subsection
(d)’’ hospitals in our IPPS payment
modeling and ratesetting calculations
because the majority of Medicare
payments these hospitals would receive
would be IPPS payments under section
1886(d) of the Act (that is, payments for
cases in MS–DRGs that are not included
in the bundled payment model).
Moreover, although these hospitals are
not receiving payments under 1886(d) of
the Act for the cases included in the
prospective bundled payment under
Model 4, the Secretary has the authority
to make appropriate adjustments for
payment amounts at section
1886(d)(5)(I)(i) of the Act to include all
applicable data from these subsection
(d) hospitals in our IPPS ratesetting
calculations. We believe it is
appropriate to use the Secretary’s
authority under section 1886(d)(5)(I)(i)
of the Act to include all IPPS, shortterm, acute care hospitals and their
claims within the IPPS ratesetting
calculations because excluding these
hospitals would diminish the number of
providers used to determine the IPPS
rates, which could cause fluctuations in
the IPPS rates and could produce
instability to the IPPS rates. Therefore,
because we believe it is appropriate to
include all claims from hospitals
participating within Models 1 and 2
within the IPPS ratesetting calculations
and use the Secretary’s authority under
section 1886(d)(5)(I)(i) of the Act to
include those hospitals and claims, we
also believe it is appropriate to include
all applicable data from subsection (d)
hospitals participating in Model 4 in our
IPPS payment modeling and ratesetting
calculations (which includes
recalibration of the MS–DRG weights,
ratesetting, calculation of the budget
neutrality factors, and the impact
analysis) and proposed to do so in the
FY 2013 IPPS/LTCH PPS proposed rule
(77 FR 27932 through 27933). In
essence, we proposed to continue to
treat these hospitals the same as prior
fiscal years for purposes of the FY 2013
(and subsequent years) IPPS payment
modeling and ratesetting process
without regard to a hospital’s
participation within this bundled
payment model (that is, we would treat
these hospitals as if they are not

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participating in Model 4 under the BPCI
initiative). We did not receive any
public comments on our proposal.
Therefore, we are finalizing treating
these hospitals the same as prior fiscal
years for purposes of the FY 2013 (and
subsequent years) IPPS payment
modeling and ratesetting process
without regard to a hospital’s
participation within these two bundled
payment models (that is, we would treat
these hospitals as if they are not
participating in Model 4 under the BPCI
initiative), as we proposed.
We note that Model 3 only addresses
payments for related readmissions and
postacute care services (rather than IPPS
payments). Therefore, we believed it
was not necessary to propose to address
the treatment of any data for
participating hospitals in Model 3. We
continue to believe it is not necessary to
address the treatment of any data for
participating hospitals in Model 3. We
did not receive any public comments on
our decision not to propose to address
the treatment of any data for
participating hospitals in Model 3.
Because we did not receive any public
comments, we are finalizing the
treatment of hospitals participating in
the BPCI initiative as proposed. For
hospitals participating in Models 1, 2,
and 4, we are finalizing treating these
hospitals the same as prior fiscal years
for purposes of the FY 2013 (and
subsequent years) IPPS payment
modeling and ratesetting process
without regard to a hospital’s
participation within these bundled
payment models (that is, as if they are
not participating in those models under
the BPCI initiative).
I. Add-On Payments for New Services
and Technologies
1. Background
Sections 1886(d)(5)(K) and (L) of the
Act establish a process of identifying
and ensuring adequate payment for new
medical services and technologies
(sometimes collectively referred to in
this section as ‘‘new technologies’’)
under the IPPS. Section
1886(d)(5)(K)(vi) of the Act specifies
that a medical service or technology will
be considered new if it meets criteria
established by the Secretary after notice
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

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53343

subsection is inadequate.’’ We note that
beginning with discharges occurring in
FY 2008, CMS transitioned from CMS–
DRGs to MS–DRGs.
The regulations at 42 CFR 412.87
implement these provisions and 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. The
regulations at 42 CFR 412.88 also
implement these provisions and
describe the additional payment for the
new medical service or technology.
Below, we highlight some of the major
statutory and regulatory provisions
relevant to the new technology add-on
payment criteria, as well as other
information. For a complete discussion
on the new technology add-on payment
criteria, we refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51572
through 51574).
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. We note
that 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) and FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43813 and
43814), we explained our policy
regarding substantial similarity in
detail.
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

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payment rate, we evaluate whether the
charges for cases involving the new
technology exceed certain threshold
amounts. Table 10 that was released
with the FY 2012 IPPS/LTCH PPS final
rule contains the final thresholds that
we used to evaluate applications for
new technology add-on payments for FY
2013 in this final rule. We refer readers
to the Web site http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/FR2012/
list.asp#TopOfPage for a complete
viewing of Table 10 from the FY 2012
IPPS/LTCH PPS final rule.
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. We refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51573) for complete information on this
issue.
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 addon 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

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technology exceed Medicare’s payment);
or (2) 50 percent of the difference
between the full DRG payment and the
hospital’s estimated cost for the case.
Unless the discharge qualifies for an
outlier payment, the additional
Medicare payment for new medical
services and technologies is limited to
the full MS–DRG payment plus 50
percent of the estimated costs of the
new technology.
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 criterion,
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
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 Center of
Clinical Standards and Quality (CCSQ)
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, CCSQ, and the local claimspayment contractors (in the case of local
coverage and payment decisions). The
CTI supplements, rather than replaces,

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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.
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: http://
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
potential applicants, such as 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 and/or
payment decisions for Medicare.
The CTI aims to provide useful
information on its activities and
initiatives to stakeholders, including
Medicare beneficiaries, advocates,
medical product manufacturers,
providers, and health policy experts.
Stakeholders with further questions
about Medicare’s coverage, coding, and
payment processes, or who want further
guidance about how they can navigate
these processes, can contact the CTI at
[email protected].
We note that applicants for add-on
payments for new medical services or
technologies for FY 2014 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

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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: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
newtech.html. To allow interested
parties to identify the new medical
services or technologies under review
before the publication of the proposed
rule for FY 2014, 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
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 2013 prior to
publication of the FY 2013 IPPS/LTCH
PPS proposed rule, we published a
notice in the Federal Register on
November 18, 2011 (76 FR 71571
through 71572), and held a town hall
meeting at the CMS Headquarters Office

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in Baltimore, MD, on February 14, 2012.
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 2013 new medical service and
technology add-on payment
applications before the publication of
the FY 2013 proposed rule.
Approximately 70 individuals
registered to attend the town hall
meeting in person, while additional
individuals listened over an open
telephone line. Four of the five FY 2013
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 that were
received by the due date of March 6,
2012, in our evaluation of the new
technology add-on payment
applications for FY 2013 in the
proposed rule.
In response to the published notice
and the new technology town hall
meeting, commenters submitted and
presented public comments that were
unrelated to the substantial clinical
improvement criterion in regard to the
new technology applications for FY
2013. We also received public
comments on the proposed rule relating
to topics such as marginal cost factors
for new technology add-on payments,
and the use of external data in
determining the cost threshold and
mapping new technologies to the
appropriate MS–DRG. Because we did
not request public comments nor
propose to make any changes to any of
the issues above, we are not
summarizing these public comments
nor responding to them in this final
rule.
3. FY 2013 Status of Technology
Approved for FY 2012 Add-On
Payments: 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
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

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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
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
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

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of 17.61 (Laser interstitial
thermotherapy of lesion or tissue of
brain under guidance) in combination
with a principal 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.
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 service or technology’’ (42
CFR 412.87(b)(2)). Our practice has been
to begin and end new technology addon 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). In the
proposed rule, with regard to the
newness criterion for the AutoLITTTM,
we stated that we consider the
beginning of the newness period for the
device to commence from the market
release date of December 2009.
Therefore, for FY 2013, as of December
2012, the AutoLITTTM will have been
on the market for 3 years, and would
therefore no longer be considered
‘‘new’’ as of December 2012 nor be
considered eligible for new technology
add-on payments in FY 2013. However,
we received information from the
applicant that the market release date of
the AutoLITTTM occurred after April
2010 (which occurs in the latter half of

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the fiscal year) and, therefore, it appears
that the AutoLITTTM would still be
considered ‘‘new’’ for FY 2013 and
would still be eligible for new
technology add-on payments in FY
2013. We note that we received this
information in close proximity to the
publication of the proposed rule and
anticipated receiving further
information on the delayed market
release date from the applicant and
welcomed public comment as well.
Comment: The applicant submitted a
public comment to demonstrate that the
AutoLITTTM was first available on May
11, 2010, which would make the
AutoLITTTM eligible for new technology
add-on payments in FY 2013 (because
the 3-year anniversary date of
AutoLITTTM would take place in the
latter half of the fiscal year). The
manufacturer explained that some of the
sterile disposable products were not
released from quarantine until May 11,
2010, which prevented the AutoLITTTM
from being used prior to May 11, 2010.
Therefore, the manufacturer asserted
that the first time the AutoLITTTM was
available on the market was May 11,
2010.
Response: We appreciate the
manufacturer providing this information
and we agree that the AutoLITTTM is
considered new as of May 11, 2010,
instead of December 2009. As stated
above, in general, we extend new
technology add-on payments for an
additional year only if the 3-year
anniversary date of the product’s entry
on the market occurs in the latter half
of the fiscal year (70 FR 47362). Because
the 3-year anniversary date of the
AutoLITTTM entry on the market occurs
in the latter half of the fiscal year, we
still consider the AutoLITTTM to be new
for FY 2013. Therefore, we are
continuing to make new technology
add-on payments for the AutoLITTTM in
FY 2013. We discuss the coding and
payment policies for the AutoLITTTM
earlier in this section.
Comment: Several public commenters
recommended extending new
technology add-on payments for the
AutoLITTTM in FY 2013.
Response: As stated above, we still
consider the AutoLITTTM to be new for
FY 2013, and will continue to make new
technology add-on payments for the
AutoLITTTM in FY 2013.
4. FY 2013 Applications for New
Technology Add-On Payments
We received six applications for new
technology add-on payments for FY
2013. However, two applicants
withdrew their applications prior to the
publication of the proposed rule.

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a. Glucarpidase (Trade Brand
Voraxaze®)
BTG International, Inc. (BTG)
submitted an application for new
technology add-on payments for
Glucarpidase (trade brand Voraxaze®)
for FY 2013. In the proposed rule, we
summarized this application, and stated
that Glucarpidase is used in the
treatment of patients who have been
diagnosed with toxic methotrexate
(MTX) concentrations as a result of
renal impairment. The administration of
Glucarpidase causes a rapid and
sustained reduction of toxic MTX
concentrations.
Methotrexate (MTX) is a widely used
anticancer agent. The administration of
high-dose methotrexate (HDMTX) is an
important component of the treatment
provided to patients who have been
diagnosed with various types of cancer.
According to the applicant, HDMTX, in
particular, is specifically used in the
treatment of patients who have been
diagnosed with osteosarcoma, acute
lymphoblastic leukemia, non-Hodgkin’s
lymphoma, or primary CNS lymphoma.
The applicant further stated that the
administration of HDMTX can cause
renal dysfunction. Renal dysfunction
impairs the elimination of MTX, which
in turn causes the levels of MTX to rise
to the point of life-threatening toxicity.
The applicant maintains that there are
not any currently FDA-approved
pharmaceutical treatment options
available to rapidly decrease MTX levels
in patients who have been diagnosed
with toxic MTX concentrations as a
result of renal impairment. The
applicant asserts that extracorporeal
treatment options that are routinely
employed to rapidly treat this condition,
such as hemodialysis, hemodiafiltration,
high-flux hemodialysis, charcoal
hemoperfusion or hemofiltration,
peritoneal dialysis, exchange
transfusion, or plasma exchange, are
invasive, may add excess morbidity to
the treatment regimen, and have proven
to have limited effects.15 High flux
hemodialysis is the most effective
method of extracorporeal MTX removal,
but this method requires 5 to 6 days of
daily treatment (4 to 6 hours per
session).16 The risks associated with
repeated hemodialysis procedures such
as anemia, infection, and increased
mortality, especially in neutropenic or
thrombocytopenic patients, are
significant and cause rebounds in MTX
levels. The applicant maintains that
other treatment options, such as the
15 Widemann et al., [Cancer, 2004, and Vilay et
al.,], Pharmacotherapy, Vol. 30, January, 2010).
16 Wall et al., American Journal of Kidney
Diseases, Vol. 28, No. 6, 1996.

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administration of leucovorin, hydration,
and urinary alkalinization, also are
commonly used to reduce harmful
levels of MTX. However, these
treatment options do not reduce toxic
MTX concentrations in all patient
populations.17
Voraxaze® was approved by the FDA
on January 17, 2012. Beginning in 1993,
certain patients could obtain expanded
access for treatment use to Voraxaze® as
an investigational drug. Since 2007, the
applicant has been authorized to recover
the costs of making Voraxaze® available
through its expanded access program.
We describe expanded access for
treatment use of investigational drugs
and authorization to recover certain
costs of investigational drugs in more
detail below. Voraxaze® was available
on the market in the United States as a
commercial product to the larger
population as of April 30, 2012.
With regard to newness, in the
proposed rule we expressed concern
that Voraxaze® may no longer be
considered ‘‘new.’’ Specifically, section
1886(d)(5)(K)(ii)(II) of the Act requires
that we provide for the collection of cost
data for a new medical service or
technology for a period of at least 2
years and no more than 3 years
‘‘beginning on the date on which an
inpatient hospital code is issued with
respect to the service or technology’’. In
addition, the regulations at
§ 412.87(b)(2) state 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 service or technology
(depending on when a new code is
assigned and data on the new service or
technology become available for DRG
recalibration). After CMS has
recalibrated the DRGs, based on
available data, to reflect the costs of an
otherwise new medical service or
technology, the medical service or
technology will no longer be considered
‘new’ under the criterion of this
section.’’ As we have indicated in the
past, we generally believe that the
newness period begins on the date that
FDA approval is granted. The FDA
approval date is typically the date when
new technologies are available on the
market and as a result begin to be
reflected within the MS–DRGs cost data.
As noted above, Voraxaze® was
approved by the FDA in January 2012.
However, starting in 1993, certain
patients were able to obtain access to
Voraxaze® as an investigational drug
through an expanded access program,
17 Pinedo et al, Cancer Research, 36, 4418–4424
December, 1976.

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and the applicant has been authorized
to recover certain costs of making
Voraxaze® available through its
expanded access program since 2007.
We discuss below in more detail
whether the cost of Voraxaze® is already
reflected within the MS–DRG relative
weights.
To determine the date of newness for
Voraxaze®, as we stated in the proposed
rule, we believe it is appropriate to
compare investigational drugs provided
under the expanded access program to
devices eligible for the Humanitarian
Use Device (HUD) Program because
these programs contain similarities for
the purpose of evaluating the newness
criterion.
In prior final rules, we have evaluated
and approved technologies with a
Humanitarian Device Exemption (HDE)
approval. In the FY 2010 IPPS/LTCH
PPS final rule, we approved new
technology add-on payments for the
Spiration® IBV®, which received a HDE
approval from the FDA on October 24,
2008, and had its first Institutional
Review Board (IRB) approval on March
12, 2009 (74 FR 43754, 43819).
Therefore, technologies with an HDE
approval may be eligible for new
technology add-on payments. In other
words, we have concluded that HDE
approval constitutes an FDA approval in
the context of the newness criterion and
would begin the newness period,
subject to market availability.
There are separate processes and
standards for providing expanded
access to investigational drugs for
treatment use and for the HUD Program.
The term ‘‘expanded access’’ refers to
the use of investigational drugs, or
approved drugs where availability is
limited by a risk evaluation or
mitigation strategy, when the primary
purpose is to diagnose, monitor, or treat
a patient’s disease or condition. When
the requirements in (FDA’s regulations
at) 21 CFR Part 312, Subpart I are met,
a patient or group of patients with a
serious or immediately life-threatening
disease or condition, and no comparable
or satisfactory alternative therapy, may
obtain expanded access to an
investigational drug. When patients
obtain expanded access to an
unapproved investigational drug, the
safety and effectiveness of the drug have
not been fully established, and the drug
does not have formal FDA approval
under a New Drug Application (NDA) or
Biologics Licensing Application (BLA)
for commercial marketing.
Manufacturers may continue conducting
clinical trials in parallel to the
expanded access program in order to
pursue formal market approval from the
FDA under an NDA or BLA for

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commercial marketing. The FDA’s
Office of Orphan Products Development
administers the Humanitarian Use
Device (HUD) Program. A HUD is a
device that is intended to benefit
patients by treating or diagnosing a
disease or condition that affects fewer
than 4,000 individuals in the United
States per year. To obtain approval for
a HUD, a HDE application is submitted
to FDA. A HDE application is similar in
both form and content to a Premarket
Approval (PMA) application, but is
exempt from the effectiveness
requirements of a PMA. A HDE
application must, however, contain
sufficient information for FDA to
determine that the device does not pose
an unreasonable or significant risk of
illness or injury, and that the probable
benefit to health outweighs the risk of
injury or illness from its use, taking into
account the probable risks and benefits
of currently available devices or
alternative forms of treatment. An
approved HDE authorizes marketing of
the HUD, however, an HDE approval
requires that the device only be used in
facilities that have established a local
IRB to supervise clinical testing of
devices, and that an IRB approve the use
of the device to treat or diagnose the
specific disease. Although HUDs can be
marketed, they are subject to a general
prohibition on profit; that is, they may
not, except in narrow circumstances, be
sold for an amount that exceeds the cost
of research and development,
fabrication and distribution.
Expanded access to investigational
drugs and the HUD Program have
similarities and differences that are
relevant to the newness criterion as we
stated in the proposed rule. Both have
limits on who is eligible to receive a
drug or use a device. In addition, to
satisfy the requirements for expanded
access in FDA’s regulations, and for a
HDE to meet the standard for approval,
a sponsor is not required to demonstrate
effectiveness of the product at the same
level as for approval of a PMA, NDA, or
BLA. Expanded access to investigational
drugs and the HUD Program differ in
many ways, including that the HUD
Program is for devices, and the
expanded access programs provide
access to drugs. In addition, under the
HUD Program, the device is granted
FDA approval for limited use. However,
while FDA authorizes expanded access
to an investigational drug, FDA does not
approve the investigational drug when it
authorizes expanded access.
This second difference is key to our
interpretation of our policy to recognize
a HDE approval as an FDA approval. We
believe that the availability of a drug
through the expanded access program

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would not constitute FDA approval in
the context of the newness criterion
because unapproved, investigational
drugs made available to certain patients
through the expanded access program
do not receive FDA approval prior to
enrollment in the program and cannot
be marketed. In other words, we believe
that for the purposes of evaluating
whether a new technology meets the
newness criterion, it may be appropriate
not to consider the date when
Voraxaze® became available to certain
patients through the applicant’s
expanded access program as the date of
market availability.
We note that cost recovery for
investigational drugs is of concern with
regard to the newness criterion.
Although a sponsor (for example, a drug
manufacturer) may not commercially
distribute an investigational drug, in
certain circumstances, a sponsor of a
clinical trial or an expanded access
program may receive authorization from
FDA to charge for certain costs
associated with making an
investigational drug available. The
applicant has been authorized to recover
certain costs by making Voraxaze®
available since 2007. As we stated
earlier, once CMS has recalibrated the
DRGs based on available data to reflect
the costs of an otherwise new
technology, that technology will no
longer be considered ‘‘new’’’ for the
purposes of the new technology add-on
payments. It is possible that a hospital
may have submitted a claim to Medicare
for the cost of Voraxaze® provided
through the applicant’s expanded access
program. Therefore, it is also possible
that the costs associated with this
technology may already be reflected in
some limited fashion in the data used to
determine the MS–DRG relative
weights. While these are possibilities,
we have not in the past been confronted
with a situation where an applicant has
indicated that hospitals have sought
cost recovery for their technology when
the technology was available through
the expanded access program. We also
have not been confronted with a
situation where an applicant has
indicated that cost recovery was sought
for technologies (that were not available
via an expanded access program) during
clinical trials. We note that our data do
not distinguish charges for drugs by
FDA approval status, and, therefore, we
do not exclude from the relative weight
calculation costs (as derived from
charges) associated with investigational
drugs if they are included by hospitals
on a claim. Therefore, cost data for nonFDA approved technologies (that is, still
involved in clinical trials) may be

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present in the relative weights on a very
limited basis prior to FDA approval,
regardless of whether a technology
received new technology add-on
payments.
We invited public comment regarding
the issue of whether a drug is
considered ‘‘new’’ for the purposes of
new technology add-on payments
starting with its availability in the
expanded access program, and how that
may differ from devices being
considered ‘‘new’’ starting from the date
the device received FDA approval under
a HDE (subject to market availability or
availability to Medicare beneficiaries)
and specifically requested comment on
these considerations in the context of
Voraxaze®. We also invited public
comment on whether the costs of
Voraxaze®, or more generally, any
unapproved investigational drug for
which cost recovery is authorized are
already included in data used to
determine relative weights, and how
that influences the start of a newness
period, if at all. In addition, we invited
public comment regarding the market
availability of Voraxaze® between its
FDA approval date of January 17, 2012,
and the market availability date
according to the applicant of April 2012
and the reasons for the delay in
availability.
Comment: Several public commenters
responded with opinions regarding
whether Voraxaze® should be
considered new for the purposes of new
technology add-on payments. One
commenter stated that Voraxaze® was
available on a ‘‘very limited basis’’ since
1993, and recommended that it be
considered ‘‘new’’ for the purpose of
new technology add-on payments. The
commenter also stated that because the
manufacturer was only covering its
costs under the expanded access
program, existing charge data do not
adequately reflect the ‘‘true price’’ of the
technology. The commenter further
noted that the frequency with which the
technology is used is low, and that the
associated relative weights are ‘‘likely
artificially low.’’
The applicant submitted information
through the submittal of a public
comment documenting that Voraxaze®
was approved by the FDA in January
2012 and that marketing of Voraxaze did
not begin until April 2012. The
applicant added that the FDA’s Office of
Prescription Drug Promotion (OPDP)
considers a product new from the point
of initial marketing and promotion,
stating that, ‘‘OPDP generally considers
that ‘new’ is an accurate description of
the marketing phase for six months from
the time a product is initially marketed
and this should be distinguished from

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the time a product is cleared by FDA for
marketing.’’ The applicant concluded
that the FDA recognizes a time delay
between approval and commercial
availability as standard in the
pharmaceutical industry.
In addition, the applicant provided
supplemental information that
demonstrated that Voraxaze was not
available on the market until April 30,
2012. This documentation included
specific information regarding training,
manufacturing/packaging and trade/
distribution activities that needed to
take place prior to April 30, 2012. Once
these activities were completed, the
applicant stated that it discontinued the
treatment of IND/cost recovery program
for Voraxaze® on April 29, 2012, and
that market availability of Voraxaze®
began on April 30, 2012.
The applicant also noted that one of
the reasons it did not initiate
commercialization activities prior to the
FDA approval date of January 30, 2012
was because the company was awaiting
final FDA labeling approval (that is,
prescribing information) for Voraxaze®,
which was delivered to BTG on the day
of approval, which was January 17,
2012. The applicant believed it would
not have been prudent for BTG to
initiate commercialization activities
before receiving the final labeling
approval because it would have
required expensive and time-consuming
rework.
One commenter stated that Voraxaze®
meets the newness criteria. The
commenter explained that the FDA
approval date is reasonable to use for
determination of newness. The
commenter stated that prior to FDA
approval, Voraxaze® was only available
through a laborious expanded access
process that many oncology centers did
not have in place. Thus, it was truly
only available at many centers for the
first time as of April 30, 2012.
Another commenter stated that it
believed that Voraxaze® does not meet
the newness criterion but did not
provide additional information.
Response: Generally, our policy is to
begin the newness period on the date of
FDA approval/clearance or, if later, the
date of market availability for the
technology. Availability under the
expanded access program neither
represents the date of FDA approval (in
this case, January 2012) nor the date of
market availability (April 30, 2012).
Therefore, we consider Voraxaze® to be
‘‘new’’ as of April 30, 2012, its date of
market availability.
We note, as discussed in section
II.G.7. of the preamble to this final rule,
we are creating a new ICD–9–CM
procedure code 00.95 (Injection or

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infusion of glucarpidase) to identify this
new technology. This new code is
effective October 1, 2012.
With respect to the cost criterion, as
we described in the proposed rule, the
applicant researched the 2009 Standard
Analytic Inpatient File (SAF) for cases
with a principal or secondary diagnosis
of osteosarcoma (ICD–9–CM code series
170.xx), acute lymphoblastic leukemia
(ICD–9–CM code series 204.0x), nonHodgkin’s lymphoma (ICD–9–CM code
series 200.xx and 202.xx), or primary
CNS lymphoma (ICD–9–CM code series
200.5x) with a corresponding ICD–9–
CM procedure code for chemotherapy
(99.25) that may be eligible for
Voraxaze®, based on the product’s
approved indications. The applicant’s
search yielded potentially eligible cases
within 249 MS–DRGs, of which 56 MS–
DRGs captured 12 or more cases.
Using this universe of cases (249 MS–
DRGs), the applicant added the
additional costs of Voraxaze® to the
case-weighted average standardized
charge per case. Although the applicant
submitted data related to the estimated
cost of Voraxaze®, the applicant noted
that the cost of the technology was
proprietary information. According to
the applicant, it did not convert the
costs to charges for this analysis because
of the technology’s high cost. The
applicant maintains that an average
adult receiving treatment for one of the
diagnoses above would require a
minimum of four vials of Voraxaze®.
The applicant used the following
multiple analysis of different subsets of
MS–DRGs to compare the average caseweighted standardized charge per case
to the average case-weighted threshold
to determine that Voraxaze® met the
cost criteria:
• The applicant found 12,324 eligible
cases within 249 MS–DRGs, and
determined a case-weighted average
standardized charge per case of $87,582
(which includes the cost of Voraxaze®)
and a case-weighted threshold of
$39,216. The applicant maintains that
Voraxaze® meets the cost criterion
because the case-weighted average
standardized charge per case exceeds
the case-weighted threshold.
• The applicant excluded those MS–
DRGs that had fewer than 11 cases,
which resulted in 12,134 eligible cases
within 56 MS–DRGs. The applicant
determined a case-weighted average
standardized charge per case of $84,039
(which includes the cost of Voraxaze®)
and a case-weighted threshold of
$37,195. The applicant maintains that
Voraxaze® meets the cost criterion
because the case-weighted average
standardized charge per case exceeds
the case-weighted threshold.

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• The applicant analyzed the 20 MS–
DRGs that contained the highest number
of cases and, based on the 11,534 cases
they stated they found, determined a
case-weighted average standardized
charge per case of $80,400 (which
includes the cost of Voraxaze®) and a
case-weighted threshold of $34,990. The
applicant maintains that Voraxaze®
meets the cost criterion because the
case-weighted average standardized
charge per case exceeds the caseweighted threshold.
We invited public comment on
whether or not Voraxaze® meets the cost
criterion. Specifically, we welcomed
public comment on the methodologies
used in the applicant’s analysis,
including (1) the methods used to
identify the eligible cases used in the
cost analysis of this technology,
especially if there are cases that should
be excluded from the analysis because
of clinical reasons, and if there are other
ways to identify cases for which this
technology may be appropriate, and (2)
the appropriateness of not converting
the costs to charges for the purposes of
this analysis and what would be an
accurate and appropriate CCR for this
technology.
Comment: The applicant submitted a
public comment stating that it believed
that Voraxaze® meets the cost criterion
because the commercial costs of
Voraxaze® are not reflected in the MS–
DRG relative weights. The applicant
added that Voraxaze® was available via
expanded access since 2007 and
hospitals were not allowed to submit for
reimbursement of Voraxaze® because it
was an investigational drug. Even if
hospitals attempted to submit for
reimbursement, the applicant noted that
the Voraxaze® cost recovery price is
substantially lower than its commercial
price of $22,500 (effective April 30,
2012) and any existing data prior to
April 30, 2012 used to determine MS–
DRG relative weights would not capture
such a price difference and would
largely underestimate the cost of
Voraxaze®. Other commenters stated
that Voraxaze® clearly meets the cost
criterion. The commenters explained
that they believed the situations where
Voraxaze® is indicated for use were
rare, and in those situations they
believed that the cost of care for the
affected patient rises substantially.
Response: We appreciate the
commenters’ input. We agree that
Voraxaze® meets the cost criterion.
With regard to substantial clinical
improvement, the applicant maintains
that Voraxaze® is a clinical
improvement compared to current
treatment options because it is less time
intensive, allows certain patient

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53349

populations to avoid risks associated
with current treatment options, and has
characteristics that allows it to reduce
MTX concentrations more effectively.
As noted above, the applicant maintains
that current treatment options for renal
impairment as a result of toxic MTX
concentrations are limited to
extracorporeal methods that are timeintensive and could subject patients in
certain populations to harm from the
associated risks. The applicant states
that the administration of Voraxaze® to
patients who have been diagnosed with
HDMTX-induced renal dysfunction
metabolizes circulating MTX to the
inactive metabolite DAMPA. The
applicant asserts that this characteristic
action of the technology represents a
substantial clinical improvement over
current treatment options available to
patients who have toxic MTX
concentrations in a more effective, and
rapid way, and provides protection to
eligible patient populations against
potential harm associated with current
treatment options.
In addition, the applicant provided
the results from a study of 23 patients
diagnosed with MTX-induced renal
dysfunction treated with Voraxaze®.
During this study, the applicant
reported that the administration of
Voraxaze® lowered toxic MTX
concentrations in patients within 15
minutes after the administration by
more than 98 percent. Because the
administration of Voraxaze® could
metabolize both leucovorin and its
active metabolite, 5-mTHF, these
patients were also administered
Leucovorin, a drug used to enhance the
treatment for patients with high levels
of MTX. The applicant noted that the
combination of Voraxaze® and
Leucovorin rescue was well tolerated by
the 23 patients studied, and MTXrelated toxicities were reduced from
severe to mild to moderate. The range of
age of these 23 patients was 19 to 94
years old with 18 of the 23 patients
being 50 years or older.18 The applicant
asserted that the types of health
conditions treated with HDMTX, such
as acute lymphoblastic leukemia,
osteosarcoma, central nervous system
(CNS) lymphoma, and leptomeningeal
cancer, tend to occur within the
Medicare population and cites research
that states ‘‘HD–MTX-induced renal
failure with persistence of toxic blood
MTX levels is a rare but life threatening
complication that occurs more
frequently in adults, particularly those
with advanced age and CNS
18 Green and Chamberlan, Cancer Chemotherapy
and Pharmacology Volume 63, November 4, 2009.

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lymphoma.’’ 19 When these
malignancies arise which require
treatment with HDMTX, HDMTX–
induced renal failure with persistent
toxic MTX levels is a complication that
occurs more frequently in adults. The
applicant asserted that the
administration of Voraxaze® has been
shown to be well-tolerated by older
adult patients, while achieving similar
reduction rates in younger patient
populations who have been diagnosed
with toxic MTX concentrations and
treated with Voraxaze®.20 The applicant
also provided additional published
peer-reviewed articles21,22,23,24,25,26
relevant to their application to support
their assertion that they meet the
substantial clinical improvement
criteria.
We invited public comment on
whether or not Voraxaze® meets the
criterion of representing a substantial
clinical improvement for Medicare
beneficiaries.
Comment: The applicant submitted
public comments that stated,
‘‘Voraxaze® meets the substantial
clinical benefit criterion because the
FDA accepted, reviewed, and approved
the biologic licenses application (BLA)
for Voraxaze® on an accelerated
timeline. The FDA initiates an
expedited review when a high unmet
need exists and when an applicant has
a product that may qualify as a
substantial clinical improvement.’’
Several other public comments also
stated that Voraxaze® meets the
substantial clinical improvement
criteria. One of the commenters, a
pediatric oncologist, asserted that prior
to Glucarpidase, there were no reliably
effective interventions for patients
suffering from high dose MTX induced
19 Schwartz, Borner et al., The Oncologist,
December 2007.
20 Schwartz, Borner et al,. The Oncologist,
December 2007.
21 Levy CC, Goldman P. The enzymatic hydrolysis
of methotrexate and folic acid. J Biol Chem. 1967;
242:2993–2998.
22 Minton NP, Atkinson T, Sherwood RF.
Molecular cloning of the Pseudomonas
carboxypeptidase G2 gene and its expression in
Escherichia coli and Pseudomonas putida. J
Bacteriol. 1983; 156: 1222–1227.
23 Widemann BC, Balis FM, Kim A, et al.
Glucarpidase, leucovorin and thymidine for highdose methotrexate induced renal dysfunction.
Clinical and pharmacologic factors affecting
outcome. J Clin Oncology 2010; 28:1–8.
24 Patterson DM, Lee SM. Glucarpidase following
high-dose methotrexate: update on development.
Expert Opin Biol Ther. 2010;10(1):105–111.
25 Phillips M, Smith W, Balan G, et al.
Pharmacokinetics of glucarpidase in subjects with
normal and impaired renal function. J Clin
Pharmacol 2008; 48:279–284.
26 Bleyer WA. Methotrexate: clinical
pharmacology, current status and therapeutic
guidelines. Cancer Treat Rev. 1977;4:87–101.

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renal dysfunction, a life threatening
medical emergency. The commenter
further noted that numerous
interventions historically employed
were generally invasive (that is,
charcoal hemoperfusion), had variable
but limited impact, and were not readily
available at most treatment centers. The
commenter concluded that Glucarpidase
is a highly effective pharmacologic
rescue that can be readily delivered to
patients at high risk of or experiencing
a life threatening complication of cancer
therapy, that there is no other
comparable pharmacologic intervention
available, and that Glucarpidase is
superior to less reliable, invasive
measures. Another commenter stated
that when Voraxaze® is used in a timely
fashion, it can improve severe MTXinduced toxicity, prevent the need for
dialysis and other invasive procedures,
and can be lifesaving. The commenter
believed that Voraxaze® is a unique
medication, which can treat a rare and
life-threatening complication of
methotrexate therapy which has no
alternative mediation. The commenter
believed that alternative supportive care
to Voraxaze®, including hospitalization
and dialysis, is exceptionally expensive.
Another commenter who also
supported new technology add-on
payments for the Voraxaze® believed
that Voraxaze® is a drug that can
provide life-saving reversal of toxic
levels of methotrexate. The commenter
further stated that patients with toxic
levels of methotrexate are hospitalized
and receive the drug during an inpatient
admission. However, due to its high
cost, the commenter explained that
many hospitals are reluctant to stock
Voraxaze® in the pharmacy or use it at
all due to the lack of reimbursement
available when used as an inpatient
medication. The commenter continued
by stating that the alternative is to
provide Leucovorin rescue and vigorous
hydration, which often is effective and
significantly cheaper. However, the
commenter noted that this approach
results in prolonged hospital stays,
which have their own costs (to the
system at large) and expose the patient
to potential iatrogenic complications. If
a new technology add-on payment is
available, the commenter believed that
Voraxaze® would become the standard
of care for methotrexate toxicity and
enable a more rapid discharge of the
patient from the inpatient setting.
Another commenter stated that it
believed ‘‘certain new biologic agents
that prevent toxicity but have high drug
acquisition costs are underused because
of financial disincentives,’’ and cited
this technology as an example. The

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commenter noted that this technology
‘‘can reduce the need for dialysis,
reduce morbidity and decrease the
length of hospital stay,’’ and cited this
background as an oncologist for support.
Response: After reviewing the totality
of the evidence and the public
comments we received, we agree that
Voraxaze® represents a substantial
clinical improvement for Medicare
beneficiaries. It appears that Voraxaze®
is less time intensive and allows select
patient populations to avoid risks
associated with current treatment
options. Also, Voraxaze® is able to treat
patients who have toxic MTX
concentrations in a more effective and
rapid way than existing treatment
options in certain situations, and
provides protection to eligible patient
populations against potential harm
associated with current treatment
options. Specifically, the applicant
provided the results from a study of 23
patients diagnosed with MTX-induced
renal dysfunction treated with
Voraxaze®. Based on the clinical trial
data, the administration of Voraxaze®
lowered toxic MTX concentrations in
patients within 15 minutes after the
administration by more than 98 percent.
Therefore, we believe that Voraxaze®
represents a substantial clinical
improvement for Medicare beneficiaries.
However, we remain interested in
seeing clinical endpoints that show that
reduction in methotrexate levels leads
to improved renal function.
Voraxaze® has met all three criteria
for new technology add-on payments
and is eligible for new technology addon payments in FY 2013. Cases of
Voraxaze® will be identified with ICD–
9–CM procedure code 00.95 (Injection
or infusion of glucarpidase). The cost of
Voraxaze® is $22,500 per vial. The
applicant stated that an average of four
vials is used per Medicare beneficiary.
Therefore, the average cost per case for
Voraxaze® is $90,000 ($22,500 × 4).
Under § 412.88(a)(2), new technology
add-on payments are limited to the
lesser of 50 percent of the average cost
of the technology or 50 percent of the
costs in excess of the MS–DRG payment
for the case. As a result, the maximum
new technology add-on payment for
Voraxaze® is $45,000 per case.
b. DIFICIDTM (Fidaxomicin) Tablets
Optimer Pharmaceuticals, Inc.
submitted an application for new
technology add-on payments for FY
2013 for the use of DIFICIDTM
(Fidaxomicin) tablets. In the proposed
rule, we summarized this application
and stated that the applicant asserts that
Fidaxomicin is a major clinical
advancement in the options available to

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treat Clostridium difficile-associated
diarrhea (CDAD).
Clostridium difficile (C. Diff.) is a
bacterium that can cause infection with
symptoms that range from diarrhea to
life-threatening inflammation of the
colon, and is also commonly referred to
as CDAD. The symptoms associated
with CDAD can be treated by stopping
administration of an antibiotic because
often antibiotics can alter the native
intestinal microflora and thus trigger
CDAD. For mild cases of CDAD, this
step may be sufficient to relieve the
associated symptoms. However, many
patients who have been diagnosed with
more severe cases of CDAD require
further treatment. Further treatment
options include prescribing antibiotics
such as Metronidazole or Vancomycin,
prescribing probiotics administered in
conjunction with antibiotics, and
performing surgery using a fecal
transplant to restore healthy intestinal
bacteria by placing donor stool in the
colon. According to the applicant, about
one-fourth of the patients diagnosed
with CDAD experience a recurrence of
these associated symptoms.
As indicated on the labeling
submitted to the FDA, the applicant
noted that Fidaxomicin is taken twice a
day as a daily dosage (200 mg tablet
twice daily = 400 mg per day) as an oral
antibiotic. The applicant asserts that
Fidaxomicin provides potent
bactericidal activity against C. Diff., and
moderate bactericidal activity against
certain other gram-positive organisms,
such as enterococcus and
staphylococcus. Unlike other antibiotics
used to treat CDAD, the applicant noted
that the effects of Fidaxomicin preserve
bacteroides organisms in the fecal flora.
These are markers of normal anaerobic
microflora. The applicant asserts that
this helps prevent pathogen
introduction or persistence, which
potentially inhibits the re-emergence of
C. Diff., and reduces the likelihood of
overgrowths as a result of vancomycinresistant Enterococcus (VRE). Because of
this narrow spectrum of activity, the
applicant asserts that Fidaxomicin does
not alter this native intestinal
microflora.27
With regard to the newness criterion,
Fidaxomicin was approved by the FDA
on May 27, 2011, for the treatment of
CDAD in adult patients, 18 years of age
and older. Fidaxomicin was
27 Koo, Garey et al. Future novel therapeutic
agents for Clostridium difficile infection. Expert
Opin Investig Drugs., 2010;19(7):825–836.
Tannock, Munro et al., A new macrocyclic
antibiotic, fidaxomicin (OPT–80), causes less
alteration to the bowel microbiota of Clostridium
difficile-infected patients than does vancomycin.
Microbiology. 2010 Nov;156(Pt 11):3354–9.

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commercially available on the market
within 7 weeks after the FDA’s approval
was granted. Currently, there are not
any ICD–9–CM diagnosis or procedure
codes that exist to uniquely identify the
use of Fidaxomicin, or any oral drug, as
a procedure. Optimer submitted a
request to the ICD–9–CM Coordination
and Maintenance Committee for a new
ICD–9–CM procedure code, which was
discussed at the committee’s meeting on
March 5, 2012. For further information
regarding the code proposal, we refer
readers to the CMS Web site at: http://
www.cms.hhs.gov/Medicare/Coding/
ICD9ProviderDiagnosticCodes/ICD-9CM–C-and-M–Meeting-Materials.html.
In the proposed rule, we stated that
we believe that under our current new
technology add-on payment policy,
eligibility for consideration for new
technology add-on payments is limited
to new technologies associated with
procedures described by ICD–9–CM
codes. In the FY 2002 IPPS final rule,
we established the framework for our
current policy (66 FR 46907 through
46915). The discussion of technologies
in that rule focuses on those
technologies identifiable by ICD–9–CM
codes. We also discuss in response to
comments the feasibility and
appropriateness of HCPCS codes and Vcodes. Similar to ICD–9–CM codes,
HCPCS codes are also a procedure-based
system and identify procedures. We
noted in that rule that V-codes would
not be appropriate to use for
identification of new technology
because they are not a substitute for
procedure coding. Volume 3 of ICD–9–
CM contains codes that describe
inpatient procedures (65 FR 50325). In
other words, we have not considered
drugs that are only taken orally to be
eligible for consideration for new
technology add-on payments, because
there is no procedure associated with
these drugs and, therefore, no ICD–9–
CM code(s).
As we stated in the proposed rule,
this interpretation is also consistent
with other Medicare payment policies.
For example, when drugs taken orally
are given as part of an outpatient
encounter, they would likely be
considered self-administered drugs
under the Hospital Outpatient
Prospective Payment System (OPPS). If
a Medicare beneficiary who has
outpatient status were to be provided a
self-administered drug by a hospital or
wholly-owned or wholly-operated entity
of that hospital and that beneficiary
were subsequently admitted to that
hospital for a related reason within
three days, the hospital may not include
these self-administered drugs on the
inpatient bill (under the 3-day payment

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window policy), because selfadministered drugs are not covered
under the OPPS. However, they would
be required to include nondiagnostic
services related to admission and all
other diagnostic services on the
inpatient bill (under the 3-day payment
window).
We invited public comment on our
interpretation of our policy regarding
drugs that are only self-administered for
consideration for new technology addon payments. Further, we invited public
comment on whether or not
Fidaxomicin meets the newness
criterion.
Comment: A number of public
commenters, including the applicant,
stated that the technology meets the
newness criterion. Specifically,
commenters discussed: (1) The ICD–9–
CM coding for this technology, (2) the
statutory authority for the policy in
relation to the coding of oral therapies,
(3) CMS’ current policy and practices
regarding coding, (4) CMS’ practices
with regard to establishing new codes to
implement payment policies, (5) the use
of V-codes in the ICD–9–CM system for
oral drugs, and (6) the non-ICD–9–CM
options for coding this technology for
the new technology add-on payments.
We summarize each issue, in turn, in
the following comments and responses
below.
Response: We appreciate the
commenters’ supporting rationale for
how this technology meets the newness
criterion under the new technology addon payment policy. We respond to each
of the six points, in turn, below. We
note that, as a result of our analysis of
the public comments we received, in
our responses below, we, in this final
rule, revised our policy to allow the use
of National Drug Codes (NDCs) to
identify oral medications that have no
inpatient procedure for the purposes of
new technology add-on payments. This
change will be effective for payments for
discharges occurring on or after October
1, 2012. We note that this does not
preclude CMS from using additional
ICD–9–CM procedure or diagnosis codes
to identify cases for this new technology
in conjunction with NDCs. In particular,
for this technology, we established a
methodology to identify cases for new
technology add-on payments by using
the NDC for the drug (52015–0080–01)
and ICD–9–CM diagnosis code 008.45,
Intestinal infection due to Clostridium
difficile. Furthermore, we establish that
the beginning of the newness period for
this technology is its FDA approval date
of May 27, 2011.
Comment: The applicant submitted a
public comment asserting that it
believed that an ICD–9–CM procedure

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code would be the ‘‘best option’’ and
noted that this should be limited to the
‘‘sole purpose of tracking use of the
product’’ for new technology add-on
payments. The applicant indicated that
it did not believe this created a
precedent for inpatient procedure
coding.
Response: With regard to use of an
ICD–9–CM procedure code for this
technology, subsequent to and as
recommended by CMS at the March 12,
2012 ICD–9–CM Coordination and
Maintenance (C&M) Committee meeting,
no new ICD–9–CM procedure code for
the administration of this technology
was created. Public comments received
during and subsequent to the public
meetings opposed the establishment and
addition of codes for self-administered
drugs. The commenters stated that this
type of service has never been included
in ICD–9–CM procedure codes. Other
commenters believed that such an
addition to the ICD–9–CM system
would be setting a major new precedent.
Hospitals currently code and report
procedures and more invasive services
such as surgeries, infusion of drugs, and
specialized procedures such as cardiac
catheterizations. Hospitals do not code
nor report self-administered drugs.
While we appreciate the commenters’
belief that a new ICD–9–CM procedure
code should be created and that this
code could be limited to new
technological procedures and would
thus not create a precedent for inpatient
procedure codes, we disagree for the
reasons stated above and described in
more detail below. While the ICD–9–CM
procedure coding system has been used
to create codes for categories of service
not previously coded for the purpose of
new technology add-on payments, these
new codes have been limited to
inpatient procedures associated with
their respective technologies. The
commenters cited, as an example, the
creation of procedure code 00.11,
Infusion of drotrecogin alfa (activated)
[Xigris], as an example of where CMS
has ‘‘created unique new ICD–9–CM
codes in categories of service that did
not previously exist.’’ We note that
infusions of drugs have been part of the
ICD–9–CM inpatient procedure coding
system since it was created in 1979.
Infusion of drugs requires specialized
health care personnel to administer the
infusion procedure. Patients taking selfadministered drugs do not require the
use of hospital or health care personnel
to perform a procedure. Since the
inception of the ICD–9–CM coding
system, drugs given to a patient through
use of an infusion have been considered
procedures described by ICD–9–CM

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codes. The identification of a patient
taking a self-administered drug has
never been described by ICD–9–CM
codes because it was not deemed to be
a hospital procedure. This technology is
an orally administered drug and, as
noted by the applicant in its public
comment, ‘‘must be administered orally
to effectively treat CDAD’’. Orallyadministered drugs require no inpatient
procedure to administer. Therefore, we
believe it would be inappropriate to
establish an ICD–9–CM procedure code
for their administration, even for the
purpose of new technology add-on
payments.
Comment: One commenter asserted
that the statutory authority exists for
new technology add-on payments for
oral therapies with no inpatient
procedure (that is, infusion). The
commenter reiterated our statement in
the proposed rule that, ‘‘we believe that
under our current new technology addon payment policy, eligibility * * * is
limited to new technologies associated
with procedure codes described by ICD–
9–CM codes’’ (77 FR 27939). Similarly,
another commenter stated that, ‘‘CMS
asked whether DIFICIDTM could qualify
under the statute and regulations for
new technology because it is an oral
therapy.’’ Both commenters stated that
the proposed rule ‘‘does not assert that
there is any corresponding statutory or
regulatory bar to granting a [new
technology add-on payment] to an oral
therapy, and indeed there is none.’’
Another commenter stated that, while
self-administered drugs are not covered
by Part B, they are covered by Part A.
Another commenter stated that, ‘‘the
fact that DIFICIDTM must be
administered orally to effectively treat
[clostridium dificile associated disease]
should not preclude it from being
considered under the [new technology
add-on] policy.’’ Commenters pointed
out that the statute ‘‘require[s] that the
agency ‘shall’ establish a mechanism to
recognize costs of new medical services
or technologies * * * which ‘shall’
provide for additional payment when
such services are used.’’ Another
commenter further stated that it
believed that ‘‘the Congressional intent
was explicit’’ and stated that the statute
‘‘allow[s] ‘any code such as ICD–9–CM
and its subsequent revision’ (emphasis
added [in the public comment]).’’
Another commenter stated that, ‘‘the
FY2002 [final rule on the new
technology add-on payment]
exemplifies CMS’ authority and
flexibility to use codes broadly for [the
new technology add-on payment], if
needed.’’ Another commenter
recognized that the statute explicitly

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points out the use of ICD–9–CM codes,
but reminded the agency that they
believed that ‘‘the regulation permits
administrative flexibility.’’
Additionally, the commenter described
the application form, and noted that,
‘‘this policy document includes 5
specific questions not necessarily
reflected directly in statute or
regulation.’’ Of the five items pointed
out by the commenter, four refer to FDA
approval, and one to ICD–9–CM
procedure coding.
Response: With regard to the question
of whether or not statutory authority
exists to allow new technology add-on
payments for oral medications without
inpatient procedures (that is, infusion),
we note that, as the commenters pointed
out, in the proposed rule, we did not
assert that such statutory authority did
not exist. We believe that under our
current new technology add-on payment
policy, eligibility for new technology
add-on payments is limited to new
technologies associated with procedure
codes described by ICD–9–CM codes (77
FR 27939). We believe that the statute
could be interpreted in a manner that
does not preclude new technology addon payments for oral medications that
have no inpatient procedure (that is,
infusion) insofar as such an oral
medication meets the other aspects of
the newness criterion in addition to
meeting the cost and substantial clinical
improvement criteria. We interpret our
current policy as limiting new
technology add-on payments to
technologies associated with inpatient
procedures, as described in the FY 2002
final rule on CMS’ new technology addon payment policy (66 FR 46915). We
note that this technology is the first
application we have received for a
technology that is an oral medication
where no inpatient procedure is
associated. In light of public comments
we received, we are revising our policy
to allow for the use of an alternative
code set to identify oral medications
where no inpatient procedure is
associated for the purposes of new
technology add-on payments. We are
establishing the use of NDCs as the
alternative code set for this purpose and
describe our rationale for this particular
code set in response to comments
below. This change will be effective for
payments for discharges occurring on or
after October 1, 2012. We note that this
does not preclude CMS from using
additional ICD–9–CM procedure or
diagnosis codes to identify cases for this
new technology in conjunction with this
alternative code set. We also agree with
the comment that these oral medications
for which no inpatient procedure is

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associated may be considered selfadministered drugs under Part B and are
not payable under the outpatient
prospective payment system (OPPS). We
remind hospitals that, although
hospitals are required to bundle related
therapeutic services within the 3 days
prior to and on the day of inpatient
admission on the inpatient claim,
hospitals may not include services that
are not payable under the OPPS within
the 3 days prior to and on the day of
inpatient admission as part of the
inpatient claim (42 CFR 412.2(c)(5)).
Comment: Commenters reviewed our
current policy and practice with regard
to identification of new technologies for
new technology add-on payments. They
reiterated statements from the FY 2002
final rule on CMS’ new technology addon payment policy, while one
commenter pointed out that, ‘‘CMS
considered several coding options to
track new procedures and technologies
* * * and discussed use of ICD–9–CM
V-codes, HCPCS Level II codes, and G
codes to classify new technologies.’’
Another commenter stated that CMS has
in the past created ICD–9–CM codes for
new technology add-on payments, and
cited as an example the creation of
procedure code 00.11, Infusion of
drotrecogin alfa (activated) [Xigris], as
an example of where CMS has ‘‘created
unique new ICD–9 codes in categories of
service that did not previously exist.’’
Response: With regard to our current
policy and practice on the use of code
sets to identify new technologies for
new technology add-on payments, we
appreciate the commenters’ input. As
we stated in response to other public
comments, we interpret our current
policy as limiting new technology addon payments to technologies associated
with inpatient procedures, as described
in the FY 2002 final rule on the new
technology add-on payment policy. We
note that this technology is the first
application we have received for a
technology that is an oral medication
with no inpatient procedure. Also, as
we stated in response to other
comments, we point out that the
example the commenters cite, procedure
code 00.11, Infusion of drotrecogin alfa
(activated) [Xigris], is for an infusion
and that infusion can be an inpatient
procedure.
Comment: Commenters reviewed our
practice with regard to establishing new
codes to implement Medicare policies.
Specifically, they mentioned the
creation of a claim modifier to reflect
the use of surgical devices that CMS
created to ‘‘implement claims
processing of a new policy’’ and also the
creation of policy claim codes MX
(wrong surgery on patient), MY (wrong

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surgery on body part), and MZ (surgery
on wrong patient) to identify claims to
implement a national coverage decision
regarding certain never events. They
asserted that CMS is able to establish
new codes to implement policies.
Response: With regard to the
examples of CMS’ practices of
establishing new codes to implement
Medicare policies, we appreciate the
commenters’ responses. We agree that
from time to time CMS will implement,
as needed, new codes and processes to
implement Medicare policies, including
payment and coverage policies. The
examples provided by the commenters
do not specifically address the new
technology add-on payment policy,
instead, they address other Medicare
payment policies and national coverage
decisions.
Comment: One commenter pointed
out that V-codes currently exist for oral
drugs. Specifically, the commenter cited
code V58.66 for long term (current) use
of aspirin and code V58.68 for long-term
(current) use of bisphosphonates. The
commenter also pointed out that three
codes in subcategory V07.5 for the use
of agents affecting estrogen receptors
and estrogen levels have inclusion notes
for multiple medications, some of which
are oral.
Response: With regard to the
existence of V-codes for oral drugs, we
agree with the commenters that V-codes
exist that capture the long term use of
certain drugs, including those that may
be orally administered. V-codes are used
to capture additional information about
factors influencing health status and
contact with health services. The codes
for long-term (current) drug use were
created to assist in following patients
who use certain drugs over a long
period of time. The codes do not
necessarily indicate that a patient
received the specific drug during the
current health care encounter. The
patient may be taking the drug based on
a prescription received during a prior
health care encounter and did not
receive it during the current encounter.
However, we have not adopted the
use of V-codes for use in the new
technology add-on payment policy.
Currently, the new technology add-on
payment policy is based on the use of
ICD–9–CM procedure codes, which
indicate that a procedure or service is
provided during the hospital stay. The
long-term (current) drug use V-codes
described do not provide this
information. As indicated earlier, the Vcodes indicate the patient has been on
certain drugs on a long-term basis, and
do not necessarily indicate that the
patient received the drug during the
current health care encounter. We

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continue to believe that V-codes are not
appropriate for new technology add-on
payments because we do not believe the
nature of these codes appropriately
identifies new technologies; they
indicate that some circumstance or
problem is present which influences the
person’s health status, but is not in itself
a current illness or injury. Common Vcodes are status codes, history codes,
aftercare codes, and follow-up codes. In
addition, V-codes do not identify items
related to current resource use for an
inpatient stay. For the most part, Vcodes do not impact the DRG, and they
are not taken into consideration when
forming DRG assignment and, thus, are
not used in setting relative weights for
the IPPS. However, we note that we
continue to explore the usefulness of
these and other alternatives, such as
those available in ICD–10, for coding
and identifying technologies for the
purposes of new technology add-on
payments.
Comment: One commenter described
non-ICD–9–CM alternatives for coding
this technology for the purposes of the
new technology add-on payment policy.
One option described by the commenter
was the use of a value code and
condition code to identify this
technology. The commenter pointed out
that a value code, value code 77,
currently exists to identify when a new
technology add-on payment is being
claimed. The commenter noted that
value codes are used with condition
codes, and suggested that an option
could be for CMS to submit a request to
the National Uniform Billing Committee
(NUBC) for a ‘‘unique Condition Code to
describe DIFICIDTM administration.’’ A
second option described by the
commenters was to use a national drug
code (NDC) on the claim to identify the
technology for the purposes of new
technology add-on payments. The
commenter described two ways to
implement such an option, one where
the NDC would be used in isolation (as
product information in Box 80 of the
UB–04 claims form) and one where it
would be used in combination with
ICD–9 diagnosis code 008.45, Intestinal
infection due to Clostridium difficile
(where the NDC would be reported on
the UB–04 in Box 43 and the diagnosis
code reported on the UB–04 in Box 65).
The commenter pointed out that using
the NDC in isolation may require
hospitals to ‘‘make changes to their
billing systems’’ and that using the NDC
in combination with a diagnosis code
may require hospitals to ‘‘make
substantial reprogramming to their
systems.’’ Because of the possibility that
hospitals may need to make changes,

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the commenter stated that they believed
that other options would be preferable
and that an ICD–9–CM code is the ‘‘best
option.’’
Response: With regard to the nonICD–9–CM options for identifying this
technology and new technologies for
new technology add-on payments, we
appreciate the commenters’ suggestions.
The commenters first discussed a value
code or condition code option for
identifying new technologies. We agree
that currently value code 77 is used to
identify claims for new technology addon payments. Commenters suggested
that CMS could request a condition
code from the NUBC to be used in
conjunction with this value code to
identify this new technology. While we
appreciate the commenters’ suggestion,
we believe that this unnecessarily
subjects eligibility for new technology
add-on payments to a non-CMS claims
identifier field. Furthermore, we note
that even on an expedited basis, it is not
likely that the NUBC process would
necessarily result in the timely creation
of a condition code to identify this
technology. Therefore, we disagree with
the commenters that this is a feasible
option for coding and identifying
technologies for the purposes of new
technology add-on payments.
Commenters then discussed two ways to
use the NDC to identify this technology.
We agree that NDCs can be used to
identify drugs and that, in the instance
where no inpatient procedures are
associated with a drug, the NDC could
be used to identify an oral drug for new
technology add-on payments. While
commenters stated that they believed
this may require hospitals to change
their ‘‘billing practices’’ or ‘‘make
substantial reprogramming to their
systems,’’ we believe that these changes,
insofar as they might be needed, would
not represent a large burden for
hospitals. We note that currently the
NDC code is used on outpatient claims
for the ESRD–PPS to identify oral
equivalent ESRD drugs. We further note
that the hospital would be required to
report the NDC code for the purposes of
new technology add-on payments so
that it could receive a new technology
add-on payment which, by definition, is
an increase relative to the payment they
would have received in the absence of
such an add-on payment. Specifically,
the commenter discussed using the NDC
in Box 43 in conjunction with the
diagnosis code 008.45 (Intestinal
infection due to Clostridium difficile) or
using the NDC as product information
in Box 80. We agree with the applicant
and the other commenters that it is
important to identify cases for new

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technology add-on payments using the
diagnosis code 008.45. Because the NDC
can specifically identify this technology,
and other technologies that are oral
drugs where no inpatient procedure is
associated, we believe it can be used to
identify these technologies for purposes
of new technology add-on payments.
We continue to believe our current
policy to recognize new technologies
associated with inpatient procedures
through ICD–9–CM coding is
appropriate and, in response to public
comments we received, are expanding
our policy prospectively for discharges
occurring on or after October 1, 2012, to
recognize oral medications where no
inpatient procedure can be associated
through the coding of NDCs. In the case
of this application, we agree with the
commenter that the NDC code of 52015–
0080–01 can be used in conjunction
with diagnosis code 008.45 to identify
the use of this technology, and establish
that the use of both codes will identify
this technology for the purposes of new
technology add-on payments. We
discuss our broader policy change to
allow NDCs as an alternative code set to
identify oral drugs where no inpatient
procedure is associated in response to
other comments.
With regard to the cost criterion,
Optimer researched the FY 2010
MedPAR file for cases that would be
eligible for treatment with Fidaxomicin
to determine if it would qualify for the
cost criterion for new technology add-on
payments. Based on its analysis, the
applicant identified cases in which a
patient had been diagnosed with CDAD
by searching the MedPAR file for claims
that included ICD–9–CM diagnosis code
008.45 (Intestinal infection due to
Clostridium difficile) as a principal
diagnosis or secondary diagnosis.
Optimer provided three examples of
how the results of the analyses of
different MS–DRGs demonstrate that it
meets the cost criterion.
Under the first analysis, the applicant
researched the FY 2010 MedPAR file for
cases that included ICD–9–CM
diagnosis code 008.45 as a principal or
secondary diagnosis across all MS–
DRGs. The applicant found 162,310
cases within 536 MS–DRGs, and
determined a case-weighted average
standardized charge per case (excluding
charges for the cost of Fidaxomicin) of
$50,136. Using a factor of 6.5 percent to
inflate the charges to 2012 rates based
on the Medical Consumer Price Index
(CPI), the applicant determined a case
weighted standardized charge per case
that equals $53,394. The applicant then
added the charges related to the
technology to the inflated charges.
Finally, the applicant determined a final

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case-weighted average standardized
charge per case of $58,994, which
exceeds the case-weighted threshold of
$43,673. Because the final caseweighted average standardized charge
per case for the applicable MS–DRGs
exceeds the case-weighted threshold
amount in this first analysis, the
applicant maintains that Fidaxomicin
meets the cost criterion for new
technology add-on payments.
Under the second analysis, the
applicant researched the FY 2010
MedPAR file for cases that included
ICD–9–CM diagnosis code 008.45 only
as a principal diagnosis, which mapped
to MS–DRGs 371 (Major Gastrointestinal
Disorders and Peritoneal Infections with
MCC), 372 (Major Gastrointestinal
Disorders and Peritoneal Infections with
CC), and 373 (Major Gastrointestinal
Disorders and Peritoneal Infections
without CC/MCC). The applicant found
55,410 cases, and determined a caseweighted average standardized charge
per case (excluding charges for the cost
of Fidaxomicin) of $28,007. Using a
factor of 6.5 percent to inflate the
charges to 2012 rates based on the
Medical CPI, the applicant determined a
case-weighted standardized charge per
case that equals $29,828. The applicant
then added the charges related to the
drug to the inflated charges. The
applicant then determined a final caseweighted average standardized charge
per case of $35,428, which exceeds the
case-weighted threshold of $34,730.
Because the final case-weighted average
standardized charge per case for the
applicable MS–DRGs exceeds the caseweighted threshold amount in this
second analysis, the applicant maintains
that Fidaxomicin meets the cost
criterion for new technology add-on
payments.
Under the third analysis, the
applicant again researched the FY 2010
MedPAR file for cases that included
ICD–9–CM diagnosis code 008.45 as a
principal or secondary diagnosis across
all MS–DRGs. The applicant then
narrowed the results of the analysis to
include only the top 37 MS–DRGs (in
volume of cases), which accounted for
75 percent of all cases. The applicant’s
methodology resulted in 121,748 cases,
and the applicant determined a caseweighted average standardized charge
per case (excluding charges for the cost
of Fidaxomicin) of $45,523. Using a
factor of 6.5 percent to inflate the
charges to 2012 rates based on the
Medical CPI, the applicant determined a
case-weighted standardized charge per
case that equals $48,482. The applicant
then added the charges related to the
drug to the inflated charges. The
applicant then determined a final case-

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weighted average standardized charge
per case of $54,082, which exceeds the
case-weighted threshold of $42,452.
Because the final case-weighted average
standardized charge per case for the
applicable MS–DRGs exceeds the caseweighted threshold amount in this third
analysis, the applicant maintains that
Fidaxomicin meets the cost criterion for
new technology add-on payments.
In the three analyses discussed above,
the applicant submitted data related to
the estimated cost and charge of the
drug (using a charge markup). However,
the applicant has not released the cost
of the technology, asserting that it is
proprietary information. The applicant
converted the cost of the technology to
a charge using a charge markup (a factor
of 6.5 percent based on the Medical CPI)
that represented a 10-day dosage.
In the proposed rule, we expressed
concern that these analyses do not take
into account situations in which
patients would be prescribed
Fidaxomicin later in the duration of
their inpatient stay, and may finish the
course of Fidaxomicin sometime after
being discharged from the hospital. In
addition, as discussed above, if
Fidaxomicin is prescribed and selfadministered during the 3-day period
prior to admission to an IPPS hospital
for a related encounter, we do not
believe that this service is payable
under the OPPS, and we do not believe
that charges associated with it can be
included on the inpatient claim
submitted to Medicare because of the 3day payment window policy. Therefore,
in the proposed rule, we noted that it
may not be appropriate to include in the
applicant’s calculations the full charges
related to Fidaxomicin and the
corresponding proprietary charges for
the 10-day dose. In addition, in the
proposed rule, we stated that we
believed that it is necessary for the
applicant to adjust its estimates to
remove from the MedPAR file’s claims
for the charges that describe other types
of treatment options such as
Vancomycin, since use of these
treatments would preclude use of
Fidaxomicin. Furthermore, to identify
the cases that may be eligible for the
technology’s use, the applicant
researched and analyzed claims that
included ICD–9–CM diagnosis code
008.45 as the principal diagnosis or as
the principal or secondary diagnosis.
We are concerned that this baseline for
eligible cases may not represent the
appropriate universe of cases, such as if
all MS–DRGs were considered or if a
subset of MS–DRGs were considered.
We invited public comment on
whether or not Fidaxomicin meets the
cost criterion. In addition, we invited

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public comment on the methodologies
used by the applicant in its analyses, in
particular the assumptions made about
the dosage in developing the cost
analysis. We were also interested in
comments about the applicant’s
selection of claims with an ICD–9–CM
diagnosis code 008.45 as the principal
diagnosis or secondary diagnosis, and
whether those cases accurately
represented the Medicare population
that may benefit from the technology’s
use.
Comment: The applicant submitted
public comments responding to our
concerns from the proposed rule. Our
first concern was that these analyses did
not take into account situations in
which patients would be prescribed
Fidaxomicin later in the duration of
their inpatient stay and may finish the
course of Fidaxomicin sometime after
being discharged from the hospital. The
applicant responded by providing a
sample of claims of patients that
received DIFICID TM during their
inpatient stay to determine the amount
of days that DIFICID TM is used within
the inpatient setting. The applicant
collected 116 inpatient stays across 26
unique MS–DRGs for patients who
received DIFICID TM during their stay of
which, 71 of the claims were Medicare
fee-for-services (FFS) cases which
mapped to 22 unique MS–DRGs.
Regarding these data (from all 116 cases)
the applicant noted the following: the
average length of stay for all DIFICID TM
(Fidaxomicin) cases is 13.9 days; on
average, patients started DIFICID TM
(Fidaxomicin) on day 6.7 of their stay;
and on average, patients received
DIFICID TM for 6.2 days of their stay.
Using the subset of 71 Medicare claims
also demonstrated that patients received
DIFICID TM on average of 6.2 days of
their stay.
Using the 116 cases from the sample,
the applicant computed a case-weighted
average standardized charge per case of
$92,684, which exceeds the caseweighted threshold of $45,388. The
applicant also conducted a similar
analysis using the Medicare subset of 71
Medicare cases. The applicant
computed a case-weighted average
standardized charge per case of
$100,146, which exceeds the caseweighted threshold of $44,980. Because
the case-weighted average standardized
charge per case for both scenarios
exceeds the case-weighted threshold
amount (in both scenarios), the
applicant maintains that Fidaxomicin
meets the cost criterion for new
technology add-on payments.
Our second concern was with regard
to the 3-day payment window. If
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administered during the 3-day period
prior to admission to an IPPS hospital
for a related encounter, as we noted in
the proposed rule, we do not believe
that this service is payable under the
OPPS, and we do not believe that
charges associated with it can be
included on the inpatient claim
submitted to Medicare because of the 3day payment window policy. Therefore,
it may not be appropriate to include in
the applicant’s calculations the full
charges related to Fidaxomicin and the
corresponding proprietary charges for
the 10-day dose. The applicant noted
that all cases from the sample data show
that treatment was initiated well after
admission to the inpatient setting. Even
for those patients who presented at
admission with a clostridium difficile
infection (CDI) diagnosis, DIFICID TM
(Fidaxomicin) began an average of 4.6
days after the patient was admitted. The
applicant believed that these data
address CMS’ concern over the potential
for outpatient administration of
DIFICID TM (Fidaxomicin) prior to
inpatient admission. The applicant
asserted that to date, utilization patterns
of DIFICID TM (Fidaxomicin) show that
the drug is used primarily in the
inpatient setting and that outpatient use
prior to admission is very limited.
Our third concern was that the
applicant’s analyses may not represent
the appropriate universe of cases, such
as if all MS–DRGs were considered or if
a subset of MS–DRGs were considered.
The applicant reiterated that it
submitted three different types of
MedPAR analysis, one of which
captured all cases where C. Difficile
infection (CDI) occurred. The applicant
added that the first MedPAR analysis
contained no restrictions on its search
for cases of CDI and as such should
represent the complete universe of
patients who may be eligible for
DIFICID TM. The applicant further stated
that its data sample of 116 inpatient
claims contains the actual MS–DRGs
and standardized charges of patients
who received DIFICID TM which meets
the cost criteria.
The applicant noted that the sample
data (of 116 claims) does not represent
the full universe of eligible DIFICID TM
(Fidaxomicin) patients for the following
reasons: First, because DIFICID TM was
new, the applicant asserted that
hospitals may not have been aware of
the full benefit of the drug. Second, the
applicant asserted that hospitals may
have believed they were not adequately
compensated for the cost of DIFICID TM
within the existing MS–DRG payment
and, therefore, may not have considered
DIFICID TM for treatment except in cases
where the patient’s costs were

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significantly higher than average and
additional outlier payments were
anticipated. The applicant concluded
that it believed that its original analysis
of the FY 2010 MedPAR data with all
patients diagnosed with CDI during
their inpatient stay represents the full
universe of potential DIFICID TM cases,
and is the most appropriate case
scenario for purposes of calculating
DIFICID TM’s (Fidaxomicin’s)
qualifications for the new technology
add-on payment cost criterion.
We were also concerned that it is
necessary for the applicant to adjust its
estimates to remove from the MedPAR
file’s claims the charges that describe
other types of treatment options such as
Vancomycin because use of these
treatments would preclude use of
Fidaxomicin. The applicant replied in
its comment that it performed a cost
criterion estimate with DIFICID TM
removed from the inflation-adjusted
weighted average standardized charge.
The applicant explored additional data
analyses to separate Vancomycin
charges from the total MedPAR charges.
However, the applicant asserted that no
approach was viable due to (1) Lack of
distinct coding to identify inpatient
cases in which Vancomycin was
administered, (2) lack of data on
Vancomycin dosing per case, and (3)
lack of data on the appropriate hospital
mark-up applied to Vancomycin costs.
Therefore, the applicant stated that it
believed, in the absence of data to
estimate Vancomycin charges included
in the MedPAR CDI cases, one
methodology to approximate this was
by, removing the inflated adjusted
charges for DIFICID TM from the caseweighted average standardized charge
per case of the first scenario. The
applicant also noted that, although it
determined an average use of
DIFICID TM for 6.2 days within the
inpatient setting based on the sample of
116 claims, it recommended that CMS
consider 6.5 days of inpatient
administration of DIFICID TM. The
applicant justified this increase based
on its belief that hospitals and
physicians will use it more. In
particular, the applicant believed that
the increased adoption of DIFICID TM
would lead to earlier prescription of
DIFICID TM by physicians for primary
CDAD treatment in the inpatient setting
as opposed to a secondary treatment.
Using this methodology (of removing
inflated adjusted charges for DIFICID TM
and assuming utilization of DIFICID TM
for 6.5 days within the inpatient
setting), the applicant revised its
calculation for the first analysis (which
included all cases of C. Diff) and

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determined a case-weighted average
standardized charge per case of $55,214,
which exceeds the case-weighted
threshold of $43,673. Because the caseweighted average standardized charge
per case exceeds the case-weighted
threshold amount, the applicant
maintains that Fidaxomicin meets the
cost criterion for new technology add-on
payments.
Response: We appreciate the
applicant’s response to our concerns
and believe that the sample of claims
the applicant submitted substantiates
the average use of DIFICID TM within the
inpatient setting. We agree with the
applicant that the appropriate universe
of cases is the first MedPAR analysis
which contained no restrictions on its
search for cases of CDI and as such
should represent the complete universe
of patients who may be eligible for
DIFICID TM. However, at this time we
believe it is appropriate to use an
estimate of 6.2 days of inpatient
administration of DIFICID TM from the
sample of claims rather than the 6.5
days that the applicant recommended.
The estimate of 6.2 days is based on
actual data while the extra 0.3 days (for
a total of 6.5 days) is based on projected
assumptions by the applicant.
Therefore, we are revising the
applicant’s analysis described above of
the first MedPAR analysis by
substituting 6.2 days instead of 6.5 days
for the administration of DIFICID TM
within the inpatient setting. We also
appreciate the applicant’s discussion of
the difficulties associated in the
removing of charges associated with
Vancomycin, which represents one
potential treatment option this
technology could replace. We do not
disagree with the applicant’s suggestion
to remove inflated adjusted charges for
DIFICID TM as an alternative. Using this
methodology (of removing inflated
adjusted charges for DIFICID TM and
assuming utilization of DIFICID TM for
6.2 days within the inpatient setting),
we determined a case weighted average
standardized charge per case of $55,130,
which still exceeds the case-weighted
threshold of $43,673. Because the caseweighted average standardized charge
per case exceeds the case-weighted
threshold amount, we believe the
applicant has met the cost criterion.
With regard to the substantial clinical
improvement criterion, in the proposed
rule, we stated that the applicant
maintained that Fidaxomicin represents
a substantial clinical improvement to
the treatment options currently
available. According to the applicant,
Fidaxomicin represents the first major
clinical advancement in the treatment
options available to address CDAD in

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more than 25 years, and it is one of only
two agents indicated by the FDA to treat
this condition. The applicant noted that
reports from its clinical trials show that
a higher proportion of patients achieve
positive clinical response to treatment
with Fidaxomicin as opposed to
treatment with Vancomycin. The
applicant reported that these patients
did not experience recurrences of
associated symptoms for at least 25 days
after the end of treatment. The applicant
asserted that Fidaxomicin has longer
acting antimicrobial activity and
inhibits spore formation in C. difficile in
vitro. The applicant stated that C.
difficile cells produce spores when
exposed to air; therefore, transmission
of infection occurs even when the cells
themselves are killed.
The applicant reported on two
randomized, double-blinded trials.28 29
A non-inferiority design was utilized to
demonstrate the efficacy of
administering Fidaxomicin (200 mg
twice daily for 10 days) compared to
administering Vancomycin (125 mg four
times daily for 10 days) to adult patients
diagnosed with CDAD. The
demographic profile and baseline CDAD
characteristics of the subjects enrolled
in both trials were similar. These
patients had a median age of 64 years,
were mainly white (90 percent), female
(58 percent), and inpatients (63
percent).
The applicant reported that the
primary efficacy endpoint (for both
trials) was the clinical response rate at
the end of therapy, based upon
improvement in diarrhea or other
symptoms such that, in the
investigator’s judgment, further CDAD
treatment was not needed. An
additional efficacy endpoint was a
sustained clinical response 25 days after
the end of treatment. Sustained
response was only evaluated for patients
who were clinical successes at the end
of treatment. Sustained response was
defined as clinical response at the end
of treatment, and survival without
proven or suspected reoccurrence of a
diagnosis of CDAD beyond 25 days after
28 Pivotal trial 101.1.C.003: Thomas J. Louie,
M.D., Mark A. Miller, M.D., Kathleen M. Mullane,
D.O., Karl Weiss, M.D., Arnold Lentnek, M.D., Yoav
Golan, M.D., Sherwood Gorbach, M.D., Pamela
Sears, Ph.D., and Youe-Kong Shue, Ph.D. for the
OPT–80–003 Clinical Study Group. Fidaxomicin
versus Vancomycin for Clostridium difficile
Infection. N Engl J Med 2011; 364:422–431February
3, 2011. Attached reference: 12_LouieNEJM2011.pdf
29 Crook D, Weiss K, Comely O, Miller M,
Esposito R, Gorbach 8. Randomized Clinical Trial
(RCT) in Clostridium difficile Infection (CDI)
Confirms Equivalent Cure Rate and Lower
Recurrence Rate of Fidaxomicin (FDX) versus
Vancomycin (VCN). 20th European Congress of
Clinical Microbiology and Infectious Diseases; April
10–13, 2010; Vienna, Austria.

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
the end of treatment. The results for
clinical response at the end of treatment
in both trials, which the applicant
submitted in the table below, indicate
that the effects of administering
Fidaxomicin is noninferior to the effects
of administering Vancomycin based on
the 95 percent confidence interval (CI)
lower limit being greater than the noninferiority margin of ¥10 percent.
The applicant stated that the results
for sustained clinical response at the

end of the follow-up period, also shown
in the table below, indicate that the
effects of administering Fidaxomicin is
superior to the effects of administering
Vancomycin on this endpoint. Because
clinical success at the end of treatment
and mortality rates were similar across
treatment arms (approximately 6
percent in each group), the applicant
determined that the differences in
sustained clinical response were due to
lower rates of proven or suspected

53357

reoccurrence of diagnoses of CDAD in
patients during the follow-up period. In
addition, the applicant asserts that the
effects of administering Fidaxomicin
has minimal impact on normal gut flora
due to its limited specificity, and could
be associated with a lower risk of
acquisition of VRE if used as a treatment
option instead of administering
Vancomycin.

CLINICAL RESPONSE RATES AT END-OF-THERAPY AND SUSTAINED RESPONSE AT 25 DAYS POST-THERAPY
Clinical response at end of treatment
FIDAXOMICIN
% (N)

EMCDONALD on DSK67QTVN1PROD with RULES2

Trial 1 .................
Trial 2 .................

88% (N=289)
88% (N=253)

Vancomycin %
(N)
86% (N=307)
87% (N=256)

Based on the analysis described
above, the applicant asserts
Fidaxomicin meets the substantial
clinical improvement criterion as a
treatment option with the potential to
decrease hospitalizations and physician
office visits, as well as to improve the
quality of life for patients who have
been diagnosed with CDAD.
We expressed concern in the
proposed rule that this technology may
not offer a substantial clinical
improvement compared to other
effective treatment alternatives already
available in the treatment of patients
who have been diagnosed with CDAD.
In addition, although the applicant
maintains that there is no evidence of
significant clinical resistance
developing with the use of this drug, in
the proposed rule, we expressed
concern about the long-term possibility
that patients may develop resistance to
this drug since the applicant provided
no data to substantiate its claim. We
invited public comment on whether or
not Fidaxomicin meets the substantial
clinical improvement criterion based on
the analysis and results presented by the
applicant.
Comment: Regarding our concern that
the technology may not offer a
substantial clinical improvement, the
applicant noted that ‘‘DIFICID TM is the
only agent proven to provide a superior
sustained clinical response versus
Vancomycin—meaning a higher
proportion of patients achieve clinical
response and remain free of potentially
devastating recurrences through 25 days
after the end of treatment * * *
Recurrences are a unique challenge in
the management of CDAD in large part
due to the ability of C. difficile to form
spores.’’ The applicant also noted that

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Sustained response at follow-up

Difference (95% CI)
2.6% (¥2.9%, 8.0%)
1.0% (¥4.8%, 6.8%)

FIDAXOMICIN
% (N)
70% (N=289)
72% (N=253)

its technology prevents sporulation
while other existing medications do not.
In addition, the applicant discussed oral
administration as being ‘‘advantageous
in treating CDAD’’.
Regarding our concern about the longterm possibility that patients may
develop resistance to this drug, the
applicant responded with several pieces
of information. First, the applicant cited
advice from ‘‘antimicrobial stewardship
programs, such as those recommended
by the CDC ‘Get Smart’ program
(http://www.cdc.gov/getsmart/) and
SHEA/IDSA policy (http://
www.idsociety.org/StewardshipPolicy/
),’’ which the applicant noted, ‘‘advise
utilizing the most narrow spectrum
agent to treat an infection to help
decrease the likelihood of resistant
development.’’ The applicant believed
Fidaxomicin ‘‘uniquely fits in this
profile as, unlike broad spectrum
antibacterial drugs, it is targeted
specifically against C. difficile with
minimal impact on other bacteria,
including the normal flora found in the
gastrointestinal tract.’’ Second, the
applicant further stated that, ‘‘The
potential for resistance to antibacterial
agents increases when bacteria are
exposed to suboptimal drug
concentrations at the site of infection.
However, DIFICID TM has minimal
absorption from the intestines and fecal
concentrations that are >1000 times that
required to kill C. difficile.’’ Third, the
applicant also noted that, ‘‘In laboratory
testing, DIFICID TM exhibited no
crossresistance with other classes of
antibacterial drugs.’’ and ‘‘The low
potential for patients to develop
resistance to DIFICID TM was also
demonstrated in two pivotal phase 3
clinical trials.’’ Fourth, the applicant

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Vancomycin %
(N)
57% (N=307)
57% (N=256)

Difference (95% CI)
12.7% (4.4%, 20.9%)
14.6% (5.8%, 23.3%)

noted that, ‘‘resistance to treating agents
is not an issue with this disease, as it
has not been reported with the other
two commonly used agents,
Metronidazole and Vancomycin.’’
Further, the applicant stated that,
‘‘Despite Metronidazole and
Vancomycin being utilized to treat C.
difficile infection (CDI) and C. difficileassociated diarrhea (CDAD) for over 25
years, resistance has not been reported
for either agent.’’ Fifth, the applicant
refers to the SHEA/IDSA guidelines
noting that these ‘‘specifically state that
considering the high fecal
concentrations achieved with oral
Vancomycin, emergence of resistance is
likely not a concern.’’ The applicant
then concluded that, ‘‘Fidaxomicin is
similar in this regard given its extremely
high fecal concentrations.’’ and that,
‘‘This indicates that the potential for
resistance is extremely low when
treating CDAD.’’
Response: We appreciate the
applicant’s response to our concerns
from the proposed rule. We considered
this information in our decision below
on whether DIFICIDTM meets the
substantial clinical improvement
criterion.
Comment: Several public commenters
stated that Fidaxomicin meets the
substantial clinical improvement
criterion. One commenter noted, ‘‘In the
past year, DIFICIDTM clinically has been
invaluable in treating some of these
more difficult cases. The drug has been
well tolerated, and we have seen fewer
patients with recurrence after therapy
with DIFICIDTM * * * DIFICIDTM is
revolutionary because it offers a
significant advancement that we have
not seen in previous CDI therapies:
targeted therapy and reduced

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

recurrences.’’ Another commenter
expressed support for the literature,
research, and data pertaining to the use
of DIFICIDTM on its patients with C.
difficile infections. The commenter
added that it has had the opportunity to
use DIFICIDTM on a few occasions thus
far and has had very good outcomes,
especially regarding the rapid
improvement in symptoms.
Response: We appreciate the
commenters’ input. After reviewing the
totality of the evidence and the public
comments we received, we agree with
the commenters that DIFICIDTM
(Fidaxomicin) represents a substantial
clinical improvement over existing
technologies. We believe that DIFICIDTM
represents a treatment option with the
potential to decrease hospitalizations
and physician office visits, and reduce
the recurrence of CDAD, as well as to
improve the quality of life for patients
who have been diagnosed with CDAD.
Therefore, DIFICIDTM (Fidaxomicin)
has met all three criteria for the new
technology add-on payment policy and
is eligible for new technology add-on
payments in FY 2013. Cases of
DIFICIDTM (Fidaxomicin) will be
identified with ICD–9–CM diagnosis
code 008.45 in combination with NDC
code 52015–0080–01. Providers must
code the NDC on the 837i Health Care
Claim Institutional form (in
combination with ICD–9–CM diagnosis
code 008.45) in order to receive the new
technology add-on payment. Further
guidance will be issued after this final
rule with how to code the NDC code on
the 837i form. According to the
applicant, the cost of DIFICIDTM
(Fidaxomicin) is $2,800 for a 10-day
dosage. The average cost per day for
DIFICIDTM is $280 ($2,800/10). As
discussed above, cases of DIFICIDTM
(Fidaxomicin) within the inpatient
setting typically incur an average dosage
of 6.2 days, which results in an average
cost per case for DIFICIDTM of $1,736
($280 × 6.2). We note, as stated above in
our discussion of the cost criteria, we
are not using an average dosage of 6.5
days for DIFICIDTM because we prefer to
rely on statistical data from the sample
of 116 claims that received DIFICIDTM
rather than information based on
multiple assumptions. However, the
applicant is welcome to submit
additional data for FY 2014 that
demonstrate changes to the average
dosage of 6.2 days (within the inpatient
setting). Under § 412.88(a)(2), new
technology add-on payments are limited
to the lesser of 50 percent of the average
cost of the technology or 50 percent of
the costs in excess of the MS–DRG
payment for the case. As a result, the
maximum new technology add-on

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payment for FY 2013 for DIFICIDTM
(Fidaxomicin) is $868.
c. Zilver® PTX® Drug Eluting Stent
Cook® Medical submitted an
application for new technology add-on
payments for the Zilver® PTX® Drug
Eluting Stent (Zilver® PTX®) for FY
2013. In the proposed rule, we
summarized this application. The
Zilver® PTX® is intended for use in the
treatment of peripheral artery disease
(PAD) of the above–the-knee
femoropopliteal arteries (superficial
femoral arteries). According to the
applicant, the stent is percutaneously
inserted into the artery(s), usually by
accessing the common femoral artery in
the groin. The applicant states that an
introducer catheter is inserted over the
wire guide and into the target vessel
where the lesion will first be treated
with an angioplasty balloon to prepare
the vessel for stenting. The applicant
indicates that the stent is selfexpanding, made of nitinol (nickel
titanium), and is coated with the drug
Paclitaxel. Paclitaxel is a drug approved
for use as an anticancer agent and for
use with coronary stents to reduce the
risk of renarrowing of the coronary
arteries after stenting procedures.
The applicant maintains that there are
currently no FDA approved drug-eluting
stents used for superficial femoral
arteries. At the time of the proposed
rule, the applicant expected to receive
FDA approval for the stent in the second
quarter of 2012. However, at the time of
this final rule, the technology has still
not received FDA approval. The
technology is currently described by
ICD–9–CM procedure code 00.60
(Insertion of drug-eluting stent(s) of the
superficial femoral artery). We invited
public comment regarding how the
Zilver® PTX® meets the newness
criterion.
Comment: The applicant stated that it
received a letter from the FDA
indicating that the FDA’s Center for
Devices and Radiological Health
considers the device to be ‘‘approvable.’’
The applicant added that it expects
formal FDA approval before September
2012. With FDA approval imminent and
expected before the implementation
date of October 1, 2012, the applicant
requested that the ‘‘approvable’’ letter
from the FDA’s Center for Devices and
Radiological Health be allowed to serve
as a proxy for FDA approval.
Response: In accordance with
§ 412.87(c) of the regulations, we require
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

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fiscal year that the application is being
considered. Because the Zilver® PTX® is
not approved by the FDA as of such
date, we cannot consider this
application for new technology add-on
payments for FY 2013. Therefore, the
Zilver® PTX® does not meet the
newness criteria.
With regard to the cost criterion, the
applicant believes that cases of
superficial femoral arteries typically
map to MS–DRGs 252 (Other Vascular
Procedures with MCC), 253 (Other
Vascular Procedures with CC), and 254
(Other Vascular Procedures without CC/
MCC). The applicant searched the FY
2009 MedPAR file for cases with a
procedure code of 39.90 (Insertion of
non-drug-eluting peripheral vessel
stents) in combination with a diagnosis
code of 440.20 (Atherosclerosis of the
extremities, unspecified), 440.21
(Atherosclerosis of the extremities, with
intermittent claudication), 440.22
(Atherosclerosis of the extremities with
rest pain), 440.23 (Atherosclerosis of the
extremities with ulceration), and 440.24
(Atherosclerosis of the extremities with
gangrene). The applicant found 7,144
cases (or 24.4 percent of all cases) in
MS–DRG 252; 9,146 cases (or 31.2
percent of all cases) in MS–DRG 253;
and 13,012 cases (or 44.4 percent of all
cases) in MS–DRG 254. The average
charge per case was $78,765 for MS–
DRG 252, $63,758 for MS–DRG 253, and
$47,586 for MS–DRG 254, equating to a
case-weighted average charge per case of
$60,236.
The case-weighted average charge per
case above does not include charges
related to the Zilver® PTX®; therefore, it
is first necessary to remove the amount
of charges related to the nondrug-eluting
peripheral vessel stents and replace
them with charges related to the Zilver®
PTX®. The applicant used two
methodologies to remove the charges of
the nondrug-eluting peripheral vessel
stents and replace them with charges
related to the Zilver® PTX®. Although
the applicant submitted data related to
the estimated cost of the nondrugeluting peripheral vessel stents and the
Zilver® PTX®, the applicant noted that
the cost of these devices was proprietary
information.
Under the first methodology, the
applicant determined the amount of
stents per case based on the following
ICD–9–CM codes on each claim: 00.45
(Insertion of one vascular stent), 00.46
(Insertion of two vascular stents), 00.47
(Insertion of three vascular stents) and
00.48 (Insertion of four or more vascular
stents). If a claim had a code of 00.48,
the applicant assumed a maximum of
four stents per case. The applicant
multiplied the amount of stents used

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EMCDONALD on DSK67QTVN1PROD with RULES2

per case by the average market price for
nondrug-eluting peripheral vessel stents
and then converted the cost of the stents
used per case to a charge by dividing the
results by the national average CCR of
0.329 for supplies and equipment (76
FR 51571). The applicant removed the
appropriate amount of charges per case
and then standardized the charges per
case. Because the applicant used FY
2009 MedPAR data, it was necessary to
inflate the charges from FY 2009 to FY
2012. Using data from the U.S.
Department of Labor Bureau of Labor
Statistics Consumer Price Index, the
applicant inflated the average
standardized charge per case with an
inflation factor of 6 percent. To
determine the amount of Zilver® PTX®
stents per case, instead of using the
amount of stents used per case based on
the ICD–9–CM codes above, the
applicant used an average of 1.9 stents
per case based on the Zilver® PTX®
Global Registry Clinical Study.30 The
applicant believed that it is appropriate
to use data from the clinical study (to
determine the average amount of stents
used per case) rather than the actual
data from the claims because the length
of a nondrug-eluting peripheral vessel
stent typically ranges from 80 mm to
120 mm, while the length of the Zilver®
PTX® is 80 mm (which could cause a
variance in the actual amount of stents
used per case when using the Zilver®
PTX®). Similar to above, the applicant
multiplied the average of 1.9 stents used
per case by the future market price for
the Zilver® PTX® and then converted
the cost of the stents used per claim to
a charge by dividing the results by the
national average CCR of 0.329 for
supplies and equipment. The applicant
then added the amount of charges
related to the Zilver® PTX® to the
inflated average standardized charge per
case and determined a final caseweighted average standardized charge
per case of $60,014. Using the FY 2013
Table 10 thresholds, the case-weighted
threshold for MS–DRGs 252, 253, and
254 was $52,293 (all calculations above
were performed using unrounded
numbers). Because the case-weighted
average standardized charge per case for
the applicable MS–DRGs exceed the
case-weighted threshold amount, the
30 Dake, M.D., Ansel, G.M., Jaff, M.R., Ohki, T.,
Saxon, R.R., Smouse, H.B., Zeller, T., Roubin, G.S.,
Burket, M.W., Khatib, Y., Snyder, S.A., Ragheb,
A.O., White, J.K., Machan, L.S.(2011), Paclitaxeleluting stents show superiority to balloon
angioplasty and bare metal stents in
femoropopliteal disease: twelve-month zilver PTX
randomized study results. Circulation
Cardiovascular Interventions, published online
September 27, 2011, 495–504.

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applicant maintains that the Zilver®
PTX® meets the cost criterion.
The second methodology was similar
to the first methodology described
above, but the applicant used hospitalspecific CCRs from the FY 2009 IPPS
impact file to convert the cost of the
nondrug-eluting peripheral vessel stents
and the cost of the Zilver® PTX® to
charges. In summary, the applicant
determined the amount of nondrugeluting peripheral vessel stents used per
case based on the ICD–9–CM codes on
each claim (as discussed above). The
applicant multiplied the amount of
stents used per case by the average
market price for nondrug-eluting
peripheral vessel stents and then
converted the cost of the stents used per
case to a charge by dividing by the
hospital-specific CCR (from the FY 2009
IPPS impact file). The applicant
removed the appropriate amount of
charges per case and then standardized
the charges per case. Similar to the step
described above, because the applicant
used FY 2009 MedPAR data, it was
necessary to inflate the charges from FY
2009 to FY 2012. Using data from the
Bureau of Labor Statistics Consumer
Price Index, the applicant inflated the
average standardized charge per case
with an inflation factor of 6 percent. To
determine the amount of Zilver® PTX®
stents per case, instead of using the
amount of stents used per case based on
the ICD–9–CM codes above, the
applicant used an average of 1.9 stents
per case based on the Zilver® PTX®
Global Registry Clinical Study (because
of the reason stated in the first
methodology). The applicant then
multiplied the average of 1.9 stents used
per case by the future market price for
the Zilver® PTX® and then converted
the cost of the stents used per claim to
a charge by dividing the results by the
hospital-specific CCR (from the FY 2009
IPPS impact file). The applicant then
added the amount of charges related to
the Zilver® PTX® to the inflated average
standardized charge per case and
determined a final case-weighted
average standardized charge per case of
$60,339. Using the FY 2013 Table 10
thresholds, the case-weighted threshold
for MS–DRGs 252, 253, and 254 was
$52,293 (all calculations above were
performed using unrounded numbers).
Because the case-weighted average
standardized charge per case for the
applicable MS–DRGs exceed the caseweighted threshold amount, the
applicant maintains that the Zilver®
PTX® would meet the cost criterion.
We invited public comment on
whether or not the Zilver® PTX® meets
the cost criterion. Additionally, we
invited public comment on the

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53359

methodologies used by the applicant in
its analysis, including its assumptions
regarding the types of cases in which
this technology could potentially be
used, the number of stents required for
each case, and the CCRs used in the cost
calculation.
Comment: We received several public
comments regarding whether the
Zilver® PTX® meets the cost criterion.
Response: Because the Zilver® PTX®
has not yet received FDA approval, and
therefore, does not meet the newness
criterion, as discussed above, it is not
eligible for the IPPS new technology
add-on payments for FY 2013.
Therefore, we are not summarizing the
details of these comments nor
responding to them in this final rule.
In an effort to demonstrate that the
technology meets the substantial
clinical improvement criterion, the
applicant shared several findings from
the clinical trial data. The applicant
stated that current treatment options for
patients who have been diagnosed with
PAD includes angioplasty, bare metal
stenting, bypass graft and
endarterectomy. The applicant asserts
that the Zilver® PTX® meets the
substantial clinical improvement
because it decreases the recurrence of
symptoms arising from restenotic SFA
lesions, the rate of subsequent
diagnostic or therapeutic interventions
required to address restenotic lesions,
and the number of future
hospitalizations.
The applicant cited a 480-patient,
multicenter, multinational randomized
controlled trial that compared the
Zilver® PTX® to balloon angioplasty; an
additional component of the study
allowed a direct comparison of the
Zilver® PTX® to a bare (uncoated) metal
Zilver® stent. The primary safety
endpoint of the randomized controlled
study was ‘‘Event-Free Survival’’ (EFS),
defined as ‘‘freedom from the major
adverse events of death, target lesion
revascularization, target limb ischemia
requiring surgical intervention or
surgical repair of the target vessel, and
freedom of worsening systems as
described by the Rutherford
classification by 2 classes or to class 5
or 6.’’ The primary effectiveness
endpoint was primary patency (defined
as a less than 50 percent re-narrowing).
The applicant noted that the Zilver®
PTX® had an EFS of 90.4 percent
compared to balloon angioplasty, which
had an EFS of 83.9 percent,
demonstrating that the Zilver® PTX® is
as safe or safer than balloon angioplasty.
In addition, the applicant noted that the
Zilver® PTX® demonstrated a 50percent reduction in restenosis rates
compared to angioplasty and a 20-

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percent reduction compared to bare
metal stents. The 12-month patency rate
for the Zilver® PTX® was 83.1 percent,
which compared favorably to the
balloon angioplasty patency rate of 32.8
percent. In the provisional stenting arm
of the study, which allowed a direct
comparison of the Zilver® PTX® and a
bare metal stent, the Zilver® PTX®
primary patency exceeded the bare
metal stent patency by nearly 20 percent
(89.9 percent versus 73.0 percent 1). The
applicant stated that these differences
are significant, as they result in a
substantial clinical improvement
compared to angioplasty and bare metal
stenting, with patients being spared a
recurrence of their leg pain and the need
to be admitted to the hospital for repeat
procedures on these treated lesions.
The applicant also cited a
prospective, multicenter, multinational,
787-patient single arm study on the
Zilver® PTX® that demonstrated similar
safety and effectiveness results
consistent with those from the pivotal
randomized controlled study above. The
applicant cited an EFS for the Zilver®
PTX® of 89.0 percent and an 86.2
percent primary patency rate. The
applicant stated that these results
confirm the safety and effectiveness of
the Zilver® PTX®, and compare
favorably to current results for
angioplasty and bare metal stenting. The
applicant added that these results also
demonstrate a 67 to 81 percent relative
reduction in Target Lesion
Revascularization (the need to retreat an
already treated lesion that has
restenosed, resulting in a recurrence of
symptoms) rates compared to recently
published results of contemporary bare
metal stents.31
We invited public comment regarding
whether the Zilver® PTX® meets the
substantial clinical improvement
criterion.
Comment: Several commenters
commented on whether the Zilver®
PTX® meets the substantial clinical
improvement criterion.
Response: Because the Zilver® PTX®
has not yet received FDA approval, and
therefore, does not meet the newness
criterion, as discussed above, it is not
eligible for IPPS new technology add-on
payments for FY 2013. Therefore, we are
not summarizing the details of these
public comments or responding to them
in this final rule d. Zenith® Fenestrated
31 Dake, M. D., Scheinert, D., Tepe, G., Tessarek,
J., Fanelli, F., Bosiers, M., et al. (2011). Nitinol
stents with polymer-free paclitaxel coating for
lesions in the superficial femoral and popliteal
arteries above the knee: Twelve-month safety and
effectiveness results from the zilver PTX single-arm
clinical study. Journal of Endovascular Therapy,
18(5), 613–623.

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Abdominal Aortic Aneurysm (AAA)
Endovascular Graft.
Cook® Medical submitted an
application for new technology add-on
payments for the Zenith® Fenestrated
Abdominal Aortic Aneurysm (AAA)
Endovascular Graft (Zenith® F. Graft) for
FY 2013. In the proposed rule, we
summarized this application. The
applicant stated that the current
treatment for patients who have had an
AAA is an endovascular graft. The
applicant explained that the Zenith® F.
Graft is an implantable device designed
to treat patients who have an AAA and
who are anatomically unsuitable for
treatment with currently approved AAA
endovascular grafts because of the
length of the infrarenal aortic neck. The
applicant noted that, currently, an AAA
is treated through an open surgical
repair or medical management for those
patients not eligible for currently
approved AAA endovascular grafts.
The applicant stated that the Zenith®
F. Graft is custom-made for each patient.
It is a modular system consisting of
three components: a two-part main body
graft and one iliac leg. The two-part
main body of the graft consists of a
proximal tubular graft and a distal
bifurcated graft body. The proximal
body graft contains precisely located
holes (fenestrations) and/or cut-outs
from the proximal margin (scallops) of
the polyester graft material along with a
bare proximal stent with barbs to
provide fixation. The iliac leg
component, which couples with the
main bifurcated body, completes the
basic fenestrated endograft.
With respect to newness, the
applicant stated that FDA approval for
the use of the Zenith® F. Graft was
granted on April 4, 2012. The
technology is described by ICD–9–CM
procedure code 39.78 (Endovascular
implantation of branching or fenestrated
graft(s) in aorta), which became effective
October 1, 2011. While procedure code
39.78 maps to MS–DRGs 252, 253, and
254 (Other Vascular Procedures with
MCC, with CC, and without MCC/CC,
respectively), the applicant believes that
MS–DRGs 237 and 238 (Major
Cardiovascular Procedures with MCC
and without MCC, respectively) would
be a more appropriate assignment for
procedure code 39.78. We note that in
section III.G.3.b. of this preamble, we
discuss our final policy which reassigns
procedure code 39.78 from MS–DRG
252, 253, and 254 to MS–DRGs 237 and
238. We invited public comment
regarding whether the Zenith® F. Graft
meets the newness criterion for new
technology add-on payment.
We did not receive any public
comments regarding whether the

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Zenith® F. Graft meets the newness
criterion. However, because the Zenith®
F. Graft was approved by the FDA on
April 4, 2012, we believe the Zenith® F.
Graft meets the newness criterion as of
that date.
With regard to the cost criterion, the
applicant used clinical trial data and
three separate analyses of FY 2010
MedPAR data to demonstrate that the
Zenith® F. Graft meets the cost criteria.
We note that in the proposed rule the
applicant believed that it met the cost
criteria since it demonstrated that the
case weighted average charge per case
exceeded the threshold for MS–DRGs
252–254 since at that time procedure
code 39.78 was assigned to MS–DRG
252–254. However, as mentioned above,
in this final rule we have reassigned
procedure code 39.78 from MS–DRG
252–254 to MS–DRGs 237–238.
Therefore, for this final rule, in order for
the applicant to meet the cost criteria,
it must demonstrate that the case
weighted average standardized charge
per case exceeds the thresholds for MS–
DRGs 237–238.
The applicant submitted clinical trial
data 32 which was based on 173 claims
(all Medicare patients except one
patient). The applicant found that, of
the 173 cases, 35 cases (or 20.2 percent
of all cases) mapped to MS–DRG 252, 86
cases (or 49.7 percent of all cases)
mapped to MS–DRG 253, and 52 cases
(or 30.1 percent of all cases) mapped to
MS–DRG 254, equating to a caseweighted average charge per case of
$87,733.
The applicant noted that the
investigational devices (the bare metal
renal stents that are used in the
procedure and the Zenith® F. Graft)
were sold to the trial sites at reduced
prices. Therefore, the average charge per
case cited above contains reduced
charges for the investigational devices
rather than commercial charges. As a
result, the applicant believes it is
necessary to remove the reduced
charges for the investigational devices
and replace them with commercial
charges, in order to determine the cost
of the investigational devices for each of
the three analyses. Although the
applicant submitted data related to the
estimated cost of the investigational
devices, the applicant noted that the
cost of these devices was proprietary
information.
To remove the reduced charges for the
investigational devices, the applicant
searched the clinical trial claims data
32 Evaluation of the Safety and Effectiveness of
the Zenith(R) Fenestrated AAA Endovascular Graft,
Zenith Fenestrated AAA Endovascular Graft Pivotal
Study, Clinicaltrials.gov: identifier NCT00875563
and a Physician Sponsored IDE.

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and removed those charges with a
revenue code of 0624 (investigational
device exempt). Because the claims data
for the clinical trial ranged from 2002 to
2010, it was necessary to inflate the
charges. Using data from the U.S.
Department of Labor Bureau of Labor
Statistics (BLS) Consumer Price Index,
the applicant applied an inflation factor
to the claim charges ranging from 3
percent to 27 percent, depending on the
year of the claim. After inflating the
charges, the applicant then added the
commercial charges of the
investigational devices to the inflated
charge per case. To determine the
amount of commercial charges related to
the investigational devices, the
applicant divided the cost of the
investigational devices by the hospitalspecific CCR from the FY 2012 IPPS
Final Rule Impact File. After adding the
charges of the investigational devices to
the inflated charges, the applicant then
standardized the charges on each claim.
As a result, the applicant determined a
final case-weighted average
standardized charge per case of
$122,821. In the proposed rule, the
applicant used the FY 2013 Table 10
thresholds for MS–DRGs 252, 253, and
254 and determined a case-weighted
threshold of $53,869 (all calculations
above were performed using unrounded
numbers). Because the final caseweighted average standardized charge
per case for MS–DRGs 252, 253, and 254
exceeds the case-weighted threshold
amount, the applicant maintained that
the Zenith® F. Graft met the cost
criterion for new technology add-on
payments. As noted above, for this final
rule the applicant must demonstrate
that it meets the cost criteria for MS–
DRGs 237 and 238. The thresholds for
MS–DRGs 237 and 238 are $101,728 and
$69,591, respectively. If the applicant
compared the final case-weighted
average standardized charge per case of
$122,821 (under MS–DRGs 252, 253,
and 254) to the highest threshold for
MS–DRGs 237 and 238 ($101,728), it
would still exceed the threshold in
excess of $20,000. Therefore, under this
analysis the applicant would meet the
cost criterion since the final caseweighted average standardized charge
per case would exceed the threshold
under MS–DRGs 237 and 238.
We note that, in addition to the
analysis above, the applicant conducted
a similar cost analysis using drug
eluting renal stents instead of bare metal
renal stents. The applicant noted that
the price of drug eluting renal stents
exceeds the price of bare metal renal
stents by approximately $2,200 per
stent. Therefore, the applicant asserted

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that if the price of drug eluting renal
stents is more expensive than bare metal
renal stents and the Zenith® F. Graft
meets the cost criteria with bare metal
renal stents, the Zenith® F. Graft also
meets the cost criteria when the
applicant uses drug eluting renal stents
in its analysis.
As mentioned above, the applicant
conducted three separate analyses using
FY 2010 MedPAR data to identify cases
eligible for the Zenith® F. Graft to
demonstrate that it meets the cost
criterion. Because procedure code 39.78
was effective October 1, 2011, the
applicant noted that it was unable to
conduct a MedPAR data analysis with
claims that contained a procedure code
of 39.78. Therefore, in order to identify
cases eligible for the Zenith® F. Graft
prior to October 1, 2011, the applicant
searched the MedPAR file for the
following three scenarios. The first
analysis searched the FY 2010 MedPAR
file for cases with procedure code 39.71
(Endovascular implantation of graft in
abdominal aorta) in combination with a
diagnosis code of 441.4 (Abdominal
aneurysm without mention of rupture).
Procedure code 39.71 maps to MS–
DRGs 237 and 238. The applicant found
1,679 cases (or 9.1 percent of all cases)
in MS–DRG 237 and 16,793 cases (or
90.9 percent of all cases) in MS–DRG
238. The average charge per case was
$122,252 for MS–DRG 237 and $76,883
for MS–DRG 238, equating to a caseweighted average charge per case of
$81,006.
The applicant noted that these
MedPAR claims data included charges
for the existing stent graft but did not
include charges for the Zenith® F. Graft.
Therefore, the applicant stated that it
was first necessary to remove the
amount of charges related to the existing
stent graft and replace them with
charges for the Zenith® F. Graft.
Although the applicant submitted data
related to the estimated cost of the
existing stent graft and the Zenith® F.
Graft, the applicant noted that the cost
of these devices was proprietary
information.
To determine the amount of charges
for the existing stent graft, the applicant
divided the costs for the existing stent
graft by the national average CCR of
0.329 for supplies and equipment (76
FR 51571). The applicant removed the
appropriate amount of charges per case
from the average charge per case.
Because the applicant used FY 2010
MedPAR data, it was necessary to
inflate the charges from FY 2010 to FY
2012. Using data from the BLS’
Consumer Price Index, the applicant
inflated the case-weighted average
standardized charge per case with an

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inflation factor of 4 percent. The
applicant then determined the amount
of charges for the Zenith® F. Graft by
dividing the costs of the Zenith® F.
Graft by the national average CCR of
0.329 for supplies. The applicant then
added the amount of charges related to
the Zenith® F. Graft to the inflated
charges and then standardized the
charges. The applicant determined a
final case-weighted average
standardized charge per case of $80,509.
Using the FY 2013 Table 10 thresholds,
the case-weighted threshold for MS–
DRGs 237 and 238 was $72,512 (all
calculations above were performed
using unrounded numbers). Because the
final case-weighted average
standardized charge per case for the
applicable MS–DRGs exceeds the caseweighted threshold amount under this
first analysis, the applicant maintains
that the Zenith® F. Graft meets the cost
criterion for new technology add-on
payment.
For its second analysis, the applicant
searched the FY 2010 MedPAR file for
cases with procedure code 38.44
(Resection of vessel with replacement,
aorta) in combination with a diagnosis
code of 441.4. Similar to the first
analysis, the applicant conducted this
analysis using MS–DRGs 237 and 238
because procedure code 38.44 maps to
MS–DRGs 237 and 238. The applicant
found 1,310 cases (or 37.9 percent of all
cases) in MS–DRG 237 and 2,145 cases
(or 62.1 percent of all cases) in MS–DRG
238. The average charge per case was
$110,708 for MS–DRG 237 and $64,095
for MS–DRG 238, equating to a caseweighted average charge per case of
$81,769.
The next steps of the applicant’s
second analysis were similar to the
steps in the first analysis. The applicant
noted that the MedPAR claims data
included charges for the vascular graft
for open procedures but did not include
charges for the Zenith® F. Graft.
Therefore, the applicant indicated that it
was first necessary to remove the
amount of charges related to the
vascular graft for open procedures and
replace them with charges for the
Zenith® F. Graft. Although the applicant
submitted data related to the estimated
cost of the vascular graft for open
procedures and the Zenith® F. Graft, the
applicant noted that the cost of these
devices was proprietary information.
To determine the amount of charges
for the vascular graft for open
procedures, the applicant divided the
costs for the vascular graft for open
procedures by the national average CCR
of 0.329 for supplies and equipment (76
FR 51571). The applicant removed the
appropriate amount of charges per case

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from the average charge per case.
Similar to the first analysis, the
applicant inflated the case-weighted
average charge per case with an
inflation factor of 4 percent (based on
data from the BLS’ Consumer Price
Index). The applicant then determined
the amount of charges for the Zenith® F.
Graft by dividing the costs of the
Zenith® F. Graft by the national average
CCR of 0.329 for supplies. The applicant
then added the amount of charges
related to the Zenith® F. Graft to the
inflated charges and then standardized
the charges. The applicant determined a
final case-weighted average
standardized charge per case of
$118,774. Using the FY 2013 Table 10
thresholds, the case-weighted threshold
for MS–DRGs 237 and 238 was $81,776
(all calculations above were performed
using unrounded numbers). Because the
final case-weighted average
standardized charge per case for the
applicable MS–DRGs exceeds the caseweighted threshold amount in this
second analysis, the applicant maintains
that the Zenith® F. Graft meets the cost
criterion for new technology add-on
payments. In the proposed rule, we
noted that while the applicant removed
charges for the vascular graft for open
procedures, we were concerned that the
applicant did not remove charges for
other services such as extra operating
room time and other possible charges
that would be incurred during an open
procedure but would possibly not be
incurred during cases when the Zenith®
F. Graft is implanted.
Comment: In response to our
concerns, the applicant took the
following steps to demonstrate that the
Zenith® F. Graft meets the cost criterion
under the second analysis. The
applicant first determined the average
hospital length of stay (LOS), ICU time
and OR time for open AAA repairs
versus fenestrated AAA repairs. The
applicant researched several peer
reviewed studies that contain data for
OR time, LOS and ICU time for open
procedures. Based on these studies, the
applicant calculated a weighted average
for each of these measures. The
weighted average was a LOS of 9.53
days, 4.07 ICU days, and 261 minutes of
OR time.
The applicant used clinical trial data
to determine the average OR time, LOS,
and ICU time for AAA fenestrated
procedures. Based on Cook’s clinical
trial data,33 the applicant determined an
average LOS of 3.5 days and ICU time
33 Unpublished results, Evaluation of the Safety
and Effectiveness of the Zenith(R) Fenestrated AAA
Endovascular Graft, Zenith Fenestrated AAA
Endovascular Graft Pivotal Study, Clinicaltrials.gov
identifier NCT00875563.

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of 0.5 days for AAA fenestrated
procedures. To determine the amount of
OR minutes, the applicant used
literature from eight studies including
the Cook clinical trial data and
determined a weighted average of 235
OR minutes. The applicant noted that
the reported hospital LOS and ICU
length of stay for fenestrated procedures
from outside the United States is
significantly longer than those
experienced in the study in the United
States. Because the applicant believed
that the standard of care related to
length of hospital stay and ICU stay
from European experience are dissimilar
to practices within the United States, it
only used data from the Cook clinical
trial rather than other clinical trial data
(which included data from Europe) to
determine the average for ICU days and
LOS.
The applicant then calculated the
percentage savings or rate of savings for
the OR time, LOS and ICU time with the
following formula: (open procedure
minutes or days—fenestrated minutes or
days)/open procedure minutes or days.
This resulted in savings of 9.96 percent
for OR minutes, 87.71 percent for ICU
days, and 63.27 percent for LOS days.
The applicant then applied the savings
at a claim level by applying the rate of
savings to the service charge categories
from the MedPAR data (rate of savings
* open device service charge category).
Savings of 9.96 percent for OR time was
applied to Service Category 12 (which
contains OR charges for revenue centers
36X, 71X and 72X), savings of 87.71
percent for ICU days was applied to
Accommodation Charge Category 4
(which includes total ICU charges), and
savings of 63.27 percent for LOS was
applied to Accommodation Charge
Category 1 (which includes standard
room charges). To determine the caseweighted average standardized charge
per case, the applicant deducted the
reduced charges (savings) from the caseweighted average charge per case
($81,769), which resulted in a revised
case-weighted average charge per case of
$66,206. The applicant then inflated the
revised case-weighted average charge
per case by 4 percent (based on data
from the BLS’ Consumer Price Index),
which resulted in an inflated case
weighted average charge per case of
$68,854. Next, the applicant determined
the amount of charges for the Zenith® F.
Graft by dividing the costs of the
Zenith® F. Graft by the national average
CCR of 0.329 for supplies. The applicant
then added the amount of charges
related to the Zenith® F. Graft to the
inflated charges and then standardized
the charges. The applicant determined a

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final case-weighted average
standardized charge per case of
$106,731. Using the FY 2013 Table 10
thresholds, the case-weighted threshold
for MS–DRGs 237 and 238 was $81,776
(all calculations above were performed
using unrounded numbers). Because the
final case-weighted average
standardized charge per case for the
applicable MS–DRGs exceeds the caseweighted threshold amount in this
revised second analysis, the applicant
maintains that the Zenith®F. Graft
Meets the Cost Criterion for New
Technology Add-On Payments.
Response: We appreciate the
applicant’s response and submittal of
this supplemental analysis, which
addresses our concerns from the
proposed rule.
The third analysis was a combination
of the first and second analyses
discussed above. The applicant
searched the FY 2010 MedPAR file for
cases with a procedure code of 38.44 or
39.71 in combination with a diagnosis
code of 441.4. Similar to the first and
second analyses, the applicant
conducted this analysis using MS–DRGs
237 and 238 because both procedure
codes map to MS–DRGs 237 and 238.
The applicant found 2,981 cases (or 13.6
percent of all cases) in MS–DRG 237
and 18,928 cases (or 86.4 percent of all
cases) in MS–DRG 238. The applicant
removed those cases that had both
procedure codes 38.44 and 39.71 on the
claim. The average charge per case was
$116,826 for MS–DRG 237 and $75,298
for MS–DRG 238, equating to a caseweighted average charge per case of
$80,948.
The applicant noted that the MedPAR
claims data included charges for the
existing stent graft or vascular graft for
open procedures but did not include
charges for the Zenith® F. Graft.
Therefore, the applicant stated that it
was first necessary to remove the
amount of charges related to the existing
stent graft or vascular graft for open
procedures and replace them with
charges for the Zenith® F. Graft. Similar
to the first and second analyses, to
determine the amount of charges for the
existing stent graft or vascular graft for
open procedures, the applicant divided
the costs for these devices by the
national average CCR of 0.329 for
supplies and equipment (76 FR 51571).
The applicant removed the appropriate
amount of charges per case from the
average charge per case. The applicant
inflated the case-weighted average
standardized charge per case with an
inflation factor of 4 percent (based on
data from the BLS’ Consumer Price
Index). The applicant then determined
the amount of charges for the Zenith® F.

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Graft by dividing the costs of the
Zenith® F. Graft by the national average
CCR of 0.329 for supplies. The applicant
then added the amount of charges
related to the Zenith® F. Graft to the
inflated charges and then standardized
the charges. As a result, the applicant
determined a final case-weighted
average standardized charge per case of
$86,081. Using the FY 2013 Table 10
thresholds, the case-weighted threshold
for MS–DRGs 237 and 238 was $73,964
(all calculations above were performed
using unrounded numbers). Because the
final case-weighted average
standardized charge per case for the
applicable MS–DRGs exceeds the caseweighted threshold amount, the
applicant maintains that the Zenith® F.
Graft meets the cost criterion for new
technology add-on payment.
In the proposed rule, similar to our
concerns with the second analysis, we
were concerned that for this third
analysis the applicant did not remove
charges for other services such as extra
operating room time and other possible
charges that would be incurred during
an open procedure, but would possibly
not be incurred during cases when the
Zenith® F. Graft is implanted.
Comment: The applicant applied the
same analysis above and deducted the
reduced charges (savings) for OR time,
LOS, and ICU days from the caseweighted average charge per case
($80,948), which resulted in a revised
case-weighted average charge per case of
$39,756. The applicant then inflated the
revised case-weighted average charge
per case by 4 percent (based on data
from the BLS’ Consumer Price Index),
which resulted in an inflated caseweighted average charge per case of
$41,346. The applicant then determined
the amount of charges for the Zenith® F.
Graft by dividing the costs of the
Zenith® F. Graft by the national average
CCR of 0.329 for supplies. The applicant
then added the amount of charges
related to the Zenith® F. Graft to the
inflated charges and then standardized
the charges. The applicant determined a
final case-weighted average
standardized charge per case of $82,497.
Using the FY 2013 Table 10 thresholds,
the case-weighted threshold for MS–
DRGs 237 and 238 was $73,964 (all
calculations above were performed
using unrounded numbers). Because the
final case-weighted average
standardized charge per case for the
applicable MS–DRGs exceeds the caseweighted threshold amount in this
revised second analysis, the applicant
maintains that the Zenith® F. Graft
meets the cost criterion for new
technology add-on payments.

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Response: We thank the commenter
for submitting this supplemental
analysis which addresses our concerns
from the proposed rule.
We appreciate the multiple analyses
of the FY 2010 MedPAR data provided
by the applicant and as stated above we
believe the commenter has addressed
our concerns from the proposed rule.
Therefore, we believe that the Zenith®
F. Graft meets the cost criterion for new
technology add-on payments.
The applicant maintains that the
technology also meets the substantial
clinical improvement criterion. The
applicant first explained that current
treatment for those patients who are not
eligible for standard endovascular AAA
devices is an open repair. The applicant
referenced data from a published
series 34 that demonstrated an open
repair can lead to a high risk of
morbidity and increased mortality. The
applicant added that an open procedure
requires suprarenal aortic crossclamping.35 The applicant also noted
that there is a high risk of blood loss
during an open procedure and the debranching of vessels increases the level
of surgical risk. The applicant further
noted that 30 to 40 percent of patients
who have an infrarenal AAA cannot be
treated with current commercial devices
because of anatomical reasons (for
example, insufficient neck length to
achieve graft adequate seal).36 The
applicant added that use of standard
endografts in patients with neck lengths
less than 10 mm can result in a fourfold
increase in an endoleak.37
The applicant also stated that the
intended use of the Zenith® F. Graft
differs from standard AAA endovascular
grafts in that the fenestrated device
provides physicians the ability to treat
patients who have infrarenal aortic neck
lengths as short as 4 mm, where
standard endovascular AAA devices
require an infrarenal aortic neck length
of at least 10 to 15 mm. Therefore, the
applicant believes that the Zenith® F.
Graft offers an additional AAA repair
option to those patients who have
limited surgical treatment options (for
34 Wilderman, M. et al. Fenestrated Grafts or
Debranching Procedures for Complex Abdominal
Aortic Aneurysms. Perspectives in Vascular Surgery
and Endovascular Therapy, March 2009; 21(1): 13–
18.
35 Jongkind V, Yeung K, et al. Juxtarenal aortic
aneurysm repair. Journal of Vascular Surgery 2010
Sept; 29(3) 760–767.
36 Wilderman, M. et al. Fenestrated Grafts or
Debranching Procedures for Complex Abdominal
Aortic Aneurysms. Perspectives in Vascular Surgery
and Endovascular Therapy, March 2009; 21(1): 13–
18.
37 Amiot, S., et al., Fenestrated endovascular
grafting: the French multicentre experience. Eur J
Vasc Endovasc Surg, 2010. 39(5): p. 537–44.

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example, if short infrarenal neck lengths
make the patients at too high a risk to
be candidates for open surgical repair).
The applicant also stated, for patients
who have AAAs and short infrarenal
neck lengths, the Zenith® F. Graft offers
a less invasive treatment option than
open surgical repair. The applicant
referred to several sources of literature
to support the following endpoints for
fenestrated endovascular aortic repair
(EVAR) versus open repair of the
juxtarenal AAA relative to open repair
of the juxtarenal AAA: reduced perioperative mortality (2.4 percent (range:
0 to 5.7 percent)) 38,39,40,41,42,43,44,45,46
reported for fenestrated EVAR repairs
versus 2.9 percent (range 0 to 7.4
percent) 47,48 reported for open repair of
juxtarenal AAA); reduced morbidity by
reducing renal failure requiring
permanent dialysis (1.9 percent (pooled
average) for fenestrated EVAR repairs
versus 3.4 percent reported for open
repair of juxtarenal AAA); shorter
hospital stay and less operative blood
loss to open repair. The applicant
maintains that fenestrated EVAR repair
results in an average length of stay of 3.5
days, compared to 14.2 days for open
repair of juxtarenal AAA, and blood loss
38 Nordon, I.M., et al., Modern treatment of
juxtarenal abdominal aortic aneurysms with
fenestrated endografting and open repair—a
systematic review. Eur J Vasc Endovasc Surg, 2009.
38(1): p. 35–41.
39 Verhoeven, E.L., et al., Fenestrated stent
grafting for short-necked and juxtarenal abdominal
aortic aneurysm: an 8-year single-centre experience.
Eur J Vasc Endovasc Surg, 2010. 39(5): p. 529–36.
40 Chisci E, Kristmundsson T, de Donato G, et al.
The AAA with a challenging neck: outcome of open
versus endovascular repair with standard and
fenestrated stent-grafts. J Endovasc Ther
2009;16:137–146.
41 Amiot, S., et al., Fenestrated endovascular
grafting: the French multicentre experience. Eur J
Vasc Endovasc Surg, 2010. 39(5): p. 537–44.
42 Kristmundsson T, Sonesson B, Malina M, et al.
Fenestrated endovascular repair for juxtarenal
aortic pathology. J Vasc Surg 2009;49:568–574.
43 Beck AW, Bos WT, Vourliotakis G, et al.
Fenestrated and branched endograft repair of
juxtarenal aneurysms after previous open aortic
reconstruction. J Vasc Surg 2009;49:1387–1394.
44 Tambyraja, A.L., et al., Fenestrated aortic
endografts for juxtarenal aortic aneurysm: medium
term outcomes. Eur J Vasc Endovasc Surg, 2011.
42(1): p. 54–8.
45 Unpublished results, Evaluation of the Safety
and Effectiveness of the Zenith(R) Fenestrated AAA
Endovascular Graft, Zenith Fenestrated AAA
Endovascular Graft Pivotal Study, Clinicaltrials.gov
identifier NCT00875563.
46 Unpublished results, British Society of
Endovascular Therapy-sponsored GlobalStar
Collaborative Study.
47 Jongkind V, Yeung K, et al. Juxtarenal aortic
aneurysm repair. J. Vasc. Surg. 2010 Sept; 29(3)
760–767.
48 Landry G, Lau I, Liem T, Mitchell E, Moneta
G.. Open abdominal aortic aneurysm repair in the
endovascular era: effect of clamp site on outcomes.
Arch. Surg., 144 (9) Sep. 2009, 811–6.

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of 537 ml, compared to 2586 ml for
open repair of juxtarenal AAA.
In the proposed rule, we noted that
the information provided by the
applicant to evaluate substantial clinical
improvement compares this technology
to open surgical repair. We expressed
concern that the applicant did not
present publicly available information
comparing the technology to medical
management, which the applicant
mentions as another method for treating
patients anatomically unsuited for
currently approved AAA endovascular
grafts. In these comparisons, we were
also concerned that information
regarding the longevity of the Zenith® F.
Graft as well as long-term complications
and secondary interventions or
reinterventions has not been presented.
In terms of the data presented by the
applicant, we were concerned that these
clinical study data were
nonrandomized, did not differentiate
between patients by infrarenal neck
length and/or suitability for other
endovascular grafts, and were of
noninferiority. We invited public
comment on whether or not the Zenith®
F. Graft meets the substantial clinical
improvement criterion.
Comment: The applicant responded to
our concerns from the proposed rule by
submitting a public comment with
supplemental information. With respect
to the concern that the applicant did not
compare the technology to medical
management which the applicant listed
as a treatment option (in addition to an
open procedure), the applicant cited the
FDA indications of the device and noted
that while the application referred to
medical management it was not
intended to suggest that medical
management was a reasonable
alternative treatment option for AAAs at
heightened risk of rupture. Therefore,
the applicant assumed that medical
management had already been
maximized in the patients’ treatment
regimen and that some type of surgical
intervention was necessary to treat the
aneurysm and prevent rupture.
Additionally, the applicant further
explained that in its application, prior
to the Zenith® F. Graft, surgery was
considered the most appropriate option
for patients who have a suitably large
aneurysm. However, certain patient
factors may prevent surgical
intervention including anatomical
limitations that prevent the use of
current endovascular stents or the
patient’s attendant comorbidities may
alter the risk/benefit equation so that
surgery is not a viable option. As a
result, the applicant stated that medical
management represented the default
treatment and at risk of aneurysm

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rupture but is still considered inferior to
a definitive surgical intervention. The
applicant concluded that it is for these
patients that the Zenith® F. Graft was
developed.
The applicant also cited clinical data
that demonstrated little improvement
has been achieved in the survival rates
of patients who do not undergo a
surgical intervention for their aneurysm
(because the aneurysm may rupture) in
contrast to the published series on
fenestrated repair, which has indicated
low 30-day mortality rates. Therefore,
the applicant believed that surgical
intervention with the Zenith® F. Graft is
considered a suitable treatment for a
patient population (where a surgical
intervention was not an option prior to
the Zenith® F. Graft) when considering
the potential risk and benefit of the
procedure.
The applicant also responded to the
concern that there is a lack of data on
long term complications and secondary
interventions or re-interventions. The
commenter noted that Mastracci et al
presented at the 2012 Society of
Vascular Surgery annual meeting on the
durability of branched and fenestrated
endografts reported that 650 patients
underwent endovascular aortic repair
with branched or fenestrated devices at
the Cleveland Clinic. Approximately
one-third of these patients underwent a
fenestrated AAA repair; the balance
were branched thoracoabdominal and
thoracic aortic aneurysm repairs.
Through 9 years of follow-up (with a
mean of 3 years), secondary procedures
were performed for 0.6 percent of celiac,
4 percent of SMA, 6 percent of right
renal, and 5 percent of left renal arteries.
The average time to reintervention was
237 days and the 30 days, 1 year and 5
year freedom from any intervention was
98 percent, 94 percent, and 84 percent,
respectively. Death resulted from branch
stent complications in only two patients
(related to SMA thrombosis). Mastracci
et al concluded that branches, following
branched or fenestrated aortic repair,
appear to be durable, and are rarely the
cause of patient death; the absence of
long-term data on the branch patency in
open repair precludes comparison, yet
the lower morbidity and mortality risk
coupled with longer-term durability
data will further alter the balance of
repair options. The applicant noted that
this conclusion is consistent with the
applicant’s conclusion.
Finally, in response to the concern
that the studies conducted were non
randomized, did not differentiate
between patients by infrarenal neck
length and/or suitability for other
endovascular grafts and were of non
inferiority, the commenter responded

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that a randomized test was not
conducted because it was anticipated
that the clinical trial conducted for FDA
registration would primarily enroll high
risk patients in whom open surgical
repair would present an unacceptably
high risk of operative mortality. The
applicant stated that this precluded a
randomized study design. With regard
to the concern about not considering
other endovascular graft options, the
applicant explained that the shortest
FDA-approved neck length indication of
an available standard AAA graft is >10
mm (IFU—Medtronic Endurant
Endovascular Graft). The Zenith® F.
Graft is designed to treat neck lengths of
≥4 mm, and there is no other
endovascular graft available in the USA
indicated to treat such short neck
lengths. The applicant also clarified that
the study of non-inferiority was for the
IDE clinical study performed for FDA
approval. One of the study’s goals was
to show non-inferiority in 6-month
treatment success, comparing matched
patients treated with a standard Zenith
AAA Endovascular Graft (used to treat
AAAs anatomically suited for treatment)
with patients treated with a standard
endovascular device. The purpose was
to demonstrate that the Zenith® F. Graft
could offer a treatment option to
patients with a juxtarenal AAA that was
not worse than the well-established
treatment success experienced with a
standard AAA endovascular graft when
used to treat patients anatomically
suited for a standard device (not when
using a standard AAA graft to treat a
short-necked, juxtarenal aneurysm). The
applicant concluded that for this device,
this intended patient population, and
this comparator a non-inferiority design
is a valid study design demonstrating
non-inferiority to the high standard of
success experienced in standard AAA
endovascular repair and provides
compelling evidence of Zenith® F.
Graft’s effectiveness.
Response: We appreciate the
applicant’s response in regard to our
concerns presented in the proposed
rule. We agree that the Zenith® F. Graft
represents a substantial clinical
improvement over existing technologies
because it offers a treatment option to a
patient population that would otherwise
require an open procedure or a
treatment option to those patients who
are ineligible for an open procedure.
The Zenith® F. Graft offers a less
invasive treatment option compared to
an open procedure which results in
reduced mortality, reduced morbidity,
shorter hospital stays and less operative
blood loss.
Comment: Other commenters were
concerned that the Zenith® F. Graft may

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
not meet the substantial clinical
criterion because of the concerns
expressed by CMS in the proposed rule.
Response: As discussed above, the
applicant has responded to our concerns
and we agree that the Zenith® F. Graft
meets the substantial clinical
improvement criterion.
Based on the discussion above, the
Zenith® F. Graft meets all of the new
technology add-on payment policy
criteria. Therefore, we are approving the
Zenith® F. Graft for new technology
add-on payments in FY 2013. Cases
involving the Zenith® F. Graft that are
eligible for new technology add-on
payments will be identified by ICD–9–
CM procedure code 39.78. In the
application, the applicant provided a
breakdown of the costs of the Zenith®
F. Graft. The total cost of the Zenith® F.
Graft utilizing bare metal (renal)
alignment stents was $17,264. Of the
$17,264 in costs for the Zenith® F. Graft,
$921 are for components that are used
in a standard Zenith AAA Endovascular
Graft procedure. Because the costs for
these components are already reflected
within the MS–DRGs (and are no longer
‘‘new’’), we do not believe it is
appropriate to include these costs in our
determination of the maximum cost to
determine the add-on payment for the
Zenith® F. Graft. Therefore, the total
maximum cost for the Zenith® F. Graft
is $16,343 ($17,264 ¥ $921). Under
§ 412.88(a)(2), new technology add-on
payments are limited to the lesser of 50
percent of the average cost of the device
or 50 percent of the costs in excess of
the MS–DRG payment for the case. As
a result, the maximum add-on payment
for a case involving the Zenith® F. Graft
is $8,171.50.

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III. Changes to the Hospital Wage Index
for Acute Care Hospitals
A. Background
Section 1886(d)(3)(E) of the Act
requires that, as part of the methodology
for determining prospective payments to
hospitals, the Secretary must adjust the
standardized amounts ‘‘for area
differences in hospital wage levels by a
factor (established by the Secretary)
reflecting the relative hospital wage
level in the geographic area of the
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
FY 2013 hospital wage index based on
the statistical areas, including OMB’s
revised definitions of Metropolitan

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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 adjustment for FY 2013 is
discussed in section II.B. of the
Addendum to this final 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 budget neutrality
adjustment for FY 2013 is discussed in
section II.A.4.b. of the Addendum to
this final rule.
Section 1886(d)(3)(E) of the Act also
provides for the collection of data every
3 years on the occupational mix of
employees for short-term, acute care
hospitals participating in the Medicare
program, in order to construct an
occupational mix adjustment to the
wage index. A discussion of the
occupational mix adjustment that we
are applying beginning October 1, 2012
(the FY 2013 wage index) appears under
section III.F. of this preamble.
In response to concerns frequently
expressed by providers and other
relevant parties that the current wage
index system does not effectively reflect
the true variation in labor costs for a
large cross-section of hospitals, two
studies were undertaken by the
Department. First, section 3137(b) of the
Affordable Care Act required the
Secretary to submit to Congress a report
that includes a plan to comprehensively
reform the Medicare wage index applied
under section 1886(d) of the Act. In
developing the plan, the Secretary was
directed to take into consideration the
goals for reforming the wage index that
were set forth by the Medicare Payment
Advisory Commission (MedPAC) in its

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53365

June 2007 report entitled ‘‘Report to
Congress: Promoting Greater Efficiency
in Medicare’’ and to ‘‘consult with
relevant affected parties.’’ Second, the
Secretary commissioned the Institute of
Medicine (IOM) to ‘‘evaluate hospital
and physician geographic payment
adjustments, the validity of the
adjustment factors, measures and
methodologies used in those factors,
and sources of data used in those
factors.’’ Reports on both of these
studies recently have been released. We
refer readers to section IX.B. of this
preamble for summaries of the studies,
their findings, and recommendations on
reforming the wage index system.
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
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). We also
discussed in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51582) that, in
2013, OMB plans to announce new area
delineations based on new standards
adopted in 2010 (75 FR 37246) and the
2010 Census of Population and Housing
data. For the FY 2013 wage index, to be
effective October 1, 2012 and before the
availability of OMB’s new area
delineations, we proposed to use the
same labor market areas that we used for
the FY 2012 wage index (76 FR 51581).
We did not receive any public
comments on the use of labor market
areas for the FY 2013 wage index.
Therefore, we are finalizing, for FY
2013, the use of the same labor market
areas that we used for the FY 2012 wage
index.
C. Worksheet S–3 Wage Data for the FY
2013 Proposed Wage Index
The FY 2013 wage index values are
based on the data collected from the
Medicare cost reports submitted by
hospitals for cost reporting periods
beginning in FY 2009 (the FY 2012 wage
indices were based on data from cost
reporting periods beginning during FY
2008).

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1. Included Categories of Costs
The FY 2013 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
pension costs (based on policies
adopted in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51586 through 51590)
and other deferred compensation costs.
2. Excluded Categories of Costs
Consistent with the wage index
methodology for FY 2012, the wage
index for FY 2013 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 FY
2013 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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3. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals Under
the IPPS
Data collected for the IPPS wage
index are also currently used to
calculate wage indices applicable to
other providers, such as SNFs, home
health agencies (HHAs), and hospices.
In addition, they are used for
prospective payments to IRFs, IPFs, and
LTCHs, and for hospital outpatient
services. We note that, in the IPPS rules,
we do not address comments pertaining
to the wage indices for non-IPPS
providers, other than for LTCHs. Such
comments should be made in response
to separate proposed rules for those
providers.

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D. Verification of Worksheet S–3 Wage
Data
The wage data for the FY 2013 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, 2008,
and before October 1, 2009. For wage
index purposes, we refer to cost reports
during this period as the ‘‘FY 2009 cost
report,’’ the ‘‘FY 2009 wage data,’’ or the
‘‘FY 2009 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 wage index includes FY
2009 data submitted to us as of June 27,
2012. As in past years, we performed an
extensive review of the wage data,
mostly through the use of edits designed
to identify aberrant data.
We asked our fiscal intermediaries/
MACs to revise or verify data elements
that result in specific edit failures. For
the FY 2013 proposed wage index, we
identified and excluded 32 providers
with data that were too aberrant to
include in the proposed wage index,
although we stated that if data elements
for some of these providers are
corrected, we intended to include some
of these providers in the FY 2013 final
wage index. We have received corrected
data for 8 providers, and therefore, we
are including the data for these 8
providers in the FY 2013 final wage
index. However, we also have
determined that the data for 14
additional providers are too aberrant to
include in the FY 2013 final wage
index. Thus, in total we are excluding
the data of 38 providers from the FY
2013 final wage index.
In constructing the FY 2013 proposed
wage index, we included the wage data
for facilities that were IPPS hospitals in
FY 2009, 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 the proposed rule,
we removed 7 hospitals that converted
to CAH status between February 15,
2011, the cut-off date for CAH exclusion
from the FY 2012 wage index, and

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February 14, 2012, the cut-off date for
CAH exclusion from the FY 2013 wage
index. However, after the issuance of
the proposed rule, we have learned that
one provider which we believed was a
CAH actually is an IPPS hospital with
valid wage data for FY 2013. Therefore,
we have added that provider’s wage
data for purposes of the FY 2013 final
wage index. Accordingly, for this final
rule, we removed the data of only 6 (not
7) hospitals that have converted to CAH
status between February 15, 2011 and
February 14, 2012. After removing
hospitals with aberrant data and
hospitals that converted to CAH status,
the FY 2013 final wage index is
calculated based on 3,447 hospitals.
For the FY 2013 final wage index, we
allotted the wages and hours data for a
multicampus hospital among the
different labor market areas where its
campuses are located in the same
manner we allotted such hospitals’ data
in the FY 2012 wage index (76 FR
51591). Table 2 containing the FY 2013
wage index associated with this final
rule (available on the CMS Web site)
includes separate wage data for the
campuses of four multicampus
hospitals.
E. Method for Computing the FY 2013
Unadjusted Wage Index
The method used to compute the FY
2013 wage index without an
occupational mix adjustment follows
the same methodology that we used to
compute the FY 2012 final wage index
without an occupational mix adjustment
(76 FR 51591 through 51593).
As discussed in that final rule, in
‘‘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, 2008,
through April 15, 2010, for private
industry hospital workers from the BLS’
Compensation and Working Conditions.
We have consistently used the ECI as
the data source for our wages and
salaries and other price proxies in the
IPPS market basket, and as we
proposed, we are not making any
changes to the usage for FY 2013. 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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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
1. Development of Data for the FY 2013
Occupational Mix Adjustment Based on
the 2010 Occupational Mix Survey

MIDPOINT OF COST REPORTING
PERIOD
After
10/14/2008
11/14/2008
12/14/2008
01/14/2009
02/14/2009
03/14/2009
04/14/2009
05/14/2009
06/14/2009
07/14/2009
08/14/2009
09/14/2009
10/14/2009
11/14/2009
12/14/2009
01/14/2010
02/14/2010
03/14/2010

Before
........
........
........
........
........
........
........
........
........
........
........
........
........
........
........
........
........
........

11/15/2008
12/15/2008
01/15/2009
02/15/2009
03/15/2009
04/15/2009
05/15/2009
06/15/2009
07/15/2009
08/15/2009
09/15/2009
10/15/2009
11/15/2009
12/15/2009
01/15/2010
02/15/2010
03/15/2010
04/15/2010

Adjustment
factor
1.03003
1.02786
1.02582
1.02386
1.02199
1.02014
1.01826
1.01635
1.01446
1.01263
1.01086
1.00910
1.00728
1.00539
1.00352
1.00172
1.00000
0.99830

For example, the midpoint of a cost
reporting period beginning January 1,
2009, and ending December 31, 2009, is
June 30, 2009. An adjustment factor of
1.01446 would be applied to the wages
of a hospital with such a cost reporting
period.
Using the data as described above and
in the FY 2012 IPPS/LTCH PPS final
rule, the FY 2013 national average
hourly wage (unadjusted for
occupational mix) is $37.4855. The
Puerto Rico overall average hourly wage
(unadjusted for occupational mix) is
$15.8643.

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F. Occupational Mix Adjustment to the
FY 2013 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.

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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.
As discussed in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51582
through 51586), the FY 2013 wage index
is based on data collected on the new
2010 Medicare Wage Index
Occupational Mix Survey (Form CMS–
10079 (2010)). The survey is available
on the CMS Web site at: http://
www.cms.gov/Medicare/Medicare-Feefor-Service-Payment/
AcuteInpatientPPS/
index.html?redirect=/
AcuteInpatientPPS/WIFN/list.asp and
through the fiscal intermediaries/MACs.
Hospitals were 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
2012, along with the FY 2010 Worksheet
S–3 wage data, for the FY 2014 wage
index review and correction process.
2. Calculation of the Occupational Mix
Adjustment for FY 2013
For FY 2013, we calculated the
occupational mix adjustment factor
using the same methodology that we
used for the FY 2012 wage index (76 FR
51582 through 51586). As a result of
applying this methodology, the FY 2013
occupational mix adjusted national
average hourly wage is $37.4608. The
FY 2013 occupational mix adjusted
Puerto Rico-specific average hourly
wage is $15.9019.
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 FY
2013 wage index. For the FY 2010
survey, the response rate was 91.7
percent. In the FY 2013 wage index
established in this final rule, we applied
proxy data for noncompliant hospitals,
new hospitals, or hospitals that
submitted erroneous or aberrant data in
the same manner that we applied proxy
data for such hospitals in the FY 2012
wage index occupational mix
adjustment (76 FR 51586).
In the FY 2011 IPPS/LTCH PPS
proposed rule and final rule (75 FR
23943 and 75 FR 50167, respectively),

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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 was
effective beginning with the new 2010
occupational mix survey. We instructed
fiscal intermediaries/MACs to begin
gathering this information as part of the
FY 2013 wage index desk review
process. We will review these data for
future analysis and consideration of
potential penalties for noncompliant
hospitals.
G. Analysis and Implementation of the
Occupational Mix Adjustment and the
FY 2013 Occupational Mix Adjusted
Wage Index
1. Analysis of the Occupational Mix
Adjustment and the Occupational Mix
Adjusted Wage Index
As discussed in section III.F. of this
preamble, for FY 2013, we apply the
occupational mix adjustment to 100
percent of the FY 2013 wage index. We
calculated the final occupational mix
adjustment using data from the 2010
occupational mix survey data, using the
methodology described in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51582
through 51586).
Using the occupational mix survey
data and applying the occupational mix
adjustment to 100 percent of the FY
2013 wage index results in a national
average hourly wage of $37.4608 and a
Puerto-Rico specific average hourly
wage of $15.9019. After excluding data
of hospitals that either submitted
aberrant data that failed critical edits, or
that do not have FY 2009 Worksheet S–
3, Parts II and III, cost report data for use
in calculating the FY 2013 wage index,
we calculated the FY 2013 wage index
using the occupational mix survey data
from 3,192 hospitals. Using the
Worksheet S–3, Parts II and III, cost
report data of 3,447 hospitals and
occupational mix survey data from
3,192 hospitals represents a 92.6 percent
survey response rate. The FY 2013
national average hourly wages for each
occupational mix nursing subcategory
as calculated in Step 2 of the
occupational mix calculation are as
follows:
Occupational mix nursing
subcategory
National RN ........................
National LPN and Surgical
Technician .......................
National Nurse Aide, Orderly, and Attendant ........
National Medical Assistant

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3.20 percent for a rural area. The largest
negative impacts are 4.91 percent for an
urban area and 2.26 percent for a rural
National Nurse Category ....
31.852574284 area. Three urban areas and no rural
areas will be unaffected. These results
The national average hourly wage for
indicate that the wage indices of more
the entire nurse category as computed in CBSAs overall (53.1 percent) will be
Step 5 of the occupational mix
decreasing due to application of the
calculation is $31.852574284. Hospitals 2010 occupational mix survey data as
with a nurse category average hourly
compared to the 2007–2008 survey data
wage (as calculated in Step 4) of greater
to the wage index. Further, a larger
than the national nurse category average
percentage of urban areas (48.3 percent)
hourly wage receive an occupational
will benefit from the 2010 occupational
mix adjustment factor (as calculated in
mix survey as compared to the 2007–
Step 6) of less than 1.0. Hospitals with
2008 survey than will rural areas (29.2
a nurse category average hourly wage (as
percent).
calculated in Step 4) of less than the
We compared the FY 2013
national nurse category average hourly
occupational mix adjusted wage indices
wage receive an occupational mix
for each CBSA to the unadjusted wage
adjustment factor (as calculated in Step
indices for each CBSA. As a result of
6) of greater than 1.0.
applying the occupational mix
Based on the 2010 occupational mix
adjustment to the wage data, the wage
survey data, we determined (in Step 7
of the occupational mix calculation) that index values for 206 (52.7 percent)
urban areas and 34 (70.8 percent) rural
the national percentage of hospital
employees in the nurse category is 43.47 areas will increase. One hundred fifteen
(29.4 percent) urban areas will increase
percent, and the national percentage of
by 1 percent or more, and 3 (0.77
hospital employees in the all other
percent) urban areas will increase by 5
occupations category is 56.53 percent.
percent or more. Fourteen (29.2 percent)
At the CBSA level, the percentage of
rural areas will increase by 1 percent or
hospital employees in the nurse
more, and no rural areas will increase
category ranged from a low of 21.9
by 5 percent or more. However, the
percent in one CBSA, to a high of 62.0
wage index values for 185 (47.3 percent)
percent in another CBSA.
urban areas and 14 (29.2 percent) rural
We also compared the FY 2013 wage
data adjusted for occupational mix from areas will decrease. Eighty-one (20.7
percent) urban areas will decrease by 1
the 2010 survey to the FY 2013 wage
data adjusted for occupational mix from percent or more, and one urban area
will decrease by 5 percent or more (0.26
the 2007–2008 survey. This analysis
percent). Seven (14.6 percent) rural
illustrates the effect on area wage
areas will decrease by 1 percent or
indices of using the 2010 survey data
compared to the 2007–2008 survey data; more, and no rural areas will decrease
that is, it shows whether hospitals’ wage by 5 percent or more. The largest
positive impacts are 6.68 percent for an
indices are increasing or decreasing
urban area and 2.62 percent for a rural
under the current survey data as
area. The largest negative impacts are
compared to the prior survey data. Our
5.26 percent for an urban area and 3.14
analysis shows that the FY 2013 wage
percent for a rural area. No urban or
index values for 189 (48.3 percent)
rural areas are unaffected. These results
urban areas and 14 (29.2 percent) rural
indicate that a larger percentage of rural
areas will increase. Fifty three (13.6
areas (70.8 percent) will benefit from the
percent) urban areas will increase by 1
percent or more, and no urban areas will occupational mix adjustment than do
urban areas (52.7 percent). While these
increase by 5 percent or more. Three
(6.3 percent) rural areas will increase by results are more positive overall for
rural areas than under the previous
1 percent or more, and no rural areas
occupational mix adjustment that used
will increase by 5 percent or more.
However, the wage index values for 199 survey data from 2007–2008, almost
one-third (29.2 percent) of rural CBSAs
(50.9 percent) urban areas and 34 (70.8
will still experience a decrease in their
percent) rural areas will decrease using
the 2010 data. Sixty-three (16.1 percent) wage indices as a result of the
occupational mix adjustment.
urban areas will decrease by 1 percent
or more, and no urban areas will
2. Application of the Rural, Imputed,
decrease by 5 percent or more. Three
and Frontier Floors
(6.3 percent) rural areas will decrease by
a. Rural Floor
1 percent or more, and no rural areas
will decrease by 5 percent or more. The
Section 4410 of Public Law 105–33
largest positive impacts using the 2010
provides that, for discharges on or after
data compared to the 2007–2008 data
October 1, 1997, the area wage index
are 4.34 percent for an urban area and
applicable to any hospital that is located

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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. This provision is referred to as the
‘‘rural floor.’’ Section 3141 of Public
Law 111–148 also requires that a
national budget neutrality adjustment be
applied in implementing the rural floor.
In the FY 2013 proposed wage index,
we estimated that 393 hospitals would
receive an increase in their FY 2013
proposed wage index due to the
application of the rural floor. In the FY
2013 final wage index associated with
this final rule and available on the CMS
Web site, 454 hospitals are receiving an
increase in their FY 2013 wage index
due to the application of the rural floor.
Comment: We did not make any
proposals in the FY 2013 proposed rule
pertaining to the rural floor. However,
several commenters opposed the
application of the national budget
neutrality adjustment for the rural floor.
The commenters noted our discussion
of the impacts of the policy in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28170 through 28172) and, in
particular, the table in the Addendum at
77 FR 28171 shows Massachusetts
would receive significant extra IPPS
payments alone for FY 2013, due, in
part, to this policy. The commenters
opined that the national rural floor
budget neutrality policy ‘‘unfairly skews
Medicare payments, reducing payments
to thousands of hospitals across the
nation while benefitting a few dozen
hospitals in one State.’’ The commenters
requested that CMS reassess the
national rural floor budget neutrality
provision and recommended that CMS
reverse the provision.
Response: As discussed above, the
national rural floor budget neutrality
adjustment for the IPPS is required by
section 3141 of Public Law 111–148.
b. Imputed Floor and Alternative,
Temporary Methodology for Computing
the Imputed Floor
In the FY 2005 IPPS final rule (69 FR
49109), we adopted the ‘‘imputed floor’’
policy as a temporary 3-year regulatory
measure to address concerns from
hospitals in all-urban States that have
argued that they are disadvantaged by
the absence of rural hospitals to set a
wage index floor for those States. Since
its initial implementation, we have
extended the imputed floor policy three
times, the last of which was adopted in
the FY 2012 IPPS/LTCH PPS final rule
and is set to expire on September 30,
2013 (we refer readers to the discussion
in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51593)). There are currently
two all-urban States, New Jersey and
Rhode Island, that have a range of wage

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
indices assigned to hospitals in the
State, including through reclassification
or redesignation (we refer readers to
discussions of geographic
reclassifications and redesignations in
section III.H. of this preamble).
However, as we explain below, the
current method for computing the
imputed floor benefits only New Jersey,
and not Rhode Island.
The current methodology for
computing the imputed floor is
specified in our regulations at 42 CFR
412.64(h)(4). In computing the imputed
floor for an all-urban State, we calculate
the ratio of the lowest-to-highest CBSA
wage index for each all-urban State (that
is, New Jersey and Rhode Island) as well
as the average of the ratios of lowest-tohighest CBSA wage indices of those allurban States. We compare the State’s
own ratio to the average ratio for allurban States and whichever is higher is
multiplied by the highest CBSA wage
index value in the State—the product of
which establishes the imputed floor for
the State. Rhode Island has only one
CBSA (Providence-New Bedford-Fall
River, RI–MA); therefore, Rhode Island’s
own ratio equals 1.0, and its imputed
floor is equal to its original CBSA wage
index value. Conversely, New Jersey has
10 CBSAs. Because the average ratio of
New Jersey and Rhode Island is higher
than New Jersey’s own ratio, the current
methodology provides a benefit for New
Jersey, but not for Rhode Island.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27950), for the FY
2013 wage index, the final year of the
extension of the imputed floor policy
under § 412.64(h)(4), we proposed an
alternative, temporary methodology for
computing the imputed floor wage
index to address the concern that the
current imputed floor methodology
guarantees a benefit for one all-urban
State with multiple wage indices but
cannot benefit the other. We proposed
that this proposed alternative
methodology for calculating the
imputed floor would be established
using data from the application of the
rural floor policy for FY 2013. We
proposed that we would first determine
the average percentage difference
between the post-reclassified, pre-floor
area wage index and the postreclassified, rural floor wage index
(without rural floor budget neutrality
applied) for all CBSAs receiving the
rural floor. (Table 4D associated with
the proposed rule and available on the
CMS Web site included the CBSAs
receiving a State’s rural floor wage
index.) The lowest post-reclassified
wage index assigned to a hospital in an
all-urban State having a range of such
values would then be increased by this

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factor, the result of which would
establish the State’s alternative imputed
floor. We proposed to amend
§ 412.64(h)(4) to add new paragraphs
(v)(A) and (B) to incorporate this
proposed alternative methodology, and
to make conforming references.
In addition, for the FY 2013 wage
index, we did not propose any changes
to the current imputed floor
methodology at § 412.64(h)(4) and,
therefore, no changes to the New Jersey
imputed floor computation for FY 2013.
Instead, for FY 2013, we proposed a
second, alternative methodology that
would be used in cases where an allurban State has a range of wage indices
assigned to its hospitals, but the State
cannot benefit from the methodology in
existing § 412.64(h)(4). We stated that
we intended to further evaluate the
need, applicability, and methodology
for the imputed floor before the
September 30, 2013 expiration of the
imputed floor policy and address these
issues in the FY 2014 proposed rule.
Comment: A few commenters
addressed our proposal for an
alternative, temporary methodology for
calculating the imputed floor. Some of
the commenters supported the proposal.
One commenter also urged CMS to
adopt the alternative methodology for 3
consecutive fiscal years rather than the
proposed 1-year period. Another
commenter, a State hospital association,
urged CMS to make the imputed floor a
permanent policy in the FY 2013 final
rule. Two State hospital associations
opposed the proposal. One association
agreed with the rationale that CMS had
previously provided in the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25878 through 25879) for not proposing
to extend the imputed floor policy. The
association urged CMS to allow the
imputed floor policy to expire and not
to finalize the proposed alternative
methodology that would allow
additional hospitals to benefit from the
imputed floor. Another association
suggested that CMS should provide
additional information and consider the
effects on all States, not just the benefits
that may apply to one or two specific
States. Additionally, the national
hospital association stated that it would
be premature for it to comment on the
proposal at this time due to its ongoing
analysis of wage index reform.
Response: As discussed above and in
the FY 2013 IPPS/LTCH PPS proposed
rule, we proposed the alternative
methodology for only the one remaining
year of the imputed floor policy, which
expires on September 30, 2013. We
made no proposal for extending the
general imputed floor policy beyond FY
2013; therefore, we do not agree with

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53369

the suggestion to adopt a final policy
that would extend the alternative,
temporary policy for 3 years, beyond FY
2013. As proposed, we are adopting as
final for the FY 2013 wage index the
alternative, temporary methodology for
computing the imputed floor wage
index, as well as the proposal to amend
§ 412.64(h)(4) to add new paragraphs
(v)(A) and (B) to incorporate the
alternative methodology. In addition, as
we stated above, we plan to further
evaluate the need, applicability, and
methodology for the imputed floor
policy and will address these issues in
the FY 2014 proposed rule.
The wage index and impact tables
associated with this FY 2013 final rule
that are available on the CMS Web site
include the application of the imputed
floor policy at § 412.64(h)(4) and a
national budget neutrality adjustment
for the imputed floor. There are 29
providers in New Jersey that will
receive an increase in their FY 2013
wage index due to the imputed floor
policy. The wage index and impact
tables for this final rule also reflect the
application of the second alternative
methodology for computing the imputed
floor, which will benefit four hospitals
in Rhode Island.
c. Frontier Floor
Section 10324 of Public Law 111–148
requires that hospitals in frontier States
cannot be assigned a wage index of less
than 1.0000 (we refer readers to a
discussion of the implementation of this
provision in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50160). Four
States in the FY 2013 wage index are
receiving the frontier State wage index:
Montana, North Dakota, South Dakota,
and Wyoming; 45 providers in these
States are receiving the frontier floor
value of 1.0000 in the FY 2013 wage
index associated with this final rule.
Although Nevada is also, by definition,
a frontier State and was assigned a
frontier floor value of 1.0000 for FY
2012, its FY 2013 rural floor value of
1.0256 is greater than the frontier floor
value (that is, 1.0000) and, therefore, is
the State’s minimum wage index for FY
2013.
We did not receive any public
comments on the frontier floor policy.
The areas affected by the rural,
imputed, and frontier floor policies for
the FY 2013 wage index are identified
in Table 4D associated with this final
rule and available on the CMS Web site.
3. FY 2013 Wage Index Tables
The wage index values for FY 2013
(except those for hospitals receiving
wage index adjustments under section
1886(d)(13) of the Act), included in

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Tables 4A, 4B, 4C, and 4F, available on
the CMS Web site, include the
occupational mix adjustment,
geographic reclassification or
redesignation as discussed in section
III.H. of this preamble, and the
application of the rural, imputed, and
frontier State floors as discussed in
section III.G.2. of this preamble.
Tables 3A and 3B, available on the
CMS Web site, list the 3-year average
hourly wage for each labor market area
before the redesignation or
reclassification of hospitals based on
FYs 2007, 2008, and 2009 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 available on the CMS Web
site, includes the adjusted average
hourly wage for each hospital from the
FY 2007 and FY 2008 cost reporting
periods, as well as the FY 2009 period
used to calculate the FY 2013 wage
index. The 3-year averages are
calculated by dividing the sum of the
dollars (adjusted to a common reporting
period using the method described
previously) across all 3 years, by the
sum of the hours. If a hospital is missing
data for any of the previous years, its
average hourly wage for the 3-year
period is calculated based on the data
available during that period. The
average hourly wages in Tables 2, 3A,
and 3B, which are available on the CMS
Web site, include the occupational mix
adjustment. The wage index values in
Tables 4A, 4B, 4C, and 4D also include
the national rural and imputed floor
budget neutrality adjustment. The wage
index values in Table 2 also include the
out-migration adjustment for eligible
hospitals.

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H. Revisions to the Wage Index Based
on Hospital Redesignations and
Reclassifications
1. General Policies and Effects of
Reclassification and Redesignation
Under section 1886(d)(10) of the Act,
the MGCRB considers applications by
hospitals for geographic reclassification
for purposes of payment under the IPPS.
Hospitals must apply to the MGCRB to
reclassify 13 months prior to the start of
the fiscal year for which reclassification
is sought (generally by September 1).
Generally, hospitals must be proximate
to the labor market area to which they
are seeking reclassification and must
demonstrate characteristics similar to
hospitals located in that area. The
MGCRB issues its decisions by the end
of February for reclassifications that
become effective for the following fiscal
year (beginning October 1). The
regulations applicable to

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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).) The
general policies for reclassifications and
redesignations that we proposed, and
are adopting, for FY 2013, and the
policies for the effects of hospitals’
reclassifications and redesignations on
the wage index, are the same as those
discussed in the FY 2012 IPPS/LTCH
PPS final rule for the FY 2012 final
wage index (76 FR 51595 and 51596).
Also, in the FY 2012 IPPS/LTCH PPS
final rule, we discussed the effects on
the wage index of urban hospitals
reclassifying to rural areas under 42 CFR
412.103. Hospitals that are
geographically located in States without
any rural areas are ineligible to apply for
rural reclassification pursuant to 42 CFR
412.103.
2. FY 2013 MGCRB Reclassifications
a. FY 2013 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 regulations
under 42 CFR 412.230 through 412.280.
At the time this final rule was
constructed, the MGCRB had completed
its review of FY 2013 reclassification
requests. Based on such reviews, there
were 193 hospitals approved for wage
index reclassifications by the MGCRB
for FY 2013. Because MGCRB wage
index reclassifications are effective for 3
years, for FY 2013, hospitals reclassified
during FY 2011 or FY 2012 are eligible
to continue to be reclassified to a
particular labor market area based on
such prior reclassifications. There were
265 hospitals approved for wage index
reclassifications in FY 2011, and 205
hospitals approved for wage index
reclassifications in FY 2012. Of all the
hospitals approved for reclassification
for FY 2011, FY 2012, and FY 2013,
based upon the review at the time of
this final rule, 663 hospitals are in a
reclassification status for FY 2013.
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. For
information about withdrawing,
terminating, or canceling a previous
withdrawal or termination of a 3-year
reclassification for wage index
purposes, we refer readers to 42 CFR

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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
2013 are incorporated into the wage
index values published in this FY 2013
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 2014
Applications for FY 2014
reclassifications are due to the MGCRB
by September 4, 2012 (the first working
day of September 2012). 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 2012, via the
Internet on the CMS Web site at:
http://www.cms.gov/Regulations-andGuidance/Review-Boards/MGCRB/
index.html?redirect=/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.
3. Redesignations of Hospitals under
Section 1886(d)(8)(B) of the Act
Section 1886(d)(8)(B) of the Act
requires us to treat a hospital located in
a rural county adjacent to one or more
urban areas as being located in the MSA
if certain criteria are met. Effective
beginning FY 2005, we use OMB’s 2000
CBSA standards and the Census 2000
data to identify counties in which
hospitals qualify under section
1886(d)(8)(B) of the Act to receive the
wage index of the urban area. Hospitals
located in these counties have been
known as ‘‘Lugar’’ hospitals and the
counties themselves are often referred to

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as ‘‘Lugar’’ counties. The FY 2013 chart
with the listing of the rural counties
containing the hospitals designated as
urban under section 1886(d)(8)(B) of the
Act is available via the Internet on the
CMS Web site.

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4. Reclassifications Under Section
1886(d)(8)(B) of the Act
As in the past, hospitals redesignated
under section 1886(d)(8)(B) of the Act
are also eligible to be reclassified to a
different area by the MGCRB. Affected
hospitals were permitted to compare the
reclassified wage index for the labor
market area in Table 4C associated with
the proposed rule (which was available
on the CMS Web site) into which they
would be reclassified by the MGCRB to
the wage index for the area to which
they are redesignated under section
1886(d)(8)(B) of the Act. Hospitals could
have withdrawn from an MGCRB
reclassification within 45 days of the
publication of the FY 2013 proposed
rule. (We refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51598
through 51599) for the procedural rules
and requirements for a hospital that is
redesignated under section
1886(d)(8)(B) of the Act and seeking
reclassification under the MGCRB, as
well as our policy of measuring the
urban area, exclusive of the Lugar
County, for purposes of meeting
proximity requirements.) 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.)
5. Reclassifications Under Section 508
of Pub. L. 108–173
Section 508 of Public Law 108–173
allowed certain qualifying hospitals to
receive wage index reclassifications and
assignments that they otherwise would
not have been eligible to receive under
the law. Although section 508 originally
was scheduled to expire after a 3-year
period, Congress extended the provision
several times, as well as certain special
exceptions that would have otherwise
expired. For a discussion of the original
section 508 provision and its various
extensions, we refer readers to the FY
2012 notice, CMS–1442–N, which went
on public display at the Office of the
Federal Register on April 19, 2012, and
was published in the Federal Register
on April 20, 2012 (77 FR 23722). The
most recent extension of the provision
was included in section 302 of the
Temporary Payroll Tax Cut
Continuation Act of 2011 (Pub. L. 112–
78), as amended by section 3001 of the
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Creation Act of 2012 (Pub. L. 112–96),
which extended certain section 508
reclassifications and special exception
wage indices for a 6-month period
during FY 2012, from October 1, 2011
through March 31, 2012. Section 508
reclassifications and certain special
exceptions have not been extended for
FY 2013. Therefore, the FY 2013 wage
index associated with this final rule
does not reflect any section 508
reclassifications or special exception
wage indices.
6. Waiving Lugar Redesignation for the
Out-Migration Adjustment
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51599 through 51600), we
adopted the policy that, beginning with
FY 2012, 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 out-migration
adjustment. (We refer readers to a
discussion of DSH payment adjustment
under section IV.G. of this preamble.)
In addition, we adopted 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 the requisite number of days
from the publication of the proposed
rule 49) to automatically waive its urban
status for the 3-year period for which its
out-migration 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. Thus, under the 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 outmigration adjustment and agrees to be
treated as rural for the duration of its 3year eligibility period, unless, prior to
its second or third year of eligibility, the
hospital explicitly notifies CMS in
writing, within the required period
(generally 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.
49 Hospitals generally have 45 days from
publication of the proposed rule to request an outmigration adjustment in lieu of the section
1886(d)(8) deemed urban status.

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We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51599
through 51600) for a detailed discussion
of the policy and process for waiving
Lugar status for the out-migration
adjustment.
7. Cancellation of Acquired Rural Status
Due to MDH Expiration
As we discussed in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50286 and
50287) and in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51683 through
51684), section 3124 of the Affordable
Care Act extended the MDH program
from the end of FY 2011 (for discharges
occurring before October 1, 2011) to the
end of FY 2012 (for discharges occurring
before October 1, 2012). Accordingly,
beginning with FY 2013, there will no
longer be an MDH designation, and
those hospitals that were formerly
MDHs will be paid based solely on the
Federal rate.
Comment: Several commenters
requested CMS to permit hospitals to
revisit any geographic reclassification
decisions that would impact their
ability to qualify for MDH status in the
event that the Congress extends the
MDH program. In particular, in
anticipation of the September 30, 2012
expiration of the MDH program, the
commenters stated that some urban
hospitals that became rural under
section 1886(d)(8)(E) of the Act in order
to qualify for MDH status had canceled
their rural status so that they could
instead receive their urban area wage
index or reclassify for a higher wage
index under section 1886(d)(10) of the
Act for FY 2013. The commenters
further stated that if the MDH program
is extended, such hospital would no
longer be qualified for MDH status
because the hospital is no longer a rural
provider.
Response: Although we understand
the commenters’ concerns, we believe it
would be imprudent for CMS in this FY
2013 final rule to revise existing
Medicare regulations and procedural
rules around actions that the Congress
may take in the future. If legislation is
passed to continue the MDH program,
CMS will develop policies and
procedures to implement the specific
provisions of such legislation.
I. FY 2013 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

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based on commuting patterns of
hospital employees (the ‘‘out-migration’’
adjustment). The process, outlined in
the FY 2005 IPPS final rule (69 FR
49061), provides for an increase in the
wage index for hospitals located in
certain counties that have a relatively
high percentage of hospital employees
who reside in the county but work in a
different county (or counties) with a
higher wage index. The FY 2013 outmigration adjustment is based on the
same policies, procedures, and
computation that were used for the FY
2012 out-migration adjustment (we refer
readers to a full discussion of the
adjustment, including rules on deeming
hospitals reclassified under section
1886(d)(8) or section 1886(d)(10) to have
waived the out-migration adjustment, in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51601 through 51602)). Table 4J,
available via the Internet on the CMS
Web site, lists the out-migration
adjustments for the FY 2013 wage
index.
We did not receive any public
comments on our proposals for the outmigration adjustment for FY 2013.
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 2013 wage index were
made available on October 4, 2011,
through the Internet on the CMS Web
site at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/
index.html?redirect=/
AcuteInpatientPPS/WIFN/list.asp.
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 notify 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 encourage
hospitals to sign up for automatic
notifications of information about
hospital issues and the scheduling of
the Hospital Open Door forums at the
CMS Web site at: http://www.cms.gov/
Outreach-and-Education/Outreach/
OpenDoorForums/index.html.
In a memorandum dated September
29, 2011, 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

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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, 2011 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 5, 2011. 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,
through the September 29, 2011
memorandum referenced above.
In the September 29, 2011
memorandum, we also specified that a
hospital requesting revisions to its
occupational mix survey data was to
copy its record(s) from the CY 2010
occupational mix preliminary files
posted to the CMS 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 5, 2011.
The fiscal intermediaries/MACs
notified the hospitals by mid-February
2012 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
2012. CMS published the proposed
wage index public use files that
included hospitals’ revised wage index
data on February 21, 2012. Hospitals
had until March 5, 2012, 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’ or the fiscal intermediary’s (or, if
applicable, the MAC’s) mishandling of
the wage index data. Hospitals also were
required to submit sufficient
documentation to support their
requests.
After reviewing requested changes
submitted by hospitals, fiscal
intermediaries/MACs were required to
transmit any additional revisions
resulting from the hospitals’
reconsideration requests by April 11,
2012. The deadline for a hospital to
request CMS intervention in cases
where the hospital disagreed with the
fiscal intermediary’s (or, if applicable,

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the MAC’s) policy interpretations was
April 18, 2012.
Hospitals were given the opportunity
to examine Table 2, which was listed in
section VI. of the Addendum to the
proposed rule and available on the CMS
Web site at: http://www.cms.gov. Table
2 contained each hospital’s adjusted
average hourly wage used to construct
the wage index values for the past 3
years, including the FY 2009 data used
to construct the proposed FY 2013 wage
index. We noted that the hospital
average hourly wages shown in Table 2
only reflected changes made to a
hospital’s data that were transmitted to
CMS by March 2, 2012.
We released the final wage index data
public use files in early May 2012 on
the Internet at: http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html?redirect=/
AcuteInpatientPPS/WIFN/list.asp. The
May 2012 public use files were made
available solely for the limited purpose
of identifying any potential errors made
by CMS or the fiscal intermediary/MAC
in the entry of the final wage index data
that resulted from the correction process
described above (revisions submitted to
CMS by the fiscal intermediaries/MACs
by April 11, 2012). If, after reviewing
the May 2012 final public use files, a
hospital believed that its wage or
occupational mix data were incorrect
due to a fiscal intermediary/MAC or
CMS error in the entry or tabulation of
the final data, the hospital had to send
a letter to both its fiscal intermediary/
MAC and CMS that outlined why the
hospital believed an error existed and
provided all supporting information,
including relevant dates (for example,
when it first became aware of the error).
CMS and the fiscal intermediaries (or, if
applicable, the MACs) had to receive
these requests no later than June 4,
2012.
Each request also had to be sent to the
fiscal intermediary/MAC. The fiscal
intermediary/MAC reviewed requests
upon receipt and contacted CMS
immediately to discuss any findings.
After the release of the May 2012
wage index data files, changes to the
wage and occupational mix data were
only made in those very limited
situations involving an error by the
fiscal intermediary/MAC or CMS that
the hospital could not have known
about before its review of the final wage
index data files. Specifically, neither the
fiscal intermediary/MAC nor CMS
approved the following types of
requests:
• Requests for wage index data
corrections that were submitted too late
to be included in the data transmitted to

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CMS by fiscal intermediaries or the
MACs on or before April 11, 2012.
• Requests for correction of errors
that were not, but could have been,
identified during the hospital’s review
of the February 21, 2012 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 4, 2012) were incorporated
into the final wage index in this FY
2013 IPPS/LTCH PPS final rule, which
will be effective October 1, 2012.
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 2013 payment rates.
Accordingly, hospitals that did not meet
the procedural deadlines set forth above
will not be afforded a later opportunity
to submit wage index data corrections or
to dispute the fiscal intermediary’s (or,
if applicable, the MAC’s) decision with
respect to requested changes.
Specifically, our policy is that hospitals
that do not meet the procedural
deadlines set forth above will not be
permitted to challenge later, before the
Provider Reimbursement Review Board,
the failure of CMS to make a requested
data revision. (See W. A. Foote
Memorial Hospital v. Shalala, No. 99–
CV–75202–DT (E.D. Mich. 2001) and
Palisades General Hospital v.
Thompson, No. 99–1230 (D.D.C. 2003).)
We refer readers also to the FY 2000
IPPS final rule (64 FR 41513) for a
discussion of the parameters for appeals
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 2012, 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 2013 wage index by August
2012, and the implementation of the FY
2013 wage index on October 1, 2012. If
hospitals availed themselves of the
opportunities afforded to provide and
make corrections to the wage and
occupational mix data, the wage index
implemented on October 1 should be
accurate. Nevertheless, in the event that

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errors are identified by hospitals and
brought to our attention after June 4,
2012, 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 4 deadline for making
corrections to the wage data for the
following fiscal year’s wage index. This
provision is not available to a hospital
seeking to revise another hospital’s data
that may be affecting the requesting
hospital’s wage index for the labor
market area. As indicated earlier,
because CMS makes the wage index
data available to hospitals on the CMS
Web site prior to publishing both the
proposed and final IPPS rules, and the
fiscal intermediaries or the 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 4, 2012 deadline for the
FY 2013 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

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wage index data before CMS calculated
the final wage index (that is, by the June
4, 2012 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 situations where our
policies would allow midyear
corrections other than those specified in
42 CFR 412.64(k)(2)(ii), we continue to
believe that it is appropriate to make
prospective-only corrections to the wage
index.
We note that, as with prospective
changes to the wage index, the final
retroactive correction will be made
irrespective of whether the change
increases or decreases a hospital’s
payment rate. In addition, we note that
the policy of retroactive adjustment will
still apply in those instances where a
judicial decision reverses a CMS denial
of a hospital’s wage index data revision
request.
K. Labor-Related Share for the FY 2013
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

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not change the legal requirement that
the Secretary estimate ‘‘from time to
time’’ the proportion of hospitals’ costs
that are ‘‘attributable to wages and
wage-related costs.’’ Thus, hospitals
receive payment based on either a 62percent labor-related share, or the laborrelated 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 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 laborrelated share for FY 2010. We also
recalculated a labor-related share of 68.8
percent, using the FY 2006-based IPPS
market basket, for 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 FY
2013 final rule, as we proposed, we are
not making 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).
We did not receive any public
comments on the application of the
labor-related share to the wage index for
FY 2013. Therefore, for FY 2013, we are
continuing to use a labor-related share
of 68.8 percent for discharges occurring
on or after October 1, 2012. Tables 1A
and 1B, which are published in section
VI. of the Addendum to this final 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

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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 applying 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 applying the wage index to a laborrelated share of 68.8 percent of the
national standardized amount.
For Puerto Rico hospitals, the national
labor-related share is 62 percent because
the national wage index for all Puerto
Rico hospitals is less than 1.0. As we
proposed in the FY 2013 proposed rule,
we are continuing to use a labor-related
share for the Puerto Rico-specific
standardized amounts of 62.1 percent
for discharges occurring on or after
October 1, 2012. 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
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 2013 is reflected in Table 1C, which
is published in section VI. of the
Addendum to this final rule and
available via the Internet.

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IV. Other Decisions and Changes to the
IPPS for Operating Costs and Graduate
Medical Education (GME) Costs
A. Hospital Readmissions Reduction
Program
1. Statutory Basis for the Hospital
Readmissions 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 ‘‘Hospital Readmissions Reduction
Program,’’ effective for discharges from
an ‘‘applicable hospital’’ beginning on
or after October 1, 2012, under which
payments to those applicable hospitals
may be reduced to account for certain
excess readmissions.
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, ‘‘base operating
DRG payments’’ are reduced by an
adjustment factor that accounts for
excess readmissions. 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 the
Act states that ‘‘[i]n the case of a
Medicare-dependent, 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 are finalizing
policies to implement the statutory

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provisions related to the definition of
‘‘base operating DRG payment amount’’
in this FY 2013 IPPS/LTCH PPS final
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
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 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,’’ this is
addressed in detail in section IV.C.3.a.
of the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51665 through 51666), 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

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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).’’
Section 1886(q)(5)(B) of the Act also
requires the Secretary, beginning in FY
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 Hospital
Readmissions 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 under
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 the FY 2012
IPPS/LTCH PPS final 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 public reporting requirements for
hospital-specific 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. Overview
As we stated in the FY 2012 IPPS/
LTCH PPS final rule, 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.
As explained above, the payment
adjustment factor set forth in section
1886(q) of the Act does not apply to
discharges until FY 2013. Therefore, we
elected to implement the Hospital

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Readmissions Reduction Program over a
2-year period, beginning in FY 2012. In
the FY 2012 IPPS/LTCH PPS final rule,
we addressed the issues of the selection
of readmission measures and the
calculation of the excess readmission
ratio, which will be used, in part, to
calculate the readmission adjustment
factor. Specifically, in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51660
through 51676), we addressed 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; 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 specifically
addressed the following:
• Index hospitalizations;
• Risk adjustment;
• Risk standardized readmission rate;
• Data sources; and
• Exclusion of certain readmissions.
We are providing below a summary of
the provisions of section 1886(q) of the
Act that were finalized in the FY 2012
IPPS/LTCH PPS final rule.
Applicable conditions: In the FY 2012
IPPS/LTCH PPS final rule (76 FR 51665
through 51666), we finalized the
applicable conditions for the FY 2013
Hospital Readmissions Reduction
Program as heart failure (HF), acute
myocardial infarction (AMI), and
pneumonia (PN). Section 1886(q)(5)(A)
of the Act requires that the ‘‘applicable
conditions’’ be conditions or procedures
for which readmissions are ‘‘high
volume or high expenditure’’ and that
‘‘measures of such readmissions’’ have
been endorsed by the entity with a
contract under section 1890(a) of the
Act (currently National Quality Forum
(NQF)) and such endorsed measures
have exclusions for readmissions that
are unrelated to the prior discharge. In
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 27956), we proposed to
codify this definition of ‘‘applicable
conditions’’ in the regulations we
proposed at 42 CFR 412.152.
Comment: One commenter stated that
the Hospital Readmissions Reduction
Program measures were not reviewed by
the Measure Application Partnership
(MAP) in 2011. The commenter urged
CMS to coordinate MAP review of the
Hospital Readmissions Reduction
Program and related measures.
Response: We thank the commenter
for the suggestion. The three measures

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to be used in the Hospital Readmissions
Reduction Program were finalized in the
FY 2012 IPPS/LTCH Final Rule posted
at the Office of the Federal Register on
August 1, 2011, which pre-dated the
requirement and establishment of the
pre-rulemaking process as described
under section 3014(b) of the Affordable
Care Act, which amended section
1890A of the Act. This provision of the
Affordable Care Act requires the
Secretary to submit measures to a multistakeholder group, currently the
Measure Application Partnership (MAP)
for pre-rulemaking review. CMS
established this pre-rulemaking process
in December 2011. Because the statutory
language at section 1886(q)(1) of the
Act, as amended by section 3025 of the
Affordable Care Act, refers to FY 2013
‘‘and subsequent Fiscal Years’’ but
authorizes expansion of the conditions
(and hence measures) to be used in the
program beginning with FY 2015, we
believe the statute implies that the
measures adopted for use in FY 2013
would also be used in FY 2014. In the
future, if we consider proposing any
new measures for future expansion of
the Hospital Readmissions Reduction
Program beyond these three measures,
which we have the authority to do
beginning with in FY 2015, we plan to
submit them to the MAP for prerulemaking review.
Comment: Several commenters
expressed concerns that the Hospital
Readmissions Reduction Program may
induce unintended consequences of
overcrowding hospital emergency
departments, as hospitals may believe
they are compelled to avoid readmitting
patients.
Response: We recognize that
performance-based payment penalty or
incentive programs may have the
potential for unintended consequences.
We are committed to monitoring the
measures and assessing unintended
consequences over time, such as the
inappropriate shifting of care, increased
patient morbidity and mortality, and
other negative unintended
consequences for patients.
After consideration of the public
comments we received, we are
finalizing our proposal to codify the
definition of ‘‘applicable condition’’ at
42 CFR 412.152 without modification.
In the FY 2012 IPPS/LTCH PPS final
rule, we discussed how each of the
finalized ‘‘applicable conditions’’ for FY
2013 meets these statutory
requirements. We noted that section
1886(q)(5)(B) of the Act allows for the
Secretary to expand the conditions for
the Hospital Readmissions Reduction
Program starting in FY 2015.

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Comment: Several commenters
addressed the expansion of conditions
to be included in the program. Some
commenters urged that CMS not include
the hospital-wide readmission measure,
currently proposed for the Hospital IQR
program, in future HRRP program
expansion. Commenters believed it
would result in double counting of AMI,
HF, and PN patients, and that conditionspecific measures were more actionable
and understandable for hospitals subject
to this provision. Other commenters
encouraged CMS to include the
following conditions in future program
expansions: Atrial fibrillation (as one of
other vascular conditions); chronic
obstructive pulmonary disease; coronary
artery bypass grafting; and percutaneous
transluminal angioplasty. One
commenter suggested that CMS delay
the expansion of the program until such
time as hospitals gain familiarity with
the first three conditions used in the
program.
Response: We thank the commenters
for these suggestions and will take them
into consideration when we address the
expansion of the applicable conditions
in future rulemaking.
Readmission: In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51666), we
finalized a definition of ‘‘readmission’’
as occurring when a patient is
discharged from an applicable hospital
and then admitted to the same or
another acute care hospital, that is,
another applicable hospital, within a
specified time period (30 days) from the
date of discharge from the initial index
hospitalization. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27956),
we proposed to codify this definition of
‘‘readmission’’ under the regulations we
proposed at 42 CFR 412.152. As we also
discussed in the FY 2012 IPPS/LTCH
PPS final rule, only one readmission
during the 30 days following the
discharge from the initial
hospitalization will count as a
readmission for purposes of calculating
the ratios set forth in section 1886(q)(3)
of the Act. For any given patient, none
of the subsequent readmissions he or
she experiences within 30 days after
discharge would be counted as a new
‘‘index’’ admission (that is, an
admission evaluated for a subsequent
readmission).
Comment: Several commenters did
not believe that the readmissions
measures adequately measures quality.
Commenters noted that it is difficult to
determine which readmissions are
preventable, and questioned whether
reducing readmissions is a desirable
outcome because increased mortality
could lead to decreased readmission
rates. One commenter cited research

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that higher readmission rates occur in
communities with more physicians and
hospital beds and in areas with high
poverty and large minority or older
populations to demonstrate that it is
unclear whether readmissions always
reflect poor quality.
Response: We believe that riskstandardized readmission rates provide
an important quality indicator to
hospitals, CMS, patients, policymakers,
and insurers. Readmission of patients
who were recently discharged after
hospitalization with AMI, HF, or
pneumonia represents an important,
expensive, and often avoidable adverse
outcome. The risk of readmission can be
avoided by improving the quality and
type of care provided to these patients.
There is ample evidence 50,51,52 that
hospitals can reduce their readmission
rates through such efforts as ensuring
patients are clinically ready at
discharge, reducing risk of infection,
reconciling medications, improving
communication with community
providers participating in transitions of
care, educating patients adequately
upon discharge, and assuring patients
understand follow-up care upon
discharge. These interventions are
aligned with efforts to improve
mortality and are not at odds with the
goal of survival. Moreover, the results of
public reporting of the measures
indicate that hospitals can do well on
both mortality and readmission rates.
Comment: One commenter
recommended a 7-day to 15-day
readmission timeframe instead of 30
days, stating that a 30-day measure may
be appropriate for assessing a
community’s ability to work together to
provide the best care and services for
patients, but may attribute more
responsibility to the hospital than might
otherwise be warranted.
Response: In the FY 2012 IPPS/LTCH
PPS final rule, we finalized 30 days as
the time period specified from the date
of discharge for the purpose of defining
readmission for the Hospital
Readmissions Reduction Program. The
30-day time period meets the
requirement set forth in section
1886(q)(5)(E) of the Act that the time
period specified by the Secretary for
50 Jack BW, Chetty VK, Anthony D et al. A
reengineered hospital discharge program to
decrease rehospitalization: a randomized trial. Ann
Intern Med. Feb 3, 2009;150(3):178–187.
51 Coleman EA, Perry C, Chalmers S, Min SJ. The
care transitions intervention: results of a
randomized controlled trial. Arch Intern Med. Sep
25 2006;166(17):1822–1828.
52 Hernandez AF, Greiner MA, Fonarow GC, et al.
Relationship between early physician follow-up
and 30-day readmission among Medicare
beneficiaries hospitalized for heart failure. JAMA,
May 5 2010:303(17):1716–1722.

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defining a readmission be consistent
with the time period specified for the
endorsed measures. Furthermore, the
timeframe of 30 days is a clinically
meaningful period for hospitals to
collaborate with their communities in
an effort to reduce readmissions.
Comment: One commenter expressed
specific concerns that the list of planned
readmissions in the AMI measure does
not account for all planned
readmissions. Specifically, the
commenter recommended the inclusion
of AMI codes with ‘‘0’’ in the fifth digit,
indicating ‘‘episode of care
unspecified.’’ The commenter noted that
if the episode of care is unspecified, it
could be outside the 30-day readmission
timeframe. The commenter added that
under the ICD–9–CM guidelines, the
ICD–9–CM codes 410.XX for AMI are
used for ‘‘acute’’ condition for up to 8
weeks duration.
Response: We thank the commenter
for the suggestion. However, the AMI
ICD–9–CM codes described by the
commenter are used to identify index
hospitalizations, not readmissions. The
measures only identify the index
admissions based on the use of the
principal discharge diagnosis, which
should represent the reason the patient
was admitted to the hospital. Therefore,
despite the use of the word
‘‘unspecified,’’ in most cases the AMI
will have been the primary reason for
admission and appropriately included
as an index case.
Comment: One commenter stated the
30-day timeframe may be appropriate
for assessing a community’s ability to
collaborate and provide the best care
and services for discharged patients, but
30 days is too long a timeframe to fairly
assess the attribution of the hospital’s
direct care of a patient.
Response: The 30-day time period
that we finalized in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51666)
meets the requirement set forth in
section 1886(q)(5)(E) of the Act that the
time period specified by the Secretary
for defining a readmission be consistent
with the time period specified for the
endorsed measures. We disagree with
the commenter that a much shorter
timeframe is fairer, and believe that the
timeframe of 30 days is a clinically
meaningful period for hospitals to
collaborate with their communities in
an effort to reduce readmissions. This
approach would ensure patients are
clinically ready at discharge, reducing
risk of infection, reconciling
medications, improving communication
with community providers participating
in transitions of care, educating patients
adequately upon discharge, and

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assuring patients understand follow-up
care upon discharge.
Comment: One commenter requested
clarification whether transfers from
short-term acute care hospitals to
LTCHs are excluded from the definition
of readmissions.
Response: As defined in section
1886(q)(5)(E) of the Act, and finalized in
the FY 2012 IPPS/LTCH PPS final rule,
only readmissions to a subsection (d)
hospital or a hospital that is paid under
section 1814(b)(3) [of the Act] will be
counted as readmissions. Readmissions
to LTCHs will not be counted as
readmissions.
After consideration of the public
comments we received, we are
finalizing our proposal to codify the
definition of ‘‘readmission’’ at 42 CFR
412.152 without modification.
Measures for applicable conditions:
As finalized in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51666 and 51667),
we will use three NQF-endorsed,
hospital risk-standardized readmission
measures for FY 2013, which are
currently in the Hospital IQR Program:
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). The measures, as
endorsed by the NQF, include the 30day time window, risk-adjustment
methodology, and exclusions for certain
readmissions.
As finalized in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51673), we
will use the risk-standardized
readmission ratio of the NQF-endorsed
readmission 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.
Measure methodology: In the FY 2012
IPPS/LTCH PPS final rule (76 FR 51668
through 51669), we finalized the
methodology of the measures and are
summarizing it briefly below.
Index hospitalizations included in the
measure calculation: We finalized the
definition of ‘‘index hospitalization’’
consistent with the NQF-endorsed
definition. The measures define an
index hospitalization as a
hospitalization evaluated in the measure
for a possible readmission within 30
days after discharge (that is, a
hospitalization included in the measure

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calculation). The measures exclude as
index hospitalizations patients who
died during the first admission, patients
who have not spent at least 30 days
post-discharge enrolled in Medicare feefor-service (FFS), patients who are
discharged against medical advice, and
patients who are under the age of 65.
Comment: Several commenters
suggested exclusions from the index
hospitalizations included in the
measures, which included exclusions
for patients under ‘‘extreme
circumstances’’ such as transplants,
end-stage renal disease, burn, trauma,
psychosis and substance abuse.
Response: We appreciate the concern
expressed by the commenters that
patients of these ‘‘extreme
circumstances’’ clinically could be
sicker and more likely to be readmitted.
The measures address clinical
differences in hospitals’ case-mix
through risk adjustment rather than
through excluding patients from the
measure as suggested by the commenter.
The goal in developing outcomes
measures is to create a clinically
cohesive cohort that includes as many
patients as possible admitted with the
given condition. Greatly expanding our
list of exclusions would result in a
measure that was less useful and
meaningful, because it would reflect the
care of fewer patients. In addition, we
believe that by excluding patients with
significant comorbidities, the measure
would not assess of the quality of care
for those patients. To fairly profile
hospitals’ performance, it is critical to
place hospitals on a level playing field
and account for their differences in the
patients that present for care. This is
accomplished through adequate riskadjustment for patients’ clinical
presentation rather than exclusion of
patients.
Risk adjustment: The three measures,
as endorsed by the NQF and finalized in
the FY 2012 IPPS/LTCH PPS final rule,
adjust for key factors that are clinically
relevant and have strong relationships
with the outcome (for example, patient
demographic factors, patient coexisting
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 NQFendorsed measure, as proposed, is

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available at the Web site: http://quality
net.org/dcs/ContentServer?c=Page&
pagename=QnetPublic%2FPage%2
FQnetTier4&cid=1219069855841.
Comment: Several commenters
suggested that the readmission measures
include adjustments for socioeconomic
status and other factors that are either
outside the hospitals’ immediate control
or that may adversely affect certain
types of hospitals more than others.
Suggestions for variables to include in
either the patient level or the hospitallevel model included: patient race,
ethnicity, language, income, lifestyle,
health literacy, dual-eligible status (that
is, eligibility for both Medicare and
Medicaid), insurance status, functional
status, cognitive impairment, postdischarge care support structure, and
access to primary care. Two commenters
suggested stratification of the hospital
calculations by the percentage of dualeligible patients. Other commenters
suggested accounting for societal factors
such as housing stability, food scarcity,
and chronic unemployment.
Response: We have continued to
consider and evaluate stakeholder
concerns regarding the influence of
patient socioeconomic status on
readmission rates. In our analyses
(http://cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/HospitalQualityInits/
Downloads/HospitalChartBook2011.
pdf), we consistently find that hospitals
that care for large proportions of
patients of low socioeconomic status are
capable of performing well on
readmission measures. Many safety-net
providers and teaching hospitals do as
well or better on the measures than
hospitals without substantial numbers
of patients of low socioeconomic status.
The measures include rigorous riskadjustment for differences in patient
illness, and this likely incorporates
some of the patient differences due to
socioeconomic status (to the extent that
patients of low socioeconomic status
present to the hospital with greater level
of disease). The risk adjustment for
clinical factors likely captures much of
the variation due to socioeconomic
status, thus leading to more modest
impact of socioeconomic status on
hospital readmissions than stakeholders
expect. We note that the goal of risk
adjustment is to account for factors that
are inherent to the patient at the time of
admission, such as severity of disease,
so as to put hospitals on a level playing
field. The measures should not be riskadjusted to account for differences in
practice patterns that lead to lower or
higher risk for patients to be readmitted.
The measures aim to reveal differences
related to the patterns of care.

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Furthermore, the statutory language in
section 1886(q)(5)(A)(ii)(I) of the Act
requires that the measures included in
the Hospital Readmissions Reduction
Program be consistent with measures
that are NQF-endorsed. A change in the
risk-adjustment methodology of the
measures as they are currently endorsed
by the NQF would take time and
necessitate additional rulemaking to
adopt such measures. The measures also
do not adjust for socioeconomic status
because the association between
socioeconomic status and health
outcomes can be due, in part, to
differences in the quality of health care
received by groups of patients with
varying socioeconomic status. The
measures do not adjust for
socioeconomic status, or other patient
factors such as race, both because we do
not want to hold hospitals to different
standards for the outcomes of their
patients of low socioeconomic status
(which would definitely occur if
calculations were stratified by percent
dual-eligible patients as suggested by
two of the commenters), and because
our analyses demonstrate that patient
socioeconomic status does not
determine hospital performance on the
readmission measures. Finally, we do
not want to mask potential disparities or
minimize incentives to improve the
outcomes of disadvantaged populations.
This approach is also consistent with
the guidance from the NQF, which
states that risk models should not
obscure disparities by adjusting for
factors associated with inequality in
case (such as race or socioeconomic
status) as well as with the methodology
finalized in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51660 through
51676). However, we are committed to
tracking this issue and will continue to
evaluate disparities in care and the
impact of the Hospital Readmissions
Reduction Program on providers of
vulnerable populations, including
teaching and safety-net hospitals.
Comment: Two commenters
supported CMS’ decisions not to riskadjust for socioeconomic status and
urged CMS to resist making any changes
to the Hospital Readmissions Reduction
Program based on socioeconomic status,
because the same care protocols that
work with a different population may
also work with patients of lower
socioeconomic circumstances. One
commenter appreciated the justification
for the continued exclusion of patientlevel socioeconomic status covariates—
that doing so would impose different
performance expectations based on the
income distribution of patients and
would also result in overfitting the risk

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adjustment models, in that it would
result in an overly complex and
possibly multicollinear model that
yields inaccurate predictions.
Response: We thank the commenters
for their support of our approach to riskadjustment.
Comment: One commenter believed
that the risk adjustment variables used
to calculate readmission rates are not
transparent to hospitals and urged CMS
to ensure they are publicly and easily
accessible.
Response: The risk adjustment
variables that will be used to calculate
readmission rates can be found in the
readmission measure methodology
reports found on the Web site at:
http://qualitynet.org/dcs/Content
Server?c=Page&pagename=Qnet
Public%2FPage%2FQnet
Tier4&cid=1219069855841. Some of the
patient risk factors are grouped using
the CMS Condition Categories (CC)
classification. A crosswalk of CCs to
ICD–9–CM codes is available at: http://
qualitynet.org/dcs/ContentServer?c=
Page&pagename=QnetPublic%2
FPage%2FQnetTier4&
cid=1219069856694.
Comment: One commenter stated that
the comorbidities included in the riskadjustment variables may not all be
consistently coded at the present time.
Response: We have validated the 30day readmission measures with models
that use medical record-abstracted data
for risk adjustment. This validation
supported the use of the administrative
claims data on comorbidities and
demonstrated that the estimates of
hospitals’ risk-standardized readmission
rates (RSRRs) based on administrative
data are very similar to the rates
estimated by models based on medical
record data. This high level of
agreement in the results based on the
two different approaches supports the
use of the administrative claims-based
models for public reporting. Our
approach to gathering risk factors for
patients also mitigates the potential
limitations of claims data. Because not
every diagnosis is coded at every visit,
we use inpatient, outpatient, and
physician claims data for the 12 months
prior to admission, and secondary
diagnosis codes during the index
admission, for risk adjustment.
Data sources: The finalized measures
use Medicare inpatient claims data for
Medicare FFS patients 65 years and
older to identify index hospitalizations
and readmissions. For risk adjustment,
the measures use Part A and Part B
claims for the 12 months prior to the
index hospitalization as well as index
hospitalization claims.

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Exclusion of certain readmissions:
The NQF-endorsed measures of
readmissions finalized in the FY 2012
IPPS/LTCH PPS final rule include
exclusions of readmissions consistent
with the statutory requirement that all
measures exclude certain readmissions
that are unrelated to the prior discharge,
such as transfers to other acute care
facilities and planned readmissions.
Comment: Some commenters urged
CMS to identify and exclude planned
readmissions for the AMI, HF, and PN
readmission measures. The commenters
stated that failure to do so may
encourage providers to delay necessary
follow-up procedures. Two commenters
urged CMS to explore common reasons
for planned readmissions, bring them to
the NQF for review for continued
endorsement for the AMI, HF, and PN
measures, and use these planned
readmissions for the measures in
subsequent rulemaking. A few
commenters recommended that CMS
also consider implementing codes that
hospitals can use to designate when a
readmission is planned so that these
cases can be excluded from the
readmission measure, and
recommended using the NUBC
Committee’s proposed discharge status
codes to identify planned readmissions.
Response: Our contractor engaged
multiple clinical experts to develop a
list of planned readmissions which was
made part of a hospital-wide
readmission measure that recently
obtained NQF endorsement. During the
development of this hospital-wide
readmission measure, there was a 2week informal public comment period
in order to receive feedback on the
measure and its planned readmission
algorithm. The list of planned
readmissions also underwent a 2-week
informal public comment period when
the hospital-wide readmission measure
was evaluated at the NQF.
We maintain the measures annually
and submit the updates to NQF for
review. In response to stakeholder
input, we intend to update the
condition-specific measures to permit
more planned readmissions for the
condition-specific measures, which
would not be counted as readmissions.
Any NQF-approved changes to the
measures will then be proposed for the
Hospital Readmissions Reduction
Program through future rulemaking. We
are aware of the NUBC’s intention to
propose discharge status code on claims
to identify planned readmissions. We
would analyze its reliability, validity,
and usability for identifying planned
readmissions prior to considering the
adoption of such a code for use in the
readmission measures in the future.

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Comment: Some commenters
suggested that CMS exclude
readmissions that occur for reasons such
as transplants and device implantation,
trauma, psychoses, substance use, endstage renal disease, maternity and
neonatal readmissions, rehabilitation,
sepsis, natural disease or treatment
progression, acute decompensated heart
failure, the result of nonhospital
community factors, and disaster relief.
Response: We thank the commenters
for these suggestions. Many of these
suggestions are among the planned
readmission updates we intend to
submit for the AMI, HF and PN
measures as part of annual maintenance
review by NQF. We perform measure
maintenance reviews which include
consideration of public comments,
exploration and identification of any
other exclusions for the measures; in
this case, other types of readmissions,
that would be excluded from the
measures as planned readmissions
would be considered during the
maintenance review. If we determine
certain readmissions should be
excluded from the measures, we will
revise the measures, present them to
NQF for endorsement, and update the
Hospital Readmissions Reduction
Program in future rulemaking.
Comment: Several commenters urged
CMS to differentiate between related
and unrelated readmissions. One
suggestion to define ‘‘related
readmissions’’ as any readmission for
which the patient’s primary diagnosis
falls within the same MS–DRG or as the
diagnosis for the initial admission, or to
use the AHRQ CCs as a way to group
diagnoses and procedure codes into
clinically meaningful groups.
Response: We do not seek to
differentiate between related and
unrelated readmissions, or to identify
preventable readmissions or
‘‘necessary’’ readmissions for several
reasons. First, from the patient
perspective, an unplanned readmission
for any reason is likely to be an
undesirable outcome of care after an
acute hospitalization. Second,
readmissions not directly related to the
index condition may still be a result of
the care received during the index
hospitalization. For example, a patient
hospitalized for heart failure who
develops a hospital-acquired infection
may ultimately be readmitted for sepsis.
It would be inappropriate to treat this
readmission as unrelated to the care the
patient received during the index
hospitalization. Furthermore, the range
of potentially avoidable readmissions
also includes those not directly related
to the initial hospitalization, such as
those resulting from poor

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communication at discharge or
inadequate follow-up. As such, creating
a comprehensive list of potential
complications related to the index
hospitalization would be arbitrary,
incomplete, and, ultimately, impossible
to implement. The measures are not
meant to suggest that the appropriate
readmission rate is zero, but rather to
identify hospitals that have a higher rate
of readmissions than would be expected
given their case mix.
Minimum number of discharges for
applicable conditions: Section
1886(q)(4)(C)(ii) of the Act allows the
Secretary discretion to determine the
minimum number of discharges for the
applicable condition. We finalized a
policy in the FY 2012 IPPS/LTCH PPS
final rule that the minimum number of
discharges for applicable conditions is
25 for each condition for the FY 2013
Hospital Readmissions Reduction
Program.
Comment: Several commenters urged
CMS to raise the minimum case
threshold to qualify for the Hospital
Readmissions Reduction Program to
improve the reliability of the measures.
Response: We determined the 25-case
threshold for public reporting based on
a reliability statistic that is calculated
from the intercluster correlation, a
parameter of the model. We are
maintaining the minimum 25-case
threshold that we adopted through
rulemaking last year.
Applicable period: Under section
1886(q)(5)(D) of the Act, the Secretary
has the authority to specify the
applicable period with respect to a fiscal
year. In the FY 2012 IPPS/LTCH PPS
final rule, we finalized our policy to use
3 years of claims data to calculate the
proposed readmission measures.
Specifically, we finalized the policy to
use claims data from July 1, 2008, to
June 30, 2011, to calculate the excess
readmission ratios and to calculate the
FY 2013 Hospital Readmissions
Reduction Program payment
adjustment. As we discussed in section
IV.A.3.d. of the preamble of the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
27957), the excess readmission ratios
used to model our proposed
methodology to calculate the Hospital
Readmissions Reduction Program
payment adjustment were based on the
3-year time period of July 1, 2007 to
June 30, 2010. However, we indicated
that, for the final rule, we intended to
use excess readmission ratios based on
the applicable period of July 1, 2008 to
June 30, 2011, as finalized in the FY
2012 IPPS/LTCH PPS final rule. In the
FY 2013 IPPS/LTCH PPS proposed rule,
we proposed to codify the definition of
‘‘applicable period’’ at 42 CFR 412.152

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as the 3-year period from which data are
collected in order to calculate excess
readmission ratios and adjustments for
the fiscal year.
Comment: Several commenters urged
CMS to consider a shorter timeframe for
measuring performance for
readmissions such as a 1-year or 2-year
period. The commenters believed that
hospitals should not be assessed on
readmissions that occurred during 2008,
long before the policy addressing this
provision was passed in the Affordable
Care Act.
Response: In the FY 2012 IPPS/LTCH
PPS final rule, we finalized 3 years as
the applicable period for the FY 2013
payment adjustment. We use a 3-year
period of index admissions to increase
the number of cases per hospital used
for measure calculation, which
improves the precision of each
hospital’s readmission estimate.
Although this approach utilizes older
data, it also identifies more variation in
hospital performance and still allows for
improvement from one year of reporting
to the next. We are maintaining the 3year period as previously adopted.

Comment: One commenter stated that,
although data from across a 3-year
period helps to identify significant
improvements over time, there is a huge
lag in the end of the 3-year period and
the commencements of penalties
(approximately 15 months).
Response: We decided to use the
current timeframe because it balances
the needs for the most recent claims and
for sufficient time to process the claims
data and calculate the measures to meet
the program implementation timeline.
We will continue to explore the
feasibility of using more up-to-date data
sources.
After consideration of the public
comments we received, we are
finalizing our proposal to codify our
definition of ‘‘applicable period’’ under
the regulations at 42 CFR 412.152
without modification.
Excess Readmission Ratio
Calculation: In the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51673 through
51676), we finalized the excess
readmission ratio pursuant to section
1886(q)(4)(C) of the Act. We established
the excess readmission ratio as the riskadjusted readmission ratio from the

NQF-endorsed measures. The ratio is
calculated using hierarchical logistic
regression. The method adjusts for
variation across hospitals in how sick
their patients are when admitted to the
hospital (and therefore variation in
hospital patients’ readmission risk) as
well as the variation in the number of
patients that a hospital treats to reveal
difference in quality. The method
produces an adjusted actual (or
‘‘predicted’’) number in the numerator
and an ‘‘expected’’ number in the
denominator. The expected calculation
is similar to that for logistic regression—
it is the sum of all patients’ expected
probabilities of readmission, given their
risk factors and the risk of readmission
at an average hospital.
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. Mathematically, the
numerator equation can be expressed as:

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 can be expressed
mathematically as:

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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. In summary, in
the FY 2012 IPPS/LTCH PPS final rule,
we defined the ‘‘excess readmission
ratio’’ as the risk-standardized
readmission ratio of the NQF-endorsed
readmission measures. More in-depth
detail surrounding the methodology of
excess readmission ratio calculation can
be accessed on the Web site at: http://
qualitynet.org/dcs/ContentServer?c=
Page&pagename=QnetPublic%2F
Page%2FQnetTier4&cid=1219069855
841.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27958), we
proposed to codify the definition of
‘‘excess readmission ratio’’ under the
regulations we proposed at 42 CFR
412.152 as a hospital-specific ratio for
each applicable condition for an
applicable period, which is the ratio
(but not less than 1.0) of (1) riskadjusted readmissions based on actual
readmissions for an applicable hospital
for each applicable condition to (2) the
risk-adjusted expected readmissions for
the applicable hospital for the
applicable condition.
Comment: Two commenters indicated
that almost no hospitals are statistically
significantly different from the U.S.
average because the hierarchical logistic
regression model shrinks the
coefficients of small hospitals towards
the mean. One commenter expressed
concern that the methodology relies
excessively on the ability of the model

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to correct for hospital-specific
characteristics and may be at odds with
the observed rate. Another commenter
suggested that alternatives to the current
method could include looking at more
conditions over several years which
would increase the sample size, reduce
random variation, and reduce the need
to shrink estimates toward the national
mean.
Response: The modeling of the
readmission rates takes into account
hospitals’ case-mix as well as the
sample size of the hospital. For both of
these reasons, the risk-standardized rate
may appropriately differ from the
observed rates. These differences are
important in leveling the playing field
for hospitals and accounting for
uncertainty in small volume estimates.
The hierarchical logistic regression
model that we use to calculate the 30day measures allows the inclusion of
hospitals with relatively few
observations but takes into account the
uncertainty associated with sample size.
Comment: One commenter believed
that the statute requires that CMS
calculate an Observed-to-Expected (O/E)
ratio for each readmission condition by
hospital and to use that ratio to
determine the payment penalty. The
commenter requested that CMS revise
its methodology so that it calculates
hospital-specific observed and expected
readmission rates and reports them on
Hospital Compare.
Response: We disagree with the
commenter’s assessment that the statute
requires that we use an observed to
expected ratio. Rather, the statute at
section 1886(q)(4)(C) of the Act defines
the excess readmission ratio as the ratio
of ‘‘the risk adjusted readmissions based
on actual readmissions,’’ and ‘‘the risk
adjusted expected readmissions’’ as

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‘‘determined consistent with a
readmission methodology that has been
endorsed’’ by an entity with a contract
under section 1890(a) of the Act
(currently the NQF). The readmission
measures that we are using for the
Hospital Readmissions Reduction
Program have numerators and
denominators consistent with these
definitions. The measures have been
endorsed by the NQF, and we finalized
use of these NQF-endorsed readmission
measures in the FY 2012 IPPS LTCH
PPS final rule.
Comment: One commenter asked for
clarification on the calculation of the
readmission rates for multiple
readmissions, particularly where one or
more readmissions might be unrelated
to the index admission.
Response: As finalized in the FY 2012
IPPS/LTCH PPS final rule, the
readmissions measures are designed to
measure whether a patient experienced
at least one readmission within 30 days
of an initial (or ‘‘index’’) discharge as a
single binary (yes/no) event, rather than
counting the number of readmissions
experienced within 30 days of discharge
as a separate readmissions. For any
given patient, only one readmission
during the 30 days following the
discharge from the initial
hospitalization will count as a
readmission for purposes of calculating
the ratios set forth in section 1886(q) of
the Act. For any given patient, none of
the subsequent readmissions he or she
experiences within 30 days after
discharge would be counted as a new
‘‘index’’ admission within the same
measure (that is, an admission evaluated
in the measure for a subsequent
readmission). Any eligible admission
after the 30-day time period will be
considered a new index admission. For

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example, if a patient’s index admission
was for heart failure and the patient was
readmitted with a primary diagnosis of
pneumonia, that hospitalization could
count as both a readmission for the
health failure measure and an index
admission for the pneumonia measure.
We do not seek to differentiate
between related and unrelated
readmissions, or to identify preventable
readmissions or ‘‘necessary’’
readmissions for several reasons. First,
from the patient perspective, a
readmission for any reason is likely to
be an undesirable outcome of care after
an acute hospitalization. Second,
readmissions not directly related to the
index condition may still be a result of
the care received during the index
hospitalization.
After consideration of the public
comments we received, we are
finalizing our proposal to codify the
definition of ‘‘excess readmission ratio’’
under the regulations at 42 CFR 412.152
without modification.
3. FY 2013 Proposed and Final Policies
for the Hospital Readmissions
Reduction Program

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a. Overview
In this final rule, we are addressing
the provisions in section 1886(q) of the
Act that are related to the Hospital
Readmissions Reduction Program
payment adjustment, as well as any
other provisions in section 1886(q) of
the Act that were not addressed in the
FY 2012 IPPS/LTCH PPS final rule that
are effective for discharges beginning on
or after October 1, 2012. Specifically, in
this final rule (as we did in the FY 2013
IPPS/LTCH PPS proposed rule), we are
addressing section 1886(q) of the Act
related to the following provisions:
• Base operating DRG payment
amount, including policies for SCHs
and MDHs and hospitals paid under
section 1814(b) of the Act;
• Adjustment factor (both the ratio
and floor adjustment factor);
• Aggregate payments for excess
readmissions and aggregate payments
for all discharges;
• Applicable hospital;
• Limitations on review;
• Reporting of hospital-specific
information, including the process for
hospitals to review and submit
corrections.
b. Base Operating DRG Payment
Amount, Including Special Rules for
SCHs and MDHs and Hospitals Paid
Under Section 1814 of the Act
(1) Definition of Base Operating DRG
Payment Amount (§ 412.152)
Under the Hospital Readmissions
Reduction Program at section 1886(q) of

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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 an ‘‘adjustment factor’’ that
accounts for excess readmissions for the
hospital for the fiscal year, for
discharges beginning on or after October
1, 2012. Specifically, section 1886(q)(1)
of the Act requires the Secretary to base
payments for a discharge on 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. The ‘‘base
operating DRG payment amount’’ is
defined under section 1886(q)(2) of the
Act 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) of section 1886 of the Act
refer to outlier payments, indirect
medical education (IME) payments,
disproportionate share (DSH) payments,
and low-volume hospital payments,
respectively.
In general, ‘‘the payment amount that
would otherwise be made under
subsection (d) * * * for a discharge’’
(that is, the discharge payment amount
made under section 1886(d) of the Act)
determined without consideration of the
adjustments to payments made under
the Hospital VBP Program (section
1886(o) of the Act) or under the Hospital
Readmissions Reduction Program
(section 1886(q) of the Act) is the
applicable average standardized amount
adjusted for resource utilization by the
applicable MS–DRG relative weight and
adjusted for differences in geographic
costs by the applicable area wage index
(and by the applicable cost-of-living
adjustment (COLA) for hospitals located
in Alaska and Hawaii), which is often
referred to as the ‘‘wage-adjusted DRG
operating payment.’’ This payment
amount may then be further adjusted if
the hospital qualifies for an IME
adjustment (under section 1886(d)(5)(B)
of the Act), a DSH payment adjustment
(under section 1886(d)(5)(F) of the Act),
and/or a low-volume payment
adjustment (under section 1886(d)(12)
of the Act), or if the discharge qualifies
for an outlier payment (under section
1886(d)(5)(A) of the Act). Furthermore,
certain discharges may qualify for an
additional payment for new medical
services or technologies under section

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1886(d)(5)(K) of the Act (often referred
to as a ‘‘new technology add-on
payment’’).
Consistent with section 1886(q)(2) of
the Act, in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27959), under the
regulations we proposed at 42 CFR
412.152, we proposed to define the
‘‘base operating DRG payment amount’’
under the Hospital Readmissions
Reduction Program as the wage-adjusted
DRG operating payment plus any
applicable new technology add-on
payments. As required by the statute,
we stated that the proposed definition of
‘‘base operating DRG payment amount’’
does not include adjustments or add-on
payments for IME, DSH, outliers and
low-volume hospitals provided for
under sections 1886(d)(5)(B), (d)(5)(F),
(d)(5)(A), and (d)(12) of the Act,
respectively. Section 1886(q)(2) of the
Act does not exclude new technology
payments made under section
1886(d)(5)(K) of the Act in the definition
of ‘‘base operating DRG payment
amount’’; therefore, any payments made
under section 1886(d)(5)(K) of the Act
are included in the definition of ‘‘base
operating DRG payment amount.’’ In
addition, under the regulations we
proposed at 42 CFR 412.152, we
proposed to define ‘‘wage-adjusted DRG
operating payment’’ as the applicable
average standardized amount adjusted
for resource utilization by the applicable
MS–DRG relative weight and adjusted
for differences in geographic costs by
the applicable area wage index (and by
the applicable COLA for hospitals
located in Alaska and Hawaii). We
proposed that, under § 412.154(b)(1), to
account for excess readmissions, an
applicable hospital’s base operating
DRG payment amount would be
adjusted for each discharge occurring
during the fiscal year. The payment
adjustment for each discharge is
determined by subtracting the product
of the base operating DRG payment
amount for such discharge and the
hospital’s readmission payment
adjustment factor for the fiscal year from
the base operating DRG payment
amount for such discharge.
Under this proposal, consistent with
section 1886(q)(2)(B)(i) of the Act and
proposed § 412.154(b)(2), for SCHs that
receive payments based on their
hospital-specific payment rate, we also
proposed to exclude the difference
between the hospital’s applicable
hospital-specific payment rate and the
Federal payment rate from the
definition of ‘‘base operating DRG
payment amount.’’ We noted that, under
the Hospital Readmissions Reduction
Program at section 1886(q) of the Act,
the proposed definition of ‘‘base

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operating DRG payment amount’’ would
be used to calculate both the ‘‘aggregate
payments for excess readmissions’’ and
‘‘aggregate payments for all discharges’’
under sections 1886(q)(4)(A) and (B) of
the Act, which would then be used to
determine the readmission adjustment
factor that accounts for excess
readmissions under section 1886(q)(3)
of the Act (as discussed in greater detail
in section IV.A.3.c. of the preamble of
the proposed rule and this final rule),
and would also be used to determine
which payment amounts will be
adjusted to account for excess
readmissions. (We note that, as
discussed in section IV.G. of the
preamble of the proposed rule and this
final rule, under current law, the MDH
program expires at the end of FY 2012
(that is, the MDH program is currently
only applicable to discharges occurring
before October 1, 2012). Therefore, due
to the expiration of the MDH program
beginning with FY 2013, we did not
include MDHs in the discussion of our
proposals regarding the base operating
DRG payment amount in the proposed
rule.)
Comment: Commenters supported the
proposed definition of the base
operating DRG payment amount.
Commenters also supported our
proposal to exclude IME, DSH, outliers,
low-volume adjustment, and additional
payments made due to status as an SCH
from the definition of the base operating
DRG payment amount.
Commenters both supported and
opposed our proposed inclusion of new
technology payments in the definition
of the base operating DRG payment
amount. Commenters recommended
that CMS exclude the new technology
payment from the definition of ‘‘base
operating DRG payment amount’’
because, like payment adjustments for
IME and DSH, it is extrinsic to the base
rate. In addition, without any known
association between the use of new
technology and the quality and
efficiency of care provided by a
hospital, one commenter did not believe
there was justification to incorporate the
use of new technology into the structure
of a quality program. Some commenters
asserted that the inclusion of the new
technology payments in the base DRG
operating payment definition for the
determination of payment reduction
adjustments conflicts with the primary
principle of identifying and ensuring
adequate payment for new medical
services and technologies for a brief 2to 3-year period and should not be
altered by our other required initiatives.
Response: We believe the statute is
specific with regards to the definition of
base operating DRG payment amount at

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section 1886(q)(2) of the Act, which
explicitly specifies that any additional
payments for IME, DSH, outliers, and
low-volume hospitals provided for
under sections 1886(d)(5)(B), (d)(5)(F),
(d)(5)(A), and (d)(12) of the Act,
respectively, are to be excluded. Section
1886(q)(2) of the Act does not specify an
exclusion for new technology payments
made under section 1886(d)(5)(K) of the
Act, and therefore, we do not believe we
have the flexibility to exclude new
technology payments in the definition
of base operating DRG payment amount
under the Hospital Readmissions
Reduction Program. We are finalizing
our definition of ‘‘base operating DRG
payment,’’ as proposed, without
modification.
Comment: One commenter stated that
cases that receive transfer adjustments
when determining their payment should
be accounted for in the proposed
definition of base operating DRG
payment amount. The commenter
specified that the base operating DRG
payment amount should also include
any payment reductions for patients
covered under the transfer policy as it
applies to both post-acute and short-stay
acute hospitals.
Response: We are clarifying that the
base operating DRG payment amount
accounts for any applicable transfer
adjustment for cases that are paid under
as either an acute care transfer or postacute care transfer. In other words, if a
case is paid as a transfer in accordance
with our transfer payment policy at 42
CFR 412.4(f), resulting in a reduced
IPPS payment, the reduced transferadjusted payment amount is also
reflected in the base operating DRG
payment amount. For the FY 2013 IPPS/
LTCH PPS proposed rule, the data used
to model the proposed readmission
payment adjustment factors actually
reflected transfer adjusted base
operating DRG payment amounts, where
applicable. As discussed earlier, the
‘‘base operating DRG payment amount’’
would be used to calculate both the
‘‘aggregate payments for excess
readmissions’’ and ‘‘aggregate payments
for all discharges’’ under sections
1886(q)(4)(A) and (q)(4)(B) of the Act,
which would then be used to determine
the readmissions payment adjustment,
and would also be used to determine
which payment amounts will be
adjusted to account for excess
readmissions. We are finalizing that the
definition of ‘‘base operating DRG
payment amount’’ includes any
applicable payment adjustments for
transfer cases under 42 CFR 412.4(f). In
addition, in this final rule, we are
revising the definition of ‘‘wageadjusted DRG operating payment’’ in the

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regulations we proposed at 42 CFR
412.152 to specify that any applicable
payment adjustment for transfers under
§ 412.4(f) is included. Accordingly, we
are finalizing the definition of ‘‘wage
adjusted DRG operating payment’’ as the
applicable average standardized amount
adjusted for resource utilization by the
applicable MS–DRG relative weight and
adjusted for differences in geographic
costs by the applicable area wage index
(and by the applicable COLA for
hospitals located in Alaska and Hawaii).
This amount includes an applicable
payment adjustment for transfers under
§ 412.4(f).
Comment: Commenters recommended
that the proposed definition of base
operating DRG payment should be
refined to account for the special
payment status of MDHs that are paid
under the hospital-specific rate should
the MDH payment status be extended
under legislation. In addition,
commenters suggested that CMS make a
proposal to exclude the difference
between the hospital’s applicable
hospital-specific payment rate and the
Federal payment rate from its definition
of ‘‘base operating DRG amount’’ for
MDHs, similar to our proposal made for
SCHs, which can also be paid under the
hospital-specific payment rate.
Response: As stated earlier, under
current law, the MDH program expires
at the end of FY 2012 (that is, the MDH
program is currently only applicable to
discharges occurring before October 1,
2012). MDHs are paid the sum of the
Federal payment amount plus 75
percent of the amount by which their
hospital-specific rate exceeds the
Federal payment amount. As discussed
later in this section, we had proposed to
exclude hospital-specific payments from
the definition of base operating DRG
payments in the calculation of a
hospital’s readmission payment
adjustment factor. Specifically, we
stated that because we are using
historical data to determine the base
operating DRG payments to calculate
the adjustment factor, we proposed to
model their base operating DRG
payment amount as they would have
been paid under the Federal
standardized amount, rather than using
the information on the claim (which
may represent a payment either made
under the hospital-specific rate or the
Federal rate) so that their payments are
consistent with our proposed definition
of ‘‘base operating DRG payment.’’
For MDHs, the payment difference
between the payment made under the
hospital-specific rate and the payment
made under the Federal rate is not
included in the base operating DRG
payment amount to determine the

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readmissions adjustment factor; that is,
it is neither included in the numerator
of the aggregate dollars for excess
readmissions nor in the denominator of
the aggregate dollars for all discharges.
Furthermore, we are clarifying that
the difference between the applicable
hospital-specific payment rate and the
Federal payment rate for both SCHs and
for MDHs, should the MDH provision be
extended beyond FY 2012, is excluded
from base operating DRG payment
amount for these hospitals. This means
that, for an SCH or an MDH, the
readmissions payment adjustment
under Hospital Readmissions Reduction
Program for each discharge will be
calculated by multiplying the SCH’s or
MDH’s readmission payment
adjustment factor by the base-operating
DRG payment amount that is exclusive
of the amount by which the hospitalspecific rate payment exceeds the
Federal payment rate, where applicable.
The resulting payment adjustment will
then be subtracted from the hospital’s
payment for the discharge, regardless of
whether the hospital is paid based on
the Federal rate or its hospital-specific
rate.
After consideration of the public
comments we received, we are
finalizing the proposed definition of
‘‘base operating DRG payment amount’’
at 42 CFR 412.152, noting that it
includes any applicable payment
adjustments for transfer cases under 42
CFR 412.4(f). In addition, we are
revising the definition of ‘‘wageadjusted DRG operating payment’’ in the
regulations we proposed at 42 CFR
412.152 to specify that any applicable
payment adjustment for transfers under
§ 412.4(f) is included.
(2) Special Rules for Certain Hospitals:
Hospitals Paid Under Section 1814(b)(3)
of the Act (§ 412.154(d))
Although the definition of ‘‘applicable
hospital’’ under section 1886(q)(5)(C) of
the Act also includes hospitals paid
under section 1814(b)(3) of the Act (that
is, certain Maryland hospitals), section
1886(q)(2)(B)(ii) of the Act allows the
Secretary to exempt such hospitals from
the Hospital Readmissions Reduction
Program, provided that the State
submits an annual report to the
Secretary describing how a similar
program to reduce hospital
readmissions in that State achieves or
surpasses the measured results in terms
of health outcomes and cost savings
established by Congress for the program
as applied to ‘‘subsection (d) hospitals.’’
Accordingly, a program established by
the State of Maryland that could serve
to exempt the State from the Hospital
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focus on those ‘‘applicable’’ Maryland
hospitals operating under the ‘‘waiver’’
provided by section 1814(b)(3) of the
Act, that is, those hospitals that would
otherwise have been paid by Medicare
under the IPPS, absent the provision.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27960), we
proposed to establish criteria for
evaluation of an annual report to CMS
to determine whether Maryland should
be exempted from the program each
year. Accordingly, we proposed to
evaluate a report submitted by the State
of Maryland documenting how its
program (described below) meets those
criteria. Based on the information in the
report, we proposed to determine
whether or not Maryland’s readmission
program met our criteria to be exempt
from the Hospital Readmissions
Reduction Program for FY 2013. We
noted that our proposed criteria to
evaluate Maryland’s program is for FY
2013, the first year of the program, and
our evaluation criteria may change
through notice-and-comment
rulemaking as the Hospital
Readmissions Reduction Program
evolves. We proposed to codify this
requirement at § 412.154(d) of the
regulations.
Based on preliminary discussions
with the State, we understand that,
effective July 1, 2011, Maryland has
established the Admission-Readmission
Revenue (ARR) Program. The State has
described its program as a voluntary
program for acute care hospitals, of
which 30 out of the 46 acute care
hospitals in the State are currently
enrolled. Under the program, the State
pays hospitals under a case-mix
adjusted bundled payment per episode
of care, where the episode of care is
defined as the initial admission and any
subsequent readmissions to the same
hospital or linked hospital system that
occur within 30 days of the original
discharge. According to the State, an
initial admission with no readmissions
provides the hospital with the same
weight as an initial admission with
multiple readmissions. Therefore,
hospitals receive a financial reward for
decreased readmissions (as determined
through the case mix adjusted, episode
of care weights). Unlike the Hospital
Readmissions Reduction Program under
section 1886(q) of the Act, which is
currently based on measures for three
conditions (HF, AMI, and PN) for the
Medicare FFS population and only
adjusts the IPPS operating payments,
Maryland’s program applies to all
conditions for all patients. In addition,
while the Hospital Readmissions
Reduction Program considers a
readmission to be a subsequent

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admission to either the original acute
care hospital from where the patient
was initially discharged or an admission
to another acute care hospital, currently
Maryland only tracks readmissions to
the same acute care hospital (or linked
hospital system) from which the patient
was originally discharged. The State had
noted that, under its ARR program, the
readmission rates for the hospitals
participating in the ARR program for the
first quarter of its fiscal year compared
to the first quarter of its previous fiscal
year decreased from 9.86 percent to 8.96
percent.
In the FY 2013 IPPS/LTCH PPS
proposed rule, we proposed to evaluate
Maryland’s ARR program based on
whether the State could demonstrate
that cost savings under its program
achieved or exceeded the savings to the
Medicare program due to the Hospital
Readmissions Reduction Program under
section 1886(q) of the Act. We also
proposed to evaluate whether
Maryland’s program could demonstrate
similar results in reducing unnecessary
readmissions among hospitals in the
State, as described in more detail below.
With specific regard to Maryland’s
demonstration of cost savings, we
proposed to evaluate whether
Maryland’s ARR program could
demonstrate savings to the Medicare
program that are at least similar to those
expected under the Hospital
Readmissions Reduction Program. As
discussed in this proposed rule, we
estimated that, under the Hospital
Readmissions Reduction Program, for
FY 2013, Medicare IPPS operating
payments would decrease by
approximately $300 million (or 0.3
percent) of total Medicare IPPS
operating payments. Maryland has
indicated that it believes it can achieve
comparable savings because it intends
to reduce the rate update factor for all
hospitals by 0.3 percent, regardless of a
hospital’s performance on readmissions.
In addition, we indicated in the
proposed rule that we plan to propose,
in future rulemaking, to evaluate
whether Maryland’s ARR program can
meet or exceed health outcomes that we
expect to improve under the Hospital
Readmissions Reduction Program.
Because the Hospital Readmissions
Reduction Program is not effective until
October 1, 2012, we indicated that we
do not yet have measured health
outcomes against which we can evaluate
Maryland’s ARR program. However, we
intend to have outcomes data in the
future with which to evaluate
Maryland’s ARR program. We anticipate
that, under the Hospital Readmissions
Reduction Program, hospitals will
experience a reduction in unnecessary

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readmissions. Therefore, in future
rulemaking, we intend to propose to
evaluate whether Maryland’s ARR
program can demonstrate similar
decreases in potential preventable
readmissions among hospitals in the
State. Furthermore, in the FY 2013
IPPS/LTCH PPS proposed rule, we
proposed that the State’s annual report
and request for exemption from the
Hospital Readmissions Reduction
Program must be resubmitted and
reconsidered annually in accordance
with the statute and as proposed at
§ 412.154(d)(2).
Based on preliminary information
provided by Maryland, the State
believes that its program can meet our
evaluation criteria and demonstrate that
its program achieves or surpasses the
measured results in terms of health
outcomes and cost savings. We
indicated in the proposed rule that we
are reviewing whether the Maryland’s
ARR program, which currently cannot
monitor readmissions to other hospitals
and provide a financial reward for
hospitals that reduce within-hospital
readmissions, but provides for an
across-the-board 0.3 percent reduction
to the annual rate update to account for
comparable savings to the Hospital
Readmissions Reduction Program, meets
the criteria to exempt Maryland
hospitals from the Hospital
Readmissions Reduction Program. We
welcomed public comments on whether
the Maryland ARR program meets the
requirements for exemption from the
Hospital Readmissions Reduction
Program set forth in section
1886(q)(2)(B)(ii) of the Act.
Comment: Commenters requested that
Maryland hospitals be exempt from the
Hospital Readmissions Reduction
Program. Commenters contended that
Maryland’s readmissions program meets
the criteria for Maryland hospitals to be
waived from the Hospital Readmissions
Reduction Program. One commenter
stated that Maryland has already
demonstrated successful reductions in
readmissions as a result of the
Admission-Readmission Revenue (ARR)
and Total Patient Revenue (TPR)
programs. The commenter described the
TPR program as a global budget
payment program, designed to reduce
overall volumes and, thus, reduce
readmissions. ARR hospitals have seen
a 7.1 percent reduction in Medicare
readmissions since the inception of the
program; TPR hospitals have
experienced a 6.4 percent decline in
readmissions from FY 2009 to FY 2011.
The commenter sought more
information on how CMS plans to
measure Maryland’s performance
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implementation in order to ensure that
Maryland’s hospitals are prepared to
meet our expectations, and can make
the appropriate adjustments in advance
of submitting an exemption request.
Commenters acknowledged that the
ARR program provides a financial
incentive for hospitals to reduce
readmissions and improve the quality of
care and that the ARR program
established a 30-day episode of care
payment instead of a payment per
admission, so a hospital that reduces
readmissions keeps the same revenue
and increases profits by reducing costs.
However, one commenter suggested that
savings are generated by reducing interhospital readmissions and outpatient
visits. The commenter stated that the
TPR program generates savings by
restricting revenues and, therefore,
providing an incentive for hospitals to
reduce volumes. The commenter stated
that this mechanism allows
participating hospitals to focus on
patient care and improved outcomes,
rather than generating volume.
Furthermore, the commenter pointed
out that Maryland’s Health Services
Cost Review Commission reduced
hospitals’ FY 2013 rate update by 0.58
percentage points to guarantee
readmissions savings.
Finally, the State of Maryland also
commented that, in future years, it will
work with us to demonstrate cost
savings and improved outcomes, over a
multiyear period.
Response: We appreciate the
commenters’ requests to exempt
Maryland from the Hospital
Readmissions Reduction Program for FY
2013. In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27959), we
proposed to establish an annual process
by which to evaluate Maryland’s
readmission program to determine
whether the State’s program meets or
exceeds measured results in terms of
health outcomes and cost savings as
compared to the Hospital Readmissions
Reduction Program. For FY 2013, we
indicated that the Hospital
Readmissions Reduction Program would
result in an estimated savings of $300
million (¥0.3 percent), and we
proposed to evaluate whether
Maryland’s program could have
comparable savings. As commenters
acknowledged, Maryland’s readmissions
program provides a financial incentive,
not penalty, to hospitals that reduce
their readmissions. Furthermore,
commenters acknowledged that the
State has guaranteed savings by
reducing the FY 2013 rate by 0.58
percent. We understand that this is a
uniform rate reduction for all hospitals,
regardless of an individual hospital’s

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53385

performance on readmissions. We
understand that the acute care hospitals
in Maryland are included either in the
ARR program or the TPR program,
which provides incentives for hospitals
to reduce readmissions.
With respect to health outcomes, we
proposed that since this is the first year
of the Hospital Readmissions Reduction
Program, we do not have a measured
health outcomes by which to evaluate
Maryland against. Thus, for the first
year, we would not evaluate Maryland’s
program with respect to health
outcomes. In the future, we intend to
have national outcomes data to evaluate
Maryland’s program, and we will work
with the State to measure those
outcomes. Similarly, after considering
the commenters’ comments, we believe
it would be premature to evaluate
Maryland’s readmissions program on
cost savings, as it is the first year of the
Hospital Readmissions Reduction
Program, and Maryland’s ARR Program
just completed its first year. As such, we
are finalizing to not evaluate Maryland’s
ARR Program on measureable health
outcomes and cost savings for the first
year. For FY 2013, we are exempting
hospitals paid under section 1814(b)(3)
of the Act from the Hospital
Readmissions Reduction Program under
our authority under section
1886(q)(2)(B)(ii) of the Act. We are
finalizing, as proposed, our plan to
evaluate whether Maryland’s
readmissions program can demonstrate
similar decreases in potential
preventable readmissions and similar
cost savings on an annual basis.
However, that evaluation will not begin
until FY 2014. We intend to work with
Maryland next year as the State
develops its readmissions programs to
be able to measure health outcomes and
to have demonstrable savings. We are
finalizing, as proposed, our requirement
that the State’s annual report and
request for exemption from the Hospital
Readmissions Reduction Program be
resubmitted and reconsidered annually
in accordance with the statute, as
finalized at § 412.154(d)(2).
Comment: Commenters sought
clarification as to whether an exemption
for Maryland hospitals from the
payment requirements under the
Hospital Readmissions Reduction
Program would apply to all section
1814(b) hospitals in Maryland or all of
Maryland’s acute care hospitals. The
commenters requested that the waiver
be applied to all Maryland acute care
hospitals.
Response: Section 1886(q)(2)(B)(ii) of
the Act allows the Secretary to exempt
hospitals paid under the ‘‘waiver’’
provided by section 1814(b)(3) of the

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Act, that is, those hospitals that would
otherwise have been paid by Medicare
under the IPPS, absent the provision.
Accordingly, we are finalizing that, for
FY 2013, all acute care hospitals in
Maryland, which are the hospitals that
are paid under the waiver at section
1814(b)(3) of the Act, that otherwise
would have been paid under the IPPS,
are exempt from the Hospital
Readmissions Reduction Program.
Comment: One commenter asked for a
definition of base operating DRG
payment for Maryland hospitals,
considering that Maryland hospitals
paid under section 1814(b)(3) of the Act
are paid at 94 percent of their charges.
Response: In the FY 2013 IPPS/LTCH
PPS proposed rule, we did not make a
proposal regarding the definition of base
operating DRG payment amount with
regard to Maryland hospitals. Because
we are finalizing our proposal to exempt
Maryland hospitals from the Hospital
Readmissions Reduction Program for FY
2013, we intend to revisit the definition
of base operating DRG payment amount
for Maryland hospitals in future
rulemaking.
Comment: Commenters asked that
there be a combined exemption request
for Maryland hospitals for the Hospital
Readmissions Reduction Program, the
HAC program, and the Hospital VBP
Programs in order to be more efficient
and to reduce the administrative burden
at the State and Federal level.
Response: The Hospital Readmissions
Reduction Program and the Hospital
VBP Program, effective in FY 2013, are
separate hospital payment programs
with different purposes and policy
goals. For example, the Hospital
Readmissions Reduction Program
reduces payments to hospitals for excess
readmissions, while the Hospital VBP
Program redistributes reductions made
to the base operating DRG payment
amount, based on certain performance
measures. Because of the varying nature
of these two programs, at this time, we
do not believe it is appropriate for the
State to submit one exemption request
to determine whether certain Maryland
hospitals should be waived from the
requirements under both the Hospital
Readmissions Reduction Program and
the Hospital VBP Program. Because the
HAC Program, established under section
1886(p) of the Act, is not effective until
FY 2015, we believe it is premature to
consider the process by which the State
can request an exemption from the
requirements of this Program.
For the purposes of modeling the
impacts of our proposal, we modeled
under the assumption that Maryland
hospitals will not have Hospital
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adjustment factors applied to them.
Although the adjustment factors do not
apply to these hospitals under our
models, Maryland hospitals have excess
readmission ratios, consistent with the
definition of excess readmission ratio.
Any readmission to a Maryland hospital
from a subsection (d) hospital in another
State is still considered a readmission
for purposes of the original hospital in
another State. This is consistent with
the definition of readmissions in section
1886(q)(5)(E) of the Act, which includes
admissions to the same or another
‘‘applicable hospital.’’ As discussed
above, we interpret the definition of
‘‘applicable hospital’’ under section
1886(q)(5)(C) of the Act to include both
subsection (d) hospitals and hospitals
paid under section 1814(b)(3) of the Act
that would, absent the provisions of
section 1814(b)(3) of the Act, be paid
under subsection (d).
Although we are exempting Maryland
hospitals from the Hospital
Readmissions Reduction Program,
Maryland hospitals are still considered
an ‘‘applicable hospital.’’ As such, we
are finalizing, as proposed, that we are
calculating excess readmission ratios for
Maryland hospitals, consistent with the
definition of excess readmission ratio.
In addition, any readmission to a
Maryland hospital from a subsection (d)
hospital in another State is still
considered a readmission for purposes
of the original hospital in another State,
and we are finalizing, as proposed, to
include data from Maryland hospitals in
the calculation of the excess
readmission ratios for all applicable
hospitals.
c. Adjustment Factor (Both the Ratio
and Floor Adjustment Factor)
(§ 412.154(c))
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
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. Specifically, 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
* * *.’’ In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27960), we
proposed to codify the calculation of
this ratio at § 412.154(c)(1) of the
regulations. Section 1886(q)(3)(C) of the
Act specifies the floor adjustment factor,
which is set at 0.99 for FY 2013, 0.98

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for FY 2014, and 0.97 for FY 2015 and
subsequent fiscal years. We proposed to
codify the floor adjustment factor at
§ 412.154(c)(2) of the regulations.
For FY 2013, under proposed
§ 412.154(c), we proposed that an
applicable hospital would receive an
adjustment factor that is either the
greater of the ratio described in section
IV.A.3.d. of the preamble of the
proposed rule or a floor adjustment
factor of 0.99. We proposed that the
ratio would be rounded to the fourth
decimal place, consistent with the
calculation of other IPPS payment
adjustments such as the wage index,
DSH adjustment, and the IME
adjustment. In other words, a hospital
included in this program can have an
adjustment factor that is between 1.0
and 0.9900 for FY 2013. Consistent with
section 1886(q)(3) of the Act, under
proposed § 412.154(c), we proposed
that, for FY 2013, the hospital will
receive an adjustment factor under the
Hospital Readmissions Reduction
Program that is the greater of the ratio
or the floor of 0.99. Consistent with this
proposal, under the regulations we
proposed at 42 CFR 412.152, we
proposed to define the ‘‘floor
adjustment factor’’ as the value that the
readmissions adjustment factor cannot
be less than for a given fiscal year. As
noted above, the floor adjustment factor
is set at 0.99 for FY 2013, 0.98 for FY
2014, and 0.97 for FY 2015 and
subsequent fiscal years.
Comment: Commenters supported our
proposed calculation of the adjustment
factor as 1 minus the ratio of the
hospital’s aggregate payments for excess
readmissions for applicable conditions
to the hospital’s aggregate payments for
all discharges for applicable conditions.
Commenters also supported our
proposal to determine a hospital’s actual
payment adjustment factor as the higher
of its calculated factor or 0.99, resulting
in a maximum reduction of 1 percent of
base operating DRG payments for FY
2013.
Response: We thank the commenters
for their support of these proposals.
In this final rule, we are finalizing our
proposal to establish an applicable
hospital’s adjustment factor as the
higher of a ratio or the floor adjustment
factor of 0.99 for FY 2013. We are
finalizing, as proposed, that the ratio
will be rounded to the fourth decimal
place. We also are finalizing our
proposal to codify these policies in
regulation at § 412.154(c) without
modification.

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d. Aggregate Payments for Excess
Readmissions and Aggregate Payments
for All Discharges (§ 412.152)
As discussed earlier, section
1886(q)(3)(B) of the Act specifies the
ratio used to calculate the adjustment
factor under the Hospital Readmissions
Reduction Program. 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
* * *.’’ In the FY 2013 IPPS LTCH PPS
proposed rule (77 FR 27961), we set
forth proposals to define aggregate
payments for excess readmissions and
aggregate payments for all discharges, as
well as a methodology for calculating
the numerator of the ratio (aggregate
payments for excess readmissions) and
the denominator of the ratio (aggregate
payments for all discharges).
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 ‘‘for
a hospital for an applicable period, 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.’’ We proposed to include this
definition of ‘‘aggregate payments for
excess readmissions’’ under the
regulations we proposed at 42 CFR
412.152.
We did not receive any public
comments on the proposed definition of
‘‘aggregate payments for excess
readmissions’’ and are finalizing our
definition as proposed under the
regulations at 42 CFR 412.152 without
modification.
The ‘‘excess readmission ratio’’ is a
hospital-specific ratio calculated for
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.
The methodology for the calculation of
the excess readmission ratio was
finalized in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51673). ‘‘Aggregate

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payments for excess readmissions’’ is
the numerator of the ratio used to
calculate the adjustment factor under
the Hospital Readmissions Reduction
Program.
The term ‘‘aggregate payments for all
discharges’’ is defined at section
1886(q)(4)(B) of the Act as ‘‘for a
hospital for an applicable period, the
sum of the base operating DRG payment
amounts for all discharges for all
conditions from such hospital for such
applicable period.’’ ‘‘Aggregate
payments for all discharges’’ is the
denominator of the ratio used to
calculate the adjustment factor under
the Hospital Readmissions Reduction
Program. In the proposed rule, we
proposed to include this definition of
‘‘aggregate payments for all discharges’’
under the regulations we proposed at
§ 412.152.
We did not receive any public
comments on the proposed definition of
‘‘aggregate payments for all discharges’’
and are finalizing our definition as
proposed under the regulations at 42
CFR 412.152 without modification.
As discussed above, when calculating
the numerator (aggregate payments for
excess readmissions), we determined
the base operating DRG payments for
the applicable period. ‘‘Aggregate
payments for excess readmissions’’ (the
numerator) is defined 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.’’
We discussed above our proposed
definition of ‘‘base operating DRG
payment amount.’’ When determining
the base operating DRG payment
amount for an individual hospital for
such applicable period for such
condition, we proposed to use Medicare
inpatient claims from the MedPAR file
with discharge dates that are within the
same applicable period that was
finalized in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51671) to calculate
the excess readmission ratio. We
proposed to use MedPAR claims data as
our data source for determining
aggregate payments for excess
readmissions and aggregate payments
for all discharges, as this data source is
consistent with the claims data source
used in IPPS rulemaking to determine
IPPS rates. For FY 2013, we proposed to
use data from MedPAR claims with
discharge dates that are on or after July

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53387

1, 2008, and no later than June 30, 2011,
the applicable period finalized in the FY
2012 IPPS/LTCH PPS final rule. We
proposed to use the update of the
MedPAR file for each Federal fiscal
year, which is updated 6 months after
the end of each Federal fiscal year
within the applicable period, as our data
source (that is, the March updates of the
respective Federal fiscal year MedPAR
files for the final rules, as described in
greater detail below). These are the same
MedPAR files that are used in the
annual IPPS rulemaking for each
Federal fiscal year.
In the FY 2013 IPPS/LTCH PPS
proposed rule, for FY 2013, we
proposed to use the March 2009 update
of the FY 2008 MedPAR file to identify
claims within FY 2008 with discharges
dates that are on or after July 1, 2008,
the March 2010 update of the FY 2009
MedPAR file to identify claims within
FY 2009, the March 2011 update of the
FY 2010 MedPAR file to identify claims
within FY 2010, and the December 2011
update of the FY 2011 MedPAR file to
identify claims within FY 2011 with
discharge dates no later than June 30,
2011. For the FY 2013 IPPS/LTCH PPS
final rule, we proposed to use the March
2012 update of the FY 2011 MedPAR
file to identify claims within FY 2011,
as these would be the most recently
available FY 2011 claims data used for
FY 2013 rulemaking. These MedPAR
data files are used each year in other
areas of the IPPS, including calculating
the IPPS relative weights, budget
neutrality factors, outlier thresholds,
and the standardized amount.
Accordingly, we believe it is
appropriate to use these same data files
for the purpose of calculating the
readmission adjustment factors. The FY
2008 through FY 2011 MedPAR data
files can be purchased from CMS. Use
of these files will allow the public to
verify the readmission adjustment
factors. Interested individuals may order
these files through the Web site at:
http://www.cms.hhs.gov/
LimitedDataSets/ by clicking on the
MedPAR Limited Data Set (LDS)Hospital (National). This Web page
describes the files and provides
directions and further detailed
instructions for how to order the data
sets. 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 and
Medicaid Services, RDDC Account,
Accounting Division, P.O. Box 7520,
Baltimore, MD 21207–0520.

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Mailing address if using express mail:
Centers for Medicare and Medicaid
Services, OFM/Division of AccountingRDDC, Mailstop C#–07–11, 7500
Security Boulevard, Baltimore, MD
21244–1850.
In the proposed rule, we proposed to
determine aggregate payments for excess
readmissions and aggregate payments
for all discharges using data from
MedPAR claims with discharge dates
that are on or after July 1, 2008, and no
later than June 30, 2011, which is the
applicable period finalized in the FY
2012 IPPS/LTCH PPS final rule.
However, we noted in the proposed
rule, that for the purposes of modeling,
we used excess readmission ratios based
on an older performance period of July
1, 2007 to June 30, 2010. As we stated
in the proposed rule, for this final rule,
we are using both the excess
readmission ratios and MedPAR claims
data to calculate aggregate payments for
excess readmissions and aggregate
payments for all discharges based on the
applicable period finalized in the FY
2012 IPPS/LTCH PPS final rule (July 1,
2008 to June 30, 2011).
Comment: Commenters supported the
use of MedPAR claims data to
determine base operating DRG payment
amounts. However, several commenters
opposed CMS’ proposal to use 3 years
of data from the period July 1, 2008
through June 30, 2011, for calculating
hospital readmissions adjustment
factors for FY 2013. The commenters
stated that using older data did not
reflect current practices of a hospital,
and recommended that CMS use a 1year period from July 1, 2010 to June 30,
2011, to accurately reflect a hospital’s
performance on readmissions.
Response: We appreciate the
commenters’ support for using the
MedPAR data to determine base
operating DRG payment amounts to
calculate the readmission payment
adjustment factors.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27961), we
proposed to calculate the readmission
payment adjustment factor using the
same applicable period that is used to
calculate the excess readmission ratios,
as finalized in the FY 2012 IPPS/LTCH
PPS final rule. The statute references
‘‘applicable period’’ in both the
calculation of the readmissions
measures and the readmission payment
adjustment factor, such that it requires
that the same time period be used for
both the calculation of the measures and
the adjustment factor. As finalized in
the FY 2012 IPPS/LTCH PPS final rule,
we use 3 years of data to calculate the
readmissions measures (that is, for FY
2013, we are using discharge data from

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July 1, 2008 through June 30, 2011), and
therefore, we are using data from the
same time period to calculate the
aggregate payments for excess
readmissions and aggregate payments
for all discharges. Using 3 years of
claims data increases precision for the
calculation of excess readmission ratios
and the calculation of the readmissions
payment adjustment factors.
In this final rule, we are finalizing our
proposal to use MedPAR data from July
1, 2008 through June 30, 2011, and we
are finalizing our proposal to use the
March 2009 update of the FY 2008
MedPAR file to identify claims within
FY 2008 with discharges dates that are
on or after July 1, 2008, the March 2010
update of the FY 2009 MedPAR file to
identify claims within FY 2009, the
March 2011 update of the FY 2010
MedPAR file to identify claims within
FY 2010, and the March 2012 update of
the FY 2011 MedPAR file to identify
claims within FY 2011 with discharge
dates no later than June 30, 2011.
Comment: One commenter asked
CMS to ensure that outlier payments are
correctly excluded from the base
operating DRG amount using the
MedPAR data source.
Response: We have ensured that we
are correctly excluding outlier payments
in the calculation of the base operating
DRG amount using our MedPAR data
source.
In order to identify the admissions for
each condition for an individual
hospital for calculating the aggregate
payments for excess readmissions, we
proposed to identify each applicable
condition using the same ICD–9–CM
codes used to identify applicable
conditions to calculate the excess
readmission ratios. In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51669), in
our discussion of the methodology of
the readmissions measures, we stated
that we identify eligible hospitalizations
and readmissions of Medicare patients
discharged from an applicable hospital
having a principal diagnosis for the
measured condition in an applicable
period. 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 Web site at: http://
www.QualityNet.org> Hospital-Inpatient
> Readmission Measures
>methodologies.
In order to identify the applicable
conditions to calculate the aggregate
payments for excess readmissions, we

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proposed to identify the claim as an
applicable condition if the ICD–9–CM
code for that condition is listed as the
principal diagnosis on the claim,
consistent with the methodology to
identify conditions to calculate the
excess readmission ratio. Furthermore,
we proposed to only identify Medicare
FFS claims that meet the criteria (that is,
claims paid for under Part C, Medicare
Advantage, would not be included in
this calculation), consistent with the
methodology to calculate excess
readmission ratios based on
readmissions for Medicare FFS patients.
The tables below list the ICD–9–CM
codes we proposed to use to identify
each applicable condition to calculate
the aggregate payments for excess
readmissions under this proposal. These
ICD–9–CM codes will also be used to
identify the applicable conditions to
calculate the excess readmission ratios,
consistent with our policy finalized in
the FY 2012 IPPS/LTCH PPS final rule.

ICD–9–CM CODES TO IDENTIFY
PNEUMONIA CASES
ICD–9–
CM
Code
480.0 ....
480.1 ....
480.2 ....
480.3 ....
480.8 ....
480.9 ....
481 .......
482.0 ....
482.1 ....
482.2 ....
482.30 ..
482.31 ..
482.32 ..
482.39 ..
482.40 ..
482.41 ..
482.42 ..
482.49 ..
482.81 ..
482.82 ..
482.83 ..

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Description of code
Pneumonia due to adenovirus.
Pneumonia due to respiratory
syncytial virus.
Pneumonia due to parainfluenza
virus.
Pneumonia due to SARS-associated coronavirus.
Viral pneumonia: pneumonia due
to other virus not elsewhere
classified.
Viral pneumonia unspecified.
Pneumococcal pneumonia [streptococcus pneumoniae pneumonia].
Pneumonia due to klebsiella
pneumoniae.
Pneumonia due to pseudomonas.
Pneumonia due to hemophilus
influenzae [h. influenzae].
Pneumonia due to streptococcus
unspecified.
Pneumonia due to streptococcus
group a.
Pneumonia due to streptococcus
group b.
Pneumonia due to other streptococcus.
Pneumonia due to staphylococcus
unspecified.
Pneumonia due to staphylococcus
aureus.
Methicillin Resistant Pneumonia
due to Staphylococcus Aureus.
Other staphylococcus pneumonia.
Pneumonia due to anaerobes.
Pneumonia due to escherichia coli
[e.coli].
Pneumonia due to other gram-negative bacteria.

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ICD–9–CM CODES TO IDENTIFY
PNEUMONIA CASES—Continued
ICD–9–
CM
Code
482.84 ..
482.89 ..
482.9 ....
483.0 ....
483.1 ....
483.8 ....
485 .......
486 .......
487.0 ....
488.11 ..

Pneumonia due to legionnaires’
disease.
Pneumonia due to other specified
bacteria.
Bacterial pneumonia unspecified.
Pneumonia due to mycoplasma
pneumoniae.
Pneumonia due to chlamydia.
Pneumonia due to other specified
organism.
Bronchopneumonia organism unspecified.
Pneumonia organism unspecified.
Influenza with pneumonia.
Influenza due to identified novel
H1N1 influenza virus with pneumonia.

ICD–9–CM CODES TO IDENTIFY
HEART FAILURE CASES
ICD–9–
CM
Code
402.01 ..
402.11 ..
402.91 ..
404.01 ..

404.03 ..

404.11 ..

404.13 ..

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404.91 ..

404.93 ..

Code description
Hypertensive heart disease, malignant, with heart failure.
Hypertensive heart disease, benign, with heart failure.
Hypertensive heart disease, unspecified, with heart failure.
Hypertensive heart and chronic
kidney disease, malignant, with
heart failure and with chronic
kidney disease stage I through
stage IV, or unspecified.
Hypertensive heart and chronic
kidney disease, malignant, with
heart failure and with chronic
kidney disease stage V or end
stage renal disease.
Hypertensive heart and chronic
kidney disease, benign, with
heart failure and with chronic
kidney disease stage I through
stage IV, or unspecified.
Hypertensive heart and chronic
kidney disease, benign, with
heart failure and with chronic
kidney disease stage I through
stage IV, or unspecified failure
and chronic kidney disease
stage V or end stage renal disease.
Hypertensive heart and chronic
kidney disease, unspecified, with
heart failure and chronic kidney
disease stage V or end stage
renal disease heart failure and
with chronic kidney disease
stage I through stage IV, or unspecified.
Hypertensive heart and chronic
kidney disease, unspecified, with
heart failure and chronic kidney
disease stage V or end stage
renal disease.

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advice; (4) admissions for beneficiaries
without at least 30 days post-discharge
enrollment in Medicare Part A fee-forservice; and (5) multiple admissions
ICD–9–
CM
Code description
within 30 days of a prior index
Code
admission. Commenters argued that
these trims are made for the
428.xx .. Heart Failure.
readmissions measures, and
accordingly, they should also be made
when determining which admissions
ICD–9–CM CODES TO IDENTIFY
ACUTE MYOCARDIAL INFARCTION are included in the calculation of
aggregate payments for excess
CASES
readmissions. One commenter
recognized that not all of these trims can
ICD–9–
CM
Description of code
be identified in our proposed data
Code
source, MedPAR, so the commenter
requested that CMS estimate an
410.00 .. AMI (anterolateral wall)—episode
‘‘additional exclusions factor’’ for the
of care unspecified.
410.01 .. AMI (anterolateral wall)—initial epi- exclusions that we cannot account for
based on data from the Measures
sode of care.
410.10 .. AMI (other anterior wall)—episode Maintenance Technical Report, which
lists the percentage of admissions that
of care unspecified.
410.11 .. AMI (other anterior wall)—initial are removed by exclusion. The
episode of care.
commenter suggested that the
410.20 .. AMI (inferolateral wall)—episode of ‘‘additional exclusions factor’’ for each
care unspecified.
exclusion that cannot be accounted for
410.21 .. AMI (inferolateral wall)—initial epiin our proposed data source be removed
sode of care.
410.30 .. AMI (inferoposterior wall)—episode for every hospital. By not excluding
these admissions, the commenters
of care unspecified.
410.31 .. AMI (inferoposterior wall)—initial believed that CMS is erroneously
inflating the calculation of aggregate
episode of care.
410.40 .. AMI (other inferior wall)—episode payments for excess readmissions.
of care unspecified.
Response: In our proposal to calculate
410.41 .. AMI (other inferior wall)—initial epi- the excess payments for readmissions,
sode of care.
we proposed to identify admissions for
410.50 .. AMI (other lateral wall)—episode each condition for an individual
of care unspecified.
hospital for calculating the aggregate
410.51 .. AMI (other lateral wall)—initial epipayments for readmissions by using the
sode of care.
410.60 .. AMI (true posterior wall)—episode same ICD–9–CM codes used to identify
the applicable conditions to calculate
of care unspecified.
410.61 .. AMI (true posterior wall)—initial the excess readmissions ratios. We
episode of care.
proposed to identify the claim as an
410.70 .. AMI (subendocardial)—episode of applicable condition if the ICD–9–CM
care unspecified.
code for that condition is listed as the
410.71 .. AMI (subendocardial)—initial epi- principal diagnosis on the claim,
sode of care.
consistent with the calculation of the
410.80 .. AMI (other specified site)—episode
excess readmission ratios. Similarly, we
of care unspecified.
410.81 .. AMI (other specified site)—initial proposed to limit our admissions to
Medicare FFS claims, consistent with
episode of care.
410.90 .. AMI (unspecified site)—episode of the methodology to calculate the excess
readmission ratios.
care unspecified.
410.91 .. AMI (unspecified site)—initial epiAs finalized in the FY 2012 IPPS/
sode of care.
LTCH PPS final rule (76 FR 51669), the
readmissions conditions of AMI, HF,
Comment: Several commenters
and PN account for certain exclusions of
requested that, in the calculation of
admissions from being considered as an
aggregate payments for excess
index admission. The NQF-endorsed
readmissions, CMS remove admissions
readmission measures exclude from the
for the applicable conditions that were
group of index admission: (1)
not considered admissions for the
Hospitalizations for patients with an inpurposes of the calculation of the excess hospital death; (2) hospitalizations for
readmission ratio. Specifically,
patients without at least 30 days post
commenters requested that CMS remove discharge enrollment in Medicare FFS;
admissions for (1) Index admissions for
(3) hospitalizations for patients
beneficiaries who die in the hospital; (2) discharged against medical advice; (4)
admissions for beneficiaries who were
transfers; and (5) multiple admissions
transferred to another acute care
within 30 days of a prior index
hospital; (3) admissions for beneficiaries admission. In addition, for AMI, same
who were discharged against medical
day discharges are excluded as an index

ICD–9–CM CODES TO IDENTIFY
HEART FAILURE CASES—Continued

Description of code

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admission. Furthermore, we limit
admissions to include Medicare Part A
FFS enrollees who are 65 years or older.
We agree with the commenters that
the index admissions that are not
considered admissions for the purpose
of the readmissions measures, thus
excluded from the calculation of the
excess readmission ratio, should also
not be considered admissions for the
purposes of determining a hospital’s
aggregate payments for excess
readmissions. Accordingly, we are
modifying our methodology to identify
the admissions included in the
calculation of ‘‘aggregate payments for
excess readmissions.’’ For this final
rule, using our MedPAR data source, we
will identify admissions for the
purposes of calculating aggregate
payments for excess readmissions as
follows:
• We will exclude admissions that are
identified as an applicable condition
based on the ICD–9–CM code listed as
the primary diagnosis, but where the
patient had died, as identified by the
discharge status code on the MedPAR
claim.
• We will exclude admissions
identified as an applicable condition
based on the ICD–9–CM code listed as
the primary diagnosis, but where the
patient was transferred to another
applicable hospital, as identified by the
discharge status code on the MedPAR
claim.
• We will eliminate admissions
identified as an applicable condition
based on the ICD–9–CM code listed as
the primary diagnosis, but where the
patient was discharged against medical
advice as identified by the discharge
status code on the MedPAR claim.
• We will exclude admissions
identified as an applicable condition
based on the ICD–9–CM code listed as
the primary diagnosis for patients who
are under the age of 65, as identified on
the MedPAR claim.
• For conditions identified as AMI,
we will exclude claims that are same
day discharges, as identified by the
admission date and discharge date on
the MedPAR claim.
As the commenters acknowledged,
the MedPAR proposed data set that we
are using to calculate the aggregate
payments for excess readmissions
cannot identify all of the exclusions
included in the readmissions measures.
Specifically, at this time, we cannot
identify directly multiple admissions
within 30 days of a prior index
admission and patients without at least
30 days post discharge enrollment in
Medicare FFS in the MedPAR data.
However, the suggestion that we
develop an ‘‘additional exclusions

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factor’’ to apply to the calculation of the
readmissions payment adjustment factor
is not within the statutory authority
under section 1886(q) of the Act. We do
not believe we have the authority to
calculate an ‘‘additional exclusions
factor,’’ which would be in lieu of the
exclusion of admissions from the
calculation of the aggregate payments
for excess readmissions, and then
uniformly applied that amount to all
applicable hospitals. We believe that
with the exclusions to the data for the
scenarios discussed earlier, we will
have accounted for nearly all of the
admissions excluded in the calculation
of the excess readmission ratios. We
intend to work towards modifying our
systems to identify these claims for the
two additional scenarios, and we will
propose in future rulemaking to what
extent we can include those exclusions
from the calculation of the aggregate
payments for excess readmissions.
For FY 2013, we are finalizing a
methodology to calculate aggregate
payments for excess readmissions, using
MedPAR claims from July 1, 2008 to
June 30, 2011, to identify applicable
conditions based on same ICD–9CM
codes used to identify the conditions for
the readmissions measures and to apply
the exclusions for the types of
admissions discussed above, which are
currently identifiable on the claim in
MedPAR.
Comment: One commenter stated that
a claim that the Recovery Audit
Contractor (RAC) determines should
have been provided in the outpatient
setting and subsequently is denied as an
inpatient should not be included in the
calculation of a hospital’s readmissions
adjustment. The commenter sought
clarification on whether the Common
Working File (CWF) has been updated
for RAC denials. The commenter stated
that if a claim was subsequently denied
for inpatient status, it should be
removed from inpatient claims data set
used for calculation of a hospital’s
readmission adjustment.
Response: In the FY 2013 IPPS/LTCH
PPS proposed rule, we proposed to use
the MedPAR claims data as our data
source to calculate the excess payments
for readmissions and payments for all
discharges. Specifically, we proposed to
use MedPAR data for discharges from
July 1, 2008 through June 30, 2011, and
we proposed to use the March 2009
update of the FY 2008 MedPAR file to
identify claims within FY 2008 with
discharges dates that are on or after July
1, 2008, the March 2010 update of the
FY 2009 MedPAR file to identify claims
within FY 2009, the March 2011 update
of the FY 2010 MedPAR file to identify
claims within FY 2010, and the March

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2012 update of the FY 2011 MedPAR
file to identify claims within FY 2011.
We proposed to use these MedPAR
updates, as it is consistent with the
inpatient claims data set used in IPPS
ratesetting.
The RACs have up to 3 years to
review claims to determine whether a
claim was inappropriately billed as
inpatient when it should have been an
outpatient claim. If a claim is denied as
an inpatient stay, the claim is adjusted
through the standard Medicare claims
processing systems, going through the
CWF and MedPAR. However, given the
timing of the RAC audits and the
updates of the MedPAR used to
calculate the readmissions payment
adjustments, it is not certain that all
denied claims will be reflected in
MedPAR at the time of our analysis. To
the extent that those RAC
determinations are made within the
timeframe of the updates of MedPAR,
those denied inpatient claims will not
be included in the MedPAR or in the
calculation of the readmissions payment
adjustment. We believe that using the
updates of the MedPAR used in annual
IPPS rate setting allows for us to use a
complete inpatient claims data set and
allows for transparency for the public to
obtain this dataset to replicate our
calculations.
In this final rule, we are finalizing our
proposal to use MedPAR to calculate the
readmissions payment adjustment
factors without modification.
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
(d)(5)(A), (d)(5)(B), (d)(5)(F), and (d)(12)
of section 1886 refer to outlier
payments, IME payments, DSH
payments, and payments for lowvolume hospitals, respectively.
As discussed earlier in section
IV.A.3.b.(1) of the preamble of the
proposed rule, we proposed to define
‘‘base operating DRG payment amount’’
under the Hospital Readmissions
Reduction Program as the wage-adjusted
DRG operating payment plus any new
technology add-on payments. Thus, in
order to calculate the base operating
DRG payment amount for such
condition for such hospital, we
proposed to identify the base operating
DRG payment amount for such
conditions based on the payment

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amounts in the MedPAR files on the
claims identified to meet those
conditions based on their ICD–9–CM
code.
As discussed in section IV.A.3.b. of
the preamble of the proposed rule,
applicable hospitals in the Hospital
Readmissions Reduction Program
include SCHs and current MDHs (whose
status is set to expire at the end of FY
2012), as these hospitals meet the
definition of subsection (d) hospitals.
SCHs are paid in the interim (prior to
cost report settlement) on a claim-byclaim basis at the amount that is the
higher of the payment based on the
hospital-specific rate or the IPPS
Federal rate based on the standardized
amount. At cost report settlement, the
fiscal intermediary or MAC determines
whether the hospital would receive
higher IPPS payments in the aggregate
using the hospital-specific rate (on all
claims) or the Federal rate (on all
claims). MDHs are paid the sum of the
Federal payment amount plus 75
percent of the amount by which their
hospital-specific rate exceeds the
Federal payment amount. Although
MDH status is set to expire at the end
of FY 2012, because we are using
historical data to determine the base
operating DRG payments to calculate
adjustment factor, the payments
reflected on claims for current MDHs
may be based on the hospital-specific
rate. For SCHs and current MDHs, we
proposed to model their base operating
DRG payment amount as they would
have been paid under the Federal
standardized amount, rather than using
the information on the claim (which
may represent a payment either made
under the hospital-specific rate or the
Federal rate) so that their payments are
consistent with our proposed definition
of base operating DRG payment. As
such, the payment difference between
the payment made under the hospitalspecific rate and the payment made
under the Federal rate is not included
in the base operating DRG amount to
determine the readmission adjustment
factor; that is, it is neither included in
the numerator of the aggregate dollars
for excess readmissions nor in the
denominator of the aggregate dollars for
all discharges.
We did not receive public comments
on our proposal for current MDHs and
SCHs to model the ‘‘base operating DRG
payments’’ as they would have been
paid under the Federal standardized
amount, rather than using the
information on the claim in MedPAR
(which may represent a payment either
made under the hospital-specific rate or
the Federal rate) to calculate their
‘‘aggregate payments for excess

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readmissions, so that their payments are
consistent with our definition of base
operating DRG payment.
As discussed earlier, we proposed to
use data from the MedPAR files that
contain claims from the 3-year
applicable period of July 1, 2008, to
June 30, 2011, for FY 2013 to calculate
aggregate payments for excess
readmissions (the numerator of the
ratio). To calculate aggregate payments
for excess readmissions, we proposed to
calculate the base operating DRG
payment amounts for all the claims in
the 3-year applicable period that list
each applicable condition as the
principal diagnosis (as described above).
Once we have calculated the base
operating DRG payment amounts for all
the claims that list each condition as the
principal diagnosis, we proposed to sum
the base operating DRG payment
amounts by each condition, resulting in
three summed amounts, one amount for
each of the three applicable conditions.
We then proposed to multiply each
amount for each condition by their
respective excess readmission ratio
minus 1. The methodology for the
calculation of the excess readmission
ratio was finalized in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51673). We
proposed that the excess readmission
ratios for each condition used to
calculate the numerator of this ratio are
excess readmission ratios that had gone
through the proposed review and
correction process described in the FY
2013 IPPS/LTCH PPS proposed rule.
Each product in this computation
represents the payment for excess
readmissions for that condition. We
proposed to then sum the resulting
products, which represent a hospital’s
proposed ‘‘aggregate payments for
excess readmissions’’ (the numerator of
the ratio).
If a hospital has an excess
readmission ratio that is greater than 1
for a condition, that hospital has
performed, with respect to readmissions
for that applicable condition, worse
than the average hospital with similar
patients. As such, it will have aggregate
payments for excess readmissions. If a
hospital has an excess readmission ratio
that is less than (or equal) to one, that
hospital has performed better (or on
average), with respect to readmissions
for that applicable condition, than an
average hospital with similar patients.
As such, that hospital would not be
considered to have ‘‘aggregate
payments’’ for excess readmissions, and
its payments would not be reduced
under section 1886(q) of the Act. As
described in section 1886(q)(4)(C) of the
Act, and finalized in the FY 2012 IPPS/
LTCH PPS final rule, the excess

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53391

readmission ratio used cannot be less
than 1 because the hospital will not
have aggregate payments for excess
readmissions and will not be subject to
a readmission payment adjustment, as
the hospital will have performed equal
to or better than average. Because this
calculation is performed separately for
the three conditions, a hospital’s excess
readmission ratio must be less than or
equal to 1 on each measure to avoid
aggregate payments for excess
readmissions.
Section 1886(q)(4)(B) of the Act
defines ‘‘aggregate payments for all
discharges’’ (the denominator of the
ratio) as ‘‘for a hospital for an applicable
period, the sum of the base operating
DRG payment amounts for all
discharges for all conditions from such
hospital for such applicable period.’’ In
the FY 2013 IPPS/LTCH PPS proposed
rule, we proposed to use the same
MedPAR files to calculate the
denominator as we proposed to use to
calculate the numerator, for the 3-year
applicable period of July 1, 2008 to June
30, 2011, for FY 2013. We proposed to
calculate base operating DRG payments
in the same manner as we calculate base
operating DRG payments for the
numerator. We proposed to sum the
base operating DRG payment amounts
for all Medicare FFS claims for such
hospital during the 3-year applicable
period. We also proposed that we would
model base operating DRG payment
amount for SCHs and current MDHs as
they would have been paid under the
Federal standardized amount, rather
than using the information on the claim
(as described above).
We did not receive any public
comments regarding our proposed
calculation of ‘‘aggregate payments for
all discharges’’ and we are finalizing it
as proposed without modification.
We proposed that the ratio described
in section 1886(q)(3)(B) of the Act is 1
minus the ratio of the numerator and
denominator described above. In
addition, we proposed that the
readmission adjustment for an
applicable hospital is the higher of this
ratio under section 1886(q)(3)(B) of the
Act or the floor of 0.99 for FY 2013.
Consistent with this proposal, under the
regulations we proposed at 42 CFR
412.152, we proposed to define
‘‘readmissions adjustment factor’’ as
equal to the greater of: (i) 1 minus the
ratio of the aggregate payments for
excess readmissions to aggregate
payments for all discharges or (ii) the
floor adjustment factor.
For the proposed rule, for the purpose
of modeling the proposed aggregate
payments for excess readmissions and
the proposed readmissions adjustment

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factors, we used excess readmission
ratios for the applicable hospitals from
the 3-year period of July 1, 2007 to June
30, 2010, because the underlying data
from this period had already been
available to the public on the Hospital
Compare Web site (as of July 2011). The
data from the 3-year applicable period
for FY 2013 of July 1, 2008 to June 30,

2011, had not been through the review
and correct process required by section
1886(q)(6) of the Act (as discussed
below). As we stated in the proposed
rule, for this final rule, we are using
excess readmission ratios based on
discharges for the finalized applicable
period of July 1, 2008 to June 30, 2011,
to calculate the aggregate payments for

excess readmissions and, ultimately, to
calculate the readmission adjustment
factors. Applicable hospitals had the
opportunity to review and correct these
data before they were made public
under our proposal set forth below
regarding the reporting of hospitalspecific readmission rates, consistent
with section 1886(q)(6) of the Act.

Comment: Several commenters
supported our methodology to calculate
the readmissions payment adjustment
factor. Commenters supported
calculating the adjustment factor as 1
minus the ratio of the hospital’s
aggregate payments for excess
readmissions for applicable conditions
to the hospital’s aggregate payments for
all discharges for applicable conditions.
Commenters supported determining the
hospital’s aggregate payments for all
discharges for applicable conditions
based on our proposed definition of the
base operating DRG payment amount,
and commenters supported our proposal
to determine the hospital’s aggregate
payments for excess readmissions by
multiplying the hospital’s aggregate
payments for all discharges for an
applicable condition by 1, minus the
hospital’s excess readmissions ratio.
Some commenters stated that it is
unclear why the proposed numerator of
the readmission payment adjustment
factor, or the calculation of the excess
payments for readmissions, is based on
total admissions for each condition,
when the purpose of the Hospital
Readmissions Reduction Program is to
reduce only preventable readmissions.
Commenters stated that our proposed
methodology to calculate the
readmission payment adjustment factor

should amend the legislative language
in the formula for calculating the
readmissions adjustment factor. The
formula as proposed stipulated that the
amount of aggregate payments due to
excess readmission is calculated by
multiplying the number of admissions
for the condition times the average base
DRG payment for the condition and the
‘‘excess readmission ratio.’’ The excess
readmissions ratio is defined as the ratio
of the number of actual readmissions as
compared to the number of expected
readmissions for the clinical condition.
However, commenters contended that
the formula should specify that the
calculation should be based on the
number of expected readmissions in
each condition, not the total number of
admissions. They urged that we replace
the words ‘‘number of admissions’’ with
‘‘number of expected readmissions’’ so
that the formula for the aggregate
payments for excess readmissions
calculates the number of expected
readmissions for each condition and not
the total number of admissions.
One commenter believed that the
proposed formula produces penalties
that are higher than Medicare payments
for excess readmissions, although the
full impact is mitigated because of the
proposed maximum penalty for FY 2013
of 1 percent of base operating DRG

payments. The commenter believed that
our proposed methodology to calculate
the readmissions payment adjustment
factors conforms to the statute.
However, the commenter suggested
long-term changes to the formula to be
more proportionate to the cost of
readmissions, such as examining the
issue of shrinking excess readmission
computations towards the national
mean and appropriate changes to
account for excess payments for
readmissions.
Commenters believe that our
proposed methodology to calculate the
readmissions payment adjustment
overestimates the excess payments for
readmissions resulting in an excessive
readmission payment adjustment and is
not consistent with Congressional
intent. Commenters believed our
proposed readmissions payment
adjustments are excessive as evident by
the Congressional Budget Office (CBO)
score for the provision at $100 million
while our estimates of the Hospital
Readmissions Reduction Program
published in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28172) was
approximately $300 million.
Response: We believe that the statute
is prescriptive with respect to the
calculation of ‘‘aggregate payments for
excess readmissions’’ where the statute

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specifies that the ‘‘aggregate payments
for excess readmissions’’ is the sum for
each condition of the product of ‘‘the
operating DRG payment amount for
such hospital for such applicable period
for such condition’’ and ‘‘the number of
admissions for such condition’’ and
‘‘the excess readmission ratio’’ minus
one. We believe that section
1886(q)(4)(A) of the Act requires us to
include all admissions for a condition in
the calculation of ‘‘aggregate payments
for excess readmissions.’’
Our estimate of $300 million in
savings associated with the Hospital
Readmissions Reduction Program
published in the FY 2013 IPPS/LTCH
PPS proposed rule was based on
different data that were not available to
the CBO at the time of the CBO estimate.
Furthermore, we potentially used
different assumptions in our
methodology to estimate the savings of
this Hospital Readmissions Reduction
Program as compared to CBO. Our
proposed readmission payment
adjustment factors were calculated
using excess readmission ratios based
on hospitals’ readmissions performance
from July 1, 2007 to June 30, 2010,
which was not available at the time of
the CBO estimate. In addition, our
calculation for ‘‘aggregate payments for
excess readmissions’’ and ‘‘aggregate
payments for all discharges’’ were based
on MedPAR claims data from July 1,
2007 to June 30, 2010, which was also
not available at the time of the CBO
estimate. Finally, we applied the
proposed readmission payment
adjustment factor to our estimated FY
2013 IPPS base operating DRG payments
to determine the savings associated with
the Hospital Readmissions Reduction
Program and our FY 2013 IPPS base
operating DRG payments were likely
based on different assumptions than the
CBO’s estimate published in 2010.
Therefore, it is difficult to assess the
precise differences between our estimate
of this provision and the CBO’s
estimate. Nonetheless, we believe that
we are implementing the provision as
required by law.
Comment: Several commenters
requested that CMS make additional
adjustments to the calculation of the
readmissions payment adjustment factor
to account for differences in the
readmissions payment adjustment
factors for hospitals that treat a high
proportion of patients of low
socioeconomic status. Commenters
made a number of suggestions as to how
to modify the readmissions payment
adjustment factors. One commenter
suggested that CMS and Congress could
apply a uniform percentage reduction to
all hospitals’ expected readmission

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rates, which the commenter believed
would be a budget neutral change. The
commenter urged CMS and Congress to
intervene somehow to correct an
inequity affecting the nation’s most
vulnerable hospitals and Medicare
beneficiaries.
Another commenter suggested that
CMS offer a one-time opportunity to
waive the payment reduction for safety
net and other hospitals that serve a
higher-than-average proportion of
patients of low socioeconomic status
and are found to be at risk of
experiencing a payment reduction. In
return, the commenter suggested that
these hospitals would be required to
submit a comprehensive and aggressive
preventable readmission rate
improvement plan that centers on
collaboratively engaging with the
patients, their families, consumer
organizations and community supports,
to address the various factors that are
causing preventable readmissions in
their local community. The commenter
stated that this approach should have a
time limit (for example, 6 months) on
how long the hospital would have for
submitting and implementing the plan
and another well-defined (for example 6
months) timeframe for monitoring and
reporting results to CMS.
Some commenters requested that
CMS postpone implementation of the
Hospital Readmissions Reduction
Program until it has made adjustments
to the measures to account for
socioeconomic status. One commenter
requested postponing the application of
the readmissions payment reduction to
safety net hospitals that serve a
vulnerable population while these
hospitals develop programs to reduce
readmissions.
Commenters suggested that CMS
make an adjustment to the readmission
payment adjustment factors to account
for a hospital’s proportion of dualeligible patients. Commenters
contended that dual-eligible status is a
better predictor of readmission rates
because it reflects Medicare
beneficiaries, which is what the
readmissions measures are based on.
In addition, commenters suggested
that CMS make a hospital-level
adjustment based on DSH. Commenters
asserted that because the number of
hospitals that will receive the maximum
penalty in the first year jumps sharply
between the sixth and seventh deciles
for hospital’s DSH Patient Percentage,
the commenters suggested that any
hospital-level adjustment based on DSH
be applied to the top four deciles.
Response: We thank the commenters
for their suggestions on modifying the
readmission payment adjustment to

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53393

account for differences in the
socioeconomic status of patients treated
by hospitals. As stated earlier, we
continue to believe that we need to
examine the relationship of patient
socioeconomic status and readmissions
as it applies to the readmissions
measures. As we have stated earlier, the
readmissions measures, as endorsed by
the NQF, do not include risk
adjustments for socioeconomic status.
Currently, the NQF does not support
risk adjustments based on
socioeconomic status, as the NQF
believes it can create different standards
of quality for hospitals that treat a
higher proportion of patients with low
socioeconomic status. Risk adjusting the
readmissions measures for
socioeconomic status can obscure
differences in the quality of health care.
Similarly, applying an adjustment to the
readmissions payment adjustment
factors can also create different
standards of quality for hospitals based
on the socioeconomic status of the
patients treated. Applying an
adjustment to the readmissions payment
adjustment factors at this point to
account for socioeconomic status rather
than determining whether a risk
adjustment for socioeconomic status
would be appropriate for the
readmissions measures could appear as
circumventing the NQF’s position on
the application of a risk adjustment for
socioeconomic status on the
readmissions measures. We note that, to
the extent that dual eligible patients or
patients of low socioeconomic status
have higher readmission rates because
they are sicker or have more
comorbidities, we already account for
comorbidities in the risk adjustment for
the excess readmission ratios. Since, we
believe that all hospitals should be
working towards the goal of reducing
readmissions, on an ongoing basis,
regardless of their patient population,
we believe that we do not need to
postpone the implementation of the
readmission payment adjustments in
order to provide additional time to
hospitals to implement readmission
reduction programs. While we are not
incorporating any special adjustments
for SES in the readmissions reduction
program at this time, we remain
concerned about the impact of this
provision on hospitals that serve a high
proportion of low income patients. We
will continue to monitor the issue of the
relationship of a patient’s
socioeconomic status and a hospital’s
readmission performance, and how it
affects payments to hospitals.
Comment: One commenter
recommended that CMS apply the

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readmissions adjustment in a manner
that norms the calculation of the
adjustment factor on the risk-adjusted
readmission rate that is achieved by at
least 25 percent of hospitals rather than
on the average readmission rate.
Response: The excess readmission
ratio, finalized in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51673),
measures a hospital’s performance on
readmissions for a specified condition
relative to the national average. The
methodology to calculate the excess
readmission ratio is endorsed by the
NQF, as required at section
1886(q)(5)(C) of the Act. We did not
propose any changes to the
methodology to calculate the excess
readmission ratio. Accordingly, we are
not modifying the methodology to
calculate the excess readmission ratio to
compare a hospital’s performance on
readmissions relative to the 25th
percentile of national performance, as
opposed to the average.
Comment: One commenter questioned
the statistical difference in the excess
readmission ratio for a hospital that has
an excess readmission ratio slightly
above 1 and thus, subject to the
payment penalty, versus a hospital that
has an excess readmission ratio slightly
below 1, and not subject to the penalty.
The commenter asked that CMS
consider the equitability of this policy
approach and recommended the
remunerative framework account for the
confidence intervals surrounding the
estimated Risk Standardized
Readmission Rates and Ratios in
determining future penalties for excess
readmissions. The commenters believed
that omitting a control for statistical
significance exposes a large number of
hospitals to financial penalties based on
random variation. They recommended
that CMS account for the confidence
intervals surrounding the estimated Risk
Standardized Readmission Rates and
Ratios in determining future penalties
for excess readmissions.
Response: We thank the commenter
for raising the issue of statistical
reliability of the excess readmission
ratio and for recommending the use of
confidence intervals in determining
whether or not to use a hospital’s excess
readmission ratio in the calculation of a
hospital’s readmission payment
adjustment factor. We finalized our
methodology of the calculation of the
excess readmission ratio in the FY 2012
IPPS/LTCH PPS final rule, which results
in the use of the point estimate as a
hospital’s excess readmission ratio.
We will consider the role, if any, of
confidence intervals in determining a
hospital’s excess readmission ratio. We
recognize that because the excess

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readmission ratio is a statistical
measure, there may be some degree of
variation. However, there are other
Medicare programs, not limited to the
Hospital Readmissions Reduction
Program, that use statistical measures as
part of their program, so any
consideration to confidence intervals
made with respect to the Hospital
Readmissions Reduction Program may
have implications for other programs.
We will evaluate this concern and
address it in a future rulemaking, if
needed.
Comment: Several commenters
suggested that CMS take into
consideration a hospital’s improvement
on readmissions in the calculation of
the readmissions payment adjustment
factor. One commenter noted that
because measurement is based on 3
years’ worth of data, it will be difficult
for low performing hospitals to move
out of being penalized, and the Hospital
Readmissions Reduction Program does
not reward for improvement as the
Hospital VBP Program does, but only
measures achievement. The commenter
noted that this could result in low
performing hospitals being unable to
ever get out of the penalty phase.
Response: We appreciate the concerns
raised by the commenters. The Hospital
Readmissions Reduction Program is
structured to apply a payment reduction
to hospitals with excess readmissions,
as measured by having worse
performance on readmissions for certain
conditions compared to the average
hospital. The readmission payment
adjustment under section 1886(q)(1) of
the Act does not allow for us to provide
a reward for quality improvement,
which is allowed under section 1886(p)
of the Act for the Hospital VBP Program.
We believe that hospitals do have the
opportunity to not be subject to a
reduction to payments due to excess
readmissions if they can perform better
than the average hospital in the future.
We update the data annually with the
most recently available 3 years of data,
and we use 3 years of data in order to
have sufficient data to reliably measure
a hospital’s performance.
Comment: Commenters sought
clarification on how the readmissions
payment adjustment factors would be
applied to a hospital’s base operating
DRG payment amount. Commenters
asked whether the readmissions
payment adjustment factors would be
applied on a per claim basis or at cost
report settlement. Commenters asked
how the IME, DSH, and outlier
payments would not be affected by the
readmissions payment adjustment factor
when the IME, DSH and outlier
payments are adjustments currently

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determined from the base operating
DRG payment amount, and the
readmissions payment adjustment factor
reduces the base operating DRG
payment amount. Commenters asked if
there would be changes to the cost
report and to the PS&R to account for
the implementation of the payment
adjustment for excess readmissions. In
addition, commenters noted that the
effective date of the Hospital
Readmissions Reduction Program is
October 1, 2012, which straddles the
cost reporting period for many
hospitals, and asked for clarification on
how that would be accounted for with
respect to the Medicare hospital cost
report.
Commenters also stated that the
statutory intent of the readmissions
payment adjustment factor is that the
factor should not be applied to
payments for all admissions, but rather
to payments for initial admissions with
at least one readmission. Commenters
requested clarification whether the
readmissions payment adjustment
factors will apply to only Medicare
discharges for AMI, PN or HF; or
whether the readmissions payment
adjustment factor will apply to all
discharges. The commenters believed
that the readmissions payment
adjustment factor should only be
applicable to the specific populations
included in the program rather than the
entire Medicare population.
Response: We are clarifying that, for
FY 2013, a hospital’s payments will be
reduced by the amount of the product
of the readmissions payment adjustment
factor and the base operating DRG
payment amount (as defined as the
wage-adjusted DRG payment amount),
on a per-claim basis for all Medicare
FFS discharges occurring on or after
October 1, 2012. In other words, the
payment amount the hospital would
otherwise receive in FY 2013 in absence
of the Hospital Readmission Reduction
Program will be reduced by the an
amount for excess readmissions
(determined as the product of the
readmissions payment adjustment factor
and the base operating DRG payment
amount). Section 1886(q)(1) of the Act
specifies that ‘‘the Secretary shall make
payments * * * in an amount equal to
the product of (A) the base operating
DRG payment amount for the discharge;
and (B) the adjustment factor * * *.’’
Therefore, it requires us to apply the
readmissions payment adjustment factor
to all discharges, not just discharges for
initial admissions with a readmission or
admissions for the applicable
conditions. We note that the
readmissions payment adjustment factor
is inversely proportional to the

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
aggregate payments for all discharges (in
the formula determining the excess
readmissions ratio) so the adjustment
factor appropriately reflects the relation
between payments for excess
readmissions and aggregate payments
for all discharges.
In addition, we intend to modify the
Medicare hospital cost report and the
corresponding cost reporting
instructions, effective for FY 2013, to
account for the reductions to payments
under the Hospital Readmission
Reduction Program required by section
1886(q) of the Act (that is, the payment
adjustment for excess readmissions).
The current calculation of the additional
payments for IME, DSH, outliers, and
low-volume hospitals will remain
unchanged consistent with the statutory
requirement that payments for outliers,
IME, DSH, and low-volume adjustments
are not affected by the adjustments
made under the Hospital Readmissions
Reduction Program.
Currently, the cost report includes the
base operating DRG payment for the cost
reporting period and we use that line to
determine add-on payments including
payments for indirect medical education
and disproportionate share hospital
payments. This line will remain
unchanged and will continue to be used
to determine IPPS add-on payments,
consistent with our policy that add-on
payments for outliers, IME, DSH, and
low-volume adjustments are not affected
by the adjustments made under the
Hospital Readmissions Reduction
Program. We intend to modify the
Medicare hospital cost report to include
lines for base operating DRG payments
by Federal fiscal year. For example, we
will have a line that represents base
operating DRG payments prior to
October 1, 2012 and a line that
represents base operating DRG
payments after October 1, 2012. In
addition, we intend to modify the
Medicare hospital cost report with lines
for the readmissions payment
adjustment factor by Federal fiscal year
and lines with the readmissions
payment amount by Federal fiscal year

that would be deducted from a
hospital’s Medicare payments. The
readmissions payment amounts would
be determined by applying the
readmission payment adjustment factor
to the base operating DRG payment
amount by Federal fiscal year. We
intend to modify the cost reporting
instructions to account for these new
calculations. In addition, for FY 2013,
we will ensure that the cost reporting
instructions account for the
readmissions adjustment to only be
made to base operating DRG payments
for discharges on or after October 1,
2012. We intend to modify the PS&R to
account for these changes as well.
Comment: One commenter sought
clarification as to whether the Hospital
Readmissions Reduction Program is
intended to replace the existing
readmission review at Internet Only
Manual (IOM) 100–04, Chapter 3,
Section 40.2.5, or if both policies will
exist together.
Response: The Hospital Readmissions
Reduction Program is not intended to
replace the existing readmission review
under IOM 100–04, Chapter 3, Section
40.2.5. IOM 100–04, Chapter 3, Section
40.2.5 of the Inpatient Claims
Processing Manual provides guidance
on appropriate billing practices for
repeat admissions. In accordance with
the manual, ‘‘a patient who requires
follow-up care or elective surgery may
be discharged and readmitted or may be
placed on a leave of absence. Hospitals
may place a patient on a leave of
absence when readmission is expected
* * * and providers may not use the
leave of absence billing procedure when
the second admission is unexpected.’’ If
a hospital uses the leave of absence
billing code, two inpatient stay claims
for the original admission and the repeat
admissions are bundled as one inpatient
claim with one DRG payment. These
claims can be reviewed by a fiscal
intermediary or MAC and referred to the
QIOs. This is a separate billing
procedure from the Hospital
Readmissions Reduction Program and
will continue to exist.

During the FY 2012 IPPS rulemaking
cycle, we received public comments
expressing concern that hospitals that
treat a larger proportion of patients of
lower socioeconomic circumstances
may have higher readmission rates and
could be unfairly penalized under the
Hospital Readmissions Reduction
Program. The table below shows, based
on the excess readmission ratios and the
proposed methodology to calculate the
readmissions adjustment factor
discussed in the proposed rule, the
estimated distribution of the
readmission adjustment factors among
hospitals ranked by their DSH patient
percentage (DPP). The DPP is used as a
proxy for low-income patients and is the
sum of the hospital’s Medicare fraction
and Medicaid fraction. The Medicare
fraction is computed by dividing the
number of a hospital’s inpatient days
that are furnished to patients who were
entitled to both Medicare Part A 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. 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. The DPP is used to determine a
hospital’s Medicare DSH payment
adjustment. Thus, hospitals with higher
percentages of Medicare patients
entitled to SSI and higher percentages of
Medicaid patients have higher DPPs. In
the table, the hospitals are ranked by
their estimated DPP and categorized
into deciles. The table shows the
number of hospitals within each decile
that are subject to no proposed
readmission payment adjustment, the
¥1 percent floor readmission payment
adjustment, and a readmission payment
adjustment that is less than the ¥1
percent floor. We invited public
comment on this analysis.

DISTRIBUTION OF HOSPITALS READMISSION ADJUSTMENT FACTOR BY DSH PATIENT PERCENTAGE (DPP)

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Lowest DPP .....................................................................................
Second .............................................................................................
Third .................................................................................................
Fourth ...............................................................................................
Fifth ..................................................................................................
Sixth .................................................................................................
Seventh ............................................................................................
Eighth ...............................................................................................
Ninth .................................................................................................

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Payment
adjustment of
less than
¥1 percent

Number of
hospitals

Decile

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339
339
339
339
339
339
339
339
339

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156
164
168
170
182
171
187
182
179

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No
readmission
adjustment
factor

¥1 percent
floor
adjustment
38
57
44
48
42
43
44
43
58

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145
118
127
121
115
125
108
114
102

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DISTRIBUTION OF HOSPITALS READMISSION ADJUSTMENT FACTOR BY DSH PATIENT PERCENTAGE (DPP)—Continued
Payment
adjustment of
less than
¥1 percent

Number of
hospitals

Decile

No
readmission
adjustment
factor

¥1 percent
floor
adjustment

Highest DPP ....................................................................................

342

185

61

96

Total ..........................................................................................

3,393

1,744

478

1,171

In addition, we examined the
estimated distribution of the proposed
readmissions adjustment factor based on
the excess readmission ratios in this
proposed rule (determined using the
2007–2010 data discussed above). The

table below shows the number and
percentage of hospitals ranked by the
percent reduction received under the
Hospital Readmissions Reduction
Program. The table shows that about 71
percent of hospitals would receive

either no adjustment or a readmission
adjustment factor that would reduce
their base operating DRG payments by
less than 0.5 percent.

DISTRIBUTION OF READMISSION ADJUSTMENT FACTORS
Number of
hospitals

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Percent reduction

Percent of
hospitals

No Adjustment .................................................................................................................................................
Up to ¥.09 Percent .........................................................................................................................................
¥0.1 Percent to ¥0.19 Percent .....................................................................................................................
¥0.20 Percent to ¥0.29 Percent ...................................................................................................................
¥0.30 Percent to ¥0.39 Percent ...................................................................................................................
¥0.40 Percent to ¥0.49 Percent ...................................................................................................................
¥0.50 Percent to ¥0.59 Percent ...................................................................................................................
¥0.60 Percent to ¥0.69 Percent ...................................................................................................................
¥0.70 Percent to ¥0.79 Percent ...................................................................................................................
¥0.80 Percent to ¥0.89 Percent ...................................................................................................................
¥0.90 Percent to ¥0.99 Percent ...................................................................................................................
¥1.0 Percent ...................................................................................................................................................

1,171
347
280
228
196
180
129
118
110
77
76
481

34.5
10.2
8.3
6.7
5.8
5.3
3.8
3.5
3.2
2.3
2.2
14.2

Total ..........................................................................................................................................................

3,393

100.0

Comment: Several commenters
addressed the Medicare DSH analysis
that was presented in the proposed rule.
Several commenters could not replicate
the DSH analysis and produce the same
results presented in the proposed rule.
Some commenters presented different
results where they found that high DSH
hospitals are, in fact, subject to higher
readmission penalties. In addition,
several commenters contended that DSH
was not a good proxy to determine
socioeconomic status. Commenters
indicated that it is not uncommon for
hospitals in areas with relatively
affluent Medicare beneficiaries to
qualify for DSH reimbursement due to
the high volume of labor and delivery
services provided to non-resident aliens.
One commenter asked why CMS did not
present a comparison table of the
impacts to the DSH hospitals
(approximately 1,882 hospitals) instead
of the entire hospital population.
Commenters indicated that hospitals
with high disproportionate share patient
percentages have higher excess
readmission ratios. Commenters
presented other analyses showing that
hospitals with high DSH have higher
readmission penalties. Commenters

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provided analyses where the results
indicate that high DSH hospitals
(defined as hospitals in the top 25th
percentile for the DSH percentage) and
hospitals located in large urban areas
(defined as those Metropolitan
Statistical Areas with more than one
million population) are much more
likely to receive a readmission penalty
under the CMS proposal. The
commenter found that high DSH
hospitals located in large urban areas
are 1.9954 times more likely to be
penalized for heart attack than other
hospitals, 2.5849 times more likely for
heart failure, and 2.1915 times more
likely for pneumonia.
Response: In the proposed rule, we
used the proposed readmissions
payment adjustment factors and the
DSH disproportionate patient
percentage (DPP) reported in the FY
2012 IPPS/LTCH PPS final rule Impact
file, as it was the most recently available
data at the time of our analysis. We note
that, for hospitals that have a missing
DPP, we assigned them a DPP of zero.
We believe that may have been one
potential source for differences in the
results.

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We understand that there are several
ways to measure socioeconomic status
of a hospital’s patient population and as
we continue to monitor the issue of the
relationship of a patient’s
socioeconomic status and a hospital’s
readmission performance, and how it
affects payments to hospitals, we also
can explore different measures of
socioeconomic status, such as dualeligible status. To the extent differences
in readmission rates among hospitals
treating a significant number of patients
with low socioeconomic status are
determined to inappropriately affect
their readmission payment adjustment,
we can work with NQF to explore
options for improving the readmissions
measures to promote high quality care,
as appropriate.
We understand that there have been
different conclusions drawn from
review of these data, and we will
continue to work with MedPAC and
other stakeholders to complete a more
sophisticated analysis.
Comment: One commenter suggested
that CMS provide a level of statistical
significance for our DSH analysis, as
well as correlation factors between
hospitals’ actual DSH patient percentage

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(as opposed their national decile) and
the likeliness of receiving a
readmissions adjustment, the magnitude
of a readmissions adjustment, and the
likeliness of reaching the maximum
readmissions penalty.
Response: At this time, we are unable
to produce a rigorous analysis showing
the relationship of a hospital’s actual
DSH patient percentage and their
likeliness of receiving a readmissions
adjustment, the magnitude of a
readmissions adjustment, and the
likeliness of receiving the maximum
adjustment of ¥1.0 percent. However,
we will research these issues in the
upcoming year and, if significant, we
will present our findings in future
rulemaking.
e. Applicable Hospitals
An ‘‘applicable hospital,’’ is defined
at section 1886(q)(5)(C) of the Act as (1)
‘‘a subsection (d) hospital or (2) a
hospital that is paid under section
1814(b)(3).’’ Specifically, hospitals
subject to the Hospital Readmissions
Reduction Program are hospitals paid
under the IPPS and hospitals paid under
the authority of section 1814(b)(3) of the
Act. We are interpreting this reference
to section 1814(b)(3) of the Act to mean
those Maryland hospitals that are paid
under section 1814(b)(3) of the Act and
that, absent the ‘‘waiver’’ specified by
section 1814(b)(3) of the Act, would
have been paid under the IPPS. 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 fifty
States or the District of Columbia.’’ The
term subsection (d) hospital does not
include hospitals located in the
Territories or hospitals located in Puerto
Rico. Section 1886(d)(9)(A) of the Act
separately defines a ‘‘subsection (d)
Puerto Rico hospital’’ as a hospital that
is located in Puerto Rico and that
‘‘would be a subsection (d) hospital
* * * if it were located in one of the 50
States.’’ Therefore, Puerto Rico hospitals
are not considered applicable hospitals
under the Hospital Readmissions
Reduction Program. An Indian Health
Services hospital enrolled as a Medicare
provider meets the definition of a
subsection (d) hospital and, therefore, is
considered an applicable hospital under
the Hospital Readmissions Reduction
Program, even if it is not paid under the
IPPS. In addition, hospitals that are
SCHs and current MDHs, although they
may be paid under a hospital-specific
rate instead of under the Federal rate
under the IPPS, are subsection (d)
hospitals and, therefore, are included in
the definition of an applicable hospital
under the Hospital Readmissions
Reduction Program.

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A subsection (d) hospital as defined
in section 1886(d)(1)(B) of the Act does
not include hospitals and hospital units
excluded from the IPPS, such as LTCHs,
cancer hospitals, children’s hospitals,
IRFs, and IPFs, and, therefore, these
hospitals are not considered ‘‘applicable
hospitals.’’ CAHs are not ‘‘applicable
hospitals’’ because they do not meet the
definition of a ‘‘subsection (d) hospital,’’
as they are separately defined under
section 1886(mm) of the Act and are
paid under a reasonable cost
methodology under section 1814(l) of
the Act. Therefore, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27966),
consistent with the statute, we proposed
to define ‘‘applicable hospital’’ under
the regulations at 42 CFR 412.152 to
include both (1) subsection (d)
hospitals, that is, hospitals paid under
the IPPS and (2) hospitals in Maryland
that are paid under section 1814(b)(3) of
the Act and that, absent the ‘‘waiver’’
specified by section 1814(b)(3) of the
Act, would have been paid under the
IPPS.
The term ‘‘applicable hospital’’ is also
referenced in the definition of
readmission in section 1886(q)(5)(E) of
the Act, which 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.’’ In the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51666), we
finalized the definition of readmission
as ‘‘occurring when a patient is
discharged from the applicable hospital
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.’’ Furthermore, we
finalized the time period specified for
these readmission measures as 30 days.
With our proposal to define an
applicable hospital as a subsection (d)
hospital or certain Maryland hospitals
described above, we also proposed to
refine the definition of readmission to
only include admissions and
readmissions occurring from an
applicable hospital (that is, a subsection
(d) hospital or certain Maryland
hospitals) to the same or another
applicable hospital (again, a subsection
(d) hospital or certain Maryland
hospitals) (proposed § 412.152).
Accordingly, excess readmission ratios
calculated for the purpose of the
Hospital Readmissions Reduction
Program would include only admissions
and readmissions to ‘‘applicable
hospitals.’’

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We note that because the Hospital
Readmissions Reduction Program only
includes admissions and readmissions
to ‘‘applicable hospitals’’ to calculate
the excess readmission ratios used
under section 1886(q) of the Act, these
excess readmission ratios will differ
from the readmission rates reported on
Hospital Compare for the purpose of the
Hospital IQR Program. The excess
readmission ratios for the purpose of the
Hospital IQR Program were determined
based on admissions and readmissions
to all hospitals, not just hospitals
specified in sections 1886(d) and
1814(b)(3) of the Act. Therefore, as
discussed above, the excess readmission
ratios used in the proposed rule used a
subset of the claims used to calculate
the readmission rates reported on
Hospital Compare for the purpose of the
Hospital IQR Program and are limited to
admissions and readmissions to
‘‘applicable hospitals’’ and are based on
the period of June 30, 2007 to July 1,
2010. In the proposed rule, we used
these excess readmission ratios, as they
were based on the most recent data
available and would allow the public to
replicate our methodology to
understand how the readmission
adjustment factor is calculated. We
believe that the differences between
these proposed excess readmission
ratios and those excess readmission
ratios currently published on Hospital
Compare under the Hospital IQR
Program are minimal, and it was helpful
for hospitals to see the impact of our
proposed methodology to calculate the
readmission adjustment using excess
readmission ratios calculated under our
methodology finalized in the FY 2012
IPPS/LTCH PPS final rule. As we stated
in the proposed rule, for this final rule,
we are using excess readmission ratios
based on the applicable period of June
30, 2008 to July 1, 2011, as finalized in
the FY 2012 IPPS/LTCH PPS final rule,
and hospitals have had the opportunity
to review and correct their data related
to their excess readmission ratios prior
to the publication of those excess
readmission ratios.
We specifically invited public
comment on our readmissions proposal,
including our proposed definition of
base operating DRG payment, our
proposed methodology to calculate the
readmission adjustment factor, the
minimum number of cases, and our
proposed definition of applicable
hospital.
Comment: Commenters urged CMS to
align the Hospital Readmissions
Reduction Program with the clinical
quality measure requirements of the
Hospital IQR Program.

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Response: As discussed above, the
excess readmission ratios for the
purpose of the Hospital IQR Program
were determined based on admissions
and readmissions to all hospitals, not
just hospitals specified in sections
1886(d) and 1814(b)(3) of the Act.
Therefore, the excess readmission ratios
used in the final rule use a subset of the
claims used to calculate the readmission
rates reported on Hospital Compare for
the purpose of the Hospital IQR Program
and would be limited to admissions and
readmissions to ‘‘applicable hospitals.’’
We have aligned the methodology for
readmission measures in the Hospital
IQR Program and the Hospital
Readmissions Reduction Program as
much as is allowed by statutory
requirements.
Comment: Some commenters
supported our proposal to include
subsection (d) hospitals and Maryland
hospitals in our definition of
‘‘applicable hospital’’ for the Hospital
Readmissions Reduction Program. One
commenter asked CMS to waive the
requirements of the Hospital
Readmissions Reduction Program for
hospitals that participate in an
accountable care organization (ACO)
under the Medicare Shared Savings
Program or the Pioneer ACO Model. The
commenter argued that hospitals that
participate in ACOs are already subject
to incentives to reduce hospital
readmissions, are already measured for
their performance on all conditions for
readmissions; therefore, to include these
hospitals in the Hospital Readmissions
Reduction Program is redundant. The
commenter argued that CMS has the
authority to waive Title XVIII
requirements, including the
requirements of the Hospital
Readmission Reduction Program, for
these hospitals under the waivers
provided under sections 1115A(d)(1)
and 1899(f) of the Act.
Response: We appreciate the
suggestion submitted by the
commenters to exempt hospitals from
the Hospital Readmissions Reduction
Program if they already participate in an
ACO under the Medicare Shared
Savings Program or the Pioneer ACO
Model. We agree that ACOs are
encouraged to improve quality of care
and reduce the rate of growth in
expenditures. We also agree that
avoidable readmissions is an area in
which we believe an ACO’s
coordination of care and accountability
can have a significant impact in
improving patient care. To that end, we
finalized an all-condition readmission
quality measure in the Medicare Shared
Savings Program Final Rule. This
measure is also used to assess quality of

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care furnished by ACOs participating in
the Pioneer ACO Model. However, the
waivers under sections 3021 and 3022
of the Affordable Care Act permit us to
waive provisions of Title XVIII only to
the extent that such a waiver may be
‘‘necessary’’ in order to carry out those
sections. In this case, because the
incentives of the Hospital Readmissions
Reduction Program and the Medicare
ACO initiatives are aligned, we see no
need to waive the requirements of the
Hospital Readmissions Reduction
Program in order to carry out either the
Medicare Shared Savings Program or to
test the Pioneer ACO Model.
Indeed, because the incentives of the
two programs are aligned, we believe
that hospitals successful in reducing
avoidable readmissions could be
important allies for ACOs who share
similar goals. Because it is unlikely that
the beneficiaries assigned to ACO will
use only a single inpatient facility,
ACOs will need to work effectively with
all local hospitals that their Medicare
FFS beneficiaries choose to use.
Finally, as we gain experience with
the Shared Savings Program and other
new payment incentives in the
Medicare FFS program, we will monitor
their interactions with the Hospital
Readmissions Reduction Program and
continue our efforts to align measures
and incentives to achieve the best
outcomes for our patients and the
program.
Comment: One commenter requested
clarification regarding how hospitals
participating in the Rural Hospital
Community Demonstration Program
will be impacted by the Hospital
Readmissions Reduction Program.
Response: As described, the
applicable hospital is defined as a
subsection (d) hospital or certain
Maryland hospitals. Hospitals
participating in the Rural Hospital
Community Demonstration Program are
subsection (d) hospitals and, thus, will
be included in the Hospital
Readmissions Reduction Program.
Accordingly, we have calculated excess
readmission ratios and readmissions
payment adjustment factor for hospitals
in the Rural Hospital Community
Demonstration Program. If hospitals in
the Rural Hospital Community
Demonstration Program are subject to a
readmissions payment reduction, the
reduction will be applied to their base
operating DRG amount as if they were
paid under the IPPS. At cost report
settlement, the readmissions payment
amount subtracted from the hospital’s
base operating DRG amount will be
reduced from the payments received
under the demonstration.

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We are finalizing as proposed our
definition of applicable hospitals under
the regulations at 42 CFR 412.152 to
include both (1) subsection (d)
hospitals, that is, hospitals paid under
the IPPS and (2) hospitals in Maryland
that are paid under section 1814(b)(3) of
the Act and that, absent the ‘‘waiver’’
specified by section 1814(b)(3) of the
Act, would have been paid under the
IPPS. Furthermore, we note that the
Hospital Readmissions Reduction
Program only includes admissions and
readmissions to ‘‘applicable hospitals’’
to calculate the excess readmission
ratios used under section 1886(q) of the
Act.
4. Limitations on Review (§ 412.154(e))
Section 1886(q)(7) of the Act provides
that there will be no administrative or
judicial review under section 1869 of
the Act, under section 1878 of the Act,
or otherwise for any of the following:
• The determination of base operating
DRG payment amounts.
• The methodology for determining
the adjustment factor, including the
excess readmissions ratio, aggregate
payments for excess readmissions, and
aggregate payments for all discharges,
and applicable periods and applicable
conditions.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR27966), we
proposed to include under proposed
§ 412.154(e) that the provisions listed
above will not be subject to
administrative or judicial review,
consistent with section 1886(q)(7) of the
Act. We note that section 1886(q)(6) of
the Act requires that the Secretary
‘‘make information available to the
public regarding readmissions rates of
each subsection (d) hospital under the
[Hospital Readmissions Reduction
Program]’’ and also 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.’’ Our
proposal for reporting hospital-specific
information, including a hospital’s
opportunity to review and submit
corrections, consistent with section
1886(q)(7) of the Act, is discussed
below.
We did not receive any public
comments on our proposals regarding
the Limitations for Review; therefore,
we are finalizing our proposals without
modification, including the regulatory
text at § 412.154(e).

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5. Reporting Hospital-Specific
Information, Including Opportunity To
Review and Submit Corrections
(§ 412.154(f))
Section 1886(q)(6)(A) of the Act
requires the Secretary to ‘‘make
information available to the public
regarding readmissions rates of each
subsection (d) hospital under the
[Hospital Readmissions Reduction
Program]’’. Section 1886(q)(6)(B) of the
Act also 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.’’ In addition, section
1886(q)(6)(C) of the Act requires the
Secretary to post the hospital-specific
readmission information for each
subsection (d) hospital on the Hospital
Compare Web site in an easily
understood format.
As we stated in the proposed rule, for
purposes of the Hospital Readmissions
Reduction Program for FY 2013, we will
calculate excess readmission ratios for
each of the three conditions, AMI, HF,
and PN, using the previously finalized
3-year applicable period for the FY 2013
payment determination that spans from
July 1, 2008 through June 30, 2011 (76
FR 51671), data sources, and the
minimum number of discharges
previously finalized in the FY 2012
IPPS/LTCH PPS final rule for each
applicable hospital (76 FR 51671
through 51672). We stated that we
intended to make these excess
readmission ratios available to the
public, consistent with the requirements
of section 1886(q)(6)(B) of the Act, as
part of the FY 2013 rulemaking process,
in addition to posting this information
on the Hospital Compare Web site in a
subsequent release.
In the FY 2012 IPPS/LTCH PPS final
rule, we indicated that we would
provide hospitals an opportunity to
review and submit corrections using a
process similar to what is currently used
for posting results on Hospital Compare.
We currently provide hospitals with the
data elements necessary to verify the
accuracy of their readmission rates for
the Hospital IQR Program prior to
posting their rates on Hospital Compare.
Because we believe it is important to
provide hospitals with relevant
information available to hospitals for
assessing payment impacts for purposes
of the Hospital Readmissions Reduction
Program, as we stated in the proposed
rule, we plan to make the excess
readmission ratios used for the Hospital
Readmissions Reduction Program
adjustment factor calculation available
during the rulemaking cycle. As a result,

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the timeline and details of this process
must accommodate the rulemaking
timeline in addition to posting on
Hospital Compare. In the proposed rule,
we set forth the following details
regarding the process for hospitals to
review and submit corrections to their
excess readmission ratios prior to
making this information available to the
public in rulemaking and on Hospital
Compare.
For FY 2013, we proposed to deliver
confidential reports and accompanying
confidential discharge-level information
to applicable hospitals as defined in
section IV.A.2. of this preamble, which
contain their excess readmission ratios
for the three applicable conditions by
June 20, 2012. These reports will be
delivered in hospitals’ secure
QualityNet accounts. The information in
the confidential reports and
accompanying confidential dischargelevel information would be calculated
using the claims information we had
available approximately 90 days after
the last discharge date in the applicable
period, which is when we would create
the data extract for the calculations (we
discuss this practice in more detail
later).
The discharge-level information
accompanying the excess readmission
ratios would include the risk-factors for
the discharges that factor into the
calculation of the excess readmission
ratio, as well as information about the
readmissions associated with these
discharges (such as dates, provider
numbers, and diagnosis upon
readmission). Our intent in providing
this information is twofold: (1) to
facilitate hospitals’ verification of the
excess readmission ratio calculations we
provide during the review and
correction period based upon the
information CMS had available at the
time our data extract was created; and
(2) to facilitate hospitals’ quality
improvement efforts with respect to
readmissions.
We proposed to provide hospitals
with a period of 30 days to review and
submit corrections for their excess
readmission ratios for the Hospital
Readmissions Reduction Program. This
30-day period would begin the day
hospitals’ confidential reports and
accompanying discharge-level
information are posted to their
QualityNet accounts. Based on previous
experience with public reporting of
measures under the Hospital IQR
program, including the 30-day risk
standardized readmission rates, we
believe this 30-day period would allow
enough time for hospitals to review
their data and notify CMS of calculation
errors, and for CMS to incorporate

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53399

appropriate corrections to the excess
readmission ratio calculations prior to
the publication of the final rule, at
which time the excess readmission
ratios would be made available to the
public in a table to be cited in the final
rule and available via the Internet on the
CMS Web site. During the review and
correction period, hospitals should
notify CMS of suspected errors in their
excess readmission ratio calculations
using the technical assistance contact
information provided in their
confidential reports. In order to meet the
timelines for this program, we delivered
these confidential reports and
discharge-level data files to hospitals for
the review and correction period on
June 20, 2012.
The review and correction process we
proposed for the excess readmission
ratios above would not allow hospitals
to submit additional corrections related
to the underlying claims data we used
to calculate the ratios, or allow hospitals
to add new claims to the data extract we
used to calculate the ratios. This is
because it is necessary to take a static
‘‘snapshot’’ of the claims in order to
perform the calculations. For purposes
of this program, we would calculate the
excess readmission ratios using a static
snapshot (data extract) taken at the
conclusion of the 90 day period
following the last date of discharge used
in the applicable period. We recognize
that under our current timely claims
filing policy, hospitals have up to 1 year
from the date of discharge to submit a
claim to CMS. However, in using claims
data to calculate measures for this
program, we proposed to create data
extracts using claims in CMS’ Common
Working File (CWF) 90 days after the
last discharge date in the applicable
period which we will use for the
calculations. For example, if the last
discharge date in the applicable period
for a measure is June 30, 2011, we
would create the data extract on
September 30, 2011 (90 days later), and
use that data to calculate the ratios for
that applicable period. Hospitals would
then receive the excess readmission
ratio calculations in their confidential
reports and accompanying dischargelevel information and they would have
an opportunity to review and submit
corrections for the calculations. As we
stated above, hospitals would not be
able to submit corrections to the
underlying data that were extracted on
September 30, 2011, and would also not
be able to add claims to the data set.
Therefore, we would consider hospitals’
claims data to be complete for purposes
of calculating the excess readmission
ratios for the Hospital Readmissions

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Reduction Program at the conclusion of
the 90-day period following the last date
of discharge used in the applicable
period.
We considered a number of factors in
determining that a 90-day ‘‘run-out’’
period is appropriate for purposes of
calculating claims based measures.
First, we seek to provide timely quality
data to hospitals for the purpose of
quality improvement and to the public
for the purpose of transparency. Next,
we seek to make payment adjustments
to hospitals based on their performance
on measures as close in time to the
performance period as possible. Finally,
with respect to claims-based measures,
we seek to have as complete a data set
as possible, recognizing that hospitals
have up to one year from the date of
discharge to submit a claim under CMS’
timely claims filing policy.
After the data extract is created, it
takes several months to incorporate
other data needed for the calculations
(particularly in the case of risk-adjusted,
and/or episode-based measures). We
then need to generate and check the
calculations, as well as program,
populate, and deliver the confidential
reports and accompanying data to be
delivered to hospitals. We also are
aware that hospitals would prefer to
receive the calculations to be used for
the Hospital Readmissions Reduction
Program as soon as possible. Because
several months lead time is necessary
after acquiring the data to generate these
claims-based calculations, if we were to
delay our data extraction point to 12
months after the last date of the last
discharge in the applicable period, we
would not be able to deliver the
calculations to hospitals sooner than 18
to 24 months after the last discharge
date. We believe this would create an
unacceptably long delay both for
hospitals and for CMS to deliver timely
calculations to hospitals for quality
improvement and transparency, and
ultimately timely readmission
adjustment factors for purposes of this
program. Therefore, we proposed to
extract the data needed to calculate the
excess readmission ratios for this
program 90 days after the last date of
discharge for the applicable period so
that we can balance the need to provide
timely program information to hospitals
with the need to calculate the claimsbased measures using as complete a data
set as possible.
During the 30-day review and
correction process for the excess
readmission ratios, if a subsection (d)
hospital suspects that such
discrepancies exist in the CMS
application of the measures’
methodology, it should notify CMS

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during the review and correction period
using the technical support contacts
provided in the hospital’s confidential
report. We would investigate the
validity of each submitted correction
and notify hospitals of the results. If we
confirm that we made an error in
creating the data extract or in
calculating the excess readmission
ratios, we would strive to correct the
calculations, issue new confidential
reports to subsection (d) hospitals, and
then publicly report the corrected
excess readmission ratios through the
rulemaking process, and subsequently
on Hospital Compare. However, if the
errors take more time than anticipated
to correct, not allowing for publication
of the corrected ratios in the final rule,
we would notify hospitals in the final
rule that corrected ratios will be made
available after the final rule through
delivery of confidential reports followed
by a second 30-day review and
correction period, subsequent
publication, and posting on Hospital
Compare. In addition, we proposed that
any corrections to a hospital’s excess
readmission ratios would then be used
to recalculate a hospital’s ratio under
section 1886(q)(4)(B) of the Act in order
to determine the hospital’s adjustment
factor in accordance with section
1886(q)(3) of the Act.
We believe that this proposed process
would fulfill the statutory requirements
at section 1886(q)(6)(A), section
1886(q)(6)(B), and section 1886(q)(6)(C)
of the Act. We further believe that the
proposed process would allow hospitals
to review and correct their excess
readmission ratios. We note that, under
the proposed process, hospitals would
retain the ability to submit new claims
and corrections to submitted claims for
payment purposes in line with CMS’
timely claims filing policies. However,
we emphasize that the administrative
claims data used to calculate the excess
readmission ratios reflect the state of the
claims at the time of extraction from
CMS’ Common Working File. Under the
proposed process, a hospital’s
opportunity to submit corrections to the
calculation of the excess readmission
ratios ends at the conclusion of the
review and correction period. We
welcomed public comments on the
proposed review and corrections
process for the Hospital Readmissions
Reduction Program.
Comment: One commenter disagreed
with the use of the Common Working
File (CWF) to calculate the readmission
measures, stating that it does not
contain final-action claims for all of the
discharges eligible to be used to
calculate excess readmission ratios.

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Response: The excess readmission
ratios are calculated using only the final
action claims (that is, we do not include
canceled/edited claims) from the CWF
available as of September 30, which are
published in the Inpatient Standard
Analytic File (SAF). Calculations
include claims processed by CMS as of
the following dates: June 26, 2009 for
July 1, 2007 through June 30, 2008
claims; June 25, 2010 for July 1, 2008
through June 30, 2009 claims; June 24,
2011 for July 1, 2009 through June 30,
2010 claims; and September 30, 2011 for
July l, 2010 through June 30, 2011
claims. Claims and corrections
processed after these dates are not
reflected in the calculations. Thus data
between 2008 and 2010 include more
than 6 months of run-out period, and
2011 data contain a 3-month run-out
period to allow as many corrected and
final-action claims to be incorporated.
These are the most recent final action
data that can be used to meet the
timeline of the program need. We
encourage hospitals to submit claim
corrections as early as possible and to
ensure the quality of the data they
submitted for reimbursements. If CMS
waits for final-action claims for all
eligible discharges to be included in the
data, then the excess readmission ratios
will be based on old data, which will
limit its usefulness for hospitals to
review and improve their care delivery
processes. Therefore, we have
encouraged hospitals to submit claim
corrections as early as possible and to
ensure the quality of the data they
submitted for reimbursements. We will
continue to research and seek public
comments on alternative data sources
that might provide measure results that
are as accurate and are more timely than
the CWF. The CWF will be used for the
calculation of excess readmission ratios
for the Hospital Readmissions
Reduction Program as finalized in the
FY 2012 IPPS/LTCH final rule (76 FR
51671 through 51672).
Comment: One commenter
appreciated the release of additional
hospital specific data and ‘‘excess
readmission rates’’ data prior to the
implementation of the program, as well
as the readmission information and
patient’s risk factors.
Response: We thank the commenter
for the recognition and we are
committed to foster transparency,
provide accurate data to hospitals for
quality improvement, and, ultimately,
timely calculate readmission adjustment
factors for base operating DRG
payments.
Comment: One commenter thanked
CMS for the 30-day review and
correction period while one commenter

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requested the review and correction
period be extended to 60 days.
Response: We appreciate the
commenter’s support of the 30-day
review period. We note that, in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51672 through 51673), we adopt the
same preview and correction process
and timeframe used for subsection (d)
hospitals for the rates calculated for the
Hospital Readmissions Reduction
Program. That is, we provide hospitals
with an opportunity to preview their
readmission rates for 30 days prior to
posting on the Hospital Compare webs
site. This process meets the statutory
requirement in section 1886(q)(6)(B) of
the Act which requires the Secretary to
ensure that a subsection (d) hospital has
the opportunity to review and submit
corrections before the information to be
made public with respect to the hospital
* * * prior to such information being
made public.
Aside from the statutory
requirements, we also considered
hospital experience with the measure
and data production timeline in
proposing the 30-day preview period. In
terms of hospital experience with the
measures, while the Hospital
Readmissions Reduction Program is
new, subsection (d) hospitals are
already familiar with the three 30-day
risk-standardized readmission measures
that the Program uses to determine
payment adjustment. In particular, these
three measures were first publicly
reported by the former Reporting of
Hospital Quality Data for Annual
Payment Update (RHQDAPU) program
(currently known as the Hospital IQR
Program), back in 2009. The measure
results have been reported annually
since then and have recently been
updated in July 2012. To help hospitals
understand the methodology for these
measures and the calculation and
interpretation of measure results, we
have made publicly available the latest
version of the methodology reports, a
Frequently-Asked-Question list, a mock
hospital-specific report, and a mock
discharge-level data file for these
measures on the QualityNet Web site.
The measures methodology for the
Hospital Readmissions Reduction
Program is the same as that for the
Hospital IQR Program. Because
hospitals are working with measures in
which they have prior experience from
the Hospital IQR Program, we believe
that a 30-day preview period is
sufficient for hospitals to review and
correct their excess readmission ratios.
In terms of data production timeline,
due to the complexity of these measures
and the need for bootstrapping in
measure calculations, a significant

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amount of programming resources is
needed. It took several months to
complete the production and extensive
quality assurance procedures for the
results for more than 3,500 hospitals. As
a result, we will not be able to begin the
preview period earlier than late June.
Also, we will not be able to extend the
preview period to more than 30 days.
This is because if hospitals find data
problems that we determine to be
attributable to our calculation or
programming errors, we will need
adequate time between mid-July and the
end of September to: (1) Recalculate the
excess readmission ratios; (2) regenerate
and redisseminate corrected results to
hospitals in time for payment
adjustment in early October (the
beginning of the subsequent fiscal year);
and (3) publicly report the excess
readmission ratios on the Hospital
Compare Web site in mid-October to
meet the statutory reporting
requirements under section 1886(q)(6)
of the Act. Based on the above reasons,
we cannot change the review and
correction timeframe to 60 days.
Comment: One commenter requested
that, for self-validation purposes, CMS
provide each hospital with a
downloadable database containing all of
the claims data used to calculate the
hospital’s readmission rates. One
commenter recommended that CMS
provide hospitals with additional claim
information documenting the first
physician/licensed independent
practitioner visit post index discharge
and prior to readmit (days from
discharge to first visit). The commenter
stated that the first follow-up provider
information is critical to decreasing
readmissions. Another commenter was
concerned that limited access to the
claims data will impair hospitals’ ability
to self-validate our results.
Response: We considered several
factors in deciding the amount of
information that CMS provides to
hospitals for the review and correction
process. These factors are:
Confidentiality of information, our
resources, and feasibility for hospital
providers to process the data.
For the purposes of the Hospital
Readmissions Reduction Program data,
we have decided to provide as much of
the claims-based information that is
pertinent to the calculation of the excess
readmission ratio so that hospitals can
verify the accuracy of these calculations
and engage in outreach and
coordination with readmitting hospitals.
Providing the entire raw claims history
for index admissions and for subsequent
services after discharge would provide
more information than would be
necessary in hospitals’ effort to review

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53401

their excess readmission ratios. To
protect sensitive patient information,
and to avoid burden and confusion to
hospitals, we are careful not to include
data elements that are not relevant for
the review and correction process.
Furthermore, providing all subsection
(d) and Maryland hospitals with all the
claims data will require a large amount
of resources, infrastructure changes and
exert significant financial burden on
these hospitals and on taxpayers. We
have already provided supplemental
discharge-level data to hospital
providers to review qualified individual
readmissions, including primary
diagnosis at index and readmission
stays, where the patient was readmitted,
dates of index and readmission stays,
and individual risk factors, and
instructions for replicating their excess
readmission ratios.
Additionally, we have also set up a
Help Desk for hospitals to inquire about
their results. This Help Desk has access
to all the claims data used for the
calculation of the hospitals’ excess
readmission ratios, and is highly
experienced in assisting hospitals with
the results of the 30-day riskstandardized readmission measures.
Therefore, we believe that the proposed
review correction policies are adequate.
We are working to identify new
methods to provide hospitals with
accurate and timely data to improve
their care delivery processes to reduce
readmission rates. We encourage
hospitals and other healthcare providers
to provide us with recommendations for
this effort.
After consideration of the public
comments received, for the review and
correction process, we are finalizing the
policies of providing applicable
hospitals with: (1) a period of 30 days
to review and submit corrections for
their excess readmission ratios for the
Hospital Readmissions Reduction
Program; and (2) confidential reports
and accompanying confidential
discharge-level information (this
includes the excess readmission ratios,
the risk-factors for the discharges that
factor into the calculation of the excess
readmission ratio, as well as
information about the readmissions
associated with these discharges).
B. Sole Community Hospitals (SCHs)
(§ 412.92)
1. Background
Section 1886(d)(5)(D)(iii) of the Act
defines a sole community hospital
(SCH) generally as a hospital that is
located more than 35 road miles from
another hospital or that, by reason of
factors such as isolated location,

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weather conditions, travel conditions, or
absence of other like hospitals (as
determined by the Secretary), is the sole
source of inpatient hospital services
reasonably available to Medicare
beneficiaries. The regulations at 42 CFR
412.92 set forth the criteria that a
hospital must meet to be classified as a
SCH. For more information on SCHs, we
refer readers to the FY 2009 IPPS/LTCH
PPS final rule (74 FR 43894 through
463897).
2. Reporting Requirement and
Clarification for Duration of
Classification for Hospitals Incorrectly
Classified as Sole Community Hospitals
(§ 412.92(b)(3)(iv))
The regulations at § 412.92(b)(2) and
(b)(3) address the effective dates of a
classification as an SCH and the
duration of this classification. Currently,
a hospital’s SCH classification status
remains in effect without the need for
reapproval unless there is a change in
the circumstances under which the
classification was approved. Section
412.92(b)(3) requires a hospital to notify
the fiscal intermediary or Medicare
administrative contractor (MAC) within
30 days of a change that could affect its
classification as an SCH. Specifically,
the regulations require an SCH to notify
its fiscal intermediary or MAC if any of
the following changes specified in
§§ 412.92(b)(3)(ii)(A) through
(b)(3)(ii)(E) occur:
• The opening of a new hospital in its
service area.
• The opening of a new road between
itself and a like provider within 35
miles.
• An increase in the number of beds
to more than 50, if the hospital qualifies
as an SCH under § 412.92(a)(1)(ii).
• Its geographic classification
changes.
• Any changes to the driving
conditions that result in a decrease in
the amount of travel time between itself
and a like provider if the hospital
qualifies as an SCH under § 412.92(a)(3).
As discussed in the FY 2007 IPPS
final rule (71 FR 48060), in the context
of CMS becoming aware of several
hospitals that had been paid based on
SCH status, even after the original
circumstances of the classification
changed, CMS determined that an SCH’s
classification status would generally
end 30 days after CMS notifies the SCH
that it no longer meets the requirements
to be classified as an SCH. However, if
a hospital does not report when any one
of the changes listed above occurs, CMS
will cancel the hospital’s SCH
classification effective with the date that
the hospital no longer met the criteria
for SCH classification, subject to the

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reopening rules at 42 CFR 405.1885
(§ 412.92(b)(3)(i)).
For any change that is not listed
under § § 412.92(b)(3)(ii)(A) through
(b)(3)(ii)(E) that affects an SCH’s
classification status, CMS requires a
hospital to report that change to the
fiscal intermediary or MAC if it
‘‘becomes aware’’ of the change. If a
hospital does not report a change, other
than those listed under
§§ 412.92(b)(3)(ii)(A) through
(b)(3)(ii)(E), and it becomes known to
CMS that the hospital had knowledge of
that change, CMS will cancel the
hospital’s SCH classification effective
with the date the hospital became aware
of the event. Specifically,
§ 412.92(b)(3)(iii) states that ‘‘a sole
community hospital must report to the
fiscal intermediary if it becomes aware
of any change that would affect its
classification as a sole community
hospital beyond the events listed in
paragraph (b)(3)(ii) of this section
within 30 days of the event. If CMS
determines that a sole community
hospital has failed to comply with this
requirement, CMS will cancel the
hospital’s classification as a sole
community hospital effective with the
date the hospital became aware of the
event that resulted in the sole
community hospital no longer meeting
the criteria for such classification,
consistent with the provisions of
§ 405.1885 of this chapter.’’ (Emphasis
added.)
The existing language at
§ 412.92(b)(3)(iii) only refers to a
hospital becoming aware of a ‘‘change,’’
because it deals specifically with a
situation where a hospital was
appropriately classified as an SCH
because it had previously met the
requirements to become an SCH. We
believe that this requirement was not
intended to preclude situations where a
hospital was incorrectly classified as an
SCH. However, the regulations did not
explicitly address the situation where a
hospital never met the requirements to
be classified as an SCH, but was
incorrectly classified as an SCH.
Therefore, we believe it would be
prudent to explicitly address this
situation in the regulations.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27968 and 27969),
we proposed to add a new paragraph
(b)(3)(iv) to § 412.92 to clarify our
current authority that if CMS
determines that the hospital was
incorrectly classified as an SCH, SCH
status could be cancelled retroactively,
consistent with the provisions at
§ 405.1885. We proposed that any factor
or information, not only a change or an
event that could have affected a

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hospital’s initial SCH classification
must be reported by the SCH to its fiscal
intermediary or MAC.
Our proposed regulation stated
explicitly our current authority that if a
determination is subsequently made
that, in fact, a hospital did not ever
qualify as an SCH, the withdrawal of
SCH status could be made retroactively
to revoke payments associated with the
incorrect SCH classification for the
entire time period, consistent with the
reopening rules at § 405.1885.
Comment: Many commenters
contended that a hospital should not be
accountable for any errors it made
inadvertently and is unaware of or for
any errors made by CMS or the
Medicare contractor. Commenters
requested confirmation and clarification
regarding a number of issues, such as:
(1) The circumstances under which the
reporting obligation is triggered; (2) the
timeframe involved in making a report
to CMS; and (3) what factor or
information must be reported.
Response: We realize that a hospital
could have been incorrectly classified as
an SCH based on an inadvertent error by
the hospital, CMS, or the contractor.
However, an error is not adequate
justification to maintain a hospital’s
SCH status and to provide higher
payments under the Medicare program.
However, in light of the public
comments, we are modifying our
proposed change in this final rule so
that, effective October 1, 2012, if a
hospital reports any factor or
information that could have affected its
initial classification as an SCH, and
CMS determines that, based on the
additional information, the hospital
should not have qualified for SCH
status, we will only revoke SCH status
prospectively, effective 30 days from
CMS’ date of determination. We note
that this reopening limitation does not
apply to situations where there was
fraud involved. If a hospital knowingly
misled CMS or deliberately submitted
incorrect information in its initial
classification, different procedures
would apply. These procedures would
include recouping incorrect payments
associated with the fraudulently
awarded SCH classification.
This policy, as revised in this final
rule, will allow a hospital that reports
to CMS any factor or information that
could have affected its initial
classification as an SCH to have its SCH
classification removed prospectively
only. A hospital is only required to
report to CMS any available information
that would have affected its initial
classification as an SCH under the
regulations that were effective at that
time. We are not requiring hospitals to

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continuously monitor subsequent year
data from other hospitals such as
changes in patient origin data. However,
information that could have affected its
classification as an SCH at the time of
its initial SCH determination is required
to be reported to CMS.
For example, if hospital A is classified
as an SCH and the distance between
itself and hospital B is such that it may
have been classified as an SCH in error,
hospital A would be required to report
this to CMS. If the hospital reports this
issue to CMS, and CMS determines in
fact that the distance between hospital
A and hospital B would have precluded
hospital A from being classified as an
SCH using the qualification criteria that
were in place at the time of its initial
classification, we would remove the
hospital’s SCH status effective 30 days
from the date that CMS determines that
Hospital A should not have qualified for
SCH status. However, if hospital A does
not report to CMS that hospital B’s
proximity to hospital A may have been
overlooked in its initial classification as
an SCH, and CMS finds that hospital A
should never have qualified as an SCH,
CMS has the discretion to recoup the
overpayments associated with erroneous
SCH status, in accordance with cost
reporting reopening rules at § 405.1885,
that is, for cost reporting periods that
are within the 3-year reopening period.
We believe this distinction between the
effective date for hospitals that do and
do not notify CMS of the possible error
will encourage self-reporting of possible
errors. In cases where hospitals fail to
report, CMS would have the discretion
to reopen back to the earliest date
possible in accordance with § 405.1885.
Such discretion would be available to
rectify situations where hospitals were
paid as SCHs even though they never
initially met the classification standards
for such status, and never reported the
error to CMS.
Accordingly, if a hospital suspects
that it should not have qualified as an
SCH at the time of its initial
classification and the hospitals comes to
CMS and requests that CMS determine
whether it meets all of the requirements
for SCH status, if CMS confirms that
suspicion and the hospital in fact
should never have been approved as an
SCH, CMS will remove SCH status
effective 30 days from CMS’ date of
determination.
We note that this policy, as revised,
is in addition to the requirements
already in place in the regulations at
§§ 412.92(b)(3)(i) through (b)(3)(iii) that
require a hospital to notify CMS (that is,
the fiscal intermediary or MAC
servicing the hospital) of any changes
that would affect its SCH status.

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Comment: Several commenters were
concerned that our proposal could
potentially revoke SCH status from a
hospital’s initial classification as an
SCH, which could potentially span a
few decades. One commenter suggested
that CMS establish a ‘‘look back’’ period
on which hospitals can rely and that
CMS not reopen a prior SCH
classification more than 3 years after the
initial determination simply because
there is an open cost report due to an
appeal or delayed payment. Many
commenters objected to the retroactive
cancellation of SCH classification
claiming that this would be punitive.
Response: We understand and
appreciate the need to establish a limit
to how far back CMS may rescind SCH
status. Our proposal clearly stated that
the withdrawal of SCH status could be
made retroactively, consistent with the
provisions at § 405.1885, meaning that
we may withdraw SCH status for cost
reporting periods that are within the 3year reopening period only. Therefore, if
a hospital was incorrectly approved as
an SCH and the effective date of the
original classification is still within the
3-year cost report reopening period, we
could withdraw SCH status for all those
periods in which it was paid incorrectly
as an SCH starting with its initial date
of classification. However, if the
effective date of the original
classification as an SCH was not within
the 3-year cost report reopening period,
we could only withdraw SCH status and
any payments associated with that SCH
status for those cost reporting periods
subject to the reopening period. This is
consistent with our reopening rules, and
applies to any open cost report,
regardless of the reason the report is still
in an open cost reporting period. We
note that our ordinary reopening rules
do not distinguish the period available
for reopening based on why a cost
report may still be open. Finally, as
stated above, CMS would have the
discretion to reopen to the earliest date
possible, consistent with § 405.1885.
Comment: Some commenters
contended that the proposal undermines
CMS’ longstanding principle favoring
prospective policy and that a hospital
would never have total certainty that it
qualifies as an SCH.
Response: While we appreciate the
commenters’ concerns, we also believe
that overpaying hospitals based on an
erroneous classification that should
never have been awarded undermines a
payment system, and could even
encourage attempts at misclassification.
Our reopening rules have always
provided authority to revoke
overpayments associated with an
erroneous SCH classification

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53403

retroactively and in accordance with the
cost report reopening rules. Our
clarification in the regulation is merely
codifying this already existing authority.
We are simply making explicit what is
already implicit in our authority and is
not introducing a change in policy.
Comment: Several commenters
asserted that CMS’ proposed regulation
is unfair in that it would impose an
unfair and burdensome obligation to
continuously monitor data that may not
be within a hospital’s control. Other
commenters suggested that CMS modify
the proposed regulation to make it more
consistent with the regulations at
§§ 412.92(b)(3)(ii) and (b)(3)(iii) which
describe the way CMS handles the
cancellation of SCH for a hospital where
there was a change in circumstances
under which the classification was
approved.
Response: We are not requiring
hospitals to continuously monitor data
nor are we requiring hospitals to report
data that may not be within their
control. A hospital would only be
required to report any factor or
information that would have affected its
initial classification. We note that this
policy is in addition to the requirements
already in place in the regulations at
§§ 412.92(b)(3)(i) through (b)(3)(iii) that
require a hospital to notify CMS (that is,
the hospital’s fiscal intermediary or
MAC) of any changes that would affect
its SCH status. The information in
question is data that are germane to the
information on which the SCH
classification was based. The factors and
information that a hospital must report
are a limited universe of data that was
used during the hospital’s initial
classification.
The modifications that we have made
to the proposed regulation in this final
rule would make the final regulation
consistent with our existing regulations
at §§ 412.92(b)(3)(i) and (b)(3)(ii) where
CMS cancels SCH classification in
accordance with our reopening rules
when the SCH fails to disclose a change
in circumstance.
Comment: Several commenters
requested classification as to (1)
whether the proposed regulation would
apply to hospitals that were classified as
SCHs before the implementation of
IPPS; and (2) which standards and
criteria would be used by CMS to
determine whether or not the hospital
qualified as an SCH in its initial
classification.
Response: We note that there are a
few types of SCHs that have been
classified as such under different sets of
requirements:
(1) A hospital that was granted SCH
status and was granted an exemption

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from cost limits pre-IPPS. Our
regulations at § 412.92(b)(5) state that a
hospital that has been granted an
exemption from the hospital cost limits
before October 1, 1983, or whose request
for the exemption was received by the
appropriate intermediary before October
1, 1983, and was subsequently
approved, is automatically classified as
an SCH. In the September 1, 1983 final
rule (48 FR 39780), we stated that a
hospital would be classified as an SCH
for purposes of the IPPS if the hospital
has an approved exemption from
hospital cost limits as an SCH prior to
October 1, 1983, and that the hospital
would retain SCH status unless there
was a change in the circumstances
affecting this classification under the
cost limits.
(2) A hospital that was classified as
an SCH before the change in the law
under section 6003(e)(3) of the Omnibus
Budget Reconciliation Act of 1989 (Pub.
L. 101–239). In the August 18, 2006 final
rule (71 FR 48061), we discussed that
changes in criteria for being eligible for
SCH status that were made by section
6003(e)(3) of Public Law 101–239. The
law changed SCH criteria by reducing
the number of miles between providers
from 50 to 35 and by requiring the
Secretary to establish a criterion that
takes into consideration the travel time
between two providers. Section
6003(e)(3) of Public Law 101–239
exempted hospitals that already had
SCH status from meeting either of these
requirements. In other words, any
hospital that was correctly an SCH in
1989 is protected under this
grandfathering provision from the new
mileage criterion and whether or not it
meets the new criterion for
classification concerning travel time at
§ 412.92(a)(3). However, we noted that
this grandfathering provision is limited
to these two circumstances. Hospitals
with SCH designations in effect prior to
1989 can lose SCH status if they fail to
meet any of the other eligibility criteria.
(3) A hospital that was designated as
an EACH prior to October 1, 1997.
Under the regulations at § 412.109, a
hospital designated as an EACH is paid
as an SCH as long as the hospital
continues to comply with the terms,
conditions, and limitations that were
applicable at the time of designation.
These hospitals are grandfathered in
and are protected against later changes
to SCH criteria or new interpretations of
those criteria. Accordingly, these
grandfathered SCHs would maintain
their SCH status as long as they
continue to meet the criteria under
which they classified for payments as
SCHs.

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In this final rule, we also are
clarifying that we would apply the
standards and regulations that were in
effect at the time the hospital was
initially classified as an SCH. That is,
when CMS determines that a hospital
never met the requirements to be
classified as an SCH, we are referring to
the requirements that were in place
during the hospital’s initial
classification as an SCH. However, we
note that the criteria for SCH
classification have not been modified
since we made changes to implement
section 6003(e)(3) of the Omnibus
Budget Reconciliation Act of 1989 (Pub.
L. 101–239). Since that time, we have
issued minimal reinterpretations in the
actual criteria for classification.
Therefore, we are confirming that we
would not apply SCH criteria,
standards, or interpretations that were
not effective at the time of initial SCH
classification to any hospital.
Comment: Some commenters argued
that the proposed regulation change is
irreconcilable with our existing
regulation which states that a hospital
retains SCH status unless there is a
change in the circumstances under
which the classification was approved.
Response: The commenters’ argument
is based on an incorrect assumption
about the applicability of the existing
regulations. That is, the existing
regulations only address situations
where a hospital was correctly classified
as an SCH. The regulations were silent
on hospitals that were initially
classified incorrectly. If a hospital was
classified as an SCH in error, clearly it
would not take a ‘‘change in
circumstances’’ to revoke SCH status.
After consideration of the public
comments we received, we are
finalizing our proposed codification of
our current authority to recoup any
overpayments associated with incorrect
SCH classification, consistent with cost
report reopening rules at § 405.1885. We
also are making one modification to
specify that, effective October 1, 2012, if
a hospital subsequently reports any
factors or information to CMS that could
have affected its initial classification as
an SCH and CMS determines that, based
on the additional information, the
hospital should not have qualified for
SCH status, CMS will cancel SCH status
effective 30 days from CMS’ date of
determination.
As stated above, we also note that
reopening limitation does not apply to
situations where there was fraud
involved. If a hospital knowingly misled
CMS or deliberately submitted incorrect
information in its initial classification,
CMS will recoup incorrectly paid

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amounts from the date of the hospital’s
initial SCH classification.
3. Change to Effective Date of
Classification for MDHs Applying for
SCH Status Upon the Expiration of the
MDH Program (§ 412.92(b)(2)(v))
Under existing regulations at
§ 412.92(b)(2), an SCH’s status is
generally effective 30 days after CMS’s
written notification of approval. It has
come to our attention that there may be
a number of hospitals currently
classified as MDHs, under § 412.108 of
the regulations, that intend to apply for
classification as SCHs, under § 412.92 of
the regulations, upon the expiration of
the MDH program provision on
September 30, 2012. Those hospitals
may be reluctant to apply for SCH
classification status well before the
expiration of their MDH status because
they would prefer to maintain their
MDH status for as long as possible.
Conversely, if those hospitals were to
wait to apply for SCH classification
status after expiration of their MDH
status, they could experience a financial
hardship if there were a delay in the
approval for SCH classification status.
In order to facilitate a seamless
transition for hospitals that are currently
classified as MDHs and that will qualify
as SCHs, in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 27969), we
proposed to add an exception to the
effective dates of SCH classification by
adding a new paragraph (v) under
§ 412.92(b)(2). We proposed that for any
MDH that applies for SCH classification
status at least 30 days prior to the
expiration of the MDH program
provision and requests that SCH
classification status be effective with the
expiration of the MDH program
provision, and the MDH is approved for
SCH classification status, the effective
date of the hospital’s classification as an
SCH would be the day following the
expiration date of the MDH program
provision (that is, October 1, 2012). For
example, Hospital A is an MDH that
would like to maintain its MDH status
for as long as possible and be classified
as an SCH only after its MDH status
expires. In order to seamlessly transition
from MDH status to SCH status,
Hospital A must apply for SCH status by
August 31, 2012, and must request that,
if approved, SCH classification status be
effective with the expiration of the MDH
program provision. If CMS determines
that Hospital A qualifies for SCH status,
the effective date of its SCH
classification will be October 1, 2012.
Comment: Commenters supported the
proposal to provide for a seamless
transition for MDHs than can qualify as
SCHs, in anticipation of the expiration

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of the MDH program. Commenters also
requested that CMS provide hospitals
with the ability to, in turn, rescind their
new SCH status retroactively and
reinstate their MDH status in a seamless
manner if a retroactive extension to the
MDH program is made.
Response: We appreciate the
commenters’ support. The commenters’
request that CMS make provisions for
hospitals to transition from SCH status
back to MDH status depends on
legislation being passed for the MDH
program. We typically do not create
policy around actions that Congress may
take in the future. However, if
legislation is passed to continue the
MDH program, we will develop policy
to implement the specific provisions of
such legislation.
After consideration of the public
comments received, we are finalizing
our proposed change to the effective
date of SCH status for MDHs losing their
MDH status with the expiration of the
MDH program. In order for an MDH to
receive SCH status effective October 1,
2012, it must apply for SCH status at
least 30 days before the end of the MDH
program; that is, the MDH must apply
for SCH status by August 31, 2012. The
MDH also must request that, if approved
as an SCH, the SCH status be effective
with the expiration of the MDH program
provision; that is, MDH must request
that the SCH status, if approved, be
effective October 1, 2012, immediately
after its MDH status expires with the
expiration of the MDH program at the
end of FY 2012, on September 30, 2012.
C. Rural Referral Centers (RRCs):
Annual Update to Case-Mix Index (CMI)
and Discharge Criteria (§ 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 a
rural referral center (RRC). RRCs receive
some special treatment under both the
DSH payment adjustment and the
criteria for geographic reclassification.
Section 402 of Public Law 108–173
raised the DSH payment adjustment for
RRCs such that they are not subject to
the 12-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

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the labor market area where the hospital
is located.
Section 4202(b) of Public Law 105–33
states, in part, ‘‘[a]ny hospital classified
as an RRC by the Secretary * * * for
fiscal year 1991 shall be classified as
such an RRC for fiscal year 1998 and
each subsequent year.’’ In the August
29, 1997 IPPS final rule with comment
period (62 FR 45999), CMS reinstated
RRC status for all hospitals that lost the
status due to triennial review or MGCRB
reclassification. However, CMS did not
reinstate the status of hospitals that lost
RRC status because they were now
urban for all purposes because of the
OMB designation of their geographic
area as urban. Subsequently, in the
August 1, 2000 IPPS final rule (65 FR
47089), we indicated that we were
revisiting that decision. Specifically, we
stated that we would permit hospitals
that previously qualified as an RRC and
lost their status due to OMB
redesignation of the county in which
they are located from rural to urban, to
be reinstated as an RRC. Otherwise, a
hospital seeking RRC status must satisfy
all of the other applicable criteria. We
use the definitions of ‘‘urban’’ and
‘‘rural’’ specified in Subpart D of 42 CFR
Part 412. One of the criteria under
which a hospital may qualify as an RRC
is to have 275 or more beds available for
use (§ 412.96(b)(1)(ii)). A rural hospital
that does not meet the bed size
requirement can qualify as an RRC if the
hospital meets two mandatory
prerequisites (a minimum CMI and a
minimum number of discharges), and at
least one of three optional criteria
(relating to specialty composition of
medical staff, source of inpatients, or
referral volume). (We refer readers to
§ 412.96(c)(1) through (c)(5) and the
September 30, 1988 Federal Register (53
FR 38513).) With respect to the two
mandatory prerequisites, a hospital may
be classified as an RRC if—
• The hospital’s CMI is at least equal
to the lower of the median CMI for
urban hospitals in its census region,
excluding hospitals with approved
teaching programs, or the median CMI
for all urban hospitals nationally; and
• 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.)

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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 national median
CMI value for FY 2013 includes data
from all urban hospitals nationwide,
and the regional values for FY 2013 are
the median CMI values of urban
hospitals within each census region,
excluding those hospitals with
approved teaching programs (that is,
those hospitals that train residents in an
approved GME program as provided in
§ 413.75). These values are based on
discharges occurring during FY 2011
(October 1, 2010 through September 30,
2011), and include bills posted to CMS’
records through March 2012.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27969), we
proposed that, in addition to meeting
other criteria, if rural hospitals with
fewer than 275 beds are to qualify for
initial RRC status for cost reporting
periods beginning on or after October 1,
2012, they must have a CMI value for
FY 2011 that is at least—
• 1.5378; 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. (We refer readers to the table set
forth in the FY 2013 IPPS/LTCH PPS
proposed rule at 77 FR 27970.)
The final CMI criteria for FY 2013 are
based on the latest available data (FY
2011 bills received through March
2012). 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, 2012,
they must have a CMI value for FY 2011
that is at least—
• 1.5378; 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 final median CMI values by
region are set forth in the following
table:

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Case-mix index
value

Region
1.
2.
3.
4.
5.
6.
7.
8.
9.

New England (CT, ME, MA, NH, RI, VT) ....................................................................................................................................
Middle Atlantic (PA, NJ, NY) .......................................................................................................................................................
South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) ...........................................................................................................
East North Central (IL, IN, MI, OH, WI) ......................................................................................................................................
East South Central (AL, KY, MS, TN) .........................................................................................................................................
West North Central (IA, KS, MN, MO, NE, ND, SD) ..................................................................................................................
West South Central (AR, LA, OK, TX) ........................................................................................................................................
Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) ...........................................................................................................................
Pacific (AK, CA, HI, OR, WA) .....................................................................................................................................................

A hospital seeking to qualify as an
RRC should obtain its hospital-specific
CMI value (not transfer-adjusted) from
its fiscal intermediary or MAC. Data are
available on the Provider Statistical and
Reimbursement (PS&R) System. In
keeping with our policy on discharges,
the CMI values are computed based on
all Medicare patient discharges subject
to the IPPS MS-DRG-based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that
CMS set forth the national and regional
numbers of discharges in each year’s
annual notice of prospective payment
rates for purposes of determining RRC
status. As specified in section
1886(d)(5)(C)(ii) of the Act, the national
standard is set at 5,000 discharges. We
would normally update the regional
standards based on discharges for urban
hospitals’ cost reporting periods that
began during FY 2010 (that is, October
1, 2009 through September 30, 2010),
which would normally be the latest cost
report data available at the time of the

development of this final rule. However,
due to a transition in our data system,
in lieu of a full year of FY 2010 cost
report data, we needed to use a
combination of FY 2009 and FY 2010
cost report data in order to create a full
fiscal year of cost report data for this
analysis. Due to CMS’ transition to a
new cost reporting form effective for
cost reporting periods beginning on or
after May 1, 2010, cost reports with
fiscal year begin dates of May 1, 2010
through September 30, 2010 were not
accessible on our system for analysis at
the time of the development of this final
rule. Therefore, in order to have a
complete fiscal year of cost report data,
we utilized FY 2009 cost report data for
providers with fiscal years beginning on
or after May 1, 2010 and by September
30, 2010, in addition to the FY 2010 cost
report data for providers with fiscal
years beginning on or after October 1,
2009 and before May 1, 2010.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27970), we
proposed that, in addition to meeting

other criteria, a hospital, if it is to
qualify for initial RRC status for cost
reporting periods beginning on or after
October 1, 2012, must have, as the
number of discharges for its cost
reporting period that began during FY
2010 (based on a combination of FY
2009 and FY 2010 cost report data as
explained in the preceding paragraph),
at least—
• 5,000 (3,000 for an osteopathic
hospital); or
• The median number of discharges
for urban hospitals in the census region
in which the hospital is located. (We
refer readers to the table set forth in the
FY 2013 IPPS/LTCH PPS proposed rule
at 77 FR 27970.)
Based on the latest discharge data
available at this time (that is, based on
a combination of FY 2009 and FY 2010
cost report data as explained earlier in
this section), the final median number
of discharges for urban hospitals by
census region are set forth in the
following table:
Number of
discharges

Region

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1.
2.
3.
4.
5.
6.
7.
8.
9.

New England (CT, ME, MA, NH, RI, VT) ....................................................................................................................................
Middle Atlantic (PA, NJ, NY) .......................................................................................................................................................
South Atlantic (DE, DC, FL, GA, MD, NC, SC, VA, WV) ...........................................................................................................
East North Central (IL, IN, MI, OH, WI) ......................................................................................................................................
East South Central (AL, KY, MS, TN) .........................................................................................................................................
West North Central (IA, KS, MN, MO, NE, ND, SD) ..................................................................................................................
West South Central (AR, LA, OK, TX) ........................................................................................................................................
Mountain (AZ, CO, ID, MT, NV, NM, UT, WY) ...........................................................................................................................
Pacific (AK, CA, HI, OR, WA) .....................................................................................................................................................

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
final rule.
We reiterate that, if an osteopathic
hospital is to qualify for RRC status for
cost reporting periods beginning on or
after October 1, 2012, the hospital
would be required to have at least 3,000
discharges for its cost reporting period
that began during FY 2010 (based on a

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combination of FY 2009 and FY 2010
cost report data as explained earlier in
this section).
D. Payment Adjustment for Low-Volume
Hospitals (§ 412.101)
1. Expiration of the Affordable Care Act
Provisions for FYs 2011 and 2012
For FYs 2011 and 2012, the
Affordable Care Act expanded the
definition of low-volume hospital and
modified the methodology for
determining the payment adjustment for
hospitals meeting that definition.

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1.3146
1.3744
1.4640
1.4533
1.4045
1.4899
1.5855
1.6461
1.5298

Sfmt 4700

8,159
11,448
11,755
8,749
7,234
8,129
6,232
9,336
8,745

Beginning with FY 2013, the lowvolume hospital qualifying criteria and
payment adjustment will revert to the
statutory requirements that were in
effect prior to the amendments made by
the Affordable Care Act. We discuss the
payment policies for FY 2013 in section
IV.D.4. of this preamble.
2. 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

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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
payment amount is based on total per
discharge payments made under section
1886 of the Act, including capital, DSH,
IME, and outliers. For SCHs and MDHs,
the low-volume payment amount is
based on either the Federal rate or the
hospital-specific rate, whichever results
in a greater operating IPPS payment.
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 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, regardless of payer
(that is, not only 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
low-volume hospitals. Section
1886(d)(12)(B)(iii) of the Act limits the
applicable percentage increase
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

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low numbers of total discharges. In the
FY 2006 IPPS final rule (70 FR 47432
through 47434), we stated that
multivariate analyses supported the
existing low-volume adjustment
implemented in FY 2005. Therefore, the
low-volume adjustment of an additional
25 percent continues to be provided for
qualifying hospitals with less than 200
discharges.
3. Affordable Care Act Provisions for
FYs 2011 and 2012
Sections 3125 and 10314 of the
Affordable Care Act amended section
1886(d)(12) of the Act, modifying the
definition of a low-volume hospital and
the methodology for calculating the
payment adjustment for low-volume
hospitals, effective only for discharges
occurring during FYs 2011 and 2012.
Beginning with FY 2013, the preexisting
low-volume hospital qualifying criteria
and payment adjustment, as
implemented in FY 2005, will resume.
Sections 3125(3) and 10314(1) of the
Affordable Care Act amended the
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 provision
specifies that, for FYs 2011 and 2012, a
hospital qualifies as a low-volume
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.’’
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50238 through 50275 and
50414), we revised our regulations at 42
CFR 412.101 to reflect the changes to
the qualifying criteria and the payment
adjustment for low-volume hospitals
according to the provisions of the
Affordable Care Act. In addition to
changing the regulations to conform
them to the Affordable Care Act
changes, we also defined, at
§ 412.101(a), the term ‘‘road miles’’ to
mean ‘‘miles’’ as defined at
§ 412.92(c)(i). The definition of ‘‘road
miles’’ continues to apply even after the

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Affordable Care Act provisions expire at
the end of FY 2012. 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, in that same
final rule, we discussed the process for
requesting and obtaining the lowvolume hospital payment adjustment
(75 FR 50240).
4. Payment Adjustment for FY 2013 and
Subsequent Fiscal Years
As we discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27971
through 27973), in accordance with
section 1886(d)(12) of the Act,
beginning with FY 2013, the lowvolume hospital definition and payment
adjustment methodology will revert
back to the statutory requirements that
were in effect prior to the amendments
made by the Affordable Care Act.
Therefore, as specified under the
existing regulations at § 412.101,
effective for FY 2013 and subsequent
years, in order to qualify as a lowvolume hospital, a subsection (d)
hospital must be more than 25 road
miles from another subsection (d)
hospital and have less than 200
discharges (that is, less than 200
discharges total, including both
Medicare and non-Medicare discharges)
during the fiscal year. As discussed
above, the statute specifies that a lowvolume hospital must have less than
800 discharges during the fiscal year,
but also requires that the applicable
percentage increase for qualifying lowvolume hospitals be 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.’’ 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 requirements set forth in
section 1886(d)(12)(B) of the Act to
provide relief for low-volume hospitals
where there is empirical evidence that
higher incremental costs are associated
with low numbers of total discharges.
(Under the policy we established in that
same final rule, hospitals with between
200 and 799 discharges do not receive
a low-volume hospital adjustment.)
As described above, for FYs 2005
through 2010 and FY 2013 and
subsequent years, the discharge

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determination is made based on the
hospital’s number of total discharges,
that is, Medicare and non-Medicare
discharges. The hospital’s most recently
submitted cost report is used to
determine if the hospital meets the
discharge criterion to receive the lowvolume payment adjustment in the
current year (§ 412.101(b)(2)(i)). We use
cost report data to determine if a
hospital meets the discharge criterion
because this is the best available data
source that includes information on
both Medicare and non-Medicare
discharges. We note that, for FYs 2011
and 2012, CMS used the most recently
available MedPAR data to determine the
hospital’s Medicare discharges because
only Medicare discharges were used to
determine if a hospital met the
discharge criterion for those years.
For FY 2013 and subsequent fiscal
years, in addition to a discharge
criterion, the eligibility for the lowvolume payment adjustment is also
dependent upon the hospital meeting
the mileage criterion specified at
§ 412.101(b)(2)(i). Specifically, to meet
the mileage criterion to qualify for the
low-volume payment adjustment for FY
2013 and subsequent fiscal years, a
hospital must be located more than 25
road miles from the nearest ‘‘subsection
(d) hospital.’’ As mentioned above, we
define, at § 412.101(a), the term ‘‘road
miles’’ to mean ‘‘miles’’ as defined at
§ 412.92(c)(i) (75 FR 50238 through
50275 and 50414).
As discussed in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50238
through 50275 and 50414), we
discussed the process for requesting and
obtaining the low-volume hospital
payment adjustment. In order to qualify
for the low-volume 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. 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.
In order to receive a low-volume
hospital payment adjustment 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,

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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
with the hospital to obtain additional
necessary information to determine
whether or not the hospital meets the
low-volume mileage criterion. In
addition, the fiscal intermediary or
MAC will refer to the hospital’s most
recently submitted cost report to
determine whether or not the hospital
meets the discharge criterion. A hospital
should refer to its most recently
submitted cost report for total
discharges (Medicare and nonMedicare) in order to decide whether or
not to apply for low-volume hospital
status for a particular fiscal year. As
noted previously, a hospital must
continue to meet the qualifying criteria
at § 412.101(b)(2)(i) as a low-volume
hospital (that is, the discharge criterion
and the mileage criterion) in order to
receive the payment adjustment in that
year; that is, low-volume hospital status
is not based on a ‘‘one-time’’
qualification.
In order to be a low-volume hospital
in FY 2013 and subsequent fiscal years,
in accordance with our previously
established procedure, a hospital must
make its request for low-volume
hospital status in writing to its fiscal
intermediary or MAC by September 1
immediately preceding the start of the
Federal fiscal year for which the
hospital is applying for low-volume
hospital status in order for the 25
percent low-volume add-on payment
adjustment to be applied to payments
for its discharges for the fiscal year
beginning on or after October 1
immediately following the request (that
is, the start of the Federal fiscal year).
For a hospital whose request for lowvolume hospital status is received after
September 1, if the fiscal intermediary
or MAC determines the hospital meets
the criteria to qualify as a low-volume
hospital, the fiscal intermediary or MAC
will apply the 25 percent low-volume
add-on payment adjustment to
determine payment for the hospital’s
discharges for the fiscal year, effective
prospectively within 30 days of the date
of the fiscal intermediary’s or MAC’s
low-volume status determination.

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Specifically, for FY 2013, a hospital
must make its request for low-volume
hospital status in writing to its fiscal
intermediary or MAC by September 1,
2012, in order for the 25-percent lowvolume add-on payment adjustment to
be applied to payments for its
discharges beginning on or after October
1, 2012 (through September 30, 2013). If
a hospital’s request for low-volume
hospital status for FY 2013 is received
after September 1, 2012, and if the fiscal
intermediary or MAC determines the
hospital meets the criteria to qualify as
a low-volume hospital, the fiscal
intermediary or MAC will apply the 25
percent low-volume add-on payment
adjustment to determine the payment
for the hospital’s FY 2013 discharges,
effective prospectively within 30 days of
the date of the fiscal intermediary’s or
MAC’s low-volume status
determination. For additional
information on our established
application process for the low-volume
hospital payment adjustment, we refer
readers to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50274 through 50275),
Transmittal 2060 (Change Request 7134;
October 1, 2010), and the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51680).
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50238 through 50275 and
50414), in addition to implementing the
Affordable Care Act provisions affecting
low-volume hospitals for FYs 2011 and
2012, we also implemented changes to
the regulations at 42 CFR 412.101 to
conform them to the statutory
requirements to require that, beginning
with FY 2013, the low-volume hospital
qualifying criteria and payment
adjustment methodology will return to
that which was in effect prior to the
amendments made by the Affordable
Care Act (that is, the low-volume
hospital payment policy in effect for
FYs 2005 through 2010). Therefore, no
further revisions to the policy or to the
regulations at § 412.101 are required to
conform them to the statutory
requirement that the low-volume
hospital policy in effect prior to the
Affordable Care Act returns for FY 2013
and subsequent years.
Comment: A few commenters
expressed concern about the financial
impact of the expiration of the
temporary expansion of the low-volume
hospital payment adjustment provided
for by the Affordable Care Act. Some
commenters encouraged CMS to
promote legislative action that would
continue the Affordable Care Act’s
modification of the low-volume hospital
payment adjustment. Other commenters
urged CMS to mitigate the impact of the
expiration of the 2-year enhancement of
the low-volume hospital payment

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adjustment provided for by the
Affordable Care Act by using the
existing statutory authority to make the
low-volume adjustment to qualifying
hospitals that have up to less than 800
total discharges rather than only to
qualifying hospitals that have less than
200 total discharges. The commenters
provided no data analysis in support of
their comments to expand the lowvolume hospital adjustment to
qualifying hospitals that have up to less
than 800 total discharges.
Response: To implement the original
low-volume hospital provision, and as
mandated by statute, we developed an
empirically justified adjustment based
on the relationship between costs and
total discharges of hospitals with less
than 800 total (Medicare and nonMedicare) discharges. Specifically, we
performed several regression analyses to
evaluate the relationship between
hospitals’ costs per case and discharges,
and found that an adjustment for
hospitals with less than 200 total
discharges is most consistent with the
statutory requirement to provide for
additional payments to low-volume
hospitals where there is empirical
evidence that higher incremental costs
are associated with lower numbers of
discharges (69 FR 49101 through
49102). Based on these analyses, we
established a low-volume hospital
policy where qualifying hospitals with
less than 200 total discharges receive a
payment adjustment of an additional 25
percent. (Section 1886(d)(12)(B)(iii) of
the Act limits the applicable percentage
increase adjustment to no more than 25
percent.) We may, in the future,
reevaluate the low-volume hospital
adjustment policy, that is, the definition
of a low-volume hospital and the
payment adjustment. However, because
we did not make any proposals
regarding the low-volume hospital
payment adjustment for FY 2013, we are
not making any changes to the lowvolume hospital payment adjustment
policy in this final rule. As discussed
above, the low-volume hospital
definition and payment adjustment
methodology will revert back to the
policy established under statutory
requirements that were in effect prior to
the amendments made by the Affordable
Care Act, which is currently
implemented in the existing regulations
at § 412.101.

graduate medical education (GME)
program in order to reflect the higher
indirect patient care costs of teaching
hospitals relative to nonteaching
hospitals. The payment amount is
determined by use of a statutorily
specified adjustment factor. The
regulations regarding the calculation of
this additional payment, known as the
IME adjustment, are located at
§ 412.105. We refer readers to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51680) for a full discussion of the IME
adjustment and IME adjustment factor.
Section 1886(d)(5)(B) of the Act states
that, for discharges occurring during FY
2008 and fiscal years thereafter, the IME
formula multiplier is 1.35. Accordingly,
for discharges occurring during FY
2013, the formula multiplier is 1.35. We
estimate that application of this formula
multiplier for the FY 2013 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.
Comment: One commenter supported
the continuation of the IME adjustment
factor because IME payments are an
important part of guaranteeing a strong
general surgery workforce in which
there is currently a growing shortage.
Another commenter stated that it
supported the Nation’s teaching
hospitals and, therefore, supported
continuation of the IME adjustment
factor. A third commenter stated that,
because of its commitment to GME,
academic medicine, and residency
training in cardiothoracic surgery, it
supported the continuation of the IME
adjustment factor. The commenter
stated that IME payments are an
important part of guaranteeing a strong
cardiothoracic surgery workforce
‘‘* * * which is currently experiencing
a growing shortage as cited in the report
Shortage of Cardiothoracic Surgeons is
Likely by 2020, published in the journal
Circulation, July 27, 2009.’’
Response: We appreciate the
commenters’ support. We note that the
IME formula multiplier is set by
Congress.
We are finalizing our proposal that
the IME formula multiplier for FY 2013
be set at 1.35, which we estimate will
result in an increase in IPPS payments
of 5.5 percent for every approximately
10-percent increase in the hospital’s
resident-to-bed ratio.

E. Indirect Medical Education (IME)
Payment Adjustment (§ 412.105)

2. Timely Filing Requirements under
Fee-for-Service Medicare

1. IME Adjustment Factor for FY 2013
Under the IPPS, an additional
payment amount is made to hospitals
that have residents in an approved

a. IME and Direct GME

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The Balanced Budget Act of 1997
(Pub. L. 105–33) amended sections
1886(d) and 1886(h) of the Act by

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53409

adding paragraphs (d)(11) and (h)(3)(D),
respectively, to establish payment
provisions for IME and direct GME costs
to hospitals providing services to
Medicare+Choice (now Medicare
Advantage) enrollees. Sections
1886(d)(11) and 1886(h)(3)(D) of the Act
specify that the Secretary shall provide
for an ‘‘additional payment amount’’ for
services furnished to individuals who
are enrolled in a Medicare Advantage
plan under Medicare Part C. To
implement sections 1886(d)(11) and
1886(h)(3)(D) of the Act, we issued two
final rules in the Federal Register that
specifically addressed IME and direct
GME payments to teaching hospitals for
services provided to Medicare
Advantage enrollees (the FY 1997 IPPS
final rule (62 FR 46003) and the FY
1998 IPPS final rule (63 FR 26341)).
Subsequent to the FY 1998 IPPS final
rule, we (then HCFA) issued a Program
Memorandum (PM), A–98–21, in July
1998, which outlined fiscal
intermediary and standard system
changes needed to process requests for
IME and direct GME supplemental
payments for services provided to
Medicare Advantage enrollees. The PM
explained that hospitals must submit
their Medicare claims to the fiscal
intermediary in UB–92 format in order
for the standard system to process the
claims so that hospitals may be paid the
supplemental IME and direct GME
payments for services provided to
Medicare Advantage enrollees. It was
always our intent that the claims filing
requirements under 42 CFR Part 424,
including the time limits at 42 CFR
424.44, fully applied to these claims
submissions.
Existing § 424.44 of the regulations
contains the time limits for filing all
Medicare claims. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27973),
we again included a clarification that
the regulations governing time limits for
filing claims at § 424.44 apply to claims
submitted for IME and direct GME
payments associated with services
provided to Medicare Advantage
enrollees. The process that was
established by PM A–98–21 is within
the same framework of the preexisting
methodology for submitting claims
under Medicare Part A. Therefore,
because IME and direct GME payments
for services provided to Medicare
Advantage enrollees are also made
under Medicare Part A, the same timely
filing requirements that apply to other
Part A claims for payments also apply
to claims for IME and direct GME
payments for services provided to
Managed Advantage enrollees. We also
clarified once again in the proposed rule

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that when hospitals submit claims for
services provided to Medicare
Advantage enrollees for additional IME
and direct GME payments, the hospitals
must comply with the regulations
governing time limits for filing claims at
§ 424.44.
b. Nursing and Allied Health Education
Section 541 of the Balanced Budget
Refinement Act (BBRA) of 1999 (Pub. L.
106–113) further amended section 1886
of the Act by adding subsection (l) to
provide for additional payments to
hospitals that operate nursing or allied
health education programs and incur
costs associated with services provided
to Medicare+Choice (now Medicare
Advantage) enrollees. Section 512 of the
Benefits Improvement and Protection
Act (BIPA) (Pub. L. 106–554) changed
the formula for determining the
additional payment amount paid to
hospitals that operate nursing or allied
health education programs and incur
costs for services provided to
Medicare+Choice (now Medicare
Advantage) enrollees. We issued several
PMs (Transmittals A–00–86 on
November 22, 2000, and A–03–043 on
May 23, 2003) to implement section 541
of the BBRA and section 512 of the
BIPA. We also issued related
Transmittal A–03–007 on February 3,
2003, and Transmittal A–03–045 on
May 30, 2003, to instruct hospitals that
operate a nursing or allied health
education program and that qualify for
additional payment related to services
provided to Medicare Advantage
enrollees to also submit those claims for
processing as no-pay bills in the UB–92
format. These transmittals also
instructed hospitals that are not paid
under the IPPS, hospitals with
rehabilitation and psychiatric units, and
hospitals that operate approved nursing
or allied health education programs (but
may not have approved GME residency
programs) to submit claims for services
provided to Medicare Advantage
enrollees to their fiscal intermediary in
UB–92 format with specific condition
codes present. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27973),
we clarified that the regulations
governing the time limits for filing
claims at § 424.44 also apply to claims
submitted for nursing or allied health
education program payments for
services provided to Medicare
Advantage enrollees.
c. Disproportionate Share Hospital
(DSH) Payments
On July 20, 2007, we issued Change
Request 5647 instructing applicable
hospitals to submit no pay bills for their
Medicare Advantage patients for FY

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2007 forward in order for these days to
be captured in the DSH calculation.
Because we issued this request in the
middle of FY 2007, we extended the
deadline for submission of FY 2007 and
FY 2008 no pay Medicare Advantage
bills to August 31, 2010.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27973), we
proposed to adopt a policy that
hospitals that are required to submit no
pay bills for services furnished on a
prepaid capitation basis by a Medicare
Advantage organization, or through cost
settlement with either a health
maintenance organization (HMO), a
competitive medical plan (CMP), a
health care prepayment plan (HCPP), or
a demonstration, for the purpose of
calculating the DSH patient percentage
(DPP) must also do so within the time
limits for filing claims specified at
§ 424.44. In the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50282), we
changed our methodology for
calculating the SSI fraction of the DSH
adjustment, in part, by using claims
information that is updated 15 months
after the close of each Federal fiscal
year. We believed that allowing for a 15month run-out period would more
closely align the timing of the match
process with the requirements for the
timely submission of claims. As we
stated in that final rule, hospitals may
not have an incentive to submit no pay
bills in as timely a manner as they
would for fee-for-service claims. In
order to ensure that no pay claims are
properly incorporated into the DSH
calculation, in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 27973), we
proposed to extend our rules regarding
the timely submission of claims to no
pay bills submitted for the purposes of
calculating the DPP.
We proposed to revise the regulations
at § 424.30 to (1) clarify our existing
policy that hospitals must file timely
claims in order to receive supplemental
IME, direct GME, and/or nursing or
allied health education payments for
Medicare Advantage enrollees and (2)
propose that hospitals that are required
to submit no pay bills for the purpose
of calculating the DPP must also follow
the time limits for filing claims.
d. Summary of Public Comments, Our
Responses, and Final Policies
Comment: Two commenters stated
that, although it is more time consuming
to submit no pay bills, it is reasonable
to apply the same timely filing
requirements to no pay bills for
supplemental direct GME, IME, nursing
and allied health education, and DSH
payments that are applied to other
Medicare Part A claims.

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Response: We appreciate the
commenters’ support.
Comment: Several commenters
specifically addressed the clarification
concerning the timely filing
requirements that need to be met to
receive supplemental IME and direct
GME payments for Medicare Advantage
enrollees. The commenters asked that
CMS recognize that there are nuances
related to shadow billing and that
‘‘inherent complexities’’ can delay the
processing of these claims. The
commenters requested CMS to include
in the final rule ‘‘* * * an estimate of
the administrative and cost burdens to
hospitals that result from the
requirement to file a second shadow bill
for each Medicare managed care
discharge.’’ The commenters also urged
CMS to recognize that the policy related
to GME payments is a new rule rather
than a clarification of existing policy.
Response: We do not agree with the
commenters that the clarification related
to the timely filing requirements for
supplemental direct GME and IME
payments is a new rule as opposed to a
clarification. As noted earlier in this
preamble and in the proposed rule (77
FR 27973), to implement sections
1886(d)(11) and 1886(h)(3)(D) of the
Act, which provide for an ‘‘additional
payment amount’’ for services furnished
to individuals who are enrolled in a
Medicare Advantage plan under
Medicare Part C, we issued two final
rules in the Federal Register that
specifically addressed IME and direct
GME payments to teaching hospitals for
services provided to Medicare
Advantage enrollees (the FY 1997 IPPS
final rule (62 FR 46003) and the FY
1998 IPPS final rule (63 FR 26341)). In
addition, in July 1998, we (then HCFA)
issued a Program Memorandum (PM),
A–98–21, which outlined fiscal
intermediary and standard system
changes needed to process requests for
IME and direct GME supplemental
payments for services provided to
Medicare Advantage enrollees. The PM
explained that hospitals must submit
their Medicare claims to the fiscal
intermediary in UB–92 format in order
for the standard system to process the
claims so that hospitals may be paid the
supplemental IME and direct GME
payments for services provided to
Medicare Advantage enrollees. All
claims submitted in UB–92 format are
subject to the timely filing regulations at
§ 424.44. Therefore, in accordance with
PM A–98–21, UB–92 claims submitted
on behalf of Medicare Advantage
enrollees have always been subject to
the timely filing regulations at § 424.44.
In this final rule, as we did in the
proposed rule, we are clarifying that in

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order for a hospital to receive
supplemental direct GME, IME, and/or
nursing and allied health payments for
Medicare Advantage enrollees, it must
follow the regulations governing time
limits for filing claims at § 424.44.
In response to the commenters who
requested an estimate of the
administrative and cost burden
associated with the submission of a no
pay bill for Medicare Advantage
enrollees, the requirement for hospitals
to follow the timely filing requirements
in order to receive supplemental direct
GME, IME, and/or nursing and allied
health education payments for Medicare
Advantage enrollees is a clarification
and not a new policy proposal. Because
we are clarifying this requirement rather
than implementing a new requirement,
we have concluded that there is no new
cost or administrative burden associated
with this requirement.
Comment: One commenter asserted
that the policy of treating the
submission of Part C claims for
purposes of calculating direct GME and
IME payments as subject to the Part A
regulations regarding timely filing
constituted a substantive rule, rather
than an interpretive rule. As a result, the
commenter stated that CMS could not
have imposed this requirement without
first undertaking rulemaking, and, thus,
it was inappropriate for CMS to attempt
to clarify this policy in the FY 2013
IPPS/LTCH PPS proposed rule. The
commenter noted that this argument
had also been raised in Loma Linda v.
Sebelius (D.D.C. (2010)).
Response: We disagree. As a
preliminary matter, we note that this
issue was not addressed directly in the
court’s decision in Loma Linda v.
Sebelius because the case was decided
on other grounds. Furthermore, as
discussed in more detail above, IME and
direct GME payments for services
provided to Medicare Advantage
enrollees are made under Medicare Part
A. It has always been CMS’ intent that
the claims filing requirements under 42
CFR part 424, including the time limits
at 42 CFR 424.44, apply to those claims.
Thus, we continue to believe it was
appropriate for CMS to characterize the
discussion in the proposed rule as a
clarification of an existing policy, rather
than as a new proposal.
After consideration of the public
comments we received, in this final
rule, we are restating our clarifications
that when hospitals submit claims for
services provided to Medicare
Advantage enrollees for additional IME
and direct GME payments, and for
claims for nursing or allied health
education program payments, the
hospital must comply with the

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regulations governing time limits for
filing claims at § 424.44. In addition, we
are finalizing our proposal that hospitals
that are required to submit no pay bills
for the purpose of calculating the DPP
must also follow the time limits for
filing claims, and the proposed
amendments to the regulations at
§ 424.30 to incorporate these
requirements. Further, in this final rule,
we are making minor technical revisions
to the regulations at § 424.30 in order to
further clarify the claims submission
requirements.
3. Other Related Policy Changes
In sections IV.F. and IV.I. of the
preamble of the FY 2013 IPPS/LTCH
PPS proposed rule, we present other
proposed policy changes relating to
determining labor and delivery bed
counts for purposes of the DSH payment
adjustment and relating to determining
FTE resident caps for direct GME and
IME payment purposes that would have
an effect on the IME payment
adjustment. We refer readers to these
same two sections of the preamble of
this final rule where we address any
public comments received and present
the final policies.
F. Payment Adjustment for Medicare
Disproportionate Share Hospitals
(DSHs) and Indirect Medical Education
(IME) (§§ 412.105 and 412.106)
1. Background
For the most recent background
discussion regarding the Medicare
payment adjustment for subsection (d)
hospitals that serve a significantly
disproportionate number of low-income
patients, we refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR
51681).
As we did in the FY 2012 IPPS/LTCH
PPS final rule, we are combining, under
section IV.F.2. of this preamble, our
discussion of FY 2013 proposed and
final 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) because
the underlying concepts are similar, and
we believe they should generally be
interpreted in a consistent manner for
both purposes.
2. Policy Change Relating to Treatment
of Labor and Delivery Beds in the
Calculation of the Medicare DSH
Payment Adjustment and the IME
Payment Adjustment
a. Background
Medicare’s policy with respect to the
treatment of labor and delivery services
in the calculation of the Medicare DSH

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53411

payment adjustment has undergone a
number of changes over the years. (We
refer readers to the background
discussion regarding these policy
changes in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43899
through 43901)). The most recent
change in policy was adopted in the FY
2010 IPPS/RY 2010 LTCH PPS final
rule. Prior to FY 2010, our policy was
to exclude from the count of inpatient
days, for purposes of the Medicare DSH
calculation, labor and delivery patient
days associated with beds used for
ancillary labor and delivery services
when the patient did not occupy a
routine bed prior to occupying an
ancillary labor and delivery bed. This
policy applied whether the hospital
maintained separate labor and delivery
rooms and postpartum rooms, or
whether it maintained ‘‘maternity
suites’’ in which labor, delivery, and
postpartum services all occurred in the
same bed. However, in the latter case,
patient days were counted
proportionally based on the proportion
of (routine/ancillary) services furnished.
(We refer readers to the example
provided in the FY 2004 IPPS final rule
(68 FR 45420) that describes how
routine and ancillary days are allocated
under this policy.)
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule, we revised our
regulations to include in the
disproportionate patient percentage
(DPP) of the Medicare DSH payment
adjustment all patient days associated
with patients occupying labor and
delivery beds once the patient has been
admitted to the hospital as an inpatient,
regardless of whether the patient days
are associated with patients who
occupied a routine bed prior to
occupying an ancillary labor and
delivery bed. Our rationale for adopting
this change was that the costs associated
with labor and delivery patient days are
generally payable under the IPPS.
Although we adopted this change with
respect to labor and delivery patient
days, we did not make a similar change
to our policy for counting hospital beds.
b. Policy Change
As we stated in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51682), our
policy for counting hospital beds is to
include bed days available for IPPSlevel acute care hospital services. In the
FY 2004 IPPS final rule (68 FR 45417),
we stated that beds in a particular unit
would be considered available for IPPSlevel acute care hospital services if the
services furnished in that unit were
generally payable under the IPPS.
Moreover, as stated above, our policy for
counting patient days with respect to

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the Medicare DSH payment adjustment
is to include patient days in units that
provide services that are generally
payable under the IPPS. Under our
current policy, the services furnished to
a labor and delivery patient are
considered to be generally payable
under the IPPS (74 FR 43900).
We recognize that, under our current
policy, while the services furnished to
a labor and delivery patient are
considered to be generally payable
under the IPPS, under § 412.105(b)(4),
the bed where the services are furnished
is not considered to be available for
IPPS-level acute care hospital services.
As we discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27974
through 27975), upon further
examination of our existing policies, we
believe that if a patient day is counted
because the services furnished are
generally payable under the IPPS, the
bed in which the services were
furnished should also be considered to
be available for IPPS-level acute care
hospital services. Accordingly, we
believe it is appropriate to extend our
current approach of including labor and
delivery patient days in the DPP of the
Medicare DSH payment adjustment to
our rules for counting hospital beds for
purposes of both the IME payment
adjustment and the Medicare DSH
payment adjustment. Specifically,
because we have described labor and
delivery patient days as being generally
payable under the IPPS (74 FR 43900),
we believe that the bed in which such
services are furnished should also be
considered to be available for IPPS-level
acute care hospital services, and should
be included in the count of beds
available for IPPS-level acute care
hospital services. The rules for counting
hospital beds for purposes of the IME
payment adjustment are codified in the
IME regulations at § 412.105(b), which
are cross-referenced in § 412.106(a)(1)(i)
for purposes of determining the DSH
payment adjustment.
In light of the similar policy rationales
for determining patient days in the
calculation of the Medicare DSH
payment adjustment, and for
determining bed days for both the
Medicare DSH payment adjustment and
the IME payment adjustment, we
proposed to include labor and delivery
bed days in the count of available beds
used in the IME and DSH calculations.
Moreover, we stated that our proposal to
treat labor and delivery patient days and
bed days the same is consistent with our
approach with respect to the
observation, swing-bed, and hospice
days, which are excluded from both the
patient day count and the available bed
count. Accordingly, we proposed to

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revise the regulations at § 412.105(b)(4)
to remove from the list of currently
excluded beds those beds associated
with ‘‘ancillary labor/delivery services.’’
We proposed that this regulation change
would be effective for cost reporting
periods beginning on or after October 1,
2012.
As we noted in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR
43900), our policy for counting labor
and delivery patient days does not allow
for the inclusion of days of labor and
delivery patients who are not admitted
to the hospital as inpatients. For
example, if a woman presents at a
hospital for labor and delivery services,
but is determined by medical staff to be
in false labor and is sent home without
ever being admitted to the hospital as an
inpatient, any days associated with such
services furnished by the hospital
would not be included in the DPP for
purposes of the calculation of the
Medicare DSH payment adjustment. For
the same reason, days on which labor
and delivery beds are used for such
services also would be excluded from
the count of available bed days.
Comment: A number of commenters
stated that the current discrepancy in
the treatment of labor and delivery for
purposes of the patient day count and
the bed day count is appropriate
because labor and delivery services are
typically not paid for by the Medicare
program. The commenters further stated
that, to the extent Medicare does pay for
labor and delivery services, the
Medicare program only pays for 1
percent of all births in the United States,
as opposed to Medicaid, which,
according to the National Bureau of
Economic Research, pays for 41 percent
of all births in the country. The
commenters also stated that the low
volume of Medicare labor and delivery
patients justifies excluding labor and
delivery beds from a hospital’s bed
count for purposes of determining a
hospital’s qualification for status as an
MDH.
Response: As we stated in the FY
2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43900), we believe that the costs
associated with services provided in a
labor and delivery room are generally
payable under the IPPS. The volume of
labor and delivery services paid under
the Medicare program, regardless of
whether it is as low as asserted by the
commenters, does not alter the fact that
patients receiving these services are
inpatients who are receiving an IPPSlevel of care, whether or not paid under
the Medicare program. A policy to
exclude beds from a hospital’s number
of available beds based on the volume
of services paid for by Medicare would

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create unpredictability with respect to
the DSH and IME payment adjustments
and could impose an undue burden on
the agency and hospitals to monitor the
volume of individual services to
determine appropriate exclusions.
Comment: Commenters pointed to
CMS’ current policy with respect to
nursery days. Specifically, the
commenters noted that, under CMS’
current policy, patient stays in a
newborn nursery unit are included in
the patient day count for purposes of the
DSH calculation but are excluded from
the DSH and IME bed counts. The
commenters believed that this
distinction is appropriate and, therefore,
believed it would be appropriate for
CMS to take a similar approach with
respect to labor and delivery days.
Response: As we stated above, we
believe inconsistencies between the
patient day policies and the bed count
policies are generally an inappropriate
approach for implementing the DSH and
IME payment adjustments. We
appreciate the commenters’ pointing out
the potential inconsistency with respect
to the treatment of newborn nursery
units. We will review our current
approach to newborn nursery units and
will consider addressing this issue in
future rulemaking.
Comment: Commenters expressed
concern that the Medicare hospital cost
report and the cost reporting
instructions would need to be amended
to implement the policy proposal.
Specifically, the commenters noted that
the current definition of a labor and
delivery bed on the cost report is
inconsistent with CMS’ policy proposal.
The commenters also stated that the
current hospital cost report does not
allow for hospitals to report excluded
labor and delivery bed days such as an
outpatient bed day in a labor and
delivery room.
Response: We appreciate the
commenters’ information regarding the
need for changes to the Medicare
hospital cost report and the cost
reporting instructions. We plan to
amend the cost reporting instructions to
reflect our finalized change in policy
and to allow for the proper reporting of
labor and delivery bed days.
Comment: A number of commenters
requested additional clarity regarding
beds that would be included in the bed
count. Specifically, the commenters
asked if ‘‘maternity suites’’ in which
labor, delivery, and postpartum services
all occur in the same bed would be
counted and if so whether the bed count
would be split in the same manner that
costs are split for apportionment
purposes. The commenters also
expressed confusion regarding hospitals

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that maintain separate labor and
delivery rooms and postpartum rooms.
The commenters stated that, in these
situations, providers are concerned that
including the ancillary beds would
result in a ‘‘double counting’’ of beds.
Additionally, the commenters asked
CMS to specifically identify whether
certain beds, such as triage labor and
delivery beds used for preadmission
evaluation and assessment, are to be
included in the bed count. In addition
to expressing confusion about CMS’
proposal, the commenters stated that
they believed labor and delivery beds
should not be counted if they are not
licensed as routine beds.
Response: As stated above, our policy
is to include in the bed count the bed
days available for IPPS-level acute care
services, or more specifically, the bed
days of a particular unit if the services
furnished in that unit are generally
payable under the IPPS. We do not
consider whether a bed is licensed
under State law as a routine or ancillary
bed, but rather whether the unit in
which the bed is located is providing
services generally payable under the
IPPS. To the extent that the beds in a
particular unit, whether maternity suite
beds or ancillary labor and delivery
beds, are furnishing services that are
generally payable under the IPPS, such
beds should be included in the bed
count under our proposal. Furthermore,
as stated in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27974 through
27975), the bed days of a patient not
admitted as an inpatient are not
included in a hospital’s bed count.
Because our proposal is intended to
align our patient day and bed day
policies, we also refer readers to our
discussion in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43899
through 43901) for further information
regarding our policy on counting labor
and delivery patient days.
We also do not share the commenters’
concern regarding the ‘‘double
counting’’ of bed days for the IME and
DSH payment adjustments. Under our
existing policies, we include all beds in
a unit that is providing services that are
generally payable under the IPPS
because we believe such beds to be
available for IPPS-level acute care
hospital services. Therefore, unoccupied
ancillary labor and delivery beds would
still be included in a hospital’s bed
count under our proposal because they
are available for IPPS-level acute care
hospital services.
Comment: Commenters noted that
currently the Medicare hospital cost
report does not allow for labor and
delivery patient days to be counted in
the direct GME patient load. The

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commenters believed that, because these
patient days are considered inpatient
days, they should be considered a
patient day for purposes of allocating
costs for direct GME.
Response: We thank the commenters
for bringing this issue to the agency’s
attention. We will undertake a further
review to determine if it is necessary to
make any changes to the way patient
days are reported on the cost report, and
whether those patient days should be
included or excluded from the
calculation of the Medicare patient load.
Comment: One commenter requested
that CMS begin implementation of the
Affordable Care Act amendments to the
DSH payment adjustment provisions of
the Act through this rulemaking.
Response: We believe that this
comment is outside of the scope of the
FY 2013 proposed rule. The statutory
changes made by the Affordable Care
Act relating to the DSH payment
adjustment do not go into effect in FY
2013 and were not addressed in the FY
2013 proposed rule.
Comment: Commenters expressed
concern about the impact of our
proposal on the calculation of
transitional corridor payments under
the OPPS for SCHs. The commenters
noted that the outpatient hold harmless
payments are derived by comparing
Medicare payments to adjusted
Medicare costs. Because these payments
and costs do not reflect costs associated
with labor and delivery beds, the
commenters stated that they believe
these costs should not count toward
determining whether a hospital qualifies
for hold harmless payments under the
OPPS.
Response: We agree with the
commenters that the revision to the
regulations at § 412.105(b)(4) to remove
from the list of currently excluded beds
those beds associated with ‘‘ancillary
labor/delivery services’’ could impact
the qualification of certain hospitals for
hold harmless payments under the
OPPS, Under section 3002 of the Middle
Class Tax Relief and Job Creation Act of
2012 (Pub. L. 112–96), temporary
outpatient hold harmless payments to
small rural hospitals, small SCHs, and
small Essential Access Community
Hospitals (EACHs) are extended through
the end of CY 2012. Under the hold
harmless provisions at § 419.70(d),
hospitals that have 100 or fewer beds, as
defined in § 412.105(b), may result in
bed counts for hospitals currently
eligible for OPPS hold harmless
payments going above the 100-bed limit.
However, we do not agree with the
commenters that labor and delivery
beds should be excluded from the bed
count under § 412.105(b) as it applies to

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the qualification for OPPS hold
harmless payments. Rather, we believe
that it is appropriate to continue to
determine hospital size with regard to
OPPS hold harmless eligibility based on
the hospital’s bed count as determined
under § 412.105(b)(4).
After consideration of the public
comments we received, we are adopting
our proposed policy without
modification. In summary, we are
revising the regulations at
§ 412.105(b)(4) to remove from the list of
currently excluded beds those beds
associated with ‘‘ancillary labor/
delivery services.’’
G. Expiration of the MedicareDependent, Small Rural Hospital (MDH)
Program (§ 412.108)
Under current law, separate special
payment protections are provided to a
Medicare-dependent, small rural
hospital (MDH) under the IPPS through
the end of FY 2012. (For additional
information on the MDH program and
the payment methodology, we refer
readers to the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51683 through 51684.)
The provisions for MDHs at section
1886(d)(5) of the Act expire at the end
of FY 2012 (that is, with discharges
occurring on September 30, 2012). As
we discussed in the FY 2012 IPPS/
LTCH PPS final rule, 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) 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
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. In the FY
2012 IPPS/LTCH PPS final rule (76 FR
51683 through 51684), we did not make

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any additional changes to the MDH
regulatory text for FY 2012.
Because the MDH program is not
authorized by statute beyond FY 2012,
beginning in FY 2013, all hospitals that
previously qualified for MDH status will
no longer have MDH status and will be
paid based on the Federal rate. (We note
that, in section IV.B.3. of this preamble,
we are finalizing our proposal to revise
our SCH policies to allow MDHs to
apply for SCH status and be paid as
such under certain proposed conditions,
following expiration of the MDH
program.) For the FY 2013 impact of the
expiration of the MDH program at the
end of FY 2012, we refer readers to
section I.G.2.j. of Appendix A to this
final rule.
Comment: Several commenters
expressed concern with the expiration
of the MDH program, citing serious
detrimental effects that would result to
patients, hospitals, and communities.
The commenters strongly encouraged
the continuation of the MDH program.
Response: The MDH program, which
provides special treatment of and
payment to small, rural, Medicaredependent hospitals, was authorized by
statute. In order for the MDH program
to continue, or in order to reinstate it
once it expires, legislation is required.
CMS does not have the authority,
without statutory provision, to continue
the MDH program.
H. Changes in the Inpatient Hospital
Update

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1. FY 2013 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 is set by section 1886(b)(3)(B)(iv)
of the Act as discussed further below.
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

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under the IPPS for FY 2013 as equal to
the rate-of-increase in the hospital
market basket for IPPS hospitals in all
areas (which is currently based on a
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 2013
adjustment of 0.1 percentage point may
result in the applicable percentage
increase being less than zero.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27975 and 27976),
we stated that, in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51689
through 51692), we finalized our
methodology for calculating and
applying the MFP adjustment. We also
stated in the proposed rule that, for FY
2013, we were not proposing to make
any change in our methodology for
calculating and applying the MFP
adjustment. Similar to the market basket
increase, we are using the most recent
data available for this final rule to
compute the MFP adjustment. Using the
methodology that we finalized in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51690), in accordance with section
1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care
Act, in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27975), based on
IHS Global Insight, Inc.’s (IGI’s) first
quarter 2012 forecast of multifactor
productivity (MFP), we proposed an
MFP adjustment (the 10-year moving
average of MFP for the period ending FY
2013) of 0.8 percent.
Consistent with current law, and
based on IGI’s first quarter 2012 forecast
of the FY 2013 market basket increase,
we proposed an applicable percentage
increase to the FY 2013 operating
standardized amount of 2.1 percent (that
is, the FY 2013 estimate of the market
basket rate-of-increase of 3.0 percent
less an adjustment of 0.8 percentage
points for economy-wide productivity
(the MFP adjustment) 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 proposed an applicable
percentage increase to the operating

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standardized amount of 0.1 percent (that
is, the FY 2013 estimate of the market
basket rate-of-increase of 3.0 percent,
less 2.0 percentage points for failure to
submit quality data, less an adjustment
of 0.8 percentage points for economywide productivity, and less an
additional adjustment of 0.1 percentage
point). In the proposed rule, we stated
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 2013
market basket update and MFP
adjustment in the final rule.
We did not receive any public
comments on these proposals to
implement the applicable percentage
increase. For this final rule, using the
most recent data available, consistent
with current law, and based on IGI’s
second quarter 2012 forecast of the FY
2013 market basket increase, we are
finalizing an applicable percentage
increase to the FY 2013 operating
standardized amount of 1.8 percent (that
is, the FY 2013 estimate of the market
basket rate-of-increase of 2.6 percent
less an adjustment of 0.7 percentage
point for economy-wide productivity
(that is, the MFP adjustment) and less
0.1 percentage point) for hospitals in all
areas, provided the hospital submits
quality data under rules established in
accordance with section
1886(b)(3)(B)(viii) of the Act in
accordance with our rules. For hospitals
that do not submit these quality data,
we are finalizing an applicable
percentage increase to the operating
standardized amount of ¥0.2 percent
(that is, the FY 2013 estimate of the
market basket rate-of-increase of 2.6
percent, less 2.0 percentage points for
failure to submit quality data, less an
adjustment of 0.7 percentage point for
the MFP adjustment, and less an
additional adjustment of 0.1 percentage
point).
In the proposed rule, we proposed to
revise the existing regulations at 42 CFR
412.64(d)(1)(iv) to reflect the current
law for the FY 2013 update.
Specifically, in accordance with section
1886(b)(3)(B) of the Act, we proposed to
revise paragraph (d)(1)(iv) to reflect the
applicable percentage increase to the FY
2013 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

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point. We did not receive any public
comments on this proposal. Therefore,
in this final rule, we are adopting as
final, without modification, the
proposed changes to § 412.64(d)(1)(iv) to
reflect current law.
Section 1886(b)(3)(B)(iv) of the Act
provides that the applicable percentage
increase to the hospital-specific rates for
SCHs 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 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, in the
FY 2013 IPPS/LTCH PPS proposed rule
(77 FR 27976), we proposed an update
to the hospital-specific rates applicable
to SCHs of 2.1 percent for hospitals that
submit quality data or 0.1 percent for
hospitals that fail to submit quality data.
For FY 2013, the regulations in
§§ 412.73(c)(16), 412.75(d), 412.77(e)
and 412.78(e) already contain
provisions that set the update factor for
SCHs equal to the update factor applied
to the national standardized amount for
all IPPS hospitals. Therefore, we did not
propose to make further changes to
these four regulatory provisions to
reflect the FY 2013 update factor for the
hospital-specific rates of SCHs. We did
not receive any public comments on this
proposal. Therefore, for this final rule,
we are finalizing an update to the
hospital-specific rates applicable to
SCHs of 1.8 percent for hospitals that
submit quality data or ¥0.2 percent for
hospitals that fail to submit quality data.
As we noted above, for the proposed
rule, we used the first quarter 2012
forecast of the FY 2006-based IPPS
market basket with historical data
through fourth quarter 2011. For this
final rule, we used the most recent data
available, which was the second quarter
2012 forecast of the FY 2006-based IPPS
market basket with historical data
through first quarter 2012. Similarly, for
the proposed rule, we used IGI’s first
quarter 2012 forecast of MFP. For this
final rule, we used the most recent data
available, which was IGI’s second
quarter 2012 forecast of MFP.
We note that, as discussed in section
IV.G. of this preamble, 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, the
MDH program was to be in effect
through the end of FY 2011 only.
Absent additional legislation further

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extending the MDH program, the MDH
program will expire for discharges
beginning in FY 2013. Accordingly, we
are not including MDHs in our update
to the hospital-specific rates for FY
2013.
2. FY 2013 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)
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, in the
FY 2013 IPPS/LTCH PPS proposed rule
(77 FR 27976), we proposed an
applicable percentage increase to the
Puerto Rico-specific operating
standardized amount of 2.1 percent for
FY 2013. The regulations at § 412.211(c)
already set the update factor for the
Puerto Rico-specific operating
standardized amount equal to the
update factor applied to the national
standardized amount for all IPPS
hospitals. Therefore, it is not necessary
for us to make changes to the existing
regulatory text.
We did not receive any public
comments on this proposal. Therefore,
for this final rule, we are finalizing an
applicable percentage increase to the
Puerto Rico-specific operating
standardized amount of 1.8 percent for
FY 2013. As we noted above, for the
proposed rule, we used the first quarter
2012 forecast of the FY 2006-based IPPS
market basket with historical data
through fourth quarter 2011. For this
final rule, we used the most recent data

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available, which was the second quarter
2012 forecast of the FY 2006-based IPPS
market basket with historical data
through first quarter 2012. Similarly, for
the proposed rule, we used IGI’s first
quarter 2012 forecast of MFP. For this
final rule, we used the most recent data
available, which was IGI’s second
quarter 2012 forecast of MFP.
I. Payment for Graduate Medical
Education (GME) and Indirect Medical
Education (IME) Costs (§§ 412.105,
413.75 through 413.83)
1. Background
Section 1886(h) of the Act, as added
by section 9202 of the Consolidated
Omnibus Budget Reconciliation Act
(COBRA) of 1985 (Pub. L. 99–272) and
as currently implemented in the
regulations at 42 CFR 413.75 through
413.83, establishes a methodology for
determining payments to hospitals for
the direct costs of approved graduate
medical education (GME) programs.
Section 1886(h)(2) of the Act sets forth
a methodology for the determination of
a hospital-specific base-period per
resident amount (PRA) that is calculated
by dividing a hospital’s allowable direct
costs of GME in a base period by its
number of full-time equivalent (FTE)
residents in the base period. The base
period is, for most hospitals, the
hospital’s cost reporting period
beginning in FY 1984 (that is, October
1, 1983 through September 30, 1984).
The base year PRA is updated annually
for inflation. In general, Medicare direct
GME payments are calculated by
multiplying the hospital’s updated PRA
by the weighted number of FTE
residents working in all areas of the
hospital complex (and at nonprovider
sites, when applicable), and the
hospital’s Medicare share of total
inpatient days.
Section 1886(d)(5)(B) of the Act
provides for a payment adjustment
known as the indirect medical
education (IME) adjustment under the
hospital inpatient prospective payment
system (IPPS) for hospitals that have
residents in an approved GME program,
in order to account for the higher
indirect patient care costs of teaching
hospitals relative to nonteaching
hospitals. The regulations regarding the
calculation of this additional payment
are located at 42 CFR 412.105. The
hospital’s IME adjustment applied to the
DRG payments is calculated based on
the ratio of the hospital’s number of FTE
residents training in either the inpatient
or outpatient departments of the IPPS
hospital to the number of inpatient
hospital beds.

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The calculation of both direct GME
and IME payments is affected by the
number of FTE residents that a hospital
is allowed to count. Generally, the
greater the number of FTE residents a
hospital counts, the greater the amount
of Medicare direct GME and IME
payments the hospital will receive. In
an attempt to end the implicit incentive
for hospitals to increase the number of
FTE residents, Congress, through the
Balanced Budget Act of 1997 (Pub. L.
105–33), established a limit on the
number of allopathic and osteopathic
residents that a hospital may include in
its 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
direct GME in 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 based on the FTE count for IME
during that cost reporting period is
applied effective for discharges
occurring on or after October 1, 1997.
Dental and podiatric residents are not
included in this statutorily mandated
cap.
The Affordable Care Act made a
number of statutory changes relating to
the determination of a hospital’s FTE
resident count for direct GME and IME
payment purposes and the manner in
which FTE resident limits are calculated
and applied to hospitals under certain
circumstances. Section 5503 of the
Affordable Care Act added a new
section 1886(h)(8) to the Act to provide
for the reduction in FTE resident caps
for direct GME under Medicare for
certain hospitals training fewer
residents than their caps, and to
authorize the ‘‘redistribution’’ of the
estimated number of excess FTE
resident slots to other qualified
hospitals. In addition, section 5503
amended section 1886(d)(5)(B)(v) of the
Act to require the application of the
section 1886(h)(8) of the Act provisions
‘‘in the same manner’’ to the IME FTE
resident caps. The regulations
implementing section 5503 of the
Affordable Care Act were included in
the November 24, 2010 final rule with
comment period (75 FR 72263).
2. Teaching Hospitals: Change in New
Program Growth From 3 Years to 5
Years
Section 1886(h)(4)(H)(i) of the Act
requires CMS to establish rules for
calculating the direct GME caps of
teaching hospitals training residents in

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new programs established on or after
January 1, 1995. Under section
1886(d)(5)(B)(viii) of the Act, these rules
also apply to the establishment of a
hospital’s IME cap. CMS implemented
these statutory requirements in the
August 29, 1997 Federal Register (62 FR
46005) and in the May 12, 1998 Federal
Register (63 FR 26333). Generally,
under existing regulations at 42 CFR
413.79(e)(1) and 42 CFR
412.105(f)(1)(vii), if a hospital did not
train any allopathic or osteopathic
residents in its most recent cost
reporting period ending on or before
December 31, 1996, and it begins to
participate in training residents in a
new residency program (allopathic or
osteopathic) on or after January 1, 1995,
the hospital’s unweighted FTE resident
cap (which would otherwise be zero)
may be adjusted based on the sum of the
product of the highest number of FTE
residents in any program year during
the third year of the first new program,
for each new residency training
programs established during that 3-year
period, and the minimum accredited
length for each type of program. The
number of FTE resident cap slots that a
teaching hospital receives for each new
program may not exceed the number of
accredited slots that are available for
each new program. Once a hospital’s
FTE resident cap is established, no
subsequent cap adjustments may be
made for new programs unless the
teaching hospital is a rural hospital. A
rural hospital’s FTE resident caps may
be adjusted for participation in
subsequent new residency training
programs. As a reminder, a hospital that
did not train any allopathic or
osteopathic residents in its most recent
cost reporting period ending on or
before December 31, 1996, may only
receive a permanent FTE resident cap
adjustment for training residents in a
truly ‘‘new’’ residency training program;
no permanent cap adjustment would be
given for training residents associated
with an existing program. That is, if a
hospital that did not train any allopathic
or osteopathic residents in its most
recent cost reporting period ending on
or before December 31, 1996, serves as
a training site for residents in a program
that exists or existed previously at
another teaching hospital that remains
open, that ‘‘new’’ teaching hospital does
not receive a ‘‘new program’’ cap
adjustment because it is not
participating in training residents in a
truly ‘‘new’’ program. However, it is
possible for that hospital to receive a
temporary cap adjustment if it enters
into a Medicare GME affiliation
agreement with the existing teaching

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hospital as specified at 42 CFR 413.79(f)
and 412.105(f)(1)(vi). (For a detailed
discussion of the distinctions between a
new residency program and an existing
residency program, we refer readers to
the August 27, 2009 final rule (74 FR
43908).)
As stated previously, the existing
regulations provide for a 3-year period
in which a teaching hospital can ‘‘grow’’
its programs, for the purpose of
establishing its FTE resident caps. This
3-year period, which we will refer to as
the ‘‘3-year window’’ for ease of
reference, starts when the teaching
hospital first begins to train residents in
its first new program, typically on July
1, and it ends when the third program
year of that first new program ends. For
example, assume residents begin
training in a new program for the first
time on July 1, 2012. The 3-year
window begins on July 1, 2012, and
ends on June 30, 2015, the end of the
third program year of that (first) new
program. At this point in time,
regardless of the actual accredited
length of the new program, or the
number of new programs started, the
teaching hospital’s FTE resident caps
are established permanently and are
effective beginning with the fourth
program year from the date the first new
program started (using the same
example, this would be July 1, 2015).
We note that there are several ‘‘types’’
of hospitals that can receive a
permanent cap adjustment for training
FTE residents in a new program. A
hospital that has never before trained
any residents and begins training FTE
residents in its first new program can
receive a permanent cap adjustment. A
hospital that previously trained FTE
residents in an existing program(s) and
begins training FTE residents in its first
new program can receive a permanent
cap adjustment. A rural hospital can
always receive a permanent cap
adjustment for each new program it
begins. That is, a rural hospital enters a
cap-building period for each new
residency training program it begins, not
just for its first new residency training
program. Because all of these hospitals
could qualify to receive a permanent
cap adjustment for training FTE
residents in a new residency training
program, we refer to these hospitals as
‘‘qualifying’’ hospitals throughout the
remainder of this preamble.
Prior to issuance of the proposed rule,
the provider community expressed
concerns that 3 years do not provide for
a sufficient amount of time for a
hospital to ‘‘grow’’ its new residency
programs and to establish FTE resident
caps that are properly reflective of the
number of FTE residents that it will

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
actually train, once the programs are
fully grown. Providers explained that 3
years is an insufficient amount of time
primarily because a period of 3 years is
not compatible with program
accreditation requirements, particularly
in instances where the qualifying
teaching hospital wishes to start more
than one new program. For example, we
understand that a qualifying teaching
hospital may not begin all of its new
programs at the same time because of
accreditation prerequisites; rather, a
qualifying teaching hospital must wait
until the first program is in place for a
specified amount of time before it can
begin training residents in a second or
third program. This potential delay
means that a qualifying teaching
hospital may not be able to sufficiently
‘‘grow’’ all of its new programs by the
end of the ‘‘3-year window.’’ We
understand, for example, that the
Accreditation Council for Graduate
Medical Education (ACGME) requires
that, for a hospital to sponsor an
anesthesiology program, the hospital
must sponsor or be affiliated with at
least one internal medicine program and
one general surgery program.
Furthermore, we understand that the
ACGME can require new residency
training programs to pass through an
‘‘initial’’ accreditation period of up to 3
years until they can be granted
‘‘continued’’ accreditation. During this
initial accreditation period, a hospital is
not allowed to add any additional
positions to its new program. Therefore,
even if a hospital has plans to expand
its new training program beyond the
number of positions for which it is
initially accredited, it may not be
possible for the hospital to actually do
so until this initial period has expired.
Lastly, we were made aware that
providers may want to stagger the start
dates for their residency training
programs if they plan on training
residents in several programs because
they may want to gain some experience
in residency training before they begin
all of their new programs.
Given the concerns about teaching
hospitals having insufficient time to
‘‘grow’’ their new residency training
programs and to establish an
appropriately reflective permanent FTE
resident cap within a 3-year window, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 27978), we proposed that a
teaching hospital will have 5 years, or
a ‘‘5-year window,’’ in which to
establish and grow new programs. At
the end of the fifth program year of the
first new program in which the teaching
hospital participates, the teaching
hospital’s FTE resident caps would be

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determined, and set permanently,
effective with the beginning of the sixth
program year. We proposed that this
change would apply to teaching
hospitals that begin training residents in
new programs for the first time on or
after October 1, 2012. Although we
understand that many residency
training programs begin July 1 of the
calendar year, consistent with the
proposed effective date of the FY 2013
IPPS provisions in the proposed rule,
we proposed an effective date for this
change of October 1, 2012. We proposed
to amend the regulations at
§ 413.79(e)(1) to state that if a teaching
hospital participates in training
residents in a new program for the first
time on or after October 1, 2012, the
teaching hospital’s FTE resident cap
may be adjusted based on the product
of the highest number of FTE residents
training in any program year during the
fifth year of the first program’s existence
for all new residency training
program(s) and the number of years in
which residents are expected to
complete the program based on the
minimum accredited length for each
type of program. We proposed that this
policy would apply to the establishment
of a hospital’s cap for both direct GME
and IME payment purposes. The IME
regulations at § 412.105(f)(1)(vii) refer to
the direct GME regulations at
§ 413.79(e)(1) through (e)(4) for the rules
for the establishment of a new teaching
hospital’s cap. As is required under
existing regulations, the number of cap
slots associated with each new program
cannot exceed the number of accredited
slots available to the hospital for that
new program.
We note that we did not propose to
make any changes to regulations
governing treatment of the rolling
average and the intern and resident-tobed (IRB) ratio for new programs. That
is, new program FTE residents will
continue to be exempt from the rolling
average and the cap on the IRB ratio for
the minimum accredited length for the
specific type of residency training
program. These exceptions are
discussed in the regulations at
§§ 412.105(a)(1)(i) through (a)(1)(ii) and
413.79(d)(5). The current cost report
instructions for Form CMS–2552–10,
Worksheet E–4, Line 6 (current year
unweighted allopathic and osteopathic
FTE count) instruct hospitals to contact
their Medicare contractor for
instructions on how to complete that
line if the hospital has a new program
for which the period of years is less than
or greater than 3 years. Similarly, in the
case of the proposed policy where the
exemption from the rolling average for

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53417

a new program could expire prior to the
hospital’s cap being set in the sixth year
of the first new program, we stated that
we would encourage hospitals to
contact CMS if they have questions on
the method of reporting FTE resident
counts for FTE residents in new
programs that are subject to the rolling
average but not subject to the cap.
We also proposed to revise the
regulations at § 413.79(e)(1)(i) that
discuss the methodology used to
calculate a qualifying teaching
hospital’s cap adjustment for a new
residency training program if residents
training in the new program are rotating
to more than one hospital during the 5year window. We proposed to revise the
regulations to specify that, in
calculating the cap adjustment for each
new program started within the 5-year
window, we would look at the highest
total number of FTE residents training
in any program year during the fifth
academic year of the first new program’s
existence at all participating hospitals to
which these residents rotate and
multiply that highest FTE resident
count by the number of years in which
residents are expected to complete the
program, based on the minimum
accredited length of the specific
program. Furthermore, we proposed
that, for each new program started
within the 5-year window, we would
take that product and multiply it by
each hospital’s ratio of the number of
FTE residents in that new program
training over the course of the 5-year
period at each hospital to the total
number FTE residents training in that
new program at all participating
hospitals over the course of the 5 years.
We believed it was appropriate to
propose to apportion the overall FTE
cap among the hospitals participating in
training residents in the new program
based on the percentage of FTE
residents each hospital trained over the
course of the entire 5-year period, rather
than the percentage of FTE residents
each hospital trained only during the
fifth academic year, because the trend of
training over the entire 5 years may
reflect more completely the patterns in
the training in years subsequent to the
fifth academic year. Otherwise, a
hospital’s FTE cap adjustment, which is
permanent, may reflect too heavily the
share of training time solely in the fifth
academic year, which may or may not
be beneficial to the hospital. We noted
that a hospital’s cap adjustment could
differ, depending on whether we look
only at the fifth academic year of the
first new program or look at every
available year (up to 5 years) for which
training occurred to calculate each

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hospital’s share of the aggregate cap for
a specific program.
In addition, we proposed to revise the
existing regulation text at
§ 413.79(e)(1)(i) to include the phrase
‘‘the number of years in which residents
are expected to complete the program
based on the minimum accredited
length for the type of program.’’ This
proposed language is consistent with
our past, current, and proposed policy.
We also noted that § 413.79(e)(1) applies
in instances where the residents in the
new program train only at one hospital;
§ 413.79(e)(1)(i) applies when residents
in the new program train at more than
one hospital, regardless of whether each
of those hospitals are hospitals that
qualify for a permanent cap adjustment
or existing teaching hospitals with
previously established caps. The
example below illustrates the
methodology we proposed to use to
calculate a qualifying teaching
hospital’s cap if we changed the capbuilding period from 3 years to 5 years.
In this example, as explained above, we
proposed that we would calculate the
cap based on what is occurring at the
qualifying teaching hospital(s) during
the fifth academic year of the qualifying
teaching hospital’s first new program (or
the fifth academic year of the rural

teaching hospital’s new residency
training program). The provider
community has requested that the capbuilding period be increased from 3
years to 5 years. Therefore, we proposed
that we would only look at the training
that is occurring during the fifth
academic year of the first new program
to calculate the aggregate cap
adjustment. However, we proposed that
we would look at the FTE residents
training at the hospital(s) during all 5
years to determine how we would
distribute the aggregate cap adjustment
among the participating hospitals. We
included the following example in the
proposed rule:
Example: Hospital A is a hospital that
becomes a new teaching hospital by
training residents in a new family
medicine program in academic year 1.
Within its 5-year window, it also begins
a new surgery program in academic year
4 of the first new program, the family
medicine program. The family medicine
program is accredited for 15 positions,
5 positions per year (the minimum
accredited length of a family medicine
program is 3 years). The surgery
program is accredited for 20 positions,
4 positions per year (the minimum
accredited length of a surgery program
is 5 years). Residents in both the family

medicine program and the surgery
program also rotate to Hospital B.
Hospital B is an existing teaching
hospital (nonrural) with a cap that is
already established; therefore, it will not
receive any cap adjustments for training
FTE residents in the new family
medicine program or the new surgery
program. However, because both of
these programs are approved programs
and FTE residents are training at
Hospital B for part of the time, Hospital
B can receive payment for the FTE
residents training in the family
medicine program and the surgery
program at its hospital if it has room
under its caps.
First, we would determine the cap
adjustment that Hospital A will receive
for training FTE residents in the family
medicine program. The following table
includes the allowable FTE resident
counts in the family medicine program
at both Hospital A and Hospital B
during the 5-year window. These
numbers are FTE resident counts
because they reflect the share of training
time spent at Hospital A and Hospital B,
and also assume for this example that
we have excluded some nonallowable
time, such as the time residents spend
training in didactic activities in a
medical school lecture hall.

HOSPITAL A
Year 1

Year 2

Year 3

Year 4

Year 5

0.75 PGY 1 ........................
0.00 PGY 2 ........................
0.00 PGY 3 ........................

2.60 PGY 1 .......................
2.80 PGY 2 .......................
0.00 PGY 3 .......................

4.00 PGY 1 .......................
3.40 PGY 2 .......................
2.40 PGY 3 .......................

4.10 PGY 1 .......................
3.40 PGY 2 .......................
2.80 PGY 3 .......................

4.20 PGY 1
3.70 PGY 2
2.80 PGY 3

Total 0.75 ..........................

Total 5.40 ..........................

Total 9.80 ..........................

Total 10.30 ........................

Total 10.70

Hospital A’s 5 year total = 36.95.

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HOSPITAL B
Year 1

Year 2

Year 3

Year 4

3.75 PGY 1 ........................
0.00 PGY 2 ........................
0.00 PGY 3 ........................

2.20 PGY 1 .......................
2.00 PGY 2 .......................
0.00 PGY 3 .......................

0.90 PGY 1 .......................
1.50 PGY 2 .......................
2.40 PGY 3 .......................

0.80 PGY 1 .......................
1.50 PGY 2 .......................
2.00 PGY 3 .......................

0.60 PGY 1
1.20 PGY 2
2.00 PGY 3

Total 3.75 ..........................

Total 4.20 ..........................

Total 4.80 ..........................

Total 4.30 ..........................

Total 3.80

Hospital B’s 5 year total = 20.85.
Total Hospital A and Hospital B over
5 years = 36.95 + 20.85 = 57.80 FTEs.
To calculate the cap adjustment for
Hospital A with respect to the family
medicine program, we need to take the
highest number of FTE residents
training in any program year in this
program (that is, FTE residents training
at both Hospital A and Hospital B) in
the fifth year of the first new program’s

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existence (which is the family medicine
program). If we add the PGY 1s, the PGY
2s, and the PGY 3s at both hospitals, in
year 5, we see that we would use the
total number of PGY 2s to calculate the
FTE cap adjustment for the family
medicine program, because the total
number of PGY 2s at both hospitals is
4.90 FTEs (3.70 + 1.20), whereas the
total number of PGY 1s and PGY 3s is
only 4.80. We multiply 4.90 by the

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Year 5

minimum accredited length of the
family medicine program to get the total
possible cap adjustment for the family
medicine program (4.90 × 3 = 14.70).
The cap adjustment that Hospital A
receives for the family medicine
program will be some number less than
14.70 based on the ratio of the number
of FTEs in the new program training
over the course of the 5-year period at
Hospital A to the total number FTE

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
residents training at both hospitals over
the course of the 5-year period.
To determine this ratio, note that
Hospital A’s total FTE residents in the
new family medicine program over the
course of 5 years is the numerator,
36.95. The total FTE residents at
Hospitals A and B in the new family
medicine program over the course of 5
years is the denominator, 57.80 (that is,
36.95 + 20.85). The ratio of training that
occurred at Hospital A is 36.95/57.80 =
0.64. Therefore, Hospital A’s cap for its
share of the family medicine program is
0.64 × 14.70, or 9.41. (If Hospital B had

been eligible to receive a cap
adjustment, its ratio of the cap would
have been 0.36, that is, (20.85/57.80),
and its share would have been 5.30
(0.36 × 14.70). If we add 9.41 to 5.30, we
get 14.71 (we note that 14.71 is
‘‘approximately’’ equal to 14.70, the
total cap determined for the entire
family medicine program, with a slight
difference due to rounding). Thus, we
have ensured that, in assigning a cap of
9.41 to Hospital A on behalf of its family
medicine program, the total allowable
and accredited number of slots has not
been exceeded).

Now we will determine the cap
adjustment that Hospital A will receive
for training FTE residents in the new
surgery program that began in year 4 of
the first new program. The following
tables include the allowable FTE
resident counts in the surgery program
at Hospital A and Hospital B,
respectively, during the hospital’s 5year window. Again, assume we have
excluded nonallowable time, such as
time residents spent training in didactic
activities in a medical school lecture
hall.

HOSPITAL A
Year 1
0.00
0.00
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

........................
........................
........................
........................
........................

Total 0.00 ..........................

Year 2
0.00
0.00
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

Year 3

.......................
.......................
.......................
.......................
.......................

Total 0.00 ..........................

0.00
0.00
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

Year 4

.......................
.......................
.......................
.......................
.......................

Total 0.00 ..........................

4.10
0.00
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

Year 5

.......................
.......................
.......................
.......................
.......................

Total 4.10 ..........................

4.20
2.70
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

Total 6.90

Hospital A’s 5 year total = 11.00.

HOSPITAL B
Year 1
0.00
0.00
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

........................
........................
........................
........................
........................

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Total 0.00 ..........................

Year 2
0.00
0.00
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

.......................
.......................
.......................
.......................
.......................

Total 0.00 ..........................

Hospital B’s 5 year total = 3.80.
Total Hospital A and Hospital B over
5 years = 11.00 + 3.80 = 14.80 FTEs.
To calculate the cap adjustment for
Hospital A with respect to the surgery
program, we need to take the highest
number of FTE residents training in this
program (that is, FTE residents training
at both Hospital A and Hospital B) in
the fifth year of the first new program’s
existence (which is the family medicine
program). Because the surgery program
only started in Year 4 of the family
medicine program, there are only PGY
1s and PGY 2s training at both Hospitals
A and B in year 5; thus, we consider the
surgery PGY 1s and PGY 2s in year 5 of
the family medicine program. If we add
the PGY 1s and the PGY 2s at both
hospitals in year 5, we see that we
would use the total number of PGY 1s
to calculate the FTE cap adjustment for
the surgery program, because the total
number of PGY 1s is 4.80 FTEs (4.20 +
0.60), whereas the total number of PGY
2s is only 4.20. However, because the

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0.00
0.00
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

Year 4

.......................
.......................
.......................
.......................
.......................

Total 0.00 ..........................

1.70
0.00
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

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.......................
.......................
.......................
.......................
.......................

Total 1.70 ..........................

regulations do not permit a hospital to
count more FTE residents in each
program year than what the program is
approved for (in this example, 4 FTE
residents for each program year), we
must multiply 4.0 by the minimum
accredited length of the surgery program
to get the total possible cap adjustment
for the surgery program (4.0 × 5 = 20).
That is, because the surgery program is
only accredited for 20 positions, the
overall FTE resident cap associated with
the surgery program that is to be
apportioned between Hospital A and
Hospital B is limited to a maximum of
20. The cap adjustment that Hospital A
receives for the surgery program will be
some number less than 20 and is based
on the ratio of the number of FTE
residents in the new program training
over the course of the 2-year period at
Hospital A to the total number FTEs
training at both hospitals over the
course of the 2-year period.
To determine this ratio, note that
Hospital A’s total FTE residents in the

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1
2
3
4
5

Year 5
0.60
1.50
0.00
0.00
0.00

PGY
PGY
PGY
PGY
PGY

1
2
3
4
5

Total 2.10

new surgery program over the course of
2 years is the numerator, 11.00. The
total number of FTE residents at
Hospitals A and B in the new surgery
program over the course of 5 years is the
denominator, 14.80 (that is, 11.00 +
3.80). The ratio of training that occurred
at Hospital A is 11.00/14.80 = 0.74.
Hospital A’s cap for its share of the
surgery program is 0.74 × 20 = 14.80. (If
Hospital B had been eligible to receive
a cap adjustment, its share of the cap
would have been 5.20 ((3.80/14.80) ×
20) = 5.20. Thus, we have ensured that,
in assigning a cap of 14.80 to Hospital
A on behalf of its surgery program, the
total allowable and accredited number
of slots has not been exceeded).
Adding together the cap adjustment
Hospital A receives for the new family
medicine program and the cap
adjustment it receives for the new
surgery program, Hospital A’s total
permanent cap is 24.21 (9.41 + 14.80 =
24.21).

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In summary, we proposed to revise
the regulations at § 413.79(e)(1) for the
purposes of direct GME and, by
reference, § 412.105(f)(1)(vii) for
purposes of IME to state that if a
hospital begins training residents in a
new program for the first time on or
after October 1, 2012, that hospital’s
caps may be adjusted based on the
product of the highest number of FTE
residents training in any program year
during the fifth academic year of the
first program’s existence for all new
residency training programs and the
number of years in which residents are
expected to complete the program based
on the minimum accredited length for
the type of program. The cap would be
applied beginning with the sixth
academic year of the first new program.
We also proposed conforming changes
throughout paragraph (e)(1) of § 413.79
to correspond with the proposed change
to increase the length of the capbuilding period from 3 to 5 years. In
addition, we proposed to change the
regulation text at § 413.79(e)(1)(i) to
reflect a methodology to calculate a
qualifying teaching hospital’s cap
adjustment if the residents in the new
training program are training at more
than one hospital. We proposed that
these changes would be effective for a
hospital that begins training residents
for the first time on or after October 1,
2012. Lastly, we proposed to make a
clarification to the existing regulation
text at § 413.79(e)(1)(i) to insert the
missing phrase ‘‘and the number of
years in which residents are expected to
complete the program based on the
minimum accredited length for the type
of program.’’ This change is consistent
with our past, current, and proposed
policy.
Comment: Commenters supported
extending the cap-building period for a
new teaching hospital from 3 years to 5
years. Commenters stated that the
proposal provided an accurate
characterization of challenges that a
hospital may face with trying to
establish a cap within a 3 year period.
Commenters stated that extending the
cap-building period from 3 years to 5
years would permit new teaching
hospitals to meet accreditation
requirements and grow programs in
order to help address the country’s
physician shortage and provide greater
flexibility in the timeline for starting
new programs. Another commenter
stated that the extension from 3 to 5
years is generally an improvement and
provides teaching hospitals with time to
reach a steady number of FTE residents
and allows the hospital to find residents
that may be a better fit for a specific

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residency training program. The
commenters stated they believe that 5
years is likely a sufficient period of time
because many new programs will fill
their higher PGY levels by accepting
transfer residents from other programs
rather than just filling up only the PGY1
level.
Several commenters supported
extending the cap-building period from
3 to 5 years because creating a new
teaching hospital involves collaboration
among several different participants, for
example medical schools and
nonteaching hospitals, and also requires
interactions with regulatory bodies and
accrediting agencies. The commenters
stated that, in addition to a 3-year
window being a challenge due to the
number and variety of participants
involved in establishing a new teaching
hospital, 3 years is based on ‘‘* * * an
unreasonable and aggressive expectation
that an organization can establish its
desired complement of training
programs nearly simultaneously in such
a period while ensuring a high-quality
educational experience for residents and
fellows and a seamless transition from
a nonteaching to a teaching service care
model for Medicare beneficiaries.’’ The
commenters stated it is not appropriate
to limit hospitals’ access to GME
payments based on factors that the
hospitals cannot control, such as
ACGME and National Resident
Matching Program requirements and
timelines. Another commenter stated
that a cap-building period of 5 years
will permit four community hospitals
that are considering building GME
programs in Northeast Georgia to grow
their programs more fully and with
greater flexibility. One commenter
stated that extending the cap-building
period to 5 years will aid it in its
collaboration with a school of medicine
to support their efforts of training
residents in areas across Indiana where
no residency training programs
previously existed. Another commenter
stated the proposed change from 3 years
to 5 years will promote the
establishment of needed residency
programs by establishing caps that
reflect the number of FTE residents that
a hospital will be able to train once the
programs have matured and will give
new teaching hospitals more time to
make the necessary initial investment of
resources. The commenter stated that
expanding residency training programs
will help address the physician shortage
in Arizona that is expected to grow as
a result of an aging population and
increased insurance coverage under the
Affordable Care Act. One commenter
stated that it supported a 5-year window

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because it will aid in developing new
emergency medicine residencies,
extending emergency medical
residencies from 3 years to 4 years, and
meeting the needs of other specialty
residency training programs that want to
expand their programs to the maximum
number of accredited positions. Another
commenter supported the expansion
from a 3-year window to a 5-year
window and encouraged CMS to revisit
this policy in several years to confirm
that 5 years is an adequate amount of
time for the cap-building process.
One commenter stated it understood
that, due to accreditation rules, it is very
difficult for a new teaching hospital to
start several residency training programs
within the current 3-year window. The
commenter stated that it understood
that if a new teaching hospital tries to
start a second program during its 3-year
window, it is almost impossible to start
that second program before the third
year of the hospital’s 3-year window.
The commenter noted that it understood
the ACGME has a reasonable
expectation that new teaching hospitals
need to gain experience training
residents and have a strong educational
infrastructure in place before they start
to train residents in specialty residency
training programs. The commenter
stated that if a new teaching hospital is
only really provided with one year to
start a second residency training
program, the hospital is forced to be
aggressive in filling a full cohort of firstyear residents, which may be neither in
the hospital’s nor the residents’ best
interest. The commenter stated that
extending the cap-building period from
3 years to 5 years will allow teaching
hospitals to build residency training
programs ‘‘* * * that will best serve the
patients in their community and
provide a strong educational
infrastructure for their residents.’’
Response: We appreciate the
commenters’ support of our proposal to
expand the cap-building period from 3
years to 5 years. Therefore, we are
finalizing our proposal to provide
qualifying teaching hospitals with a 5year window to grow their cap. The 5year window will begin once the
qualifying teaching hospital first starts
training residents in its first new
program and the cap will apply
beginning with the sixth program year
of the first new program. In response to
the commenters who stated that a 5-year
window is a sufficient period of time for
building a hospital’s cap because new
programs may accept transfer residents
from other programs rather than filling
only PGY1 slots, we remind hospitals
that filling a program with transfer
residents from other hospitals’ existing

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residency training programs may
jeopardize the program’s status as
‘‘new.’’ As we explained in the August
27, 2009 Federal Register (74 FR
43908), one of the factors CMS
considers in determining whether a
residency training program can be
considered a new program for Medicare
GME payment purposes is whether
residents entering a program are new
residents or residents transferring from
an existing program(s).
Comment: Although commenters
supported extending the cap-building
period from 3 years to 5 years, many did
not support making the policy effective
for new teaching hospitals that first
begin to train residents in their first new
program on or after October 1, 2012.
Commenters requested that the
extension of the cap-building period
from 3 to 5 years apply to new teaching
hospitals that are currently within their
3-year window, new teaching hospitals
that started training residents for the
first time in a new program on or after
July 1, 2010, or at the very least apply
effective July 1, 2012. Commenters
stated that new teaching hospitals that
are currently within the 3-year window
are facing the same challenges that CMS
described in the proposed rule and
deserve to benefit from a 5-year
window. Commenters stated that CMS
would be able to apply the 5-year
window without any additional
administrative burden on its part. One
commenter requested that, because a
new teaching hospital that begins
training residents July 2010 would begin
the third year of its cap-building period
July 1, 2012 and would not have its caps
set until July 1, 2013, CMS amend its
proposed regulation text to apply the 5year window to a hospital that first
begins training residents in a new
program for the first time on or after July
1, 2010. The commenter stated that, if
CMS does not agree to apply the 5-year
window to hospitals that are still within
their 3-year window on October 1, 2012,
CMS at least apply the 5-year window
to new teaching hospitals that had not
been training residents as of the
publication of the proposed rule, that is,
effective July 1, 2012. The commenter
stated that this application would be
prospective and would result in an even
smaller cost than applying the 5-year
window to all hospitals that are still
within their 3-year window for
establishing a cap. One commenter
stated that making the 5-year window
effective for hospitals that are still
within their 3-year window as of
October 1, 2012, would allow it to
continue to develop its fellowships in
geriatrics and palliative care and expand

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its internal medicine program, and that
without the possibility of this additional
payment, it may not be able to support
these programs which would increase
the community’s access to primary care
and support the future physician
workforce. Another commenter stated
that it is just about to start the third year
of its new residency program and there
is nothing precluding CMS from
applying the 5-year window to hospitals
that are currently growing their caps.
The commenter stated that, given the
likely upcoming physician shortage,
there is a public health benefit to
applying the 5-year window as broadly
as possible.
Another commenter stated that the
proposal to expand the cap-building
period is long overdue especially due to
the fact that in the last decade residency
training has been expanded to address
physician shortage and complement
new medical schools. The commenter
stated that two of its member hospitals
have recently or currently are
establishing new programs and will be
negatively affected by the 3-year
window. Therefore, the commenter
requested the 5-year window be applied
to all hospitals currently growing their
caps as of October 1, 2012.
One commenter requested that CMS
provide for an exception for hospitals
that may have had a cap based on very
few residency rotations but want to be
able to train more residents because of
a new medical school or an expansion
of an existing medical school. The
commenter stated that it has been a
leader in Wisconsin in developing a
report that addresses the potential
physician shortage and in establishing a
task force to address the need to train
new physicians. The commenter stated
that one of its State’s medical schools
may be able to expand into at least one
new area in the State and that hospitals
that want to grow their residency
training programs as a result of this
expansion should be provided with
special consideration and an exemption
from their caps.
Another commenter stated that it is
beginning a family medicine and
internal medicine program and if it were
to have a 5-year window it would be
able to expand the number of primary
care residents that it trains. The
commenter requested that the 5-year
window apply retroactively to any
hospital that has not yet established a
cap.
Response: We disagree with the
commenters who suggested applying the
5-year window to hospitals that are still
within their 3-year window effective
October 1, 2012, or to hospitals that
begin training in July 2012. We believe

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it is appropriate that the policies
included in this final rule will be
effective with the start date of the next
fiscal year, in this case, October 1, 2012.
Therefore, we are finalizing the policy
to extend the cap-building period from
3 years to 5 years, effective for hospitals
that first begin to train residents in their
first new program on or after October 1,
2012.
Comment: Some commenters
supported CMS’ proposed methodology
for calculating a new teaching hospital’s
cap adjustment if residents in the new
program are training at more than one
hospital (proposed § 413.79(e)(1)(i)).
However, some commenters also
expressed concern regarding the
proposed methodology to consider all 5
years of the cap-building period for
purposes of determining a participating
hospital’s cap adjustment. Commenters
stated that considering all 5 years
prevents nonteaching hospitals from
training residents in the new program if
it wants to establish its own programs
in the future. The commenters stated
that, under the proposed methodology,
a new teaching hospital could ‘‘lose’’
cap slots if it rotated residents in a new
program at any time during the 5-year
window to another hospital, even if by
the last year of the 5-year window, it
would be able to offer all of the rotations
at its facility. Commenters stated that if
a methodology for allocating cap slots
among participating hospitals is
adopted, it should only consider the
training that is occurring during the fifth
year after training starts.
One commenter stated that it is in the
process of developing residency training
programs and is seeking a Trauma
designation. The commenter stated that
until it receives its Trauma designation,
it plans to send its Emergency Medicine
residents to other facilities for the
program’s Trauma rotation. The
commenter stated that due to these
outside rotations, its cap will be
reduced and it will not be able to
receive a cap adjustment for those FTE
residents it would have the capacity to
train later on.
Commenters stated that while they
believe the proposed calculation of the
total cap is appropriate, the proposed
apportionment of FTE residents among
participating hospitals may result in
inappropriate cap determinations if the
programs were in existence for less than
their minimum accredited length by the
fifth year of the cap-building period.
One commenter stated ‘‘* * * the result
of utilizing a limited data set and
extrapolating those resident counts to
represent the anticipated resident
rotation activity for the entire program
may result in an apportionment of

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resident FTEs that is misaligned and
varies markedly from the actual
experience of the training program.’’
Commenters stated that while existing
teaching hospitals may participate in
Medicare GME affiliation agreements to
temporarily adjust their caps, new
teaching hospitals are not permitted to
temporarily lend some of their cap
through an affiliation agreement and,
therefore, it is not feasible for a new
teaching hospital to use a Medicare
GME affiliation agreement to alleviate
the effects of an inappropriate cap
determination. Commenters therefore
requested that if the new program has
been in existence for less than its
minimum accredited length by the fifth
year of the cap building period,
participating hospitals should be
permitted to collaborate and submit an
attestation certifying a preferred way of
dividing the cap slots. The commenters
stated that the total cap adjustment
should be calculated as proposed;
however the individual cap
determinations should be adjusted as
follows:
• For any program that has operated
for a period of time less than the
number of years equal to the minimum
accredited program length as of Year 5
(the cap adjustment year), if consensus
is reached among all of the hospitals
participating in the development of the
new program that the apportionment as
determined by the CMS formula does
not appropriately reflect the anticipated
deployment of residents across the full
program and accordingly advantages or
disadvantages one or more of the new
teaching hospitals, the hospitals may
collectively recommend, certify, and
submit to CMS an alternative
apportionment for the resident FTE
counts that are associated with that
particular program and that will be
assigned to the hospitals.
• For any program that has operated
for a period of time equal to or greater
than the minimum accredited program
length by Year 5, the hospitals will not
have an opportunity to recommend an
alternative apportionment of resident
FTEs for cap adjustment purposes.
Several commenters recommended
changing the regulation text at 42 CFR
413.79(e)(1)(i) by replacing the phrase
‘‘an entire program year (or years)’’ with
‘‘portions of a program year (or years)’’
because it more accurately describes the
proposed methodology for determining
an individual hospital’s cap adjustment.
Response: We appreciate the
commenters’ support of the
methodology we proposed to use to
calculate a qualifying teaching
hospital’s total cap adjustment for a new
program. We disagree with commenters

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who stated that it is inappropriate to
consider all 5 years of the cap-building
period in determining a specific
qualifying teaching hospital’s cap
adjustment for a new program. There
may be some merit to the commenters’
suggestions that it may take several
years until a program is fully
operational so by the end of the 5-year
window a hospital may be able to have
all the rotations occur at its facility.
However, we believe that considering
all 5 years of the cap-building period in
calculating a qualifying teaching
hospital’s cap adjustment is appropriate,
as it provides a more complete picture
of the actual rotations that will be part
of the approved residency training
program as opposed to just taking into
account what is happening in the new
program during the final year of the cap
building period, which may not
accurately reflect the hospitals’ plans for
dividing rotations among participating
hospitals which may fluctuate from year
to year. We do not believe it would be
appropriate to allow participating
hospitals to submit alternative
methodologies for dividing the total cap
adjustment if they do not agree with the
cap calculations that have been
determined by CMS. The policy used to
apportion a total cap adjustment among
participating hospitals must be a single
national policy. Permitting hospitals to
develop and apply their own
methodologies may lead to disparate
treatment among qualifying teaching
hospitals. Furthermore, requiring
Medicare contractors to apply specific
individual policies for determining a
hospital’s cap adjustment, as opposed to
applying one national policy, would
prove to be administratively difficult
and could significantly delay the
determination of a hospital’s cap.
After considering the public
comments we received on the proposed
methodology to be used in determining
individual cap adjustments for
qualifying teaching hospitals that
participate in training residents in a
new program, we are finalizing our
methodology as proposed. That is, in
order to determine a qualifying teaching
hospital’s cap adjustment for a new
program(s), we will take the sum of the
products of three factors (limited to the
number of accredited slots for each
program): (1) The highest total number
of FTE residents trained in any program
year, during the fifth year of the first
new program’s existence at all of the
hospitals to which the residents in that
program rotate; (2) the number of years
in which residents are expected to
complete the program, based on the
minimum accredited length for each

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type of program; and (3) the ratio of the
number of FTE residents in the new
program that trained at the hospital over
the entire 5-year period to the total
number of FTE residents that trained at
all hospitals over the entire 5-year
period.
Because we are finalizing the
methodology as proposed, we refer
readers to the examples provided in the
proposed rule and also included earlier
in this preamble for further guidance.
We agree with the commenters who
suggested that we replace the phrase
‘‘an entire program year (or years)’’ at 42
CFR 413.79(e)(1)(i) with the phrase
‘‘portions of a program year (or years)’’
and, therefore, are amending this
regulation text to include this change.
We also are amending the regulation
text at 42 CFR 413.79(e)(1)(i) to more
clearly describe that an individual
hospital’s cap adjustment for a new
program that rotates residents to more
than one hospital is based on the
product of three factors, which are
described earlier in this paragraph.
Furthermore, in this final rule, we are
making minor revisions to the
regulation text at 42 CFR 413.79(e)(2)
through (e)(4) for purposes of
maintaining consistency throughout 42
CFR 413.79(e).
Comment: Several commenters
referred to a statement reiterated in the
proposed rule (77 FR 27977) that a new
teaching hospital can only receive a cap
adjustment for training residents in a
truly ‘‘new’’ program and to the August
27, 2009 final rule (74 FR 43908) in
which CMS discussed the requirements
that a residency training program must
meet in order to be considered a new
program. The commenters requested
that CMS clarify the definition of a new
residency training program so that
hospitals can use the 5-year window for
building their caps. Commenters stated
that because of CMS’ ‘‘ambiguous
criteria’’ used to define a new program,
hospitals hoping to start brand new
programs have not been able to get a
clear opinion from CMS or legal counsel
as to whether a program is, in fact, new.
Commenters stated that this lack of
clarity leads to financial risks for a
hospital and does not provide any
incentives for hospitals to participate in
residency training. Commenters stated
that hospitals are concerned that if they
hire a program director with significant
experience to meet ACGME
requirements, their program will not be
considered new. Commenters requested
that CMS develop a bright line policy
regarding the definition of a new
program and suggested that CMS
consider a program to be new if all PGY
1 residents are new and 90 percent of

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residents in later PGY years are new.
Commenters requested CMS clarify that
prior experience and status of the
program director and teaching
physicians are not relevant in
determining whether a program is
considered new.
Several commenters referred to CMS’
existing policy that when a nonteaching
hospital starts training residents in a
new program, it enters a cap-building
period and receives a PRA. Commenters
stated that such a policy hinders the
development of GME training at small
hospitals in rural and underserved areas
because the result of a resident rotation
of short duration is a low PRA and small
cap which will prevent the hospitals
from establishing their own viable
residency training programs later on.
Commenters stated that assigning a cap
and PRA to a nonteaching hospital that
does not have a rotation of long duration
does not permit these small nonteaching
hospitals to determine whether
residency training would be a viable
option for them. Commenters requested
that CMS consider one or more of the
following proposals:
• A teaching hospital should be
allowed to rotate residents for a period
equal to or less than 3 months (or a
maximum percentage of training time)
per resident per year without triggering
the cap or PRA in a nonteaching
hospital.
• A new teaching hospital should be
allowed to rotate residents in high-need
specialties (for example, primary care,
general surgery) without triggering a cap
or PRA in a nonteaching hospital.
• Small rural hospitals and hospitals
located in remote or underserved areas
should be allowed to rotate residents to
non-teaching hospitals without
triggering caps or PRAs in those
institutions.
One commenter offered a fourth
recommendation to be used if CMS
continues with its current policy of
assigning a PRA and cap to nonteaching
hospitals that train residents in a new
program for a rotation of short duration.
The commenter stated that if a hospital
has not had residents rotating to its site
for a reasonable period of time (the
commenter suggested 3 or 5 years), the
hospital’s cap should expire and the
hospital should be considered a
nonteaching hospital.
Response: We do not consider these
comments to be within the scope of the
provisions of the FY 2013 IPPS/LTCH
PPS proposed rule. In terms of the
comment regarding the definition of a
new residency training program, we did
not propose to redefine the
requirements that a program must meet
in order to be considered a new

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program. The discussion cited was part
of the background discussion of existing
policies. These public comments may be
considered for future rulemaking. In
terms of the commenters’ concerns
regarding nonteaching hospitals that
receive a cap adjustment and PRA for
participating in training residents in a
new program even if the rotation to the
nonteaching hospital is of short
duration, perhaps these concerns could
be potential topics for future rulemaking
because they have ramifications that go
beyond the establishment of a cap for a
new program, for example, for
establishing the PRA of a ‘‘new’’
teaching hospital training residents in
an existing program. Some commenters
seemed to suggest that if an existing
teaching hospital sends residents to a
nonteaching hospital for a rotation of
very short duration, the existing
teaching hospital should be able to
count the residency training time at the
nonteaching hospital. We remind
readers that a hospital cannot count the
residency training time that is occurring
at another hospital. Therefore, it would
not be possible for one hospital to count
rotations occurring at other hospitals
even if the rotations are of a short
duration.
Comment: One commenter asked
‘‘when CMS refers to the accredited
length for the ‘type’ of program, is CMS
referring to a specific program with a
specific accreditation time period, or the
average accredited time for a type of
specialty, such as primary care?’’ The
commenter recommended ‘‘* * * that
the minimum length of time for each
training program is based on the
accreditation for a specific program,
rather than on the average training time
for a general type of program.’’ Another
commenter requested that CMS clarify
the following language included in the
proposed rule (77 FR 27979): ‘‘However,
because both of these programs are
approved programs and FTE residents
are training at Hospital B for part of the
time, Hospital B can count the FTE
residents training in the family
medicine program and the surgery
program at its facility if it has room
under its caps to do so.’’ The
commenters stated they believed
hospitals should count FTE residents
regardless of whether the hospital has
room under its caps. The commenters
requested CMS ‘‘* * * clarify whether
or not a hospital should report all
allowable resident FTEs when a hospital
does not have room under its caps
* * *’’.
Response: When we refer to the
accredited length of a ‘‘type’’ of program
in the proposed rule and in this final
rule, we are referring to the minimum

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53423

accredited length for a specific specialty
program, that is, the number of years of
residency training that a resident must
complete in order to be board certified
in that specialty. For example the
minimum accredited length for family
medicine is 3 years and the minimum
accredited length for surgery is 5 years.
In response to the commenter’s
request that CMS clarify whether a
hospital should report all allowable FTE
residents when a hospital does not have
room under its caps, if an existing
teaching hospital with an already
established cap participates in training
residents in a new program, unless it is
a rural hospital, it cannot receive a
permanent cap adjustment for training
residents in the new program. If the new
program is an approved program and
the existing teaching hospital is training
below its caps, the existing teaching
hospital can count and receive payment
for the residents training in the new
program at its facility up to its caps. The
commenter is correct that if the existing
teaching hospital is training residents in
an approved program(s) it should report
those FTE residents on its cost report
regardless of whether or not it is
training over its caps. However, the
existing teaching hospital would only be
able to receive Medicare payment for
training residents in the new program
up to its cap limit.
Comment: One commenter requested
that CMS provide new teaching
hospitals with additional flexibility to
grow GME programs and provide
additional investments in GME that will
be required to grow and improve the
geriatrics workforce. One commenter
also requested that CMS provide GME
funding for second year pharmacy
residency programs. One commenter
expressed concern that the policy of
assigning a cap and PRA after a short
rotation to a formerly nonteaching
hospital may be a policy that is applied
to teaching hospital centers, which it
believed would have a negative effect on
the creation of new teaching health
centers.
Response: We consider these public
comments to be outside the scope of the
proposed rule and, therefore, we are not
addressing them in this final rule.
In summary, we are finalizing our
proposal to increase the cap-building
period from 3 years to 5 years. We also
are finalizing the proposed methodology
used to calculate a cap adjustment for
an individual hospital if a new program
rotates residents to more than one
hospital (or hospitals). The methodology
is based on the sum of the products of
the following three factors: (1) The
highest total number of FTE residents
trained in any program year, during the

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fifth year of the first new program’s
existence at all of the hospitals to which
the residents in that program rotate; (2)
the number of years in which residents
are expected to complete the program,
based on the minimum accredited
length for each type of program; and (3)
the ratio of the number of FTE residents
in the new program that trained at the
hospital over the entire 5-year period to
the total number of FTE residents that
trained at all hospitals over the entire 5year period. In addition, we are making
minor revisions to the regulation text at
42 CFR 413.79(e)(2) through (e)(4) for
purposes of maintaining consistency
throughout 42 CFR 413.79(e).
3. Policies and Clarification Related to
5-Year Period Following
Implementation of Reductions and
Increases to Hospitals’ FTE Resident
Caps for GME Payment Purposes Under
Section 5503 of the Affordable Care Act
As previously discussed, in an
attempt to end the implicit incentive for
hospitals to increase the number of FTE
residents, Congress instituted a cap on
the number of allopathic and
osteopathic residents a hospital is
allowed to count for direct GME and
IME purposes. Some hospitals have
trained a number of allopathic and
osteopathic residents in excess of their
FTE resident caps, while other hospitals
are training a number of allopathic and
osteopathic residents at some level
below their FTE resident caps. Section
5503 of the Affordable Care Act added
a new section 1886(h)(8) to the Act to
provide for reductions in the statutory
FTE resident caps for direct GME
payment purposes under Medicare for
certain hospitals that are training
allopathic and osteopathic residents at a
level below their FTE resident caps, and
to authorize a ‘‘redistribution’’ to certain
hospitals of the estimated number of
FTE resident slots resulting from the
reductions. Section 5503 of the
Affordable Care Act also amended
section 1886(d)(5)(B)(v) of the Act to
require application of the provisions of
section 1886(h)(8) of the Act ‘‘in the
same manner’’ to the FTE resident caps
for IME payment purposes.
Section 1886(h)(8)(A)(i) of the Act
provides that, effective for portions of
cost reporting periods occurring on or
after July 1, 2011, a hospital’s FTE
resident cap will be reduced by 65
percent of the difference between the
hospital’s ‘‘otherwise applicable
resident limit’’ and its ‘‘reference
resident level,’’ if its ‘‘reference resident
level’’ is less than its ‘‘otherwise
applicable resident limit’’ (as defined at
section 1886(h)(8)(H) of the Act). (We
refer readers to the November 24, 2010

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final rule with comment period (75 FR
72155 through 72161) for a discussion
of these terms.) Section 1886(h)(8)(A)(ii)
of the Act and the November 24, 2010
final rule with comment period (75 FR
72147) describe which hospitals are
exempt from a cap reduction under
section 5503 of the Affordable Care Act,
including rural hospitals with fewer
than 250 acute care inpatient beds.
Under section 1886(h)(8)(B) of the
Act, the Secretary is authorized to
increase the FTE resident caps for
certain categories of hospitals for
portions of cost reporting periods
occurring on or after July 1, 2011, in the
aggregate, by a number that does not
exceed the estimated overall reduction
in FTE resident caps for all hospitals
under section 1886(h)(8)(A) of the Act.
In determining which hospitals will
receive an increase in their FTE resident
caps, sections 1886(h)(8)(C) through
1886(h)(8)(E) of the Act direct us to do
all of the following:
• Take into account the demonstrated
likelihood of the hospital filling the
additional positions within the first
three cost reporting periods beginning
on or after July 1, 2011.
• Take into account whether the
hospital has an accredited rural training
track program.
• Distribute 70 percent of the resident
slots to hospitals located in States with
resident-to-population ratios in the
lowest quartile.
• Distribute 30 percent of the resident
slots to hospitals located in a State, a
territory of the United States, or the
District of Columbia that are among the
top 10 States, territories, or the District
in terms of the ratio of the total
population living in an area designated
as a health professional shortage area
(HPSA), as of March 23, 2010, to the
total population, and/or to hospitals
located in rural areas.
A comprehensive description of the
rules implementing the cap slot
redistribution under section 1886(h)(8)
of the Act can be found in the November
24, 2010 final rule with comment period
(75 FR 72168). Section 1886(h)(8)(B)(ii)
of the Act, as added by section
5503(a)(4) of the Affordable Care Act,
specifies that a hospital that receives an
increase in its cap shall ensure, during
the 5-year period beginning on the date
of such increase (July 1, 2011), that
certain requirements, referred to as the
primary care average and the 75-percent
threshold, are met in order to retain
those slots. Otherwise, section
1886(h)(8)(B)(iii)(I) of the Act authorizes
the Secretary to reduce the FTE resident
caps of the hospital by the same number
of FTE residents by which the hospital’s
FTE resident caps were increased if the

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hospital fails to meet either
requirement; and section
1886(h)(8)(B)(iii)(II) of the Act
authorizes the Secretary to redistribute
those positions.
Specifically, section 1886(h)(8)(B)(ii)
of the Act states, ‘‘* * * a hospital that
receives an increase in the otherwise
applicable resident limit under this
subparagraph shall ensure, during the 5year period beginning on the date of
such increase, that—
(I) The number of full-time equivalent
primary care residents, as defined in
paragraph (5)(H) (as determined by the
Secretary), excluding any additional
positions under subclause (II), is not
less than the average number of fulltime
equivalent primary care residents (as so
determined) during the 3 most recent
cost reporting periods ending prior to
the date of enactment of this paragraph;
and
(II) Not less than 75 percent of the
positions attributable to such increase
are in a primary care or general surgery
residency (as determined by the
Secretary).
The Secretary may determine whether
a hospital has met the requirements
under this clause during such 5-year
period in such manner and at such time
as the Secretary determines appropriate,
including at the end of such 5-year
period.’’
In a case where the Secretary
determines that a hospital did not meet
the requirements in a cost reporting year
during the 5-year time period, section
1886(h)(8)(B)(iii) of the Act states that
‘‘* * * the Secretary shall—
(I) Reduce the otherwise applicable
resident limit of the hospital by the
amount by which such limit was
increased under this paragraph; and
(II) Provide for the distribution of
positions attributable to such reduction
in accordance with the requirements of
this paragraph.’’
In the November 24, 2010 final rule
with comment period (75 FR 72195
through 72203), we stated that the ‘‘5year period beginning on the date of
such increase’’ is July 1, 2011 through
June 30, 2016, and we provided a
detailed discussion of what the two
requirements under sections
1886(h)(8)(B)(ii)(I) and
1886(h)(8)(B)(ii)(II) of the Act entail. In
that final rule, we noted that section
1886(h)(8)(B)(ii) of the Act allows the
Secretary to ‘‘determine whether a
hospital has met the requirements * * *
during such 5-year period in such
manner and at such time as the
Secretary determines appropriate,
including at the end of such 5-year
period,’’ and section 1886(h)(8)(B)(iii) of
the Act instructs the Secretary to

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
‘‘reduce the otherwise applicable
resident limit of the hospital by the
amount by which such limit was
increased * * *.’’ We also explained
that we believe the Secretary has the
discretion to consider a hospital’s
performance over more than one year or
to review each year during the 5 years
independently in determining whether
or not a hospital is in compliance with
the primary care average and the 75percent threshold, as required (75 FR
72196 and 72197 and 72200 and 72201).
We emphasized that it is within CMS’
and the Medicare contractors’ authority
to adjust a hospital’s IME and direct
GME payments as early as it is feasible
within a cost report’s submission and
review cycle, and that we need not wait
until final settlement to do so. We
further stated in the November 24, 2010
final rule with comment period
implementing section 5503 that ‘‘We
also understand that we should consider
that hospitals might not immediately fill
all the slots they receive, particularly
because they are only required to
demonstrate the likelihood of filling the
slots within the first three cost reporting
periods beginning on or after July 1,
2011’’ (75 FR 72197). However, we gave
an example that indicated that, of the
section 5503 FTE slots that the hospital
does begin to use, 75 percent of those
slots must be in primary care or general
surgery.
Since we awarded the section 5503
slots pursuant to section 1886(h)(8) of
the Act, and prior to issuance of the
proposed rule, we have received
questions from hospitals asking if and
how CMS would enforce the primary
care average and the 75-percent
threshold requirements under sections
1886(h)(8)(B)(ii)(I) and
1886(h)(8)(B)(ii)(II) of the Act if a
hospital does not use any of its section
5503 slots until year 4 or year 5 of the
5-year period, or if a hospital does not
use any of the section 5503 slots until
after expiration of the 5-year period. We
have informed hospitals that the 75percent threshold requirement applies
once the hospital starts using any of the
section 5503 slots, and the 3-year
primary care average requirement
applies immediately on July 1, 2011,
regardless of whether or not the hospital
begins to use its additional section 5503
slots in year 1 of the 5-year period. This
is because the 3-year primary care
average test applies to the hospital’s presection 5503 resident complement as
well, and not exclusively to the
additional FTE residents associated
with slots awarded under section 5503.
In determining which hospitals
applying for slots under section 5503
will receive slots, section

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1886(h)(8)(C)(i) of the Act specifies that
the Secretary shall take into account the
demonstrated likelihood of the hospital
filling the slots within the first three
cost reporting periods beginning on or
after July 1, 2011. Hospitals included
evidence supporting the demonstrated
likelihood stipulation in their
applications and we took that into
consideration in awarding slots under
section 5503. We believe that it is
inappropriate and in direct conflict with
a base consideration in the awarding of
slots under section 5503 for hospitals to
refrain from using their section 5503
slots until after the initial 3 years after
the slots have been awarded in an
attempt to circumvent the primary care
average or the 75-percent threshold
requirements, or both.
As stated in the November 14, 2010
final rule, CMS reserves the right to
assess as many times as necessary in the
5-year period whether a hospital is
meeting the required criteria. The
agency also may remove the slots
awarded to a hospital at any point
during the 5-year period (75 FR 72196
and 72197 and 72200 and 72201).
Because a statutorily directed criterion
for consideration in awarding slots
under section 5503 included the
requirement that hospitals applying for
slots demonstrate the likelihood of
filling the slots within the first three
cost reporting periods beginning on or
after July 1, 2011, and we relied on that
information in awarding slots, we stated
in the proposed rule that we believe it
is reasonable to expect that hospitals
that received slots under section 5503
should begin to use their slots within
the first three 12-month cost reporting
periods beginning on or after July 1,
2011, of the 5-year period in order to
give full effect to the requirements
under section 1886(h)(8)(B)(ii) of the
Act. Therefore, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27982),
we proposed that a hospital must fill at
least half of its section 5503 slots, IME
and direct GME respectively, in at least
one of the following timeframes, or lose
its section 5503 slots: (A) In its first 12month cost reporting period of the 5year period; and/or (B) in its second 12month cost reporting period of the 5year period; and/or (C) in its third 12month cost reporting period of the 5year period. For example, Hospital A
and Hospital B both have June 30 fiscal
year ends (FYEs), and they received 10
slots under section 5503. In its FYE June
30, 2012, Hospital A filled 8 slots. In its
FYE June 30, 2013, Hospital A filled 0
slots. In its FYE June 30, 2014, Hospital
A filled 5 slots. However, Hospital B, in
its FYEs June 30, 2012, 2013, and 2014,

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53425

only filled 3 slots respectively in each
of the 3 years. Hospital A would have
complied with our proposed
requirement, because it filled at least
half of its section 5503 slots in either its
first, and/or second, and/or its third 12month cost reporting period during the
5-year period. Hospital B would not
have complied with our proposed
requirement because in neither its first,
second, nor third 12-month cost
reporting period had it filled at least 5
(half of 10) slots.
We proposed to interpret that a
hospital’s failure to use slots awarded
under section 5503 in a timely manner
to also be a failure to meet the 75percent threshold. We believe that we
have the authority to interpret section
1886(h)(8)(B)(ii) of the Act in such a
manner and to propose this requirement
because section 1886(h)(8)(B)(ii) of the
Act allows the Secretary to ‘‘* * *
determine whether a hospital has met
the requirements under this clause
during such 5-year period in such
manner and at such time as the
Secretary determines appropriate,
including at the end of such 5-year
period.’’ We reiterated that the 75percent threshold applies in the
instance where a hospital uses less than
half, or any amount, of its slots prior to
its third 12-month cost reporting period
during the 5-year period (75 FR 72197).
In other words, the 75-percent threshold
applies throughout the 5-year period, as
long as the hospital is using some
amount of its section 5503 slots in the
respective cost reporting period. If a
hospital is using some of its section
5503 slots in a cost reporting period, the
75-percent threshold would be enforced;
if a hospital is not using any of its
section 5503 slots in a cost reporting
period, the 75-percent threshold would
not be enforced. However, as stated
earlier, we proposed that a hospital
must use its section 5503 slots no later
than the hospital’s third 12-month cost
reporting period (and that at least half
of its section 5503 slots must be used in
either the first, or second, or third 12month cost reporting period).
We noted in the proposed rule that we
did not specify that a hospital must use
at least half of its section 5503 slots in
its third 12-month cost reporting period
of the 5-year period in the November 24,
2010 final rule with comment period
because the possibility that a hospital
might not begin to use its section 5503
slots for several years only came to our
attention after July 1, 2011, in response
to questions raised by hospitals.
Furthermore, given the demand for
these slots (we ran out of slots during
the redistribution process and were
unable to award any slots to hospitals in

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qualifying, but lower ranking, States),
and that the slots were slated to be
distributed in States where there was an
acute need for additional residents (that
is, as sections 1886(h)(8)(D) and
1886(h)(8)(E) of the Act specify, to
States with resident-to-population ratios
in the lowest quartile, and to States that
are among the top 10 in terms of the
HPSA population to total population
ratios), we did not expect that hospitals
that received section 5503 slots would
not be able to make almost immediate
use of the slots. Consequently, in the
proposed rule, we stated that given the
presumed huge need for these slots in
the States where Congress directed that
they be awarded, we believe it is
appropriate to use our authority to
reasonably ensure that those slots
awarded are used in compliance with
section 5503 (hence, the proposals in
the proposed rule), and, if not, are able
to be redistributed to other hospitals in
need of slots as Congress intended.
Section 1886(h)(8)(B)(iii) of the Act
states that if the Secretary determines
that a hospital does not meet either the
primary care average or the 75-percent
threshold, ‘‘the Secretary shall (I) reduce
the otherwise applicable resident limit
of the hospital by the amount by which
such limit was increased under this
paragraph; and (II) provide for the
distribution of positions attributable to
such reduction in accordance with the
requirements of this paragraph.’’
Accordingly, we indicated in the
proposed rule that we were exercising
the broad authority that the Secretary is
given to determine whether the
requirements at section 1886(h)(8)(B)(ii)
of the Act are met by proposing that if
a hospital fails to fill at least half of its
section 5503 slots, IME and direct GME
respectively, in its first 12-month cost
reporting period of the 5-year period,
and/or in its second 12-month cost
reporting period, and/or in its third 12month cost reporting period of the 5year period, this would mean failure to
meet the 75-percent threshold. In the
case of such failure, we indicated that
CMS would instruct the Medicare
contractor after audit to permanently
remove all of the hospital’s section 5503
slots from the earliest cost reporting
period that is subject to reopening and
in which it would be determined that
the hospital did not meet the
requirements (in accordance with
existing § 413.79(n)(2)(iii), which was
proposed to be redesignated as
§ 413.79(n)(2)(iv) in the proposed rule),
even if the hospital had used at least
half of its section 5503 slots in its fourth
or subsequent cost reporting year of the
5-year period. Thus, as part of the

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Medicare contractors’ reviews of the
hospitals that received section 5503
slots, we proposed that the Medicare
contractors would determine whether a
hospital filled at least half of its section
5503 slots in its first 12-month cost
reporting period of the 5-year period,
and/or in its second 12-month cost
reporting period, and/or in its third 12month cost reporting period of the 5year period. We stated in the proposed
rule that we believe it is appropriate to
remove the slots from a hospital that has
not filled at least half of its slots in any
12-month cost reporting year prior to
and including the third 12-month cost
reporting period so that these slots may
be redistributed to other hospitals that
may have greater success in filling the
slots and that are located in States that
are described in sections 1886(h)(8)(D)
and 1886(h)(8)(E) of the Act.
We noted in the proposed rule that, as
explained in the November 24, 2010
final rule with comment period (75 FR
72197), the start and end of each year of
the 5-year period depend on the fiscal
year begin date of each hospital’s cost
reporting periods. Hospitals with fiscal
year begin dates of July 1 will have five
12-month cost reporting periods starting
on July 1, 2011, and ending on June 30,
2016, while hospitals with fiscal year
begin dates of other than July 1 will
have a partial cost reporting period that
includes July 1, 2011, four 12-month
cost reporting periods, and another
partial cost reporting period that
includes June 30, 2016 (75 FR 72197).
We proposed that, for example, if
Hospital A has a June 30 fiscal year end,
its third 12-month cost reporting period
of the 5-year period would be July 1,
2013, to June 30, 2014, and Hospital A
must fill at least half of its section 5503
slots, IME and direct GME respectively,
in its first 12-month cost reporting
period of the 5-year period, and/or in its
second 12-month cost reporting period,
and/or in its third 12-month cost
reporting period of the 5-year period. If
Hospital B has a September 30 fiscal
year end, its cost reporting periods
occurring during July 1, 2011 through
June 30, 2016 are as follows:
Year 1—July 1, 2011—September 30,
2011
Year 2—October 1, 2011—September
30, 2012
Year 3—October 1, 2012—September
30, 2013
Year 4—October 1, 2013—September
30, 2014
Year 5—October 1, 2014—September
30, 2015
Year 6—October 1, 2015—June 30, 2016
Hospital B’s third 12-month cost
reporting period would be October 1,

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2013, to September 30, 2014, and
Hospital B must fill at least half of its
section 5503 slots, IME and direct GME,
respectively, in its first 12-month cost
reporting period of the 5-year period,
and/or in its second 12-month cost
reporting period, and/or in its third 12month cost reporting period of the 5year period. As explained in the
November 24, 2010 final rule with
comment period (75 FR 72197), if
hospitals have other than a June 30
fiscal year end, for their cost reports that
include July 1, 2011 and June 30, 2016
respectively, we consider whether the
hospital meets the primary care average
and the 75-percent threshold
requirements based on an annualized
FTE count. Also, if during the period of
July 1, 2011 through June 30, 2016,
hospitals, for whatever reason, actually
have less than 12-month cost reports,
we would consider on a case-by-case
basis which cost reports we would
evaluate for purposes of meeting the
proposed requirement of filling at least
half of the section 5503 slots in its first,
second, and/or third cost reporting
period. As under existing policy, if the
hospital does begin to fill its section
5503 slots but fails to meet the 75percent threshold, the Medicare
contractor would also remove the
section 5503 slots, effective with the
earliest year that the 75-percent
threshold is not met.
Lastly, considering again that
hospitals that received section 5503
slots had to demonstrate the likelihood
of filling the slots within the first three
cost reporting periods beginning on or
after July 1, 2011, we proposed to
require that hospitals that received
section 5503 slots must fill all of the
slots they received in their final cost
reporting period beginning during the
timeframe of July 1, 2011 through June
30, 2016 (IME and direct GME
respectively), or lose all of their section
5503 slots after June 30, 2016. As stated
above and in the proposed rule, we
consider it to be appropriate to remove
the slots from a hospital that has not
filled at least half of its slots in any 12month cost reporting period prior to and
including the third 12-month cost
reporting period, so that these slots may
be redistributed to other hospitals that
otherwise qualified to receive slots, but
did not receive them because the
available slots were granted to higher
ranking hospitals. We also stated that
we were interested in commenters’
recommendations regarding alternative
approaches to encouraging compliance
with the 3-year primary care average
requirement and the 75-percent
threshold.

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In summary, we proposed that a
hospital must fill at least half of its
section 5503 slots, IME and direct GME
respectively, in at least one of the
following timeframes or lose its section
5503 slots: (A) In its first 12-month cost
reporting period of the 5-year period;
and/or (B) in its second 12-month cost
reporting period of the 5-year period;
and/or (C) in its third 12-month cost
reporting period of the 5-year period.
We proposed to enforce the 75-percent
threshold test once the hospital begins
to use its section 5503 slots, which we
proposed must be no later than the
hospital’s third 12-month cost reporting
period (and that at least half of its
section 5503 slots must be used in either
the first, or second, or third 12-month
cost reporting period). In addition, we
proposed that a hospital does not meet
the 75-percent threshold if it fails to fill
at least half of its section 5503 slots,
IME and direct GME, respectively, in
one or a combination of the first three
12-month cost reporting period of the 5year period, and upon that basis, CMS
would instruct the Medicare contractor,
after audit, to permanently remove all of
the hospital’s section 5503 slots from
the earliest cost reporting period that is
subject to reopening and in which it
would be determined that the hospital
did not meet the requirements (in
accordance with existing
§ 413.79(n)(2)(iii), which was proposed
to be redesignated as § 413.79(n)(2)(iv)
in the proposed rule), even if the
hospital had used at least half of its
section 5503 slots in its fourth or
subsequent cost reporting year of the 5year period. Thus, as part of the
Medicare contractors’ reviews of the
hospitals that received section 5503
slots, we proposed that the Medicare
contractors would determine whether a
hospital filled at least half of its section
5503 slots in its first 12-month cost
reporting period of the 5-year period,
and/or in its second 12-month cost
reporting period, and/or in its third 12month cost reporting period of the 5year period. Lastly, we proposed to
require that a hospital that received
section 5503 slots must fill all of the
slots it received in their final cost
reporting period beginning during the
timeframe of July 1, 2011 through June
30, 2016 (IME and direct GME
respectively), or lose all of its section
5503 slots after June 30, 2016.
We proposed that these requirements
would be effective for a hospital’s third
12-month cost reporting period
occurring during the 5-year period of
July 1, 2011 through June 30, 2016. For
example, for hospitals with a June 30
fiscal year end, this would be July 1,

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2013 through June 30, 2014. For
hospitals with a September 30 fiscal
year end, this would be October 1, 2013
through September 30, 2014. For
hospitals with a December 31 fiscal year
end, this would be January 1, 2014
through December 31, 2014. We
proposed to make appropriate changes
to the regulations text at § 413.79(n)(2)
to incorporate our proposals. The IME
regulations regarding section 5503 slots
that are at existing
§ 412.105(f)(1)(iv)(C)(2) reference the
direct GME regulations text at
§ 413.79(n) and would not require
amendments.
Comment: Many commenters opposed
CMS’ proposal to require hospitals to
use at least half of their section 5503
slots in either the first, second, or third
12-month cost reporting period of the 5year period, and to use all of their slots
by the fifth year. One commenter stated
that the proposal ‘‘over-reaches’’ and the
penalty for failure to meet the timeline
for filling the section 5503 slots is ‘‘too
harsh,’’ unjustly penalizing hospitals.
Commenters explained how, given the
date when CMS announced the section
5503 awards (August 2011, which they
believed was already too late to recruit
resident for the July 1, 2011 academic
year), and the complexity and length of
the process for receiving accreditation
and hiring staff for a new program, a 3year timeframe for filling at least half of
the slots is impossible for hospitals to
meet. Some commenters gave examples
of a hospital that is using its section
5503 to start a new program, but
because of time constraints in
accrediting and growing the program, by
the 5th year, the hospital would still
only have less than 75 percent of the
slots filled. They stated that, under
CMS’ proposal, this hospital would lose
all 10 of its section 5503 slots.
Some commenters expressed concern
about the proposed timeline for filling
slots as it relates to longer residencies
such as general surgery, a 5-year
program. These commenters requested
that CMS revise the proposal to require
that 80 percent, rather than 100 percent,
of the slots are filled by the fifth year.
Other commenters recommended that
CMS remove the requirement that half
the slots be filled by the third year, and
instead either require that half the slots
be filled by the fifth year, or that
hospitals prove that they began to start
or expand programs before the end of
the fifth year, and that they received
accreditation for the full number of slots
they were awarded.
Another commenter suggested that, if
the hospitals can provide appropriate
documentation from the National
Residency Match Program (NRMP) or

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other appropriate match programs that,
based on their recruitment numbers,
they have recruited for all the slots
allocated, then that hospital should be
considered as meeting the 5-year
requirement. Alternatively, one
commenter recommended that if CMS
insists on an ‘‘interim check’’ of the
progress of slot-filling, instead of using
years 1, 2, and 3 of the 5-year evaluation
period, CMS should use years 2, 3, and
4. The commenter argued that leaving
out the first year ‘‘seems fair and
appropriate,’’ considering that the
public would not have known about
CMS’ clarification until well into the
first year and well after the point in time
during which residents for the following
academic year are selected.
Other commenters suggested that any
hospital that received an increase for a
new program should demonstrate that
the program is starting within the first
three cost reporting periods, as outlined
in the final regulations published in the
November 24, 2010 final rule with
comment period (75 FR 72168). The
same commenters also stated that any
hospital that received an increase for a
new program should submit to CMS a
5-year plan on how it plans to fill its
slots. The commenters stated that this
should be done in a similar manner as
for hospitals that participated in the
New York Demonstration, the Utah
Demonstration, or a Voluntary
Residency Reduction Program (VRRP)
(as outlined in the final regulations
published in the November 24, 2010
final rule with comment period (75 FR
72168)). Commenters argued that,
because of the tremendous investment
required to start a new program, it is
highly unlikely that a hospital would
abandon that effort ‘‘both for financial
and reputational reasons.’’
Two commenters stated that the
ACGME accreditation process for new
programs is more complex than for
expansion of existing programs. The
commenters asked that CMS
acknowledge the effort and time
required to start a new program, and
CMS ‘‘should continue to make a
distinction between expansions of
existing programs and the establishment
of new programs in the requirements for
the use of the redistributed GME slots.’’
The commenters noted that CMS made
this distinction between starting new
programs and expanding existing
programs under Demonstrated
Likelihood Criterion 1 in the November
24, 2010 final rule with comment period
(75 FR 72168), where CMS added the
option of submitting ‘‘documentation
demonstrating that it has made a
commitment to start a new program.
One example of such a commitment

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would be for the hospital to provide the
minutes from the meeting at which the
hospital’s GME committee gave
approval for the hospital to proceed
with the process of applying to the
accrediting agency for approval to start
a new program. We are not adding a
similar option under Demonstrated
Likelihood Criterion 2 because we
understand that the process for
requesting approval to expand an
existing program is not as timeconsuming and labor-intensive as the
process for requesting approval for a
brand new program.’’
Commenters asked that if CMS does
finalize a penalty for hospitals that fail
to use all of their slots, CMS only
remove the slots that the hospital did
not fill by year 5, and if any removal of
slots occurs, it should only be
prospective (that is, starting with the
year after failure to meet the 75-percent
test). Commenters argued that it is
‘‘draconian’’ for CMS to remove all or
any of a hospital’s awarded slots, if, for
example, in the fifth year, the hospital
has not filled a fraction of the slots.
One commenter argued that there is
no statutory requirement to use ‘‘all’’ the
awarded section 5503 slots. The
commenter stated that the only statutory
requirements are to make certain that
the hospital trains primary care
residents at or above its primary care
average and, also, that 75 percent of the
positions attributable to the additional
slots are in primary care or general
surgery training. The commenter
asserted that this statutory requirement
does not suggest a need for use of all
slots or any particular need to analyze
the use of slots, if any, for any slots not
used for primary care or general surgery.
The commenter argued that Congress
did not place any other requirements on
the use of the slots and clearly is
allowing for 25 percent of the slots used
to be for nonprimary care training. The
commenter gave an example where if
the primary care average is 12.2 and the
hospital was awarded 10 section 5503
slots, the commenter believes that, in
year 5, to determine compliance with
the statutory 75-percent requirement
and primary care average, the only
analysis should be whether the hospital,
in year 5, is training at least 12.2
residents in primary care and also at
least an additional 7.5 FTEs in primary
care or general surgery. The commenter
believed that it should not matter what,
if anything, the hospital might be doing
with the other 2.5 FTEs of the 10
awarded section 5503 slots. The
commenter added that it would be
difficult to determine use of all awarded
slots without knowing precisely what

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figure in year 5 will be compared to
what figure from another year or years.
Commenters also requested that CMS
permit hospitals to choose to start the 5year evaluation period either to be July
1, 2011, or July 1, 2012. Commenters
stated that although section 5503 is
effective July 1, 2011, the section 5503
awards were not announced until after
the start of the July 1, 2011 academic
year, and therefore, unless a hospital
had already recruited residents to
positions during the 2010 match
program, there is no way for any
hospital to actually have used any of the
section 5503 awarded positions for the
period of July 1, 2011 through June 30,
2012.
Response: We have considered all the
public comments we received and we
are convinced that, with respect to
starting a brand new program, it is
possible that even if a hospital began in
earnest the process of seeking
accreditation for and starting a new
program right after the section 5503
slots were awarded in August 2011, half
of the slots may not be filled by the
third 12-month cost reporting period of
the 5-year evaluation period.
Nevertheless, we emphasize that our
proposal that hospitals must fill at least
half of their slots in years 1, 2, or 3 was
based on the statutory directive that, in
distributing the slots, CMS should take
into account the demonstrated
likelihood of the hospital filling the
additional slots within the first three
cost reporting periods beginning on or
after July 1, 2011. Arguably, our
proposal was less restrictive than this
directive, in that hospitals would have
to fill only half of their slots, and not
all of the slots, and do so in either the
first, second, or third 12-month cost
reporting period of the 5-year evaluation
period. However, in this final rule,
based on consideration of the public
comments we received, we are
finalizing a policy that differs from what
we proposed.
As we explain further below, we will
be modifying the hospital cost report to
require hospitals to report the number of
FTE residents that they have added
because of their section 5503 slots. The
hospitals must specify on the cost
report, of the additional FTEs added
because of section 5503, the number
that are in a new program(s), if any, and
the new program specialty(ies), and the
number that are expansions to an
existing program(s), if any, and the
expanded program’s or programs’
specialty(ies). This information will
assist the Medicare contractor in
determining how many slots are being
used and the purpose for which they are
being used, at least for cost reports that

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have not yet been filed in the 5-year
evaluation period. We received many
comments convincing us of the
complexity and devotion of time and
resources associated with starting a new
program, but commenters did not do the
same regarding the process for
expanding existing programs. In fact,
after noting that the ACGME process for
starting a new program is more complex
than for expanding an existing program,
two commenters also pointed out that,
consequently, CMS has already
distinguished between new programs
and program expansions with regard to
the type of documentation required in
the section 5503 application process
(that is, the documentation
requirements for applications seeking
slots to start a new program were
somewhat less stringent than the
documentation requirements for
expanding existing programs (75 FR
72168)). Those commenters asked that
CMS continue to distinguish between
new programs and program expansions,
presumably by being less stringent with
regard to the requirements imposed
when slots must be filled for new
programs. These comments highlighting
the differences in the level of difficulty
between starting a new program and
expanding an existing program, and the
general lack of comments voicing
concern over our proposals with regard
to expanding existing programs, confirm
our belief that it is much easier for a
hospital to expand an existing program
than to start a new one. Therefore, in
this final rule, we are continuing to
distinguish between new programs and
expansions of existing programs, and
with regard to expansions of existing
programs, we believe that a hospital
should be able to achieve its expansions
fully by its fourth 12-month cost
reporting period. With regard to
establishing new programs, we
understand that a new program may not
yet be fully grown by its final (full or
partial) cost report. As we explain
further below, we are finalizing a policy
wherein the Medicare contractor would
remove from the final cost report the
section 5503 slots that are unused in a
hospital’s final (full or partial) cost
report in the 5-year evaluation period.
We are concerned that hospitals may
seek to suddenly expand existing
primary care or general surgery
programs in the final (full or partial)
cost report as a means of holding on to
their section 5503 slots, only to reverse
those expansions after June 30, 2016,
and use the section 5503 slots for some
other purpose inconsistent with the
policy goals of section 5503. We believe
it is reasonable and fair to choose the

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fourth 12-month cost report as the year
in which a hospital must have achieved
its full program expansion(s) because
this is one year more than the statutory
requirement at section 1886(h)(8)(C)(i)
of the Act that the Secretary shall take
into account the demonstrated
likelihood that a hospital would fill the
slots within the first 3 cost reporting
periods beginning on or after July 1,
2011. We hope that this final policy
encourages hospitals to achieve the full
expansion by their fourth 12-month cost
report, and to maintain that full
expansion in the final cost report. We
believe that, in this manner, the hospital
would be demonstrating at least 2 years
of commitment to the expanded
program(s), and as a result, the hospital
may be less likely to reverse the
expansion after June 30, 2016.
Accordingly, we are finalizing a
policy wherein if a hospital uses any
section 5503 slots for program
expansions, the Medicare contractor
will review those slots used for program
expansions and, in determining the
number of applicable unused slots to
remove, compare the number of FTEs
associated with program expansion in
the fourth 12-month cost reporting
period to that in the final cost report
(full or partial). If the final cost report
indicates a number of FTEs associated
with program expansion that is more
than the number of FTEs associated
with program expansion in the fourth
12-month cost reporting period, the
Medicare contractor would ignore the
additional expansion in the final cost
report in calculating the applicable
unused slots because, as noted above,
we believe the full expansion should
have been achieved in the fourth 12month cost reporting period. Effective
for portions of cost reports on or after
July 1, 2016, we would remove those
additional expanded FTEs (thereby
reducing the section 5503 award) that
are over and above the FTEs associated
with program expansion in the fourth
12-month cost reporting period. If the
number of FTEs associated with
program expansion in the final cost
report is equal to or less than the
number of FTEs associated with
program expansion in the fourth 12month cost reporting period, the
hospital’s section 5503 award would be
reduced by removing any FTE slots that
are unused in the final (full or partial)
cost report, effective for portions of cost
reports on or after July 1, 2016.
For example, assume Hospital X was
awarded 20 slots under section 5503. In
its fourth 12-month cost reporting
period, it has added 16 FTEs, 10 of
which are associated with a new family
medicine program, and 6 are associated

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with an expanded surgery program. In
its final cost report, Hospital X has
expanded its internal medicine program
by 3 FTEs, and it continues to train the
6 surgery residents and the 10 family
medicine residents added in its fourth
cost reporting period. One slot of the 20
section 5503 slots remains unused in
the final cost report. Because we believe
all program expansions should have
occurred no later than the fourth 12month cost reporting period, effective
July 1, 2016, the Medicare contractor
would remove the three (internal
medicine) FTE slots. In addition,
effective July 1, 2016, the Medicare
contractor would remove the one
unused FTE slot. Therefore, effective
July 1, 2016, Hospital X’s section 5503
cap would be 16, not 20.
Alternatively, Hospital Y was
awarded 20 slots under section 5503. In
its fourth 12-month cost reporting
period, it has added 16 FTEs, 10 of
which are associated with a new family
medicine program, and 6 are associated
with an expanded surgery program. In
its final cost report, Hospital Y
continues to train the 6 surgery
residents and add 1 family medicine
resident, so Hospital Y is training 11
family medicine residents. Hospital Y
has maintained the same level of
program expansions in its final cost
report as in its fourth 12-month cost
report (that is, 6 surgery residents).
Three slots of the 20 section 5503 slots
are unused in the final cost report.
Therefore, the Medicare contractor
would only remove the 3 FTE unused
slots effective for portions of cost
reporting periods on or after July 1,
2016. Hospital Y’s section 5503 cap
would be 17, not 20, effective for
portions of cost reporting periods on or
after July 1, 2016.
We are revising the proposed
regulations text to conform to the final
policy regarding reduction of the section
5503 cap awards effective for portions of
cost reports on or after July 1, 2016, due
to unused slots. Specifically, we are
revising the regulations text at
§ 413.79(n)(2)(ii) to state that if a
hospital received a section 5503 cap
award, and does not use all of the award
in its final (12-month or partial) cost
report of the 5-year period beginning
July 1, 2011, and ending June 30, 2016,
the Medicare contractor will remove the
applicable unused slots, and the
hospital’s section 5503 award will be
reduced for portions of cost reporting
periods on or after July 1, 2016. The
number of applicable unused slots is
equal to the difference between the
number of slots awarded and the
number of slots used. In determining the

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53429

applicable slots used, the following
amounts are added, as relevant:
(1) If a hospital uses the section 5503
slots to expand an existing program(s),
the used slots are equal to the lesser of
the number of slots used for an
expansion(s) in the fourth 12-month
cost report or the final cost report.
(2) If a hospital uses the section 5503
slots to start a new program(s), the used
slots are equal to the number of slots
used for a new program(s) in the final
cost report.
(3) The portion, if any, of the section
5503 slots used for cap relief, subject to
the 75 percent test and the 3-year
primary care average requirement.
Because we are directing the
contractors to only remove the
applicable unused slots awarded under
section 5503, effective for portions of
cost reporting periods on or after July 1,
2016, it is important to define what we
mean by ‘‘used’’ versus ‘‘unused’’ slots.
As one commenter argued in great
detail, there is no statutory requirement
to use ‘‘all’’ the awarded section 5503
slots. The only statutory requirements
are to make certain that the hospital
trains primary care residents at or above
its primary care average and, also, that
75 percent of the positions attributable
to the additional slots are in primary
care or general surgery training. The
commenter asserted that it should not
matter what, if anything, the hospital
might be doing with the other 25
percent of its section 5503 slots. The
commenter argued that Congress did not
place any other requirements on the use
of the slots and clearly is allowing for
25 percent of the slots used to be for
non-primary care training.
We believe that the intent of section
5503 was to provide Medicare-funded
slots to hospitals in States that had
documented shortages of physicians, in
primary care or otherwise, and,
therefore, the slots are intended to pay
for additional FTE residents that the
hospitals in those States were
previously not training. That is, the
section 5503 slots were not intended to
cover existing residency positions (that
is, cap relief), but to be used to create
new residency positions either through
starting new programs or expanding
existing programs. In fact, hospitals
were precluded from applying for
section 5503 slots for cap relief, and no
place was provided on the section 5503
application form to even apply for cap
relief (75 FR 72171, 72173 and 72174).
Furthermore, in light of the 75-percent
requirement, the intent of section 5503
is that a sizeable majority of the
additional resident slots are to be filled
with new primary care or general
surgery residents. Arguably, it is

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acceptable if 25 percent of the
remaining 5503 slots are used for
additional nonprimary care programs,
considering that the States that were
awarded the slots have shortages of
multiple kinds of physicians, not just
primary care and general surgery.
Nevertheless, it appears that, based on
the language in the November 24, 2010
final rule with comment period
implementing section 5503 (75 FR
72198), hospitals may use 25 percent of
their section 5503 slots for cap relief.
While we believe that it is not
desirable to use any amount of section
5503 slots for cap relief, we are not
instructing the contractor to
automatically disallow the portion of
slots used for cap relief if the 3-year
primary care average and the 75-percent
tests are met. However, it is important
for hospitals to understand that
application of any amount of section
5503 slots toward cap relief constitutes
a definite ‘‘use’’ of those section 5503
slots; therefore, section 5503 slots
utilized for cap relief count with respect
to the determination of whether 75
percent of a hospital’s section 5503 slots
are being used for training additional
primary care or general surgery
residents, and whether the total primary
care FTE count equals at least the 3-year
primary care average number. We
emphasize that we are not instituting a
new policy in this final rule with regard
to using slots for cap relief. As stated
above, it appears that, based on
language in the November 24, 2010 final
rule with comment period
implementing section 5503, using 25
percent of the slots for cap relief is
permissible (75 FR 72198). This existing
policy would apply to cost reports that
hospitals have already filed after July 1,
2011 (the effective date of section 5503),
and certainly applies to cost reports that
have not yet been filed. For example,
assume Hospital A has a cap of 100
FTEs, and is training 110 residents.
Hospital A has a fiscal year end of
December 31 and was awarded a total of
20 slots under section 5503. On July 1,
2011, Hospital A did add one more
primary care resident, which equates to
.5 FTE on the December 31, 2011 cost
report. Also, on its December 31, 2011
cost report (Form CMS–2552–10, line
8.01 of Worksheet E, Part A, and line
4.01 of Worksheet E–4), Hospital A
reported ‘‘10’’ section 5503 slots as its
cap increase (that is, half of the 20
section 5503 slots applicable to July 1,
2011 through December 31, 2011), and
it reported 110.5 unweighted FTEs as its
current year allowable allopathic and
osteopathic FTE count (Form CMS–
2552–10, line 10 on Worksheet E, Part

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A and line 6 Worksheet E–4). In effect,
Hospital A ‘‘used’’ all of its section 5503
slots, which meant that the 9.5 FTEs by
which Hospital A previously exceeded
its cap of 100 are now covered by 10 of
the section 5503 slots, generating
payment on the December 31, 2011 cost
report for an additional 9.5 preexisting
FTEs (for purposes of simplicity, we
have disregarded the effects of the
rolling average calculation). However,
Hospital A has only added 0.5 of an
additional slot in primary care, while
9.5 of the other section 5503 slots are
used for cap relief. In this example, the
75-percent test is not met. Thus, in
accordance with the regulations at
§ 413.79(n)(2)(iv), all 20 of Hospital A’s
section 5503 slots would be removed.
Consider the difference in reporting
with Hospital B. Hospital B also has a
cap of 100 FTEs and is training 110
residents. Hospital B has a fiscal year
end of December 31 and was awarded
a total of 20 slots under section 5503.
On July 1, 2011, Hospital B did add one
more primary care resident, which
equates to .5 FTE on the December 31,
2011 cost report. On its December 31,
2011 cost report (CMS Form 2552–10,
line 8.01 of Worksheet E, Part A, and
line 4.01 of Worksheet E–4), Hospital B
reported ‘‘0.66’’ section 5503 slots as its
cap increase. By reporting 0.66 FTEs,
the hospital would be reporting 0.5 of
its section 5503 cap associated with the
0.5 additional primary care FTE, plus 25
percent more for cap relief (that is, 0.5
is 75 percent of 0.66, and 0.16 is 25
percent of 0.66). Hospital B’s adjusted
cap for FYE 12/31/11 is 100 + 0.66 =
100.66. Hospital B reported 110.5
unweighted FTEs as its current year
allowable allopathic and osteopathic
FTE count (CMS Form 2552–10, line 10
on Worksheet E, Part A and line 6 on
Worksheet E–4). Hospital B would be
paid for 100.66 FTEs on its December
31, 2011 cost report (disregarding the
rolling average). Hospital B has
permissibly ‘‘used’’ 75 percent of its
section 5503 slots for an additional
primary care resident and 25 percent for
other purposes, such as cap relief.
These examples demonstrate how cap
relief constitutes ‘‘use’’ of section 5503
slots, and also show that in the 5-year
evaluation period, a hospital should not
automatically report (that is, use) all of
its section 5503 cap increase (on Form
CMS–2552–10, line 8.01 of Worksheet
E, Part A, and on line 4.01 of Worksheet
E–4), but should only report (that is,
use) a portion that at least is equal to the
additional primary care/general surgery
FTEs added, with no more than an
additional 25 percent allowed to be
reported for other purposes. (We plan to
update the cost report instructions to

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reflect this directive.) We reiterate that
a hospital is responsible for meeting the
75-percent test based on whatever
amount of section 5503 cap increase it
reports on its cost report (Form CMS–
2552–10, line 8.01 of Worksheet E, Part
A, and line 4.01 of Worksheet E–4)
during each year of the 5-year
evaluation period. If use of slots for cap
relief results in the hospital using less
than 75 percent of the slots in a year for
primary care and/or general surgery
residents, the hospital risks losing all of
section 5503 slots from the earliest cost
reporting period that is reopenable in
which it would be determined that the
hospital did not meet the requirements
in accordance with § 413.79(n)(2)(iv).
For example, in year 5 (that is the final
cost report), a hospital that was awarded
10 slots is training 6 new primary care/
general surgery residents in a new
program. That means in order to meet
the 75-percent test in year 5, the most
that can be used for cap relief or nonprimary care is 2 FTEs (2 is 25 percent
of 8), and an amount of 8 may be
reported on Form CMS–2552–10, line
8.01 of Worksheet E, Part A, and on line
4.01 of Worksheet E–4, and the
remaining 2 FTEs would be removed by
the contractor effective for portions of
cost reporting periods on or after July 1,
2016. If this hospital had reported all 10
of its section 5503 slots on line 8.01 of
Worksheet E, Part A, and on line 4.01
of Worksheet E–4 in year 5, while
actually only adding 6 primary care/
general surgery residents in the new
program, this hospital would fail the 75
percent test. Under the regulations at
§ 413.79(n)(2)(iv), this hospital would
lose all 10 of its section 5503 cap slots,
from the earliest cost reporting period
that is reopenable in which it would be
determined that the hospital did not
meet the requirements.
In order for the Medicare contractors
to determine whether a hospital is
complying with the 75-percent test and
the 3-year primary care average
requirement, hospitals would have to
provide their contractors with
information as part of the cost report
(possibly on Worksheet S–2, Part I of the
CMS Form 2552–10), the following for
IME and direct GME separately:
(1) The baseline FTE count, which is
used for determining whether FTEs are
added in cost reports in the 5-year
evaluation period. The baseline FTE
count is the total unweighted allopathic
and osteopathic FTE count from the
hospital’s 12-month cost report that
immediately precedes the cost report
that includes July 1, 2011. (That is, the
baseline cost report for June 30
providers would be July 1, 2010 through
June 30, 2011; for December 31

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providers, this would be January 1, 2010
through December 31, 2010; for
September 30 providers, this would be
October 1, 2009 through September 30,
2010). (On the CMS Form 2552–96, the
baseline FTE count is on line 3.08 of
Worksheet E, Part A, and on line 3.05
of Worksheet E–3, Part IV. On the CMS
Form 2552–10, the baseline FTE count
is on line 10 of Worksheet E, Part, and
on line 6 of Worksheet E–4).
(2) The number of additional FTEs
above the baseline FTE count that were
added in the current cost reporting
period, because of the section 5503
award. (These FTEs are part of the
current year FTE count, and would be
included on CMS Form 2552–10, line 10
of Worksheet E, Part A, and line 6 of
Worksheet E–4).
(3) Of the additional FTEs in item 2,
specify each new program specialty, if
any, and the number of FTE residents
for each new program.
(4) Of the additional FTEs in item 2,
specify each expanded program
specialty, if any, and the number of FTE
residents for each program expansion.
(5) The amount of the section 5503
award that is being used for cap relief,
if any.
(6) The current year’s total
unweighted primary care FTE count
(excluding obstetrics and gynecology).
(The 3-year primary care average from
the 3 most recent cost reports ending
prior to March 23, 2010, must already be
reported on Worksheet S–2, Part I, line
61).
In order to determine compliance
with the 75-percent test and the 3-year
primary care average, the Medicare
contractor would first determine the
number of ‘‘used’’ slots. That is, the
Medicare contractor would compare the
amount on the hospital’s section 5503
award letter to the section 5503 cap line
on the Medicare cost report (line 8.01 of
Worksheet E, Part A, and line 4.01 of
Worksheet E–4). Then, the Medicare
contractor would determine if the
hospital reported the full amount of its
section 5503 cap increase on the section
5503 cap line of the cost report, or a
partial cap increase. The amount of the
section 5503 cap increase that is
reported on the section 5503 cap line
(line 8.01 of Worksheet E, Part A, and
line 4.01 of Worksheet E–4) is the
amount of the ‘‘used’’ slots, and it
influences the additional number of FTE
residents that would be paid for in the
current cost report. Therefore, while the
sum of items 2 and 5 above should
equal the cap increase amount reported
on the section 5503 cap line, 75 percent
of that cap increase amount reported on
the section 5503 cap line must be used
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surgery FTEs added to the baseline
number of FTEs.
If no residents were added on the
current year line 10 or line 6 (item 2
above), but the hospital reported some
or all of its section 5503 cap increase on
line 8.01 of Worksheet E, Part A or line
4.01 of Worksheet E–4, the section 5503
cap increase is being used for cap relief.
The 75-percent test would not be met,
and all of the section 5503 cap slots
would be removed in accordance with
§ 413.79(n)(2)(iv). If no section 5503 cap
increase is reported on the section 5503
cap line (line 8.01 of Worksheet E, Part
A or line 4.01 of Worksheet E–4), the
contractor would still determine if the
primary care average requirement is met
in the current year. Failure to comply
with either the 75 percent or 3-year
primary care average test means
permanent removal of all section 5503
slots from the earliest applicable cost
reporting period under the regulations
at § 413.79(n)(2)(iv).
With regard to the Medicare
contractor’s review of a hospital’s final
(full or partial) cost report, if the
Medicare contractor determines that the
hospital complied with the 75-percent
test and the 3-year primary care average
requirement, the Medicare contractor
would assess the number of applicable
unused slots, in accordance with the
revised regulations text at
§ 413.79(n)(2)(ii). Any amount of
‘‘unused’’ section 5503 award, that is,
the portion above 25 percent of the total
award that is not being used for
nonprimary care ‘‘growth’’ or for cap
relief, would be removed permanently
by the contractor for portions of cost
reporting periods on or after July 1,
2016. For example, in year 5 (that is, the
final cost report), a hospital that was
awarded 10 slots is training 6 new
primary care/general surgery residents
in a new program. That means the most
that can be used for cap relief or
nonprimary care is 2 FTEs (2 is 25
percent of 8), and an amount of 8 may
be reported on line 8.01 of Worksheet E,
Part A, and on line 4.01 of Worksheet
E–4, and the remaining 2 FTEs would be
removed for portions of cost reporting
periods on or after July 1, 2016 by the
contractor. (That is, effective for
portions of cost reporting periods on or
after July 1, 2016, the hospital’s section
5503 award would be permanently
reduced by 2 FTEs). If this hospital had
reported all 10 of its section 5503 slots
on line 8.01 of Worksheet E, Part A, and
on line 4.01 of Worksheet E–4 in year
5, while actually only adding 6 primary
care/general surgery residents in the
new program, this hospital would fail
the 75 percent test. Under the
regulations at § 413.79(n)(2)(iv), this

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53431

hospital would lose all 10 of its section
5503 cap slots, effective with the earliest
cost reporting period that is reopenable
in which it would be determined that
the hospital did not meet the
requirements.
With regard to the commenters who
stated that any hospital that received an
increase for a new program should
submit to CMS a 5-year plan on how it
plans to fill its slots, we believe that is
superfluous. Hospitals that received
section 5503 slots were already required
to demonstrate in their initial
application a commitment to fill the
slots within the first three cost reporting
periods of receiving the slots. Therefore,
it would not be helpful to require
hospitals to submit additional plans for
CMS to review. We also do not see the
need to allow hospitals to choose the
start of their 5-year evaluation period to
be either July 1, 2011 or July 1, 2012. If
the 5-year evaluation period begins July
1, 2012, that would extend the 5-year
period beyond June 30, 2016, and we
stated in the November 24, 2010 final
rule with comment period that the 5year probationary period ends on June
30, 2016 (75 FR 72200). Because we
believe we have modified and
significantly relaxed our requirements
for hospitals with regard to the
timeframe for filling section 5503 slots,
we do not believe it is necessary to
further prolong the 5-year evaluation
period beyond June 30, 2016.
Comment: One commenter did not
understand CMS’ use of ‘‘and/or’’ to
describe the requirement that a hospital
must fill at least half of its slots in its
first 12-month cost reporting period of
the 5-year period, and/or in its second
12-month cost reporting period of the 5year period, and/or in its third 12month cost reporting period of the 5year period. The commenter believed it
would be clearer to state that a hospital
must fill ‘‘at least half of its section 5503
slots in at least one of the following
timeframes * * * its second 12-month
cost reporting period of the 5-year
period, or its third 12-month cost
reporting period of the 5-year period; or
its fourth 12-month cost reporting
period of the 5-year period.’’ Another
commenter asked that CMS clarify its
language regarding use of all the slots in
the fifth year, noting that the proposed
preamble states that hospitals would be
required to ‘‘fill all of the slots they
received in their final cost reporting
period beginning during the timeframe
of July 1, 2011 through June 30, 2016’’
(emphasis added by the commenter),
while the proposed regulations at 42
CFR 413.79(n)(2)(ii) state that the
hospital ‘‘must fill all of the slots it
received by its final cost reporting

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period beginning during the timeframe
of July 1, 2011 through June 30, 2016’’
(emphasis added by the commenter).
The commenter asked that CMS not
measure a hospital’s compliance with a
rate of usage of section 5503 slots based
on a single year, noting that a hospital
might fill all of its slots in the fourth
year, but for reasons beyond its control,
may lose one of the residents in the fifth
year, putting the hospital at risk to lose
all of its slots. Yet another commenter
noted that CMS has not indicated how
it would measure compliance with the
requirement that ‘‘all’’ awarded slots be
filled in the fifth year of the evaluation
period. The commenter suggested that
CMS establish a baseline and indicate
whether it is a single year FTE count or
an average FTE count of more than one
year.
Response: We regret the confusion we
caused by using ‘‘and/or’’ to describe
the requirement that a hospital must fill
at least half of its slots in its first 12month cost reporting period of the 5year period, and/or in its second 12month cost reporting period of the 5year period, and/or in its third 12month cost reporting period of the 5year period. In any case, because we are
not finalizing that proposal, this
language is irrelevant and will not be
included in the final regulations text.
Regarding the language in the proposed
preamble that states that hospitals
would be required to ‘‘fill all of the slots
they received in their final cost
reporting period’’ (emphasis added by
the commenter), while the proposed
regulations at 42 CFR 413.79(n)(2)(ii)
state that the hospital ‘‘must fill all of
the slots it received by its final cost
reporting period’’ (emphasis added by
the commenter), we believe that ‘‘in’’
and ‘‘by’’ may be used interchangeably.
The point is that Medicare counts and
pays for FTEs, not resident positions, as
reported on the Medicare cost report.
We have stated what we mean by the 5year evaluation period, and described
that depending on a hospital’s fiscal
year end, some hospitals will have five
12-month cost reporting periods (if they
have a June 30 FYE), while other
hospitals would have first a partial cost
report, then four 12-month cost reports,
and then finally a partial cost report, so
as not to go beyond June 30, 2016,
which is 5 years from the effective date
of July 1, 2011 (75 FR 72197 and 77 FR
27983). We also have stated that, for
hospitals with other than a June 30 FYE,
in order to measure compliance with the
75-percent test and the 3-year primary
care average requirement, an annualized
FTE count in the first and final partial
cost reports would be employed (75 FR

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72197). Thus, the annualized FTE count
and the annualized FTE resident cap
increase in that final full or partial cost
reporting period will be used to
determine compliance with the tests
and to determine the amount of slots
that are ‘‘unused.’’ Finally, as we stated
in response to the previous comment, in
this final rule, unlike in the proposed
rule, we are not requiring that ‘‘all’’
awarded slots be filled in the fifth year.
Rather, we have revised the regulation
text at § 413.79(n)(2)(ii) to describe
when slots would be removed, in the
event that not ‘‘all’’ of them are filled
(that is, used) by the fifth year.
Furthermore, in the previous response,
we also have defined a base year, or
baseline number of FTEs, for the
purpose of determining ‘‘growth’’ of
additional FTE slots added in
accordance with section 5503. However,
we are not necessarily measuring a
hospital’s compliance with a rate of
usage of section 5503 slots based on a
single year or an average of years. As
stated in the November 24, 2010 final
rule (75 FR 72200 and 72201), CMS
could consider an average of a hospital’s
performance over more than 1 year,
rather than only always reviewing each
year during the 5 years independently.
Regardless of when the Medicare
contractor audits a hospital to determine
if it is meeting the criteria within the 5year period, a hospital should not view
this policy as an encouragement to have
an ‘‘off’’ year where the requirements
need not be met.
Comment: One commenter asked how
CMS would determine if a hospital
filled half of its section 5503 slots. For
example, if a hospital was awarded 10
slots, would CMS or a MAC seek to
confirm that the hospital is training 3.75
FTEs above its primary care average,
because 3.75 is 75 percent of 5, which
is half of the 10 awarded slots? The
commenter believed such an approach
makes sense, ‘‘as it provides for a clear,
straightforward comparison of primary
care/general surgery training in a
particular year to the known,
established 3-year primary care
average.’’ The commenter stated that
because up to 25 percent of the awarded
slots can, at any time, be used for any
type of non-primary care residency
training, it would be very difficult to
demonstrate use of all 5 slots (that is,
half the awarded 10), when 1.25 FTEs
could be used for any purpose and there
would be no clear reference point to
determine that nonprimary care training
is also increased by a specific amount
(given that there is no nonprimary care
historical reference—or not one that has
been clearly identified for this purpose).

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Response: The commenter’s question
was asked in the context of the
proposed policy, which proposed to
require hospitals to fill at least half of
their section 5503 slots in at least one
of the first three 12-month cost reporting
periods of the 5-year evaluation period.
In this final rule, we are finalizing a
policy wherein, regardless of whether a
hospital is starting new programs,
expanding programs, or doing a
combination of both, the Medicare
contractor will remove the portion of
the section 5503 award that is unused
in the final cost report. (However, as
explained earlier, in the case of slots
used to expand an existing program, if
the number of slots associated with a
program expansion in the final cost
report is greater than the number of slots
associated with a program expansion in
the fourth 12-month cost report, the
Medicare contractor would remove
those additional expanded FTEs that are
over the FTEs associated with program
expansion in the fourth 12-month cost
reporting period.) We agree that, of the
applicable section 5503 cap increase
reported on a hospital’s cost report in
the 5-year evaluation period, 25 percent
of the cap increase amount may be used
for any purpose. We also have defined
a base year, or baseline number of FTEs,
for the purpose of determining ‘‘growth’’
of additional FTE slots added in
accordance with section 5503. The
baseline for determining whether FTEs
are added in each cost report in the 5year evaluation period is the total
unweighted allopathic and osteopathic
FTE count from the hospital’s 12-month
cost report that immediately precedes
the cost report that includes July 1, 2011
(that is, the baseline cost report for June
30 providers would be July 1, 2010
through June 30, 2011; for December 31
providers, this would be January 1, 2010
through December 31, 2010; for
September 30 providers, this would be
October 1, 2009 through September 30,
2010). (On the CMS Form 2552–96, the
baseline number is the number on line
3.08 of Worksheet E, Part A, and on line
3.05 of Worksheet E–3, Part IV. On the
CMS Form 2552–10, the baseline
number is the number on line 10 of
Worksheet E, Part, and on line 6 of
Worksheet E–4). We believe this base
year provides a clear reference point for
determining whether both primary care/
general surgery or nonprimary care
training has increased during the 5-year
evaluation period.
Comment: A few commenters
supported the proposal to require
hospitals to use at least half of their
section 5503 slots in either the first,
second, or third 12-month cost reporting

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period of the 5-year period, and to use
all of their slots by the fifth year, stating
that the proposed standards appear
reasonable and consistent with statutory
intent. One commenter stated that the
proposals ‘‘drive earlier implementation
of new positions and strengthen
requirements that institutions fulfill the
obligation of the statute regarding
primary care and general surgery
positions.’’ With regard to the proposed
requirement that Medicare contractors
determine whether a hospital filled at
least half of its section 5503 slots in any
of the first three cost reporting periods,
the commenter asked that CMS add to
this a requirement consistent with
Evaluation Criterion 3 of the section
5503 application form, which was
targeted to primary care programs with
a ‘‘demonstrated focus’’ on residents
who pursue careers in primary care.
Hospitals that received points under
Evaluation Criterion Three had to
‘‘demonstrate’’ that residents graduating
from their programs actually do practice
in primary care, and do not enroll in
nonprimary care subspecialty programs
or work as something other than a
primary care practitioner. CMS stated
that a threshold of greater than 50
percent of graduates would be
acceptable as a basis to demonstrate that
a program produces physicians who
pursue careers in primary care. The
commenter stated that, given that
Medicare contractors will be able to
identify which positions are filled with
primary care positions after the third
year, CMS should utilize the 50-percent
threshold and require Medicare
contractors to identify the number of
graduates who remain in primary care
practice in the fifth year after medical
school (2 years after primary care
residency completion), and remove slots
from institutions that do not graduate
over 50 percent who remain in primary
care. The commenter believed that this
can be accomplished by counting those
residents who are not in residency or
fellowship training in their fifth year, in
relation to those who are continuing
training.
One commenter that supported the
proposal is a hospital that consistently
trains residents in excess of its caps and
that is not located in a State with a
resident-to-population ratio in the
lowest quartile or in an area designated
as a health professional shortage area
(HPSA), and therefore was not eligible
to receive slots from redistribution
under section 5503. The commenter
stated that if hospitals are not using the
caps they received, the slots should
become available to hospitals that will
use them. The commenter asserted that

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there is no guarantee that physicians
trained in rural, low resident to
population ratio areas or HPSAs will
stay in those areas. Therefore, the
commenter encouraged CMS to develop
a methodology with appropriate criteria
to redistribute slots not used under
section 5503 to those hospitals that have
consistently trained residents over their
cap.
Response: We appreciate the
commenters’ support for our proposals.
However, we have considered the
comments in their totality and are
persuaded by those comments that
opposed our proposed policies, and,
therefore, we are modifying our
proposed policy in this final rule
accordingly. Moreover, we do not
believe it would be appropriate to adopt
the commenter’s suggestion of removing
slots from hospitals that do not graduate
over 50 percent of residents who train
in primary care. We also note that
distribution of slots under section 5503
was statutorily directed to only certain
States.
Comment: One commenter noted that,
as part of the Medicare contractors’
reviews of the hospitals that received
section 5503 slots, CMS proposed that
the Medicare contractors would
determine whether a hospital filled at
least half of its section 5503 slots in its
first 12-month period, its second 12month period, and/or its third 12-month
period. The commenter stated that, for
any new requirements finalized in the
final rule, CMS should provide specific
desk review and/or audit steps for the
contractors to follow. With regard to the
hospitals, the commenter noted that
there is no reporting requirement or
mechanism for a hospital to report the
manner in which it fills its section 5503
FTE cap slots, making it difficult for a
Medicare contractor to determine
whether such a hospital is meeting its
requirements. On the Medicare cost
report, a hospital reports its FTE
residents in total, with no distinction as
to whether the FTE residents were
added as a result of the addition of the
section 5503 FTE cap slots. The
commenter recommended that CMS
require hospitals that received Section
5503 slots to report how they filled the
slots as a separate data submission.
Because these hospitals received the
benefit of additional FTE cap slots, the
commenter believed it is not
unreasonable to require them to report
how they meet the requirements
accompanying this benefit. If the
hospital is required to report section
5503 information to the Medicare
contractor, the commenter stated that it
is possible that the review could be part
of the desk review process. However, if

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53433

the hospital is not required to submit
information specific to its section 5503
requirements, the commenter believed
that the contractor might have to review
this information on audit.
Response: We will provide additional
instructions for the Medicare
contractors to follow in the desk review
and audit process. As stated in response
to the comments above, we also are
modifying the cost report for hospitals
to provide specific information
regarding how they are using the section
5503 slots. As with other provisions,
hospitals are required to supply
information and documentation to the
Medicare contractor upon request.
Comment: One commenter noticed
that CMS reiterated in the proposed rule
(77 FR 27982) the policy finalized in the
November 24, 2010 final rule with
comment period (75 FR 72196 and
72197, and 72200 and 72201), that CMS
has the right to audit at any time during
the 5-year period and remove
reallocated slots. The commenter
expressed concern that this policy
‘‘undercuts’’ the procedures for assuring
that slots are filled. The commenter
argued that if CMS audits and removes
slots in Year 1, 2, or 4, and the hospital
had not yet filled half or all of the slots,
but would meet the requirement in Year
3 or Year 5, CMS ‘‘has subverted its own
rule.’’ The commenter pointed out that
CMS already has the authority to
investigate civil or criminal fraud or
abuse; therefore, the commenter
recommended that CMS clarify the
circumstances under which it could
conduct such audits and ‘‘not subject
providers to undefined secondguessing.’’
Response: Although this comment
was made in the context of the proposal
which we have revised significantly in
this final rule, this comment prompts us
to provide more clarification for those
who may be unclear about the rules that
are applicable during the 5-year
evaluation period between July 1, 2011
and June 30, 2016. The commenter
argued that, if CMS audits and removes
slots in Year 1, 2, or 4, and the hospital
had not yet filled half or all of the slots,
but would meet the requirement in Year
3 or Year 5, CMS ‘‘has subverted its own
rule.’’ It appears that the commenter is
saying that by auditing and perhaps
removing slots for failing to meet the 75
percent test or the 3-year primary care
average requirement in years prior to
Year 3 or Year 5, CMS is not even giving
a hospital a chance to meet CMS’
proposed rules. However, section
1886(h)(8)(B)(ii) of the Act states that a
hospital that receives section 5503 slots
‘‘shall ensure, during the 5-year period
beginning on the date of such increase’’

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(emphasis added) that it meets those
two requirements. Therefore, whether or
not a hospital meets CMS’ proposed (or
even modified final) rules regarding by
when and how many of the awarded
slots must be filled is irrelevant if, at
any point during the 5-year evaluation
period, the hospital fails to meet the 75
percent test or the 3-year primary care
average requirement. As we stated in
response to a previous comment,
regardless of when the Medicare
contractor audits a hospital to determine
if it is meeting the criteria every year
within the 5-year period, a hospital
should not view this policy as an
encouragement to have an ‘‘off’’ year
where the requirements need not be
met. Thus, a contractor could remove all
of the slots awarded to the hospital in
any year of the 5-year evaluation period
because either the 75 percent test or the
3-year primary care average was not
met, even if the hospital does fill half of
its section 5503 slots by its third 12month cost report, or fills all of its slots
by its final cost reporting period (based
on the proposed policy). Therefore, we
disagree with the commenter that we are
‘‘subverting’’ our own rules by reserving
the right to have the Medicare
contractors assess as many times as
necessary during the 5-year period that
the hospital is meeting the statutory
criteria.
Comment: One commenter asked that
CMS clarify whether the analysis of
whether a hospital meets the primary
care average and the 75 percent test will
be conducted separately for IME and
direct GME respectively.
Response: The primary care average
and the 75-percent test are conducted
separately with respect to IME and
direct GME, and many hospitals
received different award amounts for
IME and direct GME.
In summary, we are finalizing a policy
under section 5503 and we are revising
the regulations text at § 413.79(n)(2)(ii)
to state that if a hospital received a
section 5503 cap award, and does not
use all of the award in its final (12month or partial) cost report of the 5year period beginning July 1, 2011 and
ending June 30, 2016, the Medicare
contractor will remove the applicable
unused slots, and the hospital’s section
5503 award will be reduced for portions
of cost reporting periods on or after July
1, 2016. The number of applicable
unused slots is equal to the difference
between the number of slots awarded
and the number of slots used. In
determining the applicable slots used,
the following amounts are added, as
relevant:
(1) If a hospital uses the section 5503
slots to expand an existing program(s),

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the used slots are equal to the lesser of
the number of slots used for an
expansion(s) in the fourth 12-month
cost report or the final cost report.
(2) If a hospital uses the section 5503
slots to start a new program(s), the used
slots are equal to the number of slots
used for a new program(s) in the final
cost report.
(3) The portion, if any, of the section
5503 slots used for cap relief, subject to
the 75 percent test and the 3-year
primary care average requirement.
We also clarify that cap relief
constitutes ‘‘use’’ of section 5503 slots,
and we instruct that, in the 5-year
evaluation period, a hospital should not
automatically report (that is, use) all of
its section 5503 cap increase (on Form
CMS–1–2552–10, line 8.01 of Worksheet
E, Part A, and on line 4.01 of Worksheet
E–4), but should only report (that is,
use) a portion that at least is equal to the
additional primary care/general surgery
FTEs added, with no more than an
additional 25 percent allowed to be
reported for other purposes. We reiterate
that a hospital is responsible for meeting
the 75-percent test based on whatever
amount of section 5503 cap increase it
reports on its cost report (on Form
CMS–2552–10, line 8.01 of Worksheet
E, Part A, and line 4.01 of Worksheet E–
4) during each year of the 5-year
evaluation period. We also reiterate that
the 3-year primary care average
requirement applies immediately on
July 1, 2011, regardless of when a
hospital begins to use its additional
section 5503 slots in the 5-year period.
This is because the 3-year primary care
average test applies to the hospital’s presection 5503 resident complement as
well, and not exclusively to the
additional FTE residents associated
with slots awarded under section 5503.
4. Preservation of Resident Cap
Positions From Closed Hospitals
(Section 5506 of the Affordable Care
Act)
a. Background
Under existing regulations at
§ 413.79(h) for direct GME and
§ 412.105(f)(1)(ix) for IME, a hospital
that is training FTE residents at or in
excess of its FTE resident caps and takes
in residents displaced by the closure of
another teaching hospital may receive a
temporary increase to its FTE residents
caps so that it may receive direct GME
and IME payment associated with those
displaced FTE residents. However,
those temporary FTE resident caps are
associated with those specific displaced
FTE residents, and the temporary caps
expire as those displaced residents
complete their training program. Thus,

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in the past, if a teaching hospital closed,
its direct GME and IME FTE resident
cap slots would be ‘‘lost,’’ because those
cap slots are associated with a specific
hospital’s Medicare provider agreement,
which would be retired upon the
hospital’s closure. Section 5506 of the
Affordable Care Act addressed that
situation by amending section
1886(h)(4)(H) of the Act to add a new
clause (vi) that instructs the Secretary to
establish a process by regulation under
which, in the event a teaching hospital
closes, the Secretary will permanently
increase the FTE resident caps for
hospitals that meet certain criteria up to
the number of the closed hospital’s FTE
resident caps. The Secretary is directed
to ensure that the total number of FTE
resident cap slots distributed shall be
equal to the amount of slots in the
closed hospital’s direct GME and IME
FTE resident caps, respectively. Under
existing regulations at § 489.52 and
§ 413.79(h), ‘‘closure of a hospital’’
means the hospital terminates its
Medicare provider agreement. As
finalized in the November 24, 2010 final
rule with comment period (75 FR
72213), we also specified that the FTE
resident cap slots of the hospital that
closed no longer exist as part of any
other hospital’s permanent FTE resident
cap.
Section 1886(h)(4)(H)(vi)(II) of the
Act, as added by section 5506(a) of the
Affordable Care Act, specifies that the
Secretary shall distribute the FTE cap
increases in the following priority order,
‘‘with preference given within each
category to hospitals that are members
of the same affiliated group’’ (as defined
by the Secretary) as the closed hospital:
• First, to hospitals located in the
same core-based statistical area (CBSA)
as, or in a CBSA contiguous to, the
hospital that closed.
• Second, to hospitals located in the
same State as the closed hospital.
• Third, to hospitals located in the
same region of the country as the
hospital that closed.
• Fourth, only if the slots are not able
to be fully distributed under the third
priority group, to qualifying hospitals in
accordance with the criteria established
under section 5503 (‘‘Distribution of
Additional Residency Positions’’) of the
Affordable Care Act.
For a detailed discussion on these
ranking categories, we refer readers to
the November 24, 2010 final rule with
comment period (75 FR 72214 and
72215). In the November 24, 2010 final
rule with comment period (75 FR 72212
through 72240), we also finalized the
following Ranking Criteria:
D Ranking Criterion One. The
applying hospital is requesting the

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increase in its FTE resident cap(s)
because it is assuming (or assumed) an
entire program (or programs) from the
hospital that closed, and the applying
hospital is continuing to operate the
program(s) exactly as it had been
operated by the hospital that closed
(that is, same residents, possibly the
same program director, and possibly the
same (or many of the same) teaching
staff).
D Ranking Criterion Two. The
applying hospital was listed as a
participant of a Medicare GME affiliated
group on the most recent Medicare GME
affiliation agreement of which the
closed hospital was a member before the
hospital closed, and under the terms of
that Medicare GME affiliation
agreement, the applying hospital
received slots from the hospital that
closed, and the applying hospital will
use the additional slots to continue to
train at least the number of FTE
residents it had trained under the terms
of the Medicare GME affiliation
agreement. If the most recent Medicare
GME affiliation agreement of which the
closed hospital was a member before the
hospital closed was with a hospital that
itself has closed or is closing, preference
would be given to an applying hospital
that was listed as a participant in the
next most recent Medicare GME
affiliation agreement (but not one which
was entered into more than 5 years prior
to the hospital’s closure) of which the
first closed hospital was a member
before the hospital closed, and that
applying hospital received slots from
the closed hospital under the terms of
that affiliation agreement.
D Ranking Criterion Three. The
applying hospital took in residents
displaced by the closure of the hospital,
but is not assuming an entire program
or programs, and will use the additional
slots to continue training residents in
the same programs as the displaced
residents, even after those displaced
residents complete their training (that
is, the applying hospital is permanently
expanding its own existing programs).
D Ranking Criterion Four. The
applying hospital does not fit into
Ranking Criterion One, Two, or Three,
and will use additional slots to establish
a new or expand an existing geriatrics
residency program.
D Ranking Criterion Five. Applying
hospital does not meet Ranking
Criterion One, Two, or Three, is located
in a HPSA, and will use all the
additional slots to establish or expand a
primary care or general surgery
residency program.
D Ranking Criterion Six. Applying
hospital does not meet Ranking
Criterion One, Two, or Three, is not

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located in a HPSA, and will use all the
additional slots to establish or expand a
primary care or general surgery
residency program.
D Ranking Criterion Seven. Applying
hospital seeks the slots for purposes that
do not fit into any of the above ranking
criteria.
In determining which hospitals
should receive the slots associated with
the closed hospital, in addition to
considering the ranking categories and
criteria listed above, section
1886(h)(4)(H)(vi) of the Act, as added by
section 5506(a) of the Affordable Care
Act, states that the Secretary may only
award slots to an applying hospital ‘‘if
the Secretary determines that the
hospital has demonstrated a likelihood
of filling the positions made available
under this clause within 3 years.’’
‘‘Within 3 years’’ means within the 3
academic years immediately following
the application deadline to receive slots
after a particular hospital closes (75 FR
72224). For example, where the
application deadline is April 1, 2011,
the immediately following academic
year is July 1, 2011; therefore, hospitals
must demonstrate the likelihood of
filling their slots by June 30, 2014.
Finally, section 5506(d) of the
Affordable Care Act specifies that ‘‘the
Secretary shall give consideration to the
effect of the amendments made by this
section on any temporary adjustment to
a hospital’s FTE cap under § 413.79(h)
* * * (as in effect on the date of
enactment of this Act) in order to ensure
that there is no duplication of FTE slots
* * *.’’ In distributing slots
permanently under section 5506, we
need to be cognizant of the number of
FTE residents for whom a temporary
FTE cap adjustment was provided under
existing regulations at § 413.79(h), and
when those residents will complete
their training, at which point the
temporary slot associated with those
displaced residents would be available
for permanent redistribution.
b. Change in Amount of Time Provided
for Submitting Applications Under
Section 5506 of the Affordable Care Act
In the August 3, 2010 proposed rule
(75 FR 46422), we proposed to establish
an application process for hospitals to
apply to CMS to receive an increase in
FTE caps based on slots from closed
hospitals. Section 5506 of the
Affordable Care Act did not specify an
application deadline for hospitals to
request an increase to their caps when
a hospital closes. With respect to the
first application process, which applied
to all teaching hospital closures between
March 23, 2008, and August 3, 2010, we
established an application deadline of

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53435

April 1, 2011. For future teaching
hospital closures, we finalized a policy
whereby we would inform the public
through an appropriate medium that
increases to hospitals’ FTE resident caps
are available for distribution due to the
closure of a teaching hospital, and the
application deadline would be 4 months
following the issuance of that notice to
the public (75 FR 72215).
Prior to issuance of the FY 2013 IPPS/
LTCH PPS proposed rule, some
representatives of the provider
community had commented that
providing hospitals with 4 months
following the announcement of a
teaching hospital closure to apply for
slots under section 5506 is longer than
necessary. They asserted that such a
long application period unnecessarily
delays CMS’ review of applications and
the resulting distribution of resident cap
slots from closed hospitals to the
applicants. The provider representatives
suggested that perhaps a 2-month
application window is sufficient and is
more practical.
As we discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27985),
we have considered the suggestion of
the provider representatives, and after
our initial experience in implementing
section 5506 of the Affordable Care Act,
we agree that 4 months may be more
time than is needed for hospitals to
properly prepare and submit section
5506 applications to CMS. Accordingly,
we proposed to set the application
deadline for future section 5506
applications to be 60 days following
CMS’ public notice of a hospital’s
closure and the availability of resident
cap slots increases. We stated that we
believe that reducing the application
submission timeframe from 4 months to
60 days will shorten the entire process
for awarding FTE resident cap slots
from closed hospitals considerably.
Comment: Many commenters
supported CMS’ proposal for a 60-day
application period as a reasonable
timeframe and commended CMS’ efforts
to expedite the process of awarding
section 5506 FTE resident cap slots. One
commenter did not support the
shortened application period because
the commenter believed it may lead to
less thoughtful decision-making and it
could have a disproportionately adverse
effect on smaller hospitals with fewer
resources at their disposal when
applying for additional FTE resident cap
slots.
Another commenter supported the 60day application period but suggested
that CMS use the IPPS final rule as a
medium to issue the public notice of a
hospital’s closure. The commenter
believed that CMS’ issuance of the

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public notice as part of the IPPS final
rule instead of issuing a separate public
notice would ease an applicant
hospital’s administrative burden in that
the hospital would have advance
knowledge of the forthcoming public
notice and could plan accordingly.
Response: We appreciate the
commenters’ support for our proposal,
and at the same time, we also
understand the commenter’s concerns
regarding a shortened application
period. As noted above, we initially
implemented a 4 month application
period because we believed that 4
months provided adequate time for
hospitals to gather the appropriate
documentation and prepare a section
5506 application (75 FR 72215). In light
of the public comments received on our
proposed policy to reduce the length of
the application period to 60 days, and
our understanding of the efforts
required to prepare a section 5506
application, we believe an appropriate
compromise is to provide for a 90-day
application period for future section
5506 applications. Therefore, we are
finalizing a section 5506 application
deadline of 90 days following CMS’
public notice of a hospital’s closure and
the availability of resident cap slots
increases.
With respect to the comment
suggesting that we include public notice
of hospital closures in the IPPS final
rule, we believe this could
unnecessarily delay the section 5506
award process. We prefer to have the
flexibility to issue public notices of
hospital closures at other times during
the year and not limit the notices to the
IPPS final rule, and we believe it is in
hospitals’ best interests to maintain
such flexibility.
In summary, after consideration of the
public comments we received, we are
finalizing a section 5506 application
period of 90 days following CMS’ public
notice of a hospital’s closure and the
availability of resident cap slots
increases.
c. Change to the Ranking Criteria under
Section 5506
In the November 24, 2010 final rule
with comment period (75 FR 72223), we
finalized the Ranking Criteria within
each of the three first statutory priority
categories (that is, same or contiguous
CBSAs, same State, and same region) to
be used to rank applications. For each
application, we assigned slots based on
Ranking Criteria, with Ranking Criterion
One being the highest ranking and
Ranking Criterion Seven being the
lowest. For a complete list of the
Ranking Criteria, we refer readers to
section IV.I.4.a. of this preamble, which

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discusses the background for
preservation of resident cap positions
from closed hospitals under section
5506 of the Affordable Care Act. For a
detailed discussion of the ranking
categories, we refer readers to the
November 24, 2010 final rule with
comment period (75 FR 72212 through
72240).
After reviewing applications from the
first section 5506 application process
(those applications that were due to
CMS on April 1, 2011), we observed that
the overwhelming majority of
applications fell under Ranking
Criterion Seven, that is, the applying
hospital seeks the slots for purposes that
do not fit into any of Ranking Criterion
One through Ranking Criterion Six.
These applications included
applications from hospitals that applied
for FTE cap slots for both primary care
and/or general surgery and for
nonprimary care specialties as well as
applications for general cap relief. (A
request for slots only for primary care
and/or general surgery programs would
qualify under either Ranking Criterion
Five or Ranking Criterion Six.) The
sheer number of applications we
received under Ranking Criterion Seven
indicated a need to further prioritize
among the applicants that would
previously have qualified under
Ranking Criterion Seven. Therefore, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 27985), we proposed to
replace current Ranking Criterion Seven
with the two separate proposed Ranking
Criteria listed below. We noted that we
were not proposing to make any changes
to Ranking Criteria One through Six. We
proposed the following two criteria to
replace existing Ranking Criterion
Seven:
• Proposed Ranking Criterion Seven:
The program does not meet Ranking
Criterion One through Six, and the slots
for which the hospital is applying are
for a primary care or a general surgery
program, but the hospital is also
applying for slots under Ranking
Criterion Eight.
• Proposed Ranking Criterion Eight:
Applying hospital seeks the slots for
purposes that do not fit into any of the
above ranking criteria.
The proposal to modify Ranking
Criterion Seven is consistent with
current Medicare policy goals to
increase residency training in primary
care and general surgery, because we
proposed to give a higher ranking to
those applications from hospitals
applying for primary care and general
surgery FTE cap slots, as well as
nonprimary care programs. Under the
current Ranking Criteria, when a
hospital applies for additional FTE cap

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slots for primary care and/or general
surgery as well as nonprimary care
programs, we do not distinguish
between the primary care/general
surgery and nonprimary care
applications. Therefore, because the
hospital would be applying for
nonprimary program(s), all the
hospital’s applications would fall under
proposed Ranking Criterion Seven.
Under our proposal, although the
hospital’s application that requests FTE
cap slots for primary care/general
surgery would qualify for proposed
Ranking Criterion Seven, the
application for nonprimary care/general
surgery would be classified as proposed
Ranking Criterion Eight.
Following is an example of how
Ranking Criteria Seven and Eight would
be assigned:
Hospital A applies for slots from
closed Hospital B. Hospital A is seeking
to expand its internal medicine and
dermatology programs. Under the
current ranking system, both of Hospital
A’s applications would receive
consideration under Ranking Criterion
Seven. That is, the internal medicine
application is ranked equally with the
dermatology application even though
internal medicine is a primary care
specialty. Under the proposed change to
the Ranking Criteria, Hospital A’s
internal medicine program would
receive consideration under proposed
Ranking Criterion Seven while the
dermatology program would receive
consideration under proposed Ranking
Criterion Eight.
Comment: One commenter objected to
CMS’ policy of giving higher ranking to
hospitals that apply for FTE cap slots for
primary care or general surgery
programs only than to hospitals that
apply for FTE cap slots for primary care
or general surgery as well as for other
nonprimary care or nongeneral surgery
programs. The commenter suggested
that CMS rank all applications for
primary care or general surgery
programs equally, regardless of the
existence or nonexistence of other
nonprimary care or nongeneral surgery
applications. Another commenter urged
CMS not to advance the creation of
primary care or general surgery
programs at the expense of other
essential yet nonprimary care or
nongeneral surgery specialties such as
psychiatry.
Response: We disagree with the first
commenter. We do not believe that a
hospital that applies for slots under
section 5506 for the purpose of starting
or expanding only programs in primary
care and general surgery should be
ranked equally with a hospital that
applies for the purpose of starting or

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expanding primary care and/or general
surgery programs, and other nonprimary
care programs as well. We continue to
believe that our Ranking Criteria, which
give a higher ranking to hospitals that
apply only for primary care or general
surgery programs, are consistent with
the expressed goals of sections 5503 and
5506 of the Affordable Care Act, and are
in keeping with the important policy
objective of promoting the growth in the
number of primary care and general
surgery residents, and reducing the
shortage of primary care physicians and
general surgeons. Thus far, Congress has
not identified other specialties for
special treatment. However, we note
that under Ranking Criteria One, Two,
and Three, hospitals can use slots
awarded under section 5506 for
nonprimary care programs because
these Ranking Criteria do not consider
or specify a program type, and instead
give priority to hospitals that continue
to maintain the level and type of
training that were occurring prior to the
hospital closure.
After consideration of the public
comments we received, we are
finalizing our proposed changes to the
Ranking Criteria with some
modification. As proposed, we are
replacing current Ranking Criterion
Seven with the two separate Ranking
Criteria listed below. We also are
modifying our proposed language for
Ranking Criterion Seven in order to
highlight and clarify how Ranking
Criterion Seven differs from Ranking
Criterion Five and Ranking Criterion
Six. A program may only qualify for
Ranking Criterion Five or Six if the
applying hospital will use all of its
additional slots to establish or expand
primary care or general surgery
programs. Therefore, a hospital that
submits several applications that
include requests for additional FTE slots
for purposes other than solely to
establish or expand primary care or
general surgery programs may not apply
under Ranking Criterion Five or Six for
additional FTE slots for its primary care
or general surgery programs. Rather, a
hospital that is applying both for the
purpose of establishing or expanding
primary care or general surgery
programs, and for the purpose of
establishing or expanding nonprimary
care or nongeneral surgery programs
and/or for cap relief must submit an
application requesting additional FTE
slots under Ranking Criterion Seven for
its primary care or general surgery
programs. The hospital’s requests for
additional FTE slots to establish or
expand a nonprimary care or nongeneral
surgery program and/or for additional

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FTE slots for cap relief would properly
be made under Ranking Criterion Eight.
In summary, we are finalizing Ranking
Criterion Seven as follows:
• Ranking Criterion Seven: The
applying hospital will use additional
slots to establish or expand a primary
care or general surgery program, but the
program does not meet Ranking
Criterion Five or Six because the
hospital is also separately applying
under Ranking Criterion Eight for slots
to establish or expand a nonprimary
care or non-general surgery program
and/or for cap relief.
In light of the modifications we are
making in this final rule to the proposed
Ranking Criterion Seven, we also
believe it is appropriate to modify the
language of proposed Ranking Criterion
Eight to specify the types of applications
that would properly be made under this
Ranking Criterion. In the proposed rule,
we proposed to replace the existing
Ranking Criterion Seven with a new
Ranking Criteria Seven, and create a
new Ranking Criterion Eight for
situations where an ‘‘applying hospital
seeks the slots for purposes that do not
fit into any of the above ranking
criteria.’’ We are modifying this
proposed language and finalizing
Ranking Criterion Eight as follows:
• Ranking Criterion Eight: The
applying hospital will use the
additional slots to establish or expand a
nonprimary care or nongeneral surgery
program or for cap relief.
We note that we did not propose, nor
are we making, any changes to Ranking
Criteria One through Six.
d. Effective Dates of Slots Awarded
Under Section 5506
As stated previously, section 5506(d)
of the Affordable Care Act instructs the
Secretary, in pertinent part, ‘‘ * * * to
ensure that there is no duplication of
FTE slots * * * .’’ Accordingly, in
distributing slots permanently under
section 5506, we need to be cognizant
of the number of FTE residents for
whom a temporary FTE cap adjustment
was provided under existing regulations
at § 413.79(h), when those residents will
complete their training, and at which
point the temporary slots associated
with those displaced residents would be
available for permanent redistribution.
With that in mind, in the first
distribution of section 5506 cap slots
from hospitals that closed between
March 23, 2008, and August 3, 2010, we
used the following several effective
dates based on the ranking criterion
under which a hospital applied:
• Date of hospital closure. This
effective date could have applied to
Ranking Criterion Two. It also could

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53437

have applied to Ranking Criteria One
and Three if there were no temporary
cap adjustments given for any displaced
FTE residents.
• Cost reporting period following date
of hospital closure. This effective date
could have been used for awarding slots
to hospitals that were training displaced
FTE residents and qualified for Ranking
Criterion One or Ranking Criterion
Three because they were taking over an
entire program or part of a program from
a closed hospital and had received a
temporary cap adjustment to train those
displaced residents under 42 CFR
413.79(h).
• July 1 effective date. This effective
date, which could have been retroactive,
could have been used for awarding slots
to hospitals that qualified under
Ranking Criteria Four through Seven
where there were temporary cap
adjustments made for displaced FTE
residents that completed training in a
program on a specific June 30.
• Date of award announcement
(January 30, 2012). This effective date
could have applied to hospitals that
qualified under Ranking Criteria Four
through Seven either where there were
no temporary cap increases under 42
CFR 413.79(h), or where there were
temporary cap increases but those slots
associated with the temporary cap
increases were already accounted for.
That is, displaced FTE residents
graduated prior to a specific July 1, and,
therefore, the cap slots associated with
these FTE residents had already been
permanently assigned that specific July
1, but the closed hospital still had
remaining cap slots available for
permanent assignment.
We stated in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 27986) that,
based on comments we have received
from hospitals that were involved in the
initial phase of section 5506
implementation (hospitals that applied
for cap slots from hospitals that closed
between March 23, 2008 and August 3,
2010), we believe we need to clarify
certain existing policies and propose a
change to the effective dates associated
with several ranking criteria.
First, we clarified in the proposed
rule the effective date of slots awarded
under section 5506 with respect to
Ranking Criterion Two. Ranking
Criterion Two applies to hospitals that
participated in a Medicare GME
affiliation agreement with the closed
hospital (but not one that was entered
into more than 5 years prior to the
hospital’s closure), received slots from
the closed hospital as part of the
affiliation agreement, and will use any
additional awarded slots to continue to
train at least the same number of FTE

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resident slots it trained as part of the
affiliation agreement. For hospitals that
qualify for additional slots under
Ranking Criterion Two, we award the
5506 slots effective on a permanent
basis with the date of the hospital’s
closure. However, for hospitals that
qualify under Ranking Criteria One and
Three and are already receiving
temporary cap adjustments for
displaced FTE residents under 42 CFR
413.79(h), we award the 5506 slots
effective on a permanent basis with the
cost reporting period following the date
of the hospital’s closure. Because these
hospitals are already receiving
temporary cap adjustments for their
portion of their cost reporting period
following the closure, for administrative
ease, slots became permanent due to the
section 5506 award effective with the
cost reporting period following the date
of the hospital’s closure. However, this
policy, applicable to hospitals that
qualify under Ranking Criterion One or
Three, is not appropriate for hospitals
that qualify under Ranking Criterion
Two and that participated in a Medicare
GME affiliation agreement with the
closed hospital and received cap slots
from the closed hospital as part of that
affiliation agreement. This policy is not
appropriate because, in this case, there
were no displaced FTE residents from
the Medicare GME affiliation agreement
and, therefore, the hospital did not
receive a temporary cap adjustment. For
example, if Hospital A received slots
from Hospital B as part of an affiliation
agreement so that FTE residents could
train at Hospital A and Hospital B
closes, Hospital A lost the cap
adjustment it received from Hospital B
as part of the affiliation agreement as of
the date of the hospital’s closure, and a
temporary cap adjustment under 42 CFR
413.79(h) is not available to Hospital A.
In this case, no FTE residents are
displaced.
In the proposed rule and in this final
rule, we are clarifying that, for hospitals
qualifying under Ranking Criterion Two
that are awarded cap slots from the
closed hospital, the award is effective
with the date of the hospital’s closure.
This effective date allows a hospital
applying under Ranking Criterion Two
to receive funding for training the
additional FTE residents it was training
as part of the Medicare GME affiliation
agreement with the closed hospital
immediately after the closure, without
having to wait until the following cost
reporting period to receive that cap
adjustment. We note that, under existing
regulations at 42 CFR 413.79(d),
additional FTEs that a hospital receives
under the terms of a Medicare GME

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affiliation agreement are subject to the
3-year rolling average. Therefore,
hospitals that receive permanent
assignment of FTE resident cap slots
under Ranking Criterion Two do not
receive an exemption from the rolling
average. With regard to the IME intern
and resident-to-bed (IRB) ratio, the
existing regulations at 42 CFR
412.105(a)(1)(i) indicate that the
numerator of the prior year IRB ratio
may be adjusted to reflect FTEs added
under a Medicare GME affiliation
agreement. The affiliation agreement
would terminate when the hospital
closes. Thus, on the cost report of the
hospital that receives slots under
Ranking Criterion Two, the prior year
numerator of the IRB ratio would only
be adjusted to reflect the portion of the
affiliated FTEs that the hospital received
prior to the other hospital’s closure and
the termination of the affiliation
agreement.
As we did in the proposed rule, we
also are clarifying that when there are
no temporary cap adjustments for
displaced FTE residents from hospitals
that closed, and an applying hospital
qualifies under Ranking Criterion One
or Ranking Criterion Three, the FTE
resident cap slots are awarded effective
with the date of the hospital’s closure.
This was indicated in the November 24,
2010 final rule with comment period (75
FR 72225), but we understand, based on
comments received after the initial
phase of section 5506 slot awards, that
this policy was not clearly understood.
These slots are also immediately
included in applying the rolling average
and IRB ratio cap.
We proposed to change the effective
date of an award of additional FTE caps
for hospitals that qualify under Ranking
Criterion Four through proposed
Ranking Criterion Eight where
temporary caps were given for displaced
FTE residents (we refer readers to
section IV.I.4.b. of this preamble for a
discussion of proposed Ranking Criteria
Seven and Eight). As a general matter,
hospitals that apply under Ranking
Criterion Four through proposed
Ranking Criterion Eight are applying
either to establish or expand a program
or to seek cap relief. In the proposed
rule, we stated that we do not believe
that, when a hospital receives additional
cap slots to establish or expand a
residency training program, we need to
award the cap slots retroactively to a
previous July 1 effective date. Rather,
the awarded cap slots are to be used on
a prospective basis to allow hospitals to
expand current programs or establish
new ones. We understand that if a
hospital is applying for cap relief under
proposed Ranking Criterion Eight

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(previously Ranking Criterion Seven),
the hospital would want its cap slots
awarded retroactively to the date of the
hospital’s closure or the July 1 after a
specific displaced resident has
graduated if that date is prior to the date
of the award announcement. However,
we stated in the proposed rule that we
do not believe such a policy is
consistent with the spirit of the BBA
caps. Furthermore, the purpose of
section 5506 is for hospitals to receive
slots from the closed hospital to
facilitate the continuity of the closed
hospital’s programs and to promote
stability in the number of physicians in
a community.
The proposed Ranking Criterion Eight
of section 5506 does not serve to
encourage the continuity of the closed
hospital’s programs; it merely provides
Medicare funding for a certain amount
of slots in excess of the BBA caps.
Accordingly, we indicated in the
proposed rule that we believe that
hospitals applying for cap relief under
proposed Ranking Criterion Eight
should only receive their permanent cap
slots effective on a prospective basis.
Therefore, while under the initial
section 5506 application process, it was
possible for an applying hospital that
qualified under Ranking Criteria Four
through Seven to receive slots
retroactive to the July 1 after a specific
displaced FTE resident’s graduation
date, we proposed that, for hospitals
that qualify under Ranking Criteria Four
through Eight for cap slots from a closed
hospital even where there were
temporary caps given for displaced FTE
residents, the applying hospitals would
receive the permanent FTE cap slots
effective no earlier than the date of the
award announcement. That is, if an
applying hospital that qualified under
Ranking Criterion Four through
proposed Ranking Criterion Eight
receives cap slots associated with a
displaced FTE resident and that resident
graduated prior to the date of the award
announcement, the earliest the applying
hospital could receive the permanent
cap adjustment would be the date of the
award announcement. If a hospital
qualified under Ranking Criterion Four
through proposed Ranking Criterion
Eight, and the only available cap slots
are temporarily being used to train
displaced FTE residents that are
expected to graduate after the date of
the award, the applying hospital will
receive the permanent slots effective the
July 1 after those displaced FTE
residents complete their training. For
example, if a hospital closed January 1,
2012, and the section 5506 slot awards
were announced May 1, 2013, but

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residents displaced from the closed
hospital did not complete their training
until June 30, 2013, the applying
hospital will receive section 5506 slots
for those displaced residents effective
July 1, 2013, following the completion
of training of those displaced residents.
We did not propose to change the
effective date of section 5506 awards for
applying hospitals that qualify under
Ranking Criterion Four through
proposed Ranking Criterion Eight where
there were no temporary caps given for
displaced residents; as described in the
November 24, 2010 final rule with
comment period (75 FR 72227), those
applying hospitals will continue to
receive their section 5506 cap slots
effective with the date of the award
announcement.
In the proposed rule, we discussed
another option to consider for the
effective date of Ranking Criteria Four
through proposed Ranking Criterion
Seven, which are Ranking Criteria
associated with either starting a program
or expanding a program, would be to
award the slots in accordance with
when the hospital actually needs the
slots, as asserted in the hospital’s
section 5506 application. (The proposed
effective date for proposed Ranking
Criterion Eight would still be no earlier
than the date of the award
announcement.) For example, assume a
hospital applies under Ranking
Criterion Five to expand an internal
medicine program by nine positions. As
described in its section 5506
application, the hospital plans that
expansion to occur beginning on July 1,
2012, and at that time, the hospital
would add three residents, on July 1,
2013, the hospital would add another
three residents, and on July 1, 2014, the
hospital would add the last three
internal medicine residents. Therefore,
the effective date of three slots could be
July 1, 2012, the effective date of three
additional slots would be July 1, 2013,
and the effective date of the last three
slots would be July 1, 2014. We stated
that we were interested in receiving
public comments on this policy
alternative. We still proposed that the
effective date for proposed Ranking
Criterion Eight would be no earlier than
date of the award.
Comment: A number of commenters
addressed our clarifications and
proposals of the effective dates for all of
the Ranking Criteria. Commenters
agreed that cap slots received under
Ranking Criterion Two should be
effective with the date of the hospital
closure. One commenter stated that
because the receiving hospital had
already been using the cap slots from
the closed hospital as part of a Medicare

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GME affiliation agreement, there is no
reason the slots should be awarded any
later than the date of the hospital
closure. The commenter added that it
supported making slots received under
Ranking Criterion Two effective with
the date of the hospital closure because
there are no temporary cap adjustments
and exemptions from the rolling average
applied to these cap slots.
Other commenters believed cap slots
from closed hospitals should be
awarded on an ‘‘as-needed’’ basis. They
stated that, therefore, it is appropriate
that the cap slots received under
Ranking Criterion Two be awarded
when the hospital closes because the
receiving hospital would need the
additional cap slots as of the date of the
hospital’s closure.
Response: We agree with the
commenters that cap slots received
under Ranking Criterion Two should be
effective with the date of the hospital
closure because the receiving hospital
had already been using the cap slots
from the closed hospital as part of a
Medicare GME affiliation agreement,
and there are no temporary cap
adjustments and exemptions from the
rolling average applied to these cap
slots. Therefore, we are finalizing our
clarification that, if a hospital is
awarded cap slots under Ranking
Criterion Two, those cap slots are
effective with the date of the hospital
closure.
Comment: Some commenters
specifically addressed our clarifications
and proposals for the effective dates of
Ranking Criteria Four through proposed
Eight. One commenter did ‘‘not believe
that it is appropriate for CMS to
institute a ‘one size fits all’ policy to
determine the effective dates for all
awards,’’ and that the awards should be
‘‘driven by the reasons for which the
slots are being awarded.’’ The
commenter believed that making all
awards for program establishment or
expansion under Ranking Criteria Four
through Eight prospectively could be
appropriate if it was done in a manner
consistent with a reasonable policy
regarding the application of the
temporary cap adjustments that
hospitals have received for taking in
displaced residents and it is done in a
manner that does not ‘‘over manage’’ the
distribution of the slots by doling them
out on a slot by slot basis. Another
commenter encouraged CMS to award
section 5506 slots under all ranking
criteria prospectively.
Other commenters recommended that
the effective date for section 5506 direct
GME and IME positions be the date
when the slots are needed by the
awardee hospital. The commenters

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53439

believed that assigning effective dates
based on this principle would avoid
confusion and some of the problems
hospitals encountered under CMS’
current system for assigning effective
dates. Commenters suggested that, for
hospitals that begin new programs (that
is, apply for slots under Ranking
Criterion Four, Five, or Six), section
5506 slots should become effective on
the date the hospital’s new program
begins. The commenters recommended
that, for administrative simplicity, the
effective date should be the same for all
awarded positions (that is, all slots
become effective the date the new
program begins). For a hospital that
starts and is awarded slots for a new
program that happens to begin in the
time period between the date it submits
an application to CMS and the date
CMS announces the slot award, the
commenters recommended that the
effective date be retroactive to the date
the hospital actually started the new
program. (The commenters noted that
this issue is relevant particularly given
the large time lags between section 5506
slot application deadlines and award
announcements.)
Response: We agree with the
commenters that the effective dates of
the various Ranking Criteria should be
driven by the reasons for which they are
awarded, and by when they are needed.
However, while we do not want to overcomplicate or ‘‘over-manage’’ the
awarding of the slots, as one commenter
cautioned against, we do believe that a
certain amount of discretion and control
should be maintained in the timing of
the effective dates. Some commenters
stated that section 5506 slots should
become effective on the date the
hospital’s new program begins, and that
for administrative simplicity, the
effective date should be the same for all
awarded positions (that is, all slots
become effective the date the new
program begins). However, these
commenters did not address the fact
that Ranking Criteria Four through the
new Eight are also for expansions of
existing programs. (The new Ranking
Criterion Eight could be used for
hospitals applying for slots to start or
expand nonprimary care programs, and/
or for cap relief.) The timing of program
expansions, which may not always
require separate approval from the
accrediting body if the hospital is
training below its accredited number of
positions, may be more challenging to
pinpoint. Nevertheless, we believe that
slots awarded under Ranking Criteria
Four through Seven (and Eight if the
slots are for starting or expanding a
nonprimary care program) should be

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effective only with the date that they are
actually needed, or, if applicable, only
delayed sufficiently until displaced
residents have graduated, freeing up
those slots for use under Ranking
Criteria Four through Eight.
Accordingly, consistent with some
commenters’ suggestion and our
assessment that slots awarded under
Ranking Criteria Four through Seven
(and Ranking Criterion Eight if the slots
are for starting or expanding a
nonprimary care program) should be
effective only when they are actually
needed, we are finalizing a policy as
follows:
For hospitals awarded slots under
these Ranking Criteria, in the hospital’s
award letter, CMS will specify the
program for which slots are being
awarded, whether those slots are for a
new program, or for an expansion of a
program, the number of FTE slots
awarded for that program, and the
Ranking Criterion under which those
slots are awarded. The award letter will
not specify an effective date, although it
may indicate that the slots can be used
no earlier than a certain date in the
instance where displaced residents need
to graduate in order to free up slots.
Rather, the slots would be ‘‘pending’’
with the Medicare contractor, and the
hospital would have to contact its
Medicare contractor and submit
documentation proving that it needs a
certain number of its slots awarded
under Ranking Criteria Four through
Seven (or Ranking Criterion Eight, as
applicable, for nonprimary care
programs) as of a certain date, because
the hospital has filled that number of
positions in the National Resident
Match Program (Match) (or other
applicable recruitment process) as of
that date, over the number of positions
that it had trained in that program in the
prior academic year.
For example, for a subsequent section
5506 application process, a hospital’s
award letter would state that it is
awarded four slots to expand a
pediatrics program under Ranking
Criterion Six. The hospital would not be
able to report a cap increase of any of
the four FTEs on the section 5506 line
of its Medicare cost report unless it
receives permission from its Medicare
contractor to do so. Assume that in
March 2014, the awardee hospital
documents to the Medicare contractor
that in the March 2014 Match, it
actually filled (not just placed) two more
positions than it had trained in that
program for the academic year
beginning July 1, 2013. In this manner,
because two additional slots are actually
filled as compared to the preceding July
1, the hospital shows the Medicare

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contractor that effective July 1, 2014, it
indeed will need two of the section
5506 FTEs that it was awarded under
Ranking Criterion Six. The Medicare
contractor could then release two of the
four slots awarded for the purpose of
expanding a pediatrics program
effective July 1, 2014, and the hospital
could report two FTEs (or some prorated
amount if the hospital’s FYE is other
than June 30) on the section 5506 line
of its Medicare cost report that includes
July 1, 2014. The hospital shall not
report the full cap increase of four on
the section 5506 line of the cost report
until it similarly proves that it has
actually filled the remaining two
positions. The documentation process
would be the same if a hospital is
awarded slots for starting a new
program under Ranking Criteria Four
through Seven (or Ranking Criterion
Eight, as applicable, for nonprimary care
programs). That is, the hospital would
have to prove that it actually has filled
slots in the Match (or applicable
process) associated with the new
program for the upcoming academic
year before the Medicare contractor
would release the appropriate number
of slots for that academic year.
Comment: Regarding cap slots
received under section 5506 for cap
relief (previously Ranking Criterion
Seven, now Ranking Criterion Eight in
this final rule), commenters stated that
those cap slots should be awarded
effective with the date of the hospital
closure. Commenters stated that
following the principle that cap slots
should be assigned to receiving
hospitals on an ‘‘as-needed’’ basis, if a
hospital applied for cap relief, it would
need those cap slots at the time of the
hospital closure. One commenter
disagreed with the proposal to assign
cap slots for cap relief at the earliest
with the date of the award
announcement. The commenter stated
that any teaching hospital that applied
for cap relief should be awarded cap
slots at the earliest point they are
available. The commenter stated that
‘‘there is no justifiable policy reason to
withhold a cap increase if the closed
hospital’s slots are available to be
awarded and the hospital receiving the
award, with all due respect to CMS,
never claimed in its application that it
was going to do anything different on a
prospective basis (for example, expand
a program) to justify its need for the
slots.’’ The commenter stated it did not
understand CMS’ statement that
retroactive application of cap slots
received for cap relief is not consistent
with the caps. The commenter stated
that the intent of section 5506 is to

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redistribute a closed teaching hospital’s
cap to other teaching hospitals, many of
them in the same community, and that
these teaching hospitals’ caps are what
prevent them from receiving additional
Medicare funding to support their
operations as academic centers. The
commenter stated that for CMS to delay
awarding cap slots that they were
instructed to award without a policy
justification, would be ‘‘extremely
unfortunate.’’ The commenter requested
that CMS withdraw its proposal related
to the awarding of slots for cap relief
and that the effective date for these cap
slots be the date they become available.
Response: We disagree with the
commenter who stated there is no
justifiable policy reason that cap slots
awarded for cap relief cannot be applied
retroactively. When a teaching hospital
closes, this occurrence may cause a
disruption and loss of a GME
infrastructure and a source of
physicians to a community that can be
a daunting task to rebuild and replace.
The purpose of section 5506 is to
attempt to preempt such disruption and
loss by encouraging other hospitals in
the area to continue the training
programs of the closed hospital, not
merely to use the section 5506 slots for
an applicant hospital’s own financial
benefit to cover its unfunded slots.
Consistent with the purpose of section
5506, we developed Ranking Criteria to
give preference to those hospitals that
take over a closed hospital’s entire
program or part of a program, and to
hospitals that participated in a Medicare
GME affiliation agreement with the
closed hospital. These hospitals have
had a direct relationship with the closed
hospital and are helping to maintain the
residency training program(s) of that
closed hospital, thereby also minimizing
the disruption and loss to the
community at large. Therefore, because
we do not believe that there is a
justifiable policy reason to award slots
for cap relief retroactively, we are
finalizing a policy that cap slots
received under Ranking Criterion Eight,
specifically for cap relief, are effective
the later of the date of the award
announcement, or a July 1 after
displaced FTE residents complete their
training if the cap slots awarded were
associated with temporary adjustments
made for displaced FTE residents.
Comment: One commenter stated that
if, for purposes of the Medicare cost
report, hospitals that receive cap slots
under Ranking Criterion Two are treated
differently from hospitals that receive
cap slots under other Ranking Criteria,
Medicare contractors must be notified of
any such distinction. The commenter
stated that the distinction would affect

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application of the 3-year rolling average
and the IRB ratio cap. The commenter
also stated that Medicare cost report
instructions should be revised to reflect
the difference between Ranking
Criterion Two and other Ranking
Criteria.
Response: In this final rule, as we
explained in response to comments
above, because we are no longer
employing a policy where temporary
cap increases would be replaced by
permanent cap increases on the cost
report, and the 3-year rolling average
and the IRB ratio cap exemption would
no longer be suspended as a
consequence of receipt of permanent
slots, we believe the cost reporting effect
of receipt of section 5506 slots is the
same, regardless of the Ranking Criteria
under which the slots are awarded. That
is, on the applicable cost report that an
FTE cap increase is effective, whether
retroactive or prospective, the hospital
will be able to count more residents
under the increased FTE resident cap in
that cost report. Consequently, more
FTE residents would be drawn into the
rolling average for IME and direct GME,
and more FTE residents would be
subject to the IRB ratio cap for IME
purposes. Therefore, we do not believe
there is any distinction regarding the
effect of reporting section 5506 slots
about which we need to notify Medicare
contractors or hospitals. However, we
note that, as is the case with the first
two rounds of section 5506 slot awards,
a hospital may receive a number of slots
with various effective dates. Therefore,
it is important that a hospital not report
its full section 5506 cap increase on the
section 5506 cap increase line (Form
CMS–2552–10, Worksheet E, Part A,
line 8.02 for IME, and Worksheet E–4,
line 4.02 for direct GME) on its cost
report all at once, but, rather, only
report the portions of the section 5506
awards as they become effective.
In summary, we are finalizing our
clarification that section 5506 slots
awarded under Ranking Criterion Two
are effective the date of the hospital
closure. In response to public
comments, we are finalizing a policy
that the effective date for Ranking
Criteria Four through Seven is the later
of when a hospital can demonstrate to
the Medicare contractor that the slots
associated with a new program or
expanded program are actually filled
and, therefore, are needed as of a
particular date (usually July 1, possibly
retroactive), or the July 1 after displaced
residents complete their training.
Regarding Ranking Criterion 8, if slots
are for starting or expanding a
nonprimary care program, the effective
date is the same as that for Ranking

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Criteria Four through Seven. If the slots
are for cap relief, the effective date is the
date of the CMS award announcement,
or the July 1 after displaced residents
complete their training, whichever date
is later.
Thus far, we have discussed our
proposed clarifications regarding when
various effective dates have been used
(that is, the date of closure, or the cost
reporting period following the date of
the closure, or a July 1 date), and our
proposal to change the effective date of
Ranking Criteria Four through proposed
(now finalized) Ranking Criterion Eight
when temporary cap adjustments for
displaced residents were given (to be no
earlier than the date of the award
announcement). However, due to
concerns expressed by recipients of
slots under the first round of section
5506, particularly regarding the
interaction with the rolling average as
the retroactive section 5506 slots
become effective, in the proposed rule,
we solicited public comments on
alternative approaches to implementing
section 5506. While bearing in mind
that section 5506(d) of the Affordable
Care Act instructs the Secretary ‘‘* * *
to ensure that there is no duplication of
FTE slots * * *,’’ we stated that we
would be interested in public comments
regarding whether to either make the
effective dates prospective for all
section 5506 slots awarded under all
ranking criteria, or, in certain instances
such as when slots are awarded under
Ranking Criteria One or Three, make the
effective dates of the section 5506 slots
seamless with the expiration of
applicable temporary cap adjustments
under § 413.79(h). We also solicited
public comments on whether the
regulatory temporary cap adjustment for
residents displaced from closed
hospitals under § 413.79(h) is still
necessary and appropriate, now that
there is a provision in the statute that
addresses permanent reassignment of
slots from closed teaching hospitals.
Alternatively, we stated that we would
be interested in comments regarding
whether the regulatory temporary cap
adjustment for displaced residents
under § 413.79(h) should be preserved,
but the exemption from the rolling
average for those displaced FTE
residents should be eliminated. We
indicated that these options should be
considered by commenters not only in
the context of section 5506 slots that
have already been assigned, but also in
the context of future teaching hospital
closures, and how previously awarded
section 5506 slots that have not as yet
been filled might interact with
eligibility for temporary cap

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adjustments for additional displaced
residents in the future.
Comment: Commenters supported the
concept of making the effective dates of
the section 5506 awards under Ranking
Criteria One and Three seamless with
the expiration of applicable temporary
cap adjustments (that is, at the time
when a displaced resident graduates).
The commenters stated that this would
allow the temporary cap adjustment and
the exemption from the rolling average
and IRB ratio cap to apply for the
duration of time that the displaced
residents are in training.
Response: We appreciate the
commenters’ support. To accommodate
seamless awards under Ranking Criteria
One and Three, we are modifying the
CMS Application Form (formerly, the
Evaluation Form) to instruct a hospital
applying under Ranking Criteria One
and Three to list the names and
graduation dates of specific displaced
residents whom the hospital believes it
has seamlessly replaced or will be
seamlessly replacing with new PGY1
residents upon graduation of the
displaced residents. Similarly, in the
award letters, we will specify whether
slots are being awarded under Ranking
Criterion One or Three, the amount of
FTEs awarded, and the names and
graduation dates of specific displaced
residents of whom we believe the
hospital has proven that it has or will
be seamlessly replacing. The effective
date of these slots will be the day after
the applicable graduation date(s).
Comment: One commenter requested
clarification on the ‘‘seamless’’
requirement for Ranking Criterion One
and Ranking Criterion Three. The
commenter stated that under Ranking
Criterion One and Ranking Criterion
Three, a hospital applying for additional
cap slots must demonstrate that it will
continue to train FTE residents in the
same program as the closed hospital
without any lapse in training. The
commenter stated, for example, that if a
hospital applied to take over part of a
closed hospital’s program under
Ranking Criterion Three, which means
it is also training some of the FTE
residents that were displaced from that
closed hospital’s program, the applying
hospital must be able to demonstrate
that once those displaced FTE residents
graduate on June 30, it will immediately
fill those positions with new FTE
residents the next day on July 1. The
commenter stated that if a teaching
hospital closes even just a couple of
months after the start of the academic
year (July 1), it is very difficult for a
hospital applying under Ranking
Criterion One or Ranking Criterion
Three to fill a slot vacated by a

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displaced FTE resident(s) who is
graduating June 30 of that academic year
by July 1 of the following academic
year. The commenter stated that
recruitment for most residency training
programs is organized in accordance
with the National Resident Matching
Program schedule. This schedule
generally requires that the Match quotas
for specialty programs must be
submitted by January 31 and that the
Match quotas for subspecialty programs
be submitted even earlier than the
January deadline for specialty programs.
Therefore, if a hospital took in a
displaced FTE resident who was
scheduled to graduate the upcoming
June 30, it would likely be impossible
for the hospital to fill that slot vacated
by the displaced FTE resident
immediately with the following July 1.
The commenter stated it understands
CMS’ goal of requiring hospitals that
apply under Ranking Criterion One or
Ranking Criterion Three to seamlessly
fill slots vacated by displaced FTE
residents. However, the commenter
requested that CMS clarify its policy to
state that for those hospitals that apply
under Ranking Criterion One and
Ranking Criterion Three, in situations
where FTE residents will graduate the
next June 30, the applying hospital is
required to demonstrate that it will fill
the slots vacated by the displaced FTE
residents by July 1 of the second
academic year following the hospital
closure.
Response: We acknowledge that the
timeline used by the National Resident
Match Program or other resident match
services can make it difficult, if not
impossible, to seamlessly fill the slots of
a displaced resident graduating on June
30 in the instance where a teaching
hospital closes (or its programs close)
after the date (for example, January 31)
that positions must be placed in the
Match for the upcoming academic year
beginning July 1. However, we are not
convinced that the same challenge
exists even in instances where a
hospital closes, or the programs close, at
any point after ‘‘just a couple of
months’’ following the start of an
academic year, as the commenter
asserted. With regard to allopathic and
osteopathic programs, because the
deadline for submitting the Match quota
is approximately the end of January, we
believe December 31 of the same
academic year is a reasonable date to
use for the purpose of determining the
feasibility of seamlessly replacing
displaced residents who are scheduled
to graduate on the upcoming June 30.
Therefore, we are stating in this final
rule that, in the instance where a

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teaching hospital closed after December
31 of an academic year, in order for a
hospital to qualify under Ranking
Criterion One or Ranking Criterion
Three for cap slots associated with
displaced FTE residents that will
graduate June 30 of the academic year
in which the applying hospital took in
the displaced FTE residents, the
applying hospital must be able to
demonstrate that it will fill slots vacated
by displaced FTE residents by July 1 of
the second academic year following the
hospital closure. For example, if a
hospital closes January 1, 2013, an
applying hospital must be able to
demonstrate that it will fill any
positions vacated by displaced FTE
residents who will graduate June 30,
2013, by July 1, 2014. However, in the
instance where a teaching hospital
closed before December 31 of an
academic year, in order for a hospital to
qualify under Ranking Criterion One or
Ranking Criterion Three for cap slots
associated with displaced FTE residents
that will graduate June 30 of the
academic year in which the applying
hospital took in the displaced FTE
residents, the applying hospital must be
able to demonstrate that it will
‘‘seamlessly’’ fill slots vacated by
displaced FTE residents by July 1; that
is, the day immediately after the June 30
that the displaced FTE residents
graduate.
Comment: Commenters stated that
even though section 5506 exists to
permanently redistribute slots from a
closed teaching hospital, the temporary
cap adjustments for displaced residents
in the regulations at § 413.79(h) must
continue to exist. The commenters
argued that the temporary cap
adjustment for displaced residents
policy in regulations at § 413.79(h) and
section 5506 are two provisions that
serve different purposes and should be
viewed independently; section 5506
should not be viewed as a replacement
for the temporary cap adjustment. The
commenters stated that the temporary
cap adjustment addresses an immediate
crisis situation, protecting displaced
residents and providing immediate
payment to hospitals taking in the
displaced residents, while section 5506
is intended to address a long-term
situation, and the entire process can
easily take up to 2 years to complete.
Commenters pointed out that a hospital
that takes in displaced residents and
applies for section 5506 slots has no
guarantee that it will be awarded
permanent slots under the section 5506
program, and ‘‘given this lack of
certainty, the mere possibility of being
awarded section 5506 slots is simply not

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enough of an incentive for the hospital
to take on displaced residents.’’ One
commenter stated that CMS should
exercise ‘‘extreme caution before
assuming that section 5506 can be or
should be viewed as a replacement for
the temporary cap adjustment policy in
any meaningful way.’’
Commenters also asserted that if the
temporary cap adjustment was removed
from the regulations, the pool of
potential hospitals willing to absorb the
displaced residents would likely shrink.
The commenters stated that, for a
variety of practical and personal
reasons, displaced residents are not
always able to (and some may not desire
to) continue their residency training in
the same geographic location as the
closed hospital, and hospitals that are
not located in the same state as the
closed hospital would not be in a
position to receive slots permanently
under section 5506. One commenter
noted that significant financial barriers
still exist for many hospitals despite
Medicare’s payment policies, because
the temporary cap adjustment policy
only accounts for the Medicare share of
teaching hospital costs, and not others,
such as Medicaid, which generally does
not have a policy like Medicare’s to
address displaced residents.
Commenters also opposed the concept
raised in the proposed rule of
maintaining the temporary cap
adjustment but of eliminating the
exemption from the 3-year rolling
average. Commenters argued that
teaching hospitals should not have to
face a short-term loss of funding due to
the immediate application of the 3-year
rolling average (and IRB ratio cap) when
taking in displaced residents. One
commenter added that, although CMS
did not directly ask for comments on the
exemption from the IRB ratio cap, this
exemption is also an important piece of
the temporary cap adjustment policy
and should be preserved.
Response: After considering the
public comments received, we agree
that the temporary cap adjustment
policy in the regulations at § 413.79(h)
and the permanent cap adjustments
provided by section 5506 serve both
different and necessary roles. We
particularly agree that elimination of the
temporary cap adjustment may
influence the willingness of hospitals in
states or geographic areas outside the
state or geographic vicinity of the closed
hospital to take in displaced residents.
Therefore, we are not making any
changes to the regulations at § 413.79(h),
and are preserving the attending
exemptions from the 3-year rolling
average and the IRB ratio cap for the
duration of a displaced resident’s

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training in the program from which he/
she was displaced.
In summary, we are finalizing the
policy that the effective dates of the
section 5506 slots awarded under
Ranking Criteria One and Three are
seamless with the expiration of
applicable temporary cap adjustments
(that is, at the time when a displaced
resident graduates). To accommodate
seamless awards under Ranking Criteria
One and Three, we are modifying the
CMS Application Form (formerly, the
Evaluation Form) to instruct a hospital
applying under Ranking Criteria One
and Three to list the names and

graduation dates of specific displaced
residents whom the hospital believes it
has seamlessly replaced or will be
seamlessly replacing with new PGY1
residents upon graduation of the
displaced residents. We also are stating
in this final rule that in the instance
where a teaching hospital closed after
December 31 of an academic year, in
order for a hospital to qualify under
Ranking Criterion One or Ranking
Criterion Three for cap slots associated
with displaced FTE residents that will
graduate June 30 of the academic year
in which the applying hospital took in
the displaced FTE residents, the

applying hospital must be able to
demonstrate that it will fill slots vacated
by displaced FTE residents by July 1 of
the second academic year following the
hospital closure. Lastly, in this final
rule, we are not making any changes to
the regulations at § 413.79(h), and we
are preserving the attending exemptions
from the 3-year rolling average and the
IRB ratio cap for the duration of a
displaced resident’s training in the
program from which he/she was
displaced.
Following is a chart of the Ranking
Criteria and the effective dates we are
finalizing:

Ranking criterion

Effective date

One: The applying hospital is requesting the increase in its FTE resident cap(s) because it is assuming (or
assumed) an entire program (or programs) from the hospital that closed, and the applying hospital is
continuing to operate the program(s) exactly as it had been operated by the hospital that closed (that is,
same residents, possibly the same program director, and possibly the same (or many of the same)
teaching staff).
Two: The applying hospital was listed as a participant of a Medicare GME affiliated group on the most recent Medicare GME affiliation agreement of which the closed hospital was a member before the hospital
closed, and under the terms of that Medicare GME affiliation agreement, the applying hospital received
slots from the hospital that closed, and the applying hospital will use the additional slots to continue to
train at least the number of FTE residents it had trained under the terms of the Medicare GME affiliation
agreement. If the most recent Medicare GME affiliation agreement of which the closed hospital was a
member before the hospital closed was with a hospital that itself has closed or is closing, preference
would be given to an applying hospital that was listed as a participant in the next most recent Medicare
GME affiliation agreement (but not one which was entered into more than 5 years prior to the hospital’s
closure) of which the first closed hospital was a member before the hospital closed, and that applying
hospital received slots from the closed hospital under the terms of that affiliation agreement.
Three: The applying hospital took in residents displaced by the closure of the hospital, but is not assuming
an entire program or programs, and will use the additional slots to continue training residents in the
same programs as the displaced residents, even after those displaced residents complete their training
(that is, the applying hospital is permanently expanding its own existing programs).
Four: The program does not meet Ranking Criteria 1, 2, or 3, and the applying hospital will use additional
slots to establish a new or expand an existing geriatrics residency program.

The day after the graduation
date(s) of actual displaced resident(s).

Five: The program does not meet Ranking Criteria 1 through 4, the applying hospital is located in a HPSA,
and will use all the additional slots to establish or expand a primary care or general surgery residency
program.
Six: The program does not meet Ranking Criteria 1 through 5, and the applying hospital is not located in a
HPSA, and will use all the additional slots to establish or expand a primary care or general surgery residency program.
Seven: The applying hospital will use additional slots to establish or expand a primary care or general surgery program, but the program does not meet Ranking Criterion 5 or 6 because the hospital is also separately applying under Ranking Criterion 8 for slots to establish or expand a nonprimary care or nongeneral surgery program and/or for cap relief.
Eight: The program does not meet Ranking Criteria 1 through 7, and the applying hospital will use additional slots to establish or expand a nonprimary care or a non-general surgery program or for cap relief.

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Date of the hospital closure.

The day after the graduation
date(s) of actual displaced resident(s).
The later of when hospital can
demonstrate to the Medicare
contractor that the slots associated with a new program or program expansion are actually
filled, and therefore, are needed
as of a particular date (usually
July 1, possibly retroactive), or
the July 1 after displaced residents complete their training.

If slots are for starting or expanding
a nonprimary care program, the
effective date is same as that for
Ranking Criteria Four through
Seven. If slots are for cap relief,
the effective date is the effective
date of CMS’ award announcement, or the July 1 after displaced residents complete their
training, whichever is later.

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e. Clarification of Relationship Between
Ranking Criteria One, Two, and Three
In the November 24, 2010 final rule
with comment period, as part of the
response to a comment we received
requesting that the order of Ranking
Criterion One (regarding an applicant
hospital that assumes an entire program
from a closed hospital) and Ranking
Criterion Two (regarding an applicant
hospital that received slots under the
terms of a Medicare GME affiliation
agreement from a closed hospital) be
switched, we stated: ‘‘Furthermore, the
commenter need not be concerned that
hospitals that would fit into Ranking
Criterion Two would be at a
disadvantage and deprived of their fair
share of slots to hospitals that would fit
under Ranking Criterion One. In fact,
Ranking Criteria One and Two are not
competing with each other, and
hospitals fitting into each category
would get their ‘fair’ share of slots. For
example, assume a hospital with an FTE
resident cap of 100 closes. Hospital A
assumes the entire programs in which
80 FTE residents were training when the
hospital closed. Hospital B had been
receiving 20 FTE slots from the closed
hospital under the terms of a Medicare
GME affiliation agreement. Hospital A
applies for 80 slots under Ranking
Criterion One and, all other things being
equal, is awarded 80 slots. Hospital A
could apply for more than 80 slots, but
it could only receive consideration
under Ranking Criterion One for a
maximum of 80 slots. Therefore, 20 slots
would remain for Hospital B to apply
for and receive under Ranking Criterion
Two. Accordingly, we do not believe it
is necessary to reorder Ranking Criteria
One and Two’’ (75 FR 72218).
Prior to the issuance of the proposed
rule, we had been made aware that it
may not always be true that Ranking
Criteria One, Two, and even Three are
not competing with each other. For
example, in the case where the closed
hospital was training residents in excess
of its FTE resident caps, it is possible for
hospitals to apply under Ranking
Criteria One, Two, and/or Three for
more slots than are available. However,
under the policy expressed in the
response quoted above from the
November 24, 2010 final rule with
comment period, because a hospital that
takes over an entire program from the
closed hospital is ranked under Ranking
Criterion One, and a hospital that
received slots from a Medicare GME
affiliation agreement from the closed
hospital is ranked under Ranking
Criterion Two, all the slots could be
assigned to the hospital under Ranking
Criterion One, leaving no slots for

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hospitals ranked under Ranking
Criterion Two or Three. (We note that in
the first round of section 5506 awards
associated with hospitals that closed
between March 23, 2008, and August 3,
2010, this turned out not to be a concern
because even in the case where a closed
hospital was training residents in excess
of its FTE caps at the time of closure,
there were no applicants for the slots
that simultaneously qualified under
Ranking Criteria One, Two, and/or
Three). For example, a hospital that
closed has an FTE resident cap of 10,
but when it closed, it was training 15
FTEs in an internal medicine program.
Hospital A assumes at least 90 percent
of the internal medicine program; that
is, the ‘‘entire’’ program (a hospital that
takes on 90 percent of the residents
training in a particular program at the
closed hospital within 5 years prior to
the hospital’s closure or at the time of
the hospital’s closure would be deemed
to have assumed an ‘‘entire’’ program
(75 FR 72218)). Ninety percent of the
internal medicine program is 13.5 FTEs.
Because Hospital A took over the
‘‘entire’’ internal medicine program, it
applies for slots under Ranking
Criterion One. Hospital B applies under
Ranking Criterion Three because it
assumes the other 10 percent of the
program, or 1.5 FTEs. However, because
the closed hospital’s FTE resident cap
was limited to 10, it would seem that all
10 slots would be assigned to Hospital
A under Ranking Criterion One, leaving
no slots for Hospital B under Ranking
Criterion Three. Conversely, if Ranking
Criteria One and Three were ranked as
equals, the 10 slots could be prorated so
that both Hospital A and Hospital B
each receive a ‘‘fair’’ share.
Another example might be one in
which a closed hospital that was
training residents in excess of its FTE
resident cap of 10 ‘‘lent’’ 2 of those 10
cap slots to Hospital C under the terms
of a Medicare GME affiliation
agreement. Although under the terms of
the Medicare GME affiliation agreement,
the hospital’s FTE resident cap was
reduced from 10 to 8, the hospital
actually trained 9 FTEs, and continued
to do so until it closed. Hospital D then
assumes the 9 FTEs, or the entirety of
the program that remained at the closed
hospital when it closed. Again, one
policy approach would be to rank the
ranking criteria in descending order,
and assign all 10 slots to Hospital D
since Hospital D qualifies under
Ranking Criterion One. Alternatively,
another policy approach would be to
treat Ranking Criteria One and Two as
equals, and then a prorata share of the

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10 slots could be given each to Hospital
C and Hospital D.
After consideration of these scenarios,
we stated in the proposed rule that we
believe that in the case where the closed
hospital was training residents in excess
of its FTE resident caps, prorating
among hospitals that qualify under
Ranking Criteria One, Two, and Three is
not warranted. This is because we
believe that a hospital that assumes an
entire program from the closed hospital
should be ranked highest, as it has taken
the boldest step to ensuring the
continuity of the closed hospital’s
program. As we explained first in the
August 3, 2010 proposed rule (75 FR
46423) and again in the November 24,
2010 final rule with comment period (75
FR 72218), ‘‘We note that we are
proposing this ranking criterion
regarding affiliated hospitals as second,
after the first ranking criterion regarding
applying hospitals that assume an entire
program or programs from the closed
hospital because, even though section
5506 of the Affordable Care Act directs
the Secretary to give preference to
members of the same affiliated group,
we believe that a hospital that assumes
the responsibility for an entire program
or programs demonstrates a
commitment to maintain the programs
to an even greater degree than does a
hospital that was affiliated with the
hospital that closed and may only be
maintaining a portion of the residency
program or programs.’’ Similarly, we
believe that because section 5506 of the
Affordable Care Act does give
preference to members of the same
affiliated group as the closed hospital,
hospitals qualifying for Ranking
Criterion Two should receive slots first
before hospitals qualifying for slots
under Ranking Criterion Three. While
we would encourage a hospital to
assume a part of a closed hospital’s
program if it does not have the capacity
to assume the entire program, such a
hospital would be ranked under
Ranking Criterion Three, still receiving
preference before all hospitals that did
not necessarily have any relationship
with the closed hospital and that qualify
under Ranking Criteria Four and below.
As we stated in the November 24, 2010
final rule with comment period (75 FR
72226), ‘‘we would still assign the slots
to hospitals qualifying under Ranking
Criteria One, Two, and Three in
descending order.’’ Therefore, in the
instance where a closed hospital is
training residents in excess of its FTE
resident caps when it closes, we are
clarifying that we would not prorate a
closed hospital’s FTE resident caps
among applicant hospitals that qualify

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under Ranking Criteria One, Two, and
Three.
We did not receive any public
comments on this clarification regarding
the relationship between Ranking
Criteria One, Two, and Three.
Therefore, we are finalizing the
clarification.
f. Modifications to the Section 5506
CMS Evaluation Form
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27989), we
proposed to make numerous changes to
the Section 5506 CMS Evaluation Form.
Most of the changes were not
substantive, but were intended to clarify
the requirements on the form, and
therefore, we did not list them each
individually. In the proposed rule, we
indicated that there were several
proposed changes that were more
substantive, and we enumerated those.
First, we proposed to change the name
of the CMS Evaluation Form to the CMS
Application Form. We believe this is a
more appropriate name, as it is the form
used by hospitals to apply for slots
under section 5506. Second, we
identified several instances on the
proposed CMS Application Form where
we proposed to prompt the applicant to
specify whether the application is for a
particular program, or for general cap
relief, or for slots associated with a
Medicare GME affiliation agreement
with the closed hospital (which we did
not do on the preceding form). Third,
we proposed to clarify the titles of the
Demonstrated Likelihood Criteria (DLC).
Specifically, the proposed title for
Demonstrated Likelihood Criterion 1 is
‘‘Establishing a New Residency
Program’’, the proposed title for
Demonstrated Likelihood Criterion 2 is
‘‘Taking Over All or Part of an Existing
Residency Program from the Closed
Hospital, or Expanding an Existing
Residency Program,’’ the proposed title
for Demonstrated Likelihood Criterion 3
is ‘‘Receiving Slots for General Cap
Relief,’’ and the proposed title for
Demonstrated Likelihood Criterion 4 is
‘‘Receiving Slots by Virtue of Medicare
GME Affiliated Group Agreement with
Closed Hospital.’’ Fourth, we proposed
to add a category under Demonstrated
Likelihood Criterion 2 stating that if the
hospital currently has unfilled positions
in a residency program that have
previously been approved by the
ACGME, AOA, or the ABMS, and the
hospital is now seeking to fill those
positions, the hospital must attach
documentation clearly showing its
current number of approved positions,
and its current number of filled
positions (as proof of the unfilled
positions). Fifth, we proposed to change

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the wording in Ranking Criteria Four,
Five, and Six, respectively, from ‘‘The
applying hospital does not meet
Ranking Criteria 1, 2, or 3’’ to ‘‘The
program does not meet Ranking
Criterion 1, 2, or 3’’ because the latter
is more accurate. That is, it is possible
for a hospital to qualify under Ranking
Criterion 1, 2, or 3 for a particular
program, and also to apply for slots
separately under Ranking Criterion 4, 5,
or 6 for a different program. Sixth, we
proposed to add a new Ranking
Criterion 7: The program does not meet
Ranking Criteria 1 through 6, and the
slots for which the hospital is applying
are for a primary care or a general
surgery program, but the hospital is also
applying for slots under Ranking
Criterion Eight. We also proposed to
renumber what had been the previous
Ranking Criterion Seven to be the
proposed Ranking Criterion Eight.
Lastly, in the proposed rule, we
included the proposed revised CMS
Section 5506 Application Form:
Comment: One commenter supported
the proposed changes to the CMS
Evaluation Form and believed that its
use will improve the application and
review process for section 5506 awards.
Response: We appreciate the
commenter’s support, and we are
finalizing our proposed changes with
some modifications. In response to
public comments on Ranking Criteria
One and Three, we are making
additional changes to the CMS
Evaluation Form (finalized as the CMS
Application Form) under Ranking
Criteria One and Three where hospitals
applying under those Ranking Criteria
must list the names and graduation
dates of specific displaced residents
whom, upon their graduation, the
hospital seamlessly replaces (or intends
to seamlessly replace) with new
residents.
Following is the finalized revised
CMS Section 5506 Application Form:
CMS Application Form
As Part of the Application for the
Increase in a Hospital’s FTE Cap(s)
under Section 5506 of the Affordable
Care Act: Preservation of FTE Cap Slots
from Teaching Hospitals that Close
Directions: Please fill out the
information below for each residency
program for which the applicant
hospital intends to use the increase in
its FTE cap(s). If the hospital is
applying for general FTE cap relief (an
increase in the hospital’s FTE cap(s) in
recognition of already training
residents in excess of the hospital’s
cap(s)), that application must be
submitted separately from an

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53445

individual program request. If the
hospital is applying for slots associated
with a Medicare GME affiliation
agreement with a hospital that closed,
that application must also be submitted
separately from an individual program
request.
NAME OF HOSPITAL:
lllllllllllllllllll
MEDICARE PROVIDER NUMBER
(CCN):
lllllllllllllllllll
NAME OF MEDICARE CONTRACTOR:
lllllllllllllllllll
CORE-BASED STATISTICAL AREA
(CBSA in which the hospital is
physically located—write the 5 digit
code here):
lllllllllllllllllll
COUNTY NAME (in which the hospital
is physically located):
lllllllllllllllllll
Complete the following, as
applicable:
1. Name Of Specialty Training
Program:
lllllllllllllllllll
2. General FTE Cap Relief:
lllllllllllllllllll
3. Medicare GME Affiliated Group:
lllllllllllllllllll
(Check one):
b Allopathic Program
b Osteopathic Program
NUMBER OF FTE SLOTS REQUESTED
FOR SPECIFIC PROGRAM (OR
HOSPITAL OVERALL IF SEEKING
GENERAL CAP RELIEF OR SLOTS
ASSOCIATED WITH A MEDICARE
GME AFFILIATED GROUP) AT YOUR
HOSPITAL:
Direct GME:lllll IME:lllll
Section A: Demonstrated Likelihood
Criteria (DLC) of Filling the FTE
Slots
The applicant hospital must provide
documentation to demonstrate the
likelihood of filling requested slots
under section 5506 within the 3
academic years immediately following
the application deadline to receive slots
after a particular hospital closes. Please
indicate the specific use for which you
are requesting an increase in your
hospital’s FTE cap(s). If you are
requesting an increase in the hospital’s
FTE cap(s) for a combination of DLC1,
DLC2, or DLC3, you must complete a
separate CMS Application Form for
each DLC and specify the distinct
criterion from the list below within each
Form.

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

Demonstrated Likelihood Criterion 1:
Establishing a New Residency Program
The hospital does not have sufficient
room under its direct GME FTE cap or
IME FTE cap, or both, and will establish
a new residency program in the
specialty. (The hospital must check at
least one of the following.)
b Application for approval of the
new residency program has been
submitted to the ACGME, AOA or the
ABMS (The hospital must attach a
copy.)
b The hospital has submitted an
institutional review document or
program information form concerning
the new program in an application for
approval of the new program. (The
hospital must attach a copy.)
b The hospital has received written
correspondence from the ACGME, AOA
or ABMS acknowledging receipt of the
application for the new program, or
other types of communication from the
accrediting bodies concerning the new
program approval process (such as
notification of site visit). (The hospital
must attach a copy.)
b The hospital has other
documentation demonstrating that it has
made a commitment to start a new
program (The hospital must attach a
copy.).

b Application for approval of an
expansion of the number of approved
positions in its residency program
resulting from taking over part of a
residency program from the closed
hospital has been submitted to the
ACGME, AOA or the ABMS, or approval
has been received from the ACGME,
AOA, or the ABMS. (The hospital must
attach a copy.)
b Application for approval of an
expansion of the number of approved
positions in its residency program has
been submitted to the ACGME, AOA or
the ABMS, or approval has been
received from the ACGME, AOA, or the
ABMS. (The hospital must attach a
copy.)
b The hospital currently has unfilled
positions in its residency program that
have previously been approved by the
ACGME, AOA, or the ABMS, and is
now seeking to fill those positions. (The
hospital must attach documentation
clearly showing its current number of
approved positions, and its current
number of filled positions).
b The hospital has submitted an
institutional review document or
program information form concerning
the program in an application for
approval of an expansion to the program
(The hospital must attach a copy).

Demonstrated Likelihood Criterion 2:
Taking Over All or Part of an Existing
Residency Program from the Closed
Hospital, or Expanding an Existing
Residency Program
The hospital does not have sufficient
room under its direct GME FTE cap or
IME FTE cap, or both, and a) has
permanently taken over the closed
hospital’s entire residency program, or
b) is permanently expanding its own
previously established and approved
residency program resulting from taking
over part of a residency program from
the closed hospital, or c) is permanently
expanding its own existing residency
program. (The hospital must check at
least one of the following.)
Hospitals applying for slots under
option a) which correlates to Ranking
Criterion 1 or b) which correlates to
Ranking Criterion 3 must list the names
and graduation dates of specific
displaced residents who, upon their
graduation, have been or will be
seamlessly replaced by new residents.
This list may be added as an
attachment to this application.
b Application for approval to take
over the closed hospital’s residency
program has been submitted to the
ACGME, AOA, or the ABMS, or
approval has been received from the
ACGME, AOA, or the ABMS. (The
hospital must attach a copy.)

Demonstrated Likelihood Criterion 3:
Receiving Slots for General Cap Relief
b The hospital does not have
sufficient room under its direct GME
FTE cap or IME cap, or both, and is
seeking an increase in its FTE cap(s) for
general cap relief for residents that it is
already training.

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Demonstrated Likelihood Criterion 4:
Receiving Slots by Virtue of Medicare
GME Affiliated Group Agreement with
Closed Hospital
b The hospital was listed as a
participant of a Medicare GME affiliated
group on the most recent Medicare GME
affiliation agreement of which the
closed hospital was a member before the
hospital closed, and under the terms of
that Medicare GME affiliation
agreement, the applying hospital
received slots from the hospital that
closed, and the applying hospital will
use the additional slots to continue to
train at least the number of FTE
residents it had trained under the terms
of the Medicare GME affiliation
agreement. If the most recent Medicare
GME affiliation agreement of which the
closed hospital was a member before the
hospital closed was with a hospital that
itself has closed or is closing, the
applying hospital was listed as a
participant in the next most recent
Medicare GME affiliation agreement

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(but not one which was entered into
more than 5 years prior to the hospital’s
closure) of which the first closed
hospital was a member before the
hospital closed, and that applying
hospital received slots from the closed
hospital under the terms of that
affiliation agreement. (Copies of EACH
of the following must be attached.)
fi Copies of the recent Medicare
GME affiliation agreement of which the
applying hospital and the closed
hospital were a member of before the
hospital closed.
fi Copies of the most recent
accreditation letters for all of the
hospital’s training programs in which
the hospital had a shared rotational
arrangement (as defined at § 413.75(b))
with the closed hospital.
Section B. Level Priority Category
(Place an ‘‘X’’ in the appropriate box
that is applicable to the level priority
category that describes the applicant
hospital.)
b First, to hospitals located in the
same core-based statistical area (CBSA)
as, or in a CBSA contiguous to, the
hospital that closed.
b Second, to hospitals located in the
same State as the closed hospital.
b Third, to hospitals located in the
same region as the hospital that closed.
b Fourth, if the slots have not yet
been fully distributed, to qualifying
hospitals in accordance with the criteria
established under section 5503,
‘‘Distribution of Additional Residency
Positions’’
Section C. Ranking Criteria
(Place an ‘‘X’’ in the box for each
criterion that is appropriate for the
applicant hospital and for the program
for which the increase in the FTE cap
is requested.)
b Ranking Criterion One. The
applying hospital is requesting the
increase in its FTE resident cap(s)
because it is assuming (or assumed) an
entire program (or programs) from the
hospital that closed, and the applying
hospital is continuing to operate the
program (s) exactly as it had been
operated by the hospital that closed
(that is, same residents, possibly the
same program director, and possibly the
same (or many of the same) teaching
staff).
b Ranking Criterion Two. The
applying hospital was listed as a
participant of a Medicare GME affiliated
group on the most recent Medicare GME
affiliation agreement of which the
closed hospital was a member before the
hospital closed, and under the terms of
that Medicare GME affiliation
agreement, the applying hospital

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
received slots from the hospital that
closed, and the applying hospital will
use the additional slots to continue to
train at least the number of FTE
residents it had trained under the terms
of the Medicare GME affiliation
agreement. If the most recent Medicare
GME affiliation agreement of which the
closed hospital was a member before the
hospital closed was with a hospital that
itself has closed or is closing, preference
would be given to an applying hospital
that was listed as a participant in the
next most recent Medicare GME
affiliation agreement (but not one which
was entered into more than 5 years prior
to the hospital’s closure) of which the
first closed hospital was a member
before the hospital closed, and that
applying hospital received slots from
the closed hospital under the terms of
that affiliation agreement.
b Ranking Criterion Three. The
applying hospital took in residents
displaced by the closure of the hospital,
but is not assuming an entire program
or programs, and will use the additional
slots to continue training residents in
the same programs as the displaced
residents, even after those displaced
residents complete their training (that
is, the applying hospital is permanently
expanding its own existing programs).
b Ranking Criterion Four. The
program does not meet Ranking Criteria
1, 2, or 3, and the applying hospital will
use additional slots to establish a new
or expand an existing geriatrics
residency program.
b Ranking Criterion Five: The
program does not meet Ranking Criteria
1 through 4, the applying hospital is
located in a HPSA, and will use all the
additional slots to establish or expand
a primary care or general surgery
residency program.
b Ranking Criterion Six: The
program does not meet Ranking Criteria
1 through 5, and the applying hospital
is not located in a HPSA, and will use
all the additional slots to establish or
expand a primary care or general
surgery residency program.
b Ranking Criterion Seven: The
applying hospital will use additional
slots to establish or expand a primary
care or general surgery program, but the
program does not meet Ranking
Criterion 5 or 6 because the hospital is
also separately applying under Ranking
Criterion 8 for slots to establish or
expand a nonprimary care or nongeneral surgery program and/or for cap
relief.
b Ranking Criterion Eight: The
program does not meet Ranking Criteria
1 through 7, and the applying hospital
will use additional slots to establish or
expand a nonprimary care or a non-

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53447

general surgery program or for cap
relief.

Medicare payment to hospitals for the
training of interns and residents.’’

Application Process and CMS
Central Office and Regional Office
Mailing Addresses for Receiving
Increases in FTE Resident Caps

5. Notice of Closure of Teaching
Hospitals and Opportunity To Apply for
Available Slots

In order for hospitals to be considered
for increases in their FTE resident caps,
each qualifying hospital must submit a
timely application. The following
information must be submitted on
applications to receive an increase in
FTE resident caps:
D The name and Medicare provider
number, and Medicare contractor (to
which the hospital submits its cost
report) of the hospital.
D The total number of requested FTE
resident slots for direct GME or IME, or
both.
D A completed copy of the CMS
Application Form for each residency
program for which the hospital intends
to use the requested increase in FTE
residents.
D Source documentation to support
the assertions made by the hospital on
the CMS Application Form.
D FTE resident counts for direct GME
and IME and FTE resident caps for
direct GME and IME reported by the
hospital in the most recent as-filed cost
report. (If the CMS Form 2552–96 is
applicable, include copies of
Worksheets E, Part A, E–3, Part IV, and
if a hospital received an increase to its
FTE cap(s) under section 422 of the
MMA, a copy of E–3, Part VI. If the CMS
Form 2552–10 is applicable, include
copies of Worksheets E, Part A, and E–
4).
D An attestation, signed and dated by
an officer or administrator of the
hospital who signs the hospital’s
Medicare cost report, of the following
information:
‘‘I hereby certify that I understand
that misrepresentation or falsification of
any information contained in this
application may be punishable by
criminal, civil, and administrative
action, fine and/or imprisonment under
federal law. Furthermore, I understand
that if services identified in this
application were provided or procured
through payment directly or indirectly
of a kickback or were otherwise illegal,
criminal, civil, and administrative
action, fines and/or imprisonment may
result. I also certify that, to the best of
my knowledge and belief, it is a true,
correct, and complete application
prepared from the books and records of
the hospital in accordance with
applicable instructions, except as noted.
I further certify that I am familiar with
the laws and regulations regarding

Section 5506 of the Affordable Care
Act authorizes the Secretary to
redistribute residency cap slots after a
hospital that trained residents in an
approved medical residency program(s)
closes. Specifically, section 5506
amended the Act by adding a subsection
(vi) to section 1886(h)(4)(H) and
modifying the language at section
1886(d)(5)(B)(v) to instruct the Secretary
to establish a process to increase the
FTE resident caps for other hospitals
based upon the FTE resident caps in
teaching hospitals that closed ‘‘on or
after a date that is 2 years before the
date of enactment’’ (that is March 23,
2008). In the CY 2011 OPPS/ASC final
rule with comment period issued on
November 24, 2010 (75 FR 72212), we
established regulations and an
application process for qualifying
hospitals to apply to CMS to receive
direct GME and IME FTE resident cap
slots from a hospital that closed. The
procedures we established apply both to
teaching hospitals that closed after
March 23, 2008, and on or before
August 3, 2010, and to teaching
hospitals that closed after August 3,
2010. For teaching hospitals that closed
on or after March 23, 2008, and on or
before August 3, 2010, we established
an application deadline of April 1, 2011,
for a hospital to request cap slots from
a closed hospital(s). We also stated in
the CY 2011 OPPS/ASC final rule with
comment period (75 FR 72215) that
hospitals that close at any point after
August 3, 2010, will fall into additional
categories of applications, for which we
would provide a separate notice with a
future application deadline.

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a. Background

b. Notice of Closure of Teaching
Hospitals
We have learned of the closure of
several teaching hospitals that occurred
after August 3, 2010. This notice serves
to notify the public of the closure of
teaching hospitals, and to initiate
another round of the section 5506
application and selection process. (We
note that the first round applied to
closed teaching hospitals listed at 76 FR
13294 (March 11, 2011), with an
application deadline of April l, 2011;
and the second round applied to one
closed teaching hospital as discussed at
76 FR 55917 (September 9, 2011), with
an application deadline of December 1,
2011.) The following closed teaching

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hospitals are part of a new application
process under section 5506:
IME cap (including ± MMA
Sec. 422 1 and
ACA Sec.
5503 2
adjustments)

Provider
No.

Provider name

City and state

120010 ......

Honolulu, HI ..............

26180

January 5, 2012 ..............

15.73

140301 ......

Hawaii Medical Center East.
Oak Forest Hospital

Oak Forest, IL ..........

16974

August 31, 2011 ..............

0

360101 ......

Huron Hospital ..........

East Cleveland, OH ..

17460

October 3, 2011 ..............

50.06

CBSA Code

Terminating date

Direct GME cap (including ± MMA Sec.
422 1 and ACA Sec.
5503 2 adjustments)
16.12
4.40 ¥ section 422
decrease 2.37 =
2.03 3
50.85 +.17 section
422 increase ¥
.10 section 422 reduction = 50.92 4

1 Section 422 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Public Law 108–173, redistributed unused residency slots effective July 1, 2005.
2 Section 5503 of the Affordable Care Act (ACA), Public Law 111–148, redistributed unused residency slots effective July 1, 2011.
3 Oak Forest Hospital’s 1996 direct GME FTE cap is 4.40. Under section 422 of the MMA, the hospital received a decrease of 2.37 to its direct
GME FTE cap: 4.40 ¥ 2.37 = 2.03.
4 Huron Hospital’s 1996 direct GME FTE cap is 50.85. Under section 422 of the MMA, the hospital received an increase of 0.17 to its direct
GME FTE cap and a decrease of 0.10 to its direct GME FTE cap: 50.85 + 0.17 ¥ 0.10 = 50.92.

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c. Application Process for Available
Resident Slots
Under section IV.I.4. of the preamble
of this final rule, in response to
comments, we are finalizing a policy
that provides an application period of
90 days following notification to the
public of a hospital closure. Therefore,
hospitals wishing to apply for and
receive slots from the above hospitals’
FTE resident caps must submit
applications directly to the CMS Central
Office no later than October 29, 2012.
Unlike in the first 2 rounds of section
5506, under this round, hospitals need
not submit applications to their
respective CMS Regional Office. The
mailing address for the CMS Central
Office is included on the application
form. Applications must be received,
not postmarked, by the October 29, 2012
deadline date.
In the CY 2011 OPPS/ASC final rule
with comment period, we did not
establish a deadline by when CMS
would issue the final determinations to
hospitals that receive slots under
section 5506 of the Affordable Care Act.
However, we will review all
applications received by the October 29,
2012 deadline and notify applicants of
our determinations as soon as possible.
We refer readers to the CMS Web site
at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/dgme.html to
download a copy of the application
form (CMS Section 5506 Application
Form) that hospitals are to use to apply
for slots under section 5506. We also
refer readers to this same Web site to
access a copy of the CY 2011 OPPS/ASC
final rule with comment period and a

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list of additional section 5506
guidelines for an explanation of the
policy and procedures for applying for
slots, and the redistribution of the slots
under sections 1886(h)(4)(H)(vi) and
1886(d)(5)(B)(v) of the Act. We note that
in section IV.I.4. of the preamble of this
final rule, we are finalizing additional
policies regarding the section 5506
application process and an updated and
revised CMS Section 5506 Application
Form as well.
J. Changes to the Reporting
Requirements for Pension Costs for
Medicare Cost-Finding Purposes
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51693 through 51697), we
finalized our policy for reporting costs
of qualified defined benefit pension
plans for Medicare cost-finding
purposes. Specifically, beginning with
cost reporting periods on or after
October 1, 2011, a provider’s pension
cost for cost-finding purposes equals the
cash basis contribution deposits plus
any carry forward contributions, subject
to a limitation. Providers with current
contributions and carry forward
contributions in excess of the limit may
request approval of excess
contributions, which will be reviewed
on a case-by-case basis. Some or all of
the excess contributions will be
approved, as applicable, if it is
determined that all or a portion of the
excess contribution(s) are reasonable
and necessary. To the extent that
approval is granted, that portion of the
excess is allowable as current period
pension costs. We refer readers to the
FY 2012 IPPS/LTCH PPS final rule for
full details on this policy.

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In addition to finalizing this new
policy in the FY 2012 IPPS/LTCH PPS
final rule, we stated that we intended to
make future amendments to conform
existing regulations to this final policy
(76 FR 51693). The existing regulations
at 42 CFR 413.24 and 413.100 specify
that pension costs of qualified defined
benefit plans are reported on an accrual
basis of accounting method. Sections
413.24 and 413.100 provide that
revenue is reported in the period in
which it is earned, regardless of when
it is collected and expenses are reported
in the period in which they are
incurred, regardless of when it is paid.
For Medicare payment purposes, the
costs are generally allowable in the year
in which the costs are accrued and
claimed, subject to specific exceptions.
Furthermore, for accrued costs to be
recognized for Medicare payment in the
year of the accrual, the requirements
must be met with respect to the
liquidation of related liabilities.
Therefore, to conform these two existing
regulations to the final policy we
adopted in the FY 2012 IPPS/LTCH PPS
final rule with regard to pension costs
for Medicare cost-finding purposes, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 27991), we proposed to
amend the general cost reporting rules
under §§ 413.24 and 413.100 to note the
exception for recognizing actual pension
contributions funded during the cost
reporting period on a cash basis. We
also indicated that we plan to revise
section 2305.2 of the Provider
Reimbursement Manual to reflect this
policy change.
We did not receive any public
comments on our proposal. We are

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finalizing our proposed amendments to
the general cost reporting rules under
§§ 413.24 and 413.100, without
modification, to note the exception for
recognizing actual pension
contributions funded during the cost
reporting period on a cash basis.
K. Rural Community Hospital
Demonstration Program

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1. Background
Section 410A(a) of 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 demonstration pays
rural community hospitals under a
reasonable 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), 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 specified 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: 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).
CMS originally solicited applicants
for the demonstration in May 2004; 13
hospitals began participation with cost
report years beginning on or after
October 1, 2004. In 2005, 4 of these 13
hospitals withdrew from the program
and converted to CAH status. This left
nine hospitals participating at that time.
In 2008, we announced a solicitation for
up to six additional hospitals to
participate in the demonstration
program. Four additional hospitals were

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selected to participate under this
solicitation. These four additional
hospitals began under the
demonstration payment methodology
with the hospital’s first cost reporting
period starting on or after July 1, 2008.
At that time, 13 hospitals were
participating in the demonstration.
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
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.) In CY
2011, one hospital that was among the
original set of hospitals that participated
in the demonstration withdrew from the
demonstration. These actions left 7 of
the originally participating hospitals
(that is, hospitals that were selected to
participate in either 2004 or 2008),
participating in the demonstration
program as of June 1, 2011.
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, it required the Secretary 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.
Further, the Affordable Care Act
requires, 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 to 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 Public Law 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

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53449

population densities determined by the
Secretary to 20 (section 410A(g)(2) of
Public Law 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 5year 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).
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 that 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. We determined that each of
these new hospitals would begin
participating in the demonstration with
its first cost reporting period beginning
on or after April 1, 2011. These
hospitals were notified of this start date
in the award letter that was sent to them
dated February 24, 2011
Three of these 19 hospitals declined
participation prior to the start of the cost
report periods for which they would
have begun the demonstration. In
addition to the 7 hospitals that were
selected in either 2004 or 2008 and that
are still participating, the new selection
led to a total of 23 hospitals in the
demonstration as of April 2011.
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

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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 eight IPPS final
regulations, spanning the period for
which the demonstration program has
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 FYs
2005 through 2012 IPPS final rules (69
FR 49183; 70 FR 47462; 71 FR 48100;
72 FR 47392; 73 FR 48670; 74 FR 43922,
75 FR 50343, and 76 FR 51698,
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, in the FY 2013 IPPS/LTCH
proposed rule (77 FR 27991 through
27995) we proposed a methodology to
calculate a budget neutrality adjustment
factor to the FY 2013 national IPPS rate.
In this final rule, we are adopting the
proposed methodology for calculating
the budget neutrality adjustment to the

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FY 2013 national IPPS rates and
finalizing the budget neutrality
adjustment factor to be made to the FY
2103 national IPPS rate.
In general terms, in each of these
previous years, we used available cost
reports for the participating hospitals to
derive an estimate of the additional
costs attributable for the demonstration.
We used finalized, or settled, cost
reports, as available, and ‘‘as submitted’’
cost reports for hospitals for which
finalized cost reports were not available.
Annual market basket percentage
increase amounts provided by the CMS
Office of the Actuary reflecting the
growth in the prices of inputs for
inpatient hospitals were applied to
these cost amounts. An annual update
factor provided by the CMS Office of the
Actuary reflecting growth in the volume
of inpatient operating services was also
applied. For the budget neutrality
calculations in the IPPS final rules for
FYs 2005 through 2011, the annual
volume adjustment applied was 2
percent; for the IPPS final rule for FY
2012, it was 3 percent. For a detailed
discussion of our budget neutrality
offset calculations, we refer readers to
the IPPS final rule applicable to the
fiscal year involved.
In general, for FYs 2005 through 2009,
we based the budget neutrality offset
estimate on the estimated cost of the
demonstration in an earlier given year.
For these periods, we derived that
estimated cost by subtracting the
estimated amount that would otherwise
be paid without the demonstration in an
earlier given year from the estimated
amount for the same year that would be
paid under the demonstration under the
reasonable cost-based methodology
authorized by section 410A of Public
Law 108–173. The reasonable cost-based
methodology authorized by section
410A of Public Law 108–173, as
amended, is hereafter referred to as the
‘‘reasonable cost methodology’’ (We
ascertained the estimated amount that
would be paid in an earlier given year
under the reasonable cost methodology
and the estimated amount that would
otherwise be paid without the
demonstration in an earlier given year
from ‘‘as submitted’’ cost reports that
were submitted by the hospitals prior to
the inception of the demonstration.) We
then updated the estimated cost
described above to the current year by
multiplying it by the market basket
percentage increases applicable to the
years involved and the applicable
annual volume adjustments. For the FY
2010, RY2010 IPPS/LTCH PPS final
rule, data from finalized cost reports
reflecting the participating hospitals’
experience under the demonstration

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were available. Specifically, the
finalized cost reports for the first 2 years
of the demonstration, that is, cost
reports for cost reporting years
beginning in FYs 2005 and 2006 (CYs
2004, 2005, and 2006) were available.
These data showed that the actual costs
of the demonstration for these years
exceeded the amounts originally
estimated in the respective final rules
for the budget neutrality adjustment. In
the FY 2010 IPPS/LTCH PPS final rule,
we included in the budget neutrality
offset amount an amount in addition to
the estimate of the demonstration costs
in that fiscal year. This additional
amount was based on the amount that
the costs of the demonstration for FYs
2005 and 2006 exceeded the budget
neutrality offset amounts finalized in
the IPPS rules applicable for those
years.
As in the FY 2010 IPPS/LTCH PPS
final rule, we have continued to propose
a methodology for calculating the
budget neutrality offset amount to
account for both the estimated
demonstration costs in the upcoming
fiscal year and an amount by which the
actual demonstration costs
corresponding to an earlier year (which
would be determined once we have
finalized cost reports for that year)
exceeded the budget neutrality offset
amount finalized in the corresponding
year’s IPPS final rule. However, we note
that because of a delay affecting the
settlement process for cost reports for
IPPS hospitals occurring on a larger
scale than merely for the demonstration,
we have been unable to finalize this
component of the budget neutrality
offset amount accounting for the amount
by which the actual demonstration costs
in a given year exceeded the budget
neutrality offset amount finalized in the
corresponding year’s IPPS final rule for
cost reports of demonstration hospitals
dating to those beginning in FY 2007.
(For only a small fraction of the
hospitals that have participated in the
demonstration from FY 2007 to FY 2010
have cost reports been finalized in any
year, making the overall calculation of
this component of the budget neutrality
impossible at this time for any given
year.)
2. Budget Neutrality Offset Amount for
FY 2013
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27993 and 27994),
we revisited the issue of which cost
reports to propose to use for calculating
the FY 2013 budget neutrality offset
amount. Although we used finalized
cost reports where available for the FYs
2010, 2011, and 2012 IPPS/LTCH PPS
final rules, for FY 2013, we proposed to

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use the ‘‘as submitted’’ cost report for
each hospital participating in the
demonstration for the cost report period
ending in CY 2010 in estimating the
costs of the demonstration. In the
proposed rule, we stated that we believe
a way to streamline our methodology for
calculating the budget neutrality offset
amount would be to use cost reports all
with the same status (that is, only ‘‘as
submitted’’ cost reports as opposed to a
mix of ‘‘as submitted’’ and ‘‘settled’’
cost reports) from the same time period
for all hospitals participating in the
demonstration (as opposed to cost
reports of varying statuses from varying
years for the various hospitals as has
been done previously). Therefore,
because ‘‘as submitted’’ cost reports
ending in CY 2010 are the most recent
complete set of cost reports for all
demonstration hospitals, we proposed
to use these cost reports for our budget
neutrality offset estimate. Further,
because ‘‘as submitted’’ cost reports
ending in CY 2010 are recent available
cost reports, we stated that we believe
they would be an accurate predictor of
the costs of the demonstration in FY
2013 because they give us a recent
picture of the participating hospitals’
costs.
In revisiting the issue of which
datasets to propose to use in the budget
neutrality offset amount calculation, we
also revisited the methodology for
calculating the budget neutrality offset
amount. In the proposed rule, we
proposed changes to that methodology
in an effort to further improve and
refine it. We noted that the proposed
methodology varied, in part, from that
finalized in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51698 through
51707). Specifically, in proposing
refinements to the methodology, our
objective was to simplify the calculation
so that it included as few steps as
possible. In addition, we proposed to
incorporate different update factors (the
market basket percentage increase and
the applicable percentage increase, as
applicable, to several years of data as
opposed to solely using the market
basket percentage increase) for the
calculation of the budget neutrality
offset amount. As explained in greater
detail below, we stated that we believed
this approach would maximize the
precision of our calculation because it
would more closely replicate payments
made with and without the
demonstration.
We noted that, although we were
proposing changes to certain aspects of
the budget neutrality offset amount
calculation, several core components of
the methodology would remain
unchanged. For example, we were

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continuing to propose to include in the
budget neutrality offset amount the
estimate of the demonstration costs for
the upcoming fiscal year and the
amount by which the actual
demonstration costs corresponding to an
earlier year (which would be
determined once we have finalized cost
reports for that year) exceeded the
budget neutrality offset amount
finalized in the corresponding year’s
IPPS final rule).
The proposed methodology for
calculating the estimated FY 2013
demonstration cost for the 23 currently
participating hospitals was as follows:
Step 1: For each of the 23
participating hospitals, we proposed to
identify the general reasonable cost
amount calculated under the reasonable
cost methodology for covered inpatient
hospital services (as indicated on the
‘‘as submitted’’ cost report for the
hospital’s cost reporting period ending
in CY 2010) in FY 2010. The general
reasonable cost amount calculated
under the reasonable cost methodology
for any applicable year was thereafter
referred to as the ‘‘reasonable cost
amount.’’
Because section 410A of Public Law
108–173 stipulates swing-bed services
are to be included among the covered
inpatient hospital services for which the
demonstration payment methodology
applies, we also proposed to include the
cost of these services, as reported on the
cost reports for the hospitals that
provide swing-bed services, within the
general total estimated FY 2010
reasonable cost amount for covered
inpatient hospitals services under the
demonstration. As indicated above, we
proposed to use ‘‘as submitted’’ cost
reports for the hospital’s cost reporting
period ending in CY 2010 for this
calculation.
We proposed to sum the two abovereferenced amounts to calculate the
general total estimated FY 2010
reasonable cost amount for covered
inpatient hospital services for all 23
hospitals.
We proposed to multiply this sum
(that is, the general total estimated FY
2010 reasonable cost amount for
covered inpatient hospital services for
all 23 hospitals) by the FYs 2011
through 2013 IPPS market basket
percentage increases, which were
formulated by the CMS Office of the
Actuary. We also proposed to then
multiply the product of the general total
estimated FY 2010 reasonable cost
amount for all 23 hospitals and the
market basket percentage increases
applicable to the years involved by a 3percent annual volume adjustment for
the years 2011 through 2013—the result

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would be the general total estimated FY
2013 reasonable cost amount for
covered inpatient hospital services for
all 23 hospitals.
We proposed to apply the IPPS
market basket percentage increases
applicable for FYs 2011 through 2013 to
the FY 2010 reasonable cost amount
described above to model the estimated
FY 2013 reasonable cost amount under
the demonstration. We proposed to use
the IPPS market basket percentage
increases because we believe that these
update factors appropriately indicate
the trend of increase in inpatient
hospital operating costs under the
reasonable cost methodology for the
years involved. The 3-percent annual
volume adjustment was stipulated last
year by the CMS Office of the Actuary
and was proposed because it is intended
to accurately reflect the tendency of
hospitals’ inpatient caseloads to
increase. We acknowledged the
possibility that inpatient caseloads for
small hospitals may fluctuate, and
proposed to incorporate into the
estimate of demonstration costs a factor
to allow for a potential increase in
inpatient hospital services.
Step 2: For each of the 23 hospitals,
we proposed to identify the general
estimated amount that would otherwise
be paid in FY 2010 under applicable
Medicare payment methodologies for
covered inpatient hospital services (as
indicated on the ‘‘as submitted’’ cost
report for cost reporting periods ending
in CY 2010) if the demonstration was
not implemented. Similarly, as in Step
1, for the hospitals that provide swingbed services, we proposed to identify
the estimated amount that generally
would otherwise be paid for these
services (as indicated on the ‘‘as
submitted’’ cost report for cost reporting
periods ending in CY 2010) and include
it in the total FY 2010 general estimated
amount that would otherwise be paid
for covered inpatient hospital services
without the demonstration. We
proposed to sum these two amounts in
order to calculate the estimated FY 2010
total payments that generally would
otherwise be paid for covered inpatient
hospital services for all 23 hospitals
without the demonstration.
We proposed to multiply the above
amount (that is, the estimated FY 2010
total payments that generally would
otherwise be paid for covered inpatient
hospital services for all 23 hospitals
without the demonstration) by the FYs
2011 through 2013 IPPS applicable
percentage increases and a 3 percent
annual volume adjustment for FYs 2011
through 2013, the result would be the
general total estimated FY 2013 costs
that would be paid without the

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demonstration for covered inpatient
hospital services for the 23 participating
hospitals. In the proposed rule, we
indicated that this methodology differs
from Step 1, in which we proposed to
apply the market basket percentage
increases to the sum of the hospitals’
general total FY 2010 estimated
reasonable cost amount for covered
inpatient hospital services. We believe
that the IPPS applicable percentage
increases are appropriate factors to
update the estimated amounts that
generally would otherwise be paid
without the demonstration. This is
because IPPS payments would
constitute the majority of payments that
would otherwise be made without the
demonstration and the applicable
percentage increase is the factor used
under the IPPS to update the inpatient
hospital payment rates. Hospitals
participating in the demonstration
would be participating under the IPPS
payment methodology if they were not
in the demonstration. We note that such
use of the applicable percentage
increase would represent a shift from
formulations in previous years of the
budget neutrality offset amount. In the
FY 2013 proposed rule, as well as in
this FY 2013 final rule, we are trying to
increase the precision of the different
projections for estimating the reasonable
cost amounts and the estimated
payments that would otherwise be paid
without the demonstration.
Step 3: We proposed to subtract the
amount derived in Step 2 (representing
the sum of estimated amounts that
generally would otherwise be paid to
the 23 hospitals for covered inpatient
hospital services for FY 2013 if the
demonstration was not implemented)
from the amount derived in Step 1
(representing the sum of the estimated
reasonable cost amount that generally
would be paid under the demonstration
to all 23 hospitals for covered inpatient
hospital services for FY 2013). We
proposed that the resulting difference
would be the amount for which an
adjustment to the national IPPS rates
would be calculated. In the proposed
rule, we indicated the resulting
difference was $35,077,708. For the FY
2013 IPPS/LTCH PPS proposed rule,
this amount was the estimated amount
for which an adjustment to the national
IPPS rates was calculated. We further
indicated this estimated amount was
based on the specific assumptions
indentified regarding the data sources
that were used, that is, ‘‘as submitted’’
recently available cost reports.
We also noted that if updated data
become available prior to the FY 2013
final rule, we propose to use them to the
extent appropriate to estimate costs of

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the demonstration program in FY 2013.
Therefore, we indicated that the
estimated budget neutrality offset
amount may change in the final rule.
Similar to previous years, we
proposed that if settled cost reports for
all of the demonstration hospitals that
participated in the applicable fiscal year
(FY 2007, 2008, 2009, or 2010) were
available prior to the FY 2013 IPPS/
LTCH PPS final rule, we would include
in the budget neutrality offset amount
any additional amounts by which the
final settled costs of the demonstration
for the year (FY 2007, 2008, 2009, or
2010) exceeded the budget neutrality
offset amount applicable to such year as
finalized in the respective year’s IPPS
final rule. (The final settled costs of the
demonstration for a year would be
calculated by subtracting the total
amount that would otherwise be paid
under the applicable Medicare payment
system without the demonstration for
the year from the amount paid to those
hospitals under the reasonable-cost
methodology for such year.)
For this FY 2013 final rule, we are
adopting without modification our
proposal to use the ‘‘as submitted’’ cost
report for each hospital participating in
the demonstration for the cost report
period ending in CY 2010 in estimating
the costs of the demonstration in FY
2010. We are finalizing this proposal
because we continue to believe this
approach enables us to streamline our
methodology for calculating the budget
neutrality offset amount as explained in
detail above. In addition, this set of cost
reports remains the most recent set of
complete cost reports that have been
accepted by the MACs. Therefore, we
believe they are an accurate predictor of
costs of the demonstration in FY 2013
because they give us a recent picture of
the participating hospitals’ costs.
For this final rule, we also are
adopting as final, without modification,
Steps 1 and 2 of the proposed
methodology as set forth above for the
reasons explained above and in section
IV.K. of the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27994 and 27995).
We note that, with respect to Step 1 of
the methodology, the IPPS market
basket percentage increase that is
applicable to FY 2013 (and identified by
the CMS Office of the Actuary) appears
in section IV.H. of this preamble. We
note that, with respect to Step 2 of the
methodology, the IPPS applicable
percentage increase that is applicable to
FY 2013 is set forth in section IV.H. of
the preamble to this FY 2013 final rule.
With respect to Step 3, for the reasons
set forth above and in section IV.K. of
the preamble of the proposed rule (77
FR 27994 and 27995) and this final rule,

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we are finalizing our proposal, without
modification, to subtract the amount
derived in Step 2 (representing the sum
of estimated amounts that generally
would otherwise be paid to the 23
hospitals for covered inpatient hospital
services for FY 2013 if the
demonstration was not implemented)
from the amount derived in Step 1
(representing the sum of the estimated
reasonable cost amount that generally
would be paid under the demonstration
to all 23 hospitals for covered inpatient
hospital services for FY 2013). The
resulting difference is the amount for
which an adjustment to the national
IPPS rates is calculated. For this final
rule, the resulting difference for which
an adjustment to the national IPPS rates
is made is $34,288,129. This amount is
based on the specific assumptions
identified regarding the data sources
that are used, that is, ‘‘as submitted’’
recently available cost reports. We note
that we proposed that if settled cost
reports for all of the demonstration
hospitals that participated in the
applicable fiscal year (FY 2007, 2008,
2009, or 2010) were available prior to
the FY 2013 IPPS/LTCH PPS final rule,
we would include in the budget
neutrality offset amount any additional
amounts by which the final settled costs
of the demonstration for the year (FY
2007, 2008, 2009, or 2010) exceeded the
budget neutrality offset amount
applicable to such year as finalized in
the respective year’s IPPS final rule.
However, finalized cost reports for the
hospitals participating in the
demonstration are not yet available for
these years at the time of development
of this FY 2013 IPPS/LTCH PPS final
rule. Therefore, we are not finalizing
this component of the proposed
methodology. We are expecting settled
cost reports for all of the demonstration
hospitals that participated in the
applicable fiscal year (FYs 2007, 2008,
2009, and 2010) to be available prior to
the FY 2014 IPPS/LTCH PPS proposed
rule. Thus, we expect to be in a position
to propose to include in the budget
neutrality offset amount for FY 2014 any
additional amounts by which the final
settled costs of the demonstration for
the year (FY 2007, 2008, 2009, or 2010)
exceeded the budget neutrality offset
amount applicable to such year as
finalized in the respective year’s IPPS
final rule.
Comment: One commenter requested
clarification regarding how hospitals
participating in the Rural Community
Hospital Demonstration will be
impacted by the Hospital Readmissions
Reduction Program.
Response: As described above, the
applicable hospital is defined as a

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subsection (d) hospital or certain
Maryland hospitals. Hospitals
participating in the Rural Community
Hospital Demonstration are subsection
(d) hospitals and, thus, will be included
in the Hospital Readmissions
Reduction. Accordingly, we have
calculated excess readmission ratios and
readmissions payment adjustment
factors for hospitals in the
Demonstration. If hospitals in the
Demonstration are subject to a
readmissions payment reduction, the
reduction will be applied to their base
operating DRG amount as if they were
paid under the IPPS. At cost report
settlement, the readmissions payment
amount reduced from the hospital’s base
operating DRG amount will be reduced
from the payments received under the
Demonstration.

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L. Hospital Routine Services Furnished
Under Arrangements
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51711 through 51714), we
included a provision that limits the
circumstances under which a hospital
may furnish services to Medicare
beneficiaries ‘‘under arrangement.’’
Under the revised policy, therapeutic
and diagnostic services are the only
services that may be furnished under
arrangements outside of the hospital to
Medicare beneficiaries. ‘‘Routine
services’’ (that is, bed, board, and
nursing and other related services) must
be furnished by the hospital. Under this
revised policy, routine services
furnished to Medicare beneficiaries as
inpatients in the hospital are considered
services furnished by the hospital. If
these services are furnished outside of
the hospital, the services are considered
to be furnished ‘‘under arrangement.’’
As we stated in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27995),
we have become aware that a number of
affected hospitals need additional time
to restructure existing arrangements and
establish necessary operational
protocols to comply with the
requirement that therapeutic and
diagnostic services are the only services
that may be furnished outside of the
hospital to Medicare beneficiaries
‘‘under arrangement,’’ and that ‘‘routine
services’’ must be furnished by the
hospital. While we still believe that our
policy is consistent with the statutory
language, we also believe that because a
number of hospitals are actively
pursuing compliance (often building
construction or restructuring is
involved), it is appropriate to postpone
the effective date of this requirement to
give hospitals additional time to comply
with the provision.

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Therefore, in the FY 2013 IPPS/LTCH
PPS proposed rule, we proposed to
change the implementation date of this
requirement to be effective for cost
reporting periods beginning on or after
October 1, 2013. We stated that we
expect that, during FY 2013, hospitals
will complete the work needed to
ensure compliance with the new
requirement. Beginning with a
hospital’s FY 2014 cost reporting
period, we expect that all hospitals
would be in full compliance with the
revised policy for services furnished
under arrangement. We indicated that
we would continue to work with
affected hospitals to communicate the
requirement established by this
provision, and to provide continued
guidance regarding compliance with the
provision.
Comment: Several commenters
submitted comments that were mostly
similar to those received last year when
we proposed this policy. All
commenters believed that another one
year delay in the effective date of the
revised policy was insufficient and that
the policy should be rescinded. The
primary objections from all commenters
were that the policy is not required by
statute or regulations, the policy runs
counter to efforts promoting efficiency
in delivering health care, and the costs
that will be incurred by certain
providers to comply with the new
policy are unnecessary and
burdensome.
Response: We continue to believe that
the proposed policy is correct and
consistent with the statute. As
explained in more detail in our response
to comments in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51712), we believe
that when section 1862(a)(14) of the Act
and section 1861(b) of the Act are read
in conjunction with each other, it
becomes clear that the language limits
the services that may be furnished
outside of the hospital under
arrangement to only diagnostic and
therapeutic services, consistent with our
revised policy. It is only paragraph (3)
of the definition of ‘‘inpatient hospital
services’’ at section 1861(b) of the Act,
referencing diagnostic or therapeutic
items or services, that includes the
language, ‘‘furnished by the hospital or
by others under arrangements.’’
As we indicated in our response to
similar public comments in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51713
through 51714), we do not agree that the
positive objectives of interfacility
cooperation and collaboration in
promoting efficiency in the delivery of
health care are applicable to the existing
arrangements that our revised policy is
intended to address. We do not believe

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that the objective of efficiency in health
care delivery would include moving
inpatients of one hospital to another
hospital, without being discharged from
the first and admitted to the second, in
order to provide routine services that
are not available at the first hospital.
We do not disagree that there may be
additional costs incurred by some
providers because of building
construction or restructuring in order to
comply with the proposed policy.
However, to our knowledge, this
involves very few providers, and to
allow particular service arrangements
that we find contrary to statute and
regulations to continue because
changing the arrangement would mean
additional cost to a few providers is not
an appropriate rationale to rescind this
policy. Furthermore, while complying
with the revised policy may necessitate
expending additional funds for some of
the commenters, those commenters are
generally receiving higher Medicare
payments as PPS-excluded providers by
providing the routine services under
arrangement, meaning such
arrangements may inappropriately
increase Medicare payments to those
providers. In most cases that have come
to our attention, the services are being
provided at another hospital that is colocated with the hospital that is IPPSexcluded. If the hospitals are finding
construction or restructuring costs too
onerous, the hospital may want to
consider becoming a unit of the IPPS
hospital which would obviate the need
for obtaining any services under
arrangements from another hospital and
may allow them to avoid the costs that
they find burdensome.
Comment: Three of the PPS-excluded
cancer hospitals, as well as the alliance
representing the 11 PPS-excluded
cancer hospitals, submitted comments
more specific to their own situations.
These commenters stated that CMS’
proposed policy upset a longstanding
care delivery model that was created at
the direction of CMS, that CMS had
given its express approval for the type
of arrangements that it is now trying to
disallow, and that CMS had ‘‘required’’
one of the hospitals to operate under
this type of arrangement.
Response: CMS was involved, 15 to
20 years ago, at various times and to
varying degrees, with three of the PPSexcluded cancer hospitals that wanted
to ensure that they would retain their
PPS-excluded status as they changed
their physical and operational
structures, to become hospitals-withinhospitals (HwH). Because two different
payment systems are involved for the
co-located hospitals, IPPS and
reasonable cost subject to a limit, at the

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time, we focused on preventing possible
abuse of this arrangement. Some CMS
requirements articulated at that time
may appear to be contrary to our revised
policy on services furnished under
arrangements. However we have
discretion to change our policy, and we
believe this change is appropriate for
the reasons described throughout this
section and the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51711 through
51714).
We believe the care delivery models
that were carefully crafted years ago to
protect against abuse of the payment
systems and retain the separate identity
of the HwHs have devolved over time to
the point where the host hospital and
PPS-excluded HwH are nearly
indistinguishable from each other.
Patients are moved from one hospital’s
bed to the other hospital’s bed, and then
back, not because of a particular service
being provided, but because of bed
availability or other reason unrelated to
services. Patient care is administered by
both entities or by the host hospital
under contract. The PPS-excluded
hospital has almost become a virtual
hospital. Such arrangements do not
merit special treatment under Medicare
regulations. Moreover, as explained in
more detail in a previous response in
this section and in response to
comments in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51711 through
51714), our revised policy is consistent
with the statute and reduces the
opportunity for gaming. To the extent
the PPS-excluded cancer hospital and
the subsection (d) hospital with which
it is co-located wish to retain their
separate classifications, compliance
with these requirements remains
necessary and appropriate. To the extent
that PPS excluded cancer hospitals are
finding construction or restructuring
costs too onerous, the hospitals may
want to consider becoming one provider
with the subsection (d) IPPS hospital.
Comment: The cancer hospitals and
the cancer hospital alliance reiterated
comments they made on last year’s
proposed rule (FY 2012 IPPS/LTCH PPS
final rule (76 FR 51713 through 51714)
that CMS’ proposed policy is more
expensive to the Medicare program
because it would result in more hospital
discharges—the cancer hospital would
have to discharge patients that need ICU
services, the patient would then be
admitted to the co-located hospital for
the ICU services, discharged from the
co-located hospital once ICU services
are no longer needed, and then
readmitted back to the cancer hospital.
The commenters believed that this
would be more costly, in the aggregate,
to the Medicare program.

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Response: We do not know that our
revised policy will be more costly to the
Medicare program, because although
Medicare would be paying the IPPS
hospital under the IPPS for the ICU
services, it would not be paying the
cancer hospital for those services based
on reasonable cost. As explained in the
FY 2012 IPPS/LTCH PPS final rule,
some hospitals were furnishing certain
routine services, including ICU services,
under arrangement. For example, under
certain arrangements, if an inpatient of
an IPPS-excluded hospital (‘‘hospital
A’’) required ICU services, and the IPPSexcluded hospital could not provide
these services, the patient was moved to
an IPPS hospital (‘‘hospital B’’) that
could furnish these ICU services. In
these situations, the patient was not
transferred to hospital B but was moved
from an inpatient bed of hospital A to
an inpatient bed of hospital B. However,
the IPPS-excluded hospital treated these
services as being provided under
arrangement and included the cost of
those services on its cost report. Because
the two hospitals in the example above
are under two different payment
systems, we believe this behavior could
lead to inappropriate and excessive
Medicare payment. This is because the
IPPS-excluded hospital, hospital A, is
paid on a reasonable cost basis. This
payment could be greater than if the
hospital that provided the service were
paid under the IPPS for the same
patient.
Comment: The cancer hospitals and
the cancer hospital alliance also
expressed concern that if patients
needing ICU services had to be
discharged and admitted as described
above, it could inflate the readmission
rates.
Response: We do not believe that a
hospital’s readmission rates under the
Hospital Readmissions Reduction
Program would be affected by this
policy for several reasons. Cancer
hospitals are not included in the
Program so admissions and
readmissions to cancer hospitals are not
included in an IPPS hospital’s
readmission rate. Furthermore, transfers
to other providers are not included in
the calculations of excess readmissions.
Each of the measures used in the
Hospital Readmissions Reduction
Program has exclusions for transfers to
other hospitals. Finally, currently, we
are only measuring readmissions for
heart attack, heart failure, and
pneumonia.
Comment: Commenters requested that
CMS adopt a grandfathering provision
to allow hospitals that have been
furnishing routine services under
arrangements outside of the hospital to

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continue furnishing these services in
this manner. Cancer hospitals requested
that, if the policy is not rescinded, a
grandfathering provision be
implemented that allows existing
arrangements to continue, or provides
an exception for cancer hospitals.
Response: We do not believe it is
appropriate to adopt a grandfathering
provision. We are concerned that,
without this policy change, Medicare
will continue to pay inappropriately for
these services. That is, payment to IPPS
hospitals should be based on the DRG
payment amount, and payment to
excluded hospitals should not be based
in part on the costs of routine services
that the hospital has not furnished
directly to its patients.
After consideration of the public
comments and for the reasons set forth
above, we are finalizing our proposal to
change the effective date of the revised
policy. Therefore, effective for cost
reporting periods beginning on or after
October 1, 2013, routine services
provided in the hospital to its inpatients
are considered as being provided by the
hospital. However, if services are
provided outside the hospital, the
services are considered as being
provided under arrangement. Only
therapeutic and diagnostic items and
services may be furnished under
arrangement outside of the hospital.
M. Technical Change
In an interim final rule that appeared
in the November 27, 2007 Federal
Register (72 FR 66895 through 66897),
we made changes to the regulations
governing the application of the
emergency Medicare GME affiliation
agreement rules in order to address the
needs of hospitals located in the section
1135 emergency area in the aftermath of
Hurricane Katrina and Rita. In that rule,
we changed the length of emergency
affiliation agreements from 3 years to 5
years under 42 CFR 413.79(f)(7) (then
§ 413.79(f)(6)); that is, we specified that
the emergency Medicare GME affiliation
agreement must terminate no later than
the conclusion of 4 academic years
following the academic year during
which the section 1135 emergency
period began. However, we
inadvertently did not make a
conforming change to 42 CFR
413.79(f)(7)(i)(B). In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27995),
we proposed to change the regulatory
text specified § 413.79(f)(7)(i)(B) to make
it consistent with the regulatory text
under § 413.79(f)(7).
We did not receive any public
changes on the proposed technical
changes. Therefore, in this final rule, we

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are adopting the proposed changes as
final.

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V. Changes to the IPPS for CapitalRelated Costs
A. Overview
Section 1886(g) of the Act requires the
Secretary to pay for the capital-related
costs of inpatient acute hospital services
‘‘in accordance with a prospective
payment system established by the
Secretary.’’ Under the statute, the
Secretary has broad authority in
establishing and implementing the IPPS
for acute care hospital inpatient capitalrelated costs. The IPPS for capitalrelated costs was initially implemented
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 discharge, 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).
In addition, under § 412.312(c),
hospitals also may receive outlier
payments under the capital IPPS for
extraordinarily high-cost cases that
qualify under the thresholds established
for each fiscal year.
B. Additional Provisions
1. Exception Payments
The regulations at § 412.348 provide
for certain exception payments under

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the capital IPPS. The regular exception
payments provided under §§ 412.348(b)
through (e) were available only during
the 10-year transition period. For a
certain period after the transition
period, eligible hospitals may have
received additional payments under the
special exceptions provisions at
§ 412.348(g). However, as noted in the
FY 2012 IPPS/LTCH PPS final rule (76
FR 51725 and 51804), FY 2012 was the
final year hospitals could receive
special exceptions payments. For
additional details regarding these
exceptions policies, we refer readers to
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51725).
Under § 412.348(f), 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. 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).
2. New Hospitals
Under the capital IPPS, § 412.300(b)
of the regulations defines a new hospital
as a hospital that has operated (under
previous or current ownership) for less
than 2 years and lists examples of
hospitals that are not considered new
hospitals. In accordance with
§ 412.304(c)(2), under the capital IPPS a
new hospital 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 2012 IPPS/LTCH PPS
final rule (76 FR 51725) for additional
information on payments to new
hospitals under the capital IPPS.
3. 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. Capital IPPS payments to
hospitals located in Puerto Rico are
computed based on a blend of 25
percent of the capital IPPS Puerto Rico
rate and 75 percent of the capital IPPS
Federal rate. For additional details on

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capital IPPS payments to hospitals
located in Puerto Rico, we refer readers
to the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51725).
C. Prospective Adjustment for the FY
2010 Documentation and Coding Effect
1. Background
In the FY 2008 IPPS final rule with
comment period (72 FR 47175 through
47186), 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 2009 IPPS final rule with
comment period (73 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).)

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For the FY 2011 IPPS/LTCH PPS
proposed and final rules, 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. In
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50355), we implemented an
additional 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 under the
MS–DRG system that occurred in FYs
2008 and 2009 that did not reflect real
changes in case-mix. Consistent with
past practice, this ¥2.9 percent
adjustment was applied in a cumulative
manner, which yielded a combined
effect of ¥4.4 percent. (For additional
information on our estimate of the 5.4
percent cumulative documentation
effect under the MS–DRG system for
FYs 2008 and 2009 and the additional
¥2.9 percent documentation and
coding adjustment applied to the
national capital Federal rate in FY 2011,
we refer readers to the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 24014)
and the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50355).)
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51727), we made an
additional ¥1.0 percent adjustment to
the national capital Federal rate to
account for the remainder of the 5.4
percent estimate of the cumulative effect
of documentation and coding changes
under the MS–DRG system that
occurred during FYs 2008 and 2009.
Consistent with past practice, this ¥1.0
percent adjustment was applied in a
cumulative manner, which yielded a
combined effect of ¥5.4 percent.
2. Prospective Adjustment for the Effect
of Documentation and Coding in FY
2010
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 in those years
absent the change to the MS–DRGs.
Under section 1886(g) of the Act, the

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Secretary has broad authority in
establishing and implementing the IPPS
for acute-care hospital inpatient capitalrelated 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 in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27997),
we analyzed claims data from FY 2010
to determine whether any additional
adjustment would be required to ensure
that the adoption of MS–DRGs was
implemented in a budget neutral
manner. Specifically, we analyzed FY
2010 data on claims paid through
December 2011 using our existing
methodology as described in section
II.D.4. of this preamble. Based on this
analysis, our actuaries determined that
implementation of the MS–DRG system
resulted in a 6.2 percent change in casemix due to documentation and coding
that did not reflect real changes in casemix for discharges occurring during FY
2010. This is an estimated additional 0.8
percentage point increase over the 5.4
percent reduction currently applied to
the national capital Federal rate.
Consistent with our proposal for the
operating IPPS standardized amounts,
we proposed, 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, to reduce
the national capital Federal rate in FY
2013 by an additional 0.8 percent to
account for the remainder of the
cumulative effect of the estimated
changes in documentation and coding
under the MS–DRG system that did not
reflect an increase in case-mix severity
in FY 2010. Under that proposal, we
would leave the ¥0.8 percent
adjustment in place for FY 2013 and

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subsequent fiscal years to account for
the effect in those years.
In section II.D.10. of the preamble of
this final rule, we discuss the public
comments we received on our proposal
to make a -0.8 percent adjustment to the
operating IPPS standardized amounts
and hospital-specific rates and the
national capital Federal rate to account
for the remainder of the cumulative
effect of the estimated changes in
documentation and coding under the
MS–DRG system that did not reflect an
increase in case-mix severity in FY
2010. In summary, numerous
commenters objected to this proposal,
and many commenters pointed to
MedPAC’s analysis, discussed in its
comment letter on the FY 2011 IPPS/
LTCH PPS proposed rule, that suggested
that ‘‘negative documentation and
coding’’ may have occurred under the
CMS–DRGs, creating an overestimation
of documentation and coding due to the
introduction of MS–DRGs.
As discussed in greater detail in
section II.D.10. of the preamble of this
final rule, at this time, we believe that,
while MedPAC’s analysis suggested that
a potential overestimate could have, in
theory, occurred in our methodology,
the estimates are theoretical maximums.
It is not clear at this time that, based on
the information submitted, to what
extent the examples provided by the
commenters substantiate these
theoretical maximums or any change in
adjustments. Nonetheless, we recognize
that the methodological issues that
surround this question are complex, and
may merit further consideration.
Therefore, consistent with the policy we
are adopting for the operating IPPS
standardized amounts and hospitalspecific rates for FY 2013, we are not
finalizing our proposal to apply a -0.8
percent adjustment to the national
capital Federal rate at this time until
more analysis can be completed.
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

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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. We also explained that we
continue to believe that an adjustment
for such increases 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, 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. 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 the -2.6
percent adjustment will remain 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. Therefore, the -2.6
percent adjustment to the capital Puerto
Rico-specific rate made in FY 2011
reflects the entire amount of our
estimate at that time 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.
As discussed above, for the proposed
rule and this final rule, we analyzed FY
2010 data on claims paid through
December 2011 using our existing
methodology to determine if any
additional adjustment for the effects of
documentation and coding that did not
reflect real changes in case-mix is
warranted. Based on this analysis
(which is described in greater detail in
section II.D.10. of this preamble), we
found no significant additional effect of
documentation and coding that would
warrant any additional adjustment.
Therefore, we did not propose to make
any additional adjustment to the capital
Puerto Rico-specific rate for FY 2013 for
the effect of documentation and coding
that did not reflect real changes in casemix.

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D. Changes for Annual Update for FY
2013
The annual update to the capital PPS
Federal and Puerto Rico-specific rates,
as provided for at § 412.308(c), for FY
2013 is discussed in section III. of the
Addendum to this final rule.
VI. 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,
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.)
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27998), we
proposed that the FY 2013 rate-ofincrease percentage to be applied to the
target amount for cancer and children’s
hospitals and RNHCIs would be the FY
2013 percentage increase in the IPPS
operating market basket. At the time of
issuance of the proposed rule, the FY
2013 percentage increase in the IPPS
operating market basket was estimated
to be 3.0 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

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53457

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 2013, we
proposed 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.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27998), we
proposed to use the FY 2006-based IPPS
operating market basket to update the
target amounts for children’s and cancer
hospitals and RNHCIs for FY 2013.
Therefore, based on IHS Global Insight,
Inc.’s 2012 first quarter forecast, with
historical data through the 2011 fourth
quarter, we estimated that the IPPS
operating market basket update for FY
2013 would be 3.0 percent (that is, the
estimate of the market basket rate-ofincrease). We proposed 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 2013. Therefore,
based on IHS Global Insight, Inc.’s 2012
second quarter forecast, with historical
data through the 2012 first quarter, we
use the FY 2013 estimate of the IPPS
operating market basket rate-of-increase
of 2.6 percent. Moreover, consistent
with our proposal that the percentage
increase in the rate-of-increase limits for
cancer and children’s hospitals and
RNHCIs would be the percentage
increase in the FY 2013 IPPS operating
market basket, the FY 2013 rate-ofincrease percentage that is applied to
the FY 2012 target amounts in order to
calculate the final FY 2013 target
amounts for cancer and children’s
hospitals and RNHCIs is 2.6 percent, in
accordance with the applicable
regulations at 42 CFR 413.40.
We note that IRFs, IPFs, and LTCHs,
which were paid previously under the
reasonable cost methodology, now
receive payment under their own
prospective payment systems, in
accordance with changes made to the
statute. In general, the prospective
payment systems for IRFs, IPFs, and
LTCHs provided transition periods of
varying lengths during which time a
portion of the prospective payment was
based on cost-based reimbursement
rules under Part 413. (However, certain
providers do not receive a transition
period or may elect to bypass the
transition period as applicable under 42
CFR Part 412, Subparts N, O, and P.) We
note that the various transition periods

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provided for under the IRF PPS, the IPF
PPS, and the LTCH PPS have ended.
The IRF PPS, the IPF PPS, and the
LTCH PPS are updated annually. We
refer readers to section IV. of the
Addendum to this final rule for the
specific final update changes to the
Federal payment rates for LTCHs under
the LTCH PPS for FY 2013. The annual
updates for the IRF PPS and the IPF PPS
are issued by the agency in separate
Federal Register documents.
We did not receive any public
comments on this section in the
proposed rule.
B. Report on Adjustment (Exceptions)
Payments
Section 4419(b) of Public Law 105–33
requires the Secretary to publish
annually in the Federal Register a
report describing the total amount of
adjustment payments made to excluded
hospitals and hospital units by reason of
section 1886(b)(4) of the Act during the
previous fiscal year.

additional information must be
requested in order to have a completed
application. However, in an attempt to
provide interested parties with data on
the most recent adjustments for which
we do have data, we are publishing data
on adjustment payments that were
processed by the fiscal intermediary or
MAC or CMS during FY 2011.
The table below includes the most
recent data available from the fiscal
intermediaries or MACs and CMS on
adjustment payments that were
adjudicated during FY 2011. As
indicated above, the adjustments made
during FY 2011 only pertain to cost
reporting periods ending in years prior
to FY 2010. Total adjustment payments
given to excluded hospitals during FY
2011 are $3,118,588. The table depicts
for each class of hospitals, in the
aggregate, the number of adjustment
requests adjudicated, the excess
operating costs over the ceiling, and the
amount of the adjustment payments.

The process of requesting, adjusting,
and awarding an adjustment payment is
likely to occur over a 2-year period or
longer. First, generally, an excluded
hospital must file its cost report for a
fiscal year in accordance with
§ 413.24(f)(2). The fiscal intermediary or
MAC reviews the cost report and issues
a notice of provider reimbursement
(NPR). Once the hospital receives the
NPR, if its operating costs are in excess
of the ceiling, the hospital may file a
request for an adjustment payment.
After the fiscal intermediary or MAC
receives the hospital’s request in
accordance with applicable regulations,
the fiscal intermediary or MAC or CMS,
depending on the type of adjustment
requested, reviews the request and
determines if an adjustment payment is
warranted. This determination is
sometimes not made until more than
180 days after the date the request is
filed because there are times when the
applications are incomplete and

Class of hospital

Adjustment
payments

Children’s .....................................................................................................................................
Cancer .........................................................................................................................................
Religious Nonmedical Health Care Institution (RNHCI) ..............................................................

2
1
1

$1,362,705
$7,805,148
$72,154

$1,303,381
$1,743,053
$72,154

TOTAL ..................................................................................................................................

........................

........................

$3,118,588

VII. Changes to the Long-Term Care
Hospital Prospective Payment System
(LTCH PPS) for FY 2013
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority

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Excess cost
over ceiling

Number

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 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

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provides an alternative definition of
LTCHs: Specifically, a hospital that first
received payment under section 1886(d)
of the Act in 1986 and has an average
inpatient length of stay (LOS) (as
determined by the Secretary of Health
and Human Services (the Secretary)) of
greater than 20 days and has 80 percent
or more of its annual Medicare inpatient
discharges with a principal diagnosis
that reflects a finding of neoplastic
disease in the 12-month cost reporting
period ending in FY 1997.
Section 123 of the BBRA requires the
PPS for LTCHs to be a ‘‘per discharge’’
system with a diagnosis-related group
(DRG) based patient classification
system that reflects the differences in
patient resources and costs in LTCHs.
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

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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)
(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

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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 VII. 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
from payments under the TEFRA
System to payments under the LTCH
PPS. 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, unless a LTCH made a onetime election to be paid based on 100
percent of the Federal rate. Beginning
with LTCHs’ 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).
We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51733
through 51743) for a chronological
summary of the main legislative and
regulatory developments affecting the
LTCH PPS through the annual update
cycles prior to this FY 2013 rulemaking
cycle.

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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 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 12month 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 non-Medicare inpatients,
of greater than 20 days.
b. Hospitals Excluded From the LTCH
PPS
The following hospitals are paid
under special payment provisions, as
described in § 412.22(c), and therefore,
are not subject to the LTCH PPS rules:
• Veterans Administration hospitals.
• Hospitals that are reimbursed under
State cost control systems approved
under 42 CFR Part 403.
• Hospitals that are reimbursed in
accordance with demonstration projects
authorized under section 402(a) of the
Social Security Amendments of 1967
(Pub. L. 90–248) (42 U.S.C. 1395b–1) or
section 222(a) of the Social Security
Amendments of 1972 (Pub. L. 92–603)
(42 U.S.C. 1395b–1 (note)) (Statewide
all-payer systems, subject to the rate-ofincrease test at section 1814(b) of the
Act).
• Nonparticipating hospitals
furnishing emergency services to
Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we
presented an in-depth discussion of
beneficiary liability under the LTCH
PPS (67 FR 55974 through 55975). In the
RY 2005 LTCH PPS final rule (69 FR
25676), we clarified that the discussion
of beneficiary liability in the August 30,
2002 final rule was not meant to
establish rates or payments for, or define
Medicare-eligible expenses. Under
§ 412.507, if the Medicare payment to
the LTCH is the full LTC–DRG payment
amount, as consistent with other
established hospital prospective
payment systems, a LTCH may not bill
a Medicare beneficiary for more than the
deductible and coinsurance amounts as

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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 shortstay outlier (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).
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 health care
transactions according to the applicable
transactions and code sets standards.
B. Medicare Severity Long-Term Care
Diagnosis-Related Group (MS–LTC–
DRG) Classifications and Relative
Weights for FY 2013
1. Background
Section 123 of the BBRA requires that
the Secretary implement a PPS for
LTCHs (that is, a per discharge system
with a diagnosis-related group (DRG)based patient classification system
reflecting the differences in patient
resources and costs). Section 307(b)(1)
of the BIPA modified the requirements
of section 123 of the BBRA by requiring

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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
LTC–DRG patient classification system
that was in effect before October 1,
2007.)
The MS–DRGs adopted in FY 2008
represent an increase in the number of
DRGs by 207 (that is, from 538 to 745)

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(72 FR 47171). The MS–DRG
classifications are updated annually. As
described in section II.G. of this
preamble, for FY 2013, as we proposed,
we are not creating or deleting any MS–
DRGs, and as such we continue to have
a total of 751 MS–DRG groupings for FY
2013. 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. Below we
provide a general summary of our
existing methodology for determining
the MS–LTC–DRG relative weights.
In a departure from the IPPS, and as
discussed in greater detail below in
section VII.B.3.f. of this preamble, we
use low-volume MS–LTC–DRGs (that is,
MS–LTC–DRGs with less than 25 LTCH
cases) in determining the MS–LTC–DRG
relative weights because LTCHs do not
typically treat the full range of
diagnoses as do acute care hospitals. For
purposes of determining the relative
weights for the large number of lowvolume MS–LTC–DRGs, we group all of
the low-volume MS–LTC–DRGs into
five quintiles based on average charge
per discharge. (A detailed discussion of
the initial development and application
of the quintile methodology appears in
the August 30, 2002 LTCH PPS final
rule (67 FR 55978).) Under our existing
methodology and as proposed, we
account for adjustments to payments for
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, as
proposed, we make adjustments to
account for nonmonotonically
increasing weights, when necessary.
That is, theoretically, cases under the
MS–LTC–DRG system that are more
severe require greater expenditure of
medical care resources and will result in
higher average charges such that, in the
severity levels within a base MS–LTC–
DRG, the weights should increase
monotonically with severity from the
lowest to highest severity level. (We
discuss nonmonotonicity in greater
detail and our methodology to adjust the
MS–LTC–DRG relative weights to
account for nonmonotonically
increasing relative weights in section
VII.B.3.g. (Step 6) of this preamble.)

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2. Patient Classifications Into MS–LTC–
DRGs
a. Background
The MS–DRGs (used under the IPPS)
and the MS–LTC–DRGs (used under the
LTCH PPS) are based on the CMS DRG
structure. As noted above in this
section, we refer to the DRGs under the
LTCH PPS as MS–LTC–DRGs although
they are structurally identical to the
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 procedure codes
considered for MS–DRG assignment was
limited to nine and six, respectively.
However, for claims submitted on the
5010 format beginning January 1, 2011,
we increased 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, the
LTCH must assign appropriate diagnosis
and procedure codes from the most

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
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.9. 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. In prior rules published in the
Federal Register (for example, section
II.G.11. of the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50122 through 50128)),
we discussed the implementation date
for the conversion to the ICD–10–CM
and ICD–10–PCS coding systems. We
refer readers to section II.G.9. 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), base
DRGs were subdivided according to the
presence of specific secondary
diagnoses designated as complications
or comorbidities (CCs) into one, two, or
three levels of severity, 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
or 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).

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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
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. Changes to the MS–LTC–DRGs for FY
2013
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, as we
proposed, we are updating the MS–
LTC–DRG classifications effective
October 1, 2012, through September 30,
2013 (FY 2013) consistent with the
changes to specific MS–DRG
classifications presented in section II.G.
of this preamble (that is, GROUPER

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Version 30.0). Therefore, the MS–LTC–
DRGs for FY 2013 presented in this final
rule are the same as the MS–DRGs that
are being used under the IPPS for FY
2013. In addition, because the MS–LTC–
DRGs for FY 2013 are the same as the
MS–DRGs for FY 2013, the other
changes that affect MS–DRG (and by
extension MS–LTC–DRG) assignments
under Version 30.0 of the GROUPER
discussed in section II.G. of the
preamble of this final rule, including the
changes to the MCE software and the
ICD–9–CM coding system, are also
applicable under the LTCH PPS for FY
2013. We note that, we did not receive
any public comments regarding the
proposals presented under this section.
The comments we received on the
proposed changes to the MS–DRG
classifications for FY 2013 (GROUPER
Version 30.0) are discussed in section
II.G. of the preamble of this final rule.
3. Development of the FY 2013 MS–
LTC–DRG Relative Weights
a. General Overview of the Development
of the MS–LTC–DRG Relative Weights
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 (67 FR 55984). 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 our historical
procedures for assigning relative
weights in cases of zero volume and/or
nonmonotonicity, as proposed, the basic
methodology used to develop the MS–
LTC–DRG relative weights continues to
be consistent with the general
methodology established when the
LTCH PPS was implemented in the
August 30, 2002 LTCH PPS final rule
(67 FR 55989 through 55991). (For
additional details on the modifications
to our historical procedures for
assigning relative weights in cases of
zero volume and/or nonmonotonicity,
we refer readers to 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).) Under the LTCH PPS, relative
weights for each MS–LTC–DRG are a

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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 calculated 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 MS–LTC–DRG
Relative Weights for FY 2013
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28000 through
28007), we presented our proposals for
the development of the MS–LTC–DRG
relative weights for FY 2013, The basic
methodology we proposed to use to
develop the FY 2013 MS–LTC–DRG
relative weights is the same as the
methodology we used to develop the FY
2012 MS–LTC–DRG relative weights in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51738 through 51743) and is
consistent with the general methodology
established when the LTCH PPS was
implemented in the August 30, 2002
LTCH PPS final rule (67 FR 55989
through 55991). Our proposed
development of the FY 2013 MS–LTC–
DRG relative weights included
proposals related to the data, the
hospital-specific relative value (HSRV)
methodology, the treatment of severity
levels in the MS–LTC–DRGs, lowvolume and no-volume MS–LTC–DRGs,
adjustment for nonmonotonicity, and
the steps for calculating the MS–LTC–
DRG relative weights with a budget
neutrality factor. We did not receive any
public comments on our proposals
regarding the development of the MS–
LTC–DRG relative weights for FY 2013,
and are adopting the proposals as final
without modification in this final rule.
(We refer readers to the FY 2013 IPPS/
LTCH PPS proposed rule for additional
details on our proposals for the
development of the FY 2103 MS–LTC–
DRG relative weights (77 FR 28000
through 28007).) Below we present the
finalized methodology that we used to
determine the MS–LTC–DRG relative
weights for FY 2013, which is consistent
with the methodology presented in the
proposed rule.
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

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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 (72 FR 26882 through
26884). Consistent with § 412.517(b)
and as proposed, we continue to apply
our established two-step budget
neutrality methodology, which is based
on the current year MS–LTC–DRG
classifications and relative weights. We
did not receive any public comments
regarding this proposal. Thus, for this
final rule, we continue to apply our
established two-step budget neutrality
methodology such that the annual
update to the MS–LTC–DRG
classifications and relative weights for
FY 2013 are based on the FY 2012 MS–
LTC–DRG classifications and relative
weights established in Table 11 listed in
section VI. of the Addendum to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51813). (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).)
c. Data
For the proposed rule, to calculate the
MS–LTC–DRG relative weights for FY
2013, we obtained total charges from FY
2011 Medicare LTCH bill data from the
December 2011 update of the FY 2011
MedPAR file, which were the best
available data at that time, and used the
proposed Version 30.0 of the GROUPER
to classify LTCH cases. Consistent with
our existing methodology, we also
proposed that if more recent data
became available, we would use those
data and the finalized Version 30.0 of
the GROUPER in establishing the FY
2013 MS–LTC–DRG relative weights in
the final rule. Consistent with our
proposal, to calculate the MS–LTC–DRG
relative weights for FY 2013 for this
final rule, we obtained total charges
from FY 2011 Medicare LTCH bill data
from the March 2012 update of the FY
2011 MedPAR file, which are the best
available data, and used Version 30.0 of
the GROUPER to classify LTCH cases.
As proposed and consistent with our
historical methodology, we excluded
the data from LTCHs that are allinclusive 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. Furthermore, consistent with our
historical practice, we excluded
Medicare Advantage (Part C) claims,
which are now included in the MedPAR
files, in the calculations for the relative

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weights under the LTCH PPS that are
used to determine payments for
Medicare fee-for-service claims.
Specifically, we did not use 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).
Accordingly, in the development of the
FY 2013 MS–LTC–DRG relative weights
in this final rule, we excluded the data
of 14 all-inclusive rate providers and the
2 LTCHs that are paid in accordance
with demonstration projects that had
claims in the March 2012 update of the
FY 2011 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 treatment of
infections and wound care. Some case
types (DRGs) may be treated, to a large
extent, in hospitals that have, from a
perspective of charges, relatively high
(or low) charges. This nonrandom
distribution of cases with relatively high
(or low) charges in specific MS–LTC–
DRGs has the potential to
inappropriately distort the measure of
average charges. As proposed, 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 continue to use a
hospital-specific relative value (HSRV)
methodology to calculate the MS–LTC–
DRG relative weights for FY 2013. We
believe this method removes this
hospital-specific source of bias in
measuring LTCH average charges (67 FR
55985). Specifically, under this
methodology, we reduce the impact of
the variation in charges across providers
on any particular MS–LTC–DRG relative
weight by converting each LTCH’s
charge for a case to a relative value
based on that LTCH’s average charge.
Under the HSRV methodology, we
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

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complexity of the cases treated by all
other LTCHs (the average case-mix of all
LTCHs).
We did not receive any public
comments regarding this proposal.
Thus, in accordance with our
established methodology and as
proposed, we continue to standardize
charges for each case by first dividing
the adjusted charge for the case
(adjusted for SSOs under § 412.529 as
described in section VII.B.3.g. (Step 3)
of this preamble) 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
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 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

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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 are 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). As proposed, we continue to
utilize these same three categories of
MS–LTC–DRGs for purposes of the
treatment of severity levels in
determining the MS–LTC–DRG relative
weights for FY 2013. (We provide indepth discussions of our policy
regarding weight-setting for low-volume
MS–LTC–DRGs in section VII.B.3.f. of
the preamble of this final rule and for
no-volume MS–LTC–DRGs, under Step
5 in section VII.B.3.g. of this preamble.)
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, as proposed
and consistent with our existing
methodology we used the following
steps to determine the FY 2013 MS–
LTC–DRG relative weights: (1) If an MS–
LTC–DRG has at least 25 cases, it is
assigned its own relative weight; (2) if
an MS–LTC–DRG has between 1 and 24
cases, it is assigned to a quintile for
which we compute a relative weight for
all of the MS–LTC–DRGs assigned to
that quintile; and (3) if an MS–LTC–
DRG has no cases, it is cross-walked to
another MS–LTC–DRG based upon
clinical similarities to assign an
appropriate relative weight (as
described below in detail in Step 5 of
section VII.B.3.g. of this preamble).
Furthermore, in determining the FY
2013 MS–LTC–DRG relative weights,
when necessary, we 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. Low-Volume MS–LTC–DRGs
In order to account for MS–LTC–
DRGs with low volume (that is, with
fewer than 25 LTCH cases), as proposed
and consistent with our existing
methodology, for purposes of
determining the FY 2013 MS–LTC–DRG
relative weights, we continue to employ
the quintile methodology for low-

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volume MS–LTC–DRGs, such that we
group the ‘‘low-volume MS–LTC–
DRGs’’ (that is, MS–LTC–DRGs that
contained between 1 and 24 cases
annually) into one of five categories
(quintiles) based on average charges (67
FR 55984 through 55995 and 72 FR
47283 through 47288). In determining
the FY 2013 MS–LTC–DRG relative
weights in this final rule, in cases where
the initial assignment of a 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 made adjustments to
the treatment of 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 final rule, using LTCH cases
from the March 2012 update of the FY
2011 MedPAR file (which is currently
the best available data), we identified
304 MS–LTC–DRGs that contained
between 1 and 24 cases. This list of MS–
LTC–DRGs was then divided into one of
the 5 low-volume quintiles, each
containing a minimum of 61 MS–LTC–
DRGs (304/5 = 64 with 4 MS–LTC–
DRGs as the remainder). We assigned a
low-volume MS–LTC–DRG to a specific
low-volume quintile by sorting the lowvolume MS–LTC–DRGs in ascending
order by average charge in accordance
with our established methodology.
Furthermore, because the number of
MS–LTC–DRGs with less than 25 cases
was not evenly divisible by 5, the
average charge of the low-volume
quintile was used to determine which of
the low-volume quintiles contain the 4
additional 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 60th) of low-volume
MS–LTC–DRGs (with the lowest average
charge) into Quintile 1. The MS–LTC–
DRGs with the highest average charge
cases were assigned into Quintile 5.
Because the average charge of the 61st
low-volume MS–LTC–DRG in the sorted
list was closer to the average charge of
the 60th low-volume MS–LTC–DRG
(assigned to Quintile 1) than to the
average charge of the 62nd low-volume
MS–LTC–DRG (assigned to Quintile 3),
we assigned it to Quintile 1 (such that
Quintile 1 contains 61 low-volume MS–
LTC–DRGs before any adjustments for
nonmonotonicity, as discussed below).
This process was repeated through the
remaining low-volume MS–LTC–DRGs
so that 4 of the 5 low-volume quintiles
contain 61 MS–LTC–DRGs (Quintiles 1,
2, 3 and 4) and the other low-volume
quintile contains 60 MS–LTC–DRGs

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(Quintiles 5). Table 13A, which is listed
in section VI. of the Addendum to this
final rule and is available via the
Internet, lists the composition of the
low-volume quintiles for MS–LTC–
DRGs for FY 2013.
Accordingly, in order to determine
the FY 2013 relative weights for the
MS–LTC–DRGs with low volume, we
used the 5 low-volume quintiles
described above. The composition of
each of the 5 low-volume quintiles
shown in Table 13A (listed in section
VI. of the Addendum to this final rule
and available via the Internet) was used
in determining the FY 2013 MS–LTC–
DRG relative weights (as shown in Table
11 listed in section VI. of the
Addendum to this final rule and
available via the Internet). We
determined a relative weight and
(geometric) average length of stay for
each of the 5 low-volume quintiles
using the methodology that we applied
to the MS–LTC–DRGs (25 or more
cases), as described below in section
VII.B.3.g. of this preamble. We assigned
the same relative weight and average
length of stay to each of the low-volume
MS–LTC–DRGs that made up an
individual low-volume quintile. We
note that, as this system is dynamic, it
is possible that the number and specific
type of MS–LTC–DRGs with a low
volume of LTCH cases will vary in the
future.
We 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
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 FY 2013
MS–LTC–DRG Relative Weights
For this final rule, as we proposed, we
determined the FY 2013 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, to determine the FY 2013
MS–LTC–DRG relative weights, we
grouped LTCH cases to the appropriate
MS–LTC–DRG, while taking into
account the low-volume quintile (as
described above). After grouping the
cases to the appropriate MS–LTC–DRG
(or low-volume quintile), we calculated

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the FY 2013 relative weights by first
removing statistical outliers and cases
with a length of stay of 7 days or less
(Steps 1 and 2 below). Next, we adjusted
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 7 days or less (Step 2 below), the SSO
adjusted discharges and corresponding
charges were then used to calculate
‘‘relative adjusted weights’’ for each
MS–LTC–DRG (or low-volume quintile)
using the HSRV method.
Below we discuss in detail the steps
for calculating the FY 2013 MS–LTC–
DRG relative weights. We note that, as
we discussed in section VII.B.3.c. of this
preamble, we excluded the data of allinclusive rate LTCHs, LTCHs that are
paid in accordance with demonstration
projects, and any Medicare Advantage
claims in the March 2012 update of the
FY 2011 MedPAR file.
Step 1—Remove statistical outliers.
The first step in the calculation of the
FY 2013 MS–LTC–DRG relative weights
is to remove statistical outlier cases.
Consistent with our historical relative
weight methodology, we continue to
define statistical outliers as cases that
are outside of 3.0 standard deviations
from the mean of the log distribution of
both charges per case and the charges
per day for each MS–LTC–DRG. These
statistical outliers are removed prior to
calculating the relative weights because
we believe that they may represent
aberrations in the data that distort the
measure of average resource use.
Including those LTCH cases in the
calculation of the relative weights could
result in an inaccurate relative weight
that does not truly reflect relative
resource use among the MS–LTC–DRGs.
(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 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 FY 2013 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

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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 FY
2013 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, 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 FY 2013 MS–
LTC–DRG relative weights, consistent
with our historical relative weight
methodology, we adjusted each LTCH’s
charges per discharge for those
remaining cases for the effects of SSOs
(as defined in § 412.529(a) in
conjunction with § 412.503).
We made this adjustment by counting
an SSO case as a fraction of a discharge
based on the ratio of the length of stay
of the case to the average length of stay
for the MS–LTC–DRG for non-SSO
cases. This has the effect of
proportionately reducing the impact of
the lower charges for the SSO cases in
calculating the average charge for the
MS–LTC–DRG. This process produces
the same result as if the actual charges
per discharge of an SSO case were
adjusted to what they would have been
had the patient’s length of stay been
equal to the average length of stay of the
MS–LTC–DRG.
Counting SSO cases as full discharges
with no adjustment in determining the
FY 2013 MS–LTC–DRG relative weights
would lower the FY 2013 MS–LTC–DRG
relative weight for affected MS–LTC–
DRGs because the relatively lower
charges of the SSO cases would bring
down the average charge for all cases
within an MS–LTC–DRG. This would
result in an ‘‘underpayment’’ for nonSSO cases and an ‘‘overpayment’’ for
SSO cases. Therefore, we adjusted for
SSO cases under § 412.529 in this
manner because it results in more
appropriate payments for all LTCH
cases. (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 FY 2013 MS–
LTC–DRG relative weights on an
iterative basis.
Consistent with our historical relative
weight methodology, we calculated the
FY 2013 MS–LTC–DRG relative weights

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using the HSRV methodology, which is
an iterative process. First, for each
LTCH case, we calculated a hospitalspecific relative charge value by
dividing the SSO adjusted charge per
discharge (see Step 3) of the LTCH case
(after removing the statistical outliers
(see Step 1) and LTCH cases with a
length of stay of 7 days or less (see Step
2)) by the average charge per discharge
for the LTCH in which the case
occurred. The resulting ratio was then
multiplied by the LTCH’s case-mix
index to produce an adjusted hospitalspecific relative charge value for the
case. An initial case-mix index value of
1.0 is used for each LTCH.
For each MS–LTC–DRG, we
calculated the FY 2013 relative weight
by dividing the average of the adjusted
hospital-specific relative charge values
(from above) for the MS–LTC–DRG by
the overall average hospital-specific
relative charge value across all cases for
all LTCHs. Using these recalculated
MS–LTC–DRG relative weights, each
LTCH’s average relative weight for all of
its cases (that is, its case-mix) was
calculated by dividing the sum of all the
LTCH’s MS–LTC–DRG relative weights
by its total number of cases. The LTCHs’
hospital-specific relative charge values
(from above) were then multiplied by
the hospital-specific case-mix indexes.
The hospital-specific case-mix adjusted
relative charge values were then used to
calculate a new set of MS–LTC–DRG
relative weights across all LTCHs. This
iterative process was continued until
there was convergence between the
weights produced at adjacent steps, for
example, when the maximum difference
was less than 0.0001.
Step 5—Determine a FY 2013 relative
weight for MS–LTC–DRGs with no
LTCH cases.
As we stated above, we determined
the FY 2013 relative weight for each
MS–LTC–DRG using total Medicare
allowable total charges reported in the
best available LTCH claims data (that is,
the March 2012 update of the FY 2011
MedPAR file for this final rule). Using
these data, we identified the MS–LTC–
DRGs for which there are no LTCH cases
in the database, such that no patients
who would have been classified to those
MS–LTC–DRGs were treated in LTCHs
during FY 2011 and, therefore, no
charge data are available for these MS–
LTC–DRGs. Thus, in the process of
determining the MS–LTC–DRG relative
weights, we were unable to calculate
relative weights for the MS–LTC–DRGs
with no LTCH cases using the
methodology described in Steps 1
through 4 above. However, because
patients with a number of the diagnoses
under these MS–LTC–DRGs may be

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treated at LTCHs, consistent with our
historical methodology, we assigned a
relative weight to each of the no-volume
MS–LTC–DRGs based on clinical
similarity and relative costliness (with
the exception of ‘‘transplant’’ MS–LTC–
DRGs and ‘‘error’’ MS–LTC–DRGs, as
discussed below). (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 determined FY 2013
relative weights for the MS–LTC–DRGs
with no LTCH cases in the March 2012
update of the FY 2011 MedPAR file
used in this final rule (that is, ‘‘novolume’’ MS–LTC–DRGs) by crosswalking each no-volume MS–LTC–DRG
to another MS–LTC–DRG with a
calculated relative weight (determined
in accordance with the methodology
described above). Then, the ‘‘novolume’’ MS–LTC–DRG was assigned
the same relative weight (and average
length of stay) of the MS–LTC–DRG to
which it was cross-walked (as described
in greater detail below).
Of the 751 MS–LTC–DRGs for FY
2013, we identified 212 MS–LTC–DRGs
for which there are no LTCH cases in
the database (including the 8
‘‘transplant’’ MS–LTC–DRGs and 2
‘‘error’’ MS–LTC–DRGs). As stated
above, we assigned relative weights for
each of the 212 no-volume MS–LTC–
DRGs (with the exception of the 8
‘‘transplant’’ MS–LTC–DRGs and the 2
‘‘error’’ MS–LTC–DRGs, which are
discussed below) based on clinical
similarity and relative costliness to one
of the remaining 539 (751 ¥ 212 = 539)
MS–LTC–DRGs for which we were able
to determine relative weights based on
FY 2011 LTCH claims data using the
steps described above. (For the
remainder of this discussion, we refer to
the ‘‘cross-walked’’ MS–LTC–DRGs as
the MS–LTC–DRGs to which we crosswalk one of the 213 ‘‘no volume’’ MS–
LTC–DRGs for purposes of determining
a relative weight.) Then, we assigned
the no-volume MS–LTC–DRG the
relative weight of the cross-walked MS–
LTC–DRG. (As explained below in Step
6, when necessary, we made
adjustments to account for
nonmonotonicity.)
For this final rule, we cross-walked
the no-volume MS–LTC–DRG to an MS–
LTC–DRG for which there are LTCH
cases in the March 2012 update of the
FY 2011 MedPAR file, and to which it
is similar clinically in intensity of use
of resources and relative costliness as
determined by criteria such as care
provided during the period of time
surrounding surgery, surgical approach
(if applicable), length of time of surgical

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procedure, postoperative care, and
length of stay. We evaluated the relative
costliness in determining the applicable
MS–LTC–DRG to which a no-volume
MS–LTC–DRG is cross-walked in order
to assign an appropriate relative weight
for the no-volume MS–LTC–DRGs in FY
2013. (For more details 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 no-volume MS–
LTC–DRGs in FY 2013, the relative
weights assigned based on the crosswalked MS–LTC–DRGs will result in an
appropriate LTCH PPS payment because
the crosswalks, which are based on
similar clinical similarity and relative
costliness, generally require equivalent
relative resource use.
We then assigned the relative weight
of the cross-walked MS–LTC–DRG as
the relative weight for the no-volume
MS–LTC–DRG such that both of these
MS–LTC–DRGs (that is, the no-volume
MS–LTC–DRG and the cross-walked
MS–LTC–DRG) have the same relative
weight for FY 2013. We note that if the
cross-walked MS–LTC–DRG had 25
cases or more, its relative weight, which
was calculated using the methodology
described in Steps 1 through 4 above,
was assigned to the no-volume MS–
LTC–DRG as well. Similarly, if the MS–
LTC–DRG to which the no-volume MS–
LTC–DRG was cross-walked had 24 or
less cases and, therefore, was designated
to one of the low-volume quintiles for
purposes of determining the relative
weights, we assigned the relative weight
of the applicable low-volume quintile to
the no-volume MS–LTC–DRG such that
both of these MS–LTC–DRGs (that is,
the no-volume MS–LTC–DRG and the
cross-walked MS–LTC–DRG) have the
same relative weight for FY 2013. (As
we noted above, in the infrequent case
where nonmonotonicity involving a novolume MS–LTC–DRG resulted,
additional adjustments as described in
Step 6 were required in order to
maintain monotonically increasing
relative weights.)
For this final rule, a list of the novolume MS–LTC–DRGs and the MS–
LTC–DRG to which it is cross-walked
(that is, the cross-walked MS–LTC–
DRG) for FY 2013 is shown in Table
13B, which is listed in section VI. of the
Addendum to this final rule and is
available via the Internet.
To illustrate this methodology for
determining the relative weights for the
FY 2013 MS–LTC–DRGs with no LTCH
cases, we are providing the following
example, which refers to the no-volume

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MS–LTC–DRGs crosswalk information
for FY 2013 provided in Table 13B.
Example: There are no cases in the FY
2011 MedPAR file used for this final
rule for MS–LTC–DRG 61 (Acute
Ischemic Stroke with Use of
Thrombolytic Agent with MCC). We
determined that MS–LTC–DRG 70
(Nonspecific Cerebrovascular Disorders
with MCC) is similar clinically and
based on resource use to MS–LTC–DRG
61. Therefore, we assigned the same
relative weight of MS–LTC–DRG 70 of
0.8209 for FY 2013 to MS–LTC–DRG 61
(obtained from Table 11, which is listed
in section VI. of the Addendum to this
final rule and is available via 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 used
the most recent available claims data in
the MedPAR file to identify no-volume
MS–LTC–DRGs and to determine the
relative weights in this final rule.
Furthermore, for FY 2013, consistent
with our historical relative weight
methodology, we established MS–LTC–
DRG relative weights of 0.0000 for the
following transplant MS–LTC–DRGs:
Heart Transplant or Implant of Heart
Assist System with MCC (MS–LTC–DRG
1); Heart Transplant or Implant of Heart
Assist System without MCC (MS–LTC–
DRG 2); Liver Transplant with MCC or
Intestinal Transplant (MS–LTC–DRG 5);
Liver Transplant without MCC (MS–
LTC–DRG 6); Lung Transplant (MS–
LTC–DRG 7); Simultaneous Pancreas/
Kidney Transplant (MS–LTC–DRG 8);
Pancreas Transplant (MS–LTC–DRG 10);
and Kidney Transplant (MS–LTC–DRG
652). This is because Medicare will only
cover these procedures if they are
performed at a hospital that has been
certified for the specific procedures by
Medicare and presently no LTCH has
been so certified. At the present time,
we include these 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 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 FY 2013 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
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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 MS–DRG is
subdivided into either two levels or the
base MS–DRG is not subdivided. The
two-level subdivisions could consist of
the MS–DRG with CC/MCC and the
MS–DRG without CC/MCC.
Alternatively, the other type of twolevel subdivision may consist of the
MS–DRG with MCC and the MS–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, relative weights
should increase by severity, from lowest
to highest. If the relative weights
decrease as severity increases (that is, if
within a base MS–LTC–DRG, an MS–
LTC–DRG with CC has a higher relative
weight than one with MCC, or the MS–
LTC–DRG ‘‘without CC/MCC’’ has a
higher relative weight than either of the
others), they are nonmonotonic. We
continue to believe that utilizing
nonmonotonic relative weights to adjust
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
FY 2013 MS–LTC–DRG relative weights
in this final rule, consistent with our
historical methodology, we combined
MS–LTC–DRG severity levels within a
base MS–LTC–DRG for the purpose of
computing a relative weight when
necessary to ensure that monotonicity is
maintained. For a comprehensive
description of our existing methodology
to adjust for nonmonotonicity, we refer
readers to the FY 2010 IPPS/RY 2010

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LTCH PPS final rule (74 FR 43964
through 43966). Any adjustments for
nonmonotonicity that were made in
determining the FY 2013 MS–LTC–DRG
relative weights in this final rule by
applying this methodology are denoted
in Table 11, which is listed in section
VI. of the Addendum to this final rule
and is available via the Internet.
Step 7—Calculate the FY 2013 budget
neutrality factor.
In accordance with the regulations at
§ 412.517(b) (in conjunction with
§ 412.503), 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. (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 and 26882).)
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)
in conjunction 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 updated the
MS–LTC–DRG classifications and
relative weights for FY 2013 based on
the most recent available LTCH data,
and applied a budget neutrality
adjustment in determining the FY 2013
MS–LTC–DRG relative weights.
To ensure budget neutrality in the
update to the MS–LTC–DRG
classifications and relative weights
under § 412.517(b), we continued to use
our established two-step budget
neutrality methodology. In this final
rule, in the first step of our MS–LTC–
DRG budget neutrality methodology, for
FY 2013, we calculated and applied a
normalization factor to the recalibrated
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 normalization
adjustment is intended to ensure that
the recalibration of the MS–LTC–DRG
relative weights (that is, the process

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itself) neither increases nor decreases
the average CMI.
To calculate the normalization factor
for FY 2013 (the first step of our budget
neutrality methodology), we used the
following three steps: (1.a.) we used the
most recent available LTCH claims data
(FY 2011) and grouped them using the
FY 2013 GROUPER (Version 30.0) and
the recalibrated FY 2013 MS–LTC–DRG
relative weights (determined in steps 1
through 6 of the Steps for Determining
the FY 2013 MS–LTC–DRG Relative
Weights above) to calculate the average
CMI; (1.b.) we grouped the same LTCH
claims data (FY 2011) using the FY 2012
GROUPER (Version 29.0) and FY 2012
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 2012 (determined in Step 1.b.) by the
average CMI for FY 2013 (determined in
Step 1.a.). In determining the MS–LTC–
DRG relative weights for FY 2013, each
recalibrated MS–LTC–DRG relative
weight was multiplied by 1.12412
(determined in Step 1.c.) in the first step
of the budget neutrality methodology,
which produced ‘‘normalized relative
weights.’’
In the second step of our MS–LTC–
DRG budget neutrality methodology, we
determined a budget neutrality factor to
ensure that estimated aggregate LTCH
PPS payments (based on the most recent
available LTCH claims data) after
reclassification and recalibration (that
is, the FY 2013 MS–LTC–DRG
classifications and relative weights) are
equal to estimated aggregate LTCH PPS
payments before reclassification and
recalibration (that is, the FY 2012 MS–
LTC–DRG classifications and relative
weights). Accordingly, consistent with
our existing methodology, we used FY
2011 discharge data to simulate
payments and compare estimated
aggregate LTCH PPS payments using the
FY 2012 MS–LTC–DRGs and relative
weights to estimate aggregate LTCH PPS
payments using the FY 2013 MS–LTC–
DRGs and relative weights.
For this final rule, we determined the
FY 2013 budget neutrality adjustment
factor using the following three steps:
(2.a.) we simulated estimated total
LTCH PPS payments using the
normalized relative weights for FY 2013
and GROUPER Version 30.0 (as
described above); (2.b.) we simulated
estimated total LTCH PPS payments
using the FY 2012 GROUPER (Version
29.0) and the FY 2012 MS–LTC–DRG
relative weights in Table 11 of the
Addendum to the FY 2012 IPPS/LTCH
PPS final rule available on the Internet
(76 FR 51813); and (2.c.) we calculated
the ratio of these estimated total LTCH

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PPS payments by dividing the estimated
total LTCH PPS payments using the FY
2012 GROUPER (Version 29.0) and the
FY 2012 MS–LTC–DRG relative weights
(determined in Step 2.b.) by the
estimated total LTCH PPS payments
using the FY 2013 GROUPER (Version
30.0) and the normalized MS–LTC–DRG
relative weights for FY 2013
(determined in Step 2.a.). In
determining the FY 2013 MS–LTC–DRG
relative weights, each normalized
relative weight was multiplied by a
budget neutrality factor of 0.9880413
(determined in Step 2.c.) in the second
step of the budget neutrality
methodology to determine the budget
neutral FY 2013 relative weight for each
MS–LTC–DRG.
Accordingly, in determining the FY
2013 MS–LTC–DRG relative weights in
this final rule, consistent with our
existing methodology, we applied a
normalization factor of 1.12412 and a
budget neutrality factor of 0.9880413
(computed as described above). Table
11, which is listed in section VI. of the
Addendum to this final rule and is
available via the Internet, lists the MS–
LTC–DRGs and their respective relative
weights, geometric mean length of stay,
five-sixths of the geometric mean length
of stay (used to identify SSO cases
under § 412.529(a)), and the ‘‘IPPS
Comparable Thresholds’’ (used in
determining SSO payments under
§ 412.529(c)(3)), for FY 2013. The FY
2013 MS–LTC–DRG relative weights in
Table 11, which is listed in section VI.
of the Addendum to this final rule and
available via the Internet, reflect both
the normalization factor of 1.12412 and
the budget neutrality factor of
0.9880413.
C. Use of a LTCH-Specific Market
Basket 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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53467

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.
Those types of hospitals are not paid
under a PPS. Also, the FY 2002 cost
structures for cancer and children’s
hospitals are noticeably different from
the cost structures for freestanding IRFs,
freestanding IPFs, and LTCHs. A
complete discussion of the FY 2002based 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 only reflects
the cost structures for LTCHs. However,
as we discussed in the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR
43967 through 43968), we were in the
process of conducting further research
to assist us in understanding the
underlying reasons for the variations in
costs and cost structures between
freestanding IRFs and hospital-based
IRFs, as well as between freestanding
IPFs and hospital-based IPFs. At this
time, we remain unable to sufficiently
explain the observed differences in costs
and cost structures between hospitalbased IRFs and freestanding IRFs and
between hospital-based IPFs and
freestanding IPFs.
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51756), we finalized the
rebasing and revising of the FY 2002based RPL market basket by creating
and implementing an FY 2008-based
RPL market basket. We also discussed
that we were 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 could be used to update payments
under both the IPF and IRF payment
systems. We continue our research in
this area. The other market basket
would be a stand-alone LTCH market
basket. We stated that, depending on the
outcome of our research, we may
propose a stand-alone LTCH market
basket in the next LTCH PPS update
cycle. We received several public
comments in response to the FY 2012

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proposed rule, all of which supported
deriving a stand-alone LTCH market
basket (76 FR 51756 through 51757).
As we routinely do, we have revisited
the issue of the market basket used in
the LTCH PPS. We previously did not
estimate stand-alone market baskets for
IRFs, IPFs, and LTCHs because of small
sample sizes for freestanding facilities
and the data concerns associated with
the hospital-based facilities. Although
we continue to do research in this area,
at this time, we believe it is appropriate
to move forward with a proposal to
create a LTCH-specific market basket.
This is because we believe we have
sufficiently robust data to create such a
market basket, and no longer need to
rely on the cost report data from IPPS
hospitals or from IRFs, IPFs, and LTCHs
combined. Specifically, over the last
several years, the number of LTCH
facilities submitting a Medicare cost
report has increased, helping to address
concerns regarding the size of the
available pool of facilities. The
completeness and quality of the
Medicare cost reports that we have been
evaluating over the last several years
have improved as well. Therefore,
consistent with our intention to use the
latest available and complete cost report
data, we believe that it would be
appropriate to create a market basket
that would specifically reflect the cost
structures of LTCHs based on Medicare
cost report data for FY 2009, which are
for cost reporting periods beginning on
and after October 1, 2008, and before
October 1, 2009.
Therefore, under the LTCH PPS for
FY 2013, as we proposed, in this final
rule, we are creating a FY 2009-based
LTCH-specific market basket as
described below. As we proposed, for
this final rule, we are using data from
cost reports beginning in FY 2009
because these data are the latest
available complete data and, therefore,
we believe it will enable us to
accurately calculate cost weights that
specifically reflect the cost structures of
LTCHs. In this FY 2013 final rule, we
are finalizing our proposal to create a
LTCH-specific market basket based
solely on Medicare cost report data from
LTCHs of which the majority of the
reports are settled. In the following
discussion, we provide an overview of
the market basket and describe the
methodologies we used for determining
the operating and capital portions of the
FY 2009-based LTCH-specific market
basket.
2. Overview of the FY 2009-Based
LTCH-Specific Market Basket
As we proposed and are adopting in
this final rule, the FY 2009-based LTCH-

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specific 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 (that is, intensity) of
goods and services purchased over time
are not measured.
As we proposed and are adopting in
this final rule, the index itself is
constructed in the following three steps.
First, a base period is selected (as
proposed, in this final rule, we used FY
2009 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
weights’’ or ‘‘expenditure weights.’’
Second, each expenditure category is
matched to an appropriate price or wage
variable, referred to as a ‘‘price proxy.’’
In almost 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
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 that the
cost weights reflect recent changes in
the mix of goods and services that
hospitals purchase (hospital inputs) to

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furnish inpatient care between base
periods.
3. Development of a LTCH-Specific
Market Basket
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28009), we invited
public comments on our proposed
methodology for deriving a LTCHspecific market basket. A summary of
the public comments we received on the
methodology for creating a LTCHspecific market basket are included in
section VII.C.3.d. of the preamble of this
final rule. Below we describe the
methodology and data used to derive
the cost categories, cost weights, and
price proxies for the LTCH-specific
market basket that we proposed and are
adopting in this final rule.
a. Development of Cost Categories
(1) Medicare Cost Reports
As we proposed and are adopting in
this final rule, the FY 2009-based LTCHspecific market basket consists of
several major cost categories derived
from the FY 2009 LTCH Medicare cost
reports as described previously,
including wages and salaries, employee
benefits, contract labor,
pharmaceuticals, professional liability
insurance, capital, and a residual. These
FY 2009 Medicare cost reports are for
cost reporting periods beginning on and
after October 1, 2008, and before
October 1, 2009. As we proposed and
are adopting in this final rule, we are
using FY 2009 as the base year because
we believe that the FY 2009 Medicare
cost reports represent the most recent,
complete set of Medicare cost report
data available for LTCHs.
Medicare cost report data include
costs for all patients, including
Medicare, Medicaid, and private payer.
As we proposed and are adopting in this
final rule, because our goal is to
measure cost shares for facilities that
serve Medicare beneficiaries, and are
reflective of case-mix and practice
patterns associated with providing
services to Medicare beneficiaries in
LTCHs, we limit our selection of
Medicare cost reports to those from
LTCHs 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. As we proposed and are
adopting in this final rule, similar to our
methodology for the FY 2008-based RPL
market basket, we use the cost reports
submitted by LTCHs with Medicare
average lengths of stay within 15
percent (that is, 15 percent higher or

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lower) of the total facility average length
of stay for the hospital. This is the same
edit we applied to derive the FY 2008based RPL market basket and generally
includes those LTCHs with Medicare
average length of stay within
approximately 5 days of the facility
average length of stay of the hospital.
Using this set of Medicare cost
reports, as we proposed and are
adopting in this final rule, we then
calculate cost weights for six cost
categories, and a residual category as
represented by all other costs, directly
from the FY 2009 Medicare cost reports
submitted by LTCHs (found in Table
VII.C–1 below). As we proposed and are
adopting in this final rule, these
Medicare cost report cost weights are
then supplemented with information
obtained from other data sources
(explained in more detail below) to
derive the FY 2009-based LTCH-specific
market basket cost weights.
The proposed and final methodology
used to develop the FY 2009-based

LTCH-specific market basket cost
weights is generally the same
methodology used to develop the FY
2008-based RPL market basket cost
weights, with the exception of the
employee benefits and contract labor
cost weights. For the FY 2008-based
RPL market basket, there was an issue
with obtaining data specifically for
employee benefits and contract labor
from the set of FY 2008 Medicare cost
reports, as IRFs, IPFs, and LTCHs were
not required to complete the Medicare
cost report worksheet from which these
data were collected (Form CMS–2552–
96, Worksheet S3, Parts II and III). As a
result, only a proportion of the total
number of IRFs, IPFs, and LTCHs
reported data for employee benefits and
contract labor; therefore, we developed
these cost weights for the FY 2008-based
RPL market basket using data obtained
from IPPS Medicare cost reports.
However, when we reviewed LTCH
Medicare cost reports for FY 2009, we

53469

found that a greater proportion of
LTCHs submitted data for employee
benefits and contract labor
(approximately 40 percent of LTCHs,
whose total costs account for
approximately 50 percent of total costs
for all LTCHs, submitted a cost report)
compared to the proportion of IRFs and
IPFs that submitted these data. We
believe that it is better to use the LTCHspecific cost report data whenever
possible to further our goal to create a
market basket that represents the cost
structures of LTCHs serving Medicare
beneficiaries. Therefore, as we proposed
and are adopting in this final rule, we
use the LTCH-specific cost reports to
derive the employee benefits and
contract labor cost weights for the FY
2009-based LTCH-specific market
basket, as opposed to using the IPPS
Medicare cost reports as a proxy, as was
done for the FY 2008-based RPL market
basket.

TABLE VII.C–1—MAJOR COST CATEGORIES AND THEIR RESPECTIVE COST WEIGHTS AS CALCULATED DIRECTLY FROM FY
2009 MEDICARE COST REPORTS
FY 2009-based LTCH-specific market
basket cost weights obtained from
Medicare cost reports
(percent)

Major cost categories

Wages and Salaries ..................................................................................................................................
Employee Benefits .....................................................................................................................................
Contract Labor ...........................................................................................................................................
Professional Liability Insurance (Malpractice) ...........................................................................................
Pharmaceuticals ........................................................................................................................................
Capital ........................................................................................................................................................
All Other (Residual) ...................................................................................................................................

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(2) Other Data Sources
In addition to the data from Medicare
cost reports submitted by LTCHs, as we
proposed and are adopting in this final
rule, the other data source we use to
develop the FY 2009-based LTCHspecific market basket cost weights is
the 2002 Benchmark Input-Output (I–O)
Tables created by the Bureau of
Economic Analysis (BEA), U.S.
Department of Commerce. We use the
2002 BEA Benchmark I–O data to
disaggregate the ‘‘All Other (Residual)’’
cost category (26.126 percent) into more
detailed hospital expenditure category
shares. We note that we use these data
to derive most of the CMS market
baskets, including the FY 2008-based
RPL and FY 2006-based IPPS market
baskets. The BEA Benchmark I–O
accounts provide the most detailed
information on the goods and services
purchased by an industry, which allows
for a more detailed disaggregation of
expenses in the market basket for which

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we can then proxy the appropriate price
inflation.
The BEA 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 detailed set of data that are derived
from the 2002 Economic Census. We
used the 2002 BEA Benchmark I–O data
for the FY 2008-based RPL market
basket. Because BEA has not released
new Benchmark I–O data, and we
believe the data to be comprehensive
and complete as indicated above, we
use the 2002 Benchmark I–O data in the
FY 2009-based LTCH-specific market
basket.
Instead of using the less detailed
Annual I–O data, as we proposed and
are adopting in this final rule, we age
the 2002 Benchmark I–O data forward to
2009. As we proposed, the methodology
we are using in this final rule to age the

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40.407
6.984
6.947
0.830
8.877
9.829
26.126

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,
telephone services would represent 10
percent of the ‘‘All Other’’ cost category
of the LTCH-specific market basket.
b. Cost Category Computation
As we proposed and are adopting in
this final rule, for the FY 2009-based
LTCH-specific market basket, we use
data from the Medicare cost reports
submitted by LTCHs to derive six major
cost categories. The six major categories
are: Wages and Salaries, Employee

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Benefits, Contract Labor, Professional
Liability Insurance, Pharmaceuticals,
and Capital, as shown above in Table
VII.C–1. These represent the most
detailed cost categories available from
the Medicare cost reports. As stated
above, as we proposed and are adopting
in this final rule, we then utilize the
Benchmark I–O data in order to further
disaggregate expenses. This is the same
methodology used to derive most of the
CMS market baskets, including the FY
2008-based RPL and FY 2006-based
IPPS market baskets. We obtained the
same major cost categories from the
Medicare cost report for the FY 2009based LTCH market basket as were
obtained for the FY 2008-based RPL
market basket (76 FR 51758), and two
additional categories, Employee Benefits
and Contract Labor.
c. Selection of Price Proxies
After computing the FY 2009 cost
weights for the LTCH-specific 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
that we proposed and are adopting in
this final rule for the operating portion
of the FY 2009-based LTCH-specific
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 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. As we proposed and are
adopting in this final rule, the PPIs that
we are using measure price changes at
the final stage of production.

Consumer Price Indexes—Consumer
Price Indexes (CPIs) measure change in
the prices of final goods and services
bought by the typical consumer. As we
proposed and are adopting in this final
rule, because they may not represent the
price encountered by a producer, we use
CPIs only if an appropriate PPI is not
available, or if the expenditures are
more like 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.
As we proposed and are adopting in
this final rule, 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.
We believe the PPIs, CPIs, and ECIs
selected in this final rule meet these
criteria.
Table VII.C–2 below sets forth the FY
2009-based LTCH-specific market
basket, including the cost categories and
their respective weights and price
proxies that we proposed and are
adopting for this final rule. For
comparison purposes, the
corresponding FY 2008-based RPL
market basket cost weights also are
listed. For example, ‘‘Wages and
Salaries’’ are 46.330 percent of total
costs under the FY 2009-based LTCHspecific market basket compared to

49.447 percent under the FY 2008-based
RPL market basket. ‘‘Employee
Benefits’’ are 8.008 percent under the
FY 2009-based LTCH-specific market
basket compared to 12.831 percent
under the FY 2008-based RPL market
basket. As a result, compensation costs
(wages and salaries plus employee
benefits) under the FY 2009-based
LTCH-specific market basket are 54.338
percent of total costs compared to
62.278 percent under the FY 2008-based
RPL market basket. We note that the
‘‘Wages and Salaries’’ cost weight
contained in Table VII.C–2 (46.330
percent) differs from that contained in
Table VII.C–1 (40.407 percent). We
attribute this difference to our allocation
of the ‘‘Contract Labor’’ cost weight
obtained from the Medicare cost reports
(6.947 percent) proportionately across
the ‘‘Wages and Salaries’’ and
‘‘Employee Benefits’’ cost weights
obtained from the Medicare cost reports.
Following Table VII.C–2 is a summary
of the proxies for the operating portion
of the FY 2009-based LTCH-specific
market basket that we proposed and are
adopting for this final rule. We note that
the proxies for the operating portion of
the FY 2009-based LTCH-specific
market basket are the same as those
used under the FY 2008-based RPL
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 2008-based
RPL market basket, we refer readers to
the discussion in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51759). For
the capital-related portion of the FY
2009-based LTCH-specific market
basket, the price proxies that we
proposed and are adopting for this final
rule are the same as those used under
the FY 2008-based RPL market basket
(prior to any vintage weighting), as
described in the FY 2012 IPPS/LTCH
PPS final rule (75 FR 51765), and as
described in more detail in the capital
methodology discussion under section
VII.C.3.d. of the preamble of this final
rule.

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TABLE VII.C–2—FY 2009-BASED LTCH–SPECIFIC MARKET BASKET COST CATEGORIES, COST WEIGHTS, AND PRICE
PROXIES COMPARED TO FY 2008-BASED RPL MARKET BASKET COST WEIGHTS
FY
2009-based
LTCH–specific
market basket
cost weights

Cost categories

FY
2008-based
RPL market
basket cost
weights

1. Compensation ..........................................................
A. Wages and Salaries 1 ..............................................

54.338
46.330

62.278
49.447

B. Employee Benefits 1 .................................................

8.008

12.831

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FY 2009–based LTCH market basket price proxies

ECI for Wages and Salaries, Civilian Hospital Workers.
ECI for Benefits, Civilian Hospital Workers.

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TABLE VII.C–2—FY 2009-BASED LTCH–SPECIFIC MARKET BASKET COST CATEGORIES, COST WEIGHTS, AND PRICE
PROXIES COMPARED TO FY 2008-BASED RPL MARKET BASKET COST WEIGHTS—Continued
FY
2009-based
LTCH–specific
market basket
cost weights

Cost categories

FY
2008-based
RPL market
basket cost
weights

2. Utilities ......................................................................
A. Electricity ..................................................................
B. Fuel, Oil, and Gasoline ............................................
C. Water and Sewage ..................................................
3. Professional Liability Insurance ................................

1.751
1.367
0.281
0.103
0.830

1.578
1.125
0.371
0.082
0.764

4. All Other Products and Services ..............................
A. All Other Products ....................................................
(1.) Pharmaceuticals .....................................................

33.252
19.531
8.877

26.988
15.574
6.514

(2.) Food: Direct Purchases .........................................
(3.) Food: Contract Services ........................................
(4.) Chemicals 2 ............................................................
(5.) Medical Instruments ...............................................
(6.) Rubber and Plastics ...............................................
(7.) Paper and Printing Products ..................................
(8.) Apparel ...................................................................
(9.) Machinery and Equipment .....................................
(10.) Miscellaneous Products .......................................
B. All Other Services ....................................................
(1.) Labor-Related Services .........................................
(a.) Professional Fees: Labor-Related .........................

3.409
0.478
1.275
2.141
1.329
1.226
0.250
0.127
0.419
13.721
5.349
2.256

2.959
0.392
1.100
1.795
1.131
1.021
0.210
0.106
0.346
11.414
4.681
2.114

(b.) Administrative and Business Support Services .....

0.508

0.422

(c.) All Other: Labor-Related Services .........................

2.585

2.145

(2.) Nonlabor-Related Services ....................................
(a.) Professional Fees: Nonlabor-Related ....................

8.372
5.332

6.733
4.211

(b.) Financial Services ..................................................
(c.) Telephone Services ...............................................
(d.) Postage ..................................................................
(e.) All Other: Nonlabor-Related Services ....................
5. Capital-Related Costs ..............................................
A. Depreciation .............................................................
(1.) Building and Fixed Equipment ...............................

1.013
0.501
0.779
0.747
9.829
5.707
3.838

0.853
0.416
0.630
0.623
8.392
5.519
3.286

(2.) Movable Equipment ...............................................

1.869

2.233

B. Interest Costs ...........................................................
(1.) Government/Nonprofit ............................................

2.434
0.702

1.954
0.653

(2.) For Profit ................................................................

1.732

1.301

C. Other Capital-Related Costs ....................................

1.688

0.919

Total .......................................................................

100.000

100.000

FY 2009–based LTCH market basket price proxies

PPI for Commercial Electric Power.
PPI for Petroleum Refineries.
CPI–U for Water and Sewerage Maintenance.
CMS Hospital Professional Liability Insurance Premium Index.
PPI for Pharmaceutical Preparations for Human Use
(Prescriptions).
PPI for Processed Foods and Feeds.
CPI–U for Food Away From Home.
Blend of Chemical PPIs.
PPI for Medical, Surgical, and Personal Aid Devices.
PPI for Rubber and Plastic Products.
PPI for Converted Paper and Paperboard Products.
PPI for Apparel.
PPI for Machinery and Equipment.
PPI for Finished Goods less Food and Energy.
ECI for Compensation for Professional and Related
Occupations.
ECI for Compensation for Office and Administrative
Services.
ECI for Compensation for Private Service Occupations.
ECI for Compensation for Professional and Related
Occupations.
ECI for Compensation for Financial Activities.
CPI–U for Telephone Services.
CPI–U for Postage.
CPI–U for All Items less Food and Energy.
BEA chained price index for Nonresidential Construction for Hospitals and Special Care Facilities—vintage weighted (20 years).
PPI for Machinery and Equipment—vintage weighted
(8 years).
Average yield on Domestic Municipal Bonds (Bond
Buyer 20 bonds)—vintage-weighted (20 years).
Average yield on Moody’s Aaa Bonds—vintageweighted (20 years).
CPI–U for Residential Rent.

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Note: Detail may not add to total due to rounding.
1 Contract Labor is distributed to Wages and Salaries and Employee Benefits based on the share of total compensation that each category
represents.
2 To proxy the Chemicals cost category, we use a blended PPI composed of the PPI for Industrial Gas Manufacturing, the PPI for Other Basic
Inorganic Chemical Manufacturing, the PPI for Other Basic Organic Chemical Manufacturing, and the PPI for Soap and Cleaning Compound
Manufacturing. For more detail about this proxy, we refer readers to the FY 2012 IPPS/LTCH final rule (76 FR 51761).

(1) Wages and Salaries

(2) Employee Benefits

(3) Electricity

As we proposed and are adopting in
this final rule, we 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.

As we proposed and are adopting in
this final rule, we use the ECI for
Employee Benefits for Hospital Workers
(All Civilian) to measure the price
growth of this cost category.

As we proposed and are adopting in
this final rule, we use the PPI for
Commercial Electric Power (BLS series
code WPU0542) to measure the price
growth of this cost category.

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(4) Fuel, Oil, and Gasoline
As we proposed and are adopting in
this final rule, we use the PPI for
Petroleum Refineries (BLS series code
PCU324110324110) to measure the price
growth of this cost category. We believe
that it is appropriate to use this proxy
for the same reasons set forth in the FY
2012 IPPS/LTCH final rule when this
proxy was adopted for use under the FY
2008-based RPL market basket (76 FR
51761).

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). We
believe that it is appropriate to use this
blended index for the reasons set forth
in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51761) when this proxy was
adopted for use under the FY 2008based RPL market basket.

(5) Water and Sewage
As we proposed and are adopting in
this final rule, we use the CPI for Water
and Sewerage Maintenance (All Urban
Consumers) (BLS series code
CUUR0000SEHG01) to measure the
price growth of this cost category.

(11) Medical Instruments

(6) Professional Liability Insurance
As we proposed and are adopting in
this final rule, we determine 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).
(7) Pharmaceuticals
As we proposed and are adopting in
this final rule, we use the PPI for
Pharmaceuticals for Human Use,
Prescription (BLS series code
WPUSI07003) to measure the price
growth of this cost category.
(8) Food: Direct Purchases
As we proposed and are adopting in
this final rule, we use the PPI for
Processed Foods and Feeds (BLS series
code WPU02) to measure the price
growth of this cost category.

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(9) Food: Contract Services
As we proposed and are adopting in
this final rule, we use the CPI for Food
Away From Home (All Urban
Consumers) (BLS series code
CUUR0000SEFV) to measure the price
growth of this cost category.
(10) Chemicals
As we proposed and are adopting in
this final rule, we 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

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As we proposed and are adopting in
this final rule, we use the PPI for
Medical, Surgical, and Personal Aid
Devices (BLS series code WPU156) to
measure the price growth of this cost
category. We believe that it is
appropriate to use this index for the
reasons set forth in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51761
through 51762) when this proxy was
adopted for use under the FY 2008based RPL market basket.
(12) Rubber and Plastics
As we proposed and are adopting in
this final rule, we use the PPI for Rubber
and Plastic Products (BLS series code
WPU07) to measure the price growth of
this cost category.
(13) Paper and Printing Products
As we proposed and are adopting in
this final rule, we use the PPI for
Converted Paper and Paperboard
Products (BLS series code WPU0915) to
measure the price growth of this cost
category.
(14) Apparel
As we proposed and are adopting in
this final rule, we use the PPI for
Apparel (BLS series code WPU0381) to
measure the price growth of this cost
category.
(15) Machinery and Equipment
As we proposed and are adopting in
this final rule, we use the PPI for
Machinery and Equipment (BLS series
code WPU11) to measure the price
growth of this cost category.
(16) Miscellaneous Products
As we proposed and are adopting in
this final rule, we use the PPI for
Finished Goods Less Food and Energy
(BLS series code WPUSOP3500) to
measure the price growth of this cost
category.

(BLS series code CIS2020000120000I) to
measure the price growth of this
category. It includes occupations such
as legal, accounting, and engineering
services.
(18) Administrative and Business
Support Services
As we proposed and are adopting in
this final rule, we 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. We
believe this compensation index
appropriately reflects the changing price
of labor associated with the provision of
Administrative and Business Support
Services.
(19) All Other: Labor-Related Services
As we proposed and are adopting in
this final rule, we use the ECI for
Compensation for Service Occupations
(Private Industry) (BLS series code
CIU2010000300000I) to measure the
price growth of this cost category.
(20) Professional Fees: Nonlabor-Related
As we proposed and are adopting in
this final rule, we 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 used for the Professional Fees:
Labor-related cost category.
(21) Financial Services
As we proposed and are adopting in
this final rule, we use the ECI for
Compensation for Financial Activities
(Private Industry) (BLS series code
CIU201520A000000I) to measure the
price growth of this cost category. We
believe that this compensation index
appropriately reflects the changing price
of labor associated with the provision of
Financial Services.
(22) Telephone Services
As we proposed and are adopting in
this final rule, we use the CPI for
Telephone Services (BLS series code
CUUR0000SEED) to measure the price
growth of this cost category.

(17) Professional Fees: Labor-Related

(23) Postage
As we proposed and are adopting in
this final rule, we use the CPI for
Postage (BLS series code
CUUR0000SEEC01) to measure the price
growth of this cost category.

As we proposed and are adopting in
this final rule, we use the ECI for
Compensation for Professional and
Related Occupations (Private Industry)

(24) All Other: Nonlabor-Related
Services
As we proposed and are adopting in
this final rule, we use the CPI for ‘‘All

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Items Less Food and Energy’’ (BLS
series code CUUR0000SA0L1E) to
measure the price growth of this cost
category. We believe that using the CPI
for ‘‘All Items Less Food and Energy’’
avoids double counting of changes in
food and energy prices as they are
already captured elsewhere in the
market basket.
d. Methodology for the Capital Portion
of the FY 2009-Based LTCH-Specific
Market Basket
In order to ensure consistency in the
FY 2009-based LTCH-specific market
basket, as we proposed and are adopting
in this final rule, we calculated the
capital-related cost weights using the
same set of FY 2009 Medicare cost
reports used to develop the operating
cost weights with the same length-ofstay edit as applied when calculating
the operating cost weights as described
in section VII.C.3.a. of this preamble.
The resulting capital-related cost weight
for the FY 2009 base year is 9.829
percent. Using the methodology that we
proposed and are adopting in this final
rule, we then separated the total capitalrelated cost weight into more detailed
cost categories.
As we proposed and are adopting in
this final rule, we derived cost weights
for depreciation, interest, lease, and
other capital-related expenses from the
Medicare cost reports. Lease expenses
are unique in that they are not broken
out as a separate cost category in the
LTCH-specific market basket, but rather
are proportionally distributed among
the cost categories of Depreciation,
Interest, and Other Capital-Related,
reflecting the assumption that the
underlying cost structure of leases is
similar to that of capital-related costs in
general. As was done under the FY
2008-based RPL market basket, and as
we proposed and are adopting in this
final rule, we assume 10 percent of lease
expenses represents overhead and
assign those costs to the Other CapitalRelated Costs category accordingly. As
we proposed and are adopting in this
final rule, the remaining lease expenses
are distributed across the three cost
categories based on the respective
weights of depreciation, interest, and
other capital-related, not including lease
expenses. This is the same method that
was applied under the FY 2008-based
RPL market basket.
As we proposed and are adopting in
this final rule, the ‘‘Depreciation’’ cost
category contains two subcategories: (1)
Building and Fixed Equipment (or Fixed
Assets); and (2) Movable Equipment.
Under the FY 2008-based RPL market
basket, we disaggregated total
depreciation expenses into Building and

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Fixed Equipment and Movable
Equipment, using depreciation data
from the FY 2008 Medicare cost reports
for freestanding IRFs, freestanding IPFs,
and LTCHs. Based on FY 2009 LTCH
Medicare cost report data, we have
determined that depreciation costs for
building and fixed equipment account
for 42 percent of total depreciation
costs, while depreciation costs for
movable equipment account for 58
percent of total depreciation costs. As
mentioned above, we proposed and are
adopting in this final rule to allocate
lease expenses among the
‘‘Depreciation,’’ ‘‘Interest,’’ and ‘‘Other
Capital’’ cost categories. We determined
that leasing building and fixed
equipment expenses account for 80
percent of total leasing expenses, while
leasing movable equipment expenses
account for 20 percent of total leasing
expenses. As we proposed and are
adopting in this final rule, we sum the
depreciation and leasing expenses for
building and fixed equipment together,
as well as sum the depreciation and
leasing expenses for movable
equipment. This results in the final
building and fixed equipment
depreciation cost weight (after leasing
costs are included) being 67 percent of
total depreciation costs and the movable
equipment depreciation cost weight
(after leasing costs are included) being
33 percent of total depreciation costs.
We note that total leasing costs account
for approximately one-half of total
capital-related expenses.
As we proposed and are adopting in
this final rule, the total ‘‘Interest’’ cost
category is split between government/
nonprofit interest and for-profit interest.
The FY 2008-based RPL market basket
allocated 33 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 67 percent of the ‘‘Interest’’
cost weight was allocated to for-profit
interest and was proxied by the average
yield on Moody’s Aaa bonds (76 FR
51760). This was based on the FY 2008
Medicare cost report data on interest
expenses for government/nonprofit and
for-profit freestanding IRFs, freestanding
IPFs, and LTCHs. Under the FY 2009based LTCH-specific market basket, as
we proposed and are adopting in this
final rule, we use the FY 2009 Medicare
cost report data on interest expenses for
government/nonprofit and for-profit
LTCHs. Based on these data, we
calculated a 29/71 split between
government/nonprofit and for-profit
interest. We believe it is important that
this split reflects the latest relative cost

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53473

structure of interest expenses for
LTCHs.
Because capital is acquired and paid
for over time, capital-related expenses
in any given year are determined by
both past and present purchases of
physical and financial capital. As we
proposed and are adopting in this final
rule, the vintage-weighted capitalrelated portion of the FY 2009-based
LTCH-specific 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-related purchases attributable to
each year of the expected life of
building and fixed equipment, movable
equipment, and interest. As we
proposed and are adopting in this final
rule, we use vintage weights to compute
vintage-weighted price changes
associated with depreciation and
interest expenses.
Vintage weights are an integral part of
the FY 2009-based LTCH-specific
market basket. Capital-related costs are
inherently complicated and are
determined by complex capital-related
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. 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. As we
proposed and are adopting in this final
rule, the capital-related component of
the FY 2009-based LTCH-specific
market basket reflects the underlying
stability of the capital-related
acquisition process.
To calculate the vintage weights for
depreciation and interest expenses, we
needed a time series of capital-related
purchases for building and fixed
equipment and movable equipment. We
found no single source that provides an
appropriate time series of capital-related
purchases by hospitals for all of the
above components of capital purchases.
The early Medicare cost reports did not
have sufficient capital-related data to
meet this need. Data we obtained from
the American Hospital Association
(AHA) do not include annual capitalrelated purchases. However, the AHA
does provide a consistent database of
total expenses back to 1963.
Consequently, as we proposed and are
adopting in this final rule, we used data

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from the AHA Panel Survey and the
AHA Annual Survey to obtain a time
series of total expenses for hospitals. We
then used data from the AHA Panel
Survey supplemented with the ratio of
depreciation to total hospital expenses
obtained from the Medicare cost reports
to derive a trend of annual depreciation
expenses for 1963 through 2009.
In order to estimate capital-related
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. Under the FY 2008-based RPL
market basket, we used FY 2008
Medicare cost reports for IPPS hospitals
to determine the expected life of
building and fixed equipment and
movable equipment (76 FR 51763). The
FY 2008-based RPL market basket was
based on an expected average life of
building and fixed equipment of 26
years and an expected average life of
movable equipment of 11 years, which
were both calculated using data for IPPS
hospitals. 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 the
rates of depreciation were to continue at
current year levels, assuming straightline depreciation. As we proposed and
are adopting for this final rule,
following a similar method to what was
applied under the FY 2008-based RPL
market basket, we determined the
average expected life of building and
fixed equipment to be equal to 20 years,
and the average expected life of movable
equipment to be equal to 8 years. These
expected lives are calculated using a 3year average of data from Medicare cost
reports for LTCHs for FY 2007 through
FY 2009. We believe that using LTCHspecific data to calculate the expected
lives of assets best reflects the cost
structures of LTCH facilities.
As we proposed and are adopting in
this final rule, we also used the
‘‘Building and Fixed Equipment’’ and
‘‘Movable Equipment’’ cost weights
derived from FY 2009 Medicare cost
reports for LTCHs to separate the
depreciation expenses into annual
amounts of building and fixed
equipment depreciation and movable
equipment depreciation. As we
proposed and are adopting in the final
rule, year-end asset costs for building

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and fixed equipment and movable
equipment were determined by
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’s asset costs from the current year’s
asset costs. As we proposed, for this
final rule, from this capital-related
purchase time series, we calculated 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.
As we proposed and are adopting in
this final rule, for the building and fixed
equipment vintage weights, we use the
real annual capital-related 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
capital-related purchase amount for
building and fixed equipment is
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. This is the same proxy
used under the FY 2008-based RPL
market basket. Because building and
fixed equipment have an expected
average life of 20 years, the vintage
weights for building and fixed
equipment are deemed to represent the
average purchase pattern of building
and fixed equipment over 20-year
periods. As we proposed and are
adopting in this final rule, with real
building and fixed equipment purchase
estimates available from 2009 back to
1963, we averaged twenty-seven 20-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. As
proposed, for this final rule, vintage
weights for each 20-year period are
calculated by dividing the real building
and fixed capital-related purchase
amount in any given year by the total
amount of purchases in the 20-year
period. As proposed, for this final rule,
this calculation is done for each year in
the 20-year period, and for each of the
twenty-seven 20-year periods. As
proposed, for this final rule, we use the
average of each year across the twentyseven 20-year periods to determine the
average building and fixed equipment
vintage weights for the FY 2009-based
LTCH-specific market basket.
As we proposed and are adopting for
this final rule, for the movable
equipment vintage weights, the real
annual capital-related purchase

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amounts for movable equipment are
used to capture the actual amount of the
physical acquisition, net of price
inflation. As proposed, for this final
rule, this real annual capital-related
purchase amount for movable
equipment is 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 2008based RPL market basket. Based on our
determination that movable equipment
has an expected average life of 8 years,
the vintage weights for movable
equipment represent the average
expenditure for movable equipment
over an 8-year period. As proposed, for
this final rule, with real movable
equipment purchase estimates available
from 2009 back to 1963, we averaged
thirty-nine 8-year periods to determine
the average vintage weights for movable
equipment that are representative of
average movable equipment purchase
patterns over time. As proposed, for this
final rule, vintage weights for each 8year period are calculated by dividing
the real movable capital-related
purchase amount for any given year by
the total amount of purchases in the 8year period. As proposed, for this final
rule, this calculation is done for each
year in the 8-year period and for each
of the thirty-nine 8-year periods. As we
proposed and are adopting for this final
rule, we use the average of each year
across the thirty-nine 8-year periods to
determine the average movable
equipment vintage weights for the FY
2009-based LTCH-specific market
basket.
As proposed, for this final rule, for the
interest vintage weights, the nominal
annual capital-related purchase
amounts for total equipment (building
and fixed, and movable) are used to
capture the value of the debt instrument
(including, but not limited to, mortgages
and bonds). The vintage weights for
interest should represent the average
purchase pattern of total equipment
over 20-year periods, which is the
average useful life of building and fixed
equipment as calculated using the LTCH
Medicare cost report data. We believe
vintage weights for interest should
represent the average useful life of
buildings and fixed equipment because,
based on previous research described in
the FY 1997 IPPS final rule (61 FR
46198), the expected life of hospital
debt instruments and the expected life
of buildings and fixed equipment are
similar. As proposed, for this final rule,
with nominal total equipment purchase
estimates available from 2009 back to
1963, we averaged twenty-seven 20-year

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periods to determine the average vintage
weights for interest that are
representative of average capital
purchase patterns over time. As
proposed, with this final rule, vintage
weights for each 20-year period are
calculated by dividing the nominal total
capital purchase amount for any given
year by the total amount of purchases in

the 20-year period. As proposed, for this
final rule, this calculation is done for
each year in the 20-year period and for
each of the twenty-seven 20-year
periods. As proposed, for this final rule,
we use the average of each year across
the twenty-seven 20-year periods to
determine the average interest vintage
weights for the FY 2009-based LTCH-

specific market basket. As we proposed
and are adopting in this final rule, the
vintage weights for the capital-related
portion of the FY 2008-based RPL
market basket and the FY 2009-based
LTCH-specific market basket are
presented in Table VII.C–4 below.

TABLE VII.C–4—FY 2008 RPL AND FY 2009 LTCH VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE PROXIES
Building and fixed equipment
Year

FY 2008
26 years

Movable equipment

Interest

FY 2009
20 years

FY 2008
11 years

FY 2009
8 years

FY 2008
26 years

FY 2009
20 years

1 ...............................................................
2 ...............................................................
3 ...............................................................
4 ...............................................................
5 ...............................................................
6 ...............................................................
7 ...............................................................
8 ...............................................................
9 ...............................................................
10 .............................................................
11 .............................................................
12 .............................................................
13 .............................................................
14 .............................................................
15 .............................................................
16 .............................................................
17 .............................................................
18 .............................................................
19 .............................................................
20 .............................................................
21 .............................................................
22 .............................................................
23 .............................................................
24 .............................................................
25 .............................................................
26 .............................................................

0.021
0.023
0.025
0.027
0.028
0.030
0.031
0.033
0.035
0.037
0.039
0.041
0.042
0.043
0.044
0.045
0.046
0.047
0.047
0.045
0.045
0.045
0.046
0.046
0.045
0.046

0.034
0.037
0.039
0.042
0.043
0.045
0.046
0.047
0.049
0.051
0.053
0.053
0.053
0.054
0.055
0.057
0.059
0.059
0.061
0.062
........................
........................
........................
........................
........................
........................

0.071
0.075
0.080
0.083
0.085
0.089
0.092
0.098
0.103
0.109
0.116
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

0.102
0.108
0.114
0.123
0.129
0.134
0.142
0.149
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................

0.010
0.012
0.014
0.016
0.018
0.020
0.021
0.024
0.026
0.029
0.033
0.035
0.038
0.041
0.043
0.046
0.049
0.052
0.053
0.053
0.055
0.056
0.060
0.063
0.064
0.068

0.021
0.024
0.026
0.029
0.032
0.035
0.037
0.040
0.043
0.047
0.050
0.053
0.055
0.059
0.062
0.068
0.073
0.077
0.082
0.086
........................
........................
........................
........................
........................
........................

Total ..................................................

1.000

1.000

1.000

1.000

1.000

1.000

EMCDONALD on DSK67QTVN1PROD with RULES2

Note: Numbers may not add to total due to rounding.

As proposed, for this final rule, after
the capital-related cost category weights
are computed, it is necessary to select
appropriate price proxies to reflect the
rate-of-increase for each expenditure
category. As we proposed and are
adopting in this final rule, we use the
same price proxies (prior to any vintage
weighting) for the capital-related
portion of the FY 2009-based LTCHspecific market basket that were used
under the FY 2008-based RPL market.
We believe these are the most
appropriate proxies for hospital capitalrelated 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-related
cost categories, as shown in Table
VII.C–2 above, are the same as those
used under the FY 2008-based RPL
market basket, as described in the FY
2012 IPPS/LTCH PPS final rule (76 FR

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51765), as well as the FY 2006-based
Capital Input Price Index (CIPI) as
described in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43857). The
process of creating vintage-weighted
price proxies requires applying the
vintage weights to the price proxy index
where the last applied vintage weight in
Table VII.C–4 is applied to the most
recent data point. We have provided on
the CMS Web site an example of how
the vintage weighting price proxies are
calculated, using example vintage
weights and example price indices. The
example can be found at the following
link: http://www.cms.gov/ResearchStatistics-Data-and-Systems/StatisticsTrends-and-Reports/
MedicareProgramRatesStats/
MarketBasketResearch.html in the zip
file titled ‘‘Weight Calculations as
described in the IPPS FY 2010 Proposed
Rule’’.

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Below is a summary of the public
comments we received on the
methodology we proposed to derive the
LTCH-specific market basket and our
responses.
Comment: One commenter stated that
CMS should now be able to identify the
cost differences between hospitalswithin-hospitals (HwHs) and
freestanding LTCHs. The commenter
asked whether CMS could further detail
the cost categories by differentiating the
major costs incurred by HwHs from the
major costs incurred by freestanding
LTCHs, as there is still a fundamental
cost difference between these types of
providers.
Response: For the methodology to
derive the LTCH-specific market basket
that we proposed and are adopting in
this final rule without modification, we
began with the universe of cost reports
for LTCHs (both HwHs and freestanding
facilities). After analyzing the major cost

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category weights obtained from the
Medicare cost reports, we found that the
weights obtained for HwHs and
freestanding LTCHs were similar.
Therefore, given that the market basket
is intended to reflect the national
average distribution of the costs of
goods and services that hospitals
purchase to furnish inpatient care, and
that the weights are similar, we believe
it is appropriate to derive the LTCHspecific market basket by using
Medicare cost reports from both of these
types of facilities. We do not believe
that it is appropriate to further
subdivide the cost categories of the
LTCH-specific market basket on the
basis of whether a LTCH is a HwH or
a freestanding facility.
Comment: One commenter asked
whether there are any provider-type or
provider-dominant issues that need to
be factored into the calculation of the
LTCH-specific market basket because
the LTCH industry is dominated by two
large chains.
Response: As stated above, the market
basket cost weights are intended to
capture the national average cost
distribution of LTCHs. For each
individual cost weight, we reviewed the
Medicare cost report data and analyzed
the univariate distributions. We then
trimmed the Medicare cost report data
prior to calculating the final cost weight
to attempt to remove any outliers. As a
result, we believe the cost weights for
the LTCH-specific market basket are
representative of a typical cost structure
for providers in the LTCH industry.
Therefore, we do not believe any
provider-type or provider-dominant
issues should be factored into the
calculation of the LTCH-specific market
basket. The purpose of the market
basket update (as measured by the

percent increase) is to update the base
payment to reflect price inflation in the
inputs required to provide medical care
across all LTCH providers.
e. FY 2013 Market Basket Update for
LTCHs
For FY 2013 (that is, October 1, 2012,
through September 30, 2013), we
proposed to use an estimate of the
proposed FY 2009-based LTCH-specific
market basket to update payments to
LTCHs based on the best available data.
Consistent with our historical practice
of using the most recent data available,
we estimated the proposed LTCHspecific market basket update for the
LTCH PPS based on IHS Global Insight,
Inc.’s (IGI’s) most recent forecast. IGI is
a nationally recognized economic and
financial forecasting firm that contracts
with CMS to forecast the components of
the market baskets.
Based on IGI’s first quarter 2012
forecast with history through the fourth
quarter of 2011, the projected market
basket update for FY 2013 was 3.0
percent. Therefore, consistent with our
historical practice of estimating market
basket increases based on the best
available data, we proposed a market
basket update of 3.0 percent for FY
2013. Furthermore, because the
proposed FY 2013 annual update was
based on the most recent market basket
estimate for the 12-month period, we
also proposed 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 2013
annual update in the final rule.
For this final rule, consistent with our
proposal to use updated data, if
appropriate, to determine the FY 2013
annual update, we are incorporating a
more recent estimate of the market

basket update. Based on IGI’s second
quarter 2012 forecast with history
through the first quarter of 2012, the
projected market basket update (as
measured by the percentage increase)
for FY 2013 is 2.6 percent. Therefore,
consistent with our historical practice of
estimating market basket increases
based on the best available data, we are
establishing a market basket update of
2.6 percent for FY 2013. We note that
the final market basket update for FY
2013 (2.6 percent) is lower than the
proposed market basket update (3.0
percent) due to a lower inflationary
outlook on wage and energy prices. The
wage price revision mostly reflects an
expectation of a slower labor market
recovery compared to the previous
forecast. (As discussed in greater detail
in section V.A.2. of the Addendum to
this final rule, we are establishing an
annual update of 1.8 percent to the
LTCH PPS standard Federal rate for FY
2013 under § 412.523(c)(3)(viii) of the
regulations.)
Using the current FY 2008-based RPL
market basket and IGI’s second quarter
2012 forecast for the market basket
components, the FY 2013 market basket
update (as measured by the percentage
increase) would be 2.7 percent (before
taking into account any statutory
adjustments). Table VII.C–5 below
compares the FY 2008-based RPL
market basket and the FY 2009-based
LTCH-specific market basket percent
changes based on IGI’s second quarter
2012 forecast. For a comparison of the
FY 2008-based RPL market basket and
the FY 2009-based LTCH-specific
market basket percent changes based on
IGI’s first quarter 2012 forecast, we refer
readers to Table VII.C–5 of the FY 2013
IPPS/LTCH proposed rule (77 FR
28016).

TABLE VII.C–5—FY 2008-BASED RPL MARKET BASKET AND FY 2009-BASED LTCH MARKET BASKET PERCENT
CHANGES; FY 2008 THROUGH FY 2015
FY 2008-based
RPL market
basket index
percent
change

EMCDONALD on DSK67QTVN1PROD with RULES2

Fiscal year (FY)

Historical data:
FY 2008 ....................................................................................................................................................
FY 2009 ....................................................................................................................................................
FY 2010 ....................................................................................................................................................
FY 2011 ....................................................................................................................................................
Average 2008–2011 .................................................................................................................................
Forecast:
FY 2012 ....................................................................................................................................................
FY 2013 ....................................................................................................................................................
FY 2014 ....................................................................................................................................................
FY 2015 ....................................................................................................................................................
Average 2012–2015 .................................................................................................................................
Note that these market basket percent changes do not include any further adjustments as may be statutorily required.
Source: IHS Global Insight, Inc. second quarter 2012 forecast.

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FY 2009-based
LTCH-specific
market basket
index percent
change

3.7
2.7
2.2
2.5
2.8

3.9
2.8
2.2
2.6
2.9

2.2
2.7
2.8
3.1
2.7

2.4
2.6
2.7
3.0
2.7

Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
For FY 2013, the FY 2009-based
LTCH-specific market basket update (2.6
percent, as measured by the percentage
increase) is forecasted to be slightly
lower than the market basket update
based on the FY 2008-based RPL market
basket at 2.7 percent. The lower total
compensation weight in the FY 2009based LTCH-specific market basket
(54.338 percent) relative to the FY 2008based RPL market basket (62.278
percent), absent other factors, would
have resulted in a slightly lower market
basket update for FY 2013 using the FY
2009-based LTCH-specific market
basket. However, this impact is partially
offset by the impact of the larger cost
weights associated with the
Pharmaceuticals and All Other Services
cost categories. The net effect of these
offsetting factors is that the market
basket update for the FY 2009-based
LTCH-specific market basket is
forecasted to be slightly lower for FY
2013 than the market basket update
based on the current FY 2008-based RPL
market basket.
Comment: Several commenters
supported the use of a LTCH-specific
market basket. One commenter stated
that this market basket more accurately
reflects costs of those services for
LTCHs. A few commenters stated that
the new market basket will more closely
align market-basket updates under the
LTCH PPS with actual LTCH cost
structures, which will produce greater
accuracy in aggregate Medicare
payments to LTCHs. One commenter
supported the proposal to identify a 3.0
percent market basket update for FY
2013.
Response: We agree with the
commenters that the use of a LTCHspecific market basket is an
improvement for the reasons set forth in
section VII.C.1 of the preamble of this
final rule. We do note that, based on
more recent data, the final market basket
update is 2.6 percent (and not 3.0
percent, as supported by one
commenter). We are adopting the use of
a LTCH-specific market basket in this
final rule, as proposed.

EMCDONALD on DSK67QTVN1PROD with RULES2

f. FY 2013 Labor-Related Share
As discussed in section V.B. of the
Addendum to this final rule, under the
authority of section 123 of the BBRA as
amended by section 307(b) of the BIPA,
we established an adjustment to the
LTCH PPS payments to account for
differences in LTCH area wage levels
(§ 412.525(c)). The labor-related portion
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

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levels by applying the applicable LTCH
PPS wage index.
As proposed, for this final rule, 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. As proposed in the FY
2013 IPPS/LTCH proposed rule (77 FR
28016), and are adopting in this final
rule, and similar to the FY 2008-based
RPL market basket and FY 2006 IPPS
market basket (74 FR 43850), we are
classifying a cost category as laborrelated and including it in the laborrelated share if the cost category is
defined as being labor-intensive and its
cost varies with the local labor market.
Given this, based on our definition of
the labor-related share, we proposed
and are adopting in this final rule to
include in the labor-related share the
sum of the relative importance of Wages
and Salaries, Employee Benefits,
Professional Fees: Labor-related,
Administrative and Business Support
Services, All Other: Labor-related
Services, and a portion of the CapitalRelated cost weight. These are the same
cost categories that were proposed and
adopted in the FY 2012 labor-related
share using the FY 2008-based RPL
market basket, as we continue to believe
these categories meet our criteria of
being labor-intensive and whose costs
vary with the local labor market. For a
more detailed discussion of the
selection of cost categories for inclusion
in the FY 2012 labor-related share, we
refer readers to the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51766). As
proposed, for this final rule, we note
that the wages and salaries and benefit
cost weights reflect allocated contract
labor costs, similar to the FY 2008-based
RPL market basket and as described
above.
For the FY 2008-based RPL market
basket rebasing, in an effort to more
accurately determine the share of
professional fees for services such as
accounting and auditing services,
engineering services, legal services, and
management and consulting services
that should be included in the laborrelated share, we obtained data from a
survey of IPPS hospitals regarding the
proportion of those fees that go to
companies that are located beyond their
own local labor market. The results from
this survey were then used to separate
a portion of the Professional Fees cost
category into labor-related and
nonlabor-related costs. These results
and our allocation methodology are
discussed in more detail in the FY 2012
IPPS/LTCH PPS final rule (76 FR
51766).

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53477

As we proposed and are adopting in
this final rule, for the FY 2009-based
LTCH-specific market basket, we will
apply these results from the survey of
IPPS hospitals using this same
methodology to separate the
Professional Fees category into
Professional Fees: Labor-related and
Professional Fees: Nonlabor-related cost
categories. We believe using the survey
results serves as an appropriate proxy
for the purchasing patterns of
professional services for LTCHs as they
also are providers of institutional care.
In addition to the professional
services listed above, we also proposed
and are adopting for this final rule to
classify expenses under NAICS 55,
Management of Companies and
Enterprises, into the Professional Fees:
Labor-related and Professional Fees:
Nonlabor-related cost categories, as was
done for the FY 2008-based RPL market
basket. The NAICS 55 industry is mostly
comprised of corporate, subsidiary, and
regional managing offices (otherwise
referred to as home offices). As stated
above, we classify a cost category as
labor-related and include it in the laborrelated share if the cost category is
labor-intensive and if its costs vary with
the local labor market. We believe many
of the costs associated with NAICS 55
are labor-intensive and vary with the
local labor market. However, data
indicate that not all LTCHs with home
offices have home offices located in
their local labor market. Therefore, as
we proposed and are adopting in this
final rule, we will include in the laborrelated share only a proportion of the
NAICS 55 expenses based on the
methodology described below.
For the FY 2008-based RPL market
basket, we used 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) and
determined 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). For
a detailed discussion of this analysis,
we refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51766
through 51767).
As we proposed and are adopting in
this final rule, for the FY 2009-based
LTCH-specific market basket, we
conducted a similar analysis of home
office data. However, instead of using
data on freestanding IRF, freestanding
IPF, and LTCHs, we began with the
initial set of LTCH Medicare cost reports

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that were used to derive the cost
weights for the proposed FY 2009-based
LTCH-specific market basket. As we
proposed, for this final rule, for
consistency, we believe it is important
for our analysis on home office data to
be conducted on the same LTCHs used
to derive the FY 2009 LTCH-specific
market basket cost weights.
The Medicare cost report requires a
hospital to report information regarding
their home office provider.
Approximately 82 percent of LTCHs
reported some type of home office
information on their Medicare cost
report for FY 2009 (for example, home
office number, city, state, zip code, or
name). For the majority of these
providers, we were able to identify in
which MSA the LTCH’s home office was
located using the HOMER database and
the Medicare cost reports. We then

compared the home office MSA with the
MSA in which the LTCH was located.
We found that 13 percent of the
LTCHs with home offices had those
home offices located in the same MSA
as their facilities. We then concluded
that these providers were located in the
same local labor market as their home
office. As a result, we proposed and are
adopting for this final rule to apportion
the NAICS 55 expense data by this
percentage. Thus, we proposed and are
adopting for this final rule to classify 13
percent of these costs into the
‘‘Professional Fees: Labor-related
Services’’ cost category and the
remaining 87 percent into the
‘‘Professional Fees: Nonlabor-related
Services’’ cost category.
Using the methodology described
above and IGI’s first quarter 2012
forecast of the proposed FY 2009-based
LTCH-specific market basket, the
proposed LTCH labor-related share for

FY 2013 was the sum of the FY 2013
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
final rule reflects IGI’s second quarter
2012 forecast of the FY 2009-based
LTCH-specific market basket. Table
VII.C–6 below shows the FY 2013 laborrelated share relative importance using
IGI’s second quarter 2012 forecast of the
FY 2009-based LTCH-specific market
basket and the FY 2012 labor-related
share relative importance using the FY
2008-based RPL market basket. For a
comparison of the FY 2012 labor-related
share and the FY 2013 proposed laborrelated share based on IGI’s first quarter
2012 forecast that was provided in the
FY 2013 IPPS/LTCH proposed rule, we
refer readers to Table VII.C–6 of the
proposed rule (77 FR 28017).

TABLE VII.C–6—COMPARISON OF THE FY 2012 LABOR-RELATED SHARE RELATIVE IMPORTANCE BASED ON THE FY
2008-BASED RPL MARKET BASKET AND THE FY 2013 LABOR-RELATED SHARE RELATIVE IMPORTANCE BASED ON
THE FY 2009-BASED LTCH-SPECIFIC MARKET BASKET
FY 2012 Laborrelated share
relative
importance 1

FY 2013 Laborrelated share
relative
importance 2

Wages and Salaries ........................................................................................................................................
Employee Benefits ...........................................................................................................................................
Professional Fees: Labor-Related ...................................................................................................................
Administrative and Business Support Services ...............................................................................................
All Other: Labor-Related Services ...................................................................................................................

48.984
12.998
2.072
0.416
2.094

45.470
8.146
2.217
0.503
2.507

Subtotal .....................................................................................................................................................
Labor-Related Portion of Capital Costs (46%) ................................................................................................

66.564
3.635

58.843
4.253

Total Labor-Related Share .......................................................................................................................

70.199

63.096

1 Published

EMCDONALD on DSK67QTVN1PROD with RULES2

2 Based

in the FY 2012 IPPS/LTCH PPS final rule (76 FR 51767) and based on the second quarter 2011 IGI forecast.
on the second quarter 2012 IGI forecast.

As we proposed and are adopting in
this final rule, the labor-related share for
FY 2013 is the sum of the FY 2013
relative importance of each labor-related
cost category, and reflects the different
rates of price change for these cost
categories between the base year (FY
2009) and FY 2013. For this final rule,
the sum of the relative importance for
FY 2013 for operating costs (Wages and
Salaries, Employee Benefits,
Professional Fees: Labor-related,
Administrative and Business Support
Services, and All Other: Labor-related
Services) is 58.843 percent, as shown in
Table VII.C–6 above. As we proposed
and are adopting in this final rule, the
portion of capital-related costs that is
influenced by the local labor market is
estimated to be 46 percent, which is the
same percentage applied under the FY
2008-based RPL market basket. For this

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final rule, because the most recent
forecast of the relative importance for
capital-related costs is 9.246 percent of
the FY 2009-based LTCH-specific
market basket in FY 2013, we took 46
percent of 9.246 percent to determine
the labor-related share of capital-related
costs for FY 2013 (.46 * 9.246). The
result is 4.253 percent, which we are
adding to 58.843 percent for the
operating cost amount to determine the
total labor-related share for FY 2013 in
this final rule. Thus, the labor-related
share that we are establishing under the
LTCH PPS for FY 2013 is 63.096
percent. This labor-related share was
determined using the same methodology
as employed in calculating all previous
LTCH labor-related shares.
Comment: One commenter requested
that CMS reconsider its proposal to
decrease the labor-related share from

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70.199 percent for FY 2012 to 63.217
percent for FY 2013, stating that this
decrease would unfairly penalize
LTCHs in urban areas and reward
LTCHs in rural areas.
Response: We believe that the
revision to the labor-related share using
data exclusively from LTCHs, which we
proposed and are finalizing, is an
improvement over the current laborrelated share based on the RPL market
basket. We believe a labor-related share
for LTCHs that is based on Medicare
cost report data obtained exclusively
from the universe of LTCH providers
appropriately reflects the national
average cost structures of LTCHs. While
we recognize that this downward
revision to the labor-related share will
have an effect on the distribution of
payments, the decision to revise the
labor-related share was based on what

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was most appropriate for LTCHs given
the sufficiently robust data available
and that the completeness and the
quality of the Medicare cost reports we
have been evaluating over the last
several years have improved. For the
reasons stated above, we believe a laborrelated share based on the FY 2009based LTCH-specific market basket
(reflecting LTCH-specific Medicare cost
report data) is an improvement. Thus,
we are adopting our proposal to revise
the labor-related share as described in
the proposed rule.
Comment: A few commenters were
concerned about the significant
reduction in the labor-related share from
FY 2012 to FY 2013 and its impact on
providers, particularly those in high
wage index areas. One commenter
requested that CMS communicate the
driving factors that contribute to such a
significant decrease, and evaluate the
appropriateness of those contributing
factors. One commenter questioned the
significant difference between the
compensation weights for the FY 2009based market basket (54.338 percent)
and the FY 2008-based RPL market
basket (62.278 percent) after there was
already a significant decrease in the
labor-related share from FY 2011 to FY
2012. One commenter expressed
support for phasing-in the reduction in
the labor-related share over 3 years to
help minimize that impact. Another
commenter requested that CMS spread
the impact of this change over a longer
period of time instead of having it apply
all at once.
Response: The principal factors
contributing to the difference in the
labor-related shares between the
proposed and final FY 2009-based
LTCH-specific market basket and the FY
2008-based RPL market basket are the
base year cost weight differences found
in two categories; Wages and Salaries,
and Benefits. These weights (as
proposed and adopted in this final rule)
are shown above in Table VII. C–2. The
lower share of costs attributable to
wages, salaries, and benefits found in
the proposed and final FY 2009-based
LTCH-specific market basket is a direct
result of incorporating cost data
exclusively from LTCHs, as opposed to
incorporating cost report data from
freestanding IRFs, freestanding IPFs,
and LTCHs combined (as is the case in
the RPL market basket). For the reasons
provided previously, we believe using
data solely from LTCHs is appropriate
and results in a market basket that better
reflects the cost structure of the LTCH
industry.
The labor-related share is determined
by identifying the national average
proportion of total costs that are related

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to, influenced by, or vary with the local
labor market. We generally do not
phase-in changes to the labor-related
share. As explained above, the laborrelated share is determined from the
relative importance of each labor-related
cost category under the FY 2009-based
LTCH-specific market basket, which is
developed exclusively from cost data
from LTCHs. Because the labor-related
share will now be based on data
obtained exclusively from the universe
of LTCH providers (reflecting the
national average cost structures of only
LTCHs as compared to the cost
structures of freestanding IRFs,
freestanding IPFs, and LTCHs combined
as is the case in the current LTCH PPS
market basket), we believe it
appropriately identifies the labor-related
portion of the LTCHs’ costs that are
influenced by the local labor market
and, therefore, will result in the most
accurate payments to LTCHs in FY 2013
(when making the area wage level
adjustment provided for under
§ 412.525(c). Therefore, we continue to
believe that adopting a labor-related
share based on the FY 2009-based
LTCH-specific market basket will result
in the most appropriate LTCH PPS
payments. In addition, we do not
believe that a phase-in of the change in
the LTCH PPS labor-related share is
necessary because the majority of
LTCHs (approximately 80 percent) are
located in areas where the FY 2013
wage index value is less than 1.0 and,
therefore, are estimated to experience an
increase in LTCH PPS payments as a
result of the change to the labor-related
share from FY 2012 to FY 2013. Of the
approximately 20 percent of LTCHs that
are estimated to experience a decrease
in LTCH PPS payments as a result of the
change to the labor-related share in FY
2013, we estimate that those LTCHs, on
average, will experience a 0.5 percent
decrease in LTCH PPS payments as a
result of the change to the labor-related
share under the FY 2009-based LTCHspecific market basket, which is similar
in magnitude (and fiscal impact) to
changes to aggregate LTCH PPS
payments in the past due to annual
updates to the adjustment for area wage
levels (for which we have not provided
a phase-in).
Comment: One commenter stated that
the downward revision to the laborrelated share creates ongoing future
challenges to urban providers and urged
CMS to continue to assess if more recent
data is available before the FY 2013
annual update is established.
Response: We proposed to use data
from cost reports beginning in FY 2009
because these data are the latest
available complete data and, therefore,

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we continue to believe that it will
enable us to accurately calculate cost
weights that specifically reflect the cost
structures of LTCHs. We are finalizing
our proposed use of these data for the
reasons set forth above. We will
continue to monitor the cost weights of
the LTCH-specific market basket over
time. We note that using the most recent
data available at the time of the FY 2013
IPPS/LTCH PPS proposed rule, we
proposed a FY 2013 market basket
update (as measured by the percentage
increase) for LTCHs of 3.0 percent. We
also proposed to use more recent data
for the final rule, if available and
appropriate. As proposed, we have
incorporated a more recent forecast from
IGI for this final rule, which results in
a FY 2013 market basket update of 2.6
percent.
D. Changes to the LTCH Payment Rates
for FY 2013 and Other Changes to the
LTCH PPS for FY 2013
1. Overview of Development of the
LTCH Payment Rates
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
used to update the LTCH PPS standard
Federal rate for FY 2013, that is,
effective for LTCH discharges occurring
on or after October 1, 2012 through
September 30, 2013.
For further details on the
development of the FY 2003 standard
Federal rate when the LTCH PPS was
initially implemented, 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); FY 2011
IPPS/LTCH PPS final rule (75 FR 50443
through 50444); and FY 2012 IPPS/
LTCH PPS final rule (76 FR 51769
through 51773).
The update to the LTCH PPS standard
Federal rate for FY 2013 is presented in
section V.A. of the Addendum to this
final rule. The components of the
annual market basket update to the
LTCH PPS standard Federal rate for FY
2013 are discussed below. Furthermore,

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as discussed in section VII.E.4. of this
preamble, for FY 2013, in addition to
the update factor, we made a one-time
prospective adjustment to the standard
Federal rate for FY 2013 so that the
effect of any significant difference
between the data used in the original
computations of budget neutrality for
FY 2003 and more recent data to
determine budget neutrality for FY 2003
is not perpetuated in the prospective
payment rates for future years under
existing § 412.523(d)(3) (this adjustment
will not apply to payments made for
discharges occurring on or before
December 28, 2012, consistent with the
statute). Furthermore, as discussed in
section V.A. of the Addendum of this
final rule, we made an adjustment to the
standard Federal rate to account for the
estimated effect of the changes to the
area wage level adjustment for FY 2013
on estimated aggregate LTCH PPS
payments, in accordance with
§ 412.523(d)(4).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28018 through
28019), we presented our proposals for
the development of the annual update to
the LTCH PPS standard Federal rate for
FY 2013, including proposals related to
the annual market basket update, the
revision of certain market basket
updates required by the statute, and the
methodology for calculating and
applying the MFP adjustment. We did
not receive any public comments on our
proposals regarding the development of
the annual update to the LTCH PPS
standard Federal rate for FY 2013, and
are adopting the proposals as final
without modification in this final rule.
(We refer readers to the FY 2013 IPPS/
LTCH PPS proposed rule for additional
details on our proposals for the
development of the annual update to the
LTCH PPS standard Federal rate for FY
2013 (77 FR 28018 through 28019), The
other adjustments we proposed to apply
in determining the FY 2013 LTCH PPS
standard Federal rate (in addition to the
annual update), such as the one-time
prospective adjustment discussed in
section VII.E.4. of this preamble and the
budget neutrality adjustment for
changes in the area wage levels
discussed in section V.A. of the
Addendum of this final rule, are
discussed in those respective sections of
this final rule.) Below we present the
finalized methodology that we used to
develop the annual update to the LTCH
PPS standard Federal rate for FY 2013,
which is consistent with the
methodology presented in the proposed
rule.

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2. FY 2013 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. As discussed
in section VII.C. of this preamble, as
proposed, we are adopting the newly
created FY 2009-based LTCH-specific
market basket for use under the LTCH
PPS beginning in FY 2013. For
additional details on the historical
development of the market basket used
under the LTCH PPS, we refer readers
to section VII.C.1. of this preamble.
Section 3401(c) of the Affordable Care
Act provides for certain adjustments to
any annual update to the standard
Federal rate and refers to the timeframes
associated with such adjustments as a
‘‘rate year.’’ (The adjustments are
discussed in more detail in section
VII.D.2.b. of this preamble.) We note
that because the annual update to the
LTCH PPS policies, rates, and factors
now occurs on October 1, we 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.
b. Revision of Certain Market Basket
Updates as Required by the Affordable
Care Act
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

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• For rate year 2012 and each
subsequent year, by the productivity
adjustment (which we refer to as ‘‘the
multifactor productivity (MFP)
adjustment’’) 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.
Section 1886(b)(3)(B)(xi)(II) of the Act
defines the MFP adjustment as equal to
the 10-year moving average of changes
in annual economy-wide, private
nonfarm business multifactor
productivity (as projected by the
Secretary for the 10-year period ending
with the applicable fiscal year, calendar
year, cost reporting period, or other
annual period). Under our methodology,
the end of the 10-year moving average
of changes in the MFP coincides with
the end of the appropriate FY update
period. In addition, the MFP adjustment
that is 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 they are both based on a fiscal year.
The MFP adjustment is derived using a
projection of MFP that is currently
produced by IHS Global Insight, Inc.
(For additional details on the
development of the MFP adjustment
and its application under the LTCH
PPS, we refer readers to the FY 2012
IPPS/LTCH PPS final rule (76 FR 51691
through 51692 and 51770 through
51771).)
We did not receive any public
comments and for FY 2013, we continue
to use our methodology for calculating
and applying the MFP adjustment to
determine the annual update to the
LTCH PPS standard Federal rate for FY
2013. (For details on the development of
the MFP, including our finalized
methodology for calculating and
applying the MFP adjustment, we refer
readers to the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51689 through 51692).)
c. Market Basket Under the LTCH PPS
for FY 2013
For FY 2013, under the authority of
section 123 of the BBRA as amended by
section 307(b) of the BIPA, we are
adopting a newly created FY 2009-based
LTCH-specific market basket for use
under the LTCH PPS beginning in FY
2013 because we believe it more
appropriately reflects the cost structure

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of LTCHs. The FY 2009-based LTCHspecific market basket is based solely on
the Medicare cost report data submitted
by LTCHs and, therefore, specifically
reflects the cost structures of only
LTCHs. For additional details on the
development of the FY 2009-based
LTCH-specific market basket, we refer
readers to section VII.C. of this
preamble.

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d. Annual Market Basket Update for
LTCHs for FY 2013
Consistent with our historical
practice, we estimate the market basket
update and the MFP adjustment based
on IGI’s forecast using the most recent
available data. Based on IGI’s second
quarter 2012 forecast, the FY 2013 full
market basket estimate for the LTCH
PPS using the FY 2009-based LTCHspecific market basket is 2.6 percent (for
additional details, we refer readers to
section VII.C.3.e. of this preamble).
Using our established methodology for
determining the MFP adjustment, the
current estimate of the MFP adjustment
for FY 2013 based on IGI’s second
quarter 2012 forecast is 0.7 percent (for
additional details, we refer readers to
section VII.D.2.b. of this preamble).
For FY 2013, section 1886(m)(3)(A)(i)
of the Act requires that any annual
update to the standard Federal rate be
reduced by the productivity adjustment
(‘‘the MFP adjustment’’) described in
section 1886(b)(3)(B)(xi)(II) of the Act.
Consistent with the statute, as proposed,
in this final rule we reduced the full FY
2013 market basket update by the FY
2013 MFP adjustment. As proposed, in
this final rule, to determine the market
basket update for LTCHs for FY 2013, as
reduced by the MFP adjustment,
consistent with our established
methodology, we subtracted the FY
2013 MFP adjustment from the FY 2013
market basket update. Furthermore,
sections 1886(m)(3)(A)(ii) and
1886(m)(4)(C) of the Act requires that
any annual update to the standard
Federal rate for FY 2013 be reduced by
the ‘‘other adjustment’’ described in
paragraph (4), which is 0.1 percentage
point for FY 2013. Therefore, as
proposed, for this final rule, following
application of the productivity
adjustment, we reduced the adjusted
market basket update (that is, the full
market basket increase less the MFP
adjustment) by the ‘‘other adjustment’’
specified by sections 1886(m)(3)(A)(ii)
and 1886(m)(4) of the Act. (For
additional details on our established
methodology for adjusting the market
basket increase by the MFP and the
‘‘other adjustment’’ required by the
statute, we refer readers to the FY 2012

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IPPS/LTCH PPS final rule (76 FR
51771).)
In this final rule, in accordance with
the statute and as proposed, we reduced
the FY 2013 full market basket estimate
of 2.6 percent (based on the second
quarter 2012 forecast of the FY 2009based LTCH-specific market basket) by
the FY 2013 MFP adjustment (that is,
the 10-year moving average of MFP for
the period ending FY 2013, as described
in section VII.D.2.b. of the preamble of
this final rule) of 0.7 percentage point
(based on IGI’s second quarter 2012
forecast). Following application of the
productivity adjustment, the adjusted
market basket update of 1.9 percent (2.6
percent minus 0.7 percentage point) was
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 final rule, under the authority of
section 123 of the BBRA as amended by
section 307(b) of the BIPA, we are
establishing an annual market basket
update under the LTCH PPS for FY 2013
of 1.8 percent (that is, the most recent
estimate of the LTCH PPS market basket
update at this time of 2.6 percent less
the MFP adjustment of 0.7 percentage
point less the 0.1 percentage point
required under section 1886(m)(4)(C) of
the Act). Accordingly, we are revising
§ 412.523(c)(3) by adding a new
paragraph (ix), which specifies that the
standard Federal rate for FY 2013 is the
standard Federal rate for the previous
LTCH PPS year updated by 1.8 percent,
and as further adjusted, as appropriate,
as described in § 412.523(d). In
addition, consistent with the policy we
are establishing under section VII.E.4. of
this preamble to adjust the FY 2013
standard Federal rate by a one-time
prospective adjustment, we are revising
the regulations to specify under
§ 412.523(c)(3)(ix)(B) that with respect
to discharges occurring on or after
October 1, 2012, and before December
29, 2012, payments are based on the
standard Federal rate in
§ 412.523(c)(3)(ix)(A) without regard to
the one-time prospective adjustment
provided for under § 412.523(d)(3)(iii).
(We note that we also adjusted the FY
2013 standard Federal rate by an area
wage level budget neutrality factor in
accordance with § 412.523(d)(4) (as
discussed in section V.B.5. of the
Addendum of this final rule).)
3. LTCH PPS Cost-of-Living Adjustment
(COLA) for LTCHs Located in Alaska
and Hawaii
Under § 412.525(b), we established a
cost-of-living adjustment (COLA) for
LTCHs located in Alaska and Hawaii to
account for the higher costs incurred in
those States (67 FR 56022). Specifically,

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we apply a COLA to payments to LTCHs
located in Alaska and Hawaii by
multiplying the nonlabor-related
portion of the standard Federal 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.
Historically, we have used the most
recent updated COLA factors obtained
from the U.S. Office of Personnel
Management (OPM) Web site at http://
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
phase-in of locality pay. As we
discussed in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51809), we did not
believe it was appropriate to use either
the 2010 or 2011 reduced factors to
adjust the nonlabor-related portion of
the standard Federal rate for LTCHs in
Alaska and Hawaii for Medicare
payment purposes. Therefore, for FY
2012, we continued to use the same
COLA factors (published by OPM) that
we used to adjust payments in FY 2011
(which were based on OPM’s 2009
COLA factors) to adjust the nonlaborrelated portion of the standard Federal
rate for LTCHs located in Alaska and
Hawaii.
As we discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28019
through 28090), we continue to believe
it is appropriate to use ‘‘frozen’’ COLA
factors to adjust payments in FY 2012
while we explored alternatives for
updating the COLA in the future
because we believe those COLA factors
appropriately adjusted the nonlaborrelated portion of the standard Federal
rate for LTCHs located in Alaska and
Hawaii, consistent with § 412.523(b) (76
FR 51809). In that same proposed rule,
under the authority of section 123 of the
BBRA, as amended by section 307(b) of
the BIPA, we proposed to continue to
use the same ‘‘frozen’’ COLA factors
used in FY 2012 for FY 2013 and to
update the COLA factors for Alaska and
Hawaii, beginning in FY 2014, based on
a comparison of the growth in the
consumer price indices (CPIs) for

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Anchorage, Alaska and Honolulu,
Hawaii relative to the growth in the CPI
for the average U.S. city as published by
the BLS. This proposal was consistent
with the proposals made for the COLA
factors used under the IPPS discussed in
section II.B.2. of the Addendum to this
final rule.
We did not receive any public
comments on these proposals for the
COLA factors (that is, our proposal for
FY 2013 to continue to use the same
COLA factors used in FY 2012, and our
proposal for FY 2014 to begin updating
the COLA factors for Alaska and Hawaii
based on a comparison of the growth in
the CPIs for Anchorage, Alaska and
Honolulu, Hawaii relative to the growth
in the CPI for the average U.S. city. In
this final rule, we are adopting these
proposals as final without modification
because we believe these COLA factors
will appropriately adjust the nonlaborrelated portion of the standard Federal
rate in for LTCHs located in Alaska and
Hawaii, consistent with § 412.523(b) (as
we discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28019
through 28020). Both our finalized
policy for FY 2013 and our finalized
policy for FY 2014 and subsequent years
are described in detail below.
In this final rule, for FY 2013, under
the authority of section 123 of the
BBRA, as amended by section 307(b) of
the BIPA, we will use the same ‘‘frozen’’
COLA factors used in FY 2012 (which
are based on OPM’s 2009 COLA factors)
for FY 2013 to adjust the nonlaborrelated portion of the standard Federal
rate for LTCHs located in Alaska and
Hawaii. Therefore, for FY 2013, a COLA
will be applied to the standard Federal
rate for LTCHs located in Alaska and
Hawaii, consistent with § 412.525(b), by
multiplying the nonlabor-related
portion of the standard Federal rate by
the factors listed in the chart shown in
section V.C. of the Addendum to this
final rule.
In addition, in this final rule, under
the authority of section 123 of the
BBRA, as amended by section 307(b) of
the BIPA, we are establishing that,
beginning in FY 2014, we will update
the COLA factors published by OPM
that we used to adjust payments in FY
2011 (which are based on OPM’s 2009
COLA factors) as these are the last
COLA factors OPM published prior to
transitioning from COLAs to locality
pay. Under this updated methodology,
we use a comparison of the relative
growth in the overall CPI for Anchorage,
Alaska and Honolulu, Hawaii to update
the COLA factors for all areas in Alaska
and Hawaii, respectively, because the
BLS publishes CPI data only for the
cities of Anchorage and Honolulu. We

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believe that the relative price
differences between these cities and the
United States are appropriate and
necessary proxies for the relative price
differences of the ‘‘other areas’’ of
Alaska and Hawaii.
Although the BLS publishes the CPI
for ‘‘All Items’’ for Anchorage,
Honolulu, and for the average U.S. city,
under this methodology, we will create
reweighted CPIs for each of the
respective areas to reflect the underlying
composition of the IPPS market basket
nonlabor-related share. The current
composition of the CPI for ‘‘All Items’’
for all the respective areas is
approximately 40 percent commodities
and 60 percent services. However, the
IPPS nonlabor-related share is
comprised of approximately 60 percent
commodities and 40 percent services.
Therefore, we will create reweighted
indexes for Anchorage, Honolulu, and
the average U.S. city using the
respective CPI commodities index and
CPI services index to comprise the
approximate 60/40 share obtained from
the IPPS market basket. As we
explained in the proposed rule, we
believe that using the underlying
composition of the IPPS market basket
nonlabor-related share to reweight CPIs
for each of the respective areas is an
appropriate proxy for determining the
COLAs for LTCHs because both LTCHs
and IPPS hospitals are required to meet
the same certification criteria set forth
in section 1861(e) of the Act to
participate as a hospital in the Medicare
program and generally experience
similar nonlabor-related costs for
providing inpatient hospital services.
We also note that the composition of the
nonlabor-related share of the LTCHspecific market basket is not
significantly different from the
approximate 60/40 share obtained from
the IPPS market basket.
As we explained in the proposed rule,
we believe this methodology is
appropriate because we will be able to
continue updating COLA factors for
hospitals located in Alaska and Hawaii
using the relative price differences as a
proxy for relative cost differences. We
believe this is an appropriate alternative
methodology given the discontinuation
of COLA factors being published by
OPM. We note that OPM’s COLA factors
were calculated with a statutorily
mandated cap of 25 percent, and since
the inception of the LTCH PPS, we have
exercised our discretionary authority to
adjust payments to LTCHs located in
Alaska and Hawaii by incorporating this
cap. Consistent with our existing policy,
our approach for FY 2014 will continue
to use such a cap, as our policy is based
on OPM’s COLA factors (updated by the

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methodology described above). We note
that this policy is consistent with the
policy we are adopting for IPPS
hospitals discussed in section II.B.2. of
the Addendum to this final rule.
Lastly, under this policy and as
finalized, we will update the COLA
factors using the methodology described
above every 4 years (beginning in FY
2014), consistent with the policy we are
establishing for updating the COLA
factors under the IPPS discussed in
section II.B.2. of the Addendum to this
final rule. Under the IPPS, we also are
adopting a policy to update the COLA
factors used to adjust the nonlaborrelated portion of the standard Federal
rate for Alaska and Hawaii every 4 years
(beginning in FY 2014) concurrently
with the update to the labor-related
share under the IPPS market basket. The
labor-related share of the IPPS market
basket currently is not scheduled to be
updated until FY 2014. At the time of
development of the FY 2014 proposed
rule, we expect to have CPI data
available through 2012. Therefore,
under this methodology as updated, we
expect the proposed FY 2014 COLA
factors for Alaska and Hawaii to be
based on the 2009 OPM COLA factors
updated through 2012 by the
comparison of the growth in the CPIs for
Anchorage, Alaska, and Honolulu,
Hawaii, relative to the growth in the CPI
for the average U.S. city.
E. Expiration of Certain Payment Rules
for LTCH Services and the Moratorium
on the Establishment of Certain
Hospitals and Facilities and the
Increase in Number of Beds in LTCHs
and LTCH Satellite Facilities
1. Background
Moratoria on the implementation of
certain LTCH payment policies and on
the development of new LTCHs and
LTCH satellite facilities and on bed
increases in existing LTCHs and LTCH
satellite facilities established under
sections 114(c) and (d) of the MMSEA
(Pub. L. 110–173), as amended by
section 4302 of the ARRA (Pub. L. 111–
5) and further amended by sections
3106 and 10312 of the Affordable Care
Act, are set to expire during CY 2012,
under current law.
The moratoria established by these
provisions delayed the full
implementation of the following
policies for 5 years beginning at various
times in CY 2007:
• The full application of the ‘‘25percent payment adjustment threshold’’
to certain LTCHs, including hospitalswithin-hospitals (HwHs) and LTCH
satellite facilities for cost reporting
periods beginning on or after July 1,

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2007, and before July 1, 2012, or cost
reporting periods beginning on or after
October 1, 2007, and before October 1,
2012, as applicable under the
regulations at §§ 412.534 and 412.536.
• The inclusion of an ‘‘IPPS
comparable’’ option for payment
determinations under the short-stay
outlier (SSO) adjustment under
§ 412.529 of the regulations for LTCH
discharges occurring on or after
December 29, 2007, but prior to
December 29, 2012.
• The application of any one-time
prospective adjustment to the LTCH
PPS standard Federal rate provided for
in § 412.523(d)(3) of the regulations
from December 29, 2007, until
December 29, 2012.
• In general, the development of new
LTCHs and LTCH satellite facilities, or
increases in the number of beds in
existing LTCHs and LTCH satellite
facilities from December 29, 2007, and
ending December 28, 2012, unless one
of the specified exceptions to the
particular moratorium was met. (We
refer readers to the May 22, 2008
interim final rule with comment period
for the MMSEA (73 FR 29699, 29704
through 29707, and 29709), the interim
final rule for the ARRA (74 FR 43990
through 43992 and 43997), and the
finalizing of the Affordable Care Act
changes in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50399 through 50400,
and 50416) for a complete description of
this moratorium.)
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28021 and 28022),
we proposed a 1-year continuation of
the existing delay of the full
implementation of the 25-percent
payment adjustment threshold; that is,
for cost reporting periods beginning on
or after October 1, 2012, and before
October 1, 2013, as applicable. We also
proposed to make a one-time
prospective adjustment to the standard
Federal rate under § 412.523(d)(3) of the
regulations. We proposed to phase in
this one-time prospective adjustment to
the standard Federal rate over a 3-year
period, beginning in FY 2013; however,
consistent with the statute, this
adjustment would not apply to
payments made for discharges occurring
on or before December 28, 2012. We did
not propose to make any changes to the
SSO policy as it currently exists in the
regulations at § 412.529. Accordingly,
consistent with the existing regulations
at § 412.529(c)(3), for SSO discharges
occurring on or after December 29, 2012,
the ‘‘IPPS comparable’’ option at
§ 412.529(c)(3)(i)(D) would apply to
payment determinations as appropriate
for certain short-stay cases. The
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LTCHs or LTCH satellite facilities and
on an increase in the number of beds in
existing LTCHs or LTCH satellite
facilities mandated by section 114(d) of
the MMSEA, as amended by section
4302(b) of the ARRA and further
amended by section 3106 and 10312 of
the Affordable Care Act, are set to expire
on December 29, 2012, under current
law.
2. The 25-Percent Payment Adjustment
Threshold
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28021 and 28022),
we proposed to provide a 1-year
extension (that is, for cost reporting
periods beginning on or after October 1,
2012, and before October 1, 2013) on the
moratorium on the application of the
25-percent payment adjustment
threshold policy as provided by section
114(c) of the MMSEA, as amended by
section 4302(a) of the ARRA and
sections 3106(c) and 10312(a) of the
Affordable Care Act. We proposed to
revise §§ 412.534 and 412.536 of the
regulations to reflect this extension.
Specifically, we proposed to change
‘‘2012’’ to ‘‘2013’’ in the heading of
paragraph § 412.534(c)(1); in paragraph
(c)(1)(i) and in paragraph (c)(1)(ii); in
the heading of paragraphs (c)(2) and
(d)(1); in paragraph (d)(1)(i) and in the
headings of paragraphs (d)(2), and (e)(1);
in paragraph (e)(1)(i); and in the heading
of paragraph (e)(2) to incorporate this
change. In addition, we proposed to
revise the headings at §§ 412.534(c)(3),
(d)(3), and (e)(3), and make conforming
changes to (h)(4) and (5) and
§ 412.536(a)(2) to reflect this extension.
This extension would continue the
existing statutory exemption of
grandfathered HwHs and freestanding
LTCHs from the 25-percent payment
adjustment threshold and the continued
statutory increase in the percentage
threshold to 50 or 75 percent, as
applicable, for those LTCHs and LTCH
satellite facilities presently so affected.
For a detailed description of the
moratorium on the 25-percent payment
adjustment threshold policy, we refer
readers to the May 22, 2008 interim
final rule with comment period (73 FR
29699 through 29704) and the interim
final rule with comment period for the
ARRA (74 FR 43990 through 43992).
Although we proposed to extend the
moratorium relating to the application
of the 25-percent payment adjustment
threshold policy effective for cost
reporting periods beginning on or after
October 1, 2012, and before October 1,
2013, we noted that the existing
moratorium will expire for certain
LTCHs prior to the effective date of the
extension. Specifically, under existing

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regulations, the moratoria for an LTCH
described in § 412.23(e)(2)(i) that meets
the criteria in § 412.22(f) and a satellite
facility of a LTCH described under
§ 412.22(h)(3)(i) (that is, a grandfathered
HwH and a grandfathered LTCH
satellite facility, respectively), and the
moratoria for a ‘‘freestanding’’ LTCH as
described in § 412.23(e)(5), will expire
effective for cost reporting periods
beginning on or after July 1, 2012. In
addition, under existing regulations, the
moratorium on the 25-percent payment
adjustment threshold policies for a
LTCH or a LTCH satellite facility that,
as of December 29, 2007, was co-located
with an entity that is a provider-based,
off-campus location of a subsection (d)
hospital which did not provide services
payable under section 1886(d) of the Act
at the off-campus location also expires
beginning with discharges occurring in
cost reporting periods beginning on or
after July 1, 2012. Therefore, under our
proposed policy, there would be a
period during which some of the abovedescribed LTCHs and LTCH satellite
facilities must comply with §§ 412.534
and 412.536 before becoming subject to
the moratoria again. Specifically, the
above-described LTCHs and LTCH
satellite facilities with a cost reporting
period beginning on or after July 1,
2012, and before October 1, 2012, would
be required to comply with the
applicable 25-percent payment
adjustment threshold policy under
§§ 412.534 and 412.536 for discharges
occurring in the LTCH’s or LTCH
satellite facility’s first cost reporting
period beginning from July 1, 2012,
through September 30, 2012. Then,
those same LTCHs and LTCH satellite
facilities would be subject to the
regulatory moratorium effective for
discharges occurring in their first cost
reporting period beginning on or after
July 1, 2013, and before October 1, 2013.
Comment: Commenters supported the
proposed 1-year delay in the full
application of the 25-percent payment
adjustment threshold policy. Some of
the commenters requested that CMS
consider extending this delay for 2 years
rather than the proposed 1-year
extension.
Response: We appreciate the
commenters’ support of our proposed
policy. While we understand the
commenters’ desire to extend this policy
beyond the hospital’s first cost reporting
period beginning on or after October 1,
2012, and before October 1, 2013, we
believe that it is appropriate to only
consider extending a moratorium on the
25-percent payment adjustment
threshold policy through FY 2013.
Accordingly, in this final rule, we are
finalizing our proposed 1-year extension

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of the existing moratorium for
applicable LTCHs for cost reporting
periods beginning on or after October 1,
2012, and before October 1, 2013.
However, as discussed below, in this
final rule, we are also revising our
regulations to address the situation of
those LTCHs that have cost reporting
periods beginning on or after July 1,
2012, and before October 1, 2012.
Comment: Many commenters
expressed concern about the impact of
the proposed effective date of the
regulatory moratorium on the 25percent payment adjustment threshold
policy (that is, for cost reporting periods
beginning on or after October 1, 2012,
and before October 1, 2013) in light of
the July 1, 2012 expiration of the
statutory moratorium on certain LTCH
providers with cost reporting periods
beginning from July 1, 2012, and before
October 1, 2012. They pointed out that
this group of LTCHs would be required
to comply with the fully-implemented
25-percent payment adjustment
threshold policy for their first cost
reporting period beginning on or after
July 1, 2012, and before October 1, 2012.
Those hospitals would not benefit from
the extension of the moratorium on the
25-percent payment adjustment
threshold policy until their first cost
reporting period beginning on or after
October 1, 2012, and before October 1,
2013, which for these providers would
start between July 1, 2013 and
September 30, 2013. Requiring them to
comply with the fully reinstated policy
in the interim, several commenters
noted, would contradict CMS’ assertion
in the proposed rule, where CMS
indicated that ‘‘* * * we could be in a
position within the near future to
propose revisions to our payment
policies that could render the 25percent payment adjustment threshold
policy unnecessary.’’ Further, ‘‘[i]n light
of this potential result, we believe it is
prudent to avoid requiring LTCHs (or
CMS payment processing systems) to
retool in order to implement the full
reinstatement of the policy for what
could be a relatively short period of
time.’’ The commenters asserted that
this statement further argued for the
development of a solution to avoid
‘‘subjecting’’ approximately 130 LTCHs
to the ‘‘substantial logistic,
administrative, and financial burden’’ of
compliance with the fully implemented
policy for a single cost reporting period.
Several commenters also noted that the
particular group of LTCHs and LTCH
satellite facilities that would be effected
by the ‘‘gap’’ between the July 1, 2012
expiration of the statute and the October
1, 2012 implementation of our proposed

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policy are those freestanding and
grandfathered HwHs that have never
actually been subject to the policy and,
therefore, would find compliance for
one cost reporting period even more
burdensome.
In urging consistent treatment for this
group of providers and requesting that
CMS not delay relief to them under the
proposed extension of the moratorium,
a number of commenters submitted
suggestions regarding how to avoid the
‘‘gap’’ period for this group of LTCHs.
Suggestions made by commenters can
be grouped into two categories: those
that focused on how CMS could revise
the mechanics of execution of the
payment adjustment in order to
immediately cover those affected LTCHs
and LTCH satellite facilities in the
proposed extension of the moratorium
or at least limit the impact of the ‘‘gap’’
between statutory and regulatory
protection for such entities; and those
focusing on the Secretary’s authority to
implement the extension of the
moratorium effective for cost reporting
periods beginning on July 1, 2012,
notwithstanding the rulemaking
schedule under the LTCH PPS which
establishes an October 1, 2012
implementation date for policies
promulgated in the FY 2013 IPPS/LTCH
PPS final rule.
Several commenters suggested that
CMS issue an interim final rule with
comment period as soon as possible that
would provide immediate relief for
those LTCHs that would be affected by
the ‘‘gap’’ referenced previously, by
accelerating the implementation date of
the proposed extension of the
moratorium. Other commenters
recommended that CMS ‘‘refrain from
enforcing the policy.’’ A number of
commenters suggested that affected
LTCHs be allowed to elect to have the
12-month period beginning on October
1, 2012, for the purposes of calculating
its compliance with the 25-percent
payment adjustment threshold policy.
One commenter offered a specific
remedy for those LTCHs that would be
subject to the ‘‘gap’’: That the moratoria
on full implementation of the 25percent payment adjustment threshold
policy could be applied to Medicare
patient discharges occurring on and
after October 1, 2012. Therefore, this
commenter suggested that the 25percent payment adjustment threshold
policy would only apply to those ‘‘gap’’
LTCHs for 1 to 3 months of their cost
reporting periods, that is, the months
from the beginning of their cost
reporting period (from July 1, 2012
through September 30, 2012) until
October 1, 2012, when the proposed

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regulatory moratorium would go into
effect.
Several commenters suggested that for
CMS to choose July 1, 2012 as the
proposed effective date of the extension
of the existing statutory moratorium on
the full implementation of the 25percent payment adjustment threshold
policy was not actually ‘‘retroactive
rulemaking’’ because the actual
payment adjustment would be applied
in the future, upon cost report
reconciliation. These and other
commenters also argued in the
alternative that even if such action
constituted retroactive rulemaking,
generally the courts disallow it only if
it results in ‘‘harm,’’ is ‘‘a substantive
change from an agency’s prior
regulatory practice,’’ and would ‘‘impair
any right, or create any new obligation,
duty or disability.’’ Furthermore, the
commenters argued that the Secretary
has the authority to engage in
retroactive rulemaking if the public
interest is served. A number of
commenters urged CMS to eliminate the
25-percent payment adjustment
threshold policy entirely for cost
reporting periods beginning on or after
October 1, 2012, and rather focus on
developing and using patient and
facility-level criteria to determine which
patients are appropriate for LTCH
treatment.
Response: We appreciate the
suggestions made by the commenters
detailed above regarding possible
resolutions of the situation faced by
those LTCHs subject to the July 1, 2012
expiration of the statutory moratorium,
but we believe that the suggestion to
apply the extension of the moratorium
effective for discharges occurring on or
after October 1, 2012, instead of cost
reporting periods beginning on or after
October 1, 2012 for those LTCHs that
would be effected by the ‘‘gap,’’
addresses most, if not all, of the
concerns raised by the commenters,
including that these facilities were being
subject—for even a short time—to a
policy that we may be reevaluating. We
understand the commenters’ concerns
that gap entities, including freestanding
and grandfathered HwHs that have
never been subjected to the policy, will
have to comply with the full application
of the policy for a period of time; that
is from 1 to 3 months. Nonetheless, we
do not believe that being subjected to
the policy for this short period of time
will require these entities to have to
‘‘retool’’ nor do we think it will impose
a ‘‘substantial logistic, administrative,
and financial burden’’ upon LTCHs that
are admitting appropriate patients, that
is, extremely sick patients who continue
to require hospital-level care at an LTCH

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following a course of treatment at a
referring hospital. We also believe that,
as discussed below, in applying the
supplemental moratorium to the gap
entities prior to their first cost reporting
period for which they would be
subjected to our regulatory moratorium,
as suggested by a commenter, we are for
the most part, bridging the gap for these
LTCHs. As we note below, we believe
that it is highly unlikely that any of the
gap entities will exceed the 25-percent
threshold during the time prior to the
October 1, 2012 effective date of the
supplemental moratorium.
Accordingly, while we are not
adopting any of the other suggestions
detailed in the comment above, we
believe that the suggested dischargebased supplemental moratorium for this
specific group of effected LTCHs
provides a narrow and ‘‘targeted’’
remedy for those particular LTCHs
subject to the ‘‘gap’’ between the
expiration of the statutory moratorium,
that is, cost reporting periods beginning
on or after July 1, 2012, and the effective
date of the regulatory moratorium, that
is, for cost reporting periods beginning
on or after October 1, 2012, which we
believe is superior to other solutions
recommended by the commenters.
Accordingly, as revised in this final
rule, the statutory moratorium and the
regulatory moratorium will be
implemented as follows: For those
LTCHs for which the statutory
moratorium will expire effective with
the hospitals’ cost reporting periods
beginning on or after October 1, 2012,
the regulatory moratorium will
seamlessly provide for an additional
moratorium for the hospitals’ first cost
reporting period beginning on or after
October 1, 2012. For LTCHs and LTCH
satellite facilities for which the statutory
moratorium expires effective with the
hospital’s cost reporting periods
beginning on or after July 1, 2012, we
will apply a regulatory moratorium as
follows: For hospitals with cost
reporting periods beginning on or after
October 1, 2012, the proposed
moratorium will be finalized effective
for the hospital’s first cost reporting
period beginning on or after October 1,
2012. In addition, for hospitals with cost
reporting periods beginning on or after
July 1, 2012, and before October 1, 2012,
we are finalizing a regulatory
moratorium effective with discharges
occurring beginning October 1, 2012,
through the end of the hospital cost
reporting period (that is, the end of the
cost reporting period that began on or
after July 1, 2012, and before October 1,
2012).
We provide the following as an
example of how this policy will be

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applied. Assume that LTCH A is a
freestanding LTCH that has a cost
reporting period beginning August 1,
2012. The statutory moratorium will
expire for this LTCH on July 31, 2012.
For its FY 2013 cost reporting period, it
discharges 200 patients. Because the
statutory moratorium expired for LTCH
A on July 31, 2012 (which was the
completion of its cost reporting period
that ended on or after July 1, 2012), the
hospital is allowed to admit up to 50
patients from any one referring hospital
under the 25-percent payment
adjustment threshold policy before the
LTCH PPS adjusted payment would be
applied for additional patients.
Therefore, if LTCH A discharges 35
patients admitted from IPPS Hospital B
during August and September, no
payment adjustment would be applied.
If LTCH A discharges an additional 25
patients after October 1, 2012, no
adjustment would be applied to any of
the discharges that had been admitted
from IPPS Hospital A, effective with
discharges occurring on or after October
1, when the regulatory moratorium goes
into effect and LTCH B would be
permitted to exceed the 50 patient limit
under revised § 412.536(a)(3)(1). This
LTCH would not be subject to the 25percent payment adjustment threshold
policy until its cost reporting period
beginning on or after August 1, 2014 as
described in revised § 412.536(a)(2).
Therefore, we will finalize the
proposed regulatory moratorium on the
full application of the 25-percent
payment adjustment threshold policy
for LTCHs with reporting periods
beginning on or after October 1, 2012,
and we will also establish a dischargebased moratorium on the application of
the 25-percent payment adjustment
threshold policy solely for those LTCHs
that would have been effected by the
‘‘gap’’ for discharges occurring on or
after October 1, 2012, and through the
end of their first cost reporting period
beginning on or after July 1, 2012, and
before October 1, 2012.
We do not agree with the commenters
who suggested that we eliminate the 25percent payment adjustment threshold
policy at this time even as we are
evaluating revisions to the LTCH PPS
that may more accurately target the
types of patients who we believe are
appropriate for treatment in an LTCH.
We adopted the 25-percent payment
adjustment threshold policy to limit the
percentage of patients an LTCH may
admit from another hospital, in order to
address our concerns that LTCHs were
functioning as step-down units of
referring IPPS hospitals and that
Medicare was, therefore, paying twice
(first to the IPPS hospital and then to

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the LTCH) for what was essentially one
episode of patient care. We believe that
the original objectives of the 25-percent
payment adjustment threshold policy
continue to be valid even though we are
presently temporarily extending the
moratorium on the policy’s full
implementation.
Comment: A number of commenters
requested that CMS provide more
information about the two projects that
appear to be moving toward addressing
the concerns and perhaps realizing the
goals of establishing LTCH facility and
patient-level criteria that MedPAC
articulated in its 2004 recommendations
and that could ‘‘render the 25-percent
payment adjustment threshold policy
unnecessary.’’
Response: We continue to share
MedPAC’s concerns regarding the
treatment of medically appropriate
patients in LTCHs. In its March 2012
Report to Congress, MedPAC noted,
‘‘* * * if medically complex cases in
LTCHs are, in essence, indistinguishable
from medically complex cases in acute
care hospitals, then Medicare must
ensure that its payments for the same set
of services are equitable, regardless of
where the services are provided. * * *
policymakers must consider whether
certain models of care will best serve
the needs of medically complex
patients. These steps will help ensure
that Medicare beneficiaries receive
appropriate, high quality care in the
least costly setting consistent with their
clinical conditions.’’ (p. 273). CMS
agrees with MedPAC and has been
undertaking research to determine
whether there are patient level criteria
that can be used to determine patients
that are appropriately treated in an
LTCH or in an IPPS hospital at a higher
than the traditional IPPS payment
consistent with their higher costs.
Generally, preliminary research by our
contractor seems to indicate that
focusing on a subset of patients who are
‘‘chronically critically ill,’’ that is, who
have been in intensive or coronary care
units for a significant period of time at
IPPS hospitals immediately preceding
the admission to the LTCH, may prove
to be an important step at this point. We
are also researching whether under the
IPPS it is appropriate to carve out these
patients as a separate category within
the MS–DRGs, calculating separate
relative weights for these patients. As
we have in the past, when this research
reaches the appropriate stage, we intend
to reach out to hospital industry
stakeholders for reactions and feedback.
In this final rule, our regulations are
revised under §§ 412.534 and 412.536 to
reflect our finalized policies. We note
that, in each regulatory provision, we

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specify that the determination as to
whether a payment adjustment is
applicable for discharges occurring
during the months that an LTCH or
LTCH satellite facility will be subject to
the gap, that were admitted from a
particular referring hospital (that have
not achieved high-cost outlier status at
the referring hospital), will be based
upon whether or not those discharges
exceed 25 percent (or 50 percent, as
applicable) of total discharges during
that cost reporting period.
Although those with cost reporting
periods beginning on or after July 1 and
before October 1 will be ‘‘technically’’
subject to the payment adjustment until
October 1, 2012, we believe that very
few, if any, LTCHs will actually be
disadvantaged because these LTCHs
would rarely, if ever admit more than 25
percent of their discharges from any one
referring hospital during the limited
period of 1 to 3 months (depending on
the hospital’s cost reporting beginning
date) that the 25-percent payment
adjustment threshold policy would
technically be in effect. For discharges
occurring on or after October 1, 2012,
they would be protected by our new
regulation and would not have to wait
until the start of their next cost
reporting period for relief. In addition,
we would note that because we believe
that the application of the 25-percent
payment adjustment threshold policy
would virtually have no impact on those
hospitals for the period of July 1, 2012,
through September 30, 2012, we do not
intend to expend limited audit dollars
to pursue this issue for discharges
occurring during that period.
We are revising the regulations at
§§ 412.534 and 412.536 to reflect these
finalized policies.
3. The ‘‘IPPS Comparable Per Diem
Amount’’ Payment Option for Very
Short Stays Under the Short-Stay
Outlier (SSO) Policy
Prior to the enactment of section
114(c)(3) of the MMSEA, for LTCH short
stay outlier (SSO) cases with a covered
length of stay that was equal to or less
than one standard deviation from the
geometric average length of stay for the
same MS–DRG under the IPPS (that is,
the ‘‘IPPS comparable threshold’’), the
SSO payment adjustment determination
included an additional option, the
‘‘IPPS comparable amount per diem
amount’’ (72 FR 26906). This policy was
implemented in our regulations at
§ 412.529(c)(3)(i) in the RY 2008 LTCH
PPS final rule (72 FR 26904 through
26908).
Section 114(c)(3) of the MMSEA, as
amended by section 3106(a) of the
Affordable Care Act, provided a 5-year

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moratorium from the application of the
‘‘IPPS comparable amount’’ option
under the SSO payment adjustment,
which is scheduled to expire for
discharges beginning on or after
December 29, 2012 (75 FR 50399
through 50400). With the expiration of
the moratorium, payment for an SSO
discharge occurring on or after
December 29, 2012, the Medicare
payment will be based on the least of
the following:
• 100 percent of the estimated cost of
the case.
• 120 percent of the MS–LTC–DRG
specific per diem amount multiplied by
the covered length of stay of the
particular case.
• The full MS–LTC–DRG per diem
amount.
• Comparing the covered length of
stay for as an SSO case and the ‘‘IPPS
comparable threshold,’’ one of the
following:
(a) The blend of the 120 percent of the
MS–LTC–DRG specific per diem
amount (specified in § 412.529(d)(1))
and an amount comparable to the IPPS
per diem amount (specified in
§ 412.529(d)(4)), for cases where the
covered length of stay for an SSO case
is greater than the ‘‘IPPS comparable
threshold’’ (as specified under
§ 412.529(c)(3)(ii)).
(b) An amount comparable to the IPPS
comparable per diem amount (specified
in § 412.529(d)(4)), if the covered length
of stay for an SSO case is equal to or less
than one standard deviation from the
geometric average length of stay for the
same MS–DRG under the IPPS (the
‘‘IPPS comparable threshold’’), as
specified under § 412.529(d)(4).
For a comprehensive discussion of the
SSO policy, including the payment for
very short stays under the SSO policy,
we refer readers to the May 6, 2008
interim final rule with comment period
(73 FR 24874 through 24881).
The FY 2013 ‘‘IPPS comparable
threshold’’ (that is, one standard
deviation from the geometric average
length of stay for the same MS–DRG
under the IPPS) used in determining
SSO payments for discharges occurring
on or after December 29, 2012, under
§ 412.529(c)(3) of the regulations are
provided in Table 11, which is listed in
section VI. of the Addendum to this
final rule and available via the Internet
on the CMS Web site.
Comment: A large number of
commenters expressed concern about
our application of the ‘‘IPPS comparable
amount’’ option under the SSO payment
adjustment policy in light of the
expiration of the 5-year statutory
moratorium.

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Response: In the proposed rule, we
did not propose to make any changes in
our policy under § 412.529(c)(3) for
LTCH discharges occurring on or after
December 29, 2012, that related to these
public comments. Therefore, we will
not address the commenters’ concerns
regarding this policy at this time but we
will take them into consideration
should we contemplate changes to the
SSO policy in the future.
Technical change. With the expiration
of the moratorium on the application of
the ‘‘IPPS comparable per diem
amount’’ option at § 412.529(c)(3)(i)(D)
on the determination of the payment
adjustment under the SSO policy,
described above, we proposed a
technical change to the regulation text at
§ 412.529(d)(i)(C) in order to clarify the
application of our policy. Specifically,
at § 412.529(d)(4)(i)(C), we proposed to
remove the following introductory
phrase that appears at the beginning of
the paragraph: ‘‘For purposes of the
blend amount described in paragraph
(c)(2)(iv) of this section,’’ so that the
provision of the paragraph is not limited
only to the ‘‘blend amount’’ option
under the SSO policy at
§ 412.529(c)(2)(iv), but is also applicable
to the ‘‘IPPS comparable per diem
amount’’ option at § 412.529(c)(3)(i)(D).
In the proposed rule, we proposed to
clarify this policy by revising the
language of paragraph (d)(4)(i)(C) of
§ 412.529 to read as follows:
‘‘(C) The payment amount specified
under paragraph (d)(4)(i)(B) of this
section may not exceed the full amount
comparable to what would otherwise be
paid under the hospital inpatient
prospective payment system determined
under paragraph (d)(4)(i)(A) of this
section.’’
We proposed this technical correction
in order to clarify that, payment for a
case based solely on the ‘‘IPPS
comparable per diem amount’’
described at § 412.529(d)(4) is
calculated in the same way that it is
calculated when payment for a case will
be based on the ‘‘blend amount’’ (under
§ 412.529(c)(2)(iv)) of the ‘‘IPPS
comparable per diem amount’’ and the
‘‘120 percent of the LTC–DRG specific
per diem payment amount.’’ When we
finalized the ‘‘IPPS comparable per
diem amount’’ option to the SSO
payment adjustment in the RY 2008
LTCH PPS final rule (72 FR 26907), we
stated in the preamble that ‘‘the IPPS
comparable per diem amount [was]
capped at the full IPPS comparable
amount that is used under the blend
option of the current SSO policy
* * *.’’ However, we neglected, at that
time, to revise the regulation text.
Therefore, we proposed to clarify our

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regulations at § 412.529(d)(4)(i)(C) to
reflect existing policy that the ‘‘IPPS
comparable per diem amount’’ is
calculated as a per diem that is capped
at an amount comparable to what would
have been a full payment under the
inpatient prospective payment system,
such that an SSO payment made under
the ‘‘IPPS comparable per diem
amount’’ option may also not exceed the
full amount comparable to what would
otherwise be paid under the inpatient
prospective payment system.
We did not receive any public
comments on this technical change and
are finalizing the proposed technical
change to § 412.529(d)(4)(i)(C) as
described above.

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4. One-Time Prospective Adjustment to
the Standard Federal Rate Under
§ 412.523(d)(3)
a. Overview
In the August 30, 2002 LTCH PPS
final rule (67 FR 55954), we set forth
regulations implementing the LTCH
PPS, based upon the broad authority
granted to the Secretary, under section
123 of the BBRA (as amended by section
307(b) of the BIPA). Section 123(a)(1) of
the BBRA required that the system
‘‘maintain budget neutrality.’’ The
statute requires the LTCH PPS to be
budget neutral in FY 2003, so that
estimated aggregate payments under the
LTCH PPS for FY 2003 would be equal
to the estimated aggregate payments that
would have been made if the LTCH PPS
were not implemented for FY 2003. The
methodology for determining the LTCH
PPS standard Federal rate for FY 2003
that would ‘‘maintain budget neutrality’’
is described in considerable detail in the
August 30, 2002 final rule (67 FR 56027
through 56037). Our methodology for
estimating payments for the purposes of
budget neutrality calculations used the
best available data, and necessarily
reflected several assumptions (for
example, costs, inflation factors and
intensity of services provided) in
estimating aggregate payments that
would be made if the LTCH PPS was not
implemented. In performing our budget
neutrality calculations, we took into
account the statute’s requirement that
certain statutory provisions that affect
the level of payments to LTCHs in years
prior to the implementation of the LTCH
PPS shall not be taken into account in
the development and implementation of
the LTCH PPS. Specifically, section
307(a)(2) of the BIPA requires that the
increases to the target amounts and the
increases to the cap on the target
amounts for LTCHs provided for by
section 307(a)(1) of the BIPA (as set
forth in section 1886(b)(3)(J) of the Act)

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and the enhanced continuous
improvement bonus (CIB) payments for
LTCHs provided for by section 122 of
the BBRA (as set forth in section
1886(b)(2)(E) of the Act) are not to be
taken into account in the development
and implementation of the LTCH PPS.
In the August 30, 2002 final rule, we
also stated our intentions to monitor
LTCH PPS payment data to evaluate
whether later data varied significantly
from the data available at the time of the
original budget neutrality calculations
(for example, data related to inflation
factors, intensity of services provided,
or behavioral response to the
implementation of the LTCH PPS). To
the extent the later data significantly
differ from the data employed in the
original calculations, the aggregate
amount of payments during FY 2003
based on later data may be higher or
lower than the estimates upon which
the budget neutrality calculations were
based. Therefore, in that same final rule,
under the broad authority conferred
upon the Secretary in developing the
LTCH PPS, including the authority for
establishing appropriate adjustments,
provided by section 123(a)(1) of the
BBRA, as amended by section 307(b) of
BIPA, we provided in § 412.523(d)(3) of
the regulations for the possibility of
making a one-time prospective
adjustment to the LTCH PPS rates by a
deadline of October 1, 2006, so that the
effect of any significant difference
between actual payments and estimated
payments for the first year of the LTCH
PPS would not be perpetuated in the
LTCH PPS rates for future years. This
deadline was revised to July 1, 2008, in
the RY 2007 LTCH PPS final rule
because sufficient time had not elapsed
since the start of the LTCH PPS for new
data to be generated that would have
enabled us to conduct a comprehensive
reevaluation of our budget neutrality
calculations (71 FR 27842 through
27844). Therefore, we did not
implement the one-time prospective
adjustment provided under
§ 412.523(d)(3) at that time. However,
we stated that we would continue to
collect and interpret new data as they
became available in order to determine
whether we should propose such an
adjustment in the future. Furthermore,
we revised § 412.523(d)(3) by changing
the original October 1, 2006 deadline to
July 1, 2008, to postpone the
prospective one-time adjustment due to
the time lag in the availability of
Medicare data upon which a proposed
adjustment would be based, noting that
there is a lag time between the
submission of claims data and cost
report data, and the availability of that

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53487

data in the MedPAR files and HCRIS,
respectively. We also explained that we
believed that postponing the deadline of
the one-time prospective adjustment to
the LTCH PPS rates provided for in
§ 412.523(d)(3) to July 1, 2008, would
allow our decisions regarding a possible
adjustment to be based on more
complete and up-to-date data (71 FR
27842 through 27845).
Section 114(c)(4) of the Medicare,
Medicaid, and SCHIP Extension Act of
2007 (Pub. L. 110–173) (MMSEA)
provides that the ‘‘Secretary shall not,
for the 3-year period beginning on the
date of the enactment of this Act, make
the one-time prospective adjustment to
long-term care hospital prospective
payment rates provided for in section
412.523(d)(3) of title 42, Code of Federal
Regulations, or any similar provision.’’
That provision delayed the effective
date of any one-time prospective
adjustment until no earlier than
December 29, 2010. Accordingly, we
revised § 412.523(d)(3) of the
regulations to conform with this
requirement (73 FR 26801 through
26804 and 26839). Then, section 3106 of
the Affordable Care Act amended
section 114(c) of the MMSEA by
specifying an additional 2-year delay in
the one-time prospective adjustment to
the standard Federal rate at
§ 412.523(d)(3). Thus, under current
law, the Secretary is precluded from
making the one-time adjustment to the
standard Federal rate until December
29, 2012. Therefore, we revised
§ 412.523(d)(3) to conform with this
requirement (75 FR 50399 and 50416).
Prior to the statutory delay in the
application of any one-time prospective
adjustment required when the MMSEA
was enacted on December 29, 2007, we
had developed a methodology for
evaluating whether to propose a onetime prospective adjustment under
§ 412.523(d)(3) of the regulations. In
order to inform the public of our
thinking, and to stimulate comments for
our consideration during the statutory
delay in implementing any one-time
prospective adjustment, we discussed
our analysis and its results in the RY
2009 LTCH PPS proposed rule and final
rule (73 FR 5353 through 5360 and
26800 through 26804, respectively).
Evaluating the appropriateness of the
possible one-time prospective
adjustment under § 412.523(d)(3)
requires a thorough review of the
relevant LTCH data (as described
below). As we discussed in the RY 2009
LTCH PPS proposed and final rules, we
conducted a thorough review of the
relevant data, that is, cost data from FY
2002, representing the final year LTCHs
were paid under the TEFRA payment

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system. The cost report data for FY 2002
is comprised of a high proportion of
settled and audited cost reports
submitted by LTCHs. We also have
payment data on the first year of the
LTCH PPS (that is, FY 2003). On the
basis of our review of these data
sources, we discussed a potential
methodology for determining whether
the one-time prospective adjustment
provided for under § 412.523(d)(3) of
the regulations should be proposed and
the computation of such adjustment, if
appropriate, based on that potential
methodology. We also discussed that,
under that potential methodology, our
analysis indicated that a permanent
adjustment factor of 0.9625 to the LTCH
PPS standard Federal rate could be
warranted. Consistent with the
requirements of section 114(c)(4) of the
MMSEA, which delayed the
implementation of such an adjustment,
we did not propose any one-time
prospective adjustment to the standard
Federal rate. However, we presented our
analysis and welcomed public comment
to inform the public of our analysis if
and when we decide to propose (and
ultimately finalize) such an adjustment
under § 412.523(d)(3).
As we discussed in the RY 2009
LTCH PPS final rule (73 FR 26803), our
policy objective in providing for this
one-time prospective adjustment has
always been to ensure that
computations based on the earlier,
necessarily limited (but at that time best
available) data available at the inception
of the LTCH PPS would not be built
permanently into the rates if data
available at a later date could provide
more accurate results. When we
established the FY 2003 standard
Federal rate in a budget neutral manner,
we used the most recent LTCH cost data
available at that time (that is, FY 1999
data), and trended that data forward to
estimate what Medicare would have
paid to LTCHs in FY 2003 under the
TEFRA payment system if the PPS were
not implemented for FY 2003. As we
discussed in the RY 2009 LTCH PPS
final rule (73 FR 26803), after a
thorough evaluation of the currently
available data in light of this stated
policy objective, we believe that the
most appropriate methodology for
evaluating an adjustment to the original
budget neutrality adjustment would be
to compare estimated payments in the
first year under the LTCH PPS to what
estimated payments would have been
under the prior TEFRA payment system
for that year based on the best available
data. Accordingly, in that same final
rule, we revised § 412.523(d)(3) to
provide for the possibility of making a

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one-time prospective adjustment to
LTCH PPS rates so that ‘‘the effect of
any significant difference between the
data used in the original computations
of budget neutrality for FY 2003 and
more recent data to determine budget
neutrality for FY 2003 is not
perpetuated in the prospective payment
rates for future years.’’ As noted above,
the statutory moratoria that delayed the
implementation of the application of
any one-time prospective adjustment to
the LTCH PPS standard Federal rate
provided for in § 412.523(d)(3) of the
regulations for 5 years (from December
29, 2007, until December 29, 2012) is set
to expire during FY 2013.
In order to determine whether a onetime prospective adjustment under
§ 412.523(d)(3) would be warranted, we
evaluated several issues regarding the
data to use for this purpose. These
issues, our proposals related to these
issues (as presented in the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28025 through 28032)), and a summary
of the public comments and our
responses related to these issues are
presented below. As indicated in the
proposed rule, we previously discussed
these issues in the RY 2009 LTCH PPS
proposed and final rules.
b. Data Used To Estimate Aggregate FY
2003 TEFRA Payments
As we discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28025
through 28032), as we considered the
appropriateness of the possible one-time
prospective adjustment under
§ 412.523(d)(3) of the regulations, it is
necessary to estimate both aggregate
payments under the LTCH PPS for FY
2003 and the estimated aggregate
payments that would have been made if
the LTCH PPS were not implemented in
FY 2003 (that is, estimated FY 2003
TEFRA payments). While it is possible
to determine actual TEFRA payments to
LTCHs for FY 2002, the last year of
payment under that methodology, it is
necessary to estimate what TEFRA
payments would have been in FY 2003
if the new LTCH PPS had not been
implemented. In developing our
proposed methodology for evaluating a
one-time prospective adjustment, we
considered whether we should use
actual FY 2003 costs to calculate
estimated TEFRA payments for FY 2003
or use costs for FY 2002 trended
forward to FY 2003 as the basis for the
calculation. As we discussed in that
same proposed rule (77 FR 28025),
basing the estimate on actual FY 2003
costs would have the considerable
advantage of avoiding the need to inflate
FY 2002 costs to FY 2003 costs.
However, there is also a potentially

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serious disadvantage to using actual FY
2003 costs. Because FY 2003 was the
first year of payment under the LTCH
PPS, the cost experience of LTCHs in
that year would reflect their response to
the incentives provided by the new
payment system, instead of reflecting
behavior under the reasonable cost
payment system. Indeed,
implementation of an LTCH PPS should
directly affect the behavior of LTCHs,
and, therefore, the level of costs in
LTCHs. One of the incentives of a PPS
is to improve efficiency in the delivery
of care, which generally results in
decreased cost per discharge. For this
reason, using FY 2003 costs directly
could be a poor basis for estimating
payments that ‘‘would have been made
if the LTCH PPS were not
implemented.’’ On balance, however,
we believe that trending the costs
incurred under the last year of the
TEFRA payment system forward for 1
year poses a smaller prospect for
distortion than using costs incurred
during the subsequent year, when the
incentives faced by LTCHs to reduce
costs could have had a significant effect.
We also noted that some LTCH
stakeholders have expressed concern
that using FY 2003 costs directly would
provide a poor basis upon which to
estimate payments that ‘‘would have
been made if the LTCH PPS were not
implemented’’ for precisely the reasons
discussed above. We believe that basing
the estimate of FY 2003 TEFRA
payments on FY 2002 costs trended
forward should satisfy these concerns.
For the reasons discussed above, in the
FY 2013 IPPS/LTCH PPS proposed rule
(77 FR 28025 through 28026), in
evaluating the appropriateness of the
possible one-time prospective
adjustment under § 412.523(d)(3) of the
regulations, we proposed to base our
calculation of the estimated aggregate
payments that would have been made if
the LTCH PPS were not implemented
(that is, estimated FY 2003 TEFRA
payments) on FY 2002 costs trended
forward.
We did not receive any public
comments on our proposal to base our
calculation of the estimated aggregate
payments that would have been made if
the LTCH PPS were not implemented
(that is, estimated FY 2003 TEFRA
payments) on FY 2002 costs trended
forward for purposes of evaluating the
appropriateness of the possible one-time
prospective adjustment under
§ 412.523(d)(3). We are adopting this
policy as final, without modification, for
the reasons discussed above. (We
discuss the specific methodology we are
adopting in this final rule to trend

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forward FY 2002 costs to estimated FY
2003 TEFRA payments, which is the
same as the methodology we proposed
below in this section.)
In this final rule, under the broad
authority conferred upon the Secretary
by section 123 of the BBRA as amended
by section 307(b) of BIPA, in evaluating
the appropriateness of the possible onetime prospective adjustment under
§ 412.523(d)(3) of the regulations, we
based our calculation of the estimated
aggregate payments that would have
been made if the LTCH PPS were not
implemented (that is, estimated FY 2003
TEFRA payments) on FY 2002 costs
trended forward for the reasons
discussed above. Specifically, as we
proposed, under the methodology we
are adopting in this final rule, we
trended forward the most recent
available LTCH FY 2002 costs to FY
2003 using the excluded hospital market
basket, because we believe these data
best reflect the price changes in hospital
inpatient costs realized by LTCHs from
FY 2002 to FY 2003. We believe that
using the excluded hospital market
basket to update FY 2002 reasonable
cost-based (TEFRA) payments in order
to estimate FY 2003 TEFRA payments is
appropriate because the TEFRA
payment system under which LTCHs
were paid prior to the implementation
of the LTCH PPS utilized the excluded
hospital market basket to update the
hospital-specific limits on payment for
operating costs of LTCHs. In addition,
we used the excluded hospital market
basket to update the inpatient hospital
operating and capital costs of LTCHs
when we developed the initial LTCH
PPS standard Federal rate for FY 2003
(67 FR 56029 through 56031). As we
asserted in the proposed rule, we
believe that the LTCH cost report data
for FY 2002 currently available are
appropriate to use for this purpose
because, as noted above, they are
comprised of settled and audited cost
reports submitted by LTCHs. (We noted
that this is the same methodology for
evaluating the appropriateness of the
possible one-time prospective
adjustment under § 412.523(d)(3) that
we presented in the RY 2009 LTCH PPS
proposed rule and final rule (73 FR 5356
and 26802, respectively).)
c. Data Used To Estimate Aggregate FY
2003 LTCH PPS Payments
As discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28025)
and as discussed above, to determine
whether a one-time prospective
adjustment under § 412.523(d)(3) was
warranted, we believe that an estimate
of the payments that would have been
made in FY 2003 under the TEFRA

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payment system methodology should be
compared to estimated payments under
the new LTCH PPS in FY 2003.
Specifically, we explained that the most
direct way to determine payments under
the new LTCH PPS is simply to
aggregate the actual payments
calculated under the LTCH PPS
methodology for the discharges that
occurred during the first year of the
LTCH PPS (FY 2003). However, that
approach raises an issue of consistency
because the discharges for which
Medicare payments were made under
the LTCH PPS during FY 2003 are not
the same as the discharges for which
costs were incurred during the last year
of payment under the TEFRA
methodology, FY 2002. For these
reasons discussed above, we believe that
the best way to estimate the TEFRA
payments that would have been made to
LTCHs during FY 2003 is to use inflated
FY 2002 costs as a proxy for FY 2003
costs. Comparing actual FY 2003 LTCH
PPS payments to FY 2003 TEFRA
payments estimated on the basis of FY
2002 discharges would amount to a
comparison between payments related
to two different sets of discharges,
potentially skewing the results.
Therefore, for the purpose of
consistency, rather than comparing
TEFRA payments based on FY 2002
costs updated to FY 2003, to aggregate
LTCH PPS payments for discharges that
actually occurred in FY 2003, we
believe it is preferable to compare
estimated TEFRA payments based on
updated FY 2002 costs to the estimated
payments that would have been made
under LTCH PPS methodology in FY
2003 for those same FY 2002 discharges.
For these reasons, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28025),
we proposed to base our estimate FY
2003 LTCH PPS payments on the same
set of discharges (from FY 2002) which
are the basis for the estimate of what
would have been paid in FY 2003 under
the reasonable cost-based (TEFRA)
payment system.
We did not receive any public
comments on our proposal to base the
estimate of FY 2003 LTCH PPS
payments on the same set of discharges
(from FY 2002) for purposes of
evaluating the appropriateness of the
possible one-time prospective
adjustment under § 412.523(d)(3). We
are adopting this policy as final, without
modification for the reasons discussed
above. (We discuss the methodology we
are adopting in this final rule to
estimate FY 2003 LTCH PPS payments
using those FY 2002 discharges, which
is the same as the methodology we
proposed below in this section.)

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53489

In this final rule, under the broad
authority conferred upon the Secretary
by section 123 of the BBRA as amended
by section 307(b) of BIPA, as we
proposed, in evaluating the
appropriateness of the possible one-time
prospective adjustment under
§ 412.523(d)(3) of the regulations, we are
using the same set of discharges (from
FY 2002) to base our estimate of FY
2003 LTCH PPS payments and our
estimate of what would have been paid
in FY 2003 under the reasonable costbased (TEFRA) payment system for
purposes of evaluating the
appropriateness of the possible one-time
prospective adjustment under
§ 412.523(d)(3).
d. Methodology To Evaluate Whether a
One-Time Prospective Adjustment
Under § 412.523(d)(3) Is Warranted
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR), to evaluate the
appropriateness of the possible one-time
prospective adjustment under
§ 412.523(d)(3) of the regulations, we
proposed to compare estimated
aggregate FY 2003 TEFRA payments
(calculated on the basis of FY 2002
costs, updated to FY 2003) to estimated
aggregate payments that would have
been made in FY 2003 under the LTCH
PPS methodology (by applying the FY
2003 LTCH payment rules to the
discharges that occurred in FY 2002). As
we asserted in the proposed rule, we
believe that this approach would ensure
that we are comparing the estimated FY
2003 TEFRA payments, which are based
on updated costs incurred for FY 2002
discharges, to the estimated PPS
payments that would have been made
for those same FY 2002 discharges
under the new LTCH PPS payment
methodology. (We note that this is the
same methodology for evaluating the
appropriateness of the possible one-time
prospective adjustment under
§ 412.523(d)(3) of the regulations that
we presented in the RY 2009 LTCH PPS
proposed rule and final rule (73 FR 5356
and 73 FR 26802, respectively).) We
discuss the public comments and our
responses to these proposals below in
this section.
To evaluate whether a one-time
prospective adjustment under
§ 412.523(d)(3) was warranted, in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28024 through 28025), we proposed
to consider as ‘‘significant’’ any
difference greater than or equal to a 0.25
percentage point difference between the
original budget neutrality calculations
and budget neutrality calculations based
on the more recent data now available.
As we discussed in that same proposed
rule, the regulations at § 412.523(d)(3)

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provide that the Secretary may make a
one-time prospective adjustment to the
LTCH PPS rates in order to ensure that
any ‘‘significant’’ difference is not
perpetuated in the LTCH PPS rates for
future years. The regulation does not
specifically define what constitutes a
significant difference for this purpose.
We did not receive any public
comments on our proposal to establish
that any difference greater than or equal
to 0.25 percentage points is
‘‘significant’’ for purposes of
determining whether the one-time
prospective adjustment provided under
§ 412.523(d)(3) is warranted. Therefore,
we are adopting this policy as final
without modification.
In this final rule, as we proposed, in
evaluating whether a one-time
prospective adjustment under
§ 412.523(d)(3) was warranted, we will
consider as ‘‘significant’’ any difference
greater than or equal to a 0.25
percentage point difference between the
original budget neutrality calculations
for FY 2003 and budget neutrality
calculations for FY 2003 based on the
more recent data now available. As we
discussed in the proposed rule (77 FR
28024 through 28025), we believe this
threshold will avoid making an
adjustment to account for very minor
deviations between earlier and later
estimates of budget neutrality. It is also
consistent with thresholds that we
employ for similar purposes in other
prospective payment systems. For
example, under the capital IPPS, we
make a forecast error correction in the
framework used to update the capital
Federal rate if a previous forecast of
input prices varies by at least a 0.25
percentage point from actual input price
changes (72 FR 47425). We do not
believe that we should treat differences
greater than or equal to 0.25 percent as
not ‘‘significant,’’ because the effect of
any difference would be magnified as
the rates are updated each year.
e. Methodology To Estimate FY 2003
LTCH Payments Under the TEFRA
Payment System
To estimate FY 2003 LTCH payments
under the TEFRA payment system, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28026), we proposed to use
a methodology that is similar in concept
to the methodology we used to estimate
FY 2003 LTCH total payments under the
TEFRA payment system when we
determined the initial standard Federal
rate in the August 30, 2002 final rule (67
FR 56030 through 56033). Specifically,
we proposed to estimate total LTCH
payments under the TEFRA payment
system in FY 2003 using the following
steps:

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• Estimate each LTCH’s payment per
discharge for inpatient operating costs
under the TEFRA payment system for
FY 2003, including continuous bonus
improvement payments;
• Estimate each LTCH’s payment per
discharge for capital-related costs for FY
2003; and
• Sum each LTCH’s estimated
operating and capital payment per case
to determine its estimated total FY 2003
TEFRA payment system payments per
discharge.
We did not receive any public
comments on our proposed
methodology for estimating aggregate
FY 2003 LTCH TEFRA payments for
purposes of evaluating the one-time
prospective adjustment at
§ 412.523(d)(3). We are adopting this
methodology as final, without
modification, for the reasons discussed
in the proposed rule and reiterated
below. (We discuss the specific steps of
the methodology we are adopting in this
final rule to estimate total FY 2003
TEFRA payment system payments per
discharge, which is the same as the
methodology we proposed below under
‘‘Step 1’’.)
f. Methodology to Estimate FY 2003
LTCH PPS Payments
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28030), we
proposed to estimate FY 2003 LTCH
PPS payments using the same general
methodology that we used to estimate
FY 2003 payments under the LTCH PPS
(without a one-time prospective
adjustment) when we determined the
initial standard Federal rate in the
August 30, 2002 final rule (67 FR
56032). We proposed to estimate FY
2003 LTCH PPS payments for each
LTCH by simulating payments on a
case-by-case basis by applying the final
FY 2003 payment policies established in
the August 30, 2002 final rule that
implemented the LTCH PPS (67 FR
55954), which generally include the
established FY 2003 LTC–DRGs and
relative weights (Version 22.0),
adjustments for differences in area wage
levels, adjustments for SSO cases,
additional payments for HCO cases that
were applied in determining LTCH PPS
payments to discharges occurring in FY
2003. We also proposed to use LTCH
case-specific discharge information from
the FY 2002 MedPAR files, and we
proposed to use LTCH provider-specific
data from the FY 2003 Provider-Specific
File (PSF), as these were the data used
by fiscal intermediaries to make LTCH
payments during the first year of the
LTCH PPS (FY 2003). To determine total
estimated PPS payments for all LTCHs,
we summed the individual estimated

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LTCH PPS payments for each LTCH.
(We note that this is the same
methodology we used to estimate FY
2003 payments under the LTCH PPS for
purposes of evaluating the one-time
prospective adjustment at
§ 412.523(d)(3) that we presented in the
RY 2009 LTCH PPS proposed rule (73
FR 5359 through 5360).)
We did not receive any public
comments on our proposed
methodology for estimating aggregate
FY 2003 LTCH PPS payments for
purposes of evaluating the one-time
prospective adjustment at
§ 412.523(d)(3). We are adopting this
methodology as final, without
modification. (We note that we did
receive public comments that suggested
that we take into account other policy
considerations in determining the
necessity and magnitude of the one-time
prospective adjustment. A summary of
these comments and our responses can
be found below.)
g. Methodology for Calculating the OneTime Prospective Adjustment Under
§ 412.523(d)(3)
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28023 through
28032), we described in detail the
methodology and the data that we
proposed to use to calculate a one-time
budget neutrality adjustment factor. In
general, under our proposed
methodology for evaluating a possible
one-time prospective adjustment under
§ 412.523(d)(3), we proposed to
determine a case-weighted average
estimated TEFRA payment, consistent
with the methodology used when we
determined the initial standard Federal
rate in the FY 2003 LTCH PPS final rule
(68 FR 56032). Then we proposed that
each LTCH’s estimated total FY 2003
TEFRA payment per discharge would be
determined by summing its estimated
FY 2003 operating and capital payments
under the TEFRA payment system based
on FY 2002 cost report data, and
dividing that amount by the number of
discharges from the FY 2002 cost report
data. Next, we proposed to determine
each LTCH’s average estimated TEFRA
payment weighted for its number of
discharges in the FY 2002 MedPAR file
(for the purpose of estimating FY 2003
LTCH PPS payments) by multiplying its
average estimated total TEFRA payment
per discharge by its number of
discharges in the FY 2002 MedPAR file.
We then proposed to estimate total caseweighted TEFRA payments by summing
each LTCH’s (MedPAR) case-weighted
estimated FY 2003 TEFRA payments.
Under our proposed methodology, we
compared these estimated FY 2003 total
TEFRA payments to estimated FY 2003

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total LTCH PPS payments in order to
determine whether a one-time
prospective adjustment would be
appropriate. (We also noted that this is
the same methodology we used to
compare estimated FY 2003 total
TEFRA payments to estimated FY 2003
total LTCH PPS payments for purposes
of evaluating the one-time prospective
adjustment at § 412.523(d)(3) that we
presented in the RY 2009 LTCH PPS
proposed rule (73 FR 5360).) For
additional details on our proposed
methodology and the data proposed to
use to calculate a one-time budget
neutrality adjustment factor, we refer
readers to the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28025 through
28031). (As we noted above, we did
receive public comments that suggested
that we take into account other policy
considerations in determining the
necessity and magnitude of the one-time
prospective adjustment. A summary of
these comments and our responses can
be found below.)
Based on approximately 91,300 LTCH
discharges for 250 LTCHs, under the
proposed methodology and data present
in the proposed rule, we calculated that
estimated FY 2003 LTCH PPS payments
are approximately 2.5 percent higher
than estimated payments to the same
LTCHs in FY 2003 if the LTCH PPS had
not been implemented (that is,
estimated total FY 2003 TEFRA
payment system payments) (77 FR
28031). This 2.5 percent difference
exceeded our proposed 0.25 percentage
points threshold of what we would
consider to be a ‘‘significant difference’’
for purposes of determining whether the
one-time prospective adjustment
provided under § 412.523(d)(3) would
be warranted. Although we projected
that estimated FY 2003 LTCH PPS
payments are approximately 2.5 percent
higher than estimated FY 2003 TEFRA
payments, in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28031), we
explained that proposing to reduce the
standard Federal rate by 2.5 percent
would not ‘‘maintain budget neutrality’’
for FY 2003 (that is, estimated FY 2003
LTCH PPS payments would not be equal
to estimated FY 2003 TEFRA payments)
because a considerable number of LTCH
discharges are projected to have
received a LTCH PPS payment in FY
2003 based on the estimated cost of the
case (rather than a payment based on
the standard Federal rate) under the
payment adjustment for SSO cases at
§ 412.529. Specifically, under our
proposed methodology, our payment
analysis indicates that nearly 20 percent
of estimated FY 2003 LTCH PPS
payments are SSO payments that were

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paid based on estimated cost and not
based on the LTCH PPS standard
Federal rate. These SSO cases that
receive a payment based on the
estimated cost of the case are generally
unaffected by any changes to the
standard Federal rate because the
estimated cost of the case is determined
by multiplying the Medicare allowable
charges by the LTCH’s CCR
(§ 412.529(d)(2)). In other words, if we
had proposed to reduce the standard
Federal rate by 2.5 percent, estimated
total FY 2003 LTCH PPS payments
would still be greater than estimated
total FY 2003 TEFRA payments (that is,
would not be budget neutral), and this
difference would be perpetuated in the
LTCH PPS payment rates for future
years. This is because the estimated
LTCH PPS payments for those SSO
cases that in FY 2003 were estimated to
have been paid 120 percent of the
estimated cost of the case generally are
not affected (that is, in this case, not
lowered) by any one-time prospective
adjustment budget neutrality factor that
would be applied to the standard
Federal rate because those payments are
not derived from the standard Federal
rate (as explained above). Therefore, it
was necessary to propose to offset the
standard Federal rate by a factor that is
larger than 2.5 percent in order to
ensure that estimated total FY 2003
LTCH PPS payments would be equal to
estimated total FY 2003 TEFRA
payments in order to ‘‘maintain budget
neutrality.’’ To determine the necessary
adjustment factor that would need to be
applied to the standard Federal rate in
order to ‘‘maintain budget neutrality,’’
under the proposed methodology we
presented in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28030), we
simulated FY 2003 LTCH PPS payments
using the same general methodology
that we used to estimate FY 2003 LTCH
PPS payments when we determined the
initial standard Federal rate by
simulating payments on a case-by-case
basis using the final FY 2003 LTCH PPS
payment rates and policies as
established when we implemented the
LTCH PPS in the August 30, 2002 final
rule (67 FR 56032). Using iterative
payment simulations using the data
from the 250 LTCHs in our database, we
determined that we would need to
apply a factor of 0.9625 (that is, a
reduction of approximately 3.75 percent
rather than 2.5 percent) to the standard
Federal rate in order to make estimated
total FY 2003 LTCH PPS payments
equal to estimated total FY 2003 TEFRA
payments consistent with our stated
policy goal of the one-time prospective
adjustment at § 412.523(d)(3) (that is, to

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53491

ensure that the difference between
estimated total FY 2003 LTCH PPS
payments and estimated total FY 2003
TEFRA payments is not perpetuated in
the LTCH PPS payment rates in future
years). (We also noted that the proposed
adjustment of approximately ¥3.75
percent is the same result of the
evaluation of the one-time prospective
adjustment at § 412.523(d)(3) that we
presented in the RY 2009 LTCH PPS
proposed rule and final rule (73 FR 5360
and 26804, respectively).) In that same
proposed rule (77 FR 258031), we stated
(as we did in the RY 2009 LTCH PPS
proposed and final rules), that in the
years following the initial
implementation of the LTCH PPS, we
have adopted some revised policies and
adjustments to LTCH PPS payment
levels. However, none of these revised
policies and payment adjustments have
addressed the intended purpose of the
one-time prospective adjustment
allowed under § 412.523(d)(3) of the
regulations, to ensure that any
significant difference between the data
used in the original computations of
budget neutrality for FY 2003 and more
recent data to determine budget
neutrality for FY 2003 are not
perpetuated in the LTCH PPS rates for
future years. For example, the
adjustments that we have made to
account for coding changes in excess of
real severity increases in RYs 2007
through 2010 were made to account for
changes in coding behavior in the years
following the implementation of the
LTCH PPS, and not to address any issue
regarding the budget neutrality
calculations that were used to establish
the base rate for the LTCH PPS. (As we
noted above, we received public
comments that suggested that we take
into account other policy considerations
in determining the necessity and
magnitude of the one-time prospective
adjustment. A summary of these
comments and our responses can be
found below.)
Based on the general methodology
described above, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28031
through 28032), under the broad
authority granted to the Secretary under
section 123 of the BBRA, as amended by
section 307(b) of the BIPA, we proposed
to make a one-time prospective
adjustment of 0.9625, which would
permanently reduce the standard
Federal rate by approximately 3.75
percent so to reflect the estimated
difference between projected aggregate
LTCH PPS payments in FY 2003 and the
projected aggregate payments that
would have been made in FY 2003
under the TEFRA payment system if the

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LTCH PPS had not been implemented.
Consistent with current law, we also
proposed that this adjustment would
not apply to payments for discharges
occurring on or after October 1, 2012,
and on or before December 28, 2012.
Furthermore, given the magnitude of
this adjustment and in
acknowledgement of hopeful research
outcomes (discussed in section VII.E.2.
of the preamble of that proposed rule),
we proposed to phase-in this
approximate 3.75 percent reduction to
the standard Federal rate over a 3-year
period. Furthermore, we proposed to
revise the regulations under
§ 412.523(d)(3) to specify that the
standard Federal rate would be
permanently reduced by 3.75 percent
(that is, an adjustment of 0.9625) to
reflect the estimated difference between
projected aggregate LTCH PPS payments
in FY 2003 and the projected aggregate
payments that would have been made in
FY 2003 under the TEFRA payment
system if the LTCH PPS had not been
implemented, and this adjustment
would be phased-in over 3 years.
We also explained that although the
adjustment to the standard Federal rate
provided for at § 412.523(d)(3) is called
a ‘‘one-time’’ prospective adjustment, as
stated above, this adjustment would be
permanently applied to the standard
Federal rate so that the effect of the
estimated difference between the data
used in the original computations of
budget neutrality for FY 2003 and more
recent data to determine budget
neutrality for FY 2003 is not
perpetuated in the prospective payment
rates for future years. Under this
proposal, we proposed that we would
make a one-time prospective adjustment
by applying a factor of 0.98734 to the
standard Federal rate in FY 2013 (which
would not be applicable to payments for
discharges occurring on or after October
1, 2012, and on or before December 28,
2012, consistent with current law), FY
2014, and FY 2015 to completely
account for our estimate (determined
using the methodology described above)
that a factor of 0.9625 (that is 0.98734
× 0.98734 × 0.98734 = 0.9625) needs to
be applied to the standard Federal rate
in order to ensure that the difference
between estimated total FY 2003 LTCH
PPS payments and estimated total FY
2003 TEFRA payments is not
perpetuated in the LTCH PPS payment
rates in future years, consistent with our
stated policy goal of the one-time
prospective adjustment at
§ 412.523(d)(3).
The public comments we received on
our proposal to make a one-time
prospective adjustment of 0.9625, which
would permanently reduce the standard

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Federal rate by approximately 3.75
percent, including our proposed 3-year
phase-in of this adjustment, and our
responses are presented below.
h. Public Comments and CMS’
Responses
Comment: Many commenters objected
to the proposed one-time prospective
adjustment. Some commenters
expressed concern about the financial
impact of the proposed reduction to the
standard Federal rate with the
application of the proposed one-time
prospective adjustment in light of LTCH
margins for certain providers as cited in
MedPAC’s March 2012 Report to
Congress. Other commenters asserted
that, in keeping with CMS’ policy goal
that any difference between LTCH PPS
aggregate payments and estimated
TEFRA aggregate payments in the first
year of LTCH PPS is not perpetuated in
future years, the policy objective behind
the one-time prospective adjustment has
already been accomplished as a result of
other adjustments and payment policy
changes under the LTCH PPS since its
initial implementation in FY 2003.
Some commenters pointed to various
payment adjustments made since the
inception of the LTCH PPS, including
the recalibration of DRG weights,
adjustments made to account for
changes in documentation and coding
that did not reflect actual changes in
case mix, elimination of the annual
payment updates in interim years, or
payment updates that are less than the
market basket increase. A number of
commenters pointed to the changes
made to the SSO policy made in RY
2007 which changed the SSO cost
payment option from 120 percent of cost
to 100 percent of cost as an adjustment
that would preclude CMS from the need
to apply the one-time prospective
adjustment. Based on an analysis
provided by some commenters, they
believed that if CMS had paid 100
percent of cost for SSO cases at the time
of the LTCH PPS implementation in FY
2003, there would not have been a 2.5
percent difference between aggregate
payments made under LTCH PPS and
TEFRA payments. These commenters
also stated that the SSO policy change
in RY 2007 resulted in a reduction in
total LTCH payments by 3.6 percent,
and argued, therefore, that the SSO
policy change essentially accomplishes
the intended goal of the one-time
prospective adjustment by bringing
LTCH spending to at least (or below) the
budget neutrality baseline (that is, what
current aggregate LTCH PPS payments
would be had estimated total FY 2003
LTCH PPS payments been 2.5 percent
lower).

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In addition, these commenters urged
CMS to review and adjust the proposed
methodology for calculating the onetime prospective adjustment in a
manner that incorporates the SSO
policy changes made since the
implementation of the LTCH PPS in
assessing whether the one-time
prospective adjustment is warranted,
and believed that doing so would yield
a reduced one-time prospective
adjustment or eliminate the need for one
altogether. These same commenters
asserted that CMS must also consider
the changes in the SSO policy when
calculating the one-time prospective
adjustment factor because the SSO
policy changes and the one-time
prospective adjustment are policies that
are aligned because they both were
derived from the same broad authority
under the statute to make ‘‘appropriate
adjustments’’ to LTCH PPS. Some
commenters also pointed out that, in the
past, CMS had indicated that certain
payment adjustments, for example the
zero percent update to the standard
Federal rate for RY 2007, may make the
one-time prospective adjustment to the
standard Federal rate ‘‘unnecessary. ’’
These commenters also stated that CMS
only cited the adjustments made for
documentation and coding to account
for the effects of changes in coding that
did not reflect actual increase in patient
severity in RYs 2007 through 2010 as
adjustments that do not address any
issue regarding the budget neutrality
calculations that were used to establish
the base rate for the LTCH PPS.
Therefore, these commenters believed
that the payment impact of policy
changes and adjustment that have been
made since the implementation of the
LTCH PPS should be taken into
consideration when evaluating whether
a one-time prospective adjustment is
necessary.
Response: We understand the
commenters’ concern regarding the
impact of a reduction to the standard
Federal rate due to the application of
the proposed one-time prospective
adjustment. However, as we discuss
below, we believe that a one-time
prospective adjustment to the standard
Federal rate of approximately 3.75
percent is necessary to ensure that any
difference between the data used in the
original computations of budget
neutrality for FY 2003 and more recent
data to determine budget neutrality for
FY 2003 is not perpetuated in the LTCH
PPS rates for future years, and will,
therefore, result in appropriate LTCH
PPS payments. In light of the magnitude
of the proposed one-time prospective
adjustment, we proposed to phase-in the

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adjustment over a 3-year period, which
should mitigate the impact of this
reduction to the standard Federal rate.
In response to the comment regarding
the financial impact on LTCH margins
for certain providers, as cited in
MedPAC’s March 2012 Report to
Congress in its rationale for its
recommendation to eliminate the
update to the LTCH PPS payment rate
for FY 2013 in that same report
MedPAC noted that LTCH ‘‘margins for
2010 were positive, and [* * *] expect
they will remain so. These trends
suggest that LTCHs are able to operate
within current payment rates.’’ (p. 272).
We note that, under the proposed phasein of the proposed one-time prospective
adjustment, in conjunction with the
proposed market basket update and the
subsequent final market basket update
(adjusted as required by statute), the
proposed update to the LTCH PPS
standard Federal rate would result in a
slight increase to the LTCH PPS
payment rate for FY 2013. Therefore, we
believe that the positive update to the
standard Federal rate coupled with
overall positive LTCH margins (as
reported by MedPAC) and the proposed
phase-in of the one-time prospective
adjustment will act to mitigate the
financial impact of the one-time
prospective adjustment.
We disagree with commenters that
payment policy changes and
adjustments made since the
implementation of the LTCH PPS have
already served as a substitute for the
one-time prospective adjustment, and
we continue to believe that a one-time
prospective adjustment is necessary to
ensure that any significant difference
between estimated total FY 2003 LTCH
PPS payments and estimated total FY
2003 TEFRA payments is not
perpetuated in the LTCH PPS payment
rates (that is, the standard Federal rate)
in future years. The various payment
policy changes and adjustments
established since the inception of the
LTCH PPS were never made to address
any budget neutrality requirement
related to the initial implementation of
the LTCH PPS, nor were they ever
presented as such. Our regulations at
§ 412.523(d)(3) clearly state that the
Secretary ‘‘may make a one-time
prospective adjustment to the long-term
care hospital prospective payment
system rates * * * so that the effect of
any significant difference between the
data used in the original computations
of budget neutrality for FY 2003 and
more recent data to determine budget
neutrality for FY 2003 is not
perpetuated in the prospective payment
system rates for future years.’’

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(emphasis added). Our policy has
always been that the one-time
prospective adjustment be applied to
the standard Federal rate. As we
discussed in the RY 2009 LTCH PPS
final rule (73 FR 26803), our policy
objective in providing for this one-time
prospective adjustment has always been
to ensure that computations based on
the earlier, necessarily limited (but at
the time best available) data available at
the inception of the LTCH PPS would
not be built permanently into the rates
if data available at a later date could
provide more accurate results. The
intended goal of the one-time
prospective adjustment is to establish
the LTCH PPS standard Federal rate in
a manner that results in bringing current
estimated aggregate LTCH PPS
payments to the level they would have
been had the estimated total FY 2003
LTCH PPS payments been 2.5 percent
lower. The policy changes and
adjustments that have been made to the
LTCH PPS since its inception are part
and parcel of fine-tuning a new
prospective payment system, and were
made to address explicitly stated policy
goals, none of which were duplicative of
the stated purpose and end-result of the
one-time prospective adjustment, which
ensures that any significant difference
between estimated total FY 2003 LTCH
PPS payments and estimated total FY
2003 TEFRA payments is not
perpetuated in the LTCH PPS payment
rates (that is, the standard Federal rate)
in future years.
In the RY 2007 LTCH PPS final rule,
we modified the SSO policy, changing
the SSO cost payment option from 120
percent of cost to 100 percent of cost,
effective beginning July 1, 2006 (RY
2007). We clearly stated that we
believed that by providing a reduced
payment for SSO cases, we would
discourage hospitals from admitting
patients for whom they would not
provide complete treatment to maximize
Medicare payments. We believed that
the previous SSO policy may have
unintentionally provided a financial
incentive for LTCHs to admit patients
more appropriately treated in other
settings (71 FR 27845). This policy
change was not intended to address the
one-time prospective adjustment in any
way (nor does it duplicate the stated
purpose or effect of the one-time
prospective adjustment), but was
intended to prevent inappropriate
patient movement to LTCHs. The
commenters are correct in that both the
change to the SSO policy and the onetime prospective adjustment are
authorized by the same broad statutory
authority to make appropriate

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53493

adjustments. However, each of these
adjustments is proper in its own
context, serves different purposes, and
reflects different policy concerns.
Consequently, we disagree with the
commenters that we must consider the
changes in the SSO policy when
calculating the one-time prospective
adjustment factor because the SSO
policy changes and the one-time
prospective adjustment are policies that
were both derived from the same broad
authority under the statute to make
‘‘appropriate adjustments’’ under the
LTCH PPS for the reasons discussed
above.
We acknowledge that we have stated
in the past (such as in the RY 2007 final
rule when we established a 0.0 percent
update to the standard Federal rate for
RY 2007) that we may consider other
payment adjustments when deciding
whether or not to implement the onetime prospective adjustment. However,
such statements were made prior to the
first comprehensive discussion of the
stated purpose of the one-time
prospective adjustment or the
development of a methodology under
which to determine whether such an
adjustment is warranted (first presented
in the RY 2009 proposed and final
rules). In the RY 2009 proposed and
final rules (73 FR 5354 and 26801), we
did, in fact, state that none of revised
policies and payment adjustments that
were made in the years following the
initial implementation of the LTCH PPS
addressed the intended purpose of the
one-time prospective adjustment
allowed under § 412.523(d)(3) of the
regulations, to ensure that any
significant difference between the
original estimates and calculations
based on more recent data are not
perpetuated in the LTCH PPS rates for
future years. In the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28031), we
referenced the documentation and
coding adjustment which was made to
account for the effects of changes in
coding that did not reflect actual
increase in patient severity in RYs 2007
through 2010. These adjustments were
noted merely as examples of payment
adjustments made in the years following
the implementation of the LTCH PPS
that did not address any issue regarding
the budget neutrality calculations that
were used to establish the base rate for
the LTCH PPS, and were not presented
as an exhaustive list of policy changes
and payment adjustments that had been
implemented since FY 2003.
We continue to believe that the onetime prospective adjustment is based on
the difference in payment between what
would have otherwise been paid under
the TEFRA payment system and

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payments made under the LTCH PPS as
it was implemented in FY 2003, only, as
is consistent with our policy goal of the
one-time prospective adjustment.
Therefore, we disagree with
commenters’ assertions that the
payment impact of policy changes and
adjustment that have been made since
the implementation of the LTCH PPS
should be taken into consideration
when evaluating whether a one-time
prospective adjustment is necessary. In
the RY 2007 LTCH PPS final rule (71 FR
27864), we stated that it has been our
consistent interpretation that the
statutory requirement for budget
neutrality applies exclusively to FY
2003 when the LTCH PPS was
implemented. Accordingly, we are
finalizing our methodology for
calculating for the one-time prospective
adjustment, as proposed, without
accounting for any revised policies and
payment adjustments that have been
made in the years following the initial
implementation of the LTCH PPS,
including the SSO policy changes.
Comment: Some commenters stated
that CMS correctly identified that SSO
cases have an impact on the calculation
of the one-time perspective adjustment
(that is, the proposed adjustment to
reduce the standard Federal rate by
approximately 3.75 percent was higher
than the estimated 2.5 percent
difference between LTCH PPS payments
and TEFRA payments in FY 2003 in
order to account for SSO cases that are
not paid based on the standard Federal
rate). However, these commenters
believed that CMS specifically needs to
consider the percentage of LTCH PPS
payments that are paid as SSOs and
how that percentage has changed over
time, highlighting the fact that in 2012
only 30 percent of cases were SSO cases
versus 48 percent in 2003. These
commenters believed that the proposed
3.75 percent one-time perspective
adjustment is overstated because CMS’
proposed methodology does not account
for the fact that there are currently fewer
SSO cases than there were in FY 2003,
and specifically requested that CMS
recalculate the one-time prospective
adjustment to include an adjustment to
reflect the current level of SSO case. By
accounting for current levels of SSO
cases (30 percent versus 48 percent) in
CMS’ proposed methodology, the
commenters calculated a one-time
perspective adjustment of 2.75 percent
(instead of 3.75 percent).
Response: As mentioned above,
although we agree that the levels of SSO
cases have changed since the inception
of the LTCH PPS, the policy objective
behind the one-time prospective
adjustment has always been to ensure

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that any significant difference between
the data used in the original
computation of budget neutrality for FY
2003 and more recent data to determine
budget neutrality for FY 2003 are not
perpetuated in the LTCH PPS rates for
future years. Consistent with this policy
objective, our proposed methodology for
determining a one-time prospective
adjustment compares estimated
payments that would have been made in
FY 2003 under the TEFRA payment
system to estimated payments under the
LTCH PPS in FY 2003. Thus, the data
and methodology that we have
employed for this purpose is limited to
the types of Medicare cases projected to
have been treated in LTCHs in 2003,
and the 2012 levels of SSO cases are not
germane to the computations of budget
neutrality for FY 2003 under the onetime prospective adjustment under
§ 412.523(d)(3). As discussed above, we
continue to believe that the one-time
prospective adjustment should be based
on any difference in payment between
what would have otherwise been paid
under the TEFRA payment system and
payments made under the LTCH PPS as
it was implemented in FY 2003, only.
The current level of SSO cases has no
relationship to estimated FY 2003 LTCH
PPS payments, which were used to
evaluate and calculate the proposed
one-time prospective adjustment under
§ 412.523(d)(3). For these reasons, we
disagree with the commenters’
assertions that the proposed 3.75
percent one-time prospective
adjustment is overstated, and are not
adopting the commenters’ suggestion to
make an adjustment to our methodology
for calculating the one-time prospective
adjustment to account for the current
level of SSO cases. Therefore, as stated
above, we are finalizing our
methodology for calculating for the onetime prospective adjustment, as
proposed, without modification.
Comment: One commenter believed
that CMS is inconsistent in its treatment
of ‘‘the one-time adjustment’’ across
various PPSs, specifically citing that a
Inpatient Rehabilitation Facility (IRF)
policy that reduced the standard Federal
rate to account for changes in coding
that did not reflect changes in case-mix
index. The commenter stated that such
adjustments to account for changes in
coding that did not reflect changes in
case-mix index have been adopted
under both the IRF PPS and the LTCH
PPS. However in the case of the IRF
PPS, CMS considered that adjustment to
have satisfied ‘‘its responsibility to
perform a one-time adjustment’’ under
the IRF PPS while a similar adjustment
to account for changes in coding that

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did not reflect changes in case-mix
index made under the LTCH PPS did
not negate CMS’ need to impose a onetime prospective adjustment under
§ 412.523(d)(3). They requested a full
explanation on why LTCHs are being
treated differently than IRFs and
suggested that this inconsistency is
inequitable.
Response: We believe that the
commenter has mistakenly assumed that
the adjustment to account for coding or
classification changes that did not
reflect real changes in case-mix under
the IRF PPS is the same as the one-time
prospective adjustment under
§ 412.523(d)(3). Under the IRF PPS, we
established a reduction to the standard
payment amount of 1.9 percent to
account for coding changes consistent
with the requirement set forth in section
1886(j)(2)(C)(ii) of the Act that directs
the Secretary to adjust the per payment
unit payment rate for IRF services to
eliminate the effect of coding or
classification changes that do not reflect
real changes in case-mix if the Secretary
determines that changes in coding or
classification of patients’ severity of
illnesses have resulted or will result in
changes in aggregate payments under
the classification system (70 FR 47904
through 47908). In the discussion of the
development of the IRF standard
payment conversion factor for FY 2006
in that same final rule (70 FR 47937,
47939, and 47950), we referred to that
‘‘adjustment’’ as ‘‘a one-time reduction
to the standard payment amount of 1.9
percent to adjust for coding changes that
increased payments to IRFs’’ (emphasis
added). We believe that because the
term ‘‘one-time’’ was used in
conjunction with the 1.9 percent
reduction that was applied in
determining the IRF standard payment
conversion factor for FY 2006, that the
commenter mistakenly believed that
adjustment serves the same purpose as
the one-time prospective adjustment
under § 412.523(d)(3).
As discussed in the FY 2006 IRF PPS
final rule (70 FR 47904 through 47908),
the ‘‘one-time’’ reduction to the
standard payment amount of 1.9 percent
was based on an analysis that showed
that there was an increase in FY 2003
IRF PPS payments due to
documentation and coding changes that
did not reflect real changes in case-mix,
and we believed that changes in
payment amounts should accurately
reflect changes in IRFs’ patient case-mix
(that is, the true cost of treating
patients), and should not be influenced
by changes in coding practices. As the
commenter pointed out, the purpose of
the ‘‘one-time’’ 1.9 percent reduction
made to the FY 2006 IRF standard

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payment amount is similar in purpose
to the documentation and coding
adjustments that have been made under
the LTCH PPS. However, the purpose of
those documentation and coding
adjustments made under the LTCH PPS
(that is, to account for increases in
LTCH PPS payments that were due to
documentation and coding changes that
do not reflect real changes in case-mix)
is separate and distinct from that of the
stated purpose of the LTCH PPS onetime prospective adjustment under
§ 412.523(d)(3) (that is, to ensure that
any significant difference between
estimated total FY 2003 LTCH PPS
payments and estimated total FY 2003
TEFRA payments is not perpetuated in
the LTCH PPS payment rates in future
years). Therefore, we disagree with the
commenter that we have been
inconsistent or inequitable in our
treatment in applying adjustments,
including the one-time prospective
adjustment provided for at
§ 412.523(d)(3), across various PPSs. We
also note that we responded to a similar
comment on our proposal to extend the
regulatory timeframe for making the
possible one-time prospective
adjustment under § 412.523(d)(3) in the
RY 2007 LTCH PPS final rule (27842
through 27843), where we believe that
the commenter mistakenly assumed that
the adjustment to account for changes in
documentation and coding practices
that did not reflect real changes in casemix is the same as the one-time
prospective adjustment under
§ 412.523(d)(3). In response, we
explained that because the intended
purposes of those adjustments are
different, we do not believe that we
acted in an inconsistent manner by
making two separate adjustments under
the LTCH PPS that have separate and
distinct purposes. Similarly, we
disagree with the commenter that CMS
is inconsistent in its treatment of ‘‘the
one-time adjustment’’ across various
PPSs since the purposes of those
adjustments are separate and distinct (as
explained above).
Comment: One commenter objected to
the one-time prospective adjustment
because a budget neutrality factor is
already being applied during the MSLTC-DRG recalibration process. The
commenter believed that applying the
one-time prospective adjustment would
place providers in double jeopardy
because if they are coding accurately,
they will get penalized on an annual
basis from the MS-LTC-DRG
recalibration budget neutrality factors
and the one-time prospective
adjustment ‘‘budget neutrality factor.’’
Response: CMS’ regulations under
§ 412.517(b) require that, ‘‘the annual

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changes to the LTC–DRG classifications
and recalibration of the weighting
factors * * * are made in a budget
neutral manner such that estimated
aggregate LTCH PPS payments are not
affected.’’ We established this
requirement in order to mitigate
fluctuations in aggregate LTCH PPS
payments resulting from the annual
update to the MS–LTC–DRG
classifications and relative weights that
reflect changes in relative resource use
based on the latest available data (72 FR
26880 through 26882). The purpose of
the annual MS–LTC–DRG recalibration
budget neutrality factor is separate and
distinct from that of the one-time
prospective adjustment, and is not
germane to ensuring that any significant
difference between estimated total FY
2003 LTCH PPS payments and
estimated total FY 2003 TEFRA
payments is not perpetuated in the
LTCH PPS payment rates in future
years. Therefore, we disagree with the
commenter that applying both the onetime prospective adjustment and the
annual MS–LTC–DRG recalibration
budget neutrality factor would result in
a double adjustment to LTCHs for
accurate coding.
Comment: Many commenters
commended our proposal to phase-in
the one-time prospective adjustment
over 3 years. Some commenters
requested that CMS phase-in the
adjustment over 4 years. One
commenter requested a 5-year phase-in.
One commenter, who supported the 3year phase-in, requested that the onetime prospective adjustment that would
be applied to the standard Federal rate
for each year for FYs 2013 through 2015
be removed before establishing the
initial base rates each year for FYs 2014
and 2015 so as not to create a
compounding effect of the reduction in
those years.
Response: We appreciate the
commenters’ support to phase-in the
one-time prospective adjustment. In
recognition of the magnitude of this
adjustment, we proposed to phase-in the
adjustment over a 3 year period, which
should mitigate the impact of this
reduction to the standard Federal rate,
and we continue to believe that 3 years
is a sufficient amount of time for
providers to adjust to the effect on their
LTCH PPS payments resulting from this
adjustment.
As we explained in the proposed rule
(77 FR 28031), the proposed one-time
prospective adjustment of 0.9625 would
be permanently applied to the standard
Federal rate so that the effect of the
estimated difference between the data
used in the original computations of
budget neutrality for FY 2003 and more

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53495

recent data to determine budget
neutrality for FY 2003 is not
perpetuated in the prospective payment
rates for future years. To achieve a
permanent adjustment of 0.9625, we
proposed to apply a factor of 0.98734 to
the standard Federal rate in each year of
the 3-year phase-in, that is, in FY 2013
(which would not be applicable to
payments for discharges occurring on or
after October 1, 2012, and on or before
December 28, 2012, consistent with
current law), FY 2014, and FY 2015. By
applying a permanent factor of 0.98734
to the standard Federal rate in each year
for FYs 2013, 2014, and 2015, we will
completely account for the entire 3.75
percent adjustment by having applied a
cumulative factor of 0.9625 (calculated
as 0.98734 × 0.98734 × 0.98734 =
0.9625). Consequently, applying a factor
of 0.98734 in each of FYs 2013 through
2015 would create a compounding effect
of the reduction and it is not
appropriate to remove the prior year’s
factor before establishing the standard
federal rate for FYs 2014 and 2015. As
discussed above, a factor of 0.9625 (or
approximately a 3.75 percent reduction)
to the standard Federal rate is necessary
to ensure that the difference between
estimated total FY 2003 LTCH PPS
payments and estimated total FY 2003
TEFRA payments is not perpetuated in
the LTCH PPS payment rates in future
years consistent with our stated policy
goal of the one-time prospective
adjustment at § 412.523(d)(3). As
discussed below in this section, we are
revising our proposed revision to
§ 412.523(d)(3) to clarify the standard
Federal rate will be permanently
adjusted by to account for the estimated
difference between projected aggregate
FY 2003 LTCH PPS payments and the
projected aggregate FY 2003 TEFRA
payments.
i. Final Policy Regarding the One-Time
Prospective Adjustment Under
§ 412.523(d)(3)
After consideration of the public
comments we received, we are
finalizing our proposal to make a onetime prospective adjustment to the
standard Federal rate so that it will be
permanently reduced by approximately
3.75 percent to account for the
estimated difference between projected
aggregate FY 2003 LTCH PPS payments
and the projected aggregate payments
that would have been made in FY 2003
under the TEFRA payment system if the
LTCH PPS had not been implemented.
Based on approximately 91,300 LTCH
discharges for 250 LTCHs, under the
methodology and data presented above,
we calculated that estimated FY 2003
LTCH PPS payments are approximately

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2.5 percent higher than estimated
payments to the same LTCHs in FY
2003 if the LTCH PPS had not been
implemented (that is, estimated total FY
2003 TEFRA payment system
payments). This 2.5 percent difference
exceeds the 0.25 percentage points
threshold of what we consider to be a
‘‘significant difference’’ for purposes of
determining whether the one-time
prospective adjustment provided under
§ 412.523(d)(3) is warranted, as
discussed above in this final rule. As
also discussed in greater detail above,
because of the estimated LTCH PPS
payments for certain SSO cases are
generally not affected by any one-time
prospective adjustment factor that is
applied to the standard Federal rate, it
is necessary to offset the standard
Federal rate by a factor that is larger
than 2.5 percent in order to ensure that
estimated total FY 2003 LTCH PPS
payments would be equal to estimated
total FY 2003 TEFRA payments in order
to ‘‘maintain budget neutrality’’, thereby
ensuring that the effect of any
significant difference between the data
used in the original computations of
budget neutrality for FY 2003 and more
recent data to determine budget
neutrality for FY 2003 is not
perpetuated in the LTCH prospective
payment rates for future years.
To determine the necessary
adjustment factor to apply to the
standard Federal rate to make the onetime prospective adjustment under
§ 412.523(d)(3), using the methodology
we are adopting in this final rule (as
described in this section), we simulated
FY 2003 LTCH PPS payments by
simulating payments on a case-by-case
basis using the final FY 2003 LTCH PPS
payment rates and policies as
established when we implemented the
LTCH PPS in the August 30, 2002 final
rule (67 FR 56032). Using iterative
payment simulations using the data
from the 250 LTCHs in our database, we
determined that we need to apply a
factor of 0.9625 (that is, a reduction of
approximately 3.75 percent rather than
2.5 percent) to the standard Federal rate
in order to make estimated total FY
2003 LTCH PPS payments equal to
estimated total FY 2003 TEFRA
payments consistent with our stated
policy goal of the one-time prospective
adjustment under § 412.523(d)(3) (that
is, to ensure that the difference between
estimated total FY 2003 LTCH PPS
payments and estimated total FY 2003
TEFRA payments is not perpetuated in
the LTCH PPS payment rates in future
years).
Furthermore, given the magnitude of
this adjustment and in
acknowledgement of hopeful research

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outcomes, we are finalizing our
proposal to phase-in this approximate
3.75 percent reduction to the standard
Federal rate over a 3-year period.
Although the adjustment to the standard
Federal rate provided for at
§ 412.523(d)(3) is called a ‘‘one-time’’
prospective adjustment, as stated above,
this adjustment will be permanently
applied to the standard Federal rate so
that the effect of the estimated
difference between the data used in the
original computations of budget
neutrality for FY 2003 and more recent
data to determine budget neutrality for
FY 2003 is not perpetuated in the
prospective payment rates for future
years. During this 3-year period, we
intend to further explore potential
revisions to certain LTCH PPS payment
policies as discussed above in section
VII.E.2. of this preamble. Below, we
describe the methodology that we are
establishing in this final rule to
determine the one-time prospective
adjustment under § 412.523(d)(3) of the
regulations. (We note that, as discussed
above, this is the same methodology we
proposed in the FY 2013 IPPS/LTCH
PPS proposed rule.)
In this final rule, to evaluate a onetime prospective adjustment under
§ 412.523(d)(3) of the regulations, we
based our estimate of FY 2003 LTCH
PPS payments on the same set of
discharges (from FY 2002) which are the
basis for the estimate of what would
have been paid in FY 2003 under the
reasonable cost-based (TEFRA) payment
system. Specifically, we compared—
• Estimated aggregate FY 2003
TEFRA payments calculated on the
basis of FY 2002 costs, updated to FY
2003, to
• Estimated aggregate payments that
would have been made in FY 2003
under the LTCH PPS methodology, by
applying the FY 2003 LTCH payment
rules to the discharges that occurred in
FY 2002.
As discussed above, we believe that
this approach will ensure that we are
comparing the estimated FY 2003
TEFRA payments, which are based on
updated costs incurred for FY 2002
discharges, to the estimated PPS
payments that would have been made
for those same FY 2002 discharges
under the new LTCH PPS payment
methodology.
Under the policy we are adopting in
this final rule to use FY 2002 LTCH
costs as a basis for estimating FY 2003
LTCH TEFRA payments in evaluating
whether to establish a one-time
prospective adjustment under
§ 412.523(d)(3), as we proposed, we are
updating LTCHs’ FY 2002 costs for
inflation to FY 2003 by our Office of the

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Actuary’s current estimate of the actual
increase in the excluded hospital market
basket from FY 2002 to FY 2003 of 4.2
percent. This updated amount serves as
the proxy for actual FY 2003 costs under
the TEFRA payment system in the
budget neutrality computation for
purposes of the one-time prospective
adjustment at § 412.523(d)(3). We note
that, as we proposed, under our
methodology to estimate reasonable
cost-based payments under the TEFRA
payment system, we updated LTCHs’
TEFRA target amounts from FY 2002 to
FY 2003 using the forecasted market
basket percentage increase of 3.5
percent, as discussed in greater detail
below. This approach maintains
consistency with the approach taken in
the FY 2003 IPPS final rule in which we
established an applicable rate-ofincrease percentage to update TEFRA
target amounts from FY 2002 to FY 2003
of 3.5 percent (67 FR 50289). This
increase was based on our Office of the
Actuary’s forecasted increase in the
excluded hospital market basket for FY
2003, using the best available data at
that time. Based on more recent data,
our Office of the Actuary now estimates
the actual increase in the excluded
hospital market based from FY 2002 to
FY 2003 is 4.2 percent (as stated above).
We believe it is appropriate to use the
current estimate of the actual increase in
the excluded hospital market basket
based from FY 2002 to FY 2003 (4.2
percent) to update LTCHs’ FY 2002
costs for inflation to FY 2003 because
this reflects the most recent estimate of
increases in the prices of goods and
services realized by LTCHs when
providing inpatient hospital services.
The methodology we are adopting in
this final rule to estimate FY 2003 LTCH
payments under the TEFRA payment
system (which is presented below) is
similar in concept to the methodology
we used to estimate FY 2003 LTCH total
payments under the TEFRA payment
system when we determined the initial
standard Federal rate in the August 30,
2002 final rule (67 FR 56030 through
56033). We note that our methodology
for estimating FY 2003 LTCH total
payments under the TEFRA payment
system using FY 2002 cost data for the
purposes of the one-time prospective
adjustment at § 412.523(d)(3), includes
modifications to the methodology we
used to estimate FY 2003 LTCH total
payments under the TEFRA system
when we implemented the LTCH PPS
because we used data from a later
period (FY 2002 as compared to FYs
1998 and 1999), as discussed in greater
detail below. As we proposed, in
general, we estimated total LTCH

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payments under the TEFRA payment
system in FY 2003 using the following
steps:
• Estimate each LTCH’s payment per
discharge for inpatient operating costs
under the TEFRA payment system for
FY 2003, including continuous bonus
improvement payments (Step 1);
• Estimate each LTCH’s payment per
discharge for capital-related costs for FY
2003 (Step 2); and
• Sum each LTCH’s estimated
operating and capital payment per case
to determine its estimated total FY 2003
TEFRA payment system payment per
discharge (Step 3).
We discuss each of these steps in
greater detail below.
Step 1.—Estimate each LTCH’s
payment per discharge for inpatient
operating costs under the TEFRA
payment system for FY 2003.
Under our methodology, the first step
in the process of estimating total FY
2003 payments under the TEFRA
payment system is to estimate each
LTCH’s payment per discharge for
inpatient operating costs under the
TEFRA payment system. Until FY 1998,
the payment methodology for inpatient
operating costs under the TEFRA
payment system was a relatively
straightforward process. First, we
calculated a target amount by dividing
the Medicare total allowable inpatient
operating costs in a base year by the
number of Medicare discharges. The
provider’s target amount under the
TEFRA payment system (referred to as
the TEFRA target amount) was then
updated by a rate-of-increase percentage
(§ 413.40(c)(3) of the regulations to
determine the TEFRA target amount for
the subsequent cost reporting period
(§ 413.40(c)(4)(i) and (ii)). Generally, for
any particular cost reporting period, the
Medicare payment for inpatient
operating costs would be the lesser of
the hospital’s allowable net inpatient
operating costs, or the updated TEFRA
target amount multiplied by the number
of Medicare discharges during the cost
reporting period, that is, the TEFRA
ceiling (§ 413.40(a)(3)).
The TEFRA payment system
methodology described above, broadly
speaking, is the general approach that
we used to arrive at an estimate of what
Medicare payments for hospital
inpatient operating costs would have
been in FY 2003 under the TEFRA
payment system. That is, under our
methodology, each LTCH’s FY 2003
TEFRA target amount was calculated by
updating its estimated FY 2002 target
amount per discharge by the full market
basket percentage increase. The sum of
all LTCH payments for operating costs
(TEFRA target amount multiplied by

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Medicare discharges), bonus or relief
payments, continuous improvement
bonus payments, and payments for
capital-related costs yields, in general,
the estimate of what total Medicare
payments to LTCHs would have been in
FY 2003 under the TEFRA payment
system if the LTCH PPS had not been
implemented.
However, because sections 4413
through 4419 of the BBA of 1997,
section 122 of the BBRA of 1999, and
section 307(a)(1) of the BIPA made
numerous changes to the TEFRA
payment system, our methodology
reflects variations in the method
described above to arrive at the estimate
of FY 2003 payments for the inpatient
operating costs of each LTCH under the
TEFRA payment system, depending on
the participation date of the hospital.
Specifically, we made the requisite
computations differently for two classes
of hospitals, ‘‘existing’’ hospitals and
‘‘new’’ hospitals. (A detailed
explanation of the provisions affecting
LTCHs, established by each of the
amendments, is found in the August 30,
2002 final rule that implemented the
LTCH PPS (67 FR 55959).) We discuss
below these specific BBA, BBRA, and
BIPA changes, and their impact on the
calculations of estimated FY 2003
TEFRA payments for ‘‘existing’’ and
‘‘new’’ hospitals under our methodology
for estimating total LTCH payments
under the TEFRA payment system in FY
2003 for purposes of the one-time
prospective adjustment under
§ 412.523(d)(3). As discussed in greater
detail below, we employed two
approaches to estimate Medicare
payments under the TEFRA payment
system to LTCHs in FY 2003, depending
on how these changes in calculating
TEFRA payments, as established by the
amendments, applied to each LTCH.
(We note, the discussion below of the
specific BBA, BBRA, and BIPA changes
and their impact on the calculations of
estimated FY 2003 TEFRA payments for
‘‘existing’’ and ‘‘new’’ hospitals under
our methodology for estimating total
LTCH payments under the TEFRA
payment system in FY 2003 for
purposes of the one-time prospective
adjustment under § 412.523(d)(3) is the
same as the discussion presented in the
RY 2009 LTCH PPS proposed rule (73
FR 5356 through 5359).)
The first set of changes that we took
into account was included in the BBA.
The BBA made significant changes to
the TEFRA payment methodology
starting with cost reporting periods
beginning on or after October 1, 1997.
While the changes were applicable to
three types of PPS-excluded providers
(rehabilitation hospitals and units,

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psychiatric hospitals and units, and
LTCHs), the following discussion will
address the provisions of the
amendments as they relate to LTCHs.
The first change to consider under the
BBA is section 4414 that established
caps on the TEFRA target amounts for
cost reporting periods beginning on or
after October 1, 1997, for LTCHs that
were paid as IPPS-excluded providers
prior to that date. The cap was
determined by taking the 75th
percentile of target amounts for cost
reporting periods ending in FY 1996 for
each class of provider (rehabilitation
hospitals and units, psychiatric
hospitals and units, and LTCHs),
updating that amount by the market
basket percentage increases to FY 1998,
and applying it to the cost reporting
period beginning on or after October 1,
1997 (62 FR 46018). The cap calculated
for FY 1998 was updated by the
applicable market basket percentages for
cost reporting periods beginning during
FY 1999 through 2002. Providers subject
to the 75th percentile cap were paid the
lesser of their inpatient operating costs
or the TEFRA target amount, which was
limited by the 75th percentile cap
amount (67 FR 55959). In addition,
section 4411 of the BBA established a
formula for calculating the update factor
for FY 1999 through FY 2002 that was
dependent on the relationship of a
provider’s inpatient operating costs to
its ceiling amount based on data from
the most recently available cost report.
Section 121 of the BBRA provided that
the 75th percentile cap amount should
be wage adjusted, starting with cost
reporting periods beginning on or after
October 1, 1999, and before October 1,
2002.
The second change that we took into
account was section 4415 of the BBA.
This provision revised the percentage
factors used to determine the amount of
bonus and relief payments for LTCHs
meeting specific criteria. If a provider’s
net inpatient operating costs did not
exceed the hospital’s ceiling, a bonus
payment was made to the LTCH
(§ 413.40(d)(2) of the regulations). The
bonus payment was the lower of 15
percent of the difference between the
hospital’s inpatient operating costs and
the ceiling, or 2 percent of the ceiling.
In addition, relief payments were made
to providers whose net inpatient
operating costs were greater than 110
percent of the ceiling (or adjusted
ceiling, if applicable). These relief
payments were the lower of 50 percent
of the allowable inpatient operating
costs in excess of 110 percent of the
ceiling (or the adjusted ceiling, if
applicable) or 10 percent of the ceiling

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(or adjusted ceiling, if applicable)
(§ 413.40(d)(3)(ii) of the regulations).
The third change that was considered
was the additional incentive established
by section 4415 of the BBA, the CIB
payment for providers meeting certain
conditions and that kept their costs
below the target amount. Eligibility for
the CIB payment required that a
provider had three full cost reporting
periods as an IPPS-excluded provider
prior to the applicable fiscal year (62 FR
46019). To qualify for a CIB payment, a
provider’s operating costs per discharge
in the current cost reporting period had
to be lower than the least of any of the
following: its target amount; its
expected costs, that is, the lower of its
target amount or allowable inpatient
operating costs per discharge from the
previous cost reporting period, updated
by the market basket percent increase
for the fiscal year; or, its trended costs,
that is, the inpatient operating costs per
discharge from its third full cost
reporting period, updated by the market
basket percentage increase to the
applicable fiscal year (62 FR 46019;
§ 413.40(d)(5)(ii)(B) of the regulations).
For providers with their third or
subsequent full cost reporting period
ending in FY 1996, trended costs are the
lower of their allowable inpatient
operating costs per discharge or target
amount updated forward to the current
year (§ 413.40(d)(5)(ii)(A) of the
regulations). The CIB payment equals
the lesser of 50 percent of the amount
by which the operating costs were less
than expected costs, or 1 percent of the
ceiling (§ 413.40(d)(4) of the
regulations). Section 122 of the BBRA
increased this percentage for LTCHs for
FY 2001 to 1.5 percent of the ceiling,
and beginning in FY 2002, to 2 percent
of the ceiling (§ 413.40(d)(4)(ii) and (iii)
of the regulations). The increase in the
CIB payment percentage is not to be
accounted for in the development and
implementation of the LTCH PPS in
accordance with section 307(a)(2) of
BIPA.
The fourth change that we took into
account was section 4416 of the BBA,
which significantly revised the payment
methodology for ‘‘new’’ IPPS-excluded
providers. This provision applies to
three classes of providers—psychiatric
hospitals and units, rehabilitation
hospitals and units, and LTCHs—that
were not paid as excluded hospitals
prior to October 1, 1997. The payment
amount for a new provider for the first
12-month cost reporting period is the
lower of its Medicare inpatient
operating cost per discharge or a limit
based on 110 percent of the national
median of target amounts for the same
class of hospital for cost reporting

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periods ending in FY 1996, updated by
the market basket percentage increases
to the applicable period, and wageadjusted. The payment limit in the
second 12-month cost reporting period
is the same 110 percent limit as for the
first year (§ 413.40(f)(2)(ii)). A new
provider’s target amount would be
established in its third cost reporting
period by updating the amount paid in
its second cost reporting period by the
market basket percentage increase for
hospitals and hospital units excluded
from the IPPS, applicable to the specific
year, as published annually in the
Federal Register, which then becomes
the target amount for its third cost
reporting period. The target amount for
the fourth and subsequent cost reporting
periods is determined by updating the
target amount from the previous cost
reporting period by the applicable
market basket percentage increase.
Finally, two provisions under BIPA
specifically related to LTCHs. Section
307(a) of BIPA provided a 2 percent
increase to the wage-adjusted 75th
percentile cap for existing LTCHs for
cost reporting periods beginning in FY
2001, and a 25 percent increase to the
target amount for LTCHs, subject to the
increased 75th percentile cap. However,
it is important to note that in
accordance with section 307(a)(2) of
BIPA, the 2 percent increase to the 75th
percentile cap and the 25 percent
increase to the target amount were not
to be taken into account in the
development and implementation of the
LTCH PPS.
In this final rule, under our
methodology, in order to determine
what a LTCH’s estimated payments
would be under the TEFRA payment
system in FY 2003, we used cost report
data for LTCHs from the Hospital Cost
Reporting Information System (HCRIS)
for FYs 1999 through 2002. In addition,
to determine whether a LTCH is ‘‘new,’’
the certification date for each LTCH was
obtained from the On-line Survey &
Certification Automated Reporting
(OSCAR) file. Based on the certification
date, a LTCH would either be a ‘‘new’’
LTCH, meaning a LTCH that was not
paid as an excluded hospital prior to
October 1, 1997, or an ‘‘existing’’ LTCH,
meaning a LTCH that was paid as an
excluded hospital prior to October 1,
1997. This could include a LTCH that
was certified as an LTCH on or after
October 1, 1997, but was previously
paid as another type of IPPS-excluded
provider prior to October 1, 1997. Our
approach to estimating Medicare
payments in FY 2003 under the TEFRA
payment system varies somewhat,
depending on whether an LTCH was
either ‘‘existing’’ or ‘‘new’’ is discussed

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in greater detail below. Below we
discuss our methodology for estimating
FY 2003 inpatient operating payments
under the TEFRA payment system for
‘‘existing’’ hospitals (Step 1.a.) and
‘‘new’’ hospitals (Step 1.b.), and our
methodology for estimating CIB
payments under the TEFRA payment
system in FY 2003 (under Step 1.c.).
Step 1.a.—Estimate FY 2003 inpatient
operating payments under the TEFRA
payment system for ‘‘existing’’ LTCHs.
Based on the applicable statutory
changes mentioned above, under our
methodology, the first step was to
estimate FY 2003 inpatient operating
payments under the TEFRA payment
system for ‘‘existing’’ LTCHs. ‘‘Existing’’
LTCHs are those receiving payment as
IPPS-excluded providers in cost
reporting periods prior to FY 1998.
These LTCHs were subject to the 75th
percentile cap on their hospital-specific
target amounts. While section 307(a)(1)
of BIPA provided for a 2-percent
increase to the 75th percentile cap
amount for LTCHs for cost reporting
periods beginning in FY 2001 and a 25percent increase to the target amount for
cost reporting periods beginning in FY
2001 (subject to the limiting or cap
amount determined under section
1886(b)(3)(H) of the Act), section
307(a)(2) of BIPA precluded accounting
for these increases in developing the
LTCH PPS. In addition, section 122 of
the BBRA increased the CIB payment
percentage to 1.5 percent for FY 2001
and 2.0 percent for FY 2002
(§ 413.40(d)(4)(ii) and (iii)). But these
increases, also, are not to be accounted
for the development and
implementation of the LTCH PPS in
accordance with section 307(a)(2) of
BIPA. Therefore, to ensure that these
increases would be excluded from the
computations, as required by the statute,
we estimated an existing LTCH’s FY
2003 target amount by starting with the
hospital’s target amount from the FY
2000 cost report, the year prior to when
these increases were effective. Target
amounts and payments for FY 2003
were simulated using the FY 2000 target
amount in the hospital’s cost report and
updating the target amount for each
subsequent cost reporting period by the
applicable rate-of-increase percentage as
described in § 413.40(c)(3)(vii) through
FY 2002. The target amount from FY
2002 was updated by the forecasted
market basket percentage increase of 3.5
percent to arrive at the FY 2003 target
amount (§ 413.40(c)(3)(viii)). (We note
that the forecasted increase in the
excluded hospital market basket for FY
2003 of 3.5 percent was used to
establish the applicable rate-of-increase
percentage used to update TEFRA target

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amounts in accordance with
§ 413.40(c)(3)(viii) in the FY 2003 IPPS
final rule (67 FR 50289)). Based on more
recent data, our Office of the Actuary
currently estimates an increase of 4.2
percent in the excluded hospital market
basket for FY 2003, which we used to
update LTCHs’ FY 2002 costs to FY
2003, as described below.) In a small
number of cases where FY 2002
operating cost data were not available,
we used operating cost data from the
most recent year available and trended
it forward to FY 2003. In addition, we
estimated FY 2003 bonus or relief
payments without the inclusion of the
2-percent and 25-percent increases to
the cap amount and target amount,
respectively, and without the 1.5
percent and 2.0 percent increases to the
CIB payments, consistent with section
307(a)(2) of BIPA as discussed above.
In addition, because comparisons
were made between the target amount
and Medicare inpatient operating costs
to determine bonus or relief payments,
under our methodology, we estimated
FY 2003 operating costs for each LTCH
by updating its FY 2002 operating costs
by the actual percentage increase in
operating costs for PPS-excluded
hospitals from FY 2002 to FY 2003 (4.2
percent, as determined by our Office of
the Actuary) because this is currently
our best estimate of actual cost increase
from FY 2002 to FY 2003 realized by
excluded hospitals, including LTCHs.
As discussed earlier, we estimated the
FY 2003 operating costs using FY 2002
costs rather than using the costs
reported on the FY 2003 cost report.
The 75th percentile cap for LTCHs for
FY 2002, without the 2-percent and 25percent increases to the cap and target
amount, respectively, was $30,783 for
the wage-index adjusted labor-related
share, and $12,238 for the nonlaborrelated share. If a LTCH’s costs and
hospital-specific target amount were
above the 75th percentile cap,
Medicare’s payment under the TEFRA
system would be the wage-index
adjusted cap amount. If under our
payment model a LTCH’s estimated FY
2002 TEFRA payment would have been
limited by the wage-adjusted 75th
percentile cap in FY 2002, that amount
would be updated by the forecasted
market basket percentage increase (of
3.5 percent) to FY 2003 to determine the
LTCH’s FY 2003 target amount that was
used to estimate its TEFRA payment
system amount for FY 2003 under our
methodology.
Step 1.b.—Estimate FY 2003 inpatient
operating payments under the TEFRA
payment system for ‘‘new’’ LTCHs.
Next, under our methodology, we
estimated FY 2003 hospital operating

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payments under the TEFRA payment
system for ‘‘new’’ LTCHs based on the
applicable statutory changes discussed
above. A ‘‘new’’ LTCH is one that was
first paid as an IPPS-excluded hospital
on or after October 1, 1997. For a ‘‘new’’
LTCH, payment in the hospital’s first
12-month cost reporting period is the
lower of its Medicare net inpatient
operating costs per discharge or the
wage-adjusted 110 percent median
amount determined for that particular
year (§ 413.40(f)(2)(ii) of the
regulations). For the hospital’s second
12-month cost reporting period,
payment is the lower of their costs, or
the same 110 percent median amount
that was used in the first cost reporting
period, that is, it is not updated. The
hospital’s ‘‘target amount’’ is established
in the third cost reporting period by
updating the per discharge amount that
was paid in the prior cost reporting
period by the estimated market basket
percentage increase for hospitals and
hospital units excluded from the IPPS,
applicable to the specific year, as
published annually in the Federal
Register. Therefore, if the LTCH was
paid its costs in the previous cost
reporting period because costs were
lower than the 110 percent median
amount, the hospital’s cost per
discharge for the second cost reporting
period is updated and becomes the
target amount for the hospital’s third
cost reporting period. Target amounts
for subsequent cost reporting periods
are determined by updating the
previous year’s target amount by the
applicable market basket percentage
increase.
New LTCHs with their first 12-month
cost reporting period beginning in FY
1998 would have had a target amount
calculated under section
1886(b)(7)(A)(ii) of the Act in FY 2000.
Therefore, consistent with our finalized
policies concerning ‘‘existing’’ LTCH’s
(described in Step 1.a. above), in
estimating the FY 2003 target amount
for ‘‘new’’ LTCHs we used the target
amount from the FY 2000 cost report
and updated that target amount by the
applicable estimated market basket
percentage increases as published
annually in the Federal Register for the
IPPS final rule, without the 25-percent
increase, to FY 2003. That is, we used
3.4 percent to update from FY 2000 to
FY 2001, 3.3 percent to update from FY
2001 to FY 2002, and 3.5 percent to
update from FY 2002 to FY 2003. For
LTCHs with their first 12-month cost
reporting period beginning in FY 1999,
we used the lower of their costs or target
amount from their FY 2000 cost report,
and updated that amount by the

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applicable estimated market basket
percentage increase to establish the
target amount in FY 2001, without the
25-percent increase. Next, we continued
to update that target amount by the
estimated market basket percentage
increases to FY 2003. We believe that it
is necessary to compute an estimated
target amount for LTCHs that are ‘‘new’’
in FY 1999 under our methodology in
order to eliminate the potential
inclusion of the increase to the target
amounts provided for by section
307(a)(1) of BIPA (consistent with the
statute).
The 25-percent increase (under
section 307(a) of the BIPA) to the target
amount would not be an issue for
LTCH’s with their first 12-month cost
reporting period beginning in FYs 2000,
2001, and 2002 because they would not
have a ‘‘target amount’’ based on
sections 1886(b)(7)(A)(ii) of the Act, in
FY 2001. Rather, for these LTCHs, under
our methodology we determined the
estimated payment amount for their first
12-month cost reporting period by
looking at their certification date from
the OSCAR file, the applicable 110
percent median amount (adjusted by
their wage-index) and their costs from
the applicable cost report, and then
proceeded in accordance with the
policy in § 413.40(f)(2)(ii) of the
regulations, to arrive at estimated FY
2003 TEFRA payments.
Step 1c.—Estimate CIB payments that
would have been made in FY 2003
under the TEFRA payment system (for
both ‘‘existing’’ and ‘‘new’’ LTCHs).
In addition to the TEFRA system
payments for operating costs, and any
bonus or relief payments made, we also
added an amount to account for the
estimate of the CIB payments that would
have been made in FY 2003 under the
TEFRA payment system under
§ 413.40(d)(4). We estimated what CIB
payments would have been in FY 2003
by using actual CIB payments from the
cost reports for FYs 1999 and 2000, as
they would not include the statutory
increases to the target amount discussed
above, and recalculated CIB payments
for FYs 2001 and 2002 based on cost
report data. Based on these historical
CIB payments, we estimated that CIB
payments in FY 2003 would have been
approximately $10 million. Just as the
TEFRA payments and bonus and relief
payments had to be recalculated in
particular years to eliminate percentage
increases that were not to be included
in our budget neutrality calculations (as
required by the statute), we believe that
it is necessary to recalculate the CIB
payments in FYs 2001 and 2002 to
eliminate the percentage increases to
these payments as provided for under

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section 122 of BBRA, such that they
would not be accounted for in the
development of the LTCH in accordance
with section 307(a)(2) of BIPA.
Therefore, under our methodology, we
added $10 million as an estimate of the
CIB payments that would have been
made in FY 2003 under the TEFRA
payment system to our estimated FY
2003 TEFRA system payments for
operating costs, including any bonus or
relief payments.
Step 2.—Estimate each LTCH’s
payment per discharge for inpatient
capital costs under the TEFRA payment
system for FY 2003.
As we discussed above, under our
methodology, the second step in
estimating total payments under the
TEFRA payment system was to estimate
each LTCH’s payment per discharge for
capital-related costs for FY 2003. Under
the TEFRA payment system, in
accordance with the regulations at 42
CFR Part 413, Medicare allowable
capital costs are paid on a reasonable
cost basis. Therefore, we updated each
LTCH’s payment for capital-related
costs directly from the FY 2002 cost
report for inflation using the FY 2003
capital excluded hospital market basket
estimate of 0.7 percent, consistent with
the methodology used to establish the
initial standard Federal rate (67 FR
56031). Thus, we determined capitalrelated costs per case using capital cost
data from Worksheets D, Parts I and II,
and total Medicare discharges for the
cost reporting period from Worksheet S–
3. (We note that because payments for
capital-related costs are on a reasonablecost basis, capital payments were the
same for ‘‘existing’’ and ‘‘new’’ LTCHs.)
Step 3.—Sum each LTCH’s estimated
operating and capital payment per case
to determine its estimated total FY 2003
TEFRA payment system payment per
discharge.
Under our methodology for estimating
FY 2003 LTCH total payments under the
TEFRA payment system using FY 2002
cost data for the purposes of the onetime prospective adjustment at
§ 412.523(d)(3), after estimating
payments for inpatient operating costs
under the TEFRA payment system for
FY 2003 and payments for capitalrelated costs under the TEFRA payment
system for FY 2003, we summed each
LTCH’s estimated operating and capital
payment per case to determine its
estimated total FY 2003 TEFRA
payment system payment per discharge.
Therefore, we added the estimate of
each LTCH’s payment per discharge for
inpatient operating costs under the
TEFRA payment system for FY 2003,
including continuous improvement
bonus payments (determined under

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Steps 1.a. through 1.c. above) and the
estimate of each LTCH’s payment per
discharge for capital-related costs for FY
2003 (determined under Step 2 above).
Once we estimated total TEFRA
payments as the sum of each LTCH’s
estimated operating and capital
payment per case, under our
methodology for evaluating the one-time
prospective adjustment at
§ 412.523(d)(3), the next step was to
estimate FY 2003 payments under the
LTCH PPS. As we discussed above, we
believe that the best approach was to
use FY 2002 LTCH claims data as a
proxy for estimating FY 2003 LTCH PPS
payments in evaluating the one-time
prospective adjustment at
§ 412.523(d)(3). We note that we used
the same FY 2002 LTCH MedPAR data
that was used to develop the FY 2004
LTC–DRG relative weights in the FY
2004 IPPS final rule (68 FR 45376), as
explained below. As we discussed in
that final rule, there is a data problem
with the FY 2002 claims data for LTCHs
where multiple bills for the stay were
submitted. Specifically, given the long
stays at LTCHs, some providers had
submitted multiple bills for payment
under the reasonable cost-based
reimbursement system for the same stay.
In certain LTCHs, hospital personnel
apparently reported a different principal
diagnosis on each bill because, under
the reasonable cost-based (TEFRA)
reimbursement system, payment was
not dependent upon principal
diagnosis, as it is under a DRG-based
PPS system. As a result of this billing
practice, we discovered that only data
from the final bills were being extracted
for the MedPAR file. Therefore, it was
possible that the original MedPAR file
was not receiving the correct principal
diagnosis. In that same IPPS final rule,
we discussed how we addressed this
problem in the LTCH FY 2002 MedPAR
data when we used that data to
determine the FY 2004 LTC–DRG
relative weights. Therefore, for the
evaluation of the one-time prospective
adjustment at § 412.523(d)(3) we used
the same ‘‘corrected’’ FY 2002 LTCH
MedPAR data that was used to develop
the FY 2004 LTC–DRG relative weights.
For the reader’s benefit, we are
providing a summary of how we
addressed the multiple bill problem in
the FY 2002 LTCH MedPAR data below.
As we explained in the FY 2004 IPPS
final rule (68 FR 45376), we addressed
this problem by identifying all LTCH
cases in the FY 2002 MedPAR file for
which multiple bills were submitted.
For each of these cases, beginning with
the first bill and moving forward
consecutively through subsequent bills

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for that stay, we recorded the first
unique diagnosis codes up to 10 and the
first unique procedure codes up to 10.
We then used these codes to
appropriately group each LTCH case to
a LTC–DRG for FY 2004.
For this final rule, as we proposed, we
estimated FY 2003 LTCH PPS payments
using the same general methodology
that we used to estimate FY 2003
payments under the LTCH PPS (without
a budget neutrality adjustment) when
we determined the initial standard
Federal rate in the August 30, 2002 final
rule (67 FR 56032). Specifically, we
estimated FY 2003 LTCH PPS payments
for each LTCH by simulating payments
on a case-by-case basis by applying the
final FY 2003 payment policies
established in the August 30, 2002 final
rule that implemented the LTCH PPS
(67 FR 55954) based on the LTCH casespecific discharge information from the
FY 2002 MedPAR files (as explained
above), and we also used LTCH
provider-specific data from the FY 2003
Provider-Specific File (PSF), as these
were the data used by fiscal
intermediaries to make LTCH payments
during the first year of the LTCH PPS
(FY 2003). Under our methodology, we
used the FY 2003 LTC–DRG Grouper
(Version 22.0), relative weights, and
average length of stay (67 FR 55979
through 55995); we made adjustments
for differences in area wage levels
established for FY 2003 as set forth at
§ 412.525(c) using the appropriate
phase-in wage index values for FY 2003
(67 FR 56015 through 56020); we made
a cost-of-living adjustment for LTCHs
located in Alaska and Hawaii as set
forth at § 412.525(b) (67 FR 56022); we
made adjustments for SSO cases based
on the method for determining payment
applicable for discharges occurring
during FY 2003 in accordance with
§ 412.529(c)(1) (67 FR 55975 and 55995
through 56002); and we included
additional payments for HCO cases in
accordance with former § 412.525(a) for
determining payments for discharges
occurring in FY 2003 and the FY 2003
fixed-loss amount of $24,450 (67 FR
56023). (We note that correctly billed
interrupted stay cases under § 412.531
are single LTCH cases in the MedPAR
files; therefore, we estimated a single
LTCH PPS payment for those cases.)
Under this methodology, for purposes of
this calculation we simulated case-bycase payments for each LTCH as if it
were paid based on 100 percent of the
standard Federal rate in FY 2003 rather
than the transition blend methodology
set forth at § 412.533. To determine total
estimated PPS payments for all LTCHs,
we summed the individual estimated

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LTCH PPS payments for each LTCH.
(We note that this is the same
methodology we used to estimate FY
2003 payments under the LTCH PPS for
purposes of evaluating the one-time
prospective adjustment at
§ 412.523(d)(3) that we presented in the
RY 2009 LTCH PPS proposed rule (73
FR 5359 through 5360).)
In order to determine if there is any
difference between estimated total
TEFRA payments and estimated LTCH
PPS payments in FY 2003 under our
methodology for evaluating a possible
one-time prospective adjustment under
§ 412.523(d)(3), we determined a caseweighted average estimated TEFRA
payment, consistent with the
methodology used when we determined
the initial standard Federal rate in the
FY 2003 LTCH PPS final rule (68 FR
56032). Under this methodology, each
LTCH’s estimated total FY 2003 TEFRA
payment per discharge was determined
by summing its estimated FY 2003
operating and capital payments under
the TEFRA payment system based on
FY 2002 cost report data (as described
in Step 3 above), and dividing that
amount by the number of discharges
from the FY 2002 cost report data. Next,
we determined each LTCH’s average
estimated TEFRA payment weighted for
its number of discharges in the FY 2002
MedPAR file (for the purpose of
estimating FY 2003 LTCH PPS
payments, as discussed above) by
multiplying its average estimated total
TEFRA payment per discharge by its
number of discharges in the FY 2002
MedPAR file. We then estimated total
case-weighted TEFRA payments by
summing each LTCH’s (MedPAR) caseweighted estimated FY 2003 TEFRA
payments. Under our methodology, we
compared these estimated FY 2003 total
TEFRA payments to estimated FY 2003
total LTCH PPS payments in order to
determine whether a one-time
prospective adjustment would be
appropriate. (As discussed in greater
detail above, we determined both
estimated total FY 2003 TEFRA
payments and estimated total FY 2003
LTCH PPS payments based on FY 2002
cost report and claims data,
respectively.) Our policy to adjust our
estimate of FY 2003 TEFRA payments
for the number of discharges that we
used to estimate FY 2003 LTCH PPS
payments will ensure that the
comparison of estimated aggregate FY
2003 TEFRA payments to estimated
aggregate FY 2003 LTCH PPS payments
is based on the same number of LTCH
discharges.
Using the methodology and data
described above, we calculated that
estimated FY 2003 LTCH PPS payments

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are approximately 2.5 percent higher
than estimated payments to the same
LTCHs in FY 2003 if the LTCH PPS had
not been implemented (that is,
estimated total FY 2003 TEFRA
payment system payments). Although
we project that estimated FY 2003 LTCH
PPS payments are approximately 2.5
percent higher than estimated FY 2003
TEFRA payments, as we explained in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28031), reducing the
standard Federal rate by 2.5 percent
would not ‘‘maintain budget neutrality’’
for FY 2003 (that is, estimated FY 2003
LTCH PPS payments would not be equal
to estimated FY 2003 TEFRA payments)
because a considerable number of LTCH
discharges are projected to have
received a LTCH PPS payment in FY
2003 based on the estimated cost of the
case (rather than a payment based on
the standard Federal rate) under the
payment adjustment for SSO cases at
§ 412.529. (As discussed previously, our
payment analysis indicates that nearly
20 percent of estimated FY 2003 LTCH
PPS payments are SSO payments that
were paid based on estimated cost and
not based on the LTCH PPS standard
Federal rate. These SSO cases that
receive a payment based on the
estimated cost of the case are generally
unaffected by any changes to the
standard Federal rate. If we were to
reduce the standard Federal rate by 2.5
percent, estimated total FY 2003 LTCH
PPS payments would still be greater
than estimated total FY 2003 TEFRA
payments (that is, would not be budget
neutral), and that difference would be
perpetuated in the LTCH PPS payment
rates for future years.) Therefore, it is
necessary to offset the standard Federal
rate by a factor that is larger than 2.5
percent in order to ensure that estimated
total FY 2003 LTCH PPS payments
would be equal to estimated total FY
2003 TEFRA payments in order to
‘‘maintain budget neutrality.’’ To
determine the necessary adjustment
factor that would need to be applied to
the standard Federal rate in order to
‘‘maintain budget neutrality,’’ we
simulated FY 2003 LTCH PPS payments
using the same payment simulation
model discussed above (that we used to
estimate FY 2003 LTCH PPS payments
without a budget neutrality factor).
Using iterative payment simulations
using the data from the 250 LTCHs in
our database, we determined that we
would need to apply a factor of 0.9625
(that is, a reduction of approximately
3.75 percent rather than 2.5 percent) to
the standard Federal rate in order to
make estimated total FY 2003 LTCH
PPS payments equal to estimated total

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FY 2003 TEFRA payments, consistent
with our stated policy goal of the onetime prospective adjustment at
§ 412.523(d)(3) (that is, to ensure that
the difference between estimated total
FY 2003 LTCH PPS payments and
estimated total FY 2003 TEFRA
payments is not perpetuated in the
LTCH PPS payment rates in future
years).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28031), based on
the methodology described above, we
proposed to revise § 412.523(d)(3) to
specify that the standard Federal rate
would be permanently reduced by 3.75
percent so that the estimated difference
between projected aggregate LTCH PPS
payments in FY 2003 and the projected
aggregate payments that would have
been made in FY 2003 under the TEFRA
payment system if the LTCH PPS had
not been implemented. Consistent with
current law, we also proposed that this
adjustment would not apply to
payments for discharges occurring on or
after October 1, 2012, and on or before
December 28, 2012. We also proposed to
phase-in the 3.75 percent reduction to
the standard Federal rate over a 3-year
period. We also explained that although
the adjustment to the standard Federal
rate provided for under § 412.523(d)(3)
is called a ‘‘one-time’’ prospective
adjustment, this adjustment will be
permanently applied to the standard
Federal rate so that the effect of the
estimated difference between the data
used in the original computations of
budget neutrality for FY 2003 and more
recent data to determine budget
neutrality for FY 2003 is not
perpetuated in the LTCH prospective
payment rates for future years.
Although we did not receive any
specific public comments on our
proposed revision to § 412.523(d)(3), as
we discussed in the comments and
responses presented above in this
section, in response to the commenter
who expressed concern about a
potential compounding effect under our
proposal to phase-in the one-time
prospective adjustment over a 3-year
period, we are taking the opportunity in
this final rule to clarify in the revisions
we are making to § 412.523(d)(3) that
the one-time prospective adjustment of
0.9625 will be permanently applied to
the standard Federal rate so that the
effect of the estimated difference
between the data used in the original
computations of budget neutrality for
FY 2003 and more recent data to
determine budget neutrality for FY 2003
is not perpetuated in the LTCH
prospective payment rates for future
years.

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Therefore, in this final rule, based on
the methodology described above, under
the broad authority granted to the
Secretary under section 123 of the
BBRA, as amended by section 307(b) of
the BIPA, we are revising
§ 412.523(d)(3) to specify that the
standard Federal rate is permanently
adjusted by 3.75 percent (that is, a factor
of 0.9625) to reflect the estimated
difference between projected aggregate
LTCH PPS payments in FY 2003 and the
projected aggregate payments that
would have been made in FY 2003
under the TEFRA payment system if the
LTCH PPS had not been implemented.
Consistent with current law, this
adjustment will not apply to payments
for discharges occurring on or after
October 1, 2012, and on or before
December 28, 2012. And as we
discussed above in this section in our
response to public comments, given the
magnitude of this adjustment and in
acknowledgement of hopeful research
outcomes, we are finalizing our
proposal to phase-in the one-time
prospective adjustment of 3.75 percent
(or a factor of 0.9625) to the standard
Federal rate over a 3-year period. As
noted above, although the adjustment to
the standard Federal rate provided for
under § 412.523(d)(3) is called a ‘‘onetime’’ prospective adjustment, this
adjustment (that is, a factor of 0.9625)
will be permanently applied to the
standard Federal rate so that the effect
of the estimated difference between the
data used in the original computations
of budget neutrality for FY 2003 and
more recent data to determine budget
neutrality for FY 2003 is not
perpetuated in the prospective payment
rates for future years. During this 3-year
period, we intend to further explore
potential revisions to certain LTCH PPS
payment policies as discussed above in
section VII.E.2. of this preamble.
Under the policy we are establishing
in this final rule, consistent with the
one-time prospective adjustment
authorized under § 412.523(d)(3), we are
applying a permanent factor of 0.98734
to the standard Federal rate in FY 2013
(which will not apply to payments for
discharges occurring on or after October
1, 2012, and on or before December 28,
2012, consistent with current law), FY
2014, and FY 2015 to completely
account for our estimate (determined
using the methodology described above)
that the standard Federal rate must be
adjusted 3.75 percent (or a factor of
0.9625) to ensure that the difference
between estimated total FY 2003 LTCH
PPS payments and estimated total FY
2003 TEFRA payments is not
perpetuated in the LTCH PPS payment

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rates in future years, consistent with our
stated policy goal of the one-time
prospective adjustment at
§ 412.523(d)(3). To achieve a permanent
adjustment of 0.9625, under the phasein of this adjustment that we are
establishing in this final rule, we will
apply a factor of 0.98734 to the standard
Federal rate in each year of the 3-year
phase-in, that is, in FY 2013 (which will
not be applicable to payments for
discharges occurring on or after October
1, 2012, and on or before December 28,
2012, consistent with current law), FY
2014, and FY 2015. By applying a
permanent factor of 0.98734 to the
standard Federal rate in each year for
FYs 2013, 2014, and 2015, we will
completely account for the entire
adjustment by having applied a
cumulative factor of 0.9625 (calculated
as 0.98734 × 0.98734 × 0.98734 =
0.9625) to the standard Federal rate.
5. Other Comments Received on the
Proposed Rule
We note that we received some public
comments on the LTCH PPS that were
outside of the scope of the FY 2013
IPPS/LTCH PPS proposed rule. These
out-of-scope public comments are not
addressed with policy responses in this
final rule. However, we appreciate these
comments and we may consider these
public comments in the development of
future rulemaking.
VIII. Quality Data Reporting
Requirements for Specific Providers
and Suppliers
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 agreedupon quality measures. CMS has
worked with relevant stakeholders to
define measures of quality for most
settings and to measure various aspects
of care for most 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
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 Reporting (OQR)
Program (formerly referred to as the
Hospital Outpatient Quality Data

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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 inpatient rehabilitation hospitals,
hospices, and ambulatory surgical
centers, and an end-stage renal disease
quality improvement program (76 FR
628 through 646) 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 Medicare
and Medicaid 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. As
appropriate, we will consider the
adoption of measures with electronic
specifications, so that the electronic
collection of performance information is
part of care delivery. Establishing such
a system will require interoperability
between EHRs and CMS data collection
systems, additional infrastructural
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 many 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 elements for many measures
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 primarily to EHRbased reporting of data for many
measures that are currently manually
chart-abstracted and submitted to CMS
for the Hospital IQR Program.
We have also implemented a Hospital
Value-Based Purchasing (VBP) Program
under section 1886(o) of the Act. In
2011, we issued the Hospital Inpatient
VBP Program final rule (76 FR 26490
through 26547). We adopted additional
policies for the Hospital VBP Program in
section IV.B. of the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51653 through
51660) and in section XVI. of the CY
2012 OPPS/ASC final rule with

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comment period (76 FR 74527 through
74547). Under the Hospital VBP
Program, hospitals will 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 (other
than readmission measures) specified
under the Hospital IQR Program as
required by section 1886(o)(2)(A) of the
Act.
In selecting measures for the Hospital
IQR Program, we are mindful of the
conceptual framework of the Hospital
VBP Program. Section 1886(o)(2)(B)(i)(I)
of the Act states that for FY 2013, the
selected measures for the Hospital VBP
Program must cover at least the
following five specified conditions or
procedures: Acute myocardial infarction
(AMI), Heart failure (HF), Pneumonia
(PN), surgical care, 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 HAIs (or any successor HHS
plan). Section 1886(o)(2)(B)(i)(II) of the
Act provides that, for FY 2013,
measures selected for the Hospital VBP
Program must also be related to the
Hospital Consumer Assessment of
Healthcare Providers and Systems
survey (HCAHPS).
The Hospital IQR Program is linked
with the Hospital VBP Program because
the measures and reporting
infrastructure for both programs
overlap. We view the Hospital VBP
Program as the next step in promoting
higher quality care for Medicare
beneficiaries by transforming Medicare
into an active purchaser of quality
healthcare for its beneficiaries. Valuebased purchasing is 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.
As we stated in the Hospital Inpatient
VBP Program proposed rule (76 FR
2455), we applied the following
principles for the development and use
of measures and scoring methodologies:
• 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

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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 this effort, we will continuously seek
to align our measures with the adoption
of e-specified measures, so the
electronic 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 also view the Hospital-Acquired
Condition (HAC) payment adjustment
program authorized by section 3008 of
the Affordable Care Act and the
Hospital VBP Program as being related
but separate efforts to reduce HACs. The
Hospital VBP Program is an incentive
program that awards payments to
hospitals based on quality performance
on a wide variety of measures, while the
program established by section 3008 of
the Affordable Care Act creates a
payment adjustment resulting in
payment reductions for the lowest
performing hospitals based on their
rates of HACs.
Although we intend to monitor the
various interactions of programs
authorized by the Affordable Care Act
and their overall impact on providers
and suppliers, we also view programs
that could potentially affect a hospital’s
Medicaid payment as separate from
programs that could potentially affect a
hospital’s Medicare payment.
In this section VIII. of this preamble,
we are adopting changes to, or
implementing, the following Medicare
quality reporting systems:
• In section VIII.A., the Hospital IQR
Program.
• In section VIII.B., the Hospital VBP
Program.
• In section VIII.C., the PPS-Exempt
Cancer Hospital Quality Reporting
(PCHQR) Program.
• In section VIII.D., the Long-Term
Care Hospital Quality Reporting
(LTCHQR) Program.

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• In section VIII.E., the Ambulatory
Surgical Center Quality Reporting
(ASCQR) Program.
• In section VIII.F., the Inpatient
Psychiatric Facilities Quality Reporting
(IPFQR) Program.
A. Hospital Inpatient Quality Reporting
(IQR) Program
1. Background
a. 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 through 43861) and the FY 2011
IPPS/LTCH PPS final rule (75 FR 50180
through 50181) for detailed discussions
of the history of the Hospital IQR
Program, including the statutory history,
and to the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51636 through 51637)
for the measures we have adopted for
the Hospital IQR measure set through
FY 2015.
b. Maintenance of Technical
Specifications for Quality Measures
The technical specifications for the
Hospital IQR Program measures, or links
to Web sites hosting technical
specifications, are contained in the
CMS/The Joint Commission (TJC)
Specifications Manual for National
Hospital Quality Measures
(Specifications Manual). This
Specifications Manual is posted on the
CMS QualityNet Web site at https://
www.QualityNet.org. We generally
update the Specifications Manual on a
semiannual basis and include in the
updates detailed instructions and
calculation algorithms for hospitals to
use when collecting and submitting data
on required measures. These
semiannual updates are accompanied by
notifications to users, providing
sufficient time between the change and
the effective date in order to allow users
to incorporate changes and updates to
the specifications into data collection
systems.
The technical specifications for the
HCAHPS patient experience of care
survey are contained in the current
HCAHPS Quality Assurance Guidelines
manual, which is available at the
HCAHPS On-Line Web site, http://
www.hcahpsonline.org. We maintain the
HCAHPS technical specifications by
updating the HCAHPS Quality
Assurance Guidelines manual annually,
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.

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Many of the quality measures used in
different Medicare and Medicaid
reporting programs are endorsed by the
National Quality Forum (NQF). The
NQF is a voluntary consensus standardsetting organization with a diverse
representation of consumer, purchaser,
provider, academic, clinical, and other
healthcare stakeholder organizations.
The NQF was established to standardize
healthcare quality measurement and
reporting through its consensus
development process. As part of its
regular maintenance process for
endorsed performance measures, the
NQF requires measure stewards to
submit annual measure maintenance
updates and undergo maintenance of
endorsement review every 3 years. In
the measure maintenance process, the
measure steward (owner/developer) is
responsible for updating and
maintaining the currency and relevance
of the measure and will confirm existing
or minor specification changes to NQF
on an annual basis. NQF solicits
information from measure stewards for
annual reviews and in order to review
measures for continued endorsement in
a specific 3-year cycle.
Through NQF’s measure maintenance
process, NQF-endorsed measures are
sometimes updated to incorporate
changes that we believe do not
substantially change the nature of the
measure. Examples of such changes
could be updated diagnosis or
procedure codes, changes to exclusions
to the patient population, definitions, or
extension of the measure endorsement
to apply to other settings. We believe
these types of maintenance changes are
distinct from more substantive changes
to measures that result in what are
considered new or different measures,
and that they do not trigger the same
agency obligations under the
Administrative Procedure Act.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28033), we
proposed that if the NQF updates an
endorsed measure that we have adopted
for the Hospital IQR Program in a
manner that we consider to not
substantially change the nature of the
measure, we would use a subregulatory
process to incorporate those updates to
the measure specifications that apply to
the program. Specifically, we would
revise the Specifications Manual so that
it clearly identifies the updates and
provide links to where additional
information on the updates can be
found. We would also post the updates
on the QualityNet Web site at https://
www.QualityNet.org. We would provide
sufficient lead time for hospitals to
implement the changes where changes

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to the data collection systems would be
necessary.
We would continue to use the
rulemaking process to adopt changes to
a measure that we consider to
substantially change the nature of the
measure. We believe that this proposal
adequately balances our need to
incorporate NQF updates to NQF–
endorsed Hospital IQR Program
measures in the most expeditious
manner possible, while preserving the
public’s ability to comment on updates
that so fundamentally change an
endorsed measure that it is no longer
the same measure that we originally
adopted. We invited public comment on
this proposal.
Comment: Many commenters
supported the proposed subregulatory
process to update the measure
specifications of adopted NQF-endorsed
measures in the Specifications Manual
for non-substantive changes that arise
from the NQF maintenance review, as
well as the continuation of the
rulemaking process for substantive
changes that arise from NQF review.
Several commenters objected to these
proposals, and expressed concern that
there is no clear definition of nonsubstantive updates. These commenters
felt that changes such as conversion of
measures to ICD–10 codes and
eMeasures format, and exclusions to the
patient population should be considered
substantive changes that would warrant
rulemaking. Some commenters stated
that all changes to measures that are not
NQF-endorsed measures should be
subject to the rulemaking process.
Response: We thank those
commenters that supported our
proposal to update NQF-endorsed
measures using a subregulatory process.
The NQF regularly maintains its
endorsed measures through annual and
triennial reviews, which may result in
the NQF making updates to the
measures. We believe that it is
important to have in place a
subregulatory process to incorporate
non-substantive updates made by the
NQF into the measure specifications we
have adopted for the Hospital IQR
Program so that these measures remain
up-to-date. We also recognize that some
changes the NQF might make to its
endorsed measures are substantive in
nature and might not be appropriate for
adoption using a subregulatory process.
Therefore, we are finalizing a policy
under which we will use a
subregulatory process to make nonsubstantive updates to NQF-endorsed
measures used for the Hospital IQR
program. With respect to what
constitutes substantive versus nonsubstantive changes, we expect to make

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this determination on a case-by-case
basis. Examples of non-substantive
changes to measures might include
updated diagnosis or procedure codes,
medication updates for categories of
medications, broadening of age ranges,
and exclusions for a measure (such as
the addition of a hospice exclusion to
the 30-day mortality measures). We
believe that non-substantive changes
may include updates to NQF-endorsed
measures based upon changes to
guidelines upon which the measures are
based.
We will continue to use rulemaking to
adopt substantive updates made by the
NQF to the endorsed measures we have
adopted for the Hospital IQR Program.
Examples of changes that we might
consider to be substantive would be
those in which the changes are so
significant that the measure is no longer
the same measure, or when a standard
of performance assessed by a measure
becomes more stringent (for example:
changes in acceptable timing of
medication, procedure/process, or test
administration). Another example of a
substantive change would be where the
NQF has extended its endorsement of a
previously endorsed measure to a new
setting, such as extending a measure
from the inpatient setting to hospice.
These policies regarding what is
considered substantive versus nonsubstantive would apply to all measures
in the Hospital IQR Program. We also
note that the NQF process incorporates
an opportunity for public comment and
engagement in the measure maintenance
process.
Comment: A few commenters
supported the semiannual updates of
the Specifications Manual to provide
guidance to hospitals on data collection
and submission of the required
measures. Commenters urged CMS to
provide at least 12 to 18 months’ notice
before nonsubstantive changes are
implemented by vendors and providers.
Response: We thank the commenter
for the support for this process, which
is consistent across all quality reporting
programs. Per our existing policy for
specification updates, we will provide
at least 6 months lead time for hospitals
to implement updates to measures that
would require changes to abstraction or
data collection systems. This would
include non-substantive changes.
Comment: A commenter suggested
that CMS must be more transparent
about the NQF maintenance review and
update process in the Hospital IQR
Program proposed rules. Specifically,
the commenter urged CMS to describe
the NQF status, including the status of
maintenance review, of every proposed
and previously finalized measure in

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proposed rules. The commenter
believed that the lack of information
regarding a measure’s NQF status may
disadvantage the public in commenting
on Hospital IQR Program measures.
Response: We appreciate the
suggestion and recognize the
commenter’s desire to have more
information about the measures in the
program. This information is currently
available and updated frequently on the
measures list available on the NQF Web
site: http://www.qualityforum.org/
Measures_List.aspx. We will strive to
provide additional NQF-related
information about the Hospital IQR
Program measures in the future.
After consideration of the public
comments we received, we are
finalizing a policy under which we will
use a subregulatory process to make
non-substantive updates to measures in
the Hospital IQR Program. We will
continue to use the rulemaking process
to adopt changes to measures that we
consider to be substantive.
c. 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 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,
http://www.hospitalcompare.hhs.gov,
after a 30-day preview period.
The Hospital Compare Web site is an
interactive Web tool that assists
beneficiaries by providing information
on hospital quality of care to those who
need to select a hospital. It further
serves to encourage beneficiaries to
work with their doctors and hospitals to
discuss the quality of care hospitals
provide to patients, thereby providing
an additional incentive to hospitals to
improve the quality of care that they
furnish. The Hospital IQR Program
currently includes process of care
measures, risk-adjusted outcome
measures, the HCAHPS patient
experience-of-care survey, structural
measures, Emergency Department
Throughput timing measures, hospital
acquired condition measures,
immunization measures, and hospital
acquired infection measures, all of
which are featured on the Hospital
Compare Web site.
However, information that may not be
relevant to or easily understood by
beneficiaries and information for which

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there are unresolved display issues or
design considerations for inclusion on
Hospital Compare may be made
available on other CMS Web sites that
are not intended to be used as an
interactive Web tool, such as http://
www.cms.hhs.gov/HospitalQualityInits/.
Publicly reporting the information in
this manner, although not on the
Hospital Compare Web site, allows CMS
to meet the requirement under section
1886(b)(3)(B)(viii)(VII) of the Act for
establishing procedures to make
information regarding measures
submitted under the Hospital IQR
Program available to the public
following a preview period. In such
circumstances, affected parties are
notified via CMS listservs, CMS email
blasts and memorandums, Hospital
Open Door Forums, 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.
Comment: A commenter
recommended that CMS collect and
present data on Hospital Compare in a
stratified manner in terms of race,
language, and gender as the commenter
believed all of the above are crucial data
to address and reduce health disparities.
Response: We are unable to collect
data that is unrelated to quality
measures, and therefore, it is not
possible for us to stratify measures using
demographic data as this commenter
suggests.
Comment: A commenter supported
display of the Standardized Infection
Ratio (SIR) for both CLABSI and CAUTI
on Hospital Compare.
Response: We thank the commenter
for their support.
Comment: A commenter believed that
the public reporting of hospital-specific
readmission rates on Hospital Compare
needs significant improvement by
providing more specific data on actual
readmission rates. The commenter
pointed out that the current display of
readmissions as either ‘‘same as the
national average,’’ ‘‘worse than the
national average,’’ or ‘‘better than the
national average’’ indicate little
variation among hospitals and does not
offer to consumers and purchasers
meaningful information about how well
specific hospitals are performing.
Response: The purpose of the initial
display of the readmission measures as
‘‘same as the national average,’’ ‘‘worse
than the national average,’’ or ‘‘better
than the national average’’ is to address
consumer preferences for the display of
information that incorporates
confidence intervals or interval
estimates for outcome measures such as
hospital readmission rates. However,

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alternative displays that we provide,
which can also be accessed through
links on the main display at the
Hospital Compare Web site, contain
both graphical and table displays and
provide more information, including the
risk-adjusted readmission rates.
Additional information is also available
in the downloadable file at: http://
www.medicare.gov/download/
downloaddb.asp that accompanies each
Hospital Compare release in order to
facilitate customized comparative
analyses.
Comment: A commenter requested
that CMS notify hospitals of changes to
QualityNet Web site reports in a timely
manner.
Response: We send out memos in a
timely manner to notify hospitals of
changes to reports when there is a
system release or production fix.
2. Removal and Suspension of Hospital
IQR Program Measures
a. Considerations in Removing 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 except when they are
removed or replaced as indicated. In
previous rulemakings, we have referred
to the removal of measures from the
Hospital IQR Program as ‘‘retirement.’’
We have used this term to indicate that
Hospital IQR Program measures are no
longer included in the Hospital IQR
Program measure set for one or more
indicated reasons. However, we note
that this term may imply that other
payers/purchasers/programs should
cease using these measures that are no
longer required for the Hospital IQR
Program. In order to clarify that this is
not our intent, beginning with this
rulemaking cycle, we will use the term
‘‘remove’’ rather than ‘‘retire’’ to refer to
the action of no longer including a
measure in the Hospital IQR Program.
As we stated in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50185), the
criteria that we consider when
determining whether to remove 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 (‘‘topped out’’
measures); (2) availability of alternative
measures with a stronger relationship to
patient outcomes; (3) a measure does
not align with current clinical
guidelines or practice; (4) the
availability of a more broadly applicable
(across settings, populations, or

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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; and
(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 quality measures
for removal.
In addition, we take into account the
views of the Measure Application
Partnership (MAP). The MAP is a
public-private partnership convened by
the NQF for the primary purpose of
providing input to HHS on selecting
performance measures for quality
reporting programs and pay for
reporting programs. The MAP views
patient safety as a high priority area and
it strongly supports the use of NQFendorsed safety measures. Furthermore,
for efficiency and streamlining
purposes, we strive to eliminate
redundancy of similar measures.
Comment: Several commenters
supported the proposals regarding
measure removal criteria and the use of
‘‘removal’’ terminology. Some
commenters also recommended that
CMS provide a list of potential measures
for removal from the Hospital IQR
Program for MAP review and
recommendations.
Response: We thank the commenters
for the support of our measure removal
criteria and the use of the term
‘‘removal.’’ We will consider the
recommendation to provide a list of
potential measures for removal from the
Hospital IQR Program to MAP for its
input.
b. Hospital IQR Program Measures
Removed in Previous Rulemakings
In previous rulemakings, we have
removed several Hospital IQR Program
quality measures, including:
• PN–1: Oxygenation Assessment for
Pneumonia, a ‘‘topped out’’ measure,
because measures with very high
performance among hospitals present
little opportunity for improvement and
do not provide meaningful distinctions
in performance for consumers (73 FR
48604).
• AMI–6: Beta Blocker at Arrival
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

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collection of a measure as it is currently
specified raises potential patient safety
concerns, 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 remove such a measure,
confirm the removal in the next IPPS
rulemaking cycle, and notify hospitals
and the public of the decision to
promptly remove measures through the
usual hospital and QIO communication
channels used for the Hospital IQR
Program. These channels include
memos, email notification, and
QualityNet Web site postings. To this
end, we confirmed the removal of the
AMI–6 measure in the FY 2010 IPPS/
LTCH PPS rulemaking cycle after
immediate suspension because the
measure posed patient safety risks.
• Mortality for Selected Procedures
Composite measure because the
measure is not considered suitable for
purposes of comparative reporting by
the measure developer (75 FR 50186).
• Three adult smoking cessation
measures: AMI–4: Adult Smoking
Cessation Advice/Counselling; HF–4:
Adult Smoking Cessation Advice/
Counselling; and PN–4: Adult Smoking
Cessation Advice/Counselling, because
these measures are ‘‘topped-out’’ and no
longer NQF-endorsed (76 FR 51611).
• PN–5c: Timing of Receipt of Initial
Antibiotic Following Hospital Arrival
measure out of concerns that the
continued collection of this measure
might lead to the unintended
consequence of antibiotic overuse (76
FR 51611).
c. Removal of Hospital IQR Program
Measures for FY 2015 Payment
Determination and Subsequent Years
To accommodate the expansion of the
measure set, we have considered the
removal of additional Hospital IQR
Program measures using our stated
measure removal criteria. In the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28035), based on some of these
criteria, we proposed to remove 17
measures from the Hospital IQR
Program. One of these 17 measures is
chart-abstracted, and the other 16 are
claims-based.
(1) Removal of One Chart-Abstracted
Measure
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28035), we
proposed to remove the SCIP–Venous
Thromboembolism (VTE) measure:
‘‘SCIP–VTE–1: Surgery patients with
recommended VTE prophylaxis
ordered’’ measure because we believe

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that the ‘‘SCIP–VTE–2: Surgery patients
who received appropriate VTE
prophylaxis within 24 hours of pre/post
surgery’’ measure currently used in the
Hospital IQR Program assesses practices
that are more proximal in time to better
surgical outcomes resulting from the use
of VTE prophylaxis. We also note that
during a recent NQF maintenance
review of SCIP–VTE–1, the measure was
not recommended for continued
endorsement.
Comment: Many commenters strongly
agreed with CMS’ rationale for
proposing the removal of the SCIP–
VTE–1 measure and urged its immediate
removal from the Hospital IQR Program.
One commenter was disappointed that
the measure was removed shortly after
it was adopted. Commenters requested
that CMS clarify whether the end date
for data submission of the proposed
chart-abstracted measure is effective
immediately, or on the effective date of
this final rule.
Response: We thank the commenters
for the support of the removal of this
measure. The removal of this measure is
consistent with one of our measure
removal criteria of removing a measure
when an alternative measure(s) that is
either more proximal to or that has a
stronger relationship with patient
outcomes is available. We are finalizing
the removal of this measure from the
Hospital IQR Program measure set. The
data collection for this chart-abstracted
measure will end with December 31,
2012 discharges.
(2) Removal of 16 Claims-Based
Measures
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28035), we
proposed to remove eight HAC
measures, three AHRQ Inpatient Quality
Indicator (IQI) measures, and five AHRQ
Patient Safety Indicator (PSI) measures
from the Hospital IQR Program measure
set.
(A) Removal of Eight Hospital-Acquired
Condition (HAC) Measures
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50194 through 50196), for
the FY 2012 payment determination, we
adopted 8 claims-based HAC measures
based on 8 of the 10 conditions
applicable under the HAC payment
provisions specified in section
1886(d)(4)(D) of the Act. These eight
HAC measures are: Air Embolism; Blood
Incompatibility; Catheter-Associated
Urinary Tract Infection (UTI); Falls and
Trauma: (Includes Fracture Dislocation,
Intracranial Injury, Crushing Injury,
Burn, Electric Shock); Foreign Object
Retained After Surgery; Manifestations
of Poor Glycemic Control; Pressure

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Ulcer Stages III or IV; and Vascular
Catheter Associated Infections. Six of
these HACS were identified by NQF as
serious reportable events.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28035), we
proposed to remove these eight HAC
measures based on several
considerations. First, the MAP
recommended that we replace the HAC
measures in the Hospital IQR Program
with NQF-endorsed measures. Second,
we seek to reduce redundancy among
the measures in the program. Two of the
eight HAC measures address HAIs
which are addressed by other measures
currently in the Hospital IQR Program.
These two HAI measures are the NQFendorsed CAUTI and CLABSI measures
collected via the CDC’s NHSN system.
An additional three of the eight HAC
measures address similar topics
(pressure ulcers, air embolism, and
manifestations of poor glycemic control)
to patient safety indicators that are
included in the NQF-endorsed AHRQ
PSI composite that is also included in
the Hospital IQR Program. Accordingly,
because more broadly applicable NQFendorsed measures are available that
address some of the same HAIs and
HACs, we believe it is appropriate to
remove these measures from the
program. We note that section 3008 of
the Affordable Care Act will require
public reporting of HACs, including
those conditions adopted under section
1886(d)(4)(D) of the Act. HACs remain
an important aspect of our commitment
to patient safety, and the measurement
and reduction of patient harm. ‘‘Safer
care’’ is one of the six priorities
identified to address the three aims
established under the National Quality
Strategy. We stated our intention to
pursue development of an all-cause
harm composite measure for potential
use in our quality reporting programs.
Comment: The majority of the
commenters who commented on the
proposed removal of the eight HAC
measures supported the MAP
recommendation as well as our proposal
to remove the eight HAC measures from
the Hospital IQR Program. Commenters
requested their immediate removal from
the Hospital IQR Program as they
believed their removal will minimize
the potential for hospitals to be
penalized twice for these conditions due
to the measures’ inclusion in the
Hospital IQR Program and the HAC
payment provisions under section
1886(d)(4)(D) of the Act.
Response: We thank the commenters
for their support for the removal of these
measures. We are finalizing this
proposal, and we do not intend to
provide or publicly report new

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calculations of these individual HACs as
part of the Hospital IQR Program after
2012.
Comment: Two commenters
supported the removal of the CatheterAssociated Urinary Tract Infection (UTI)
and the Vascular Catheter Associated
Infections HACs but recommended the
retention of rest of the HACs (Air
Embolism; Blood Incompatibility; Falls
and Trauma: (Includes Fracture
Dislocation, Intracranial Injury,
Crushing Injury, Burn, Electric Shock);
Foreign Object Retained After Surgery;
Manifestations of Poor Glycemic
Control; and Pressure Ulcer Stages III),
and urged us to work with stakeholders
to address any coding irregularities that
may affect the accuracy of the data used
to calculate these six measures. These
commenters also suggested continued
reporting of these measures on Hospital
Compare.
Response: We appreciate the
commenters’ support of the removal of
the Catheter-Associated Urinary Tract
Infection (UTI) and the Vascular
Catheter Associated Infections HACs.
We are not considering the retention of
any of the other six non-infection
related HACs for the Hospital IQR
Program at this time due to the MAP
recommendations and our intent to
pursue development of an all-cause
harm composite measure for potential
use in our quality reporting programs.
Comment: One commenter opposed
CMS’ intention to develop an all-cause
harm composite measure, noting that
there are too many variables to account
for in measuring all-cause harm.
Response: We wish to clarify that our
goal of developing an all-cause harm
composite measure is to inform the
healthcare community and the general
public of hospital performance in terms
of managing patient safety efficiently
and economically. While we agree that
HACs often result from multiple factors,
some of these conditions are ‘‘never
events;’’ they could cause serious
injuries or even death, and should not
happen under any circumstances. These
never events are foreign objects retained
after surgery, air embolism, and blood
incompatibility. We are examining risk
factors for other HACs. In pursuing this
goal, we intend to work with clinical
experts in injuries, complications, and
infections, and with measure experts
with knowledge in composite measures
and risk adjustment to develop an allcause harm measure that can inform
clinicians of gaps in their patient safety
performance.

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(B) Removal of Three AHRQ IQI
Measures
In the FY 2009 IPPS final rule (73 FR
48607), we adopted three claims-based
AHRQ IQI outcome measures for the FY
2010 payment determination: (1) IQI–
11: Abdominal aortic aneurysm (AAA)
repair mortality rate (with or without
volume); (2) IQI–19: Hip fracture
mortality rate; and (3) IQI–91: Mortality
for selected medical conditions
(composite).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28035), we
proposed to remove these three AHRQ
IQI measures from the Hospital IQR
Program. In removing measures from the
Hospital IQR Program, we seek to
eliminate measures that would not be
used under the Hospital VBP Program,
and to reduce redundancy among the
measures in the Hospital IQR Program.
Three of the six conditions in the IQI
composite measure overlap with 30-day
mortality measures that we have in the
Hospital IQR Program, and which were
recommended by the MAP for use in the
Hospital VBP Program. The proposed
removal of these AHRQ IQI measures
would eliminate unnecessary
redundancy in the Hospital IQR
Program measure set. We also believe
that inclusion of a large number of inhospital mortality measures, the
performance on which is highly
dependent upon hospital discharge
patterns, may lead to unintended
consequences of patients being
discharged sooner than advisable. We
invited public comment on this
proposal.
Comment: All the commenters who
commented on the proposed removal of
the AHRQ IQI measures strongly
supported and requested the removal of
the three proposed AHRQ IQI measures
from the Hospital IQR Program.
Response: We thank the commenters
for their support.
Based on these comments, we are
finalizing the removal of IQI–11, IQI–19,
and the IQI–90 composite measures.
These measures’ calculations will not be
refreshed on Hospital Compare after
2012.
(C) Removal of Five AHRQ PSI
Measures
In the FY 2009 IPPS final rule (73 FR
48607), we adopted three claims-based
PSI outcome measures for the FY 2010
payment determination: (1) PSI–06:
Iatrogenic pneumothorax; (2) PSI–14:
Postoperative wound dehiscence; and
(3) PSI–15: Accidental puncture or
laceration. In the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50194), we
adopted two more claims-based PSI

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outcome measures for the FY 2012
payment determination: PSI–11: Post
Operative Respiratory Failure; and PSI
12: Post Operative PE or DVT.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28035), we
proposed to remove these five AHRQ
PSI measures from the Hospital IQR
Program because four of these five
individual measures (all but PSI–11) are
included in the NQF-endorsed AHRQ
PSI Composite measure that is already
included in the Hospital IQR Program.
Also, the post-operative ventilator
associated events assessed in PSI–11
could be captured more robustly using
non-administrative data collected via
the NHSN in the near future. Therefore,
we proposed to remove these five
individual PSIs from the Hospital IQR
Program measure set in order to
eliminate unnecessary redundancy. We
invited public comment on this
proposal.
Comment: Almost all of the
commenters who commented on the
proposed removal of the AHRQ PSI
measures supported their removal from
the Hospital IQR Program. Commenters
stated that these measures, which are
based on administrative data, are less
sensitive than those measures that
utilize chart-abstracted data, and lack
the specificity required for use in
comparative public reporting programs.
One commenter was concerned that the
removal of the measures would deprive
stakeholders of the opportunity to drill
down and access more granular
information on the individual measures.
The commenter requested assurance
that the transparency of information on
these safety events is not compromised
by the removal of these measures.
Response: We appreciate the
supportive comments received for this
proposal. Four of the five measures to be
removed are part of the PSI Composite
that is being retained for the Hospital
IQR Program, and we will be able to
continue providing this information in
‘‘drill down’’ displays of the PSI
Composite because the individual
measure information can be made
available through links or pop-up
windows from the main display of the
composite score. We are finalizing the
removal of these five PSI measures from
the Hospital IQR Program.
Comment: Many commenters strongly
supported the proposal to remove the 16
claims-based measures and one chartabstracted measure as one way to
streamline measures in the Hospital IQR
Program and make the numbers of
Hospital IQR Program measures more
manageable. Commenters urged CMS to
expedite the proposed removal of the 17
measures sooner than 2015 as proposed

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and to remove the 17 measures from the
Hospital Compare Web site
immediately. The commenters
recommended that we use the CY 2013
OPPS/ASC proposed rule as a vehicle to
propose the removal of these measures
from the FY 2013 and 2014 Hospital
IQR Program measure set.
Response: We are sensitive to the
comments on streamlining measures in
the Hospital IQR Program. We thank the
commenters for the support. Although
we proposed the removal of these
measures for the FY 2015 payment
determination, the impact from the
removal of these measures begins in
2012. In particular, the data collection
for the chart-abstracted measure, SCIP–
VTE–1: Surgery patients with
recommended VTE prophylaxis
ordered, will end with December 31,
2012 discharges. New calculations of
the 16 individual claims-based
measures on the Hospital Compare Web
site will not be displayed as distinct
measures after July 2012 for purposes of
the Hospital IQR Program. However,
because the PSI Composite Measure is
comprised of individual PSI measures,
information on the specific measures
that are part of the AHRQ PSI
Composite can be provided on Hospital
Compare in ‘‘drill down’’ displays from
the main composite. Also, some or all of
the HAC measures may be reported on
Hospital Compare in some manner in
the future under the public reporting
authority under section 3008 of the
Affordable Care Act.
Comment: Two commenters assumed
that because CMS proposed the removal
of several individual AHRQ PSI
measures from the Hospital IQR
Program, that we would also remove
these indicators from the calculation of
the AHRQ PSI–90 composite measure
for both Hospital IQR and the Hospital
VBP Programs. Furthermore, these
commenters believed that the statutory
display requirement for the AHRQ PSI–
90 composite measure has not been met
because CMS did not display data for all
eight of the individual AHRQ indicators
that are used in the composite.
Response: We wish to clarify that our
removal of several individual AHRQ
indicators from the Hospital IQR
Program does not in any way change the
composition of the AHRQ PSI–90
composite measure for either the
Hospital IQR or Hospital VBP Programs.
No changes have been proposed for the
AHRQ PSI–90 composite for the
Hospital IQR or Hospital VBP Programs.
We adopted and displayed the NQFendorsed AHRQ PSI–90 composite
measure for the Hospital IQR Program
(NQF#531) which is comprised of the
following individual indicators: PSI–03,

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PSI–06, PSI–07, PSI–08, PSI–12, PSI–13,
PSI–14, and PSI–15. We will continue to
use/display this NQF-endorsed version
of the PSI composite for the program.
Regarding the 1 year display
requirement for the PSI-composite for
the Hospital VBP Program, we have
proposed to use the AHRQ PSI–90
composite calculation in its totality for
Hospital VBP Program scoring. We
displayed this composite score in its
totality on Hospital Compare beginning
in October 2011. Therefore, the PSI–90
composite meets the display
requirement for use in the Hospital VBP
Program regardless of how many
individual AHRQ indicators were
displayed.
Some commenters also provided
suggestions for removal of other
measures in the Hospital IQR Program.
Comment: A commenter
recommended the removal of the HF–1
(Discharge Instructions) measure
because the measure did not receive
continued NQF-endorsement and was
perceived as a ‘‘check-the-box’’ measure
that does not convey meaningful or
actionable information about the quality
of the discharge process. Another
commenter believed that HF–1 should
be replaced with a Post-Discharge
Appointment for Heart Failure Patients
measure.
One commenter proposed the removal
of the SCIP Infection-2 (Prophylactic
Antibiotic Selection for Surgical
Patients) measure because the
commenter believed implementation of
the Surgical Site Infection measures
targeted for FY 2014 will provide more
meaningful outcome information than
this process measure.
One commenter recommended the
removal of all non-NQF-endorsed
measures except those measures that are
part of TJC’s accountability measure set.
One commenter requested the
removal of SCIP–INF–10 (Surgery
Patients with Perioperative Temperature
Management), which the commenter
contended is topped out and which is
not required for the Hospital VBP
Program. One commenter indicated that
PN–3b (Blood Culture Performed in the
Emergency Department prior to First
Antibiotic Received in Hospital) should
be removed from the Hospital IQR
Program because of the pending removal
of its NQF-endorsement status, the
consensus among stakeholders, the
evidence citing the ineffective and
inefficient implementation, and the
unintended consequences associated
with the measure.
Response: We appreciate the
commenters’ input on the removal of
the measures and we will take this into
consideration when we select measures

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assessing the quality of hospital care can
be adopted for the Hospital IQR Program
through our exception authority in
section 1886(b)(3)(B)(IX)(bb) of the Act.
This section 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), the Secretary may specify a

for removal in the future. In our view,
currently, these recommended measures
for removal still yield valuable
information in the improvement of
healthcare and we have no plans to
remove them unless evidence indicates
otherwise. As for the suggested removal
of non-NQF-endorsed measures, while
we seek to use NQF-endorsed measures
where possible, we note that measures
that we believe to be important in

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.
After consideration of the public
comments we received on measure
removal, we are finalizing our proposal
to remove 1 chart-abstracted measure
and 16 claims-based measures as set
forth in the table below:

Topic

17 Measures removed from Hospital IQR Program measure set for FY 2015 and subsequent payment
determinations

Surgical Care Improvement Project
(SCIP) Measure.
AHRQ Patient Safety Indicators
(PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures.

• SCIP INF–VTE-1: Surgery patients with recommended Venous Thromboembolism (VTE) prophylaxis ordered.
• PSI 06: Iatrogenic pneumothorax, adult.
• PSI 11: Post Operative Respiratory Failure.
• PSI 12: Post Operative PE or DVT.
• PSI 14: Postoperative wound dehiscence.
• PSI 15: Accidental puncture or laceration.
• IQI 11: Abdominal aortic aneurysm (AAA) mortality rate (with or without volume).
• IQI 19: Hip fracture mortality rate.
• IQI 91: Mortality for selected medical conditions (composite).
• Foreign Object Retained After Surgery.
• Air Embolism.
• Blood Incompatibility.
• Pressure Ulcer Stages III & IV.
• Falls and Trauma: (Includes: Fracture Dislocation Intracranial Injury Crushing Injury Burn Electric
Shock).
• Vascular Catheter-Associated Infection.
• Catheter-Associated Urinary Tract Infection (UTI).
• Manifestations of Poor Glycemic Control.

Hospital Acquired Condition Measures.

d. Suspension of Data Collection for the
FY 2014 Payment Determination and
Subsequent Years

collection for four measures beginning
with January 1, 2012 discharges,
affecting the FY 2014 payment
determination and subsequent years.

In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51611), we suspended data

Hospital IQR Program measures suspended for FY 2015 payment determination and subsequent
years

Topic
Acute Myocardial Infarction (AMI) ............
Surgical Care
(SCIP).

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Improvement

Project

•
•
•
•

AMI–1 Aspirin at arrival.
AMI–3 ACEI/ARB for left ventricular systolic dysfunction.
AMI–5 Beta-blocker prescribed at discharge.
SCIP INF–6 Appropriate Hair Removal.

We suspended, rather than removed,
these measures because although our
analysis indicated that these measures
are topped-out measures (that is, their
performance is uniformly high
nationwide, with little variability among
hospitals), we recognized some
commenters’ belief that the processes
assessed by the measures were tied to
better patient outcomes, and that
removal of the measures from the
program may result in declines in
performance and hence, worse
outcomes.
The suspension of data collection for
these four measures will be continued
unless we have evidence that
performance on the measures is in

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danger of declining. Should we
determine that hospital adherence to
these practices has unacceptably
declined, we would resume data
collection using the same form and
manner and on the same quarterly
schedule that we finalize for these and
other chart abstracted measures,
providing at least 3 months of notice
prior to resuming data collection.
Hospitals would be notified of this via
CMS listservs, CMS email blasts,
national provider calls, and QualityNet
announcements. In addition, we would
comply with any requirements imposed
by the Paperwork Reduction Act before
resuming data collection of these four
measures.

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Comment: Many commenters
supported CMS’ measure suspension
policy, which provides a balance
between maintaining quality and
avoiding unnecessary administrative
burden. Several commenters indicated
that instead of suspension, these four
previously suspended measures should
be removed from the Hospital IQR
Program permanently.
Response: We thank the commenters
for their support of our measure
suspension policy. Before we can
remove the suspended measures we will
need to determine whether the
important practices addressed by these
suspended measures continue to be
routinely practiced.

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Comment: A few commenters
requested that CMS clarify: (1) The
methodology used to determine if the
measures are declining in performance;
and (2) requirements to resume
collection of a suspended measure. The
commenters stated that if CMS decides
to resume collection of a measure, it
should integrate the timeline with the
current process for implementation of
technical specifications. Commenters
offered to collaborate with CMS to
identify measures warranting
suspension.
Response: We will continue to
monitor the measures for evidence of
performance slippage by reviewing
published literature and examining
national performance trends on these
measures from data collected by other
parties. In the event that data collection
on a suspended measure must be
resumed, we intend to align with
Specifications Manual release and
collection cycle timelines in order to
provide sufficient notice to hospitals.

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3. Measures for the FY 2015 and FY
2016 Hospital IQR Program Payment
Determinations
a. Additional 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 would
promote better, safer, more efficient
care. We believe it is important to
expand the pool of measures to include
measures that aim to improve patient
safety. This goal is supported by many
reports documenting that tens of
thousands of patients do not receive safe
care in the nation’s hospitals.53,54
In addition to our goals to align
measures and support the Hospital VBP
Program, we also take into account other
considerations in implementing and
expanding the Hospital IQR Program:
• Our overarching purpose is to
support the National Quality Strategy’s
(NQS’) three-part aim of better health
care for individuals, better health for
populations, and lower costs for health
care. The Hospital IQR Program will
help achieve the three-part aim by
creating transparency around the quality
of care at inpatient hospitals to support
patient decision-making and quality
improvement. Given the availability of
well-validated measures and the need to
53 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.
54 2009 National Healthcare Quality Report, pp.
107–122. ‘‘Patient Safety,’’ Agency for Healthcare
Research and Quality.

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balance breadth with minimizing
burden, measures should take into
account and address, as fully as
possible, the six domains of
measurement that arise from the six
NQS priorities: Clinical care; Personand caregiver-centered experience and
outcomes; Safety; Efficiency and cost
reduction; Care coordination; and
Community/population health. More
information regarding the National
Quality Strategy can be found at:
http://www.hhs.gov/secretary/about/
priorities/priorities.html and http://
www.ahrq.gov/workingforquality/. HHS
engaged a wide range of stakeholders to
develop the National Quality Strategy,
as required by the Affordable Care Act.
• We seek to collect data in a manner
that balances the need for information
related to the full spectrum of quality
performance and the need to minimize
the burden of data collection and
reporting. Within the framework of our
statutory authority and taking into
account programmatic considerations,
measures used in the Hospital IQR
Program should be harmonized with
other Medicare/Medicaid quality
reporting programs and incentive
programs to promote coordinated efforts
to improve quality.
• As part of our burden reduction
efforts, we will continuously weigh the
relevance and utility of the measures
compared to the burden on hospitals in
submitting data under the Hospital IQR
Program. We seek 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.
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.
• To the extent practicable, measures
we use should be nationally endorsed
by a multi-stakeholder organization.
Section 3001(a)(2) of the Affordable
Care Act 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 measure has not
been endorsed by the entity with a
contract under section 1890(a) [of the
Act], the Secretary may specify a

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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.’’
Accordingly, we attempt to utilize
endorsed measures whenever possible.
• Measures should be developed with
the input of providers, purchasers/
payers, and other stakeholders.
Measures should be aligned with best
practices among other payers and the
needs of the end users of the measures.
We take into account widely accepted
criteria established in medical literature.
• Section 1890A(a)(4) of the Act, as
added by section 3014(b) of the
Affordable Care Act, requires the
Secretary to take into consideration
input from multi-stakeholder groups in
selecting quality and efficiency
measures that have been endorsed by
the entity with a contract under section
1890 of the Act, currently NQF, and
measures that have not been endorsed.
The MAP is a partnership comprised of
multi-stakeholder groups that was
convened by NQF to provide input on
measures. Accordingly, we consider the
MAP’s recommendations in selecting
quality and efficiency measures (http://
www.qualityforum.org/map/).
• HHS Strategic Plan and Initiatives.
HHS is the U.S. government’s principal
agency for protecting the health of all
Americans. HHS accomplishes its
mission through programs and
initiatives. Every 4 years HHS updates
its Strategic Plan and measures its
progress in addressing specific national
problems, needs, or mission-related
challenges. The goals of the HHS
Strategic Plan for Fiscal Years 2010
through 2015 are: Strengthen Health
Care; Advance Scientific Knowledge
and Innovation; Advance the Health,
Safety, and Well-Being of the American
People; Increase Efficiency,
Transparency, and Accountability of
HHS Programs; and Strengthen the
Nation’s Health and Human Services
Infrastructure and Workforce (http://
www.hhs.gov/about/FY2012budget/
strategicplandetail.pdf). HHS prioritizes
policy and program interventions to
address the leading causes of death and
disability in the United States,
including heart disease, cancer, stroke,
chronic lower respiratory diseases,
unintentional injuries, and preventable
behaviors. Initiatives such as the HHS
Action Plan to Reduce HAIs in clinical
settings and the Partnership for Patients
exemplify these programs.
• CMS Strategic Plan. We strive to
ensure that measures for different
Medicare and Medicaid programs are
aligned with priority quality goals, that
measure specifications are aligned

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
across settings, that outcome measures
are used whenever possible, and that
quality measures are collected from
EHRs as appropriate.
• 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 in the Medicare
population have been reported, despite
established clinical guidelines, across
populations or geographic areas.
• 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 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. In
addition to giving hospitals more
advance notice in planning quality
reporting, this multiyear 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. However, we indicated
that these finalized measure sets for
multiple years 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 began
using 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.
Comment: Some commenters
complimented CMS for successfully
identifying measures that fall into the
six NQS domains which can be used to
identify measure gaps in domain areas
for future measure development. The
commenters strongly believed this

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approach will signal to the private
sectors that the public and private
sectors are progressing toward a
common path to improve health care
quality. However, one commenter noted
that it may be premature to utilize the
NQS domains for the purposes of
payment determination at this time.
Response: We thank the commenters
for recognizing our intent for using the
NQS as the framework to attain a
cohesive public and private national
quality strategy to achieve the
overarching goal of improving patient
care quality across the full healthcare
spectrum. We point out that the NQS is
intended to be used to identify gap areas
in the program, but that individual
measures considered for the Hospital
IQR Program will continue to be
evaluated against the more specific
criteria articulated for the Hospital IQR
Program.
Comment: Many commenters highly
commended CMS for moving the
Hospital IQR Program in the right
direction by essentially transforming a
set of discrete process measures aimed
at internal quality improvement to a
comprehensive quality reporting
program that addresses the needs of
consumers and purchasers by including
meaningful measures of outcomes,
patient experience, and patient safety.
The commenters commended CMS’
efforts to foster transparency in
healthcare quality and believed this
approach incentivizes quality
improvement and promotes better care,
better value, and lower cost. One
commenter praised our previous efforts
to adopt measures for three consecutive
payment determinations.
Response: We are encouraged by the
public support of our efforts to promote
high-quality care, improve patient
outcomes, and make quality data
publicly available for consumers. We
will continue to strive to improve the
Hospital IQR Program.
Comment: For program alignment,
one commenter suggested CMS should
deem a hospital as a meaningful user as
required under the HITECH EHR
Incentive Program if it participates in
the Hospital IQR Program.
Response: It would not be possible to
deem Hospital IQR Program
participating hospitals as meaningful
users under the EHR Incentive Program.
We note that aside from quality measure
reporting, meaningful users under the
HITECH EHR Incentive Program also
have other program requirements with
which to comply.
Comment: For burden reduction
purposes, several commenters
recommended that CMS limit data
collection for clinical process of care

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53511

measures to aggregate performance
levels only and, in addition, closely
monitor the association of process with
outcomes, such as mortality and
readmission rates.
Response: We thank the commenters
for these suggestions. We have found
that to fully address the relationship
between clinical processes of care and
patient outcomes, the analysis of patient
level data on processes of care with
individual patient level outcomes is
necessary. We intend to continue
monitoring this association using these
data.
Comment: A commenter praised CMS
for driving the portfolio of programs
administered via the IPPS to be more
aligned with what private sector
purchasers and payers are doing to
improve care and reduce costs. The
commenter recommended CMS develop
a parsimonious list of high-impact
measures suitable for both private
purchasers/payers and public
purchasers/payers through collaboration
with private and state purchasers during
pre-rulemaking, using the MAP process.
Many commenters applauded CMS’
recognition of recommendations from
the MAP in this proposed rule. The
commenters noted that the MAP
recommends a unified data strategy for
public and private sectors, a
standardized data platform, approaches
to performance-based payment, and use
of NQF-endorsed measures.
Response: We thank the commenters
for the commendations. We value the
recommendations of the MAP and
considered these recommendations
carefully in determining the measure
proposals to include in this year’s
rulemaking. In adopting many of the
MAP’s recommendations while giving
priority to measures that have high
impact in terms of mortality, morbidity,
volume, and cost, that could be
applicable to both the private and
public sectors, we feel that we have
developed a portfolio of high impact
measures that are suitable for use by
both private and public purchasers,
even though some of the measures in
the Hospital IQR Program are not NQFendorsed. We have adhered to the prerulemaking process as required under
section 1890A(a) of the Act in the
selection of quality and efficiency
measures. As part of this process, we
made available to the public a list of the
measures described in section
1890(b)(7)(B) of the Act that the
Secretary was considering under Title
XVIII of the Act.
Comment: For the future growth of
the Hospital IQR Program and burden
reduction purposes, some commenters
recommended that all new measures

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proposed for the Hospital IQR Program
should: (1) Align with objectives of the
National Priorities Partnership, HHS
Strategic Plan, and the NQS; (2) align
with criteria for meaningful use of
EHRs; (3) avoid duplicative reporting
via both chart-abstraction and ereporting; and (4) avoid measures of
broad or global facility populations.
Response: We thank the commenters
for their valuable suggestions and we
will take them into consideration in our
future measure proposals.
b. Hospital IQR Program Measures for
the FY 2015 Payment Determination
and Subsequent Years

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(1) Process for Retention of Hospital IQR
Program Measures Adopted in Previous
Payment Determinations
We previously finalized 76 measures
for the FY 2015 Hospital IQR Program
measure set (76 FR 51636 through
51637). We note that this number
includes the four measures for which
we have suspended data collection.
In past rulemakings, we have
proposed to retain previously adopted
measures for each payment
determination on a year-by-year basis
and invited public comment on the
proposal to retain such measures for all
future payment determinations unless
otherwise specified. Specifically, for the
purpose of streamlining the rulemaking
process, in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28038), we
proposed that when we adopt measures
for the Hospital IQR Program beginning
with a payment determination and
subsequent years, these measures are
automatically adopted for all
subsequent payment determinations
unless we propose to remove, suspend,
or replace the measures. We invited
public comment on this approach.
Comment: Some commenters
supported CMS’ proposed policy to
automatically retain all previously
adopted measures for all subsequent
payment determinations unless we
propose to remove, suspend, or replace
the measures. Some commenters
opposed the automatic retention of
measures because they were concerned
that the public may miss an opportunity
to comment on the measures and
potential changes to them. These
commenters recommended that CMS
propose to retain previously adopted
measures through rulemaking on a year
by year basis.
Response: We thank the commenters
for their support of the proposed
retention of quality measures from
previous payment determinations.
Regarding the opportunity for the public
to comment on the measures and

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potential changes to them, automatic
retention of measures in the program
does not preclude the public from
submitting comments on measures in
the program, and we post the
specifications for the measures used in
the program publicly on the QualityNet
Web site with updates issued at regular
6-month intervals. Whether NQFendorsed or not, we consistently
maintain the measures used in the
program. Should there be changes in
scientific evidence or health care
delivery models, or if patient safety
concerns arise, we will evaluate the
adopted measures accordingly. NQFendorsed measures also undergo a full
maintenance review with public
comment every three years. The purpose
of retaining measures automatically is to
streamline the regulation process and
make it more efficient.
Comment: A commenter reported
significant improvement in the
appropriate interventions provided for
AMI, HF, PN, and surgical carehospitalized patients since the initial
implementation of the 10 starter
measures in 2003 and urged CMS to
continue to retain these inpatient
measures.
Response: We note that some of the
measures in the 10 starter measures
were removed for different reasons in
previous rulemakings. We thank the
commenter for their support and will
consider the suggestion regarding
retaining the remaining measures in the
10 starter measures in making future
proposals.
Comment: A commenter was
concerned about the increasing number
of chart-abstracted and structural
measures in the Hospital IQR Program.
The commenter recommended that CMS
exclude the four structural measures as
well as the chart-abstracted Stroke and
VTE measure sets from the Hospital IQR
Program.
Response: We will consider these
suggestions for future removal of
measures from the program. Our
understanding is that, although required
collection of the previously adopted
Stroke and VTE measures for the
Hospital IQR Program will begin with
January 1, 2013 discharges, many
hospitals already have experience
collecting and reporting one or both of
these measure sets either to TJC, or to
a registry. The structural measures
impose minimal burden to hospitals.
We also received some comments on
some of the measures that we have
previously adopted and proposed to
retain.
Comment: A commenter was
concerned that in some cases, the ED–
1: Median time from emergency

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department arrival to time of departure
from the emergency room for patients
admitted to the hospital from the
emergency department (ED) measure
that was finalized for the FY 2014
payment determination in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50210
through 50211) may be inflated to span
days in some cases. The commenter
gave an example that a patient may go
to the ED, be sent home, return to the
ED, and be admitted to the hospital, all
over the course of 2 days. The
commenter noted that the Medicare
billing structure rolls up these 2 ED
visits into one single episode of care and
thus the median time from ED to time
of departure from the ED would appear
to span days.
Response: The commenter is correct
that in some instances, the timeframe
for ED visits may span 2 calendar days
reflecting Medicare billing processes
and structures. We are aware of this
issue and are working to address these
concerns and will review the impact of
this situation during upcoming
technical expert panel meetings. We are
also tracking the frequency in which
scenarios like the one described occur
in order to determine the impact of this
billing process.
Comment: A commenter requested
that the ED–1 and ED–2 measures not
apply to patients who suffer sexual
assault and domestic violence because
forensic evidence must be collected
from these patients and application of
the measures may compromise the time
needed to stabilize and treat these
patients.
Response: We thank the commenter
for the suggestion. However, we believe
that all patients, no matter what their
situation, should be seen and treated in
the ED in a timely manner. The measure
does not place time constraints on any
type of treatment provided during an ED
visit or indicate how much time
provision of care in the ED should take.
Therefore, we do not agree that patients
who are being treated in the ED because
they are victims of domestic violence or
sexual assault should be excluded from
the measure population.
Comment: A commenter
recommended the exclusions of various
patients from the Influenza
Immunization and Pneumococcal
Immunization measures that were
finalized for the FY 2014 payment
determination in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50210
through 50211) as follows: left against
medical advice, transferred to another
hospital, discharged to hospice,
documentation of comfort measures
only.

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Response: We agree with the
commenter and accordingly, beginning
with January 1, 2013 discharges, the
Specifications Manual includes
exclusions for patients transferring to
another acute care facility and patients
who leave against medical advice. The
manual informing January 1, 2013
discharges was published in July 2012,
and includes these changes. Patients
who leave against medical advice
cannot realistically be given
vaccinations if they have already left the
facility. Patients transferred to another
facility for completion of medical care,
vaccinations would be completed by the
accepting facility. With these
exclusions, the likelihood for double
counting a patient is removed, and
attribution is correctly achieved for this
metric. We do not believe that patients
discharged to hospice or those with
orders for comfort measures only,
should be excluded from the
denominator because a secondary
infection, potentially resulting from
withholding of a vaccination, in this
vulnerable population could reduce
quality of life.
Comment: A commenter suggested
that the measure specification of the
SCIP INF–4 (Cardiac surgery patients
with controlled 6AM postoperative
serum glucose) should be updated to
reflect the recent NQF maintenance
review updates. The updates would
mean changing the 6AM time frame to
the currently endorsed time frame of 18
to 24 hours post operative. The
commenter also stated that the
Specifications Manual should clearly
indicate post-operative states.
Response: We thank the commenter
for the suggestion. We will evaluate the
nature of this change, as well as the
optimal timing for instituting system
changes, and downstream impacts for
other programs before determining
whether an update can be made to the
Specifications Manual.
Comment: One commenter
recommended moving the
implementation date of the Healthcare
Personnel Influenza Vaccination
measure from the FY 2015 payment
determination to the FY 2014 payment
determination. Another commenter
recommended delaying the reporting of
the measure on Hospital Compare
because CDC/NHSN has significantly
revised the measure with new data
collection protocols, forms, and reports.
The commenter noted that hospitals
need to gain experience with the data
collection process prior to public
reporting of the information.
Response: We will continue to require
reporting of this measure for the
Hospital IQR Program for patients

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discharged on or after January 1, 2013.
In response to the comment regarding
the need for experience with the revised
CDC/NHSN data collection process
prior to public reporting, we will allow
the first submission of cases spanning
October 1, 2012 to December 31, 2012
to be on a voluntary basis, and we will
not publicly report the first submission
on Hospital Compare. We will plan to
begin public reporting with the second
submission of the Healthcare Personnel
Influenza Vaccination measure, which
would span the complete flu season
from October 1, 2013 through March 30,
2014, in December of 2014.
Comment: Two commenters strongly
supported the retention of the Stroke
measure set even though they may be
burdensome because commenters
believed these are important for
measurement of stroke care.
Response: We thank the commenters
for the support of the Stroke measure
set. We note that the e-specifications for
these 2 measure sets have been
completed. We anticipate that once
hospitals have acquired the capability to
submit data on measures electronically
at a future date, such as 2015, the
burden will be reduced significantly.
Comment: One commenter noted that
the names of the measures in the VTE
measure set should be updated to align
with TJC’s measure names.
Response: We thank the commenter
for the input. To maintain alignment
between CMS and TJC, we have updated
the inpatient Specifications Manual to
reflect TJC VTE measure set names.
Comment: One commenter requested
delaying the implementation of the
MRSA Bacteremia and the C. difficile
measures by one year to allow CMS and
CDC to collaborate in developing and
maintaining a set of technical
specifications for the detection and
reporting of LabID events from
laboratory information systems.
Response: We note that CDC has
developed specifications for detecting
and reporting LabID events and is
prepared to provide the specifications
and assistance to implementers. The
technical specifications are simply
instructions for how to collect and
submit the measure using healthcare
data that are available in electronic
form. However, these detection
specifications do not change the
measure. Therefore, we believe that
there is no need to delay the
implementation of these two measures.
After consideration of the public
comments we received, we are
finalizing the measure retention policy
as proposed.

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53513

(2) Additional Hospital IQR Program
Measures for the FY 2015 Payment
Determination and Subsequent Years
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51636 through 51637), we
finalized 17 new measures for the
Hospital IQR Program measure set for
FY 2015 payment determination: 3 HAI
measures collected through the NHSN,
(MRSA Bacteremia, C. difficile SIR, and
the Healthcare Personnel Influenza
Vaccination), the Stroke measure set (8
measures) and the VTE measure set (6
measures).
(A) New Survey-Based Measure Items
for Inclusion in the HCAHPS Survey
Measure for the FY 2015 Payment
Determination and Subsequent Years
For the FY 2015 payment
determination and subsequent years, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28038), we proposed to add
the NQF-endorsed 3-Item Care
Transition Measure (CTM–3) (NQF
#0228) to the existing HCAHPS survey.
This measure is NQF-endorsed;
therefore, the measure meets the
selection criteria under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
The CTM–3 was developed by the
University of Colorado Health Sciences
Center for the NQF Endorsement Project
entitled ‘‘National Voluntary Consensus
Standards for Quality of Cancer Care.’’
The MAP supports the immediate
inclusion of the CTM–3 within the
Hospital IQR Program. The three care
transitions items that comprise the
CTM–3, which we proposed to add to
the HCAHPS survey beginning with
January 2013 discharges, are listed
below. Detailed information on scoring
methodology can be found on the Care
Transition Measure Web site: http://
www.caretransitions.org/documents/
CTM3Specs0807.pdf.
The HCAHPS Survey was designed to
accommodate the addition of
supplemental items, provided such
items adhere to the relevant HCAHPS
survey protocols, see HCAHPS Quality
Assurance Guidelines V7.0, p. 72:
http://www.hcahpsonline.org/files/
HCAHPS%20Quality%20
Assurance%20Guidelines%20V7.0%20
March%202012.pdf. The survey items
that comprise the CTM–3 that we
propose to add to HCAHPS meet these
protocols. The addition of select items
to HCAHPS is consistent with the
survey’s original design, development
and NQF endorsement. Further, the
CTM–3 was designed by its developers
to be consistent and compatible with
extant HCAHPS items and HCAHPS
sampling and survey administration
protocols. The original, NQF-endorsed

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CTM–3 items and response options are
as follows:
• The hospital staff took my
preferences and those of my family or
caregiver into account in deciding what
my health care needs would be when I
left the hospital.
b Strongly Disagree
b Disagree
b Agree
b Strongly Agree
b Don’t Know/Don’t Remember/Not
Applicable
• When I left the hospital, I had a
good understanding of the things I was
responsible for in managing my health.
b Strongly Disagree
b Disagree
b Agree
b Strongly Agree
b Don’t Know/Don’t Remember/Not
Applicable
• When I left the hospital, I clearly
understood the purpose for taking each
of my medications.
b Strongly Disagree
b Disagree
b Agree
b Strongly Agree
b Don’t Know/Don’t Remember/Not
Applicable
In order to make the CTM–3 items
more fully consistent and compatible
with the original HCAHPS Survey
items, we have made a few small
modifications. Specifically, in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28038), we proposed: (1) To slightly
reword the first care transition item by
adding the phrase, ‘‘During this hospital
stay;’’ (2) to delete the ‘‘Don’t Know/
Don’t Remember/Not Applicable’’
response option from each item; and (3)
to add a new response option, ‘‘I was
not given any medication when I left the
hospital,’’ to the third care transition
item. These small modifications
preserve the integrity and utility of the
HCAHPS Survey as it is expanded to
encompass a new dimension of patients’
experience of hospital care. The
developer of the CTM–3 has agreed to
these modifications, which we believe
are consistent with the NQF
endorsement of the original 27-item
HCAHPS Survey and the CTM–3.
After incorporating these
modifications, the CTM–3 items that we
proposed to add to the HCAHPS Survey
are as follows:
• During this hospital stay, staff took
my preferences and those of my family
or caregiver into account in deciding
what my health care needs would be
when I left.
b Strongly disagree
b Disagree
b Agree
b Strongly agree

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• When I left the hospital, I had a
good understanding of the things I was
responsible for in managing my health.
b Strongly disagree
b Disagree
b Agree
b Strongly agree
• When I left the hospital, I clearly
understood the purpose for taking each
of my medications.
b Strongly disagree
b Disagree
b Agree
b Strongly agree
b I was not given any medication
when I left the hospital
We also proposed to add two items to
the ‘‘About You’’ section of the
HCAHPS survey beginning with January
2013 discharges. These two items would
not be included in public reporting of
the HCAHPS survey but may be
employed in the patient-mix adjustment
of survey responses.
The two proposed ‘‘About You’’ items
are as follows:
• During this hospital stay, were you
admitted to this hospital through the
Emergency Room?
b Yes
b No
• In general, how would you rate
your overall mental or emotional
health?
b Excellent
b Very good
b Good
b Fair
b Poor
The two new ‘‘About You’’ items were
developed and tested in the Three-State
Pilot Study of HCAHPS in 2003. Neither
item was adopted in the national
implementation of HCAHPS in 2006;
however, current circumstances, as
explained below, warrant the addition
of these items to the HCAHPS survey at
this time.
We invited public comment on the
three proposed CTM–3 items.
Comment: Commenters expressed
support for the CTM–3 items.
Response: We thank the commenters
for their support for the CTM–3 items.
Inclusion of these tested and wellaccepted questions will enable HCAHPS
to report on transition of care measures
as part of its overall public reporting
program.
Comment: One commenter stated that
the response options for the CTM–3
items are different from those of existing
HCAHPS questions and that this may
confuse respondents as well as pose a
challenge for hospital public reporting.
Response: The current HCAHPS
questionnaire includes a variety of
response sets, depending upon the
questions being asked. It is standard

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practice within survey research to use
different response sets for different
questions within a single questionnaire.
Asking respondents to agree or disagree
with statements is a common response
set option. We have no evidence that a
variety of response sets confuses
respondents or poses a significant
challenge for hospital public reporting.
Comment: Some commenters stated
that some of the CTM–3 items appear to
be redundant with items already on the
HCAHPS survey and are not distinct
enough to warrant inclusion.
Response: Similar items do exist in
the current survey, but they are asked in
contexts other than care transitions. For
example, current HCAHPS questions
about medications are asked in the
context of the hospital environment,
rather than care transitions.
Accordingly, we believe the CTM–3 is
appropriate for inclusion in the
HCAHPS survey.
Comment: One commenter believed
that the CTM–3 item on medications
will not be answered accurately or will
confuse patients and should be limited
to new medications.
Response: Testing has not revealed
any issues with this item. In addition,
the wording of the item reflects a wide
variety of scenarios, including situations
in which patients were handed
prescriptions, or actual medications,
when they left the hospital. The item is
intended to measure the degree to
which patients feel they understand the
purpose for all of their medications as
they transition to another care location.
It is not intended to focus solely on new
medications that may have been
prescribed at the hospital.
Comment: Commenters expressed
their belief that the CTM–3 item
regarding ‘‘care needs’’ is really about
patient preferences, not care transitions.
Response: The CTM–3 item regarding
‘‘care needs’’ asks patients about an
issue that patients have identified in
qualitative studies as critically
important to care coordination when
leaving the hospital.
Comment: Comments suggested that
the CTM–3 items be reworded for
clarity, to make them easier to read, to
avoid questions that ask patients about
both their own preferences and those of
the patient’s family or caregiver, and to
make the response items more similar to
other response items already included
in the HCAHPS survey.
Response: We carefully reviewed the
CTM–3 items for both content and style
before proposing their inclusion in the
HCAHPS Survey and found no reason to
make substantial changes. In terms of
content, the CTM–3 was developed to
be compatible with HCAHPS Survey.

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While the style of the CTM–3 items
differs slightly from existing HCAHPS
Survey items, our testing indicates this
not a problem for patients. In addition,
hospitals that currently use the CTM–3
have not reported problems with item
wording or confusion with questions
that ask patients about their preferences
and those of their family or caregiver
(which are considered a unit). Finally,
the CTM–3 items have been tested by
their developer and are NQF-endorsed.
While we made some minor
modifications to the CTM–3 items and
their response options to make them
more compatible with other items on
the HCAHPS Survey, we are not free to
substantially alter either the wording of
NQF-endorsed items or to change their
response sets without re-submitting
them for endorsement.
Until 2010, ‘‘emergency room
admission’’ as a point of origin for
hospital patients was an administrative
code provided by hospitals and was
used as a patient-mix adjustment for
HCAHPS scores. However, since July
2010, the ‘‘Point of Origin for
Admission or Visit’’ code for Emergency
Room has been discontinued for use by
Medicare payment systems and, thus
became unavailable for HCAHPS
patient-mix adjustment. In the original
HCAHPS mode experiment, we
determined empirically that emergency
room admission status both vary across
hospitals and have an important bearing
on patient experience of care: http://
www.hcahpsonline.org/files/Final%20
Draft%20Description%20of
%20HCAHPS%20Mode%20and%20
PMA%20with%20bottom%20box%20
modedoc%20April%2030,%202008.
pdf. The inclusion of a new patientreported survey item will allow us to
again use emergency room admission as
a patient-mix adjustment variable.
We have received numerous inquiries
and requests from hospitals and
researchers to add a survey item
concerning the patient’s overall mental
health. The survey item we proposed to
add, which is very similar in structure
to the existing ‘‘overall health’’ item,
will allow us to introduce a patient-mix
adjustment for this characteristic in the
future. Although we chose not to add a
survey item about patient’s overall
mental health status in the national
implementation of HCAHPS in 2006, we
continue to receive inquiries and
requests from hospitals and researchers
on this topic. Some researchers claim
that mental health status is an important
factor in how patients respond to
HCAHPS survey items. The continuing
interest in this topic, coupled with the
direct impact of HCAHPS performance
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October 2012, led to the decision to add
an overall mental health item to the
HCAHPS survey. The overall mental
health survey item we have chosen very
closely resembles the Overall General
Health item in the HCAHPS Survey, has
been extensively tested, and is currently
included in several other CAHPS
surveys.
We proposed to add these two ‘‘About
You’’ items to the existing HCAHPS
survey, with required collection
beginning January 1, 2013. More detail
regarding HCAHPS requirements is
included in the Form, Manner and
Timing section of this preamble for this
program. We invited public comment on
the proposed addition of these items for
the FY 2015 payment determination.
Comment: Commenters on the
mental/emotional health status rating
question believed that the item is too
sensitive and that it constitutes a selfdiagnosis of psychiatric conditions.
Commenters also asked whether the
item has been tested and how it will be
used in case-mix adjustment and
expressed concern that responses to this
question might put the hospital in the
position of having information that
might or might not be in the medical
record.
Response: Cognitive testing across a
variety of populations, including
commercial, Medicare and Medicaid
populations, has revealed no respondent
hesitancy to answer this question. This
item does not request self-diagnoses, but
merely a rating of perceived mental or
emotional health status. There is a body
of literature to indicate that single-item
health perception measures (overall
ratings) are substantially correlated with
long-form (multi-item) measures of
physical and emotional health. This is
a well-established approach to capturing
general health perceptions. The mental/
emotional health item is one of the
oldest and best-validated items in
patient surveys; it has been successfully
fielded on Medicare CAHPS surveys
since 2002. The HCAHPS project team
has received many requests to adjust
HCAHPS scores for perceived mental/
emotional health status. We will be
looking at the feasibility of making
patient mix adjustments using this item.
Asking patients for a self-assessment of
their mental and/or physical health is a
well-established survey item that has
been successfully used in many
contexts, including other CAHPS
surveys. Patient responses to this and
other HCAHPS items are collected after
discharge, and thus, are not in hospitals’
possession during the hospitalization or
part of the patient medical record.
Finally, responses to this item do not
constitute a clinical assessment of the

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53515

patient’s mental or emotional health,
nor do they constitute a self-diagnosis.
They relate to the patient’s perception of
his or her mental or emotional health.
Comment: Commenters on the
question about being admitted through
the hospital ED believed that patients
may not be able to accurately report
whether they were admitted through the
ED and that administrative data are
preferable to self-reports as a source of
this information. One commenter said
the item has the potential to decrease
the confidence of their patients because
the patients may perceive that the
hospital should already know this
information. A commenter asked
whether the validity of the item had
been tested.
Response: The ‘‘Point of Origin for
Admission or Visit’’ code for Emergency
Room was discontinued for use by
Medicare payment systems in July 2010
and became unavailable for HCAHPS
patient-mix adjustment. The inclusion
of a new patient-reported survey item
will allow us to again use emergency
room admission as a patient mix
adjustment variable if it is shown to
influence response tendencies. The
emergency room admission self-report
question was included in the original
HCAHPS three-State pilot study in
2003. In that study we were able to
compare patient self-reports with
administrative data and found that the
patient self-report is a valid indicator of
whether the patient had been admitted
through the ED. Prior testing did not
reveal a pattern of decreased patient
confidence resulting from this item.
Patients who are unsure about their
admission origin may leave this
question unanswered.
Comment: Commenters suggested that
the addition of the CTM–3 and two
About You items will increase the
survey’s length, resulting in a reduced
response rate, more administrative
difficulties, and higher costs for
hospitals. Commenters suggested that
we develop a core set of items, plus a
rotating set of items in order to keep the
survey short, but allow for the inclusion
of new topics.
Response: We have not found issues
with survey administration of
instruments that are more than twice as
long as Hospital CAHPS. Many vendors
currently add questions to the HCAHPS
questionnaire. As many as 25 additional
items are now being successfully fielded
as part of the HCAHPS survey. We
believe that adding five items is
unlikely to substantially impact either
the cost or the difficulty of
administering the survey. We are,
however, concerned that using a set of
rotating questions would unnecessarily

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increase the complexity, cost, and
difficulty of survey administration for
both hospitals and vendors.
After consideration of the public
comments we received, we are adopting
the proposed changes as final.
(B) New Claims-Based Measures for the
FY 2015 Payment Determination and
Subsequent Years

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(i) Hip/Knee Complication: HospitalLevel Risk-Standardized Complication
Rate (RSCR) Following Elective Primary
Total Hip Arthroplasty (THA) and Total
Knee Arthroplasty (TKA) (NQF #1550)
The THA and TKA are commonly
performed procedures for the Medicare
population to improve quality of life. In
2003, there were 202,500 THAs and
402,100 TKAs performed,55 and the
number of procedures performed
annually has increased steadily over the
past decades. Annual hospital charges
are projected to increase by 340 percent
to $17.4 billion for THA and by 450
percent to $40.8 billion for TKA by
2015.56 The post-operation
complications of these procedures are
high considering these are selective
procedures and usually the
complications are devastating to
patients. For example, rates for
periprosthetic joint infection, a rare but
devastating complication, have been
reported at 2.3 percent for THA/TKA
patients with rheumatoid arthritis,57
and 1.6 percent in primary elective TKA
patients after 1 and 2 years of follow up,
respectively.58 Two studies reported 90day death rates following THA at 0.7
percent 59 and 2.7 percent.60 Reported
rates for pulmonary embolism following
TKA range from 0.5 percent to 0.9
percent.61,62,63,64 Reported rates for
55 Kurtz S, Ong K, Lau E, Mowat F, Halpern M.,
Projections of primary and revision hip and knee
arthroplasty in the United States from 2005 to 2030.
J Bone Joint Surg Am. Apr 2007;89(4):780–785.
56 Kurtz SM, Ong KL, Schmier J, et al., Future
clinical and economic impact of revision total hip
and knee arthroplasty. J Bone Joint Surg Am. Oct
2007;89 Suppl 3:144–151.
57 Bongartz, T, Halligan CS, Osmon D, et al.
Incidence and risk factors of prosthetic joint
infection after total hip or knee replacement in
patients with rheumatoid arthritis. Arthritis Rheum.
2008; 59(12):1713–1720.
58 Kurtz S, Ong K, Lau E, Bozic K, Berry D, Parvizi
J. Prosthetic joint infection risk after TKA in the
Medicare population. Clin Orthop Relat Res.
2010;468:5.
59 Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN,
Rosenthal GE. A comparison of total hip and knee
replacement in specialty and general hospitals. J
Bone Joint Surg Am. Aug 2007;89(8):1675–1684.
60 Soohoo NF, Farng E, Lieberman JR, Chambers
L, Zingmond DS. Factors That Predict Short-term
Complication Rates After Total Hip Arthroplasty.
Clin Orthop Relat Res. Sep 2010;468(9):2363–2371.
61 Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN,
Rosenthal GE. A comparison of total hip and knee
replacement in specialty and general hospitals. J
Bone Joint Surg Am. Aug 2007;89(8):1675–1684.

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septicemia range from 0.1 percent,
during the index admission 65 to 0.3
percent, 90 days following discharge for
primary TKA.66 Rates for bleeding and
hematoma following TKA have been
reported at 0.94 percent 67 to 1.7
percent.68 In 2005, annual hospital
charges totaled $3.95 billion and $7.42
billion for primary THA and TKA,
respectively.69 Combined, THA and
TKA procedures account for the largest
payments for procedures under
Medicare.70
Both hip and knee arthroplasty
procedures improve the function and
quality of life of patients with disabling
arthritis, and the volume and cost
associated with these procedures are
very high. We believe it is important to
assess the quality of care provided to
Medicare beneficiaries who undergo one
or both of these procedures.
The Hip/Knee Complication:
Hospital-Level Risk-Standardized
Complication Rate (RSCR) Following
Elective Primary Total Hip Arthroplasty
(THA) and Total Knee Arthroplasty
(TKA) measure (NQF # 1550) is an
outcome measure. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28039),
we proposed this measure for the
Hospital IQR Program because outcome
measures are priority areas for the
Hospital IQR Program. We believe it is
important to assess the quality of care
provided to Medicare beneficiaries who
62 Mahomed NN, Barrett JA, Katz JN, et al. Rates
and outcomes of primary and revision total hip
replacement in the United States medicare
population. J Bone Joint Surg Am. Jan 2003;85–
A(1):27–32.
63 Khatod M, Inacio M, Paxton EW, et al. Knee
replacement: epidemiology, outcomes, and trends
in Southern California: 17,080 replacements from
1995 through 2004. Acta Orthop. Dec
2008;79(6):812–819.
64 Solomon DH, Chibnik LB, Losina E, et al.
Development of a preliminary index that predicts
adverse events after total knee replacement.
Arthritis & Rheumatism. 2006;54(5):1536–1542.
65 Browne, JA, Cook C, Hofmann A, Bolognesi
MP. Postoperative morbidity and mortality
following total knee arthroplasty with computer
navigation. Knee. 2010;17(2):152–156.
66 Cram P, Vaughan-Sarrazin MS, Wolf B, Katz JN,
Rosenthal GE. A comparison of total hip and knee
replacement in specialty and general hospitals. J
Bone Joint Surg Am. Aug 2007;89(8):1675–1684.
67 Browne, JA, Cook C, Hofmann A, Bolognesi
MP. Postoperative morbidity and mortality
following total knee arthroplasty with computer
navigation. Knee. 2010;17(2):152–156.
68 Huddleston JI, Maloney WJ, Wang Y, Verzier N,
Hunt DR, Herndon JH. Adverse Events After Total
Knee Arthroplasty: A National Medicare Study. The
Journal of Arthroplasty. 2009;24(6, Supplement
1):95–100.
69 Kurtz S, Ong K, Lau E, Mowat F, Halpern M.,
Projections of primary and revision hip and knee
arthroplasty in the United States from 2005 to 2030.
J Bone Joint Surg Am. Apr 2007;89(4):780–785.
70 Bozic KJ, Rubash HE, Sculco TP, Berry DJ., An
analysis of medicare payment policy for total joint
arthroplasty. J Arthroplasty. Sep 2008;23(6 Suppl
1):133–138.

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undergo one or both of these procedures
and publicly report the hospital rates for
consumer choice of care.
The proposed measure assesses
complications occurring after THA and
TKA surgery from the date of the index
admission to 90 days post date of the
index admission. The outcome is one or
more of the following complications:
Acute myocardial infarction,
pneumonia, or sepsis/septicemia within
7 days of admission; surgical site
bleeding, pulmonary embolism or death
within 30 days of admission; or
mechanical complications,
periprosthetic joint infection or wound
infection within 90 days of admission.
The data indicated that the median
hospital-level risk-standardized
complication rate for 2008 was 4.2
percent, with a range from 2.2 percent
to 8.9 percent in hospitals. The variation
in complication rates suggest that there
are important differences in the quality
of care delivered across hospitals, and
that there is room for quality
improvement.
In 2010, we developed a hospitallevel risk-standardized complication
rate (RSCR) following elective primary
THA and TKA surgery. NQF endorsed
this THA and TKA complication
measure in February 2012 (NQF #1550).
In its Pre-Rulemaking Report for 2012,
the MAP also recommended the
inclusion of this measure in the
Hospital IQR Program. In the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28040), we proposed to adopt the
Hospital-Level Risk-Standardized
Complication Rate (RSCR) Following
Elective Primary Total Hip Arthroplasty
(THA) and Total Knee Arthroplasty
(TKA) measure for the Hospital IQR
Program for the FY 2015 payment
determination and subsequent years.
This measure is NQF-endorsed (NQF
#1550); therefore, the measure meets the
selection criteria under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
The measure specifications can be
found at: http://www.qualityforum.org/
Projects/Surgery_Maintenance.aspx#
t=2&s=&p=.
The proposed measure uses the same
hierarchical logistic modeling (HLM)
methodology that is specified for other
NQF-endorsed CMS inpatient outcome
measures previously adopted for this
program, including AMI, HF, and PN
readmission and mortality measures
because this modeling has already been
subjected to NQF review, and has been
determined to appropriately account for
the types of patients a hospital treats,
the number of patients it treats, and the
quality of care it provides. The HLM
model estimates risk-standardized
complications rates. Medicare Part A

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and Part B (FFS) claims are the data
source we used to develop the measure
and that we proposed to use to calculate
the measure if finalized. Index
admission diagnoses and in-hospital
comorbidities would be assessed using
Medicare Part A claims. Additional
comorbidities prior to the index
admission would be assessed using Part
A inpatient, outpatient, and Part B office
visit Medicare claims in the 12 months
prior to index (initial) admission.
Enrollment and post-discharge mortality
status would be obtained from
Medicare’s enrollment database which
contains beneficiary demographic,
benefit/coverage, and vital status
information.
The proposed Total Hip and Total
Knee Arthroplasty Complication
measure includes Medicare FFS
beneficiaries, aged 65 years or older,
admitted to non-Federal acute care
hospitals for THA or TKA. The measure
methodology identifies eligible index
admissions, using the following ICD–9–
CM procedure codes: 81.51 Total Hip
Arthroplasty; and 81.54 Total Knee
Arthroplasty in Medicare Part A
inpatient claims data. The measure
specifications will be updated yearly
and will be specified using ICD–10.
In addition, the proposed measure
includes patients who have had
continuous enrollment in Medicare FFS
for one year prior to the date of index
admission to ensure full data
availability for risk adjustment. We
restrict the sample to admissions of
patients enrolled in Medicare FFS
coverage in the 12 months prior to and
including the time of their index
admission to a non-Federal acute care
hospital because of the availability of
complete administrative data for most
Medicare FFS patients.
The proposed measure does not
include beneficiaries enrolled in
Medicare Managed Care (‘‘Medicare
Advantage’’) plans because only partial
administrative data are reported to CMS.
We would not have complete data on
these Medicare Advantage enrollees.
Patients under age 65 (the qualifying age
for Medicare coverage for those not
considered disabled or with end-stage
renal disease) or for whom we otherwise
have incomplete information—for
example, those enrolled in a Medicare
Advantage plan during any part of the
relevant time period—will also be
excluded to ensure data comparability.
These restrictions on the data also allow
for an appropriately comprehensive
risk-adjustment for patient case-mix and
comorbidity that would not be possible
without access to data available to this
population.

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The proposed measure excludes
patients with hip fractures (patients
with hip fractures have higher mortality,
complication rates and the procedure
(THA) is not elective); patients
undergoing revision procedures (may be
performed at a disproportionately small
number of hospitals and are associated
with higher mortality, complication and
readmission rates); patients undergoing
partial hip arthroplasty (primarily done
for hip fractures and are typically
performed on patients who are older,
more frail, and with more comorbid
conditions); patients undergoing
resurfacing procedures (different type of
procedure which is typically performed
on younger, healthier patients); patients
who are transferred to the index
hospital (it is likely that the procedure
is not elective); patients who leave the
hospital against medical advice (it is
likely that the procedure is not elective);
patients with more than two THA/TKA
procedure codes during the index
hospitalization (unlikely that patients
would receive more than two THA/TKA
procedures in one hospitalization, and
this pattern may reflect coding errors);
and patients with multiple admissions
for THA/TKA in the 12 months studies.
Consistent with the requirements in
section 1886(b)(3)(B)(viii)(VIII) of the
Act, the proposed measure is riskadjusted. It takes into account the
patient case-mix to assess hospital
performance. The patient risk factors are
defined using the Hierarchical
Condition Categories (CC), which are
clinically relevant diagnostic groups of
ICD–9–CM codes.71 The CCs used in the
risk adjustment model for this measure,
are provided at: http://www.qualitynet.
org/dcs/ContentServer?c=Page&
pagename=QnetPublic%2FPage%2
FQnetTier4&cid=1182785083979. The
proposed measure meets the statutory
requirement because it adjusted for
hospital patient mix including age and
comorbidities to ensure that hospitals
that care for a less healthy patient
population are not penalized unfairly.
The measure methodology defines
‘‘complications’’ as Acute myocardial
infarction; Pneumonia; Sepsis/
septicemia; Pulmonary embolism;
Surgical site bleeding; Death; Wound
infection; Periprosthetic joint infection;
and Mechanical complication within 30
to 90 days post the index date of
admission, depending on the
complication. The decision on the
appropriate follow-up period was based
on our analysis of 90-day trends in
71 Pope G, Ellis R, Ash A, et al., Principal
Inpatient Diagnostic Cost Group Models for
Medicare Risk Adjustment. Health Care Financing
Review. 2000;21(3):26.

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complication rates using the 2008
Medicare FFS Part A Inpatient Data. We
found that rates for mechanical
complications are elevated until 90 days
post the date of index admission. We
found that the rates for four other
complications—death, surgical site
bleeding, wound infection, and
pulmonary embolism—are elevated for
30 days, and that AMI, pneumonia, and
sepsis/septicemia level off 7 days post
date of index admission. The following
table presents the follow-up period for
each complication.

COMPLICATION FOLLOW-UP PERIODS
Complication
Death ..........................................
Mechanical complications ...........
Periprosthetic joint infection (PJI)
Surgical site bleeding .................
Wound infection ..........................
Pulmonary embolism ..................
AMI .............................................
Pneumonia ..................................
Sepsis/septicemia .......................

Follow-up
period
(days)
30
90
90
30
30
30
7
7
7

We proposed to calculate the hospital
risk-standardized complication rate by
producing a ratio of the number of
‘‘predicted’’ complications (that is, the
adjusted number of complications at a
specific hospital based on its patient
population) to the number of
‘‘expected’’ complications (that is, the
number of complications if an average
quality hospital treated the same
patients) for each hospital and then
multiplying the ratio by the national
raw complication rate.
We invited public comment on the
proposed inclusion of the HospitalLevel Risk-Standardized Complication
Rate (RSCR) Following Elective Primary
Total Hip Arthroplasty (THA) and Total
Knee Arthroplasty measure in the
Hospital IQR Program for the FY 2015
payment determination and future
years.
Comment: Many commenters strongly
supported this NQF-endorsed and MAPrecommended hip/knee complication
measure, stated that the measure will
provide valuable data for improvement
and enhance patient care, and
commended CMS for considering the
measure for patients undergoing
inpatient joint procedures. Commenters
stated that this measure is important in
capturing patient outcomes during the
post-discharge period, and provides
hospitals access to data to which they
may not have access otherwise,
including a limited set of complications
that occur after the patient has left the
hospital. A commenter stated that hip

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and knee replacements are often nonemergent procedures, therefore
information on outcomes will give
consumers an opportunity to research
the quality of care provided in their
local hospitals.
Several commenters also supported
our exclusion criteria for the hip/knee
complication measure, the hierarchical
logistic modeling for risk-adjustment,
and the inclusion of major bleeds in the
list of complications.
Response: We thank the commenters
for the support and recognizing the
significance of this measure.
Comment: Several commenters did
not support this claims-based measure
and asserted that the infection data
obtained from claims significantly
differs from post-operative infection
data recorded in medical records and
reported to NHSN, which is a better
indicator of surgical site infections.
Response: The claims-based hip/knee
complications measure underwent a
medical record validation process. We
found a high level of consistency
between the complications found in
claims with those found in the medical
records. Using the current
specifications, 99 percent of patients
were found to have a complication in
the claims as well as in the medical
records.
Comment: A few commenters noted
this measure does not have adequate
adjustment for socioeconomic status
(SES) and psycho-social support, and
recommended such adjustments be
made prior to implementation.
Response: The measure does not
adjust for SES or other patient factors
such as psycho-social support because
we do not want to hold hospitals to
different standards of patient care
simply because they treat a large
number of low SES patients. Moreover,
we do not want to mask potential
disparities in care or minimize
incentives to improve the outcomes of
care for disadvantaged populations.
This is also consistent with the NQF’s
position regarding risk adjustment,
which is that risk-adjusted measures
should not include variables such as
SES and race that would adjust away
disparities in care.
During development and review of
the hip/knee measures some
stakeholders and experts expressed
concerns regarding the influence of
patient SES on hip/knee readmission
and complication rates. We conducted
preliminary analyses to explore
disparities by SES (http://
www.nysna.org/images/pdfs/practice/
nqf_ana_outcomes_draft10.pdf)
focusing on the readmission measure
where concerns were greatest. We used

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Medicaid eligibility status identified in
the Medicare claims enrollment
database (EDB) as a proxy for SES.
Patients were categorized into two
groups, based on their eligibility status
for Medicaid (yes/no). The Medicaid
eligible population represents lower
SES status. We then estimated the odds
ratio for this SES variable by adding it
to the hip/knee risk-adjustment model.
The results showed that although SES
was an independent predictor of
readmission risk (odds ratio of 1.2),
adding the variable to the model did not
improve the model’s overall ability to
predict patient readmission risk. When
the SES variable was added, the strength
of clinical variables in the model was
attenuated and the model c-statistic was
essentially unchanged. This analysis
suggested that the clinical variables in
the model are adequately accounting for
differences in patients’ risk of
readmission. The results were presented
to the national Technical Expert Panel
for the hip/knee measures. Based on
these analyses, we did not include SES
as a risk-adjuster in either of the hip/
knee measures.
However, we are committed to
tracking this issue and will continue to
evaluate disparities in care and the
impact of the hospital risk- standardized
complication rates on providers of
vulnerable populations.
Comment: One commenter was
concerned about the unintended
consequence of the Hip/Knee
Complications measure for rheumatoid
arthritis patients who are at high risk for
infection. In particular, the commenter
was concerned that this measure could
cause hospitals to hesitate to perform
the total hip/knee arthroplasty
procedure on patients with rheumatoid
arthritis.
Response: The hip/knee measures
include risk-adjustment in order to level
the playing field and account for
differences in the risk between the casemix at different hospitals. Rheumatoid
arthritis is one of the risk-adjustment
variables, so any increased risk
associated with patients that have
rheumatoid arthritis will be accounted
for by the measure.
Comment: A few commenters
requested clarifications regarding
several aspects of the proposed measure:
Complications attributable to the
process of care, unrelated
complications, POA complications, and
the measurement period. Another
commenter was concerned that data
analysis of this measure is challenging
and difficult for consumers to interpret.
The commenter inquired about the level
of data that will be made available to
providers and suggested that providing

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detailed information regarding the count
by complication and cohort would help
quality improvement efforts.
Response: The commenter appears to
be asking for clarification about why
complications attributable to the
processes of care and unrelated
complications are included. The hip/
knee complications measure is designed
to capture complications related to both
the surgical and medical care provided
for elective hip/knee procedures. The
outcome, therefore, includes both
medical and surgical complications. The
timeframe for each was chosen based on
the typical window in which each of
these complications occurs.
Specifically, the measure counts in the
outcome: AMI, pneumonia, or sepsis/
septicemia during the admission or
within 7 days of the admission date;
surgical site bleeding, pulmonary
embolism or death during the admission
or within 30 days of admission; or
mechanical complications or PJI or
wound infection during the admission
or within 90 days of admission. We
included these outcomes because they
are clinically related to care provided as
documented in the literature and
informed by extensive expert input. The
measure is structured so that it does not
count complications that are present on
admission. For example, patients with
mechanical complications on admission
are excluded from the measure. To help
hospitals with their quality
improvement effort, we will provide
hospitals with their hospital-specific
report with detailed information about
the patients included in the measure.
We will share with hospitals this report
prior to posting of the measures on the
Hospital Compare Web site during the
30-day preview period for the Hospital
IQR Program. We welcome specific
suggestions on additional data that
would be helpful for hospital quality
improvement.
Comment: A commenter requested the
publication of the ICD–10–CM/PCS
versions of the measure specifications in
the final rule.
Response: We are working on
specifying the measures using the ICD–
10–CM/PCS and will make the
specifications available to the public as
soon as possible.
After consideration of the public
comments we received, we are
finalizing the proposed Hip/Knee
Complication: Hospital-Level RiskStandardized Complication Rate (RSCR)
Following Elective Primary Total Hip
Arthroplasty (THA) and Total Knee
Arthroplasty (TKA) measure for the FY
2015 payment determination and
subsequent years as proposed.

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(ii) Hip/Knee Readmission: HospitalLevel 30-Day All-Cause RiskStandardized Readmission Rate (RSRR)
Following Elective Total Hip
Arthroplasty (THA) and Total Knee
Arthroplasty (TKA) (NQF #1551)
As previously stated, outcome
measures such as complications and
readmissions are the priority areas for
the Hospital IQR Program. The THA and
TKA are commonly performed
procedures that improve quality of life.
The complications are usually
devastating to the patient and costly to
the Medicare program. Furthermore, we
believe that there is an opportunity for
quality improvement by hospitals to
improve quality of life for the patient.
The 2008 Medicare FFS claims data
indicate that 30-day hospital-level riskstandardized readmission rates ranged
from 3.06 percent to 50.94 percent
among hospitals with a median rate of
6.06 percent. The mean riskstandardized readmission rate was 6.3
percent. This variation suggests there
are important differences in the quality
of care received across hospitals, and
that there is room for improvement.
Given the high volume and high cost
associated with these hip and knee
procedures (relative to other elective
procedures performed in the Medicare
population), we believe that it is
imperative to assess the quality of care
provided to Medicare beneficiaries who
undergo one or both of these
procedures. A measure that addresses
readmission rates following THA and
TKA provides an opportunity to provide
targets for efforts to improve the quality
of care and reduce costs for patients
undergoing these elective procedures.
The measure also increases
transparency for consumers and
provides patients with information that
could guide their choices. Finally, it has
the potential to lower health care costs
associated with readmissions. The
development of risk-adjusted measures
of patient readmission outcomes can
provide a critical perspective on the
provision of care, and support
improvements in care for the Medicare
patient population following THA/TKA
hospitalization.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28041), we
proposed to adopt the Hip/Knee
Readmission: Hospital 30-Day All-Cause
Readmission Following Elective Total
Hip Arthroplasty (THA) and Total Knee
Arthroplasty (TKA) measure for the
Hospital IQR Program for the FY 2015
payment determination and subsequent
years. This measure is NQF-endorsed;
therefore, the measure meets the
selection criteria under section

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1886(b)(3)(B)(viii)(IX)(aa) of the Act.
The measure specification for this
measure can be found on the Web site
at: http://www.qualityforum.org/
Projects/
Surgery_Maintenance.aspx#t=2&s=&p=.
In its Pre-Rulemaking Report, the MAP
recommended the inclusion of this
measure in the Hospital IQR Program.
The objective of this proposed measure
is to assess readmission from any cause
within 30 days of the initial total hip
arthroplasty and total knee arthroplasty
admissions for patients discharged from
the hospital following elective primary
THA and TKA.
The proposed measure uses the same
HLM methodology that is specified for
the NQF-endorsed AMI, HF, and PN 30day risk-adjusted all-cause readmission
measures in the Hospital IQR Program
because it has already been subjected to
NQF review and has been determined to
appropriately account for the types of
patients the hospital treats, the number
of patients it treats, and the quality of
care it provides. The HLM model
estimates risk-standardized readmission
rates. The data source we used to
develop the measure and that we would
use to calculate the measure if finalized
is Medicare Part A (FFS) claims. Index
admission diagnoses and in-hospital
comorbidity data would be assessed
using Medicare Part A claims.
Additional comorbidities prior to the
index admission would be assessed
using Part A inpatient, outpatient, and
Part B office visit Medicare claims in the
12 months prior to index (initial)
admission. Enrollment status would be
obtained from Medicare’s enrollment
database which contains beneficiary
demographic, benefit/coverage, and
vital status information.
The proposed measure includes
admissions for patients who were
Medicare FFS beneficiaries, aged 65
years or older, admitted to non-Federal
acute care hospitals with an ICD–9–CM
code for THA or TKA. Eligible index
admissions would be identified using
the following ICD–9–CM procedure
codes: 81.51 (Total hip arthroplasty);
and 81.54 (Total knee arthroplasty) in
Medicare Part A inpatient claims data.
In addition, patients must have had
continuous enrollment in Medicare FFS
for one year prior to the date of index
admission to ensure full data
availability for risk adjustment. We
restrict the included cases to admissions
of patients enrolled in Medicare FFS
coverage in the 12 months prior to and
including the time of their index
admission to a non-Federal acute care
hospital because of the availability of
complete administrative data for most
Medicare FFS patients.

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53519

We proposed not to include
beneficiaries enrolled in Medicare
Managed Care (‘‘Medicare Advantage’’)
plans because only partial
administrative data are reported to CMS.
We would not have complete data on
these Medicare Advantage enrollees.
Patients under age 65 (the qualifying age
for Medicare coverage for those not
considered disabled or with end-stage
renal disease) or for whom we otherwise
have incomplete information—for
example, those enrolled in a Medicare
Managed Care plan during any part of
the relevant time period— will also be
excluded to ensure data comparability.
We proposed to exclude patients with
hip fractures (patients with hip fractures
have higher mortality, complication and
readmission rates and the procedure
(THA) is generally not elective) patients
undergoing revision procedures (may be
performed at a disproportionately small
number of hospitals and are associated
with higher readmission rates); patients
undergoing partial hip arthroplasty
(partial arthroplasties are primarily
done for hip fractures and are typically
performed on patients who are older,
more frail, and with more comorbid
conditions); patients undergoing
resurfacing procedures (resurfacing
procedures are a different type of
procedure which are typically
performed on younger, healthier
patients); patients who are transferred
into the index hospital (it is likely that
the procedure is not elective); patients
who are admitted for the index
procedure and subsequently transferred
to another acute care facility (attribution
of readmission to the index hospital
would not be possible in these cases);
patients who leave the hospital against
medical advice (providers do not have
the opportunity to provide the highest
quality care for these patients); patients
with more than two THA/TKA
procedure codes during the index
hospitalization (unlikely that patients
would receive more than two THA/TKA
procedures in one hospitalization and
this may reflect a coding error); patients
without at least 30-days post-discharge
enrollment in Medicare FFS (the 30-day
readmission outcome cannot be
assessed for the standardized time
period); and patients who die during the
index admission (patients who die
during the initial hospitalization are not
eligible for readmission).
The proposed measure methodology
does not count readmissions that are
associated with a subsequent ‘‘planned’’
THA/TKA procedure within 30 days of
discharge from index hospitalization.
Some patients may elect to stage their
orthopedic replacement procedures
across hospitalizations (for example, a

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patient may have the left and right
knees replaced within one or two weeks
of each other, potentially across
multiple hospitalizations). The planned
readmissions are defined as a second
admission with a procedure code for
THA or TKA AND a primary discharge
diagnosis of osteoarthritis, rheumatoid
arthritis, osteonecrosis, or arthropathy
(excluding septic arthropathy).
Consistent with the requirements in
section 1886(b)(3)(B)(viii)(VIII) of the
Act, the proposed measure is riskadjusted. It takes into account patient
age and comorbidities to allow a fair
assessment of hospital performance. The
measure defines the patient risk factors
for readmission using diagnosis codes
collected from all patient claims one
year prior to patient index
hospitalization for THA and TKA. The
patient diagnosis codes are grouped
using Hierarchical Condition Categories
(CCs), which are clinically relevant
diagnostic groups of ICD–9–CM codes.72
The CCs used in the risk adjustment
model for this measure are provided at:
http://www.qualitynet.org/dcs/Content
Server?c=Page&pagename=Qnet
Public%2FPage%2FQnetTier4&cid=
1219069856694. Patient risk factors are
used to determine how sick the patients
are on admission (that is, patient
comorbidities). The hospital measure
rates are calculated taking into account
how sick their patients are. In summary,
age and comorbidities present at the
time of admission would be adjusted for
differences in hospital case mix (patient
risk factors).
The proposed measure uses the HLM
methodology for risk adjustment. As we
do for all the other 30-day readmission
measures adopted for the Hospital IQR
Program, we would calculate (using the
HLM) the hospital risk-standardized
readmission rate by producing a ratio of
the number of ‘‘predicted’’ readmissions
(that is, the adjusted number of
readmissions at a specific hospital) to
the number of ‘‘expected’’ readmissions
(that is, the number of readmissions if
an average quality hospital treated the
same patients) for each hospital and
then multiplying the ratio by the
national raw readmission rate.
While the hip and knee complications
measure will inform quality
improvement efforts targeted toward
minimizing medical and surgical
complications during surgery and in the
recovery phase, the hip and knee
readmission measure portrays a broader
range of medical and surgical outcomes
72 Pope G, Ellis R, Ash A, et al., Principal
Inpatient Diagnostic Cost Group Models for
Medicare Risk Adjustment. Health Care Financing
Review. 2000;21(3):26.

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affected by in-hospital care and the
transition to post-acute care. This
measure was endorsed by the NQF
(#1551) and recommended by the MAP
for the Hospital IQR Program in its PreRulemaking report for 2012.
We proposed to include the HospitalLevel 30-Day All-Cause RiskStandardized Readmission Rate (RSRR)
Following Elective Total Hip
Arthroplasty (THA) and Total Knee
Arthroplasty (TKA) measure in the
Hospital IQR Program for the FY 2015
payment determination and future
years. We invited public comment on
this proposal.
Comment: Many commenters
supported this measure because elective
total hip and knee procedures are on the
rise on Medicare beneficiaries; also, the
measure is NQF-endorsed and is
recommended by the MAP. The
commenters believed that hip and knee
arthroplasty readmissions are an
important measure of patient outcomes
and that the measure would positively
reduce patient readmissions overall.
Another commenter stated that hip and
knee replacements are often nonemergent procedures, therefore
information on outcomes will give
consumers an opportunity to research
the quality of care provided in their
local hospitals to select where to have
these procedures performed.
Response: We thank the commenters
for the support and sharing our goal to
focus on improving patient outcomes in
hip/knee surgical procedures.
Comment: A few commenters
supported our exclusion criteria for the
hip/knee complication measure and the
hierarchical logistic modeling for riskadjustment. Nonetheless, several
commenters argued that there are flaws
in its methodology because it does not:
differentiate between planned and
unplanned readmissions or between
related and unrelated readmissions;
exclude extreme circumstances
(transplant, ESRD, burn, trauma,
psychosis, and substance abuse); or
adjust for patient characteristics (dual
eligible status, race/ethnicity, and SES).
Commenters noted that this measure
would require extensive measure
specification revisions should CMS
adopt it for the Hospital Readmissions
Reduction Program.
Response: We thank the commenters
that supported the risk-adjustment
model and the exclusion criteria of this
measure. We disagree with commenters
that the measure does not differentiate
between planned and unplanned
readmissions. The measure does
identify and not count certain planned
readmissions. For example, some
patients are admitted within 30 days of

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the index hospitalization to undergo
another elective primary THA/TKA
procedure. If a patient undergoes a
second elective primary THA/TKA
within 30 days of the discharge date for
the index admission, and the admission
is associated with a primary discharge
diagnosis of osteoarthritis, rheumatoid
arthritis, osteonecrosis, or arthropathy
(excluding septic arthropathy), the
readmission is considered ‘‘planned’’
and is not counted as a readmission in
the measure.
We used all-cause readmission, rather
than narrowly related readmission, to
assess performance for several reasons.
First, from the patient perspective,
readmission for any reason is likely to
be an undesirable outcome of care after
an acute hospitalization. Second,
readmissions not directly related to hip/
knee replacement may still be a result
of the care received during
hospitalization for the procedure. For
example, a patient hospitalized for a
hip/knee replacement who developed
renal failure may ultimately be
readmitted for care. It would be
inappropriate to treat this readmission
as unrelated to the care the patient
received during the index
hospitalization. Furthermore, the range
of potentially avoidable readmissions
also includes those not directly related
to the initial hospitalization, such as
those resulting from poor
communication at discharge or
inadequate follow-up. In addition,
readmissions for rare reasons
completely unrelated to hospital care,
such as car accidents involving the
patient as a passenger, are likely to be
distributed randomly across hospitals
and are not expected to introduce any
bias into the measure results. We
appreciate the concern expressed by the
commenters that patients of these
‘‘extreme circumstances’’ clinically
could be sicker and likely to be
readmitted. The measures address
clinical differences in hospitals’ casemix through risk adjustment rather than
through excluding patients from the
measure as suggested by the commenter.
The goal in developing outcomes
measures is to create a clinically
cohesive cohort that includes as many
patients as possible admitted with the
given condition. Greatly expanding our
list of exclusions would result in a
measure that was less useful and
meaningful because it would reflect the
care of fewer patients. In addition, we
believe that by excluding patients with
significant comorbidities, the measure
would not assess the quality of care for
those patients. To fairly profile
hospitals’ performance, it is critical to

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place hospitals on a level playing field
and account for their differences in the
patients that present for care. This is
accomplished through adequate riskadjustment for patients’ clinical
presentation rather than exclusion of
patients.
Consistent with NQF guidelines, this
measure does not risk-adjust for SES
factors, such as race or dual eligibility,
because we do not want to hold
hospitals to different standards for the
outcomes of their low SES patients. We
do not want to mask potential
disparities or minimize incentives to
improve the outcomes of disadvantaged
populations by adjusting for these
factors. The findings from our analyses
of disparities by SES in the past
(discussed in our responses to
comments on the Hospital-Level RiskStandardized Complication Rate (RSCR)
Following Elective Primary Total Hip
Arthroplasty (THA) and Total Knee
Arthroplasty (TKA) (NQF #1550))
indicated that although SES is a
significant predictor of readmission at
the patient level, it does not affect
overall hospital performance in the riskadjusted readmission model. We are
committed to tracking SES issues and
will continue to evaluate disparities in
care and the impact of the hospital risk
standardized readmission rates on
providers of vulnerable populations.
With respect the commenters’ concern
that this measure would require
extensive measure specification
revisions should we adopt it for the
Hospital Readmissions Reduction
Program, in the FY 2013 IPPS/LTCH
PPS proposed rule, we proposed use of
the measure only for the Hospital IQR
Program and not for Hospital
Readmissions Reduction Program. We
will propose additional readmission
measures for Hospital Readmissions
Reduction Program through future
rulemaking.
Comment: A commenter requested the
post-discharge time period be shortened
to 7 days.
Response: The measure uses 30 day
time frame versus 7 days as suggested
by the commenter because it is a
clinically meaningful and sufficient
time period for hospitals to show the
result of their efforts to reduce
readmissions. These efforts include
ensuring that patients are clinically
ready at discharge, reducing risk of
infection, reconciling medications,
improving communication with
community providers participating in
transitions of care, educating patients
adequately upon discharge, and
assuring patients understand follow-up
care upon discharge. Furthermore, our
analyses show that risk of readmission

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is highest within the first two weeks
post discharge of the index admission.
The rate plateaus between 30 and 45
days post discharge, suggesting that a
30-day window would capture the
period of highest risk of readmission. In
addition, the 30-day timeframe is
consistent with the other CMS
readmissions measures that are NQFendorsed and publicly reported by CMS.
Comment: A commenter was
uncertain of the impact of the 3-day
waiver policy on readmission rates, and
cautioned there may be potential
negative implications of the waiver
policy on this measure. The commenter
encouraged CMS to adopt a time period
that will ensure sufficient data and rates
that are statistically significant and also
requested clarification regarding the
measurement period for this measure.
Response: We appreciate the
commenter’s concern and suggestions. It
appears that the issue that the
commenter is concerned about is
whether implementation of the measure
would have an impact on use of
outpatient services, such as use of ED or
observation services 3 days prior to
hospitalization. It is our intent to track
use of these services as unintended
consequences. We plan to use 3 years of
data to calculate the hospital rates. We
believe this time period would ensure
sufficient data for meaningful statistical
analysis.
Comment: A commenter requested
that CMS clarify whether a single year
of data or three years of data will be
used for display on Hospital Compare in
the future. The commenter believed that
three years of data yields more robust
and reliable results.
Response: We agree with the
commenter that 3 years of data will
yield more robust and reliable results.
We plan to use 3 years of data to
calculate the measure for display on
Hospital Compare.
Comment: A few commenters
requested the publication of the ICD–
10–CM/PCS versions of the measure
specifications in the final rule.
Response: We are working on
specifying the measures using the ICD–
10–CM/PCS and will make the
specifications available to the public as
soon as possible.
Comment: A commenter opposed the
proposed adoption of this measure as
the commenter believed readmission
rates are more closely related to patient
expectations, community standards,
health literacy, and other unknown
factors during hospitalization, which are
not accounted for in the risk models
articulated in the rule. The commenter
suggested that there is little correlation

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53521

between quality of care provided and
overall readmission rates.
Response: We believe that
readmissions are related to quality of
care provided by hospitals during
hospitalization as well as transition
from inpatient to outpatient settings. We
chose to measure readmission within 30
days of discharge because during this
period, readmission can be strongly
influenced by hospital care and the
early transition to the outpatient setting.
The timeframe of 30 days is a clinically
meaningful period for hospitals to
collaborate with their communities in
an effort to reduce readmissions. Such
efforts may include ensuring patients
are clinically ready at discharge,
reducing risk of infection, reconciling
medications, improving communication
with community providers participating
in transitions of care, educating patients
adequately upon discharge, and
assuring patients understand follow-up
care upon discharge. The commenter
suggested that patient factors such as
patient expectations and health literacy
are closely related to readmissions. The
CMS measure takes into account patient
health/clinical factors at the time of
admission but not patients’ SES factors.
One reason is that we want to encourage
hospitals to work with their
communities to help patients with low
SES (for example, low health literacy)
transition to post-acute care. The other
reason is that risk adjusting for patient
SES, we would adjust away potential
disparities of care by hospitals.
After consideration of the public
comments we received, we are
finalizing the proposed Hip/Knee
Readmission: Hospital-Level 30-Day
All-Cause Risk-Standardized
Readmission Rate (RSRR) Following
Elective Total Hip Arthroplasty (THA)
and Total Knee Arthroplasty measure
for the FY 2015 payment determination
and subsequent years as proposed.
(iii) Hospital-Wide Readmission
(Tentative NQF #1789)
During 2003 and 2004, over 2.3
million Medicare patients (almost one
fifth of all Medicare beneficiaries) were
rehospitalized within 30 days of
discharge from an acute care hospital,
and it was estimated that readmissions
within 30 days of discharge cost
Medicare more than $17 billion
annually.73 In its 2007 Report to the
Congress, MedPAC estimated that in
2005, 17.6 percent of hospital patients
were readmitted within 30 days of
73 Jencks SF, Williams MV, Coleman EA.
Rehospitalizations among patients in the Medicare
fee-for-service program. N Engl J Med. Apr 2 2009;
360(14):1418–1428.

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discharge.74 MedPAC estimated that the
average payment for a ‘‘potentially
preventable’’ readmission was
approximately $7,200. A 2006
Commonwealth Fund Report estimated
that if national readmission rates were
lowered to the levels achieved by the
top performing regions, Medicare would
save $1.9 billion annually.75 We believe
that reducing preventable readmissions
will bring down healthcare costs.
Since 2009, we have publicly reported
risk-standardized readmission rates
(RSRRs) for three conditions: heart
failure (HF), pneumonia (PN) and acute
myocardial infarction (AMI) on Hospital
Compare (http://
www.hospitalcompare.hhs.gov/), as part
of the efforts to improve quality of care
and lower health care costs. However,
these three conditions account for only
a relatively small proportion of total
hospital readmissions. High RSRRs and
substantial variations in hospital RSRRs
were found. The median 30-day RSRRs
across hospitals is 19.9 percent for AMI
(range from 15.3 percent to 26.8
percent); 24.8 percent for HF (range
from 17.0 percent to 33.0 percent); and
18.4 percent for PN (range from 13.8
percent to 26.4 percent).76
A hospital’s readmission rate is
affected by complex and critical aspects
of care such as communication between
providers or between providers and
patients; prevention of, and response to,
complications; patient safety; and
coordinated transitions to the outpatient
environment. While disease-specific
measures of readmission are useful in
identifying deficiencies in care for
specific groups of patients, they account
for only a small minority of total
readmissions.77 By contrast, a hospitalwide, all-condition readmission
measure could portray a broader sense
of the quality of care in hospitals.
Consequently, hospital-wide, allcondition readmission measures can
promote hospital quality improvement
and better inform consumers about care
quality.
Studies have estimated the rate of
preventable readmissions to be as low as
12 percent and as high as 76
74 Medicare Payment Advisory Commission
(MedPAC), Report to the Congress: Promoting
Greater Efficiency in Medicare. 2007.
75 The Commonwealth Fund, Why Not the Best?
Results from a National Scorecard on U.S. Health
System Performance. 2006: Harrisburg, PA.
76 Bernheim S, Wang Y, Grady J, et al. Measures
Maintenance Technical Report: Acute Myocardial
Infarction. Heart Failure, and Pneumonia 30-day
Risk Standardized Mortality Measures. 2011;
Available at: http://www.qualitynet.org/.
77 Jencks SF, Williams MV, Coleman EA.
Rehospitalizations among patients in the Medicare
fee-for-service program. N Engl J Med. Apr 2 2009;
360(14):1418–1428.

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percent.78,79 Some readmissions are
unavoidable, for example, those that
result from inevitable progression of
disease or worsening of chronic
conditions. However, readmissions may
also result from poor quality of care or
inadequate transitional care.
Randomized controlled trials have
shown that improvement in the
following areas can directly reduce
hospital readmission rates: quality of
care during the initial admission;
improvement in communication with
patients, their caregivers and their
clinicians; patient education; predischarge assessment; and coordination
of care after discharge. Successful
randomized trials have reduced 30-day
readmission rates by 20–40
percent.80,81,82,83,84,85,86 Evidence that
hospitals have been able to reduce
readmission rates through these qualityof-care initiatives illustrates the degree
to which hospital best practices can
affect readmission rates.
Our Quality Improvement
Organizations (QIOs) began projects to
improve care transitions during the 9th
Statement of Work in 14 communities
78 Benbassat J, Taragin M. Hospital readmissions
as a measure of quality of health care: advantages
and limitations. Arch Inter Med 2000; 160(8):1074–
81.
79 Medicare Payment Advisory Commission
(U.S.). Report to the Congress promoting greater
efficiency in Medicare. Washington, DC: Medicare
Payment Advisory Commission, 2007.
80 Jack BW, Chetty VK, Anthony D, Greenwald JL,
Sanchez GM, Johnson AE, et al. A reengineered
hospital discharge program to decrease
rehospitalization: a randomized trial. Ann Intern
Med 2009;150(3):178–87.
81 Coleman EA, Smith JD, Frank JC, Min SJ, Parry
C, Kramer AM. Preparing patients and caregivers to
participate in care delivered across settings: the
Care Transitions Intervention. J Am Geriatr Soc
2004;52(11):1817–25.
82 Courtney M, Edwards H, Chang A, Parker A,
Finlayson K, Hamilton K. Fewer emergency
readmissions and better quality of life for older
adults at risk of hospital readmission: a randomized
controlled trial to determine the effectiveness of a
24-week exercise and telephone follow-up program.
J Am Geriatr Soc 2009;57(3):395–402.
83 Garasen H, Windspoll R, Johnsen R.
Intermediate care at a community hospital as an
alternative to prolonged general hospital care for
elderly patients: a randomised controlled trial. BMC
Public Health 2007;7:68.
84 Koehler BE, Richter KM, Youngblood L, Cohen
BA, Prengler ID, Cheng D, et al. Reduction of 30day postdischarge hospital readmission or
emergency department (ED) visit rates in high-risk
elderly medical patients through delivery of a
targeted care bundle. J Hosp Med 2009;4(4):211–
218.
85 Naylor M, Brooten D, Jones R, Lavizzo-Mourey
R, Mezey M, Pauly M. Comprehensive discharge
planning for the hospitalized elderly. A randomized
clinical trial. Ann Intern Med 1994;120(12):999–
1006.
86 Naylor MD, Brooten D, Campbell R, Jacobsen
BS, Mezey MD, Pauly MV, et al. Comprehensive
discharge planning and home follow-up of
hospitalized elders: a randomized clinical trial.
Jama 1999;281(7):613–20.

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by applying successful interventions
learned from clinical trials, such as
medication reconciliation, increased
patient education, follow up after
discharge, and post-discharge
instructions for patients.87 Important
interventions to integrate care for
populations and communities now
continue among all 53 QIOs on a
national scale in the QIO 10th Statement
of Work which began August 2011.
Because many studies have shown
readmissions to be related to quality of
care, and that interventions have been
able to reduce 30-day readmission rates,
we believe that it is appropriate to
include an all-condition readmission
rate as a quality measure in the Hospital
IQR Program. Promoting quality
improvements leading to successful
transition of care for patients from acute
care to outpatient setting, and reducing
short term, preventable hospital-wide
readmission rates are CMS’ priority
objectives.
To provide a broader assessment of
the quality of care at hospitals,
especially for hospitals with too few
AMI/HF/PN readmissions to count
separately, we have developed a
Hospital-Wide Readmission (HWR)
measure using 2008 Medicare FFS data.
Detailed information and specifications
for this measure can be found on the
NQF Web site at: http://
www.qualityforum.org/Projects/
Readmissions_Endorsement
_Maintenance.aspx#t=
2&s=&p=7%7C6%7C5%7C4%7C. The
objective of the proposed HWR measure
is to assess the hospital-level, riskstandardized rate of unplanned, allcause readmissions after admissions for
any eligible condition within 30 days of
hospital discharge. The proposed
measure comprises a single summary
score, derived from the results of five
different models, one for each of the
following specialty cohorts (groups of
discharge condition categories or
procedure categories): medicine,
surgery/gynecology; cardiorespiratory;
cardiovascular; and neurology.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28043), we
proposed to use one year of data to
calculate the measure rate for the HWR
measure, which we believe is sufficient
to calculate this measure in a
statistically reliable manner. This is
because the reliability of a hospital’s
measure rate is related to its sample
size. For its rate to be calculated reliably
statistically, a hospital needs to have a
87 Jack BW, Chetty VK, Anthony D, Greenwald JL,
Sanchez GM, Johnson AE, et al. A reengineered
hospital discharge program to decrease
rehospitalization: a randomized trial. Ann Intern
Med 2009;150(3):178–87.

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sufficient number of patient cases to
which the measure applies. Because the
proposed HWR measure addresses over
90 percent of Medicare FFS
hospitalizations for patients aged 65 and
older (a much larger number of patients
than the condition-specific measures for
AMI, Heart Failure, Pneumonia, and
Total Hip/Knee procedures), we believe
one year of data would yield a sufficient
number of cases to assess hospital
performance in a statistically reliable
manner. In contrast, for the conditionspecific readmission measures for AMI,
Heart Failure and Pneumonia, each of
which address a smaller proportion of
Medicare FFS Hospitalizations than the
HWR measure, we must use three years
of data to have enough patient cases to
calculate the rates for these measures.
We also believe that use of one year of
data for the HWR measure is
appropriate because it allows us to
calculate up-to-date hospital
performance for the most recent year,
rather than calculating hospital
performance over the course of three
years, as we must do for the AMI, HF,
and PN readmission measures. The
proposed measure methodology is
described in greater detail below.
The proposed measure uses 30 days
following the index admission as the
timeframe for assessing hospital
performance because within this
timeframe, readmissions are more likely
attributable to care received during the
index hospitalization and during the
transition to the outpatient setting. For
example, hospitals, in collaboration
with their medical communities take
actions to reduce readmission, such as
ensuring patients are clinically ready at
discharge, reducing risk of infection,
reconciling medications, improving
communications among providers
involved in management principles, and
educating patients about symptoms to
monitor, whom to contact with
questions, and where and when to seek
follow-up care. Furthermore our ‘‘timeto-event curve’’ analyses showed a
readmission curve with rapid early
accrual of readmissions with a stable
and consistent readmission rate
thereafter; the curve typically stabilized
within 30 days of discharge. Finally, the
proposed 30-day timeframe is consistent
with the other publicly reported CMS
readmission measures endorsed by the
NQF.
The proposed HWR measure defines
the outcome as ‘‘all-cause’’ unplanned
readmissions. Unplanned readmissions
are acute clinical events experienced by
a patient that require urgent hospital
admission. Higher than expected
unplanned readmission rates suggest
lower quality of care and are the focus

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of quality measurement as part of
quality improvement efforts. Because
planned readmissions are not a signal of
quality of care, we chose to exclude
planned readmissions from being
considered as an outcome for this
measure. The proposed measure
includes hospitalizations of patients
who were age 65 or older (at the time
of admission) who were in Medicare
Fee-for-Service (FFS) for 12 months
prior to the index admission, and who
remained in Medicare FFS for at least 30
days post-discharge. The measure
excludes patients who died during the
index admission; patients who were
transferred to another acute care
hospital; patients who were discharged
against medical advice; and patients
who died within the 30-day postdischarge period. The measure also
excludes admissions for medical
treatment of cancer; for primary
psychiatric disease (patients admitted
for psychiatric treatment are typically
cared for in separate psychiatric or
rehabilitation centers which are not
comparable to acute care hospitals); or
for physical rehabilitation and
prosthetic services.
The proposed measure excludes
patients undergoing medical treatment
for their cancer as their primary
procedure because we concluded that
readmission may not be a good quality
indicator for this cohort of patients
compared to other cohorts. For example,
the cancer cohort had more than twice
the post-discharge mortality of any other
cohort. It also has a planned
readmission rate six times that of any
other cohort—41 percent of
readmissions in this cohort were
considered planned. This indicates that
readmission in this population is a
different phenomenon than for other
cohorts. Most importantly, this cohort’s
risk standardized readmission ratio
(SRR) was poorly correlated with the
composite hospital-wide SRR of all
other cohorts. Statistically this implies
that readmission for the cancer cohort is
likely measuring an aspect of quality
very different from that for other
cohorts. Consequently, we elected to
exclude this subset of cancer patients
from the measure.
For this measure, a patient is
considered to have been readmitted if
they experience one or more inpatient
admissions within the 30 days after
being discharged from an initial
inpatient admission, whether the
patient was readmitted to the same
hospital or another. The proposed
measure identifies ‘‘planned
readmissions’’ in claims data that will
not count as readmissions in the
measure using an algorithm that

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53523

identifies readmissions that are likely to
be planned as opposed to readmissions
due to probable complications. The
algorithm was based on two main
principles:
• The ‘‘planned’’ readmissions are
those in which one of a pre-specified
list of procedures took place (we refer
readers to the measure methodology
documentation on the NQF Web site at:
http://www.qualityforum.org/Projects/
Readmissions_Endorsement_
Maintenance.aspx#t=2&p=2/3/&s for
the list), or those for maintenance
chemotherapy or rehabilitation.
Maintenance chemotherapy and
rehabilitation are common planned
readmissions that are reliably
distinguishable in the data even though
they are not accompanied by
procedures.
• Admissions for acute illness or for
complications of care are likely not
‘‘planned.’’ Clinically, any procedure
completed during an admission for an
acute illness is not likely to have been
planned, even if that procedure is
usually planned in other non-acute
cases.
Therefore, the proposed measure uses
procedure codes and discharge
diagnosis categories for each
readmission to identify planned
readmissions. Readmissions that occur
for planned procedures (we refer readers
to the measure methodology report on
the NQF Web site at: http://www.quality
forum.org/Projects/Readmissions_
Endorsement_Maintenance.aspx#t=2&
p=2/3/&s for the list) and which are not
for acute diagnoses or complications of
care (listed below) are identified as
planned.
For example, some patients have their
gallbladders removed after having been
identified as having symptomatic
gallstones. Usually this is a surgery that
is planned in advance and scheduled.
However, occasionally a patient
becomes acutely ill or has sudden
inflammation or infection that requires
a gallbladder surgery that was not
planned in advance. The measure uses
the patients’ principal discharge
diagnosis to differentiate between
patients coming in for gallbladder
removal with chronic gallstones (biliary
disease) and patients acutely ill with
inflamed gallbladders (cholecystitis)
who are having an unplanned
gallbladder removal.
Therefore, the proposed HWR
measure defines planned readmissions
which are excluded from the measure as
any readmission:
• In which any of these procedures
set out in the table below are performed
if the discharge condition category is

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not acute or a complication of care, as
discussed below; or
• For maintenance chemotherapy.

All other readmissions are considered
unplanned and are counted as
readmissions in the measure.

The following is the list of planned
procedures based on the full AHRQ
Clinical Classification Software (CCS)
procedure category list.

PROCEDURE CATEGORIES CONSIDERED PLANNED DEPENDING ON THE DISCHARGE CONDITION
Description
45 ...............................
84 ...............................
157 .............................
44 ...............................
78 ...............................
51 ...............................
113 .............................
99 ...............................
48 ...............................
211 .............................
3 .................................
43 ...............................
152 .............................
158 .............................
55 ...............................
52 ...............................
36 ...............................
153 .............................
60 ...............................
85 ...............................
104 .............................
1 .................................
124 .............................
167 .............................
10 ...............................
114 .............................
74 ...............................
119 .............................
154 .............................
166 .............................
64 ...............................
105 .............................
176 .............................

Percutaneous transluminal coronary angioplasty (PTCA).
Rehabilitation (condition CCS 254).
Cholecystectomy and common duct exploration.
Amputation of lower extremity.
Coronary artery bypass graft (CABG).
Colorectal resection.
Endarterectomy; vessel of head and neck.
Transurethral resection of prostate (TURP).
Other OR gastrointestinal therapeutic procedures.
Insertion; revision; replacement; removal of cardiac pacemaker or cardioverter/defibrillator.
Maintenance Chemotherapy (condition CCS 45).
Therapeutic radiology for cancer treatment.
Laminectomy; excision intervertebral disc.
Heart valve procedures.
Arthroplasty knee.
Spinal fusion.
Peripheral vascular bypass.
Aortic resection; replacement or anastomosis.
Lobectomy or pneumonectomy.
Hip replacement; total and partial.
Embolectomy and endarterectomy of lower limbs.
Inguinal and femoral hernia repair.
Nephrectomy; partial or complete.
Incision and excision of CNS.
Hysterectomy; abdominal and vaginal.
Mastectomy.
Thyroidectomy; partial or complete.
Open prostatectomy.
Gastrectomy; partial and total.
Oophorectomy; unilateral and bilateral.
Arthroplasty other than hip or knee.
Radical laryngectomy, revision of tracheostomy, scarification of pleura (ICD–9 codes 30.4, 31.74, 34.6).
Lumpectomy; quadrantectomy of breast.
Bone marrow transplant.
Kidney transplant.
Other organ transplantation.
Electroshock therapy (ICD–9 codes 94.26, 94.27).

The algorithm is designed to identify
admissions for acute illness or
complication of care as ‘‘unplanned’’

readmissions. The acute and
complication discharge condition

categories for unplanned readmissions
are listed below.

DISCHARGE CONDITION CATEGORIES CONSIDERED ACUTE OR COMPLICATIONS OF CARE
AHRQ CCS

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237 .............................
106 .............................
100 .............................
238 .............................
108 .............................
2 .................................
146 .............................
105 .............................
109 .............................
145 .............................
233 .............................
116 .............................
122 .............................
131 .............................
157 .............................
201 .............................
153 .............................

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Description
Complication of device; implant or graft.
Cardiac dysrhythmias.
Fracture (condition CCS 207, 225, 226, 227, 229, 230, 231, 232).
Acute myocardial infarction.
Complications of surgical procedures or medical care.
Congestive heart failure; nonhypertensive.
Septicemia (except in labor).
Diverticulosis and diverticulitis.
Conduction disorders.
Acute cerebrovascular disease.
Intestinal obstruction without hernia.
Intracranial injury.
Aortic and peripheral arterial embolism or thrombosis.
Pneumonia (except that caused by TB or sexually transmitted disease).
Respiratory failure; insufficiency; arrest (adult).
Acute and unspecified renal failure.
Infective arthritis and osteomyelitis (except that caused by TB or sexually transmitted disease).
Gastrointestinal hemorrhage.

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DISCHARGE CONDITION CATEGORIES CONSIDERED ACUTE OR COMPLICATIONS OF CARE—Continued
AHRQ CCS

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130 .............................
97 ...............................
127 .............................
55 ...............................
159 .............................
245 .............................
139 .............................
160 .............................
112 .............................

Description
Pleurisy; pneumothorax; pulmonary collapse.
Peri-; endo-; and myocarditis; cardiomyopathy.
Chronic obstructive pulmonary disease and bronchiectasis.
Fluid and electrolyte disorders.
Urinary tract infections.
Syncope.
Gastroduodenal ulcer (except hemorrhage).
Calculus of urinary tract.
Transient cerebral ischemia.
All condition categories.

To compare readmission performance
across hospitals, the proposed measure
accounts for differences in patient
characteristics (patient case mix) as well
as differences in mixes of services and
procedures offered by hospitals
(hospital service-mix). The proposed
measure includes 93.4 percent of
Medicare FFS hospitalizations occurring
in 2008, and includes 92.1 percent of
readmissions following those
hospitalizations.
The proposed measure uses the
conditions and procedures defined by
the AHRQ CCS, which is a widely used
and accepted method of grouping
patients into diagnostic categories. The
AHRQ CCS collapsed the more than
17,000 different ICD–9–CM diagnosis
and procedure codes into 285 clinicallycoherent, mutually-exclusive condition
categories and 231 mutually-exclusive
procedure categories. We created five
major specialty cohorts based on
organization of care (medical, surgery/
gynecology, cardiorespiratory,
cardiovascular, and neurology), and
assigned each condition category to a
cohort. Admissions that included major
surgical procedures (regardless of
condition category) were assigned to the
surgery/gynecology cohort. We
estimated separate adjustment
coefficients for each cohort using a
single set of risk factors. We used
hierarchical logistic regression to adjust
for differences in hospital case mix and
to account for the clustering of patients
within a hospital. We adjusted for case
mix differences among hospitals by riskadjusting for patients’ comorbid
conditions identified in inpatient
episodes of care for the 12 months prior
to the index admission as well as those
present at admission. We did not risk
adjust for diagnoses that may have been
a complication of care during the index
admission. We used CMS Condition
Category groups (CMS–CCs) to define
the comorbid risk adjusters and used a
fixed set of comorbid risk variables
across models. We risk adjusted for
service mix differences among hospitals

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within each major cohort by including
indicator variables for discharge
condition categories (as defined by
AHRQ CCS) in each model.
Finally, we used each of the five
cohort models to calculate predicted
and expected numbers of readmissions
for each hospital in each cohort. We
then derived a single summary score
from the results of the five models by
calculating the volume-weighted log
average of the predicted over expected
ratios from each model and multiplying
the resulting ratio by the average
national readmission rate. This
approach allowed us to take into
account the variation in hospital
specialty cohort mix.
The proposed HWR measure was
recommended to the NQF board of
directors for endorsement in March
2012 by the NQF Consensus Standards
Approval Committee (CSAC). The MAP
supported selection of the HWR
measure for the Hospital IQR Program
contingent on NQF endorsement. This
measure is in the final stages of the NQF
measure endorsement process, and we
expect its endorsement to be finalized in
the coming months.
We proposed to adopt this measure in
the Hospital IQR Program for the FY
2015 payment determination and
subsequent years under the exception
authority in section
1886(b)(3)(B)(IX)(bb) of the Act. This
section 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), 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-endorsed measures,
and we were unable to identify any
other NQF-endorsed measures that
assess hospital-wide readmissions. We
also are not aware of any other hospital-

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wide readmission measures that have
been endorsed or adopted by a
consensus organization other than NQF.
The one other hospital-wide
readmissions measure of which we are
aware is the Risk-Adjusted 30-Day AllCause Readmission Rate measure
(formerly NQF #0329). This measure
was endorsed by NQF, but NQF
removed the measure’s endorsement
during a recent consensus development
project that recommended endorsement
of the HWR measure. Accordingly, we
proposed to adopt the HWR measure
under the Secretary’s authority set forth
at section 1886(b)(3)(B)(IX)(bb) of the
Act. We invited public comment on this
proposal.
Comment: Two commenters
supported the proposed measure and
added that avoidable readmission can
result from poor quality of care or
inadequate transitional care. The
commenters anticipate that the HWR
measure will be a robust measure to
identify deficiencies in communication
and gaps in care as it would enable
hospitals to examine all facets of their
hospital operations.
Response: We thank the commenters
for their support.
Comment: Many commenters
appreciated CMS’ newly added
exclusion criteria (such as medical
treatment of cancer, transplants and
primary psychiatric diagnoses) for
certain planned readmissions for this
measure and recommended that for
harmonization efforts, CMS should
harmonize measure exclusions for the
condition-specific readmission
measures in the Hospital IQR Program
and the Hospital Readmissions
Reduction Program.
Response: We are currently updating
the planned readmissions for other CMS
condition-specific readmission
measures using the newly added criteria
in the HWR measure and will submit
the updated measures to the NQF for reendorsement.
Comment: Many commenters did not
support the inclusion of this measure in

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the Hospital IQR Program because it was
not targeted to a specific condition.
Commenters attributed success from the
implementation of the AMI, HF and PN
readmission measures to the conditionspecific nature of these measures which
allow hospitals to target their
intervention efforts on specific causes of
readmissions for each condition. The
commenters stated that, in contrast, the
proposed hospital-wide, all-cause, allcondition readmission measure does not
highlight any specific condition and,
therefore, it will only serve to detract
away from successful condition-specific
strategies.
Response: We agree that it is helpful
to assess readmission rates and hence
target quality improvement for specific
groups for patients with specific
conditions, as indicated by the
commenters. However, we are mindful
that these conditions account for only a
small proportion of total hospital
readmissions. That is the reason for our
proposal of the hospital-wide
readmission measure, which would
provide a broader assessment of the
quality of care provided to hospital
patients who have medical conditions
other than AMI, HF, and PN. The
hospital-wide measure will allow for a
more comprehensive evaluation of a
hospital’s quality. The hospital-wide
measure is designed with five distinct
cohorts, which allow for quality
improvement efforts within particular
service lines. Overall the hospital-wide
measure and condition-specific
measures should be complementary in
allowing both for profiling overall
hospital quality and promoting quality
improvement.
Comment: Some commenters
specifically opposed our proposal to
account for the variations in hospital
specialty cohort mix with a single
summary score obtained from
calculating the volume-weighted log
average of the predicted over expected
ratios from each of the five models and
multiplying the resulting ratio by the
average national readmission rate.
Response: The commenters opposed,
but did not provide the rationale for
opposing, using a single summary score
obtained from 5 models for the measure.
We explain our rationale for using it
here. The measure approach allows us
to take into account the variation in
hospital specialty cohort mix. In
particular, we wanted to be careful to
fully account for the differences in
readmission risk between surgical and
non-surgical patients. Our analyses
found that even within the same
discharge condition, patient risk for
readmission was strongly affected by
whether a surgical procedure was

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performed during hospitalization.
Patients undergoing surgical procedures
typically had better outcomes than
patients who did not undergo a
procedure but were admitted with the
same discharge condition. In short,
using five models rather than a single
model improves model performance and
patient-level discrimination, and will
significantly improve the usability of
the measure.
Comment: Some commenters were
concerned that hospitals might have
difficulties in using the measure which
is based on the AHRQ Clinical
Classification Software (CCS) for acute
and complication discharge condition
categories for unplanned readmissions,
whereas hospitals use the ICD–9 DRGs
for claims purposes. The CCS codes do
not match the Medicare Severity
Diagnosis related groups-driven claim
data that the hospitals are using.
Therefore, the commenters
recommended organizing readmissions
in a manner consistent with current
hospital claim data such as specific
ICD–9 codes and future ICD–10 codes.
Response: Although hospitals are paid
by DRG, the claims that hospitals
submitted to CMS contain diagnoses
(the primary and secondary diagnoses)
in the ICD–9 format. The AHRQ
software groups patients into CCS using
the ICD–9 codes. Hospitals should have
no problems crosswalk between the
AHRQ CCS (maintained for both ICD–9
and ICD–10 codes) and the diagnosis on
hospital claims.
Comment: Many commenters did not
support this measure and perceived the
measure as lacking in: (1) Differentiation
between related and unrelated
readmissions; and identification of all
planned readmissions; (2) sufficient
risk-adjustments for patient
characteristics (dual eligible status,
race/ethnicity, and SES factors); and (3)
exclusions for extreme circumstances
(transplant, end-stage renal disease
burn, trauma, psychosis, and substance
abuse). Commenters were particularly
concerned that the lack of adjustments
for SES factors will have unintended
consequences of unfairly penalizing
hospitals treating disadvantaged
patients as well as impairing patients,
access to hospitals.
Response: The measure does not
differentiate between related and
unrelated readmission for a number of
reasons. First, from the patient
perspective, readmission for any reason
is likely to be an undesirable outcome
of care after an acute hospitalization.
Second, readmissions not directly
related to the index hospitalization may
still be a result of the care received
during hospitalization. For example, a

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patient hospitalized COPD who
develops a hospital-acquired infection
may ultimately be readmitted for sepsis.
It would be inappropriate to treat this
readmission as unrelated to the care the
patient received during the index
hospitalization. Furthermore, the range
of potentially avoidable readmissions
also includes those not directly related
to the initial hospitalization, such as
those resulting from poor
communication at discharge or
inadequate follow-up. In addition,
readmissions for rare reasons
completely unrelated to hospital care,
such as car accidents involving the
patient as a passenger, are likely to be
distributed randomly across hospitals
and are not expected to introduce any
bias into the measure results. Thus, the
goal of this measure is not to reduce
readmissions to zero, but to instead
assess hospital performance relative to
what is expected given the performance
of other hospitals with similar case
mixes.
We appreciate the concern expressed
by the commenters that patients of these
‘‘extreme circumstances’’ clinically
could be sicker and likely to be
readmitted. The measure addresses
clinical differences in hospitals’ casemix through risk adjustment rather than
through excluding patients from the
measure as suggested by the commenter.
The goal in developing outcomes
measures is to create a clinically
cohesive cohort that includes as many
patients as possible admitted with the
given condition. Greatly expanding our
list of exclusions would result in a
measure that was less useful and
meaningful, because it would reflect the
care of fewer patients. In addition, we
believe that by excluding patients with
significant comorbidities, the measure
would not assess of the quality of care
for those patients. To fairly profile
hospitals’ performance, it is critical to
place hospitals on a level playing field
and account for their differences in the
patients that present for care. This is
accomplished through adequate riskadjustment for patients’ clinical
presentation rather than exclusion of
patients.
Comment: A few commenters
opposed the proposed adoption of this
measure as the commenters believed
readmission rates are more closely
related to patient expectations,
community standards, health literacy,
and other unknown factors during
hospitalization which are not accounted
for in the risk models articulated in the
rule. The commenters suggested that
there is little correlation between
quality of care provided and overall
readmission rates.

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Response: Risk-standardized
readmission rates provide an important
quality signal. Readmission of patients
who were recently discharged after
hospitalization with AMI, HF, or
pneumonia represents an important,
expensive, and often modifiable adverse
outcome. The risk of readmission can be
modified by the quality and type of care
provided to these patients. There is
ample evidence that hospitals can
reduce their readmission rates through
such efforts as: ensuring patients are
clinically ready at discharge, reducing
risk of infection, reconciling
medications, improving communication
with community providers participating
in transitions of care, educating patients
adequately upon discharge, and
assuring patients understand follow-up
care upon discharge.
Comment: A commenter raised some
methodological questions on the HWR
measure. First, the commenter noted
that the HWR model was originally
estimated using 2008 data and the
commenter asked for the anticipated lag
between finalization and when the
measure is implemented for FY 2015
payment determination. Second, the
commenter asked whether it was
methodologically appropriate to view
statistical power as additive between the
five individual models for the five
specialty cohorts identified by the
model developers. Finally, the
commenter asked for the sample size of
the five cohort models in the 2008 data.
Response: For 2013 public reporting,
we plan to use one year of data to
calculate the measure. We note that all
of the patients in the five models
contribute to the statistical power of the
measure. The measure is divided into
five specialty cohorts in order to enable
hospitals to focus improvement efforts
within clinically coherent specialties.
CMS evaluated the appropriateness of
combining the 5 specialty cohort scores
into a single score by looking at the
correlation among the specialty cohort
scores and calculating Cronbach’s alpha,
a statistic that measures the internal
consistency of a composite. The
correlations among the coefficients
ranged from 0.35 to 0.65, and the
Cronbach alpha result was 0.83,
indicating good internal consistency.
Both of these analyses confirmed the
appropriateness of combining the 5
scores into a composite score. These
findings were included in the technical
report submitted to the National Quality
Forum. Finally, the sample size of the
five cohort models in the 2008 data for
the Medicine group is 3,086,792,
Surgery/gynecology 2,163,279,
Cardiorespiratory 1,405,267,

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Cardiovascular 843,373, and Neurology
7,957,901.
Comment: A commenter asked if the
new proposed readmission exclusion
criteria would be applied to the existing
condition-specific measures before the
October implementation of the Hospital
Readmissions Reduction Program.
Response: In the FY 2013 IPPS/LTCH
PPS proposed rule, we proposed to use
the current NQF-endorsed AMI, HF, and
pneumonia condition-specific measure
specifications for the Hospital
Readmissions Reduction Program.
However, in response to stakeholder
input, we will update the conditionspecific measures to include more
planned readmissions which would not
be counted as readmissions. The
updated measures will be submitted to
NQF for approval. Should NQF approve
these changes to the measures, because
we have already adopted these NQF
endorsed measures in the IQR and
Hospital Readmission Reduction, we
would adopt these updates to the
measures for future use in these
programs through the subregulatory
process we are finalizing in this rule.
Comment: Many commenters believed
it is premature to include the 30-day allcause hospital-wide readmission
measure at this time. The commenters
indicated several reasons for not
supporting this measure. The
commenters stated that the measure is
still under appellate review by the NQF
and endorsement is still pending. The
commenters believed that CMS is
risking the disengagement of the
provider community by proposing a
non-NQF-endorsed measure.
Some commenters were concerned
over the suitability of this measure for
public reporting and future ties to
payment policy because the claims data
used is between 18 to 30 months old.
The commenters contended that older
data does not afford hospitals the
opportunity for meaningful feedback
needed for immediate improvement
opportunities. Commenters inquired if
hospitals will have the opportunity to
verify and/or appeal their HWR
discrepancies. The commenters
recommended that CMS provide
calculated actionable data results on a
quarterly basis, rather than the annual
posting currently used for the
conditions-specific measures.
Finally, the commenters believed the
measure creates potential for significant
and harmful unintended consequences
by resulting in more ED visits or more
repeated observation stays during the
30-day period. The commenters also
cautioned that publicly reporting
readmission rates without monitoring
potentially adverse unintended

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consequences as stated in the comment
could undermine patient-centered care.
Response: We note that NQF endorsed
the Hospital-Wide Readmission
(tentative NQF #1789) measure in the
summer of 2012. Therefore the measure
we proposed is an NQF-endorsed
measure. For public reporting of this
measure, we intend to use one year of
data. This would allow the measures to
be calculated using the most recent data.
There will be one year lag when the data
are finally posted on Hospital Compare.
It is because we need to build in
sufficient time for data production and
data display and for hospitals to
preview their data before they are
posted on Hospital Compare. We
appreciate the commenters’ request for
timely, quarterly data and we are
considering options for providing
hospitals with unadjusted all-hospital
readmission data on a more frequent
basis to assist hospitals in their quality
improvement efforts.
We want to assure the commenters
that we have a solid review, correction
and payment process in place that
would appropriately link submitted data
to payment. The hospital-wide
readmission measures are calculated
based on the claims that hospitals
submitted to and were paid by CMS. We
will share with hospitals their measure
data using the same ‘‘preview’’ process
that we have been implementing for the
Hospital IQR Program. We will transmit
to hospitals through QualityNet their
hospital-specific reports containing
their individual patient data and their
measure rates 30 days prior to posting
their measures on Hospital Compare
Web site. Hospitals are encouraged to
verify their data during this 30-day
preview period. If hospitals find errors
in the claims they submitted to CMS for
calculating the measure, they can
submit the corrections in accordance
with the normal claims adjustment and
timely filing rules specified in the
Medicare Claims Processing Manual
Pub. 100–04, Chapter 1. During the
preview period, hospitals’ hospitalspecific reports we will include data to
track where their patients were
readmitted in their hospital-specific
report, which should help hospitals
with their quality improvement efforts.
Regarding the concern whether we are
applying the exclusion criteria of the
measure methodology correctly, the
preview process can be helpful.
Hospitals will have the opportunity to
verify and monitor the cases being
included in the measures.
We appreciate the commenter’s
suggestion to monitor for unintended
consequences such as more ED visits
and observations services and CMS

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plans to conduct analyses to monitor
these consequences.
Comment: A few commenters
recommended that with the
implementation of the 30-day all-cause
hospital-wide readmission, the 30-day
risk-standardized readmission measures
for AMI, HF, and PN should be removed
from the Hospital IQR Program measure
set so that these three conditions would
not be counted twice.
Response: We appreciate the
comment, however, we see value in
reporting both the condition-specific
measures and the hospital-wide
measure. The condition-specific
measures give hospitals detailed
information and results on well-defined
clinical groups of patients that account
for a disproportionate number of
hospital readmissions, and we expect
that these results can provide important
benchmarks for hospitals and inform
quality improvement. In contrast, the
hospital-wide measure will provide
hospitals with information on how it
compares to other hospitals with similar
patients hospital-wide and inform
strategies for lowering readmission risk
across the board for all patients. CMS
intends to publicly report both the
hospital-wide and condition-specific
readmission measures as we believe
both measures help present a more
comprehensive picture of the quality of
care in hospitals.
Comment: A commenter encouraged
CMS to recognize a patient’s
responsibility regarding hospital
readmissions as hospitals should not be
held accountable for patient behavior.
Response: We recognize the role of
patient compliance and the role of
primary care and post acute care
providers in preventing readmissions.
However, currently approximately one
out of five admissions resulted in
readmission. We believe that this rate is
too high. We recognize that reducing
readmission is a multi-facet effort that
requires collaboration among different
stakeholders in the communities.
However there is ample evidence that
hospitals can reduce their readmission
rates through such efforts as: Ensuring
patients are clinically ready at
discharge, reducing risk of infection;
reconciling medications; improving
communication with community
providers participating in transitions of
care; educating patients adequately
upon discharge; and assuring patients
understand follow-up care upon
discharge. The measure encourages
hospitals to improve patient care
transitions and collaborate with the
providers and other resources in their
communities to reduce readmissions.

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After consideration of the public
comments we received, we are
finalizing the HWR measure for the FY
2015 payment determination and
subsequent years as proposed.
(C) New Chart-Abstracted Measure:
Elective Delivery Prior to 39 Completed
Weeks Gestation: Percentage of Babies
Electively Delivered Prior to 39
Completed Weeks Gestation (NQF
#0469)
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28046), we
proposed for the FY 2015 payment
determination and subsequent years to
add a chart-abstracted measure, Elective
Delivery Prior to 39 Completed Weeks
Gestation: Percentage of Babies
Electively Delivered Prior to 39
Completed Weeks Gestation. In
launching the Strong Start Initiative
(http://www.innovation.cms.gov/
initiatives/strong-start/) to help reduce
preterm births, the HHS Secretary
indicated in a press release that more
than half a million infants are born
prematurely in America each year, and
that this trend has increased 36 percent
over the last 20 years. Preterm births
may require additional medical
attention and early intervention
services. Some recent research indicates
that elective deliveries before 39 weeks
increase the risk of significant
complications for mother and baby, as
well as long-term health
problems.88,89,90,91 Preterm births are a
growing public health problem that has
significant consequences for families
well into a child’s life.
As a public campaign to reduce
preterm births, the Strong Start
Initiative’s objective is to test ways to
reverse this trend by helping provide
expectant mothers with the care they
need for a healthy delivery and a
healthy baby, and by focusing on
reducing early elective deliveries, which
can lead to a variety of health problems
for mothers and infants.
The Strong Start Initiative cuts across
many agencies within HHS and involves
external organizations including the
88 Glantz, J. (Apr. 2005). Elective induction vs.
spontaneous labor associations and outcomes. J
Reprod Med. 50(4):235–40.
89 Vardo, J., Thornburg, L., Glantz J., (2011).
Maternal and neonatal morbidity among
nulliparous women undergoing elective induction
of labor. J. report med. 56(1–2): 25–30.
90 Tita, A., Landon, M., Spong, C., Lai, Y., Leveno,
K., Varner, M., et al. (2009). Timing of elective
repeat cesarean delivery at term and neonatal
outcomes. [Electronic Version]. NEJM. 360:2, 111–
120.
91 Clark, S., Miller, D., Belfort, M., Dildy, G., Frye,
D., & Meyers, J. (2009). Neonatal and maternal
outcomes associated with elective delivery.
[Electronic Version]. Am J Obstet Gynecol.
200:156.e1–156.e4.

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March of Dimes, and the American
College of Obstetricians and
Gynecologists (ACOG). We believe that
a reduction in the number of
nonmedically indicated elective
deliveries at ≥37 to <39 weeks gestation
will result in a substantial decrease in
neonatal morbidity and mortality, as
well as a significant savings in
healthcare costs. In addition, the rate of
cesarean sections should decrease with
fewer elective inductions resulting in
decreased length of stay and healthcare
costs. The proposed measure would
assist hospitals in tracking
nonmedically indicated early term
elective deliveries and reduce the
occurrence of such deliveries. This
measure would assess patients with
elective vaginal deliveries or elective
cesarean sections at ≥37 and <39 weeks
of gestation completed. The numerator
for this measure is the number of
patients with elective deliveries with
principal or other procedure codes for
one or more of the following: Medical
induction of labor, and Cesarean section
while not in active labor or experiencing
spontaneous rupture of membranes.
Exclusions are: Less than 8 years of age;
Greater than or equal to 65 years of age;
Length of Stay >120 days; and enrolled
in clinical trials.
We proposed to adopt this measure
for the Hospital IQR Program because
we believe this measure furthers the
National Quality Strategy’s three-part
aim of better health care for individuals,
better health for populations, and low
costs for health care. In addition, we
have determined that the measure is
relevant to the nearly 2 million
Medicare beneficiaries who are aged 44
and under, most of whom are dual
eligible beneficiaries, who have the
potential to be impacted by pre-term
births. This is evidenced by the fact
that, in 2011, Medicare paid for roughly
14,000 births. The measure is NQFendorsed; therefore, the measure meets
the selection criteria under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
The measure is currently under NQF
maintenance review. In its PreRulemaking report for 2012, the MAP
also recommended the inclusion of this
measure in the Hospital IQR Program.
TJC is the measure steward of this
measure and the detailed measure
specification can be found on the TJC
Web site at: http://
manual.jointcommission.org/releases/
TJC2012A/MIF0166.html.
We proposed to add this measure to
the Hospital IQR Program for the FY
2015 payment determination, with
collection beginning with January 1,
2013 discharges. Although this measure
is chart-abstracted, we proposed that

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this measure would be collected in
aggregated numerator, denominator, and
exclusion counts per hospital via a Webbased tool (as opposed to collecting
patient-level data from hospitals).
Specific details regarding this proposed
approach to data collection are included
in section VIII.A.5. of this preamble on
the form, manner, and timing of quality
data submission for the Hospital IQR
Program. We anticipate that the especifications of this measure will be
completed in the summer of 2012. We
intend to move to EHR-based collection
of this and other measures once the
necessary infrastructure to do so is in
place. We invited public comment on
our proposal to adopt this measure.
Comment: A commenter suggested
that preterm delivery is better defined as
delivery ‘‘prior to 37 completed weeks
of gestation’’ rather than ‘‘prior to 39
completed weeks of gestation’’ as
indicated in the proposed measure.
Response: After reviewing the
comment, we recognize that in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28046), we incorrectly used the term
‘‘pre-term births’’ to describe the
measure, which refers to early elective
deliveries occurring ≥37 weeks and <39
weeks. The commenter is correct that
preterm delivery is better defined as
delivery prior to 37 weeks of gestation.
However, for this measure, we clarify
that we are not referring to deliveries
prior to 37 weeks gestation.
Comment: Many commenters
supported this proposed measure for
inclusion in the Hospital IQR Program,
but did not believe it is appropriate for
the Hospital VBP Program in future
years. Instead, the commenters
suggested that a measure focusing on
obstetrical delivery of babies would be
more appropriate for potential inclusion
in a Medicaid VBP Program or for use
by other purchasers for whom this
constitutes a substantial proportion of
hospitalized patients.
Four commenters supported this
proposed NQF-endorsed and MAPrecommended measure for inclusion in
the Hospital IQR Program, and they
believed the measure will encourage
providers to reduce the number of nonmedically indicated elective deliveries,
which could result in a substantial
decrease in neonatal morbidity and
mortality. Two commenters stated that
the measure sends a clear signal that
CMS recognizes the importance of using
measures that go beyond the Medicare
population and reflects the quality
concerns of the private purchasers as
well as states that are facing extreme
financial challenges related to Medicaid.
One commenter noted that this measure
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women, a large and important group of
health care consumers, who can then
make informed decisions about nonmedically indicated elective delivery.
Response: We thank the commenters
for their support and note that
regardless of the source of health
benefits for women of childbearing age,
the ACOG and AAP standard of
requiring 39 weeks gestation prior to
elective delivery should be adhered to.
Therefore, we believe that whether a
woman of childbearing age is provided
healthcare benefits under Medicare,
Medicaid or both should not determine
which CMS program this measure is
implemented in. We have not yet
evaluated this measure in terms of its
suitability for the Hospital VBP
Program, but we believe that patient
safety in general is a topic that should
be addressed in the Hospital VBP
Program.
Comment: A few commenters noted
that Medicare paid for only about
14,000 deliveries in 2011 out of
approximately 4 million babies born in
the U.S. each year. The commenters
asked for clarification on whether a
hospital is expected to report the earlyterm elective delivery rate for all
obstetric patients or only for the tiny
fraction of Medicare patients with
elective deliveries. Commenters
assumed that CMS proposed this
measure for all patients given that
individual hospitals would likely lack
enough data for Medicare-only
deliveries to produce meaningful rates
of early-term elective deliveries. One
commenter stated that the inclusion of
such a measure that only applies to a
small number of hospitals is not
appropriate to expand the Hospital IQR
Program. A commenter requested
clarification whether the measure
applies to all patients or just Medicare
patients.
Response: We appreciate the
opportunity to clarify the population in
which the measure will be used. We
intend to apply the measure to all
births, not just births to Medicare
patients in order to identify the
percentage that is occurring ≥37 weeks
and <39 weeks. The applicable patients
are all patients that are >8 years of age.
We are not restricting the population to
Medicare patients for this or any other
chart abstracted measures used in the
Hospital IQR Program.
Comment: Two commenters suggested
induction should be defined as when
cervical drugs are administered,
outpatient cervical ripening occurs, or
cervical ripening occurs in non-delivery
admissions when patients are sent home
and admitted later for delivery. The
commenters also suggested that

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53529

gestational age should be defined as
cervical ripening, AROM, or oxytocin
started. One commenter believed the
current definition of gestational age
used by CMS is inadequate, and
recommends that CMS amend the
acceptable sources for determination of
gestational age.
Commenters recommended riskadjustment as well as the inclusion of
membrane stripping and cervical
ripening agents in this measure as an
induction. Commenters preferred data
collection from registries rather than a
Web-based tool. For the future, one
commenter recommended including
patients within a medical necessity
category that may benefit from a
gestation period greater than 39 weeks.
Response: Regarding the definition of
induction and gestational age, data
collection for measure calculation from
registry data and refining the measure
inclusion criteria, we will take these
recommendations into consideration
and collaborate with the steward of the
measure to address these concerns. We
note that the measure is endorsed with
the current methodology. Should the
measure steward change the current
measure methodology by the addition of
risk adjustment and/or make changes to
induction definitions or inclusion
criteria, the measure could change
substantially and place the measure at
risk for losing its endorsement status.
We will take these definitions and
recommendations into consideration
prior to the next measure maintenance
review.
Comment: One commenter requested
clarification regarding the definition of
elective and recommends CMS exclude
cases of prior cesarean or myomectomy.
Response: In the context of this
measure and as defined by the measure
steward, elective deliveries are those
that occur without medical indication.
In the context of this measure and as
defined by the measure steward,
elective deliveries are those that occur
without medical indication. For those
situations in which a history of prior
myomectomy or cesarean section are
clear medical indications for delivery
prior to 39 weeks, the measure allows
for the abstractors to indicate that
delivery was medically indicated. We
will also convey the recommended
exclusions of cases with a history of
medical indication of prior cesarean or
myomectomy to the measure steward for
consideration.
Comment: A commenter pointed out
that this measure is part of the required
clinical quality measures proposed for
Stage 2 meaningful use of certified EHR
technology. The commenter
recommended that CMS defer the

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implementation of this measure until
the measure can be reported as an
eMeasure.
Response: Because we believe that the
data reporting based on the current
measure specification is not
burdensome, we do not see a need to
delay the implementation of this
measure in the Hospital IQR Program.
Once e-specification of the measure is
completed, we will consider the option
of e-reporting.
Comment: A few commenters
supported the proposed aggregate data
reporting but were unclear how would
this data collection method would
alleviate burden on hospitals.
One commenter requested that CMS
clarify the frequency of data reporting as
well as how the data would be
displayed accurately without validation.
The commenter was encouraged that
TJC is working on the e-specification of
this measure and the commenter
requested CMS to consult with TJC for
any recent changes in the measure.
Response: We appreciate the
importance of having adequate
Topic

Heart Failure (HF) Measures ..........

Stroke (STK) Measure Set .............

VTE Measure Set ...........................

Pneumonia (PN) Measures ............
Surgical Care Improvement Project
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Mortality Measures (Medicare Patients).
Patients’ Experience of Care Measures.

15:02 Aug 30, 2012

Response: We will consider this
suggestion for future implementation.
Based on the public comments we
received, we are finalizing the Elective
Delivery Prior to 39 Completed Weeks
Gestation: Percentage of Babies
Electively Delivered Prior to 39
Completed Weeks Gestation measure for
FY 2015 payment determination and
subsequent years as proposed. The data
collection requirements for this measure
are detailed in the ‘‘Form, Manner, and
Timing of Quality Data Submission’’
section of this preamble.
In summary, we are adopting all the
Hospital IQR Program measures adopted
in previous payment determinations,
with the exception of the 17 measures
(1 chart-abstracted measure and 16
claims-based measures) that we are
removing. We are finalizing new surveybased measure items for inclusion in the
HCAHPS survey measure, 3 claimsbased measures, and 1 chart-abstracted
measure, for a total of 59 measures for
the FY 2015 payment determination and
subsequent years. These 59 measures
are listed below.

Hospital IQR program measures for FY 2015 payment determination and subsequent years

Acute Myocardial Infarction (AMI)
Measures.

VerDate Mar<15>2010

resources when performing quality
health assessments. We believe that
methods of collecting data for this
measure should minimize additional
hospital burden because the measure
data are submitted for the hospital’s
aggregate numerator, denominator and
exclusions through a Web-based entry
tool rather than submitting data on each
of the hospital’s individual patient
cases. Display of measure results on
Hospital Compare is required as part of
the Hospital IQR Program, and we note
that not all measure results on Hospital
Compare are validated, but that
hospitals are responsible for ensuring
completeness and accuracy of the data
regardless of whether CMS
independently validates that data. We
will work closely with TJC to
implement the measure. The frequency
of reporting this measure is addressed in
the Form, Manner and Timing section of
this program.
Comment: A commenter urged CMS
to allow hospitals to authorize an ORYX
vendor to submit the same data that the
vendor is submitting to TJC.

•
•
•
•

AMI–2 Aspirin prescribed at discharge.
AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival.
AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI).
AMI–10 Statin Prescribed at Discharge.
HF–1 Discharge instructions.
HF–2 Evaluation of left ventricular systolic function.
HF–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or Angiotensin II Receptor Blocker (ARB) for
left ventricular systolic dysfunction.
STK–1 VTE prophylaxis.
STK–2 Antithrombotic therapy for ischemic stroke.
STK–3 Anticoagulation therapy for Afib/flutter.
STK–4 Thrombolytic therapy for acute ischemic stroke.
STK–5 Antithrombotic therapy by the end of hospital day 2.
STK–6 Discharged on Statin.
STK–8 Stroke education.
STK–10 Assessed for rehab.
VTE–1 VTE prophylaxis.
VTE–2 ICU VTE prophylaxis.
VTE–3 VTE patients with anticoagulation overlap therapy.
VTE–4 Patients receiving un-fractionated Heparin with doses/labs monitored by protocol.
VTE–5 VTE discharge instructions.
VTE–6 Incidence of potentially preventable VTE.
PN–3b Blood culture performed in the emergency department prior to first antibiotic received in hospital.
PN–6 Appropriate initial antibiotic selection.
SCIP INF–1 Prophylactic antibiotic received within 1 hour prior to surgical incision.
SCIP INF–2: Prophylactic antibiotic selection for surgical patients.
SCIP INF–3 Prophylactic antibiotics discontinued within 24 hours after surgery end time (48 hours for
cardiac surgery).
SCIP INF–4: Cardiac surgery patients with controlled 6AM postoperative serum glucose.
SCIP INF–9: Postoperative urinary catheter removal on post operative day 1 or 2 with day of surgery
being day zero.
SCIP INF–10: Surgery patients with perioperative temperature management.
SCIP Cardiovascular-2: Surgery Patients on a Beta Blocker prior to arrival who received a Beta Blocker
during the perioperative period.
SCIP–VTE–2: Surgery patients who received appropriate VTE prophylaxis within 24 hours pre/post surgery.
Acute Myocardial Infarction (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day mortality rate.
Pneumonia (PN) 30-day mortality rate.
HCAHPS survey (expanded to include one 3-item care transition set and two new ‘‘About You’’ items).

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Topic

Hospital IQR program measures for FY 2015 payment determination and subsequent years

Readmission Measures (Medicare
Patients).

AHRQ Patient Safety Indicators
(PSIs) Composite Measures.
AHRQ PSI and Nursing Sensitive
Care.
Structural Measures ........................

Healthcare-Associated
Measures.

53531

Infections

Surgical Complications ...................
Emergency
Department
Throughput Measures.

(ED)

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• PSI–4
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Prevention: Global Immunization
(IMM) Measures.
Cost Efficiency ................................
Perinatal Care .................................

Acute Myocardial Infarction 30-day Risk Standardized Readmission Measure.
Heart Failure 30-day Risk Standardized Readmission Measure.
Pneumonia 30-day Risk Standardized Readmission Measure.
30-day Risk Standardized Readmission following Total Hip/Total Knee Arthroplasty.*
Hospital-Wide All-Cause Unplanned Readmission (HWR).*
Complication/patient safety for selected indicators (composite).

•
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•
•

Death among surgical inpatients with serious treatable complications.

Participation in a Systematic Database for Cardiac Surgery.
Participation in a Systematic Clinical Database Registry for Stroke Care.
Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care.
Participation in a Systematic Clinical Database Registry for General Surgery.
Central Line Associated Bloodstream Infection.
Surgical Site Infection.
Catheter-Associated Urinary Tract Infection.
MRSA Bacteremia.
Clostridium Difficile (C.Diff).
Healthcare Personnel Influenza Vaccination.
Hip/Knee Complication: Hospital-level Risk-Standardized Complication Rate (RSCR) following Elective
Primary Total Hip Arthroplasty.*
ED–1 Median time from emergency department arrival to time of departure from the emergency room
for patients admitted to the hospital.
ED–2 Median time from admit decision to time of departure from the emergency department for emergency department patients admitted to the inpatient status.
Immunization for Influenza.
Immunization for Pneumonia.
Medicare Spending per Beneficiary.
Elective delivery prior to 39 completed weeks of gestation.*

* New measures/items for the FY 2015 payment determination and subsequent years.

EMCDONALD on DSK67QTVN1PROD with RULES2

(D) Clarifications Regarding Existing
Hospital IQR Program Measures That
Have Undergone Changes During NQF
Measure Maintenance Processes
As discussed previously, once
adopted, we retain measures in the
Hospital IQR Program unless
specifically stated otherwise. Recently
the CLABSI and CAUTI measures were
expanded to pertain to non-ICU
locations in hospitals and to other types
of care settings as part of NQF
maintenance review. These measures
retained their original NQF numbers as
these changes were not considered
substantive by NQF. However, we will
continue to require hospitals to submit
data for these two measures on ICU
locations only for the Hospital IQR
Program. We sought comment from
hospitals on the feasibility and timing of
expanding collection of these measures
to include non-ICU locations in
hospitals. We address these comments
below in the VIII.A.4., Possible New
Quality Measures and Measure Topics
for Future Years section.
NQF, in addition to expanding the
care settings to which the CLABSI and
CAUTI measures could apply, also
changed how these measures are
calculated. The original endorsed
versions of the measures calculated an
infection rate per 1,000 central line days
for CLABSI and for 1,000 urinary
catheter days for CAUTI. In the course

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of its maintenance review, NQF changed
the way the measures are calculated
from an infection rate per 1,000 days to
a standardized infection ratio (‘‘SIR’’),
which is comprised of the actual rate of
infection over the expected rate of
infection. We note that although the
previously endorsed versions of the
CAUTI and CLABSI measures did not
include the SIR calculation, we have
reported the CDC-calculated SIR for
both measures on the Hospital Compare
Web site. While use of this calculation
is different from the original NQFendorsed measure output, we believe
the SIR is a more accurate way to
calculate the CLABSI and CAUTI
measures for comparative purposes
rather than the rate per 1,000 infection
days because it takes into account
hospitals’ case mix. We will continue to
report SIRs for both measures because
this calculation is now consistent with
NQF’s endorsement of the measures. We
also note that use of the SIR calculation
does not change the type of data that
hospitals submit on the CLABSI and
CAUTI measures.
c. Hospital IQR Program Quality
Measures for the FY 2016 Payment
Determination and Subsequent Years
In the CY 2012 OPPS/ASC final rule
with comment period (76 FR 74466), we
adopted the Safe Surgery Checklist Use
measure for the Hospital OQR Program
for the CY 2014 payment determination.

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In the same rule, we adopted this
measure for the ASCQR Program for the
CY 2015 payment determination (76 FR
74507). This structural measure assesses
whether a hospital outpatient
department utilizes a Safe Surgery
checklist that assesses whether effective
communication and safe practices are
performed during three distinct
perioperative periods: (1) The period
prior to the administration of
anesthesia; (2) the period prior to skin
incision; and (3) the period of closure of
incision and prior to the patient leaving
the operating room. The use of such
checklists has been credited with
dramatic decreases in preventable harm,
complications and post-surgical
mortality.92 Like hospital outpatient
settings and ambulatory surgical
centers, acute care hospitals also
perform many surgical procedures.
Therefore, we believe this measure is
also applicable for hospital inpatient
settings in strengthening patient safety
precautions in hospitals and in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28048), we proposed to adopt this
measure for the Hospital IQR Program
for FY 2016 payment determination and
subsequent years.
For this proposed structural measure,
a hospital inpatient department would
92 Haynes, A.B.; Weiser, T.G.; Berry, W.G. et al.
(2009). ‘‘A Surgical Safety Checklist to Reduce
Morbidity and Mortality in a Global Population.’’
New England Journal of Medicine. 360: 491–499.

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

indicate whether or not it uses a safe
surgery checklist for its surgical
procedures that includes safe surgery
practices during each of the three
critical perioperative periods discussed
above. The measure would not require
a hospital to report whether it uses a
checklist in connection with each
individual inpatient procedure. We refer
readers to the CY 2012 OPPS/ASC final
rule with comment period (76 FR 74505
through 74506) for a detailed discussion
of the Safe Surgery Checklist Use
measure.
We proposed to adopt this Safe
Surgery Checklist structural measure,
which is not NQF-endorsed, under the
exception authority provided in section
1886(b)(3)(B)(IX)(bb) of the Act. This
section 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, 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-endorsed
measures, and we were unable to
identify any NQF-endorsed measures
that assess use of safe surgery checklists.
We also are not aware of any other safe
surgery checklist use measures that have
been endorsed or adopted by a
consensus organization other than NQF.
Accordingly, we propose to adopt the
Safe Surgery Checklist measure under
the Secretary’s authority set forth at
section 1886(b)(3)(B)(IX)(bb) of the Act.
This measure was included on the
pre-rulemaking list for consideration by
the MAP, and this multi-stakeholder
organization comprised of affected
parties supported the direction of this
measure pending availability of
specifications. These specifications will
be made available in an upcoming
manual release for the ASCQR Program
which will be available on Quality Net
Web site at http://www.qualitynet.gov.
The proposed safe surgery checklist
measure assesses the adoption of a best
practice for surgical care that is broadly
accepted and in widespread use among
affected parties. In addition to being
adopted by The World Federation of
Societies of Anesthesiologists, the use of
a safe surgery checklist is one of the safe
surgery principles endorsed by the
Council on Surgical and Perioperative
Safety, which is comprised of the
American Association of Nurse
Anesthetists, the American College of
Surgeons, the American Association of
Surgical Physician Assistants, the

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American Society of Anesthesiologists,
the American Society of PeriAnesthesia
Nurses, the AORN, and the Association
of Surgical Technologists. Two State
agencies (Oregon and South Carolina),
the Veterans Health Administration,93
numerous hospital systems, State
hospital associations (such as California
and South Carolina), national
accrediting organizations, and large
private insurers have endorsed the use
of a safe surgery checklist as a best
practice for reducing morbidity,
mortality, and medical errors.94,95
Although there is not currently an NQF
endorsed measure for safe surgery
checklist use, because the use of a safe
surgery checklist is a widely accepted
best practice for surgical care, we
believe that the proposed structural
measure of Safe Surgery Checklist use
reflects consensus among affected
parties. We also note that TJC included
safe surgery checklist practices among
those to be used to achieve National
Patient Safety Goals (NPSGs) adopted
for 2011 for surgeries performed in
ambulatory settings and hospitals.
Given that this measure is pivotal in
preventing human errors in surgical
operations which are commonly
performed by acute care hospitals, we
proposed to adopt this measure for the
Hospital IQR Program for the FY 2016
payment determination and subsequent
years. This proposal would achieve our
goal to align measures across settings.
Comment: Many commenters
supported the proposed measure if a
specific checklist is not mandated.
Response: We appreciate the support
for the measure, which was designed to
assess the adoption of a best practice for
surgical care to reduce preventable
medical errors and mortality while
giving hospitals the flexibility to
develop their own checklist that meets
their needs. We chose not to finalize any
specific checklist but will consider
providing links to specific examples of
Surgical Safety Checklists as an
Appendix in the Specification Manual.
Comment: Many commenters did not
support the Safe Surgery Checklist
measure, and believed that the proposed
measure is merely a concept and not a
fully developed measure. Some
commenters noted that CMS should first
seek NQF endorsement for the measure.
93 Neily, J; Mills, PD, Young-Xu, Y. (2010).
‘‘Association between implementation of a Medical
Team Training Program and Surgical Mortality.’’
JAMA. 304 (15): 1693–1700.
94 Haynes, AB; Weiser, TG; Berry, WR et al. (2009)
‘‘A Surgical Safety Checklist to Reduce Morbidity
and Mortality in a Global Population.’’ NEJM.
360:491–499.
95 Birkmeyer, JD (2010) ‘‘Strategies for Improving
Surgical Quality—Checklists and Beyond.’’ NEJM.
363: 1963–1965.

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Commenters also stated that the MAP
only supports the general concept and
direction of the measure but did not
recommend the measure for inclusion in
the Hospital IQR Program.
A commenter stated that managing
the processes involved in surgical care
is what improves quality of care, not the
mere use of a checklist.
Response: We agree that good
management of processes around
surgical care is critical to high quality
surgical care, however, we also believe
that the use of a surgical checklist
facilitates management and
communication of these processes. In
addition, the MAP 2012 Pre-Rulemaking
Report indicated that the MAP
supported the direction of this measure
pending further specification. We have
since specified this measure for
implementation in the Hospital OQR
Program and the ASCQR Program, and
specifications are available on the
QualityNet Web site in the
Specifications Manuals for these two
programs at: https://www.qualitynet.org/
. We also note that non-endorsed
measures that we believe to be
important in assessing the quality of
hospital care can be adopted for the
Hospital IQR Program through our
exception authority in section
1886(b)(3)(B)(IX)(bb) of the Act. This
section 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), 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 believe
the Safe Surgery Checklist complements
the management of surgical care
processes and ultimately contributes to
better patient outcomes by increasing
safe surgery practices, reducing
preventable human error, and
minimizing complications and postsurgical mortality. To that end, we
believe it warrants inclusion in the
Hospital IQR Program.
Comment: A commenter provided
examples of other safeguards that are
already in place to address safe
surgeries. The commenter also noted
that the introduction of this measure
would create an undue burden on
hospitals because the Medicare National
Coverage Determinations already
specify no Medicare reimbursement for
any adverse event from any aspects of
a surgery. The commenter presumed
that this is a strong incentive for
hospitals to take steps to ensure safe

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surgeries. Furthermore, the commenter
noted that TJC surveys all accredited
institutions for surgery checklists as part
of its patient safety requirements.
Therefore, the commenter concluded
that there is already adequate use of the
safe surgery checklist among hospitals
performing surgeries.
Response: In our view, the
widespread use of safe surgery
checklists affirms our view regarding
the significance of this structural
measure. We believe that reporting
information about the implementation
of these safeguards to consumers is
important for transparency and
awareness. This is why this measure has
been adopted for the Hospital OQR and
ASCQR Programs as well. Public
reporting of this measure is not
occurring; therefore, we believe that
including this measure in the Hospital
IQR Program and publicly reporting the
measure data is not redundant. This
measure imposes a minimal reporting
burden on hospitals.
Comment: One commenter requested
that CMS provide sources of surgical
safety checklists, which include safe
surgery practices during each of the
three critical perioperative periods. A
few commenters stated that the WHO
Safe Surgery Checklist Implementation
Manual described one time pause, and
not three as stated in the proposed rule.
Commenters agreed that the pauses are
important but a series of three time outs
are disruptive and impracticable.
Commenters recommended CMS
clarifies and ensures that surgeons can
implement and modified CMS’ sample
Safe surgery Checklist and are not
mandated to incorporate the three
‘‘pauses.’’
Response: We did not propose to
require the use of any particular
checklist for this measure. In the
discussion of the Safe Surgery Checklist
Topic

Heart Failure (HF) Measures ..........

EMCDONALD on DSK67QTVN1PROD with RULES2

Stroke Measure (STK) Set .............

VTE Measure Set ...........................

15:02 Aug 30, 2012

the checklist is intended. A commenter
suggested focusing on specifying
standardized criteria to be followed in
using the safe surgery checklist instead
of whether the checklist is in place.
Response: We agree with the
commenters that the use of a safe
surgery checklist as indicated in this
measure should be implemented
appropriately to achieve improved
delivery rather than just creating an
additional documentation requirement.
The use of a checklist is intended to
help prevent serious medical errors
involving surgical care such as
anesthesia dosing errors and allergic
reactions, wrong site surgery, wrong
procedure or wrong patient surgery, and
the retention of foreign objects in the
body. During our measure maintenance
process, we will review the
improvement potential for this measure,
like all the measures we adopted for the
Hospital IQR Program, for indication of
best practices, among other review
criteria.
Comment: A commenter was skeptical
that the proposed Safe Surgery Checklist
attestation could be validated by CMS
and therefore, does not warrant
consideration as a structural measure.
Response: At this time we have not
proposed to validate this measure or
other structural measures previously
adopted in the Hospital IQR Program.
After consideration of public
comments we received, we are
finalizing the Safe Surgery Checklist use
measure as proposed for a total of 60
measures for the FY 2016 payment
determination and subsequent years.
The data collection requirements for
this measure are detailed in the ‘‘Form,
Manner, and Timing of Quality Data
Submission’’ section of this preamble.
The 60 measures for the FY 2016
payment determination and subsequent
years are listed below.

Hospital IQR program measures for FY 2016 payment determination and subsequent years

Acute Myocardial Infarction (AMI)
Measures.

VerDate Mar<15>2010

Use measure in the proposed rule we
referred readers to the discussion of this
measure in the CY 2012 OPPS/ASC final
rule with comment period (76 FR 74464
through 74466). In that final rule with
comment period, we presented
examples of typical safe surgery
practices corresponding to three critical
preoperative periods. Although the
discussion in the CY 2012 OPPS/ASC
final rule with comment period noted
that the WHO Surgical Safety Checklist
‘‘lists safe surgery practices during each
of these three perioperative periods,’’
we agree with the commenters that the
WHO Safe Surgery Checklist
Implementation Manual only specifies a
single pause. However, we did not
propose to adopt the WHO checklist
and, under our proposal, hospitals have
the flexibility to determine the use of a
safe surgery checklist with the number
of pauses they feel are necessary to elicit
the safest surgical practices. The
measure does not assess the process or
content of their safe surgery checklists,
nor does the Safe Surgery Checklist Use
measure finalized for the Hospital OQR
Program or ASCQR Program. The
measure does not prescribe for facilities
the processes for completion of (for
example, number of pauses) or content
of a safe surgery checklist (for example,
which items to check on). Instead, the
measure just requires hospitals to report
whether or not they use a safe surgery
checklist.
Comment: A commenter
recommended that after
implementation, CMS should evaluate
the appropriate implementation and
utilization of the use of the safe surgery
checklist by providers as indicated in
this measure. Commenters were
concerned that the use of a surgical
checklist may result in a ‘‘check the
box’’ process which does not result in
the improved delivery of care for which

53533

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•
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•
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AMI–2 Aspirin prescribed at discharge.
AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival.
AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI).
AMI–10 Statin Prescribed at Discharge.
HF–1 Discharge instructions.
HF–2 Evaluation of left ventricular systolic function.
HF–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or Angiotensin II Receptor Blocker (ARB) for
left ventricular systolic dysfunction.
STK–1 VTE prophylaxis.
STK–2 Antithrombotic therapy for ischemic stroke.
STK–3 Anticoagulation therapy for Afib/flutter
STK–4 Thrombolytic therapy for acute ischemic stroke.
STK–5 Antithrombotic therapy by the end of hospital day 2.
STK–6 Discharged on Statin.
STK–8 Stroke education.
STK–10 Assessed for rehab.
VTE–1 VTE prophylaxis.
VTE–2 ICU VTE prophylaxis.
VTE–3 VTE patients with anticoagulation overlap therapy.

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Topic

Hospital IQR program measures for FY 2016 payment determination and subsequent years

Pneumonia (PN) Measures ............
Surgical Care Improvement Project
(SCIP) Measures.

•
•
•
•

•
•
•
•

VTE–4 Patients receiving un-fractionated Heparin with doses/labs monitored by protocol.
VTE–5 VTE discharge instructions.
VTE–6 Incidence of potentially preventable VTE.
PN–3b Blood culture performed in the emergency department prior to first antibiotic received in hospital.
PN–6 Appropriate initial antibiotic selection.
SCIP INF–1 Prophylactic antibiotic received within 1 hour prior to surgical incision.
SCIP INF–2 Prophylactic antibiotic selection for surgical patients.
SCIP INF–3 Prophylactic antibiotics discontinued within 24 hours after surgery end time (48 hours for
cardiac surgery).
SCIP INF–4 Cardiac surgery patients with controlled 6AM postoperative serum glucose.
SCIP INF–9 Postoperative urinary catheter removal on post operative day 1 or 2 with day of surgery
being day zero.
SCIP INF–10 Surgery patients with perioperative temperature management.
SCIP Cardiovascular-2 Surgery Patients on a Beta Blocker prior to arrival who received a Beta Blocker
during the perioperative period.
SCIP VTE–2 Surgery patients who received appropriate VTE prophylaxis within 24 hours pre/post surgery.
Acute Myocardial Infarction (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day mortality rate.
Pneumonia (PN) 30-day mortality rate.
HCAHPS survey (expanded to include one 3-item care transition set* and two new ‘‘About You’’ items).

•
•
•
•
•
•

Acute Myocardial Infarction 30-day Risk Standardized Readmission Measure.
Heart Failure 30-day Risk Standardized Readmission Measure.
Pneumonia 30-day Risk Standardized Readmission Measure.
30-day Risk Standardized Readmission following Total Hip/Total Knee Arthroplasty.*
Hospital-Wide All-Cause Unplanned Readmission (HWR).*
Complication/patient safety for selected indicators (composite).

•
•
•
•
•
•
•
•
•

Mortality Measures (Medicare Patients).
Patients’ Experience of Care Measures.
Readmission Measures (Medicare
Patients).

AHRQ Patient Safety Indicators
(PSIs) Composite Measures.
AHRQ PSI and Nursing Sensitive
Care.
Structural Measures ........................

Healthcare-Associated
Measures.

Infections

Surgical Complications ...................
Emergency
Department
Throughput Measures.

(ED)

• PSI–4
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Prevention: Global Immunization
(IMM) Measures.
Cost Efficiency ................................
Perinatal Care .................................

•
•
•
•

Death among surgical inpatients with serious treatable complications.

Participation in a Systematic Database for Cardiac Surgery.
Participation in a Systematic Clinical Database Registry for Stroke Care.
Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care.
Participation in a Systematic Clinical Database Registry for General Surgery.
Safe Surgery Checklist Use.**
Central Line Associated Bloodstream Infection.
Surgical Site Infection.
Catheter-Associated Urinary Tract Infection.
MRSA Bacteremia.
Clostridium Difficile (C.Diff).
Healthcare Personnel Influenza Vaccination.
Hip/Knee Complication: Hospital-level Risk-Standardized Complication Rate (RSCR) following Elective
Primary Total Hip Arthroplasty.*
ED–1 Median time from emergency department arrival to time of departure from the emergency room
for patients admitted to the hospital.
ED–2 Median time from admit decision to time of departure from the emergency department for emergency department patients admitted to the inpatient status.
Immunization for Influenza.
Immunization for Pneumonia.
Medicare Spending per Beneficiary.
Elective delivery prior to 39 completed weeks of gestation.*

* New measures/items for FY 2015 payment determination and subsequent years.
** New measures for FY 2016 payment determination and subsequent years.

EMCDONALD on DSK67QTVN1PROD with RULES2

4. Possible New Quality Measures and
Measure Topics for Future Years
We anticipate that, as EHR technology
evolves and more infrastructure is put
in place, we will have the capacity to
accept electronic reporting of many of
the clinical chart-abstracted measures
that are currently part of 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

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considerable work needs to be done by
measure owners and developers to make
this possible with 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 use EHR-based reporting
for many chart-abstracted measures for

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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 to report
chart-abstracted measures.
Once the e-specifications and the
EHR-based collection mechanism are
available for the smoking and alcohol
cessations measures developed by TJC,
we intend to propose two TJC smoking
and alcohol cessation measure sets for
inclusion in the Hospital IQR Program.

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Each of these TJC sets consists of four
measures:
• Smoking Cessation Set—(1) TAM–1
Tobacco Use Screening; (2) TAM–2
Tobacco Use Treatment Provided or
Offered; (3) TAM–3 Tobacco Use
Treatment Management at Discharge;
and (4) TAM–4 Assessing Status after
Discharge, and
• Alcohol Cessation Set—(1) TAM–5
Alcohol Use Screening; (2) TAM–6
Alcohol Use Brief Intervention Provided
or Offered; (3) TAM–7 Alcohol and
Other Drug Use Disorder Treatment
Provided or Offered at Discharge; and
(4) TAM–8 Substance Use: Assessing
Status after Discharge.
These measure sets were
recommended by the MAP for inclusion
in the Hospital IQR Program, provided
they complete the NQF endorsement
process prior to inclusion. We invited
public comment on our intention to
propose these measure sets.
Comment: Roughly equal numbers of
commenters supported and opposed the
two TJC smoking and alcohol cessation
measure sets for inclusion in the
Hospital IQR Program. A commenter did
not support the TAM–4 Assessing
Status after Discharge and TAM–8
Substance Use: Assessing Status after
Discharge measures as data collection
after discharge was perceived to be very
labor intensive. A commenter urged
CMS to align the Smoking and Alcohol
Cessation measure names with TJC’s
measure names should CMS propose the
measures in the future.
A few commenters highlighted some
limitations of e-specifications and EHRbased collection and added that a high
validation rates such as 95 percent,
across electronic data capture method
and manual chart-abstraction is crucial.
Response: We thank the commenters
for their input on the prospective TJC
alcohol and smoking cessation measure
sets. We will take this input into
consideration in future rulemakings.
We intend to propose the following
measure domains in the Hospital IQR
Program measure set in future
measurement proposals for the Hospital
IQR Program: clinical quality (for
example, the AMI, HF, PN, STK, and
VTE measures), care coordination (for
example, the mortality measures),
patient safety (for example, the SCIP
and HAI measures), patient and
caregiver experience of care (for
example, the HCAHPS measure),
population/community health (for
example, the global immunization
measures), and efficiency (for example,
the Medicare Spending per Beneficiary
measure). This approach will enhance
better patient care while bringing the
Hospital IQR Program in line with our

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other established quality reporting and
pay-for-performance programs.
Comment: We received many
suggestions for future measure domains
or measure topics including:
• HAIs measures collected via NHSN
• Risk-adjusted, rate-based HAC
measures
• Beta blockers prescribed to HF
patients
• Beta blocker therapy for left
ventricular systolic dysfunction
• Post-discharge appointment for HF
patients
• AAA mortality measures
• Cardiac Rehabilitation Referral
• Discharge appointment measure for
heart failure patients
• Coronary artery and heart disease
• Medication safety
• Surgical outcome measures
• Sepsis and septic shock
• Registry-based CABG composite score
• Potentially avoidable complication
• A comprehensive COPD measure set
• Pain assessment
• Alzheimer’s disease/cognitive
impairment quality measures
• Efficiency, resource use, and
appropriateness of care measures
• Malnutrition
• Patient-reported outcomes and
engagement
• Pediatric care
In addition, some commenters
opposed the future inclusion of
measures that require a global
population. A commenter requested
CMS to provide a detailed list of
measures under consideration in the
proposed rulemakings.
Response: We thank the commenters
for their valuable input for the
suggestions regarding future measures
and will take them into consideration
for future rulemakings.
We also noted that consistent with the
updated NQF endorsements of the
CLABSI (NQF #139) and CAUTI (NQF
#138) measures, we intend to propose to
collect data for non-ICU patients as well
for these two measures when feasible at
a future time, and we sought public
comment on the feasibility and timing
of expanding data collection to non-ICU
locations for acute care hospitals.
Comment: A few commenters
highlighted the prevalence of CLABSI in
ICUs in hospitals and noted that the
morbidity and mortality from these
types of infections are preventable. The
commenters strongly encouraged CMS
to move forward with data collection
from non-ICU locations as soon as
possible.
Response: We thank the commenter
for the encouragement to advance our
goal to reduce central line associated
blood-stream infections.

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Comment: Many commenters stated
that expansion of the CLABSI and
CAUTI measures into the non-ICU
locations in hospitals is a good longterm goal. However, commenters
requested delaying the proposal to
expand these two measures to include
non-ICU locations until hospitals have
gained several years of experience with
data collection and validation in ICUs.
Two commenters perceived the
expansion of data collection to non-ICU
locations as burdensome and strongly
urged CMS not to expand data
collection beyond ICU units. A
commenter questioned the capability of
the NHSN to handle the influx of data
from the expansion of the CLABSI
measures into non-ICU locations.
Response: We will take these
comments into consideration in
determining an appropriate time to
propose to expand collection of these
measures in non-ICU locations. As more
and more acute care hospitals reduce
CLABSI and CAUTI incidence in ICU
locations and prioritize reductions of
CLABSI and CAUTI incidence in other
hospital locations, extending CLABSI
and CAUTI reporting to those locations
will yield benefits for prevention and
quality improvement and will justify
extending the scope of CLABSI and
CAUTI reporting to non-ICU locations.
We anticipate that NHSN infrastructure
would be enhanced as needed to handle
any expansion of CLABSI and CAUTI
reporting requirements.
Comment: A commenter strongly
supported using the NHSN as the core
component of HAI data reporting.
Another commenter expressed concerns
that the functionality of the NHSN
database as is not user-friendly.
According to this commenter, there are
significant limitations for uploading
data. For example, a hospital may have
an incomplete data set to upload into
the surgical site infection application for
colon and hysterectomy patients, but
the data cannot be saved in a temporary
file until it is complete. In addition, the
database does not accept simple
spreadsheets to be uploaded. The
commenter urged CMS to collaborate
with the CDC to improve the usability
of the NHSN database.
Response: We thank the commenter
for the support of using NHSN as the
mechanism to collect HAI measure data.
We understand that CDC continues to
use input from users and systematic
field studies of its own to improve the
usability of NHSN’s Web interface. CDC
requires healthcare facilities to submit
complete healthcare-associated
infection data records via the NHSN
system, to avoid storing volumes of
incomplete records while substantial

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back-and-forth communication between
CDC and the reporting facility is
pending during close out for the
facility’s reporting for a specified
reporting interval. The importance of
requiring complete records is
heightened by the use of NHSN for
mandatory healthcare-associated
infection reporting in 29 states
(including Washington, DC) and use of
NHSN for CMS quality reporting
programs. CDC informed us that NHSN
accepts comma separated value (CSV)
files for importation of patient
demographic data, procedure data, and
surgeon data. These CSV files can be
readily created from spreadsheets and
uploaded into NHSN, eliminating the
need for manual data entry of patient
demographic data, procedure data, and
surgeon data.
We thank the commenters for their
input on the feasibility and timing of
expanding collection of these measures
to include non-ICU locations in
hospitals. We will take them into
consideration in future rulemakings.
5. Form, Manner, and Timing of Quality
Data Submission

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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. CMS requires that
hospitals submit data in accordance
with the specifications for the
appropriate discharge periods. The data
submission requirements, Specifications
Manual, and submission deadlines are
posted on the QualityNet Web site at:
http://www.QualityNet.org/. Hospitals
submit quality data through the secure
portion of the QualityNet (formerly
known as QualityNet Exchange) Web
site (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.
Hospitals choosing to participate in the
Hospital IQR Program must also meet
specific data collection, submission, and
validation requirements.

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b. Procedural Requirements for the FY
2015 Payment Determination and
Subsequent Years
The Hospital IQR Program procedural
requirements are now codified in
regulation at 42 CFR 412.140. Hospitals
should refer to the regulation for
participation requirements. In the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28051), for the FY 2015 payment
determination and future years, we
proposed to modify the following
procedural requirements and the
corresponding regulation text.
• In order to ensure that hospitals
that participate in the Hospital IQR
Program are submitting data for a full
year, we proposed 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 by December 31 of the
calendar year preceding the first quarter
of the calendar year in which the chartabstracted Hospital IQR data submission
is required for any given fiscal year. For
example, if a hospital wishes to
participate in FY 2015, it must submit
a pledge by December 31, 2012, and
submit data beginning with January 1,
2013 discharges. We also proposed to
modify our regulations at 42 CFR
412.140(a)(3)(i) to reflect this proposed
requirement.
• Currently, 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. In order to
decrease the time between final
submission of Hospital IQR data and
Hospital IQR payment determination
notification for the hospitals, we
proposed that a subsection (d) hospital
may withdraw from the Hospital IQR
Program by submitting to CMS a
withdrawal form that can be found in
the secure portion of the QualityNet
Web site. The hospital must submit the
withdrawal form by May 15 prior to the
start of the payment year affected. For
example, if a hospital seeks to withdraw
from the FY 2015 payment
determination, the hospital must submit
the withdrawal form to CMS by May 15,
2014. If a hospital withdraws from the
Program, it will receive a reduction
until such time as it meets the
participation requirements. This
proposal will also align with the final
abstraction data submission deadline,
which will eliminate the burden of one
extra deadline for providers and
vendors. We also proposed to modify

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our regulations at 42 CFR 412.140(b) to
reflect this proposed requirement.
Comment: A few commenters
supported the proposed changes in the
data submission requirements regarding
the timing of notifications for
participating in and withdrawing from
the Hospital IQR Program.
Response: We would like to thank the
commenters for their support.
After consideration of the public
comments we received, we are
finalizing these participation changes
and modifying the associated regulation
text at 42 CFR 412.140(a)(3)(i) and 42
CFR 412.140(b).
c. Data Submission Requirements for
Chart-Abstracted Measures
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28051), for FY
2015 and subsequent years, we
proposed to retain the 41⁄2 months
quarterly submission deadline for chartabstracted quality measures. We also
proposed to retain the aggregate
population and sampling deadline of 4
months. Hospitals would continue to be
required 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 (76 FR 51640 through 51641).
We proposed the same 14-day period
after the aggregate population and
sample size count deadline to submit
the required patient-level records. For
the FY 2015 payment determination and
subsequent years, hospitals must submit
data for four consecutive calendar year
discharge quarters. For example, for FY
2015, the submission quarters are as
follows: 1Q CY 2013, 2Q CY 2013, 3Q
CY 2013 and 4Q CY 2013.
We received no comments on this
proposal; therefore, we are finalizing
our proposal to retain the 41⁄2 months
quarterly submission deadline for chartabstracted quality measures and the
aggregate population and sampling
deadline of 4 months for the FY 2015
payment determination and subsequent
years.
We proposed to collect a new chartabstracted measure for FY 2015, Elective
Delivery Prior to 39 Completed Weeks
Gestation: Percentage of Babies
Electively Delivered Prior to 39
Completed Weeks Gestation. Although
this is a chart-abstracted measure, we
proposed that this measure would be
collected in aggregated numerator,
denominator, exclusion counts and total
population per hospital via a Web-Based
Measure Tool. The complete data
submission requirements, submission
deadlines, and data submission
mechanism, known as the Web-Based

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Measure Tool, will be posted on the
QualityNet Web site at: http://
www.qualitynet.org/. The Web-Based
Measure Tool will be an Internet
database for hospitals to submit their
aggregate data. We proposed that
hospitals submit data in accordance
with the specifications for the
appropriate reporting periods to the
Web-Based Measure Tool that will be
found in the hospital section on the
QualityNet Web site (http://
www.qualitynet.org/).
Comment: One commenter opposed
the use of aggregate reporting because
many hospitals already report this
measure to TJC in a patient-level format.
Response: We thank the commenter
for the input and appreciate that
hospitals that submit to TJC will need
to submit their aggregate totals to the
Web tool. However, we believe this
aggregate submission will be less
burdensome for hospitals that do not
already collect this measure.
Comment: Several commenters
supported the aggregate collection of the
data for the Elective Delivery Prior to 39
Completed Weeks Gestation measure.
Response: We thank the commenters
for their support.
Comment: Several commenters
support the aggregate collection of the
measure but wanted more details on the
submission deadlines and requirements.
Response: We thank the commenters
for their input and reiterate our
statement from the proposed rule that
we consider the Elective Delivery Prior
to 39 Completed Weeks Gestation
measure to be a chart-abstracted
measure. Accordingly, we are clarifying
that the deadlines that we are finalizing
for submission of patient-level data for
all of the chart-abstracted measures also
apply to submission of aggregate
numerator, denominator, exclusion
counts and total population and sample
size for this measure. The only
difference between the submission
requirements for this measure and the
other chart-abstracted measures is that
the method hospitals will follow will
vary somewhat, while the actual
deadlines will not.
In particular, we provide hospitals
with the opportunity to begin
submitting patient-level charts for the
other chart-abstracted measures as
candidate cases occur during the quarter
at issue. It is not necessary for us to
provide this same mechanism for the
Elective Delivery Prior to 39 Completed
Weeks Gestation measure because
hospitals will not know their aggregate
counts for a particular quarter until the
quarter has ended. In addition, hospitals
should need less time to submit data for
this measure because, unlike the other

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chart-abstracted measures, hospitals are
only required to submit several
aggregate counts instead of potentially
numerous patient-level charts. We note
that submission of this measure places
less burden on hospitals than the other
chart-abstracted measures because of the
ease with which hospitals can simply
submit their aggregate counts using our
Web-Based Measure Tool through the
QualityNet Web site.
In summary, the data submission
deadline for all of the chart-abstracted
measures, including the Elective
Delivery Prior to 39 Completed Weeks
Gestation measure, is 41⁄2 months after
the end of the discharge quarter. For
example, the deadline for submission of
data for all chart-abstracted measures for
the first calendar quarter of 2013 is
August 15, 2013. The only difference in
timing for submission of data for the
Elective Delivery Prior to 39 Completed
Weeks Gestation measure and the other
chart-abstracted measures is the
duration of the submission periods. For
the Elective Delivery Prior to 39
Completed Weeks Gestation measure
the submission period for the first
quarter of 2013 will be July 1st, 2013–
August 15th, 2013 and for the other
chart-abstracted measures the
submission period is for the first quarter
of 2013 will be January 1, 2013–August
15, 2013. While the submission periods
differ, the deadlines for each quarter
will be the same for all chart-abstracted
measures, including the Elective
Delivery Prior to 39 Completed Weeks
Gestation measure.
Comment: Several commenters were
concerned about including this measure
in the Hospital VBP Program because it
is would be difficult to validate since
there are no underlying patient records
from which to pull the data.
Response: We thank the commenters
for their input. We point out that the
measure was not proposed for the
Hospital VBP Program at this time. We
also have not proposed to validate this
measure.
After consideration of the public
comments we received, we are
finalizing the aggregate data collection
and submission requirements for the
Elective Delivery Prior to 39 Completed
Weeks Gestation: Percentage of Babies
Electively Delivered Prior to 39
Completed Weeks Gestation measure.
d. Sampling and Case Thresholds
Beginning With the FY 2015 Payment
Determination
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51641), we continued, for
the FY 2015 payment determination and
subsequent years, the approach we
adopted in the FY 2011 IPPS/LTCH PPS

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53537

final rule (75 FR 50230) regarding
hospital submission of population and
sampling data. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28051),
we did not propose any changes to these
requirements.
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.
Comment: Several commenters
expressed concern about changes to
QualityNet feedback reports. In
addition, several commenters expressed
concern that QualityNet’s role in
validation is being expanded at a time
when the system is not functioning
properly.
Response: We thank the commenters
for their concerns. The QualityNet
reporting system recently underwent
significant changes as a result of a
Hospital IQR Program and Hospital
OQR Program system alignment and redesign. The format of standard
QualityNet reports should be consistent
at this time, with changes being applied
only to accommodate changes in data
collection, updates necessary to support
changes in program requirements. We
believe QualityNet is reliable and that
the system will continue to be capable
of supporting the uploads necessary for
validation.
Comment: One commenter expressed
concern that electronic medical records
owners be given assistance from
vendors or have access to programming
to assure correct documentation and
obstetric reporting.
Response: We thank the commenter
and encourage submitters to work with
their vendors to assure correct
documentation and obstetric reporting.
e. HCAHPS Requirements for the FY
2014, FY 2015, and FY 2016 Payment
Determinations
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51641 through 51643),
beginning with discharges occurring in
third quarter CY 2011, we established
that hospitals will have about 13 weeks
after the end of a calendar quarter to
submit HCAHPS data for that quarter to
the QIO Clinical Warehouse.
Other than this change, we did not
make any other changes to the HCAHPS
requirements for the FY 2013 and FY

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2014 Hospital IQR Program payment
determinations, which were adopted in
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50220).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28051), for the FY
2016 Hospital IQR payment
determinations, we proposed to
continue these HCAHPS requirements.
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 http://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:
http://www.hcahpsonline.org. A current
list of approved HCAHPS survey
vendors can be found on the HCAHPS
Web site. For the FY 2016 Hospital IQR
Program, we proposed that the HCAHPS
data would be based on discharges from
January 1, 2014 through December 31,
2014.
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 http://
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 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 recent HCAHPS Quality
Assurance Guidelines.
We note that the HCAHPS Quality
Assurance Guidelines require that

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hospitals maintain complete discharge
lists that indicate which patients were
eligible for the HCAHPS survey, which
patients were not eligible, and which
patients were excluded, and the
reason(s) for ineligibility and exclusion.
(We refer readers to the Quality
Assurance Guidelines located at http://
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 obtain and 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 obtaining and 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 an appropriate
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) and the
HCAHPS Review and Correction Report
that are available. These reports enable
a hospital to ensure that its survey
vendor has submitted the data on time,
the data has been accepted into the QIO
Clinical Warehouse, and the data
accepted into the QIO Clinical
Warehouse are complete and accurate.
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
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
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
http://www.hcahpsonline.org for
program updates and information. We
invited public comment on our proposal
to continue using these HCAHPS
requirements for the FY 2016 payment
determination.
We did not receive any public
comments and we are adopting the
HCAHPS requirements for the FY 2014,
FY 2015, and FY 2016 payment
determinations, as proposed.
f. Data Submission Requirements for
Structural Measures
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51643 through 51644),
beginning with FY 2013, we finalized
the period of data collection for which
hospitals will submit the required
registry participation information once
annually for the structural measures via
a Web-Based Measure Tool. We
finalized our proposal for FY 2014 for
submission of structural measures
between April 1, 2013 and May 15, 2013
with respect to the time period of
January 1, 2012 through December 31,
2012. In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28052), we

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proposed to continue this policy for FY
2015 and subsequent years. For the FY
2015 payment determination, the period
of data collection for which hospitals
will submit the required registry
participation information for the
structural measures via a Web-Based
Measure Tool will be between April 1,
2014 and May 15, 2014, with respect to
the time period of January 1, 2013
through December 31, 2013. We invited
public comment on this proposal.
Comment: One commenter supported
the timing of collection for structural
measures for FY 2015 and subsequent
years.
Response: We thank the commenter
for the support.
After consideration of the public
comment we received, we are finalizing
our proposal to align the structural
measure submission with the final
Topic

submission quarter for each fiscal year
for FY 2015 and subsequent years.
g. Data Submission and Reporting
Requirements for Healthcare-Associated
Infection (HAI) Measures Reported via
NHSN
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51644 through 51645), we
adopted the data submission and
reporting standard procedures that have
been set forth by CDC for NHSN
participation in general and for
submission of the HAI measures to
NHSN. The existing data collection and
submission timeframes for the HAI
measures for the FY 2014 payment
determination align with the submission
timeframes for chart abstracted
measures. The data submission
deadlines are posted on the QualityNet

53539

Web site at: http://www.QualityNet.
org/.
Hospitals will 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 calendar quarter of CY 2013, for FY
2015 quarters, CMS will obtain the
hospital-specific calculations that have
been generated by the NHSN for the
Hospital IQR Program.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28052), we
proposed to continue this policy, with
the two exceptions discussed below, for
the FY 2015 payment determination and
subsequent years.
The HAI measures that will be
included in the FY 2015 payment
determination are included in the
following chart:

FY 2015 Payment determination: Hospital associated infection measures (CDC/NHSN)

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Central Line Associated Blood Stream Infection.
Surgical Site Infection.
Catheter Associated Urinary Tract Infection.
MRSA Bacterimia.
Clostridium difficile.
Healthcare Provider Influenza Vaccination.

We realize that some hospitals may
not have locations that meet the NHSN
criteria for CLABSI or CAUTI reporting,
for example, when a hospital has no
ICUs. We proposed to provide an
exception for the CLABSI and CAUTI
measures for hospitals that do not have
an ICU, reducing the burden associated
with reporting to NHSN. In addition, we
recognize that some facilities may
perform so few procedures requiring
surveillance under the Surgical Site
Infection (SSI) measure that the data
may not be meaningful for Hospital
Compare or sufficiently reliable to be
utilized for payment determination.
We proposed to provide an exception
for these hospitals from the reporting
requirement in any given year if the
hospital performed fewer than a
combined total of 10 colon and
abdominal hysterectomy procedures in
the calendar year prior to the reporting
year. For example, a hospital that
performed only 2 colon surgeries and 4
abdominal hysterectomies in 2012
would not be required to report the SSI
measure in 2014. We proposed to
provide hospitals with a single HAI
exception form, to be used for seeking
an exception for any of the CLABSI,
CAUTI and SSI measures, which will be
available on QualityNet. We invited
public comment on this proposal.
Comment: Several commenters
supported the CMS proposal to provide

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an exception from NHSN reporting for
hospitals without ICU locations or that
perform a combined total of 10 or fewer
colon and abdominal hysterectomy
procedures.
Response: We thank these
commenters for their support.
Comment: One commenter suggested
that a combined total of 25 colon and
abdominal hysterectomy procedures
may be more appropriate.
Response: We proposed to exempt
hospitals performing 10 or fewer colon
or abdominal hysterectomy procedures
because we believe that facilities
performing this number of procedures
may not have data for the Surgical Site
Infection (SSI) measure that is
sufficiently meaningful for a measure
score to be displayed on Hospital
Compare for this measure. However, we
believe that setting the minimum
number of procedures as low as is
possible for SSI is essential to ensuring
the availability of the most data possible
for Hospital Compare reporting for this
critical HAI measure. We thank the
commenter for the suggestion and will
re-evaluate this policy when more data
are available.
After consideration of the public
comments we received, we are
finalizing the proposed exception
process to provide hospitals with a
single HAI exception form, to be used
for seeking an exception for any of the

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CLABSI, CAUTI and SSI measures as
defined above.
6. Supplements to the Chart Validation
Process for the Hospital IQR Program for
the FY 2015 Payment Determination
and Subsequent Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28053 through
28059), for the FY 2015 payment
determination and subsequent years, we
proposed to continue using, with some
modifications, the validation
requirements and methods we adopted
in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50227 through 50229) and
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51645 through 51648). The
modifications we proposed, explained
in detail below, are as follows: (a) Using
separate validation approaches for
chart-abstracted clinical process of care
and HAI measures; (b) changing the
number of hospitals included in the
base annual validation random sample;
and (c) using targeted selection of
supplemental hospitals to be added to
the base sample. As described below,
these proposals are intended to
strengthen the Hospital IQR Program by
validating a larger set of measures,
increasing opportunities to detect poor
reporting through different approaches
to targeting and scoring, and increasing
the rigor associated with our validation
process, all while ensuring that the

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(1) Background and Rationale
We finalized reporting to the Hospital
IQR Program of 25 chart-abstracted
measures in 7 topic areas: Acute
myocardial infarction (AMI); heart
failure (HF); pneumonia (PN); surgical
care improvement project (SCIP);
emergency department throughput (ED);
immunization (IMM); and HAIs for the
FY 2014 payment determination and
subsequent years in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51628
through 51629). In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28053),
for the FY 2015 payment determination
and subsequent years, we proposed to
continue validating the chart-abstracted
clinical process of care measures with
the exception of the SCP–VTE–1
measure, which we proposed for
removal from the Hospital IQR Program
starting with the FY 2015 payment
determination. We also proposed to
continue validating the one HAI
measure—CLABSI—that we finalized
for validation in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51646). We
also proposed to validate two additional
HAI measures, catheter-associated
urinary tract infection (CAUTI) and
surgical site infection (SSI), which were
finalized for inclusion in the Hospital
IQR Program for the FY 2014 payment
determination and subsequent years in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51628 through 61629). We
proposed to add these two measures to
those we validate so that we can ensure
data reliability on all chart-abstracted
measures on which hospitals will have
been reporting data under the Hospital
IQR Program for at least one year prior
to the FY 2015 payment determination.
The inclusion of the three chartabstracted HAI measures—CLABSI,
CAUTI, and SSI—in the Hospital IQR
Program reflects HHS’ priority to
increase patient safety by preventing
HAIs. As finalized in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51640
through 51645), the mechanism for
reporting HAI measures is different from
the mechanism for reporting on the
chart-abstracted clinical process of care
measure sets (AMI, ED, IMM, HF, PN,

SCIP). In addition, the infection events
for which hospitals would report on the
HAI measures occur rarely relative to
the events for which hospitals would
report on the clinical process of care
measure sets. We cannot report a single
number describing the national
incidence for these three HAIs
collectively or individually because
infection rates vary by the type of
hospital, their patient populations,
device utilization rates, and
performance of different types of
surgeries.96 However, we know that
these events are sufficiently rare that if
we did not find a way to target records
with a higher probability of including
an HAI, many hospitals would have to
submit virtually all records per quarter
to effectively validate the HAI measure
set. For these reasons, we proposed, and
we describe below in section
VIII.A.6.a.(3) of this preamble to
separate the approaches for targeting
and sampling of records for HAI
validation from the approaches finalized
for validation of the chart-abstracted
clinical process of care measure sets in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51647 through 51648), and
summarized in VIII.A.6.a.(2) of this
preamble, and we proposed to calculate
separate scores for the group of clinical
process of care measure sets and the
HAI measure set as described in
VIII.A.6.a.(4) of this preamble.
Comment: Several commenters
expressed general support for the
validation proposal. Many commenters
acknowledged that validation of the
chart-abstracted clinical process of care
and HAI measures should be separated.
In fact, many commenters suggested that
CDC should manage HAI validation
efforts because of its responsibility for
defining and maintaining the NHSN
system. Others encouraged CMS ‘‘to
work closely with NHSN in its
validation development.’’
Response: We appreciate these
comments, and agree that CDC is
responsible for defining and
maintaining the NHSN system and is an
important partner in validating HAI
measures. However, we wish to clarify
that validation of Hospital IQR Program
data is our responsibility because the
authority to perform this function is
vested in us by statute. We also wish to
clarify that QIO contractor regulatory
authority (42 CFR 476.78(c)) is used to
require hospitals to provide copies of
medical record documentation. This
regulatory authority is critical to
ensuring complete submission of

hospital documentation for validated
hospitals. CDC is unable to use this
same regulatory authority to gain access
to records. Moreover, by retaining
control over the HAI validation process,
we are also able to reduce burden on
hospitals by only requesting a record
once in the event that a record is
sampled for validation of both clinical
process of care and HAI measure sets.
We administer the Hospital IQR clinical
process of care measure collection and
validation without any CDC direct role,
so CDC does not have any access to
clinical process of care measure records
submitted for validation. Accordingly, if
CDC had sole responsibility for
validating HAI measures, hospitals
could potentially have to submit the
same records twice for both clinical
process of care and HAI measures. For
all of these reasons, we do not agree that
CDC should manage the Hospital IQR
Program HAI validation process.
We emphasize that we have
collaborated closely with CDC on all
aspects of HAI reporting, including last
year’s final rule for CLABSI validation,
the positive blood culture template
distributed on QualityNet at: http://
www.qualitynet.org, the instructions for
CDAC abstractors performing validation,
and this year’s proposal for HAI
validation.
In recognition that the HAI and
clinical process of care measures are
collected through different data
collection systems, and after
consideration of the public comments
we received, we are finalizing our
proposal for the FY 2015 payment
determination and subsequent years to
separate the approaches for HAI
validation from the approaches finalized
for validation of the chart-abstracted
clinical process of care measure sets,
with one exception. We will not require
hospitals to receive separate passing
scores on both clinical process of care
and HAI measures. This policy is
described further in response to
comments in section VIII.A.6.a.(4) of
this preamble.

96 Dudeck MA, Horan TC, Peterson KD, et al.
National Healthcare Safety Network (NHSN) Report,
data summary for 2010, device-associated module.

Am J Infect Control. 2011 Dec;39(10):798–816.
Edwards JR, Peterson KD, Mu Y, et al. National
Healthcare Safety Network (NHSN) report: Data

summary for 2006 through 2008, issued December
2009. Am J Infect Control 2009 Dec; 37:783–805.

wider scope and greater rigor only
modestly increases the burden of
validation activities on hospitals
relative to prior years. We invited public
comment on each of these proposals.

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a. Separate Validation Approaches for
Chart-Abstracted Clinical Process of
Care and Healthcare Associated
Infection (HAI) Measures

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(2) Selection and Sampling of Clinical
Process of Care Measures for Validation
The approach to selection and
sampling of clinical process of care
measure sets for validation was
finalized in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51645 through
51648) for the 2014 payment
determination and subsequent years.
These measures and measure sets are
shown in the table below.

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53541

HOSPITAL INPATIENT QUALITY REPORTING (IQR) PROGRAM CHART-ABSTRACTED CLINICAL PROCESS OF CARE MEASURES
TO BE VALIDATED FOR THE FY 2014 PAYMENT DETERMINATION AND SUBSEQUENT YEARS
Topic

Measures

Acute Myocardial Infarction (AMI)
Measures.
Heart Failure (HF) Measures ..........

•
•
•
•
•
•
•

Pneumonia (PN) Measures ............

•

Surgical Care Improvement Project
(SCIP) Measures.

•
•
•
•
•
•
•
•
•
•

Emergency Department Throughput
(ED) Measures.

•

Prevention: Global
(IMM) Measures.

•
•

Immunization

•

AMI–2 Aspirin prescribed at discharge.
AMI–7a Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival.
AMI–8a Timing of Receipt of Primary Percutaneous Coronary Intervention (PCI).
AMI–10 Statin Prescribed at Discharge.
HF–1 Discharge instructions.
HF–2 Evaluation of left ventricular systolic function.
HF–3 Angiotensin Converting Enzyme Inhibitor (ACE–I) or Angiotensin II Receptor Blocker (ARB) for
left ventricular systolic dysfunction.
PN–3b Blood culture performed in the emergency department prior to first antibiotic received in hospital.
PN–6 Appropriate initial antibiotic selection.
SCIP INF–1 Prophylactic antibiotic received within 1 hour prior to surgical incision.
SCIP INF–2 Prophylactic antibiotic selection for surgical patients.
SCIP INF–3 Prophylactic antibiotics discontinued within 24 hours after surgery end time (48 hours for
cardiac surgery).
SCIP INF–4 Cardiac surgery patients with controlled 6AM postoperative serum glucose.
SCIP INF–9 Postoperative urinary catheter removal on postoperative day 1 or 2 with day of surgery
being day zero.
SCIP INF–10 Surgery patients with perioperative temperature management.
SCIP Cardiovascular-2 Surgery Patients on a Beta Blocker prior to arrival who received a Beta Blocker
during the perioperative period.
SCIP INF–VTE–1 Surgery patients with recommended Venous Thromboembolism (VTE) prophylaxis
ordered.*
SCIP–VTE–2 Surgery patients who received appropriate VTE prophylaxis within 24 hours pre/post surgery.
ED–1 Median time from emergency department arrival to time of departure from the emergency room
for patients admitted to the hospital.
ED–2 Median time from admit decision to time of departure from the emergency department for emergency department patients admitted to the inpatient status.
Immunization for Influenza.
Immunization for Pneumonia.

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* We are removing this measure from the Hospital IQR Program starting with the FY 2015 payment determination.

We describe the validation approach
for these measures, which was finalized
in FY 2012 IPPS/LTCH PPS final rule
(76 FR 51645 through 51648), for
informational purposes only. A total of
15 records will be selected per quarter
for the chart-abstracted clinical process
of care measures. Three records per
quarter will be sampled from among all
records submitted to the Warehouse in
each of four groups defined as part of
the AMI, HF, PN, and SCIP measure
sets. In addition, three records per
quarter will be sampled from among the
remaining submissions to the
Warehouse and will be validated for the
ED and IMM measure sets. CMS will
also abstract data regarding the ED and
IMM measure sets from records
submitted for the AMI, HF, PN, and
SCIP measure sets.
We finalized our proposal in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51648) to abstract ED and IMM data
from all cases selected from other
measure sets (AMI, HF, PN, SCIP, and
CLABSI). In the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28054), for
the FY 2015 payment determination and
subsequent years, we proposed to
discontinue abstracting ED and IMM
data from cases selected for the CLABSI

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measure. We proposed this change in
order to be consistent with the policy
described in section VIII.A.6.a.(1) of this
preamble to calculate separate scores for
HAI and chart-abstracted clinical
process of care measure sets.
Comment: One commenter requested
clarification as to whether a hospital is
required to submit ED/IMM data on all
AMI, HF, PN, and SCIP cases submitted
to the warehouse to support the process
wherein CDAC will abstract ED and
IMM measures from all AMI, HF, PN,
and SCIP cases selected for validation.
The commenter further stated that ‘‘the
sampling methodology described in the
specifications manual does not work if
a hospital does 100 percent review of
AMI, HF, PN, and SCIP cases on a
weekly basis, but samples the global
population at the end of the month,
when all possible cases in the
population are available for sampling.’’
Response: We welcome the
opportunity to clarify the sampling
process for ED/IMM. The CDAC process
to abstract ED and IMM data from all
cases sampled for AMI, HF, PN, and
SCIP validation does not necessitate that
hospitals themselves submit ED and
IMM data from all of their AMI, HF, PN,
and SCIP cases in the Hospital IQR

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Program, only a sample of them.
Operational guidance on how to sample
records for submission of Hospital IQR
data is provided in our Hospital IQR
Program Specifications Manual on
QualityNet at http://www.qualitynet.org.
The Specifications Manual calls for a
representative random sample of the
global population; the AMI, HF, PN, and
SCIP populations are subsets of this
global population. Therefore, using
random sampling methodology to
identify the global population sample
will also randomly sample AMI, HF,
PN, and SCIP cases for which hospitals
will provide ED and IMM data. The
validation sample of AMI, HF, PN, and
SCIP cases will not perfectly overlap
with those AMI, HF, PN, and SCIP cases
for which ED and IMM data are
submitted. However, the ED/IMM data
submitted and validated will be
representative of the underlying global
population, which is what matters for
the global measures (ED/IMM). We
anticipate that the validation approach
will support adequate reliability
assessment of the global measures. We
intend to provide additional training on
monthly sampling during 2012.
While we did not receive any
comments specifically addressing our

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

proposal to discontinue abstracting ED
and IMM data from records sampled for
CLABSI, we did receive numerous
comments supporting our proposal to
separate the validation processes for the
clinical process of care and HAI
measure sets, which this proposal was
intended to support. Accordingly, we

are finalizing our proposal to
discontinue abstraction of ED and IMM
data from records sampled for CLABSI.
(3) Selection and Sampling of HAI
Measures for Validation
As explained in section VIII.A.6.a.(1)
of the FY 2013 IPPS/LTCH PPS

proposed rule (77 FR 28053), we
proposed separate selection, sampling,
and validation scoring for HAI
measures. The HAI measures we
proposed to validate for the FY 2015
payment determination and subsequent
years are CLABSI, CAUTI, and SSI (77
FR 28054).

HAI MEASURES IN THE HOSPITAL INPATIENT QUALITY REPORTING (IQR) PROGRAM TO BE VALIDATED FOR THE FY 2015
PAYMENT DETERMINATION AND SUBSEQUENT YEARS

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Measures Continued for Validation for the FY 2014 Payment Determination
• Central line-associated blood stream infection (CLABSI) among intensive care unit (ICU) patients.
Additional Measures Proposed for Validation for the 2015 Payment Determination.
• Surgical Site Infection (SSI) among patients with procedures for colon surgery or abdominal hysterectomy.
• Catheter-associated urinary tract infection (CAUTI) among ICU patients.

Because the events reported in the
HAI measure set occur rarely, they
require a targeted approach to
validation. For the FY 2015 payment
determination and subsequent years, we
proposed to validate these measures by
identifying records that are ‘‘candidate
HAI events,’’ which we define below.
We would construct three separate lists
of candidate events, one for each HAI
measure. The proposed process to
construct these lists is detailed further
below. Each listing of candidate events
will include both actual HAI events as
well as many non-events. The purpose
in creating these listings would be to
identify records that are more likely to
contain HAI events than CMS could
obtain through a simple random sample
of hospital discharges each quarter. In
each case, this proposed process would
minimize burden to hospitals while
enriching the validation sample by
targeting candidate events. As described
later in this section, a combined list of
candidate HAI events would be created
from the three separate candidate HAI
lists (for CLABSI, CAUTI, and SSI). The
final list would be used to generate a
random sample of medical records to be
reviewed and evaluated for the presence
or absence of one or more of the HAI
events. We describe the proposed
sample size later in this section and
describe the scoring process in section
VIII.A.6.a.(4) of this preamble.
Comment: Two commenters
recommended that CMS should add no
more than one new HAI measure to the
validation process in a single year.
Response: We disagree with this
recommendation. In response to our
proposals regarding the Hospital VBP
Program in section VIII.C.3.b. of the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28079), many commenters
emphasized the need for rigorous
validation of HAI measures before their
inclusion in the Hospital VBP Program.
Our validation efforts are designed to

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ensure accurate baseline data for
potential future Hospital VBP Program
years.
After consideration of the public
comments we received, we are
finalizing our proposal to validate the
CLABSI, CAUTI, and SSI measures by
producing a list of candidate HAI events
as detailed below in this section.
(i) Selecting Cases for CLABSI and
CAUTI Validation
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28055), we
proposed to discontinue the practice
finalized in FY 2012 IPPS/LTCH final
rule (76 FR 51648) of abstracting
CLABSI data from the records selected
for the chart-abstracted clinical process
of care measure sets (AMI, ED/IMM, HF,
PN, SCIP). We proposed this change in
order to be consistent with the policy
described in section VIII.A.6.a.(1) of this
preamble to calculate separate scores for
HAI and chart-abstracted clinical
process of care measure sets. We invited
comments on this proposal.
Comment: A few commenters
supported our proposal to discontinue
abstracting CLABSI data from the
clinical process of care measures.
Response: We agree that abstracting
CLABSI data from the clinical process of
care measures should be discontinued,
as proposed.
After consideration of the public
comments we received, we are
finalizing our proposal to discontinue
abstracting CLABSI data from records
submitted for the clinical process of care
measure sets for the FY 2015 payment
determination and future years.
We finalized a two-phase process for
identifying and constructing lists of
candidate CLABSI events in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51645 through 51648). This process is
summarized for the readers’
information. In the first phase, each
sampled hospital quarterly provides

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CMS with listings of positive blood
cultures drawn from ICU patients. The
listings include ‘‘all blood cultures
positive for infection status taken from
ICU patients conducting CLABSI
surveillance 97 during the discharge
quarter’’ (76 FR 51646). These listings
are annotated to identify each ICU
patient on this list who had a central
venous catheter (CVC). The listings are
then reviewed by a CMS contractor who
produces a list of unique episodes of
care for ICU patients with a CVC and
that include either at least one positive
blood culture for a known pathogen, or
at least two positive blood cultures for
the same common commensal. A blood
culture which is positive for a common
commensal may reflect a contaminated
sample. Therefore, when the only
positive blood culture result is for a
common commensal, the second culture
bearing the same result must be drawn
from the patient within 48 hours of the
first; this would confirm that the first
positive common commensal result is
not a consequence of contamination. A
list of common commensals is provided
by CDC.98
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28055), we
proposed to modify this process for FY
2015 and subsequent years by requiring
the Medicare health insurance claim
(HIC) number to be added to the
positive blood culture list if a patient
has one. As explained further below, we
proposed this addition specifically so
that we may identify candidate CLABSIs
that we also identify as candidate SSIs.
Because the candidate SSIs would be
identified through claims, the HIC
number is needed to match patients
from the candidate CLABSI list with
those from the candidate SSI list. To
97 http://www.cdc.gov/nhsn/PDFs/FINAL-ACHCLABSI-Guidance.pdf.
98 http://www.cdc.gov/nhsn/XLS/Common-SkinContaminant-List-June-2011.xlsx.

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protect this sensitive information, we
proposed that positive blood culture
lists be submitted through the Secure
Data Exchange on the QualityNet Web
site. We invited public comment on
each of these proposed modifications to
the identification of candidate CLABSI
events.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 20855) for the FY
2015 payment determination and
subsequent years, we proposed to adapt
the process finalized to identify
candidate CLABSI events in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51645 through 51648) to identify
candidate CAUTI events. In the first
stage of this process, a CMS contractor
would request a listing of positive urine
cultures among ICU patients from the
hospitals targeted for validation. The
culture list would indicate the name of
each pathogen detected and the number
of colony forming units per ml. For the
same reasons and following the same
processes as those explained for CLABSI
above, we proposed to require the
hospital to report the Medicare HIC
number for Medicare patients included
on this list.
In the second stage of this process, the
CMS contractor would apply NHSN
criteria to eliminate those urine cultures
that are not consistent with the
definition of an ICU-associated CAUTI.
The contractor would then remove
duplicates from the same patient to
produce a list which would include
only one entry per ICU patient. Our
intent is to target a set of patient
discharges with a higher probability of
having a CAUTI event than one could
obtain from a simple random sample of
patient discharges. We invited public
comments on this proposal.
Comment: Numerous commenters
supported rigorous HAI validation and
separating the HAI validation process
from the validation process for chartabstracted measures. Commenters
emphasized the value of validating
CLABSI before including it in the
Hospital VBP Program, and the
importance of validating both CLABSI
and CAUTI before expanding the
specifications for these measures for the
Hospital IQR Program beyond the ICU
setting. In addition, several commenters
specifically supported the
‘individualized approach’ to sampling
each HAI included in validation.
Response: We agree that HAI
validation is important and that a
rigorous and individualized approach to
HAI validation is needed, and have
sought to take such an approach through
our proposal.
Comment: Many commenters opposed
both the current CLABSI process and

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CMS’ specific proposals to expand it to
CAUTI due to the level of burden. Some
commenters opposed any data
submission beyond submission to the
NHSN. One commenter stated that
CDC’s process was ‘‘strict enough.’’
Response: We appreciate the many
concerns related to the burden of HAI
validation. We disagree with
commenters who feel that no burden is
appropriate above and beyond that
associated with NHSN submission.
Although the NHSN data entry process
does provide users with feedback
regarding consistency of information to
minimize data entry errors, this process
cannot replace the assessment of
reliability made by comparing the
hospital’s submission with that of an
independent abstraction.
Moreover, HAI reduction is a HHS
priority, quality reporting is an
important component of HAI reduction,
and quality reporting is not meaningful
if data quality have not been evaluated
and shown to be reliable. Therefore,
HAI validation is needed to support HAI
reduction. We also note that section
1886(B)(3)(b)(viii)(XI) of the Act
requires the Secretary to establish a
process to validate Hospital IQR
measures as appropriate. We believe
that this proposal meets this statutory
requirement and ensures the accuracy of
publicly reported data for the HAI
measures. Therefore, although we
continuously work to minimize burden
associated with validation under the
Hospital IQR Program, we believe that
the value of validation for these
measures justifies some added burden.
Comment: A few commenters
explained that burden arises from the
requirement for submission of
information from multiple data streams,
which are difficult for hospitals to link,
or that may require a manual process in
some hospitals. One commenter
specifically referenced the difficulty in
correlating the dates that positive blood
cultures are drawn with the dates of the
patients’ stays in the ICU to ensure that
the positive blood cultures were
obtained during the pertinent time
period for the CLABSI measure during
the ICU stay or within 48 hours
thereafter.
Response: We understand that some
hospitals’ systems might not be set up
to handle the current CLABSI and
proposed CAUTI processes efficiently at
this time. However, under the current
process some hospitals already
successfully submitted the required data
for CLABSI validation an entire month
before the first submission deadline. As
hospitals become more familiar with our
requirements for these validation
activities, we anticipate that they will

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53543

have better capabilities to support the
required validation.
We recognize, however, as one
commenter noted, that identifying the
positive blood cultures that align with
the correct timeframes for the CLABSI
measure can be particularly challenging.
Accordingly, in response to this
comment, we are reducing the burden
on hospitals associated with validating
CLABSI by redefining ‘‘positive blood
cultures among ICU patients’’ for
purposes of validating CLABSI.
According to NHSN specifications, ICU
units are supposed to conduct
surveillance on positive blood cultures
attributable to an ICU patient if they are
drawn within 48 hours of discharge or
transfer from the ICU.99 Therefore, CMS
has previously interpreted the universe
of ‘‘positive blood cultures among ICU
patients’’ for purposes of CLABSI
validation to include those cultures
drawn within 48 hours of transfer from
the ICU.100 However, as the commenter
noted, identifying the positive blood
cultures that align with the correct
timeframes may be especially
challenging because finding those
cultures can require that hospitals
access different systems. If hospitals are
not required to obtain blood cultures
taken within the 48 hour period after
discharge or transfer from the ICU, some
hospitals may be able to use the
patient’s location at the time of the
blood draw to identify positive blood
cultures for ICU patients. For these
hospitals, we believe using this location
to identify the appropriate blood
cultures and not having to access
different systems will alleviate the
burden associated with this process.
Therefore, we are redefining ‘‘positive
blood culture’’ for purposes of CLABSI
validation to include only those blood
cultures drawn from ICU patients
during their actual ICU stay during the
discharge quarter for the FY 2014
payment determination and future
years. Consistent with this change,
hospitals would only be required to
report on the positive blood culture list
cultures identified during the ICU stay
even if this means that our validation
support contractor is unable to confirm,
and therefore cannot include in the
validation sample, a common
commensal with a second culture that
was drawn within 48 hours after ICU
discharge. We recognize that this means
excluding from validation sampling a
limited number of cases that must be
99 http://www.cdc.gov/nhsn/PDFs/pscManual/
4PSC_CLABScurrent.pdf.
100 Hospital Inpatient Quality Reporting (IQR)
Program Quick Reference Guide: Central LineAssociated Bloodstream Infection (CLABSI),
www.qualitynet.org http://www.qualitynet.org.

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reported for the CLABSI measure. We
believe, however, that the potential
reduced burden for hospitals more than
compensates for the potential inability
to validate what we believe will be a
limited number of CLABSI cases. We are
adopting this change to the definition of
‘‘positive blood culture’’ beginning with
the FY 2014 payment determination.
However, for the FY 2014 payment
determination only we will accept as
submitted all templates either including
or excluding positive blood cultures
drawn within 48 hours of ICU discharge
or transfer, and will not penalize
hospitals during scoring for including
cases drawn within 48 hours of ICU
discharge. For the FY 2014 payment
determination only, we will score these
records but will not penalize hospitals
if records submitted from this time
frame do not match records in NHSN.
Beginning with the FY 2015 payment
determination, we will require hospitals
to submit records consistent with the
new definition of ‘‘positive blood
culture.’’
One other way that we are reducing
burden now is, as discussed further
below, by reducing the base annual
random sample size by 50 percent,
which reduces total burden nationally
even if burden may be somewhat higher
for hospitals selected for validation in a
given year.
We will also work with CDC to
consider proposing the inclusion of the
HIC number as a required field for
Hospital IQR Program reporting of
NHSN measures in the future. This may
further alleviate some of the burden
associated with the demographic data
elements that we currently require
hospitals to submit for CLABSI
validation and that will be required as
part of CAUTI validation. These
elements are necessary to link records
selected for CLABSI and CAUTI
validation with records included in the
NHSN database. Hospitals would no
longer be required to include these
elements with the other information that
they submit for validation of CLABSI
and CAUTI, however, if Medicare
beneficiaries’ records could be
identified in NHSN through the HIC
number provided when hospitals report
the CLABSI and CAUTI measures.
Comment: Many commenters viewed
the proposed HAI validation efforts as
duplicative in States that already have
validation, but supported a more
rigorous process in States that have no
validation process. Some commenters
acknowledged the need for national
validation because State-based CLABSI
validation efforts are not standardized.
Response: We understand that some
hospitals in States with their own

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rigorous validation methodologies will
experience multiple validation
activities, and that each activity has
burden associated with it. However, as
many commenters noted, State-based
efforts are not standardized at this time,
and therefore, we believe it is still very
important to validate hospitals in these
States. In addition, we note that section
1886(B)(3)(b)(viii)(XI) of the Act
requires us to establish a process to
validate Hospital IQR Program measures
that includes the auditing of a number
of randomly selected hospitals sufficient
to ensure validity of the program as a
whole. It is our responsibility to ensure
that, through our validation process, we
ensure the validity of the Hospital IQR
Program.
Comment: One commenter indicated
that only HAIs identified in NHSN
should be validated.
Response: We do not agree that
validation should be limited to events
detected in NHSN. Evaluation of
CLABSI and CAUTI events not reported
to the NHSN is an important component
of validation because of the rarity of
these infection events relative to events
to which the clinical process of care
measures apply. If validation were
restricted to events already included in
the NHSN, we would have no capacity
to evaluate under-reporting. Moreover,
evaluation of unreported infection
events is an important component of
State validation efforts, which are
coordinated by CDC. As noted by many
commenters, to have a less rigorous
process nationally would disadvantage
hospitals in those States that have more
rigorous infection control processes.
Comment: Some commenters
specifically opposed the proposed
additions of the data elements ‘‘colony
forming units (CFUs) per ml’’ for CAUTI
and ‘‘HIC number’’ for both CLABSI and
CAUTI.
Response: Based on these comments,
to reduce the burden associated with the
validation process for CAUTI, we will
not require hospitals to submit the
‘‘colony forming units (CFUs) per ml’’
data element for this measure. To
eliminate this data element, we will
restrict the proposed requirement for ‘all
positive urine cultures among ICU
patients’ to just those positive urine
cultures with concentrations of greater
than or equal to 103 CFUs/ml.
We believe that the inclusion of the
HIC number is essential. As explained
in the proposed rule (77 FR 28055), the
HIC number is needed to align sampling
for CLABSI and CAUTI with the
proposed SSI validation process
described further below. Moreover, as
discussed above in this section,
requiring hospitals to submit HIC

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numbers as part of validation may in the
long run support a streamlined
validation process by making it easier to
link records selected for validation with
records in the NHSN database.
Comment: Several commenters
expressed opposition to the proposed
CAUTI process because it was not
sufficiently detailed to be evaluated, but
stated that if we were proposing to use
the same process as the one we adopted
for CLABSI, they could not support it
because of the burden. Another
commenter stated more generally that
the proposed HAI validation
methodology was ‘not well defined.’’
Response: As we explained in the
proposal, the methodology for
validating CAUTI is an adaptation of the
methodology we will use to validate
CLABSI. The template for CLABSI is
available at https://www.qualitynet.org/
dcs/ContentServer?c=Page&pagename=
QnetPublic%2FPage%2FQnetTier2&
cid=1228760487021. The CAUTI
process we proposed differed from the
CLABSI process in two ways. First,
positive urine cultures (defined >=103
colony forming units (CFUs) per ml)
were to be reported instead of positive
blood cultures. Second, the current
process for CLABSI requires hospitals to
annotate which patients had central
lines, but we did not propose to require
hospitals to annotate which patients had
urinary catheters for CAUTI. By not
requiring identification of patients with
urinary catheters, the resulting process
proposed for CAUTI is simpler than the
process for CLABSI.
In addition, because we have
proposed to utilize the same validation
process for CAUTI that we use for
CLABSI, we are making the same
change to the definition of ‘‘positive
urine culture’’ for purposes of validating
the CAUTI measure that we made to the
definition of ‘‘positive blood culture’’
for purposes of validating CLABSI. In
particular, for purposes of validating the
CAUTI measure for FY 2015 and
subsequent years, we will not require
hospitals to submit positive urine
cultures drawn within 48 hours after
discharge or transfer from the ICU for
the same reasons we stated above for
changing the definition of ‘‘positive
blood culture’’ for CLABSI.
Comment: One commenter
recommended pilot testing of CLABSI
and CAUTI processes prior to
finalization because so many steps are
involved in validation. A few
commenters indicated that HAI
validation should not be expanded
beyond CLABSI until hospitals had
more experience with CLABSI.
Response: We do not agree that the
CLABSI and CAUTI processes must be

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piloted further before a process for
validation can be finalized. The process
proposed for CLABSI validation for the
FY 2015 and future years’ payment
determinations is the same as that
finalized for the FY 2014 payment
determination with only the addition of
HIC number.
CMS and hospitals have already
begun to gain the kinds of experience
that they might obtain from a pilot
through the process that was finalized
for the FY 2014 payment determination
in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51645 through 51648) for
CLABSI. Some hospitals have already
successfully submitted positive blood
culture templates, and as reflected
above in this section, we are already
using our experience to reduce burden
by eliminating the validation
requirement to include positive blood
cultures for patients discharged from the
ICU within the past 48 hours. Moreover,
because the validation process for
CAUTI will be so similar to that for
CLABSI, we believe that hospitals that
have prepared themselves for CLABSI
validation are prepared to handle the
CAUTI validation process as well.
Comment: Some commenters
observed that the proposed processes for
CLABSI and CAUTI do not include
validation of denominator data. These
commenters described this limitation as
‘‘a significant flaw’’ because it ‘‘allows
for improper reporting by over-reporting
denominators.’’ These commenters
argued that CLABSI cannot be included
in the Hospital VBP Program until the
validation process includes validation
of the denominator, and similarly that
the Hospital IQR Program should not
expand the CLABSI and CAUTI
measures to include non-ICU settings
until the validation process includes
validation of a denominator.
Response: We recognize that not
validating denominator data is a
limitation of the proposed CLABSI and
CAUTI processes, but we disagree that
it is such a significant flaw that
validation is meaningless without it.
Attribution of bloodstream and urinary
tract infections to central lines and
urinary catheters, respectively, is an
extremely complex process that requires
a significant amount of clinical
judgment. In contrast, recognizing and
reporting the number of device days
associated with a particular patient is
considerably easier. Therefore, hospitals
need more detailed assessment and
feedback on the process of numerator
reporting than they need on
denominator reporting. In addition,
CLABSI and CAUTI are both very rare
events. Therefore, an error made in
reporting even one or two infections has

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the potential to greatly influence the
total rate reported. In contrast, because
central line and urinary catheter days
are much more numerous, a
misstatement of a few line [or catheter?]
days makes a much smaller difference
in terms of the overall accuracy of the
rates reported for these measures. For
both of these reasons, validation of
numerator data is much more crucial to
overall validation than validation of
denominator data. In light of the many
comments regarding burden associated
with validating numerator data for
CLABSI and CAUTI, we disagree that it
would be appropriate to add any new
burden at this time by adding
denominator validation.
Comment: One commenter indicated
that CMS should require the CMS
auditors that review NHSN data be
qualified with certification and proof of
competency in the use of the NHSN
module. Two other commenters ‘‘hoped
that CMS contractors will go through
the same training as the field and
comment to CMS on their experience
because NHSN contractor feedback is
critical to improvement processes.’’
Response: We agree with the
observation that personnel conducting
HAI validation need specialized training
in the use of NHSN. All CMS validation
abstraction will be conducted by the
employees of CMS’ validation
contractor, who will receive training
similar to the training hospitals receive
from CDC. In addition, some of our
employees plan to attend this training
and will monitor contractor feedback
closely.
After consideration of the public
comments we received, we are
finalizing the proposals to identify
candidate CLABSI as proposed. The
differences between the policy we are
finalizing and the policy finalized for
the FY 2014 payment determination and
subsequent years (76 FR 51645–51648)
are the requirements that hospitals
include the HIC number as a data
element on the positive blood culture
template 100 and that hospitals submit
the blood culture template through the
Secure Data Exchange on the QualityNet
Web site, as well as the redefinition of
‘‘positive blood culture’’ for purposes of
CLABSI validation to include only those
cultures obtained during a patient’s stay
in the ICU.
In addition, for the FY 2015 payment
determination and future years, we are
finalizing the process to identify
candidate CAUTI as proposed,
including HIC number, except that we
will restrict the list of positive urine
cultures to those with >= 103 CFU/ml,
and will not require hospitals to provide
the concentration of CFUs in the urine

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53545

on the urine culture template we
provide. Moreover, consistent with the
change we are making to the definition
of ‘‘positive blood culture’’ for CLABSI
validation, we are redefining positive
urine cultures from ICU patients for
CAUTI validation to include only those
cultures sampled during the patient’s
actual ICU stay during the discharge
quarter being validated, and not those
cultures sampled during the 48 hour
period following discharge from the
ICU.
We will also consider proposing in
future rulemaking that hospitals
participating in the Hospital IQR
Program must report the HIC number to
their NHSN for CLABSI, CAUTI, SSI,
MRSA, and Clostridium Difficile
infection events. We believe that this
information would reduce burden by
allowing us to link NHSN information
to demographic and clinical information
on Medicare claims. We believe that this
linkage would reduce burden to
hospitals by reducing the number of
data elements requested in blood and
urine culture lists used in our validation
process, which we could obtain directly
from NHSN.
(ii) Targeting SSI for Validation
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28055–28056), the
final HAI measure we proposed for
targeted validation is SSI. Consistent
with Hospital IQR Program reporting
requirements for this measure, we
proposed that validation will target SSIs
among patients with colon surgeries and
abdominal hysterectomy procedures.101
We proposed a process for identifying
candidate SSIs that is different from that
which we proposed for candidate
CLABSI and CAUTI both because postdischarge follow-up is so critical to
proper ascertainment and because SSIs
are reported more consistently in claims
data than CLABSI and CAUTI. Thus,
claims data provide a resource for
selecting candidate events for SSI using
a methodology which limits burden to
hospitals.
Accordingly, we proposed to select
candidate events from among Medicare
FFS claims for patients who have had
colon surgeries or abdominal
hysterectomies as defined by NHSN.5
For each Medicare FFS patient who had
a relevant surgery in the period under
validation, a CMS contractor would
review the index claim (that is, the one
denoting the surgery) and all subsequent
readmissions to the index hospital
within a 30 day post-discharge period.
To identify ‘‘candidate SSI events,’’ we
101 http://www.cdc.gov/nhsn/PDFs/FINAL-ACHSSI-Guidance.pdf.

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would look specifically for discharge
diagnoses on the index claim and all
inpatient claims in the 30 days postdischarge that might indicate infection.
Examples of such diagnoses include
‘‘post-operative shock’’ (ICD–9–CM:
998.0), ‘‘post-operative wound
disruption (ICD–9–CM: 998.3), and
postoperative infection (ICD–9–CM:
998.5). A description of our general
approach, and a list of ICD–9–CM codes
which we proposed to use to identify
applicable candidate SSIs is included in
Appendix 1 of ‘‘Platt R, Kleinman K,
Thompson K, et al. Using automated
health plan data to assess infection risk
from coronary artery bypass surgery.
Emerg Infect Dis. 2002 Dec;8(12):1433–
41,’’ which may be accessed online at
http://www.cdc.gov/eid/content/8/12/
pdfs/v8-n12.pdf.102
Comment: Several commenters
requested that the addition of SSI not
add any new burden to the HAI
validation process.
Response: The proposed process to
target candidate SSI cases for validation
requires only that hospitals submit HIC
numbers for CLABSI and CAUTI. We
will compile the list of candidate SSI
events using claims data, and then we
will be able to remove duplicates from
the three lists of candidate HAI events
using the HIC numbers that are reported
for CLABSI and CAUTI. As discussed
above, submission of HIC numbers may
ultimately provide an opportunity to
streamline CLABSI and CAUTI
validation efforts. Therefore, we believe
that the proposed sampling process
introduces little new burden to
hospitals.
Comment: Several commenters
indicated that all of the denominator
data necessary to validate SSI is
available from the NHSN database, such
that this measure could be validated ‘‘in
the customary way,’’ which we interpret
to mean using the same process as the
clinical process of care measures.

Response: We understand that the SSI
data differ from CLABSI and CAUTI in
that it would be possible to draw a
sample of data for patients who had the
colon and abdominal hysterectomy
procedures from within the NHSN
database, and that therefore it would be
possible to validate SSI reporting in the
‘‘customary way,’’ or the same way we
validate chart-abstracted measures.
However, like CLABSI and CAUTI, SSI
is a rare event. Therefore, to effectively
evaluate under-reporting, a sample rich
in actual SSI events is needed. The
‘‘customary sample’’ from Medicare
claims without using any targeting
criteria would have a low yield of any
actual SSI events (less than 6 percent for
colon surgeries, less than 2 percent for
abdominal hysterectomy surgeries),103
and would therefore be ineffective in
producing a sample rich in actual SSI
events. We estimate that our proposal
for identifying candidate SSIs for
validation using targeted diagnosis and
procedures codes for these procedures
would generate a much richer yield
(about 33 percent for colon and about 50
percent for abdominal hysterectomy).104
Comment: Two commenters objected
to the proposal to introduce a process
for SSI validation that differed from the
process for CLABSI and CAUTI. These
same commenters stated that CMS
should only introduce one new
validation process per year. In contrast,
many commenters opposed making the
SSI validation process the same as the
proposed CLABSI and CAUTI validation
processes.
Response: Although we appreciate the
commenters’ concerns about adding
new processes, we also recognize that
we must have a process to support
validation of HAIs to ensure accuracy of
hospital reported HAI quality data.
Moreover, we agree with the many
commenters who opposed making the
SSI validation the same as the proposed
CLABSI and CAUTI validation

ICD–9 Codes

processes. Because the proposed process
employs claims data and does not
require submission of supplemental
data other than the sampled records, we
believe that the proposed process for
SSI is less burdensome for hospitals
than adopting a validation data
collection process similar to the CLABSI
or CAUTI process, which would impose
an added burden by requiring hospitals
to submit additional data such as
culture results. We believe the process
we proposed will validate SSI
effectively while minimizing burden on
hospitals.
Comment: A few commenters
supported the SSI validation approach.
One commenter expressed concern that
the specific ICD–9 codes proposed to
define candidate SSIs were not entirely
appropriate for colon surgery and
abdominal hysterectomy.
Response: We agree with the
commenter who observed that it is
possible to tailor the SSI process more
specifically to the colon surgery and
abdominal hysterectomy under
surveillance. Since the release of the
proposed rule, two new analyses have
become available to inform our decision
making process.105,106 These analyses
offer an improved evidence base
focused more specifically on colon
surgery and abdominal hysterectomy.
Based on these studies and the
commenter’s concern, we have
identified a set of ICD–9 diagnosis and
procedure codes that more strategically
target candidate SSIs for these two
procedures.
Therefore, after consideration of the
public comments we received, we are
finalizing the proposal to identify
‘‘candidate SSI events’’ by using the
process as proposed, except that instead
of using the ICD–9 codes contained in
the paper by Platt et al. (2002:
referenced in text above), we will target
Medicare claims data using the
following set of ICD–9 codes:

Description
Abdominal Hysterectomy

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567.22 .............................................
682.2 ...............................................
998.31 .............................................
998.32 .............................................

Peritoneal abscess.
Other cellulitis and abscess—Trunk.
Disruption of internal operation (surgical) wound.
Disruption of external operation (surgical) wound.

102 Platt R, Kleinman K, Thompson K, et al. Using
automated health plan data to assess infection risk
from coronary artery bypass surgery. Emerg Infect
Dis. 2002 Dec;8(12):1433–41.
103 Mu Y, Edwards JR, Horan TC, Berrios-Torres
SI, Fridkin S. ‘‘Improving Risk-Adjusted Measures
of Surgical Site Infection for the National
Healthcare Safety Network,’’ Infection Control and
Hospital Epidemiology,Vol. 32, No. 10 (October
2011), pp. 970–986.

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104 Letourneau AR, Calderwood MS, Huang SS,
Bratzler DW, Ma A, Platt R, Yokoe D, for the CDC
Prevention Epicenters Program. Claims-Based
Surveillance Improves Detection of Surgical Site
Infections Following Hysterectomy and Colorectal
Surgery. IDWeek (1st Annual Joint Meeting of IDSA,
SHEA, HIVMA, and PIDS), October 17–21, 2012
(San Diego, CA).
105 Letourneau AR, Calderwood MS, Huang SS,
Bratzler DW, Ma A, Platt R, Yokoe D, for the CDC
Prevention Epicenters Program. Claims-Based

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Surveillance Improves Detection of Surgical Site
Infections Following Hysterectomy and Colorectal
Surgery. IDWeek (1st Annual Joint Meeting of IDSA,
SHEA, HIVMA, and PIDS), October 17–21, 2012
(San Diego, CA).
106 Haley VB, Van Antwerpen C, Tserenpuntsag
B, et al. Use of administrative data in efficient
auditing of hospital-acquired surgical site
infections, New York State 2009–2010. Infection
Control and Hospital epidemiology 2012;33:565–71.

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ICD–9 Codes

53547

Description

998.51 .............................................
998.59 .............................................

Infected postoperative seroma.
Other postoperative infection.
Colon Surgery

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ICD–9 diagnoses:
567.2 ........................................
567.21 ......................................
567.22 ......................................
567.29 ......................................
567.38 ......................................
569.5 ........................................
569.61 ......................................
569.81 ......................................
682.2 ........................................
879.9 ........................................
998.31 ......................................
998.32 ......................................
998.51 ......................................
998.59 ......................................
998.6 ........................................
ICD–9 procedures:
54.0 ..........................................
54.11 ........................................
54.19 ........................................
86.04 ........................................
86.22 ........................................
86.28 ........................................

Peritonitis and retroperitoneal infections—other suppurative peritonitis.
Peritonitis (acute) generalized.
Peritoneal abscess.
Other suppurative peritonitis.
Other retroperitoneal abscess.
Abscess of intestine.
Infection of colostomy or enterostomy.
Fistula of intestine, excluding rectum and anus.
Other cellulitis and abscess—Trunk.
Open wound(s), (multiple) of unspecified site(s), complicated.
Disruption of internal (surgical) operation wound.
Disruption of external (surgical) operation wound.
Infected postoperative seroma.
Other postoperative infection.
Persistent postoperative fistula.
Incision of abdominal wall.
Exploratory laparotomy.
Other laparotomy.
Other incision with drainage of skin and subcutaneous tissue.
Excisional debridement of wound, infection, or burn.
Nonexcisional debridement of wound, infection, or burn.

Although diagnoses which identify
candidate SSIs may also be identified
during readmission to hospitals other
than the index hospital, in the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28055) we proposed to exclude these
candidate events for validation of SSI
for the FY 2015 payment determination.
We proposed this approach because we
will be unable to distinguish between a
candidate SSI that the index hospital
determined was not an actual SSI
because it did not meet properly applied
NHSN case definitions, and an actual
SSI that the index hospital failed to
properly identify and document.
Although records from the readmitting
hospital may provide evidence as to the
likelihood that a candidate SSI was an
actual SSI, the index hospital may not
have had access to this information.
Therefore, if the index hospital does not
report a candidate SSI event associated
with a readmission to another hospital,
and also does not document this event,
we do not know what information, if
any, the index hospital used to assess
the candidate event.
This situation arises because although
our regulation at 42 CFR 482.24 requires
hospitals to maintain medical records
that document HAI, it does not require
hospitals to document that follow-up
was performed. We understand that this
represents a gap in our validation
program for SSI, and solicited public
comments on how we might fill this gap
in the future.

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Comment: Some commenters noted
that hospitals rarely receive more than
a phone call to document SSIs detected
at readmission to hospitals other than
their own, with no documentation in
the medical record. Thee commenters
requested clarification on CMS’
intended approach to address this issue.
Another commenter noted that there are
other federal and State agencies actively
working to identify standard practices
for post-discharge surveillance and
urged CMS to delay adoption of postdischarge surveillance methods until
these groups are able to develop formal
recommendations related to this specific
issue. This commenter further suggested
that CMS CoPs could be changed to
incorporate post-discharge surveillance
reporting once a preferred and valid
methodology is identified.
Response: We thank the commenters
for the information provided about the
level of documentation available for SSI
readmissions occurring other than at the
index hospitals, and for providing the
opportunity for us to clarify our plans
regarding these readmissions. We will
use claims data to assess how frequently
this situation arises in hospitals
sampled for validation. However, we do
not intend to use our claims-based
analysis of SSI readmissions to hospitals
other than the index hospital for
Hospital IQR validation-related payment
determination at this time. We agree
that it would be premature to develop
validation procedures to address this
situation. We believe that our best

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approach is to partner with other federal
and State agencies interested in
developing a valid methodology for
post-discharge surveillance. We thank
the commenters for the suggestion
regarding using our CoP to require postdischarge surveillance and will consider
this suggestion.
After consideration of the public
comments we received, for the FY 2015
payment determination and future years
we are finalizing as proposed our
proposal to exclude from SSI validation
cases identified during readmission to
hospitals other than the index hospital.
(iii) Sample Size per Hospital for HAI
Validation
After identifying the three separate
sets of candidate events for CLABSI,
CAUTI, and SSI, we will combine the
lists and remove any duplicates for a
given episode of care. Removing
duplicates is a standard statistical
practice which is important for the
accuracy of the estimates.107 Next, we
proposed to draw a random sample of
12 candidate events per quarter from
which to assess reliability of HAI
reporting for the FY 2015 payment
determination and subsequent years.
Over four quarters, this would yield a
sample size of 48 candidate events per
year. Whenever a sample is used to
estimate a statistic such as reliability for
107 ‘‘Duplicate listings’’ in Kish L. Survey
Sampling, John Wiley & Sons, New York: 1995, pp.
58–59.

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the entire population of events, that
estimate is said to be made with error,
commonly referred to as the margin of
error. For hospitals with 480 or more
candidate HAI events each year, and
assuming a relatively constant number
of candidates per quarter, the annual
sample size will be sufficient to estimate
a score of 75 percent with a margin of
error plus or minus 10 points with 90
percent confidence. We believe this is
the smallest sample size that would be
sufficient to identify hospitals that are
reporting HAI data poorly and have 480
or more candidate events.
However, if there are fewer than 480
candidate events per year, the finite
population correction applies, such that
the margin of error will decrease as the
total number of candidate events per
year gets smaller.108 Based on our
analysis of CLABSI data previously
reported under the Hospital IQR
Program, estimating the relative
occurrence of CLABSI, CAUTI, and SSI,
and allowing for the fact that there may
be many candidates for every confirmed
HAI, we expect that most hospitals will
have fewer than 480 candidate HAI
events per year (or 120 per quarter),
which will allow us to estimate a score
of 75 percent for these hospitals with a
margin of error even less than plus or
minus 10 points with 90 percent
confidence. In the event that a hospital
has 12 or fewer candidate HAIs in a
given quarter, it is still possible to
produce accurate estimates of reliability.
In quarters in which a hospital has 12
or fewer candidate HAI events, we
proposed to select all candidates, which
will allow us to measure reliability
without any margin of error. These
quarterly estimates will have no
sampling error because we will not be
drawing a sample, but rather will be
using the entire population for that
quarter. If a hospital has 12 or fewer
cases in every quarter, we may estimate
reliability of HAI reporting for the year
without any margin of error. If a
hospital has no candidate events in the
year, we would not be able to estimate
a reliability rate. Therefore, as discussed
in section VIII.A.6.a.(4) of this preamble,
we would not attempt to estimate an
HAI score for hospitals with 0 cases. We
invited public comment on these
proposed sample sizes.
Comment: Some commenters stated
that the sample size of 27 per quarter
per hospital for validation, including 15
for the clinical process of care measures,
which has not changed, and 12 for HAI
measures, was excessive and diverted
108 ‘‘2.6

The finite population correction.’’
Cochran WG. Sampling Techniques, third edition.
John Wiley & Sons, New York, 1977, pp. 24–25.

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time which could be spent on quality
improvement towards reporting and
validation. One commenter requested
clarification as to how increasing the
sample size from 18 to 27 would reduce
burden on hospitals.
Response: We did not mean to imply
that increasing the quarterly sample size
from 18 to 27 records would decrease
burden for individual hospitals that
participate in validation in a particular
year. Instead, our proposal in section
[insert reference] below to reduce the
number of hospitals included in the
targeted validation sample is intended
to reduce the overall burden of our
validation process because it will result
in fewer hospitals being validation each
year. We understand that some medical
charts are voluminous, but given that
we reimburse hospitals for the cost of
photocopying, including labor (42 CFR
476.78(c)) we do not believe that the
burden resulting from photocopying 27
records per quarter will be excessive, or
divert resources from quality
improvement to validation.
Comment: Two commenters
expressed the opinion that selecting all
candidate HAIs in hospitals with 12 or
fewer candidate events per quarter is a
flawed process that requires further
study.
Response: We disagree with the
commenters that selecting all candidate
events when a hospital has 12 or fewer
candidate HAI events for a particular
quarter is a flawed process. Unlike
selecting a sample of a population,
which could result in sampling or
random errors, selecting an entire
population as we will do for hospitals
with 12 or fewer candidate HAI events
in a particular quarter has no such
sampling or random error. Our
statistical experts have no reservations
about selecting the entire population of
records with candidate HAIs when there
are fewer than 12 per quarter. The
discipline of sampling statistics was
developed to address the problem that
many populations are too large to study
in their entirety, however, in the event
the entire population is selected, as
opposed to a sample of the population,
the resulting estimate will have no
sampling (random) error.109 While every
estimate suffers from potential
inaccuracies arising from non-sampling
errors such as incomplete enumeration
of the population or simple variation
from year to year,15 the estimates
obtained from studying all candidate
episodes of care with HAIs will be at
least as accurate as that obtained from
109 ‘‘Population

values and statistics’’, in Kish L,
Survey Sampling, Wiley Classics Library Edition,
New York: 1995, page 9.

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a sample, and therefore this process is
not flawed.
After consideration of the public
comments we received, for the FY 2015
payment determination and subsequent
years we are finalizing our proposal to
use a sample size of 12 records per
hospital per quarter for hospitals with
more than 12 candidate events per
quarter, and using all records with
candidate events in hospitals with 12 or
fewer records with candidate events in
a quarter. We did not receive any public
comments regarding our proposal not to
estimate an HAI score for hospitals with
0 candidate events per year for the FY
2015 payment determination and
subsequent years, and accordingly, we
are finalizing that policy as proposed.
(4) Validation Scoring for ChartAbstracted Clinical Process of Care
Measures and HAI Measures
As noted in section VIII.A.6.a(1) of
this preamble, HAIs occur rarely relative
to the clinical process of care measures.
The rarity of HAIs creates problems for
validation scoring of this measure set.
To produce an overall score that
combines the scores for the individual
measure sets, CMS computes a weighted
average of each measure set score for
each quarter.110 The weight applied to
each measure set is proportionate to the
occurrence of records that were
submitted to the Warehouse for that
measure set. Because CLABSI, CAUTI,
and SSI occur rarely, we anticipate that
the total number of records targeted for
validation of these measures will
account for much less than 25 percent
of the combined total of all records
submitted to the Warehouse.
Consequently, if the scores for HAI were
combined with the other measure sets,
a hospital could potentially report
incorrectly for all HAI targeted records,
and still meet our established reliability
criterion of 75 percent, thus passing
validation. This would mean that our
process would fail to offer proper
quality control for the HAI measure set.
Although HAIs are rare, we believe that
validation of HAI reporting is critical
because it supports HHS’ priority to
reduce these infections.
For all of these reasons, we proposed
separate scoring processes for the HAI
and chart-abstracted clinical process of
care measure sets, and to require
hospitals to receive passing scores on
both processes to pass validation for the
FY 2015 payment determination and
subsequent years. We proposed changes
110 ‘‘Confidence Interval Calculation’’, http://
www.qualitynet.org/dcs/ContentServer?c=Page&
pagename=QnetPublic%2FPage%2FQnetTier2&
cid=1138115987129, last accessed March 19, 2012.

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to our regulations at § 412.140(d)(2) to
address this proposed requirement. In
particular, our regulation currently
states that ‘‘A hospital meets the
validation requirement with respect to a
fiscal year if it achieves a 75-percent
score as determined by CMS.’’ We
proposed to change this language to
state: ‘‘A hospital meets the validation
requirement with respect to a fiscal year
if it achieves a passing score, as
determined by CMS, on applicable
measure sets.’’ We proposed to define
‘‘passing score’’ to mean a score of 75percent on both of the chart-abstracted
clinical process of care and HAI
measure set groupings that apply to the
hospital. The proposed computation
and evaluation of passing for these
separate scores are described further
below.
Comment: Several commenters
supported requiring hospitals to receive
passing scores for both measure sets.
Response: We thank these
commenters for their support, but have
revised this proposal based on
comments described below.
Comment: Two commenters
expressed concern about the proposal to
include two scores. While agreeing with
the proposed approach of assessing the
clinical process of care score separate
from the HAI score, these commenters
opposed a requirement to pass both
scores on their own, particularly
because the HAI score would be so new.
The same commenters believed that the
proposed process would give hospitals
too many opportunities to fail.
Response: We agree that our proposal
requiring hospitals to receive passing
scores on the clinical process of care
and HAI measure sets would provide
too many opportunities for hospitals to
fail validation. In particular, the
proposed process would weigh the HAI
measure and clinical process of care
measures scores equally and require
hospitals to pass both scores, even
though only 3 of the 24 measures that
will be validated for FY 2015 are HAI
measures, while the remaining 21
measures are clinical process of care.
The proposed requirement for two
passing scores, even though one score
would be based on validation of just 3
measures while another would be based
on validation of 21 measures, would
increase opportunities for failure by
eliminating the chance for hospitals to
compensate for poor performance on
one set of measures with strong
performance on the other set of
measures.
Therefore, after consideration of the
public comments we received, we are
not finalizing the proposal to require
hospitals to receive passing scores on

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each of the clinical process of care and
HAI measure sets, nor are we changing
our regulations at § 412.140(d)(2) to
account for this proposal. Instead, for
the FY 2015 payment determination and
subsequent years, we will calculate a
total score reflecting a weighted average
of each of the two individual scores.
Hospitals will be required to receive a
total score of 75 percent, consistent with
our regulations at § 412.140(d)(2), to
pass validation.
For the FY 2015 payment
determination and subsequent years, the
HAI and clinical process of care
measures sets’ scores will be weighted
proportionate to the number of
measures validated in each set. For the
FY 2015 payment determination, there
are 24 total measures that will be
validated, 21 of which are clinical
process of care measures and 3 of which
are HAI measures. Therefore, the
clinical process of care measures would
account for 87.5% (21/24) of the total
validation score and the HAI measures
would account for 12.5% (3/24) of the
total validation score. We will adjust
these percentages as necessary in future
years to reflect the numbers and types
of measures we are validating. We
believe using this weighting scheme
while also calculating separate scores
for the HAI and clinical process of care
measure sets will allow us to
meaningfully validate both types of
measures while avoiding unduly
penalizing hospitals for their reporting
on one of the two measure sets.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28057) for the
chart-abstracted clinical process of care
measures, we did not propose any
changes to the methodology for
reviewing charts, computing the score
for each measure set, computing a
summary score across all measure sets,
or computing the variance around these
summary scores. This process was
described in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50226).
Comment: One commenter observed
that the validation process for measures
that assess time from admission to
discharge ‘‘seems very stringent.’’ The
commenter observed that if there is a
discrepancy of even 1 minute between
the time reported for the Hospital IQR
Program by the hospital for those
measures and the time identified when
the measures are validated, the hospital
would fail validation for these
measures.
Response: We agree with the
commenter that requiring time values to
match exactly is not realistic based on
our historical experience with clinical
data abstraction, the recognition that
hospital clocks may vary from system to

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53549

system such that the same time may be
recorded differently depending on the
source, and the limited clinical
significance of small deviations in time.
We note that this particular concern
affects the validation score for FY 2014
payment determination as well as for
future years [because the ED throughput
measures will be validated beginning
with this year?].
Accordingly, after considering the
public comments we received, for the
FY 2014 payment determination and
future years when scoring the ED
throughput measures (ED–1: ‘‘Median
time from emergency department arrival
to time of departure from the emergency
room for patients admitted to the
hospital’’ and ED–2: ‘‘Median time from
admit decision to time of departure from
the emergency department for
emergency department patients
admitted to the inpatient status’’), we
will not require these measures to have
matching numerator and denominator
states. Instead, for scoring of these ED
throughput measures, we will allow a 5
minute variance between the time
abstracted by the hospital and that
abstracted by CDAC.
In the FY 2013 IPPS/LTCH PPS
proposed rule, for the FY 2015 payment
determination and subsequent years (77
FR 28057), we proposed to use the same
basic approach to CLABSI scoring that
we finalized in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51647), but to
modify this scoring process to include
consideration of all three HAI measures
simultaneously. For example, if a
sampled record is determined to include
a CLABSI event and no CAUTI or SSI
events, and one CLABSI event was
reported to NHSN, we proposed to
assign the record a score of 1/1. If a
sampled record had two independent
episodes of CLABSI, CAUTI, or SSI, or
a combination of infections, both events
would have to be reported to NHSN to
receive a score of 1/1. Similarly, if no
events were reported to NHSN and the
medical record indicated there were no
events, we proposed that the record
would receive a score of 1/1. We
proposed to assign a score of 0/1 to a
record if no event was reported to
NHSN and at least one CLABSI, CAUTI,
or SSI was detected, or if an event was
reported but for the wrong infection. For
example, if an SSI was reported to
NHSN as a CLABSI, the record would
receive a 0/1. We also proposed to
assign a score of 0/1 to a record if an
event was reported to NHSN for
CLABSI, CAUTI, or SSI, and the CMS
contractor determined that there was no
such event.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28057) for the FY

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2015 payment determination and
subsequent years, we proposed a
slightly different process for requesting
medical records for SSI. Specifically, we
proposed that when a candidate SSI is
identified based on a readmission
diagnosis, CDAC would request two
records per candidate SSI event. This
proposal is necessary because many
SSIs are not diagnosed until after
patient discharge. In these
circumstances, the hospital might first
become aware of the SSI upon
readmission. Therefore, the information
needed to evaluate the presence or
absence of an SSI for these candidate
events would be divided across two
records: (1) the medical record for the
hospitalization during which surgery
was performed; and (2) the medical
record for the readmission to treat the
candidate infection. Therefore, we
further proposed for the FY 2015
payment determination and subsequent
years that when a candidate SSI is
identified based on a readmission
diagnosis, we evaluate the occurrence of
an SSI event related to the index
hospitalization using data in both
records. In contrast, we proposed to
limit evaluation of CLABSI and CAUTI
to the record for the index
hospitalization. We proposed these
changes to incorporate CAUTI and SSI
into HAI scoring, which were not part
of previous validation efforts. We
invited comments on these proposals.
Comment: A few commenters noted
that hospitals need time and feedback to
learn how to abstract new data
elements, and that the proposed
validation process does not provide
hospitals with a grace period during
which they may better learn the rules
for abstracting new elements. A
commenter urged CMS to release
CLABSI validation results publicly so
that all might learn from the experience.
Response: We agree that an important
purpose of validation is to educate
hospitals on how to improve their
reporting processes. As with other
Hospital IQR Program measures, CAUTI
and SSI were added to the Hospital IQR
Program in the year before are being
added to the Hospital IQR Program
validation program. Therefore, hospitals
will have three quarters (Q1–Q3 2012)
in which to develop experience
reporting CAUTI and SSI before they
will be validated on these measures. In
addition, like all IQR program data,
CAUTI and SSI data are publicly
reported. It is therefore important to
begin validation soon after new
measures are added to the Hospital IQR
Program.
In all years, we will work with CDC,
our State QIOs, and our national

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validation support contractor to widely
disseminate lessons learned from HAI
validation efforts on a timely basis.
Hospitals will benefit either from direct
participation in the CLABSI validation
process for the FY 2014 payment
determination, or through dissemination
of lessons learned to help them improve
when reporting their CLABSI and other
NHSN data for the FY 2015 payment
determination. Similarly, hospitals not
validated for the FY 2015 payment
determination will receive education in
the form of lessons learned to help them
improve their own reporting processes
on all three NHSN measures.
Comment: Two commenters
expressed concern that a hospital’s
probability of failure is unfairly
increased by giving hospitals a
maximum of 1 point for each candidate
HAI sampled instead of giving hospitals
a maximum of 3 points per sampling
candidate HAI, one for each properly
reported infection.
Response: We agree that giving
hospitals up to 3 points instead of 1 per
record sampled would increase the
probability of success on individual
cases for particular hospitals, but
disagree that we should adopt this
approach on the grounds that it does not
accurately reflect the incidence of these
infections. Although a patient may
conceivably acquire both a CLABSI and
a CAUTI, this is very rare. An
individual HAI event can either be
CLABSI or CAUTI, but it can never be
both. In addition, overlap between
CLABSI and SSI and CAUTI and SSI is
rare. Therefore, we anticipate that most
records sampled will have at most one
infection. Were we to give each record
up to 3 points, we would essentially be
offering hospitals a score of 2 for every
opportunity that we have to evaluate
them on reporting of the third infection.
In other words, to adopt a denominator
of 3 per sampled record would give
hospitals a base score of 67 percent,
without having to do anything correctly.
Given that the requisite score for
passing validation is 75%, we believe
this would be an inappropriately lenient
standard.
Comment: Some commenters
supported the review of two medical
records to assess SSI.
Response: We thank the commenters
for their support.
After consideration of the public
comments we received, we are
finalizing as proposed, the scoring
process for CLABSI, CAUTI, and SSI for
the FY 2015 payment determination and
subsequent years. We are also finalizing
for the FY 2015 payment determination
and future years, the proposal to request
two medical records per candidate SSI

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event when a candidate SSI is identified
based on a readmission diagnosis.
The process finalized above in this
section will be used to create a mean
HAI score for each hospital. The mean
will equal the number of HAI records
correctly classified divided by the total
number of HAI records scored. As
described in section VIII.A.6.a.(3) of this
preamble, a sample of up to 12 records
is to be drawn quarterly, for an annual
sample of up to 48. The approach of
dividing the year into 4 quarters and
drawing an independent random sample
from each is known as stratified random
sampling. When the validation sample
includes all of the candidate HAI events
that a hospital generates in a year,
reliability is measured without error. In
this case, the upper bound of the
confidence interval will be exactly the
same as the estimate of reliability.
However, when this score is based on
only a sample of records containing
candidate HAIs, we must compute a
variance around this mean. We
proposed to compute the confidence
interval by applying the appropriate
formula for the variance of a proportion
in a stratified random sample.111
We received no comments directly on
this proposal. However, this proposal is
sensible only in the context of the
earlier proposal to require hospitals to
receive passing scores on both the
clinical process of care and HAI
measures. As we are not finalizing the
proposal to receive two passing scores,
we must also modify this one. Rather
than computing a confidence interval
for the HAI measure set specifically, we
are finalizing the process to apply the
appropriate formula for the variance of
a proportion in a stratified random
sample as proposed. We will then
obtain a total variance for the combined
clinical process of care and HAI scores
using the appropriate formula for the
variance of the weighted sum of two
independent random variables.112 A
single confidence interval will be
computed based on this total variance.
(5) Criteria To Evaluate Whether a Score
Passes or Fails
Historically, we have used two
criteria for passing validation in the
Hospital IQR Program, which were
described in FY 2011 IPPS/LTCH PPS
final rule (75 FR 50226):
111 ‘‘Section 5.10 Stratified sampling for
proportions’’ in Cochran WG. Sampling
Techniques, third edition. John Wiley and Sons,
New York,1977, pp. 107–108.
112 ‘‘Equation 5–40, in Section, 5–4 Linear
combination of two random variables’’ in
Wonnacott TH and Wonnacott RJ, ‘‘Introductory
Statistics for Business and Economics, second
edition, John Wiley and Sons, New York, 1977, pp.
131.

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• Require all Hospital IQR Program
participating hospitals selected for
validation to attain at least a 75-percent
validation score per quarter to pass the
validation requirement.
• Use the upper bound of a one-tailed
95 percent confidence interval to
estimate the validation score.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28057), we
proposed for the FY 2015 payment
determination and subsequent years to
compute validation scores for each of
the chart-abstracted and HAI measure
sets by combining the data across all
four quarters, instead of by considering
the quarters separately. We proposed
what we believed was a change in our
current policy because 4 quarters of data
combined can provide a more accurate
estimate of reliability than could be
attained from a single quarter.
We would like to clarify that what we
characterized in the FY 2013 IPPS/
LTCH PPS proposed rule as a proposal
is actually consistent with our current
policy, which was finalized in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50226). We stated in that rule that we
would require Hospital IQR Program
‘‘participating hospitals selected for
validation to attain at least a 75-percent
validation score per quarter to pass the
validation requirement,’’ which could
suggest that we are requiring hospitals
to pass validation on a quarterly basis.
In actuality, we finalized a policy in that
rule to calculate ‘‘an annual confidence
interval,’’ or to require hospitals to pass
validation annually, not quarterly.
Accordingly, what we presented in the
FY 2013 IPPS/LTCH PPS proposed rule
as a proposal—computing annual
validation scores by combining data
across all four quarters—is consistent
with our current policy.
Comment: Some commenters
expressed preference for a quarterly
score, because the commenters valued
receiving timely feedback regarding
their hospitals’ performance.
Response: We thank the commenters
for the opportunity to clarify our current
process. We will continue to provide
hospitals with feedback regarding the
performance on validation on a
quarterly basis. However, we will also
continue to evaluate a hospital’s
validation score by combining data
across all quarters included in the
validation year and by computing a
confidence interval once annually for
the basis of a payment determination
only.
After consideration of the public
comments we received, we are
continuing for the FY 2015 payment
determination and future years our
current policy of providing hospitals

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with feedback quarterly and producing
a single annual confidence interval per
hospital.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28057) we
proposed that if a hospital has no
candidate CLABSI, CAUTI, or SSI in the
year to be validated or a hospital has
been excepted from NHSN reporting for
all three HAIs, it will only be required
to achieve a 75 percent score for the
chart-abstracted clinical process of care
measures to pass validation. We made
this proposal because, in these
instances, no HAI score can be
computed.
We did not receive any public
comments on this proposal and,
therefore, we are finalizing this process
as proposed.
In the FY 2013 IPPS/LTCH PPS
proposed rule for the FY 2015 payment
determination and subsequent years, we
proposed to replace the use of a onetailed 95 percent confidence interval
with a two-tailed 90 percent confidence
interval. The reason for this proposal is
so that we may identify hospitals
passing our annual 75 percent threshold
that also have scores within the
statistical margin of error for not passing
this annual requirement. The upper
bound of a two-tailed 90 percent
confidence interval is exactly the same
number as the upper bound of a onetailed 95 percent confidence interval.
Therefore, this proposal will have no
impact on the number of hospitals in
the base annual sample that pass or fail
validation. The Government
Accountability Office (GAO) has noted
that CMS does not have a methodology
to address hospitals, for which ‘‘the
statistical margin of error for their
accuracy included both passing and
failing levels.’’ 113 For data included in
the GAO report, one-quarter to one-third
of hospitals fell into this category. CMS
has subsequently taken steps to address
other GAO concerns, which has reduced
the percentage of hospitals that neither
passed nor failed validation to 7 percent
in the FY 2012 payment determination.
Nonetheless, we believe that there is
value in looking more closely at the
remainder of these hospitals. For the FY
2015 payment determination and
subsequent years, we proposed to
identify those hospitals which have
neither passed nor failed, using a twotailed confidence interval. In addition,
for the purpose of payment
determination in FY 2015 and
subsequent years, we proposed to

continue to pass these hospitals, while
also targeting these hospitals for
validation the next year, which we
finalize in section VIII.C.6.c. of this
preamble.
If, as in previous years, our only
concern was in hospitals with an upper
bound for the reliability rate below 75
percent, we would have 95 percent
confidence in the upper bound.
However, because we proposed to
identify hospitals for which ‘‘the
statistical margin of error for their
accuracy included both passing and
failing levels,’’ we must consider both
an upper and lower confidence bound.
Therefore, the same interval provides
only 90 percent confidence (5 percent of
samples will have lower interval bounds
based on the sample that are higher than
the actual reliability for the population
and 5 percent will have upper interval
bounds that are lower than the actual
reliability rate for the population).
Computing a two-tailed interval and
adjusting its confidence level from 95 to
90 percent is the only way to maintain
the computation for the upper bound
using the same formula as that used in
previous years and also calculate the
lower bound10,114 which will allow us
to identify hospitals that would
otherwise neither pass nor fail
validation. We invited public comment
on this proposal.
Comment: Two commenters
expressed concern that the proposed
change would make passing validation
more difficult.
Response: As stated above, the
formula for the proposed two-tailed 90
percent confidence interval is identical
to the formula for the one-tailed 95
percent confidence interval now used.
Therefore, this change will not
negatively impact hospitals in any given
year, but it will allow us to accomplish
the other policy goals that we have
outlined above.
After consideration of the public
comments we received, we are
finalizing this process as proposed for
the FY 2015 payment determination and
subsequent years.

113 Government Accountability Office. ‘‘Hospital
Quality Data. CMS needs more rigorous methods to
ensure reliability of publicly released data’’. GAO–
06–54, January 2006.

114 ‘‘Chapter 8 Interval estimation’’ in Wonnanut
TH, Wonnacott RJ. Introductory statistics for
business and economics, 2nd edition, 1977, John
Wiley & Sons, New York, pp. 199–201, 231–232.

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b. Number and Manner of Selection for
Hospitals Included in the Base Annual
Validation Random Sample
As finalized in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50225–
50227), validation of chart-abstracted
measures in the Hospital IQR Program
uses a base annual random sample of
800 hospitals. In the FY 2013 IPPS/

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LTCH PPS proposed rule (77 FR 28058),
for the FY 2015 payment determination
and subsequent years, we proposed to
reduce the total base sample size of
hospitals included in the annual
validation random sample from 800 to
400. One of our goals in targeting a
certain number of hospitals for our base
annual random sample is to estimate the
total percentage of hospitals that have
been reporting unreliable data for the
Hospital IQR Program. The minimum
sample size required to assess the
percentage of hospitals in the Hospital
IQR Program that have been reporting
unreliable data depends on the expected
percentage of hospitals that fail
validation. Because a very high
percentage of Hospital IQR Program
hospitals pass validation (more than 99
percent of the hospitals in the FY 2012
payment determination), we believe that
we can reduce burden on hospitals by
selecting fewer hospitals for the base
annual random sample without
adversely affecting our estimate of this
percentage. We did not propose to
change the criteria for selecting the
annual validation random sample
because we believe that these criteria
are appropriate for sample selection.
We proposed no change to the criteria
for selecting the annual validation
random sample, which we provided for
informational purposes. The finalized
definition of a hospital eligible for
validation, as provided in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50227)
are the subset of subsection (d) hospitals
who successfully submitted ‘‘at least
one [IQR] case for the third calendar
quarter of the year two years prior to the
year to which the validation.’’ For
example, for the FY 2015 payment
determination, we would select the
sample in early 2013, and all Hospital
IQR Program-eligible hospitals that
submitted at least one Hospital IQR case
for third quarter 2012 discharges would
be eligible to be selected for validation.
We invited comments on these
proposals.
Comment: We received many
comments in support of this proposal.
Response: We thank these
commenters for their support.
Comment: A few commenters raised
concern that hospitals already go too
many years without feedback regarding
their performance. In contrast, another
commenter suggested that hospitals
should not have to undergo validation at
all more often than once every 3 years
unless a problem was uncovered during
the validation process.
Other commenters expressed concern
that CMS could not guarantee reliability
(for example, what the hospital
submitted matches what is observed by

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CDAC) across all hospitals and asked for
clarification regarding how CMS
planned to approach this problem.
Response: Although we could
conduct validation on every hospital
every year, such an approach to
reliability assessment uses significantly
more CMS and hospital resources than
necessary. Conducting validation on any
individual hospital less frequently
reduces burden, which we consider to
be very important. The basic premise
behind random sampling is that one can
learn something about all hospitals by
gathering data on just a subset of
hospitals. Using an estimated passing
rate of 99 percent, our power
calculations indicate that with 400
hospitals, we can be highly confident
that least 98 percent of all hospitals in
the IPPS population are achieving the
requisite reliability score. Hospitals that
would like to learn more about common
pitfalls associated with quality reporting
may receive this from their QIO and
Hospital IQR Program validation
support contractor.
We cannot exclude hospitals from
validation if they have been selected in
the previous 3 years as suggested by one
commenter, because we are required by
section 1886(b)(3)(B)(xii) of the Act to
randomly select hospitals to validate the
Hospital IQR measures as a whole. We
believe that random sampling requires
all hospitals to review data accuracy,
because all hospitals are eligible to be
selected in our annual random sample.
We have a validation support contractor
who provides QIOs with feedback
regarding common pitfalls identified
during the validation process. Moreover,
these QIOs have a contractual obligation
with CMS to educate hospitals regarding
Hospital IQR Program requirements.
Therefore, each individual hospital has
access to education about the Hospital
IQR Program process, regardless of
whether it is selected for validation.
After consideration of the public
comments we received, we are
finalizing the process to reduce the base
annual random sample from 800 to 400
as described above for the FY 2015
payment determination and subsequent
years.
c. Targeting Criteria for Selection of
Supplemental Hospitals for Validation
We have established policies for
supplementation to the base annual
random sample of hospitals. In
particular, our supplemental validation
sample includes all hospitals that fail
validation in the previous year (75 FR
50227 through 50229), a policy that we
do not intend to change. We also
finalized a policy in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51645

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through 51646), that the validation
sample drawn for the FY 2015 payment
determination and subsequent years
will include in the fourth year all
hospitals not randomly occurring in the
sample in the previous 3 years. We have
reassessed this policy.
We believe that we have identified an
approach with comparable benefits to
reliability which would have a smaller
total burden to hospitals, and at less
cost to CMS. Based on chance alone, we
would expect that about 1,500 (slightly
less than half of all IPPS-eligible)
hospitals would not have been sampled
in the previous 3 years. Of these, less
than 200 would be expected to be
randomly selected as part of the base
validation sample of 400 hospitals for
the FY 2015 payment determination.
Accordingly, this means that for the FY
2015 payment determination, the
supplemental sample size would be
about 1,300 hospitals. To increase the
sample size by 1,300 hospitals in a
single year is unnecessarily
burdensome; we believe we can have
the same influence on hospitals that
have not been recently validated simply
by increasing their probability of
selection through targeting in
subsequent years. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28058),
therefore, for the FY 2015 payment
determination and subsequent years, we
proposed to discontinue our policy of
including hospitals in the supplemental
validation sample in the fourth year that
have not been validated in the previous
3 years. We proposed, however to use
the lack of recent validation as one of
several targeting criteria for a
supplemental random sample described
further below. For the FY 2015 payment
determination and subsequent years, we
proposed to add targeting criteria as a
supplement to the base random sample
of up to 200 additional hospitals. We
believe that this proposal would
improve data quality by increased
targeting of hospitals with possible or
confirmed past data quality issues. As
finalized in the FY 2011 IPPS/LTCH
PPS final rule, the supplement will
include all hospitals that fail validation
in the previous year. We invited public
comment on the proposal to include a
targeted sample, and to use the
following as criteria for targeting the
additional hospitals:
• Any hospital with abnormal or
conflicting data patterns. An example of
abnormal data pattern would be if a
hospital has extremely high or
extremely low values for a particular
measure. Consistent with the Hospital
OQR Program, we proposed to define an
extremely high or low value as one that
falls more than 3 standard deviations

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from the mean (76 FR 74485). An
example of a conflicting data pattern
would be if two records were identified
for the same patient episode of care but
the data elements were mismatched for
primary diagnosis. Primary diagnosis is
just one of many fields that should
remain constant across measure sets for
an episode of care. Other examples of
fields that should remain constant
across measure sets are patient age and
sex. Any hospital not included in the
base validation annual sample and with
statistically significantly more abnormal
or conflicting data patterns per record
than would be expected based on
chance alone (p <.05), would be
included in the population of hospitals
targeted in the supplemental sample.
• Any hospital with rapidly changing
data patterns. For this targeting
criterion, we proposed to define a
rapidly changing data pattern as a
hospital which improves its quality for
one or more measure sets (that is, AMI,
HF, PN, SCIP, ED, IMM, or HAI) by
more than 2 standard deviations from
one year to the next, and also has a
statistically significant difference in
improvement (one-tailed p <.05).
• Any hospital that submits data to
NHSN after the Hospital IQR Program
data submission deadline has passed.
• Any hospital that joined the
Hospital IQR Program within the
previous 3 years, and which has not
been previously validated.
• Any hospital that has not been
randomly selected for validation in any
of the previous 3 years.
Comment: Some commenters favored
the proposal to target hospitals based on
the criteria described above.
Response: We agree that these
proposed policies will be useful.
Comment: Commenters expressed
concern that for hospitals failing
validation, the amount of time elapsing
between the determination and the
deadline for submitting records in the
following year may not be sufficient to
improve the hospital’s performance.
Response: We disagree that the time
between the determination that a
hospital has failed and the time it has
to submit data for the following year
would present difficulties for hospitals,
because a hospital has no reason to wait
until it receives a failing payment
determination to improve its reporting.
As described above in this section, we
provide feedback on validation
quarterly, and QIOs are available to
provide education and feedback to
hospitals regardless of their quarterly
scores. A poorly performing hospital
should receive feedback after validation
of the very first quarter in a validation
year. This feedback would come long

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before the next year’s reporting process
would start. For example, a hospital will
receive all feedback on data submitted
in the 4th quarter of 2012 by the end of
October 2013, but would not be required
to complete submission of data for the
4th quarter of 2013 until May 2014.
Comment: One commenter questioned
whether reserving one-third of the
sample for targeted validation ‘‘would
diminish the randomization and thus
diminish the validation process.’’
Response: As described above, we
approached the problem of sample size
for the base annual random sample by
considering the power needed to assess
reliability, which we determined to be
400. The random sample size needed is
unaffected by the size of our targeted
validation sample. Compared with the
current policy, which was finalized for
the FY 2015 payment determinations
and subsequent years in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51645
through 51646), and which targeted all
hospitals not included in the three
previous years, the new proposal to
target up to 200 hospitals includes a
much lower ratio of ‘targeted’ to random
sampling. Moreover, the sample targeted
under current policy is less informative
than the proposed targeted sample
because the current process does not
identify and target hospitals most likely
to need validation based on data
previously submitted. Accordingly, we
do not believe that reserving one third
of the sample for targeted validation
reduces the integrity of the validation
process, and in fact, we believe it will
strengthen validation.
After consideration of the public
comments we received, we are
finalizing this targeting proposal for the
FY 2015 payment determination.
For the FY 2016 payment
determination and subsequent years, we
proposed to add to the targeting criteria
proposed for the 2015 payment
determination by identifying hospitals
that passed validation in the previous
year, but had a two-tailed confidence
interval that included 75 percent.
Relative to hospitals whose confidence
interval lies entirely above the target
reliability rate of 75 percent, a
confidence interval that includes 75
percent would indicate a higher level of
uncertainty as to the reliability of data
for that particular hospital. This
proposal is related to the proposal to
produce a two-sided confidence interval
(discussed in section VIII.A.6.b of this
preamble). It is intended to respond to
concerns that CMS does not have a
methodology to address hospitals, for
which ‘‘the statistical margin of error for
their accuracy included both passing
and failing levels.’’ The reason that we

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proposed implementation of this
criterion beginning with the 2016
payment determination is that it is not
feasible to implement this change until
after we implement changes to the
confidence interval, as described in
section VIII.A.6.b. of this preamble.
We received no comments on this
proposal, and therefore, we are
finalizing this proposal to add a
targeting criterion for the supplemental
sample of hospitals that passed
validation in the previous year, but had
a two-tailed confidence interval that
included 75 percent. This process will
begin with the FY 2016 payment
determination and continue in
subsequent years.
As noted above, the established
procedure for drawing the base random
sample involves selection of hospitals
‘‘early’’ in the calendar year two years
prior to the payment determination FY
2011 IPPS/LTCH PPS final rule (75 FR
50227). For example, the base sample
for the FY 2015 payment determination
will be drawn early in 2013. We
proposed that the selection of hospitals
targeted in the supplemental sample for
the FY 2015 payment determination
occur after the FY 2014 payment
determination; this will separate the
timing of selection of base and
supplemental samples. We proposed to
do so because CMS may need extra time
to review hospital data before
identifying the hospitals to include in
the supplemental sample. Moreover,
information regarding a hospital’s status
as failing or passing is not known at the
time the base sample is drawn.
We received no comments on this
proposal, and we are finalizing as
proposed the process to separate the
timing for drawing the base and
supplemental samples. We provide the
reader with the validation timeline for
finalized in the FY 20111 IPPS/LTCH
PPS final rule (75 FR 50219) for the FY
2013 payment determination and
subsequent years for informational
purposes only. We did not propose any
changes or invite comment on this
timeline. The quarters included in the
validation effort for each year’s payment
determination will be the fourth
calendar quarter of the year that occurs
2 years before the payment
determination and the first 3 calendar
quarters of the following calendar year.
For example, for the FY 2015 payment
determination, the quarters included in
validation would be the fourth quarter
of calendar year 2012 through the third
quarter of calendar year 2013.

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7. Data Accuracy and Completeness
Acknowledgement Requirements for the
FY 2015 Payment Determination and
Subsequent Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28059), we
proposed to require hospitals to
continue to electronically acknowledge
their data accuracy and completeness
once annually. For the FY 2014
payment determination, the submission
deadline for the Data Accuracy and
Completeness Acknowledgement was
aligned with the final submission
quarter for each fiscal year. We
proposed to continue this approach for
FY 2015 and subsequent years. For
example, we proposed that the
submission deadline for the Data
Accuracy and Completeness
Acknowledgement would be May 15,
2014, with respect to the time period of
January 1, 2013, through December 31,
2013. We invited public comment on
this proposal.
We received no comments on this
proposal; therefore, we are finalizing
our proposal to align the Data Accuracy
and Completeness Acknowledgement
with the final submission quarter for
each fiscal year for FY 2015 and
subsequent years.

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8. Public Display Requirements for the
FY 2015 Payment Determination and
Subsequent Years
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51650), we continued, 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. In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28059), we did not
propose any changes to these
requirements.
The Hospital IQR Program quality
measures are typically reported on the
Hospital Compare Web site at: http://
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

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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.
9. Reconsideration and Appeal
Procedures for the FY 2015 Payment
Determination
The Hospital IQR Program
reconsideration and appeals
requirements were adopted in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51650 through 51651) and are found at
42 CFR 412.140(e) of our regulations.
The form for reconsiderations and a
detailed description of the
reconsideration process are available on
the QualityNet Web site at: http://
www.qualitynet.org/ > HospitalsInpatient > Hospital Inpatient Quality
Reporting Program > APU
Reconsiderations.
10. Hospital IQR Program Disaster
Extensions or Waivers
The Hospital IQR Program disaster
extensions or waiver requirements were
adopted in the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51650 through 51652)
and can be found at 42 CFR 412.140(e)
and (c)(2), respectively. The forms and
a detailed description of the extension
or waiver process are available on the
QualityNet Web site at: http://
www.qualitynet.org/ > HospitalsInpatient > Hospital Inpatient Quality
Reporting Program.
11. 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

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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.
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 anticipated future
reporting of clinical quality measures
under the Hospital IQR Program.
Through the EHR Incentive Programs
we expect that the anticipated future
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 certain
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 the 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
chart-abstracted data would no longer
be used in the Hospital IQR Program
where it is possible to report the data
via certified EHR technology. 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

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hospitals to submit the same measure
for the Hospital IQR Program based on
either chart-abstraction or, when
available, 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.
Ultimately, we do not anticipate
having two different sets of clinical
quality measures for the EHR Incentive
Programs and the Hospital IQR Program.
Rather, we anticipate a single set of
hospital clinical quality measures, most
of which we anticipate would be
electronically specified. We envision a
reporting infrastructure for electronic
submission as an additional reporting
mechanism 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 data rather than clinical data.
Thus, not all Hospital IQR Program
quality measures will necessarily be
capable of being submitted through
EHRs. As a consequence, not all
Hospital IQR Program quality measures
would necessarily be appropriate for
inclusion in the EHR Incentive
Programs.
We note that the provisions in this
proposed rule do not implicate or
implement any HITECH statutory
provisions. Those provisions are the
subject of separate rulemaking and
public comment.
Comment: Many commenters strongly
supported CMS’s direction to move
toward EHR-based reporting for quality
measures. Commenters shared our
vision to implement a single set of
hospital clinical quality measures, most
of which would be electronically
specified. Commenters supported the
alignment of measures across public
reporting programs using EHR
technology. A commenter believed that
use of certified EHR technology would
be widespread by 2015 among hospitals.
One commenter stated that some
hospitals will still be unprepared for
EHR-based reporting by 2015 and
commenter noted that implementing
EHR-based reporting prematurely may
negate quality improvement efforts. One
commenter recommended postponing

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EHR-based reporting until all hospitals
have reached Stage 3 of meaningful use
under the HITECH Act EHR Incentive
Program.
Response: We appreciate the support
of our intention to move toward EHRbased reporting for quality measures.
We also believe that large numbers of
hospitals would be able to report quality
measures electronically from EHRs,
which are currently chart-abstracted.
We expect in the future to propose a
specific date for transition from chartabstracted to EHR-based measures for
the Hospital IQR Program. We expect
this to be facilitated by the EHR
Incentive Program, which has proposed
certain clinical quality measures that
align with the Hospital IQR Program,
and the related electronic reporting pilot
for hospitals (see 75 FR 74489).
Comment: Many commenters
supported a defined strategy to effect a
transition from chart-abstraction to
EHR-based submissions. Several
commenters indicated that they would
like to have the option to submit data
either using chart-abstractions or via
EHR but cautioned that extensive preimplementation testing and validation
of e-measures for accuracy are crucial.
One commenter encouraged CMS to
engage in more e-measure pilot testing.
While many commenters supported
EHR submission as the sole mechanism
for data submission, commenters added
that the existence of a transition period,
which accommodates both of the data
collection mechanism, is necessary.
Response: We have not decided the
best approach to transitioning from
chart-abstracted measures to EHR-based
reporting. We agree that significant
testing is needed to assure accuracy of
EHR-based reporting. We do not believe
that is practical to provide alternative
options for the Hospital IQR Program
with some hospitals reporting based on
chart abstracted measures while others
use EHR-based reporting, where such
measures are publicly reported and are
the basis for value based purchasing.
Ultimately, we believe a transition,
when feasible, needs to be
accomplished by all hospitals for the
Hospital IQR Program.
Comment: A few commenters
suggested registry-based reporting as an
alternative alongside with EHR-based
technology for hospitals.
Response: We support the use of
registries. As stated above, however, we
do not believe it is practical to have
alternative measures data sources due to
the degree of testing that would be
necessary to assure equivalence of
results.

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B. PPS-Exempt Cancer Hospital Quality
Reporting (PCHQR) Program
1. Statutory Authority
Section 3005 of the Affordable Care
Act added new subsections (a)(1)(W)
and (k) to section 1866 of the Act.
Section 1866(k) of the Act establishes a
quality reporting program for a hospital
described in section 1886(d)(1)(B)(v) of
the Act (hereafter referred to as a ‘‘PPSExempt Cancer Hospital’’ or ‘‘PCH’’).
Section 1866(k)(1) of the Act states that,
for FY 2014 and each subsequent fiscal
year, a PCH shall submit data to the
Secretary in accordance with section
1866(k)(2) of the Act with respect to
such a fiscal year. Section 1866(k)(2) of
the Act provides that, for FY 2014 and
each subsequent fiscal year, each
hospital described in section
1886(d)(1)(B)(v) of the Act shall submit
data to the Secretary on quality
measures specified under section
1866(k)(3) of the Act in a form and
manner, and at a time, specified by the
Secretary.
Section 1866(k)(3)(A) of the Act
requires that any measure specified by
the Secretary must have been endorsed
by the entity with a contract under
section 1890(a) of the Act, unless an
exception under section 1866(k)(3)(B) of
the Act applies. The National Quality
Forum (NQF) currently holds this
contract. The NQF is a voluntary,
consensus-based, 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
healthcare quality measurement and
reporting through its consensus
development processes. We have
generally adopted NQF-endorsed
measures in our reporting programs.
However, section 1866(k)(3)(B) of the
Act provides an exception. Specifically,
it 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, 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.
Under section 1866(k)(3)(C) of the Act,
the Secretary must publish the measure
selection for PCHs no later than October
1, 2012, with respect to FY 2014.
Section 1866(k)(4) of the Act requires
the Secretary to establish procedures for
making public the data submitted by
PCHs under the PCHQR Program. Such

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procedures must ensure that a PCH has
the opportunity to review the data that
is to be made public with respect to the
PCH prior to such data being made
public. The Secretary must report
quality measures of process, structure,
outcome, patients’ perspective on care,
efficiency, and costs of care that relate
to services furnished by PCHs on the
CMS Internet Web site.
Comment: Several commenters
supported the PCHQR Program, and
some commenters encouraged PCHs to
participate in ‘‘public reporting
programs.’’
Response: We appreciate the
commenters for their support.
Comment: Several commenters stated
that there will be a 2-percent point
reduction to a PCH’s rate-of-increase
limit if the PCH fails to report the
PCHQR quality measures.
Response: We did not propose in the
FY 2013 IPPS/LTCH proposed rule to
adopt a policy on what the consequence
would be if a PCH failed to report the
quality measures specified under the
PCHQR Program. We plan to address
this issue in future rulemaking.
2. Covered Entities
Section 1886(d)(1)(B)(v) of the Act
excludes particular cancer hospitals
from payment under the IPPS. This final
rule covers only those PPS-excluded
cancer hospitals meeting eligibility
criteria specified in 42 CFR 412.23(f).
3. Quality Measures for PCHs for the FY
2014 Program and Subsequent Program
Years

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a. Considerations in the Selection of the
Quality Measures
Section 1866(k)(3)(A) of the Act
requires that any measure specified by
the Secretary must have been endorsed
by the entity with a contract under
section 1890(a) of the Act, unless
section 1866(k)(3)(B) of the Act applies.
Section 1866(k)(3)(B) of the Act states
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, 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 have taken a number of principles
into consideration when developing
measures for the PCHQR Program, and
many of these principles are modeled
on those we use for measure
development under the Hospital IQR
Program:

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• Public reporting should rely on a
mix of standards, outcomes, process of
care measures, and patient experience of
care measures, including measures of
care transitions and changes in patient
functional status.
• The measure set should evolve so
that it includes a focused core set of
measures appropriate to cancer
hospitals that reflects the level of care
and the most important areas of service
furnished by those hospitals. The
measures should address gaps in the
quality of cancer care.
• We also considered input solicited
from the public. For instance, CMS held
a Listening Session on September 8,
2011 for the purpose of receiving input
from consumers, advocacy groups, and
providers on the measures under
consideration for the PCHQR Program
and other program implementation
issues.
• We considered suggestions and
input from a PCH Technical Expert
Panel (TEP), convened by a CMS
measure development contractor, which
rated potential PCH quality measures for
importance, scientific soundness,
usability, and feasibility. The TEP
membership includes health-care
providers specializing in the treatment
of cancer, cancer researchers, consumer
and patient advocates, disparities
experts, and representatives from payer
organizations.
Like the Hospital IQR Program, the
PCHQR Program also supports the
National Quality Strategy, national
priorities, HHS Strategic Plans and
Initiatives, and CMS Strategic Plans, as
well as takes into consideration the
recommendations of the Measure
Application Partnership (MAP) and
strives for burden reduction whenever
possible. We refer readers to the
discussion of these topics in section
VIII.A.3.a. of the preamble of this final
rule on ‘‘Additional Considerations in
Expanding and Updating Quality
Measures’’ under the Hospital IQR
Program.
Comment: For burden reduction
purposes, a commenter encouraged the
use of existing registries and data
sources to expand the PCHQR Program.
Response: We appreciate the
commenter for the suggestions. We took
the issue of burden into consideration
when selecting the measures to propose
to include in the PCHQR Program for FY
2014 and subsequent program years,
and if feasible, we will work to develop
data collection methods that further
minimize the burden on PCHs.

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b. PCHQR Program Quality Measures for
the FY 2014 Program and Subsequent
Program Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28061), we
proposed to adopt five quality measures
for the FY 2014 program and subsequent
program years. Specifically, we
proposed to adopt two CDC/NHSNbased HAI quality measures (outcome
measures): (1) Central Line-Associated
Bloodstream Infection (CLABSI); and (2)
Catheter-Associated Urinary Tract
Infection (CAUTI); and three cancer
process of care measures: (1) Adjuvant
chemotherapy is considered or
administered within 4 months (120
days) of surgery to patients under the
age of 80 with AJCC III (lymph node
positive) colon cancer; (2) Combination
chemotherapy is considered or
administered within 4 months (120
days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III
hormone receptor negative breast
cancer; and (3) Adjuvant hormonal
therapy.
All five of these proposed measures
were reviewed by the MAP, and were
recommended for inclusion in the
PCHQR Program. For details regarding
MAP input, please refer to the MAP
Annual Pre-Rulemaking Final Report,
which can be accessed at: http://www.
qualityforum.org/Setting_Priorities/
Partnership/Measure_Applications_
Partnership.aspx.
(1) CDC/NHSN-Based HealthcareAssociated Infection (HAI) Measures
HAIs are among the leading causes of
death in the United States. CDC
estimates that as many as 2 million
infections are acquired each year in
hospitals and result in approximately
90,000 deaths per year.115 It is estimated
that more 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
number of days of hospitalization
required for patients and add
considerable health care costs.
The reduction of HAIs is a priority for
HHS, as evidenced by HHS’s 2009
publication of an Action Plan to Prevent
HAIs. This Plan is available on the HHS
Web site at: http://www.hhs.gov/ash/
initiatives/hai/actionplan/. To
maximize the efficiency and improve
the coordination of HAI prevention
efforts across the Department, HHS
established in 2008 a senior-level
115 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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Steering Committee for the Prevention
of HAIs. In 2009, a Steering Committee,
which included scientists and program
officials across the Government,
developed the HHS Action Plan to
Prevent HAIs, 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 were most severe in that
setting and the scientific information on
prevention and the capacity for 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.
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. We note that
the House Committee on Appropriations
asked in a 2009 Report that CMS
include in its ‘‘pay for reporting’’ system
for subsection (d) hospitals two
infection control measures, one of
which was a central line-associated
bloodstream infections measure (H. Rep.
No. 111–220, at 159 (2009)). In the
Report, the Committee stated that ‘‘[i]f
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 2013 IPPS/LTCH proposed
rule, we proposed to adopt two NQFendorsed HAI measures for the FY 2014
PCHQR Program and subsequent
program years: (1) National Healthcare
Safety Network (NHSN) Central LineAssociated Bloodstream Infection
(CLABSI) Outcome Measure; and (2)
National Healthcare Safety Network
(NHSN) Catheter-Associated Urinary
Tract Infection (CAUTI) Outcome
Measure. These proposed measures
were developed by the CDC and are
currently collected by the CDC via the
NHSN. We proposed to adopt these two
measures for several reasons. First, we
believe that these measures support the
National Quality Strategy priority of
patient safety as these measures focus
on serious infections that can prolong
patient hospital stays and increase the

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risk of mortality.116 Second, the
Technical Expert Panel (TEP) convened
by our measure development contractor
identified CLABSI and CAUTI as high
priority quality issues for PCHs because
they address an important area of
quality measurement and have potential
to promote improved outcomes. Third,
the MAP reviewed these HAI measures
and supported inclusion of them in the
PCHQR Program because they address
the National Quality Strategy’s priority
of safer care (see MAP Annual PreRulemaking Final Report at: http://www.
qualityforum.org/Setting_Priorities/
Partnership/Measure_Applications_
Partnership.aspx).
Fourth, these two HAI measures foster
alignment with other our quality
reporting programs. In the FY 2011
IPPS/LTCH PPS final rule, we adopted
the CLABSI measure for the Hospital
IQR Program. The CLABSI measure is
currently being collected as part of the
FY 2013 Hospital IQR Program measure
set, and data submission on the measure
began with January 2011 events.117 In
the Hospital IQR Program, collection of
this measure is limited to ICU locations.
This measure also has been adopted for
the FY 2014 payment determination
under the LTCHQR Program. For the
LTCHQR Program, data collection for
this measure extends to all inpatient
locations in the LTCH.
In the FY 2012 IPPS/LTCH PPS final
rule, we adopted the Catheter
Associated Urinary Tract Infection
(CAUTI) rate per 1,000 urinary catheter
days for Intensive Care Unit Patients
measure for both the FY 2014 Hospital
IQR and LTCHQR measure sets. In the
Hospital IQR Program, collection of this
measure is limited to ICU locations; for
the LTCHQR Program, collection of this
measure extends to all inpatient
locations except neonatal ICUs. This
measure is a high priority HAI measure
that is 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.
We proposed to collect data for these
two HAI measures via the NHSN, which
is a secure, Internet-based surveillance
system maintained and managed by the
CDC, and can be used by many types of
health care facilities in the United
States, including acute care hospitals,
cancer hospitals, long term care
hospitals, psychiatric hospitals,
rehabilitation hospitals, outpatient
116 CDC/NHSN Manual. Device-Associated
Module, CLABSI Event. Available at http://
www.cdc.gov/nhsn/PDFs/pscManual/4PSC_CLABS
current.pdf, accessed on January 20, 2011.
117 The CDC captures HAI data based on the onset
of an event, rather than based on the discharge date.

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dialysis centers, and ambulatory surgery
centers. The NHSN enables health care
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 use the NHSN as a means
for health care facilities to submit
patient-level data on measures
mandated through their specific State
legislation. Currently, 28 States require
hospitals to report HAIs using the
NHSN, and the CDC provides support to
more than 5,000 hospitals that are using
the NHSN.
NHSN data collection occurs via
manual data entry into a Web-based tool
hosted by the CDC provided without
charge to providers and via electronic
reporting by providers directly to
NHSN. The NHSN Agreement to
Participate and Consent Form specifies
the purposes to which NHSN data are
put, including enabling providers, such
as cancer hospitals, to report data via
NHSN to CMS in fulfillment of CMS’s
quality measurement reporting
requirements for those data.
In addition, we understand from the
CDC that data submission for HAI
measures through electronic health
record technology (EHRs) may be
possible in the near future, and this
would further reduce the reporting
burden for PCHs.
Comment: Two commenters
supported using the CDC/NHSN as a
data collection mechanism for the two
proposed HAI measures because it is
less burdensome than chart abstraction.
Response: We agree that the NHSN
data collection mechanism is less
burdensome than chart abstraction and
aligns with HAI measures in other
quality reporting programs.
(A) Central Line-Associated Blood
Stream Infections Measure ((CLABSI),
NQF #0139)
The proposed CLABSI measure was
originally developed by CDC to assess
the percentage of ICU and high-risk
nursery patients who, over a certain
amount of days, acquired central line
catheter-associated bloodstream
infections. CDC recently updated this
measure to expand the care setting to all
inpatient settings (not just ICUs). As
indicated previously, the measure has
been renamed the National Healthcare
Safety Network (NHSN) Central LineAssociated Bloodstream Infection
(CLABSI) Outcome Measure and we
proposed to adopt this measure for use
for the FY 2014 program and subsequent
program years. This measure is
considered an outcome measure by the

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NQF because it assesses the results of
the quality of care provided to patients;
it is risk-adjusted in that the observed
infection rate for a particular location or
locations in a hospital is compared to an
expected infection rate for those
locations (which is calculated using
national NHSN data for those locations
in a predictive model). Measure
specifications may be accessed at:
http://www.cdc.gov/nhsn/PDFs/psc
Manual/4PSC_CLABScurrent.pdf.
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 patients are
discharged from short-term acute care
hospital intensive care units (ICUs) or
ICU stepdown units with these central
lines in place.
Bloodstream infections are usually
serious infections typically causing a
prolongation of hospital stay and
increased cost and risk of mortality.118
An estimated 248,000 bloodstream
infections occur in U.S. hospitals each
year.119 Furthermore, despite the
preventability of these infections,
CLABSIs result in thousands of deaths
each year and billions of dollars in
added costs to the U.S. health care
system. CDC is providing guidelines and
tools to the health care community to
help reduce central line catheterassociated bloodstream infections.
CLABSIs can be prevented through
proper management of the central line.
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
line-associated bloodstream
infection.120 These include handwashing 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
118 CDC/NHSN Manual. Device-Associated
Module, CLABSI Event. Available at http://
www.cdc.gov/nhsn/PDFs/pscManual/
4PSC_CLABScurrent.pdf, accessed on January 20,
2011.
119 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.
120 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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these practices remains low in U.S.
hospitals.
This measure is NQF-endorsed and,
therefore, meets the requirement of
section 1866(k)(3)(A) of the Act, which
states that quality measures selected for
the PCHQR Program must be endorsed
by the entity with a contract under
section 1890(a) of the Act.
We invited public comment on our
proposal to adopt the NHSN Central
Line-Associated Bloodstream Infection
(CLABSI) outcome measure for the
PCHQR Program for collection in both
ICU and non-ICU locations for the FY
2014 program and subsequent program
years.
Comment: Two commenters
supported the inclusion of this measure
in the PCHQR program. A commenter
supported the recently updated measure
specifications to include non-ICU
locations.
Response: We thank the commenters
for the support of the measure and its
expansion into non-ICU locations. We
believe the measure expansion beyond
ICU locations will provide a more
comprehensive picture of how prevalent
CLABSIs are throughout a PCH.
Comment: One commenter opposed
the inclusion of the CLABSI measure in
its current form. The commenter was
concerned that this measure may
mislead consumers about the quality of
care provided at cancer centers. The
commenter asserted that cancer patients
while under treatment often have
comprised immune systems, which
cause them to be more prone to contract
HAIs such as CLABSI. The commenter
also pointed out that stem cell
transplantation can sometimes cause
bacteria from the gastrointestinal tract to
enter the bloodstream and cause
infection. The commenter strongly
urged CMS to delay the adoption of this
measure until the measure is stratified
and risk-adjusted based on stakeholder
input.
Response: While we recognize the
complexity of treating hospital-acquired
infections in patients with compromised
immune systems, we also believe it is
important to track HAI rates at all
hospitals for all patients—regardless of
whether they are immune-compromised
or not. The current NQF-endorsed
CLABSI measure does not contain
adjustments for immune-compromised
patients. For all hospitals, CLABSI is
stratified by CDC-specified ICU and
Specialty Care Area (SCA) locations,
and oncology locations would be
included as SCAs, making the measure
appropriate for PCHs.
After consideration of the public
comments we received, we are
finalizing the CLABSI measure (NQF

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#0139) for the PCHQR Program for FY
2014 and subsequent program years.
(B) Catheter Associated Urinary Tract
Infection Measure ((CAUTI), NQF
#0138)
The catheter-associated urinary tract
infection (CAUTI) measure was
developed by CDC to measure the
percentage of patients with CAUTIs in
the ICU context. CDC has recently
updated the specifications of this
measure to include all inpatient settings
(not just ICUs). This measure has been
renamed as National Healthcare Safety
Network (NHSN) Catheter-Associated
Urinary Tract Infection (CAUTI)
Outcome Measure, and we proposed to
adopt this measure for use in the FY
2014 program and subsequent program
years. This measure is considered an
outcome measure as it relates to the
results of the quality of care provided to
patients; it is risk adjusted by which the
observed infection rate for a particular
location in a hospital is compared to an
expected infection rate calculated based
on the specific location within other
facilities that report to the NHSN.
Measure specifications may be accessed
at: http://www.cdc.gov/nhsn/PDFs/
pscManual/7pscCAUTIcurrent.pdf.
The urinary tract is the most common
site of HAIs, accounting for more than
30 percent of infections reported by
acute care hospitals.121 Healthcareassociated urinary tract infections
(UTIs) are commonly attributed to
catheterization of the urinary tract.
CAUTI can lead to such complications
as cystitis, pyelonephritis, gramnegative 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.122 Prevention of CAUTIs is
discussed in the CDC/HICPAC
document, Guideline for Prevention of
Catheter-associated Urinary Tract
Infections, which includes
recommendations for proper insertion
techniques, including hand washing,
insertion by trained staff, use of sterile
gloves, drapes, sponges and antiseptic
121 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.
122 Wong ES., Guideline for prevention of
catheter-associated urinary tract infections. Infect
Control 1981; 2:126–30.

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or sterile solution for cleaning and
lubricant jelly for insertion.123
UTIs are a major cause of morbidity
and mortality. The HHS 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.
This measure is NQF-endorsed and,
therefore, meets the requirement of
section 1866(k)(3)(A) of the Act, which
states that quality measures selected for
the PCHQR Program be endorsed by the
entity with a contract under section
1890(a) of the Act, unless section
1866(k)(3)(B) of the Act applies.
We invited public comment on our
proposal to adopt the NHSN CatheterAssociated Urinary Tract Infection
(CAUTI) outcome measure for the
PCHQR Program for collection in both
ICU and non-ICU locations within a
facility to align with the recentlyexpanded NQF-endorsed measure
specifications for the FY 2014 program
and subsequent program years.
Comment: Two commenters
supported the inclusion of this measure
in the PCHQR program.
Response: We thank the commenters
for the support of this measure.
Comment: One commenter opposed
the inclusion of the CAUTI measure in
its current form. The commenter was
concerned that this measure may
mislead consumers about the quality of
care provided at cancer centers. The
commenter asserted that cancer patients
while under treatment often have
comprised immune systems which
cause them to be more prone to contract
hospital-acquired infections such as
CAUTI. The commenter strongly urged
CMS to delay the implementation of this
measure until the measure is stratified
and risk-adjusted based on stakeholders
input.
Response: While we recognize the
complexity of treating HAIs in patients
with compromised immune systems,
such as those treated at PPS-exempt
cancer hospitals, we also believe it is
important to track HAI rates at all
hospitals for all patients—regardless of
whether they are immune-compromised
or not. The current NQF-endorsed
CAUTI measure does not contain
adjustments for immune-compromised
patients. For all hospitals, CAUTI is
stratified by CDC-specified ICU and
Specialty Care Area (SCA) locations,
123 Gould CV, Umscheid CA, Agarwal RK, Kuntz
G, Pegues DA, et al., Guideline for prevention of
catheter-associated urinary tract infections. Infect
Control 2009; 31:319–326.

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and oncology locations would be
included as SCAs, making the measure
appropriate for PCHs.
After consideration of the public
comments we received, we are
finalizing the CAUTI measure (NQF
#0138) for the PCHQR Program for FY
2014 and subsequent program years.
(2) Cancer-Specific Measures
We proposed to adopt three measures
related to the treatment of colon cancer
and two types of breast cancer (hormone
receptor-negative and hormone
receptor-positive). Specifically, these
proposed measures are: (i) Adjuvant
chemotherapy is considered or
administered within 4 months (120
days) of surgery to patients under the
age of 80 with AJCC III (lymph node
positive) colon cancer (NQF #0223); (ii)
Combination chemotherapy is
considered or administered within 4
months (120 days) of diagnosis for
women under 70 with AJCC T1c, or
Stage II or III hormone receptor negative
breast cancer (NQF #0559); and (iii)
Adjuvant hormonal therapy (NQF
#0220). The proposed measures were
developed by the American College of
Surgeons/Commission on Cancer.
We proposed to adopt these three
cancer treatment-related quality
measures for several reasons. First,
trends in national cancer incidence rates
suggest that breast and colon cancer will
become two of the more common
diagnoses 124 and these cancers are
highly prevalent among Medicare
beneficiaries. We believe the high
incidence of these types of cancer
creates an opportunity for
measurements to make an impact on the
quality of cancer care. Second, these
measures support the National Quality
Strategy’s priority to promote the most
effective prevention and treatment
practices for the leading causes of
mortality due to cancer. Third, the TEP
convened by our measure development
contractor identified the treatment of
breast and colon cancer as high priority
quality issues for PCHs due to the high
incidence of these types of cancers and
rated these measures highest compared
to other potential program measures
based on an assessment of the
importance, scientific acceptability,
usability, and feasibility of these
measures. Also, participants in a CMSconvened Listening Session on
September 8, 2011 expressed support
for the proposed measures. The
transcript for this Listening Session can
be found at: http://www.cms.gov/
HospitalQualityInits/
124 Siegel R, Naishadham D, Jemal A. Cancer
statistics, 2012. CA Cancer J Clin 2012; 62:10–29.

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05_HospitalHighlights.asp#TopOfPage.
Fourth, the MAP reviewed these cancerspecific measures and supported
inclusion of these measures in the
PCHQR Program. All of the three
proposed cancer-specific measures are
NQF-endorsed; therefore they satisfy the
requirement of section 1866(k)(3)(A) of
the Act relating to the selection of
endorsed measures for the PCHQR
Program. Furthermore, section
1866(k)(4) of the Act provides that
quality measures reported in the PCHQR
Program should assess process,
structure, outcome, patients’ perspective
on care, efficiency, and costs of care that
relate to PCHs. We believe these three
proposed cancer-specific measures meet
the above statutory criteria, as they track
important processes in the treatment of
colon and breast cancer.
Although these measures are not
currently reported in other HHS
programs, they are reported by over
1,500 cancer programs as part of their
accreditation by the Commission on
Cancer, a program of the American
College of Surgeons (see http://
www.facs.org/cancer/ncdb/index.html),
further indicating their importance as
the Commission on Cancer has taken a
leading role in establishing national
standards to ensure quality in the
provision of cancer care.
We proposed that PCHs would submit
the data needed to calculate these
measures to a CMS contractor.
(A) Adjuvant Chemotherapy Is
Considered or Administered Within 4
Months (120 days) of Surgery to Patient
Under the Age of 80 With AJCC III
(Lymph Node Positive Colon Cancer)
(NQF #0223)
This proposed measure examines
whether adjuvant chemotherapy is
delivered within a specified period of
time after a diagnosis of colon cancer.
Specifically, it looks at the proportion of
patients 18–79 with AJCC Stage III
(lymph node positive) colon cancer for
whom adjuvant chemotherapy is
considered or administered within 4
months of diagnosis. Stage III colon
cancer is colon cancer that has spread
outside the colon to one or more lymph
nodes. The adjuvant chemotherapy
measure is a process measure as it
addresses whether a defined treatment
was delivered to a patient; the measure
is not risk adjusted. That is, the measure
does not attempt to account for hospital
patient populations or other differences
between hospitals. Rather, it only
assesses the specific process was
performed. Detailed specifications for
this proposed measure can be accessed
on the Web site of the measure steward,
the American College of Surgeons at:

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http://www.facs.org/cancer/ncdb/
colonmeasures.pdf. Additionally, CMS
will provide a link to the Specifications
Manual on the QualityNet Web site.
Colorectal cancer plays a sizeable role
in affecting both health and health care
costs in the United States. The
American Cancer Society estimates that
51,690 Americans will die of colorectal
cancer in 2012 125. According to the
National Cancer Institute, more than
$14.1 billion was spent on colorectal
cancer in 2010.126
Appropriate treatment may improve
survival rates and reduce the likelihood
of costly recurrence. Strong evidence
suggests that treating Stage III colon
cancer patients with adjuvant
chemotherapy improves overall survival
and disease-free survival.127 In addition
to being supported by evidence, this
measure is consistent with the National
Comprehensive Cancer Network’s
(NCCN) guidelines for the treatment of
colon cancer (COL–4: T3–4, N1–2, MO),
which recommend that colon cancer
patients should receive adjuvant
chemotherapy.
Section 1866(k)(3)(A) of the Act
requires quality measures selected for
the PCHQR Program to be endorsed by
the entity with a contract under section
1890(a) of the Act, unless 1866(k)(3)(B)
applies. This measure is NQF-endorsed
and therefore, it meets the statutory
endorsement requirements.
We invited public comment on our
proposal to adopt the adjuvant
chemotherapy is considered or
administered within 4 months (120
days) of surgery to patient under the age
of 80 with AJCC III (lymph node
positive colon cancer) measure for the
PCHQR Program for the FY 2014
program and subsequent program years.
Comment: Many commenters
supported the inclusion of this measure
and noted that it is already widely used
in PCHs.
Response: We appreciate the support
for this measure.
After consideration of the public
comment we received, we are finalizing
our adoption of the adjuvant
chemotherapy is considered or
administered within 4 months (120
days) of surgery to patients under the
age of 80 with AJCC III (lymph node
positive colon cancer) measure (NQF
125 Siegel

R, Naishadham D, Jemal A. Cancer
statistics, 2012. CA Cancer J Clin 2012; 62:10–29.
126 Mariotto AB, Yabroff KR, Shao Y, Feuer EJ,
and Brown ML. Projections of the Cost of Cancer
Care in the United States: 2010–2020. JNCI 2011;
103:117–128.
127 Andre
´ T, Boni C, Navarro M, et al. Improved
Overall Survival With Oxaliplatin, Fluorouracil,
and Leucovorin as Adjuvant Treatment in Stage II
or III Colon Cancer in the MOSIAC Trial. J Clin Onc
2009; 27:3109–3116.

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#0223) for FY 2014 and subsequent
program years.
(B) Combination Chemotherapy is
Considered or Administered Within 4
Months (120 days) of Diagnosis for
Women under 70 With AJCC T1c, or
Stage II or III Hormone Receptor
Negative Breast Cancer (NQF #0559)
This proposed measure assesses the
proportion of women ages 18–69 who
have their first diagnosis of breast
cancer at AJCC Stage IC, II or III and
whose primary tumor is hormone
(estrogen and progesterone) receptor
negative for whom combination
chemotherapy is considered or
administered within 4 months of
diagnosis. Hormone receptor negative
means that hormones, such as estrogen,
do not drive tumor growth. This
measure is a process measure as it
addresses whether a defined treatment
was delivered to a patient; the measure
is not risk adjusted in that the measure
does not attempt to account for
differences in hospital patient
populations or other differences
between hospitals. Detailed
specifications for this proposed measure
can be accessed on the Web site of the
measure steward, the American College
of Surgeons, at: http://www.facs.org/
cancer/ncdb/breastmeasures.pdf. In
addition, CMS will provide a link to the
Specifications Manual on the
QualityNet Web site.
The number of deaths from breast
cancer has declined while spending has
increased. The American Cancer Society
estimates that 39,510 Americans will
die of breast cancer in 2012.128
Spending on breast cancer care is higher
than for any other type of cancer.
According to the National Cancer
Institute, more than $16.5 billion was
spent on breast cancer care in 2010.129
Evidence shows that treating hormone
receptor negative breast cancer patients
with combination chemotherapy is
associated with a reduced risk of relapse
or death.130 This measure is also
consistent with NCCN’s guidelines for
the treatment of invasive breast cancer
(BINV–4, 7–8), which recommend
adjuvant chemotherapy for patients
with hormone receptor negative tumors,
128 Siegel R, Naishadham D, Jemal A. Cancer
statistics, 2012. CA Cancer J Clin 2012; 62:10–29.
129 Mariotto AB, Yabroff KR, Shao Y, Feuer EJ,
and Brown ML. Projections of the Cost of Cancer
Care in the United States: 2010–2020. J Natl Cancer
Inst 2011; 103:117–128.
130 Fisher B, Jeong JH, Anderson S, et al.:
Treatment of axillary lymph node-negative,
estrogen receptor-negative breast cancer: Updated
findings from National Surgical Adjuvant Breast
and Bowel Project clinical trials. J Natl Cancer Inst
96 (24): 1823–31, 2004.

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and therefore the measure aligns with
recognized standards of treatment.
This measure is NQF-endorsed and,
therefore, it meets the requirements
under section 1866(k)(3)(A) of the Act
which states that quality measures
selected for the PCHQR Program be
endorsed by the entity with a contract
under section 1890(a) of the Act, unless
section 1866(k)(3)(B) of the Act applies.
We invited public comment on our
proposal to adopt the combination
chemotherapy is considered or
administered within 4 months (120
days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III
hormone receptor negative breast cancer
(NQF #0559) quality measure for the
PCHQR Program for the FY 2014
program and subsequent program years.
Comment: One commenter supported
the inclusion of this measure and noted
that it is already widely used in PCHs.
Response: We appreciate the support
for this measure.
After consideration of the public
comment we received, we are finalizing
our adoption of the combination
chemotherapy is considered or
administered within 4 months (120
days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III
hormone receptor negative breast cancer
measure (NQF #0559) for FY 2014 and
subsequent program years.
(C) Adjuvant Hormonal Therapy (NQF
#0220)
This proposed measure assesses
whether recommended treatment is
delivered within a specified period of
time from a patient’s breast cancer
diagnosis. Specifically, it tracks the
proportion of eligible women 18 years
or older who have their first diagnosis
of breast cancer at AJCC T1c or Stage II
or III and whose primary tumor is
hormone (estrogen or progesterone)
receptor positive breast cancer for
whom tamoxifen or a third generation
aromatase inhibitor is considered or
administered within 1 year of diagnosis.
Hormone receptor positive means that
estrogen or progesterone promotes the
growth of cancer cells. This measure is
a process measure as it relates to
whether a defined treatment was
furnished to a patient; it is not risk
adjusted. Detailed specifications for this
proposed measure can be accessed on
the Web site of the measure steward, the
American College of Surgeons, at:
http://www.facs.org/cancer/ncdb/
breastmeasures.pdf. Additionally, we
will provide a link to the Specifications
Manual on the QualityNet Web site.
The American Cancer Society
estimates that two-thirds of breast
cancer cases are hormone receptor

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positive.131 As stated previously,
appropriate and effective treatment is
important to both the health and cost
outcomes of breast cancer care. The
measure is consistent with NCCN’s
guidelines (BINV–5, 6 and 9 and BINV–
E) for the treatment of invasive breast
cancer, which recommend hormone
therapy for patients with hormone
receptor positive breast cancer, and with
the American Society of Clinical
Oncology’s (ASCO) Update on adjuvant
endocrine therapy for women with
hormone receptor positive breast cancer.
The ASCO guideline cites a wide body

and noted that it is already widely used
in PCHs.
Response: We appreciate the support
for this measure.
After consideration of the public
comment we received, we are finalizing
the adjuvant hormonal therapy measure
(NQF #0220) for FY 2014 and
subsequent program years.
After consideration of the public
comments we received, we are
finalizing all five measures as proposed
for the FY 2014 PCHQR Program and
subsequent program years. The
measures we are adopted are shown
below.

Topic

Final measures for PCHQR program beginning with FY 2014 program and subsequent program years

Safety and Healthcare Acquired Infections—HAI.
Cancer-Specific Treatments ...........

• (NQF#0139) NHSN Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure.
• (NQF#0138) NHSN Catheter-Associated Urinary Tract Infections (CAUTI) Outcome Measure.
• (NQF#0223) Adjuvant Chemotherapy is considered or administered within 4 months (120 days) of surgery to patients under the age of 80 with AJCC III (lymph node positive) colon cancer.
• (NQF#0559) Combination Chemotherapy is considered or administered within 4 months (120 days) of diagnosis for women under 70 with AJCC T1c, or Stage II or III hormone receptor negative breast cancer.
• (NQF#0220) Adjuvant Hormonal Therapy.

We seek to develop a comprehensive
set of quality measures to be available
for widespread use for informed
decision-making and quality
improvement in the cancer hospital
setting. Therefore, through future
rulemaking, we intend to propose new
measures that help us further our goal
of achieving better health care and
improved health for Medicare
beneficiaries who obtain cancer services
through the widespread dissemination
and use of performance information. In
addition, we are considering initiating a
call for input to assess the following
measure domains: clinical quality of
care, care coordination, patient safety,
patient and caregiver experience of care,
population/community health and
efficiency. We believe this approach
will promote better cancer care while
bringing the PCHQR Program in line
with other established quality reporting
and pay for performance programs such
as the Hospital IQR Program, the
Hospital OQR Program, the ESRD QIP,
and others within CMS’ purview.
We welcomed public comment and
suggestions for these, or other,
measurement areas.
Comment: One commenter urged
CMS to expand the PCHQR Program to
include measures regarding patientcentered outcomes specific to oncology,
quality of life, and functional

assessment. Specifically, the commenter
recommended the Comfortable Dying:
Pain Brought to a Comfortable Level
Within 48 Hours of Initial Assessment
(NQF #0209) and Proportion Receiving
Chemotherapy in the Last 14 Days of
Life (NQF #0210) measures. Further, the
commenter noted CMS should expand
the PCHQR Program to include
measures for additional cancer types.
Specifically, the commenter
recommended the Recording of Clinical
Stage for Lung Cancer (and Esophageal
Cancer Resection (NQF #0455) and
Recording of Performance Status Prior
to Lung Esophageal Cancer Resection
(NQF #0457) measures.
Response: We appreciate the
commenter for the suggestions and will
take them into consideration for future
measure selection.
Comment: One commenter
recommended the development or
adoption of a measure to address the
risk of febrile neutropenia in cancer
patients undergoing myelosuppressive
chemotherapy since this is consistent
with a measure gap identified by NQF.
Response: We thank the commenter
for the suggestion and will take it into
consideration for future measure
selection.
Comment: One commenter suggested
a measure to detect early diagnosis of
cancer. Another commenter requested
that CMS focus on measures that
provide data on risk-adjusted statespecific survival curves for various

131 American Cancer Society. Breast Cancer
Hormone Therapy. http://www.cancer.org/Cancer/

BreastCancer/DetailedGuide/breast-cancer-treatinghormone-therapyLastrevised01/06/2012.

4. Possible New Quality Measure Topics
for Future Years

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of supporting evidence for this method
of treatment.
This measure is NQF-endorsed and
therefore, it meets the requirement
under section 1866(k)(3)(A) of the Act,
which states that quality measures
selected for the PCHQR Program be
endorsed by the entity with a contract
under section 1890(a) of the Act, unless
section 1866(k)(3)(B) of the Act applies.
We invited public comment on our
proposal to adopt the adjuvant
hormonal therapy measure for the
PCHQR Program for the FY 2014
program and subsequent program years.
Comment: Many commenters
supported the inclusion of this measure

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types of cancer and report these
measures in three separate perspectives:
stage, overall survival, and disease-free
survival.
Response: We agree with the
commenters that these are important
aspects in cancer detection and
treatment. We thank the commenters for
the suggestions and will take them into
consideration for future measure
selection.
5. Maintenance of Technical
Specifications for Quality Measures
Many of the quality measures used in
different Medicare and Medicaid
reporting programs are NQF-endorsed.
As part of its regular maintenance
process for endorsed performance
measures, the NQF requires measure
stewards to submit annual measure
maintenance updates and undergo
maintenance of endorsement review
every 3 years. In the measure
maintenance process, the measure
steward (owner/developer) is
responsible for updating and
maintaining the currency and relevance
of the measure and will confirm existing
or minor specification changes to NQF
on an annual basis. NQF solicits
information from measure stewards for
annual reviews and in order to review
measures for continued endorsement in
a specific 3-year cycle.
Through NQF’s measure maintenance
process, NQF endorsed measures are
sometimes updated to incorporate

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changes that we believe do not
substantially change the nature of the
measure. Examples of such changes
could be updated diagnosis or
procedure codes, changes to exclusions
to the patient population, definitions, or
extension of the measure endorsement
to apply to other settings. We believe
these types of maintenance changes are
distinct from more substantive changes
to measures that result in what are
considered new or different measures,
and that they do not trigger the same
agency obligations under the
Administrative Procedure Act. In the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28066), we proposed that if the NQF
updates an endorsed measure that we
have adopted for the PCHQR Program in
a manner that we consider to not
substantially change the nature of the
measure, we would use a subregulatory
process to incorporate those updates to
the measure specifications that apply to
the program. Specifically, we would
revise the Specifications Manual so that
it clearly identifies the updates and
provide links to where additional
information on the updates can be
found. We would also post the updates
on the CMS QualityNet Web site at
https://www.QualityNet.org. We would
provide sufficient lead-time for PCHs to
implement the changes where changes
to the data collection systems would be
necessary.
We would continue to use the
rulemaking process to adopt changes to
measures that we consider to
substantially change the nature of the
measure. We believe that this proposal
adequately balances our need to
incorporate NQF updates to NQFendorsed PCH measures in the most
expeditious manner possible, while
preserving the public’s ability to
comment on updates that so
fundamentally change an endorsed
measure that it is no longer the same
measure that we originally adopted. We
invited public comment on this
proposal.
We also proposed to provide a
Specifications Manual that will contain
links to measure specifications, data
abstraction information, data
submission information, and other
information necessary for PCHs to
participate in the PCHQR Program. This
Specifications Manual would be posted
on the QualityNet Web site at: https://
www.QualityNet.org. We would
maintain the technical specifications for
the quality measures by updating this
Manual periodically, which would
include detailed instructions for PCHs
to use when collecting and submitting
data on the required measures. These
updates would be accompanied by

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notifications to PCHQR Programparticipating users, providing sufficient
time between the change and effective
dates in order to allow users to
incorporate changes and updates to the
measure specifications into data
collection systems. We would revise the
Specifications Manual and provide links
to reflect such endorsement changes
which also would be posted on the
QualityNet Web site at: https://
www.QualityNet.org. We invited public
comment on the previously described
proposed policy on maintenance of
technical specifications for quality
measures.
Comment: One commenter objected to
the proposed subregulatory process to
incorporate updates arising from NQF
maintenance review on an endorsed
measure adopted for the PCHQR
Program. The commenter believed CMS
should provide an opportunity for the
public to comment on the updates.
Response: The NQF regularly
maintains its endorsed measures
through annual and triennial reviews,
which may result in the NQF making
updates to the measures. We believe
that it is important to have in place a
subregulatory process to incorporate
nonsubstantive updates made by the
NQF into the measure specifications we
have adopted for the PCHQR Program so
that these measures remain up-to-date.
We also recognize that some changes the
NQF might make to is endorsed
measures are substantive in nature and
might not be appropriate for adoption
using a subregulatory process.
Therefore, after consideration of the
public comments we received, we are
finalizing a policy under which we will
use a subregulatory process to make
nonsubstantive updates to NQFendorsed measures used for the PCHQR
Program. With respect to what
constitutes a substantive versus
nonsubstantive change, we expect to
make this determination on a case-bycase basis. Examples of nonsubstative
changes to measures might include
updated diagnosis or procedure codes,
medication updates for categories of
medications, broadening of age ranges,
and exclusions for a measure (such as
the addition of a hospice exclusion to
the 30-day mortality measures used in
the Hospital IQR and Hospital VBP
Programs). We also believe that
nonsubstantive changes might include
updates to NQF-endorsed measures
based upon changes to guidelines upon
which the measure are based.
We will continue to use rulemaking to
adopt substantive updates made by the
NQF to the endorsed measures we have
adopted for the PCHQR Program.
Examples of changes that we might

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consider to be substantive would be
those in which the changes are so
significant that the measure is no longer
the same measure, or when a standard
of performance assessed by a measure
becomes more stringent (for example,
changes in acceptable timing of
medication, procedure/process, or test
administration). Another example of a
substantive change would be where the
NQF has extended its endorsement of a
previously endorsed measure to a new
setting, such as extending a measure
from the inpatient setting to hospice.
We also note that the NQF process
incorporates an opportunity for public
comment and engagement in the
measure maintenance process.
These policies regarding what is
considered substantive versus
nonsubstantive changes would apply to
all PCHQR Program measures.
After consideration of the public
comments we received, we are adopting
a policy for making updates to PCHQR
Program measures as explained in the
response to the comment above.
6. Public Display Requirements for the
FY 2014 Program and Subsequent
Program Years
Section 1866(k)(4) of the Act requires
the Secretary to establish procedures for
making the data submitted under the
PCHQR Program available to the public.
Such procedures shall ensure that a
PCH has the opportunity to review the
data that is to be made public with
respect to the hospital prior to such data
being made public. Section 1866(k)(4) of
the Act also provides that the Secretary
shall report quality measures of process,
structure, outcome, patients’ perspective
on care, efficiency, and costs of care that
relate to services furnished in such
hospital on the CMS Web site. In order
to meet these requirements, in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28066), we proposed to publicly
display the submitted data on the
Hospital Compare Web site (http://
www.hospitalcompare.hhs.gov/). Before
the data are publicly displayed, we
proposed that PCHs will have the
opportunity to review their data prior to
the public reporting of the measure rates
consistent with section 1866(k)(4) of the
Act. We proposed that PCHs have the
opportunity to review their data 30 days
prior to the public reporting of the
measure rates because that aligns with
our established preview process under
the Hospital IQR Program.
The Hospital Compare Web site
serves to encourage consumers to work
with their doctors and hospitals to
discuss the quality of care hospitals
provide to patients, thereby providing
an additional incentive to hospitals to

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improve the quality of care that they
furnish.
However, some information that may
not be relevant to or easily understood
by beneficiaries and information for
which there are unresolved display
issues or design considerations that may
not make them suitable for inclusion on
the Hospital Compare Web site may be
made available on other CMS Web sites,
such as http://www.cms.gov and/or
http://www.qualitynet.org. In such
circumstances, affected parties would be
notified via CMS listservs, CMS email
blasts, and QualityNet announcements
regarding the release of confidential
hospital-specific preview reports to
individual hospitals followed by the
posting of data on a CMS Web site other
than Hospital Compare.
We invited public comment on the
previously described proposals
regarding the public display of quality
measures.
After consideration of the public
comments we received we are adopting
our proposals, without modification,
regarding the public display of data
submitted under the PCHQR Program.
7. Form, Manner, and Timing of Data
Submission for FY 2014 Program and
Subsequent Program Years

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a. Background
Section 1866(k)(2) of the Act requires
that, for the FY 2014 program and each
subsequent program year, each PCH
must submit to the Secretary data on
quality measures specified under
section 1866(k)(3) of the Act in a form
and manner, and at a time as specified
by the Secretary.
The complete data submission
requirements and submission deadlines
will be posted on the QualityNet Web
site at: http://www.QualityNet.org/. In
general, in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28067), we
proposed that PCHs submit data to the
CDC for the HAI measures (CLABSI and
CAUTI), and the CMS contractor for the
three cancer-specific measures
(Adjuvant Chemotherapy for Stage III
Colon Cancer; Combination
Chemotherapy for AJCC T1c or Stage II
or III Hormone Receptor-Negative Breast
Cancer; and Adjuvant Hormonal
Therapy). As described below, we
proposed to utilize the data submission
and reporting standard procedures that
have been established by CDC for NHSN
participation in general and for
submission of the proposed HAI
measures to NHSN. We refer readers to
the CDC’s Web site for detailed data
submission and reporting procedures.
We also proposed procedures for PCHs
to follow when submitting data on the

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three proposed cancer-specific
measures.
b. Procedural Requirements for FY 2014
Program and Subsequent Program Years
In order to participate in the PCHQR
Program for the FY 2014 program and
subsequent program years, we proposed
that PCHs must comply with the
procedural requirements outlined in
this section. We stated that we have
aligned these proposed procedural
requirements with the Hospital IQR
Program to the extent possible to
streamline the procedural requirements
across different types of providers. In
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28067), we proposed that
PCHs must do the following:
• Register with QualityNet prior to
reporting and regardless of the method
used for submitting the data.
• Identify QualityNet
Administrator(s) who will follow the
registration process located on the
QualityNet Web site (http://
www.QualityNet.org).
• Complete an online Data Accuracy
and Completeness Acknowledgement
(DACA) via QualityNet, which states
that the quality measure results and any
and all data including numerator and
denominator data provided, are accurate
and complete. We proposed that,
beginning with the FY 2015 program,
the deadline for submitting the DACA
would be August 31 of the preceding
fiscal year. For more information on
DACA, please refer to the section below
entitled, ‘‘Data Accuracy and
Completeness Acknowledgement
(DACA) Requirements for the FY 2014
Program and Subsequent Program
Years.’’
• Enroll in CDC/NHSN and register
with the CMS contractor collecting the
cancer-specific measures prior to
reporting.
We strongly encouraged PCHs to
complete an online Notice of
Participation (NOP) via QualityNet. This
form would grant CMS written
authorization from the PCH to publicly
report the PCH’s measure rate on a CMS
Web site. We believe that requiring
PCHs to complete this form will inform
and educate them about program and
other related requirements.

PROPOSED CMS NOTICE OF
PARTICIPATION TIMEFRAME
Program year
(fiscal year)

Notice of Participation
(NOP) deadline

FY 2014 ....................
FY 2015 ....................
Subsequent Fiscal
Years.

August 15, 2013.
August 15, 2014.
August 15 of the preceding fiscal year.

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53563

Comment: One commenter supported
NHSN and CMS QualityNet enrollment
and registration prior to data
submission.
Response: We appreciate the
commenter for the support of our
proposal.
Comment: Several commenters urged
CMS to use American College of
Surgeons (ACoS) to serve as the CMS
contractor for the following reasons: 10
out of 11 PCHs are currently submitting
the cancer-specific measures to ACoS;
ACoS is the cancer-specific measures
developer and maintains the rights to
these measures; and ACoS has in place
sound methodologies for data validation
and measure calculations. One
commenter stated that the PCHQR
Program data submission requirement
could pose a ‘‘sizeable expense for each
participating institution and a
significant time investment.’’
Response: We recognize the concerns
surrounding the burden of participating
in the PCHQR Program and the
possibility that PCHs might be reporting
similar or the same cancer-specific
measure data to two different entities.
We are currently procuring the services
of a contractor to collect the cancerspecific measure data. We intend to
align as much as possible with the ACoS
data infrastructure and reporting format
in an effort to minimize the reporting
burden, because we recognize that this
is the process already being used by the
majority of PCHs to report this data.
Comment: Commenters asked for
more information regarding registering
with the CMS contractor and the flow of
data from the PCHs to CMS’ QualityNet
Web site.
Response: We intend to procure a
CMS contractor, which will collect the
cancer-specific measure data from the
PCHs, calculate the measure rates, and
submit those rates to CMS. Once we
have procured a contractor, PCHs will
have to register with the contractor prior
to the time when they begin to submit
cancer-specific measure data. We
anticipate awarding a contract in the fall
of 2012, and will outline more detailed
instructions at that time.
After consideration of the public
comments we received, we are
finalizing the procedural requirements
for the FY 2014 program and subsequent
program years.
c. Reporting Mechanisms for the FY
2014 Program and Subsequent Program
Years

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For the purpose of reporting quality
measures under the PCHQR Program,
we proposed to adopt the following data
submission mechanisms. In the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28067), with respect to the proposed
HAI measures (CLABSI and CAUTI), we
proposed that PCHs submit the data to
the CDC through the NHSN database.
We proposed to use the data submission
and reporting standard procedures that
have been set forth by CDC for NHSN
participation in general and for
submission of the proposed HAI
measures to NHSN. We refer readers to
the CDC’s Web site (http://www.cdc.gov/
nhsn/) for detailed data submission and
reporting procedures. After the final
submission deadline has passed, CMS
will obtain the PCH-specific
calculations that have been generated by
the NHSN for the PCHQR Program.
With respect to the three proposed
cancer-specific measures, we proposed
that PCHs submit the data to the CMS
contractor. The CMS contractor would
then calculate the quality measures rates
and submit those rates to CMS on a
quarterly basis.
We invited public comment on our
proposed reporting mechanisms.
(1) Reporting Mechanism for the HAI
Measures
We proposed to adopt a quarterly
submission process for the proposed

HAI measures—CLABSI AND CAUTI—
that uses a reporting mechanism similar
to the one finalized for the Hospital IQR
program (75 FR 50223) starting with
October 1, 2012 infection events. We
have successfully implemented this
reporting mechanism in the Hospital
IQR program and intend to use similar
reporting mechanism to collect data for
the PCHQR Program. We welcomed
public comment on this proposal.
Comment: One commenter supported
reporting HAI measures to NHSN.
Response: We appreciate the
commenter’s support.
(2) Reporting Mechanism for the CancerSpecific Measures
We proposed to collect the three
cancer-specific measures data using a
CMS contractor starting with the FY
2014 program. Similar to the reporting
mechanism we proposed to adopt the
proposed HAI measures, we anticipate
that PCHs would report their measure
data to the contractor, which would
then calculate the measure rates and
submit those rates to CMS. We stated
that if these proposed measures were
finalized, we would publish the
technical specifications and file layouts
necessary for reporting in enough time
to enable PCHs to incorporate any
necessary changes to their information
systems. We invited public comment on
our proposed reporting requirements.

Comment: A commenter suggested
leveraging existing ACoS data reporting
requirements to reduce financial burden
because the PCHQR program could pose
a ‘‘sizeable expense for each
participating institution and a
significant time investment.’’
Response: We understand that the
PCHQR Program will create a new
reporting burden for PCHs, and as we
have stated above, one of our goals is to
minimize that burden as much as
possible. For that reason, we intend to
align the data collection process for the
cancer-specific measures after the
process currently used by the ACoS, the
measure steward for these measures,
because we recognize that this is the
process already being used by the
majority of PCHs to report this data.
After consideration of the public
comment we received, we are finalizing
the data reporting mechanisms
described above.
d. Data Submission Timelines for the FY
2014 Program and Subsequent Program
Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28067 through
28068), we proposed that PCHs must
adhere to certain timelines in reporting
their measure data.

PROPOSED PCHQR DATA SUBMISSION TIMELINES
Time line
(calendar year)

Quality measures *

Q4 (October–December 2012) .......

(NQF #0139) NHSN CLABSI Outcome Measure ** ..............................
(NQF #0138) NHSN CAUTI Outcome Measure ** ................................
(NQF #0223) Adjuvant Chemotherapy is considered or administered
within 4 months (120 days) of surgery to patients under the age of
80 with AJCC Stage III (lymph node positive) colon cancer+.
(NQF #0559) Combination Chemotherapy is considered or administered within 4 months (120 days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III hormone receptor negative Breast
Cancer∂.
(NQF #0220) Adjuvant Hormonal Therapy∂ .........................................
(NQF #0139) NHSN CLABSI Outcome Measure ** ..............................
(NQF #0138) NHSN CAUTI Outcome Measure ** ................................
(NQF #0223) Adjuvant Chemotherapy is considered or administered
within 4 months (120 days) of surgery to patients under the age of
80 with AJCC Stage III (lymph node positive) colon cancer∂.
(NQF #0559) Combination Chemotherapy is considered or administered within 4 months (120 days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III hormone receptor negative Breast
Cancer∂.
(NQF #0220) Adjuvant Hormonal Therapy∂ .........................................
(NQF #0139)NHSN CLABSI Outcome Measure ** ...............................

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Q1 (January–March 2013) ..............

Subsequent calendar quarters ........

CMS submission deadline

(NQF #0138) NHSN CAUTI Outcome Measure ** ................................
(NQF #0223) Adjuvant Chemotherapy is considered or administered
within 4 months (120 days) of surgery to patients under the age of
80 with AJCC Stage III (lymph node positive) colon cancer∂.

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May 15, 2013.
May 15, 2013.
August 15, 2013.

August 15, 2013.

May 15, 2014.
August 15, 2013.
August 15, 2013.
November 15, 2013.

November 15, 2013.

August 15, 2014.
November 15 of each respective
year.
November 15 of each respective
year.
February 15 of each respective
year.

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53565

PROPOSED PCHQR DATA SUBMISSION TIMELINES—Continued
Time line
(calendar year)

Quality measures *

CMS submission deadline

(NQF #0559) Combination Chemotherapy is considered or administered within 4 months (120 days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III hormone receptor negative Breast
Cancer∂.
(NQF #0220) Adjuvant Hormonal Therapy∂ .........................................

February 15 of each respective
year.
November 15 of each respective
year.

EMCDONALD on DSK67QTVN1PROD with RULES2

* Referred to as the HAI and Cancer-Specific Treatment Quality Measures.
** HAI event occurred in applicable quarter.
∂ Initial diagnosis in applicable quarter.

We stated that our principal rationale
for these proposed timeframes is to align
the HAI measure submission deadlines
with existing CMS deadlines to collect
the same quality measure information.
We also seek to align our timeframes
with those of the ACoS, which
separately collects the same type of
cancer-specific measure data from many
PCHs. By aligning these deadlines by
measure, we strive to reduce the
reporting burden by using information
already collected by many PCHs in their
own quality measurement and
improvement efforts. The proposed
quarterly CDC/NHSN submission
timeframes and deadlines also match
the existing Hospital IQR quarterly
submission timeframes for the same HAI
measures. In the case of the three
cancer-specific quality measures, we
also believe that these proposed
submission timeframes will give PCHs
enough time to measure follow-up
chemotherapy (4 months following the
cancer diagnosis) and hormone therapy
visits (12 months following the cancer
surgery), as well as identify and correct
discordant submitted data (2 months for
the two proposed chemotherapy
measures, and 3 months for the
proposed adjuvant hormone therapy
measure).
We invited public comment on the
proposed data submission methods and
timelines.
Comment: One commenter pointed
out that PCHs may not have adequate
time to submit HAI data by May 15,
2013 because PCHs may not be familiar
with the data reporting processes and
the reliability and validity of measures
will not be fully tested in the new
settings such as the PCHs.
Response: In further assessing the
proposed data submission timeline, we
agree with the commenter’s concerns.
We have also been informed by CDC
that modifications to its IT
infrastructure (for example, defining
and mapping new locations) are ongoing and will not be completed in time
for the proposed first quarter of data
submission (Q4 of 2012 [October–

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December, 2012]). Therefore, in
response to this comment, we will
finalize a one quarter data collection
period for the two HAI measures
(CLABSI and CAUTI) for purposes of
the FY 2014 PCHQR Program. PCHs will
be required to report data on this
measure for 1st quarter 2013 events (that
is, January 1–March 31, 2013 events),
and that data will be due to the CDC on
or before August 15, 201.
We believe that the reliability and
validity of these two HAI measures is
sufficient for purposes of the PCHQR
Program. This reliability and validity
has been demonstrated through
collection of these measures in the
Hospital IQR Program, and existing HAI
reporting mandates in over 20 States.
The NQF also endorsed these measures,
and the MAP recommended these
measures for purposes of PCHQR data
collection.
We also strive to align data collection
processes, public reporting of data,
outreach, and education to PCHs with
the Hospital IQR Program and other
quality reporting programs to the extent
feasible and clinically appropriate.
Comment: One commenter believed
that this proposed reporting timeline
violates the statute and its intent. The
commenter viewed two provisions of
the statute authorizing the PCHQR
Program as relevant: the provision in
section 1866(k)(2) of the Act, which
requires that for FY 2014 and each
subsequent fiscal year, PCHs ‘‘shall
submit to the Secretary data on quality
measures specified under paragraph
(3)’’; and the provision in section
1866(k)(3)(C) of the Act which requires
the Secretary to publish the measures
applicable with respect to fiscal year
2014 by October 1, 2012. The
commenter believed that it was
unreasonable for CMS to conclude that
Congress, in enacting this provision,
would require the Secretary to
announce the measures on the date that
the measurement would begin. The
commenter believed that Congress
intended for the measures to be
announced with sufficient lead time—a

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minimum of two years—for the PCHs to
begin reporting. The commenter urged
CMS to adopt a delay in mandatory
reporting and to start mandatory
measurement reporting no earlier than
October 1, 2014.
Response: We believe that our
proposals are consistent with sections
1866(k)(2) and (k)(3)(C) of the Act, and
note that they are consistent with our
approach we have taken in a number of
other new quality reporting programs,
including the Long-Term Care Hospital
Quality Reporting (LTCHQR) Program
and the Inpatient Rehabilitation
Hospital (IRF) Quality Reporting
Program.
However, we recognize that it may be
difficult for PCHs to start reporting the
cancer-specific measure data starting
with 4th calendar quarter 2012 data
because we do not expected to award a
contract for the collection of this data
until fall 2012. We believe that deferring
the initial data reporting period until
January 1, 2013 for the cancer-specific
measure data addresses this concern, as
well as makes the starting quarter for
data collection consistent with that we
are finalizing for the HAI measures.
Accordingly, we are finalizing that the
reporting period will begin on January
1, 2013 for all measures. This change is
reflected in the table below.
Comment: Some commenters asked
CMS to provide more information about
the timeline for data submission and the
frequency of public data displayed
under the PCHQR Program for all
measures. Commenters also requested
alignment of the data submission
timeline with that used for the Hospital
IQR Program measures.
Response: We agree that the quality
information displayed on the Hospital
Compare Web site increases the
transparency of the quality of care
provided at PCHs and we appreciate the
commenters for their support.
We recognize that we update many
measures, including the two HAI
measures, on a quarterly basis under the
Hospital IQR Program. Because acute
care hospitals already report HAI data

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on a quarterly basis for purposes of the
Hospital IQR Program, we believe that
quarterly reporting of HAI data is also
feasible for PCHs. We seek to align our
public reporting and data collection
frequency of PCH HAI data with
Hospital IQR Program quarterly updates
of HAI data. We believe that requiring
quarterly data submissions beginning
with 1st calendar quarter 2013
discharges will provide the public with
more current information on the
Hospital Compare Web site than our
current annual data submission
proposal.
We also intend to provide the public
with the most currently available
information on the three cancer-specific
measures. We recognize that the ACoS
currently collects data for these
measures on a quarterly basis. We
believe that our data collection schedule
for the cancer-specific measures should
align with some of the measures
currently reported on the Hospital
Compare Web site, which is on a
quarterly basis. Data for many Hospital
IQR and OQR chart-abstracted process
of care measures are collected using
quarterly submission deadlines, and
measure rates are publicly displayed on
the Hospital Compare Web site using
quarterly updates to reflect the most
current data.
We believe that quarterly data
collection of both HAI and cancerspecific measure data is not unduly
burdensome for PCHs because we
understand that the vast majority of

PCHs are currently reporting these data
to the CDC and ACoS on at least a
quarterly basis. We believe that aligning
the data collection frequency and
deadlines with other programs
collecting similar information has the
potential to reduce the data reporting
burden for PCHs.
Accordingly, we are finalizing that
beginning with the FY 2014 PCHQR
Program, PCHs will be required to
submit data on a quarterly basis. For
purposes of the FY 2014 program, the
only data that we will require is 1st
quarter 2013 data, with that data being
due by August 15, 2013 for the two HAI
measures, and November 15, 2013 for:
(1) Adjuvant chemotherapy is
considered or administered within 4
months (120 days) of surgery to patients
under the age of 80 with AJCC III
(lymph node positive) colon cancer
measure; and (2) Combination
chemotherapy is considered or
administered within 4 months (120
days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III
hormone receptor negative breast cancer
measure. Data will be due on May 15,
2014 for the adjuvant hormonal therapy
measure. We are changing the due date
for the adjuvant hormonal therapy
measure because the measure is
specified to include an assessment of
the 12-month therapeutic effect from the
time of diagnosis to hormonal therapy.
PCHs will also be required to submit
data on all measures on a quarterly
basis, and data will be due on or before

the deadlines shown in Table 1 below.
We are revising these deadlines because
the timelines are in alignment with
some of the current measures reported
on the Hospital Compare Web site. For
purposes of determining whether a PCH
has met the reporting requirements for
a particular program year, we will look
at the data quarters submitted during
the 12 months preceding the applicable
fiscal year. For example, CMS would
assess only CLABSI and CAUTI data
submitted by August 15, 2013, for
purposes of the FY 2014 payment
determination. For the FY 2015
payment determination, we would
assess quarterly data submission
deadlines occurring between October 1,
2013 and September 30, 2014. In
subsequent payment determination
years, we would assess quarterly
submission deadlines occurring in the
previous fiscal year. The applicable
discharge quarters applicable to an
annual payment determination would
vary by measure because the quarterly
submission deadlines vary by measure.
After consideration of the public
comments we received, we are
finalizing data submission timelines for
the PCHQR Program for FY 2014 and
subsequent program years. PCHs will
submit the data on the HAI and cancerspecific measures beginning with Q1 of
CY 2013 (January through March 2013).
Information on the data submission
timeline for both the HAI measures and
cancer-specific measures is listed in the
table below.

FINAL PCHQR DATA SUBMISSION TIMELINES
Time Line
(calendar year)

Quality measures *

Q1 2013 (January–March 2013) .....

(NQF #0139) NHSN CLABSI Outcome Measure ** ..............................
(NQF #0138) NHSN CAUTI Outcome Measure ** ................................
(NQF #0223) Adjuvant Chemotherapy is considered or administered
within 4 months (120 days) of surgery to patients under the age of
80 with AJCC Stage III (lymph node positive) colon cancer +.
(NQF #0559) Combination Chemotherapy is considered or administered within 4 months (120 days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III hormone receptor negative Breast
Cancer +.
(NQF #0220) Adjuvant Hormonal Therapy + .........................................
(NQF #0139) NHSN CLABSI Outcome Measure ** ..............................

Subsequent calendar quarters ........

CMS submission deadline

EMCDONALD on DSK67QTVN1PROD with RULES2

(NQF #0138) NHSN CAUTI Outcome Measure ** ................................
(NQF #0223) Adjuvant Chemotherapy is considered or administered
within 4 months (120 days) of surgery to patients under the age of
80 with AJCC Stage III (lymph node positive) colon cancer +.
(NQF #0559) Combination Chemotherapy is considered or administered within 4 months (120 days) of diagnosis for women under 70
with AJCC T1c, or Stage II or III hormone receptor negative Breast
Cancer +.
(NQF #0220) Adjuvant Hormonal Therapy ∂ ........................................

August 15, 2013.
August 15, 2013.
November 15, 2013.
November 15, 2013.

May 15, 2014.
4 and 1⁄2 months following last
quarterly event date.
4 and 1⁄2 months following last
quarterly event date.
7 and 1⁄2 months following last
quarterly admission date.
7 and 1⁄2 months following last
quarterly admission date.
13 and 1⁄2 months following last
quarterly admission date.

* Referred to as the HAI and Cancer-Specific Treatment Quality Measures.
** HAI event occurred in applicable quarter, begins on January 1, 2013 and beyond.
+ Initial diagnosis in applicable quarter, begins on January 1, 2013 and beyond.

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e. Data Accuracy and Completeness
Acknowledgement (DACA)
Requirements for the FY 2014 Program
and Subsequent Program Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28068), we
proposed that PCHs acknowledge their
data accuracy and completeness once
annually. PCHs would submit an
electronic acknowledgement that the
data provided to meet the applicable
annual PCHQR Program data
submission requirement is accurate and
complete to the best of the facility’s
knowledge at the time of data
submission. We proposed to begin
annual DACA submission starting with
the FY 2015 program, and such
submission deadline would be due to
CMS no later than August 31, 2014. We
proposed to begin the DACA with the
FY 2015 program in an effort to provide
ample opportunity for the PCHs to
become familiar with the reporting
processes. Therefore, we did not
propose submission of a DACA for the
PCHQR Program for FY 2014. We
proposed that the DACA submission
deadline for each program year,
beginning with FY 2015, be August 31
preceding the respective PCHQR
Program year. We proposed August 31
as the DACA deadline for two reasons.
First, requiring PCHs to acknowledge
their data’s accuracy and completeness
by August 31 preceding the respective
PCHQR Program year provides us with
sufficient time to ensure compliance
with the program by October 1, the start
of the fiscal year. Secondly, we
proposed this date to align our DACA
deadline with other quality reporting
programs, such as the Hospital IQR
Program.
We invited public comment on our
proposed data accuracy and
completeness acknowledgement
requirements.
Comment: Several commenters
supported the proposed DACA
requirements for the PCHQR Program.
Response: We appreciate the
commenters for their support of our
proposal.
Comment: One commenter stated that
the process by which PCHs complete
the DACA form does not ensure that
publicly reported quality measures will
be accurate because CMS has not
proposed to validate the data.
Response: We are finalizing a
requirement that, beginning with the FY
2015 PCHQR Program, PCHs
participating in the PCHQR Program

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acknowledge the accuracy and
completeness of their data to their best
knowledge, which will provide us with
some assurance that the submitted data
are accurate. We would like to provide
PCHs with an opportunity to become
familiar with the new program before
we consider establishing a process to
validate the quality measure data. This
approach is consistent with our
approach to validation in the Hospital
OQR Program during the initial years of
the program. Initially, we want to
encourage PCHs to begin reporting
quality data and using the quality
measure information for quality
improvement purposes.
After consideration of the public
comments we received, we are
finalizing the DACA requirements for
the FY 2014 and subsequent program
years. These timeframes are shown
below.

FINAL CMS DATA ACCURACY AND
COMPLETENESS ACKNOWLEDGEMENT
(DACA) TIMEFRAMES
Program year
(fiscal year)

Data accuracy and
completeness
acknowledgement
(DACA) deadline

FY 2014 ....................
FY 2015 ....................
Subsequent Fiscal
Years.

Not required.
August 31, 2014.
August 31 of the preceding fiscal year.

C. Hospital Value-Based Purchasing
(VBP) Program
1. Statutory Background
Section 1886(o) of the Act, as added
by section 3001(a)(1) of the Affordable
Care Act, requires the Secretary to
establish a hospital value-based
purchasing program (the Hospital
Value-Based Purchasing (VBP) Program)
under which value-based incentive
payments are made in a fiscal year to
hospitals that meet 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 states
that the Hospital VBP Program applies
to payments for hospital discharges
occurring on or after October 1, 2012. In
accordance with section 1886(o)(6)(A) of
the Act, we are required to make valuebased incentive payments under the
Hospital VBP Program to hospitals that
meet or exceed performance standards
for a performance period for a fiscal

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53567

year. As further required by section
1886(o)(6)(C)(ii)(I) of the Act, we will
base each hospital’s value-based
payment percentage on the hospital’s
Total Performance Score (TPS) for a
specified performance period. In
accordance with section 1886(o)(7) of
the Act, the total amount available for
value-based incentive payments for a
fiscal year will be equal to the total
amount of the payment reductions for
all participating hospitals for such fiscal
year, as estimated by the Secretary. For
FY 2013, the available funding pool will
be equal to 1.00 percent of the baseoperating DRG payments to all
participating hospitals, as estimated by
the Secretary, and the size of the
applicable percentage will increase to
1.25 percent for FY 2014, 1.50 percent
for FY 2015, 1.75 percent for FY 2016,
and 2.0 percent for FY 2017 and
successive fiscal years.
Section 1886(o)(1)(C) of the Act
generally defines the term ‘‘hospital’’ for
purposes of the Hospital VBP Program
as a subsection (d) hospital (as that term
is 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
performance period for the fiscal year,
the Secretary has 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 that apply to the hospital
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 FY 2013 Hospital
VBP Program
In April 2011, we issued the Hospital
Inpatient VBP Program final rule to
implement section 1886(o) of the Act
(76 FR 26490 through 26547). As
described more fully in that final rule,
for the FY 2013 Hospital VBP Program,
we adopted 13 measures, including 12
clinical process of care measures and 8
dimensions from the Hospital Consumer
Assessment of Healthcare Providers and
Systems Survey (HCAHPS), that we
categorized into two domains (76 FR
26495 through 26511). We grouped the

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12 clinical process of care measures into
a Clinical Process of Care domain, and
placed the HCAHPS survey measure
into a Patient Experience of Care
domain. We adopted a 3-quarter
performance period from July 1, 2011
through March 31, 2012 for these
measures (76 FR 26494 through 26495),
and performance standards on which
hospital performance will be evaluated.
To determine whether a hospital meets
or exceeds the performance standards
for these measures, we will assess each
hospital’s achievement during this
specified performance period, as well as
its improvement during this period as
compared with its performance during a
3-quarter baseline period from July 1,
2009 through March 31, 2010 (76 FR
26493 through 26495).
We will then calculate a TPS 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, weighting each
domain score (for the FY 2013 Hospital
VBP Program, the weights will be
clinical process of care = 70 percent,
patient experience of care = 30 percent),
and adding together the weighted
domain scores. We will convert each
hospital’s TPS into a value-based
incentive payment percentage using a
linear exchange function and will then
convert the value-based incentive
payment percentage into a per discharge
value-based incentive payment amount.
We will incorporate the reduction to
each hospital’s base operating DRG
payment amount for each discharge, as
well as the value-based incentive
payment amounts that the hospital
earned as a result of its performance (if
applicable) into our claims processing

systems in January 2013, and these
adjustments will apply to FY 2013
discharges. We refer readers to the
Hospital Inpatient VBP Program final
rule for further explanation of the
details of the FY 2013 Hospital VBP
Program (76 FR 26490 through 26547).
We proposed to codify in our
regulations at 42 CFR 412.160 a number
of definitions that we previously
finalized for the Hospital VBP Program
in the Hospital Inpatient VBP final rule,
including definitions of the terms
achievement threshold, benchmark,
domain, domain score, hospital,
improvement threshold, performance
period, and TPS. We did not receive any
comments on the specific regulation text
that we proposed with respect to these
terms. In this final rule, we are making
a number of technical, clarifying
changes to these definitions and
otherwise adopting them as final.
We also proposed to codify in our
regulations at 42 CFR 412.164 that, as
we previously finalized, we will select
measures for purposes of the Hospital
VBP Program, and that we will post data
on each measure on the Hospital
Compare Web site for at least one year
prior to the beginning of the
performance period for the measure
under the Hospital VBP Program. We
did not receive any comments on the
specific regulation text that we
proposed, and we are finalizing
§ 412.164 with one technical change.
We proposed to codify in our
regulations at 42 CFR 412.165 and 42
CFR 412.166 the performance standards
and performance scoring methodologies
that we previously finalized for the
Hospital VBP Program. We did not
receive any comments on the specific

regulation text that we proposed. We are
finalizing this regulation text with a few
technical changes, including combining
the two provisions into one provision at
42 CFR 412.165.
3. FY 2014 Hospital VBP Program
Measures
For FY 2014, we have adopted 17
measures for the Hospital VBP Program,
including the 12 clinical process of care
measures and the HCAHPS measure that
we adopted for the FY 2013 Hospital
VBP Program, 1 new clinical process of
care measure (SCIP–Inf–9: Postoperative
Urinary Catheter Removal on
Postoperative Day 1 or 2), and 3
mortality outcome measures (Acute
Myocardial Infarction (AMI) 30-Day
Mortality Rate, Heart Failure (HF) 30Day Mortality Rate, Pneumonia (PN) 30Day Mortality Rate). The clinical
process of care, HCAHPS, and mortality
measures are discussed in more detail in
the Hospital Inpatient VBP Program
final rule (76 FR 26510 through 26511)
and SCIP–Inf–9 is discussed in more
detail in the CY 2012 OPPS/ASC final
rule with comment period (76 FR
74530).
Although we also previously adopted
8 HAC measures, 2 AHRQ composite
measures, and a Medicare Spending per
Beneficiary Measure for the FY 2014
Hospital VBP Program, we have
suspended the effective date of these
measures, with the result that these
measures will not be included in the FY
2014 Hospital VBP Program (76 FR
74528 through 74530).
Set out below is a complete list of the
measures adopted for the FY 2014
Hospital VBP Program:

CLINICAL PROCESS OF CARE, PATIENT EXPERIENCE OF CARE AND OUTCOME MEASURES FOR THE FY 2014 HOSPITAL
VBP PROGRAM
IV. Measure ID

Measure Description

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Clinical Process of Care Measures
Acute myocardial infarction:
AMI–7a .....................................
AMI–8a .....................................
Heart Failure:
HF–1 ........................................
Pneumonia:
PN–3b ......................................
PN–6 ........................................
Healthcare-associated infections:
SCIP–Inf–1 ...............................
SCIP–Inf–2 ...............................
SCIP–Inf–3 ...............................
SCIP–Inf–4 ...............................
SCIP–Inf–9 ...............................
Surgeries:
SCIP–Card–2 ...........................
SCIP–VTE–1 ............................

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Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival.
Primary PCI Received Within 90 Minutes of Hospital Arrival.
Discharge Instructions.
Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic Received in Hospital.
Initial Antibiotic Selection for CAP in Immunocompetent Patient.
Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision.
Prophylactic Antibiotic Selection for Surgical Patients.
Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time.
Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose.
Postoperative Urinary Catheter Removal on Post Operative Day 1 or 2.
Surgery Patients on a Beta Blocker Prior to Arrival That Received a Beta Blocker During the Perioperative
Period.
Surgery Patients with Recommended Venous Thromboembolism Prophylaxis Ordered.

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53569

CLINICAL PROCESS OF CARE, PATIENT EXPERIENCE OF CARE AND OUTCOME MEASURES FOR THE FY 2014 HOSPITAL
VBP PROGRAM—Continued
IV. Measure ID

Measure Description

SCIP–VTE–2 ............................

Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior
to Surgery to 24 Hours After Surgery.

.
V. Measure ID

Measure description
Patient Experience of Care Measures

HCAHPS .........................................

Hospital Consumer Assessment of Healthcare Providers and Systems Survey *.
Outcome Measures

MORT–30–AMI ...............................
MORT–30–HF .................................
MORT–30–PN .................................

Acute Myocardial Infarction (AMI) 30-Day Mortality Rate.
Heart Failure (HF) 30-Day Mortality Rate.
Pneumonia (PN) 30-Day Mortality Rate.

* The finalized dimensions of the HCAHPS survey for use in the FY 2014 Hospital VBP Program are: Communication with Nurses, Communication with Doctors, Responsiveness of Hospital Staff, Pain Management, Communication about Medicines, Cleanliness and Quietness of Hospital Environment, Discharge Information and Overall Rating of Hospital. These are the same dimensions that we adopted for the FY 2013 Hospital VBP Program.

4. Other Previously Finalized
Requirements for the Hospital VBP
Program
In the CY 2012 OPPS/ASC final rule
with comment period (76 FR 74532
through 74547), we finalized a number
of other policies for the FY 2014
Hospital VBP Program including: The
minimum number of cases that a
hospital must report to receive a score
on a mortality measure; the minimum
number of measures that a hospital must
report in order to receive a score on the
Outcome domain; the baseline and
performance periods; the performance
standards for the clinical process of care
and patient experience of care measures
(we previously finalized the
performance standards for the 3
mortality outcome measures in the
Hospital Inpatient VBP Program final
rule (76 FR 26513)); the scoring
methodology; and the domain weighting
methodology. We also finalized for all
years of the Program a process that will
allow hospitals to review and correct
the data that they submit to the QIO
Clinical Warehouse on clinical process
of care measures, their clinical process
of care measure rates, their HCAHPS
data, and their patient-mix and mode
adjusted HCAHPS scores.

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5. Hospital VBP Program Payment
Adjustment Calculation Methodology
a. Definitions of the Term ‘‘Base
Operating DRG Payment Amount’’ for
Purposes of the Hospital VBP Program
Section 1886(o)(7)(D) of the Act
generally defines the base operating
DRG payment amount, with respect to a
hospital for a fiscal year, as ‘‘the
payment amount that would otherwise
be made under section 1886(d)

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(determined without regard to
subsection (q) [the Hospital
Readmissions Reduction Program]) for a
discharge if [the Hospital VBP Program]
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); and * * * such other
payments under subsection (d)
determined appropriate by the
Secretary.’’ Paragraphs (5)(A), (5)(B),
(5)(F), and (12) of section 1886(d) of the
Act refer to outlier payments, indirect
medical education (IME) payments,
disproportionate share (DSH) payments,
and low-volume hospital payments,
respectively.
We stated in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28070) that
the payment that would otherwise be
made with respect to a discharge is the
applicable average standardized amount
adjusted for resource utilization by the
applicable MS–DRG relative weight and
adjusted for differences in geographic
costs by the applicable area wage index
(and by the applicable COLA for
hospitals located in Alaska and Hawaii),
which is often referred to as ‘‘the wageadjusted DRG operating payment.’’ The
payment amount that would otherwise
be made with respect to a discharge also
includes any adjustments to the wageadjusted DRG operating payment that
the hospital qualifies for, including an
outlier adjustment (under section
1886(d)(5)(A) of the Act), an IME
adjustment (under section 1886(d)(5)(B)
of the Act), a disproportionate share
payment adjustment (under section
1886(d)(5)(F) of the Act), a low-volume
payment adjustment (under section
1886(d)(12) of the Act), an adjustment
for new medical services or technologies

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under section 1886(d)(5)(K) of the Act
(often referred to as ‘‘new technology
add-on payments’’), and/or any other
adjustment determined appropriate by
the Secretary.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28070), consistent
with section 1886(o)(7)(D) of the Act, we
proposed to generally define the term
‘‘base operating DRG payment amount’’
for purposes of the Hospital VBP
Program as the wage-adjusted DRG
operating payment plus any applicable
new technology add-on payment. We
proposed to include the new technology
add-on payment amount in the
definition of base operating DRG
payment amount for the Hospital VBP
Program because the provision of a new
technology to a Medicare beneficiary is
a treatment decision, unlike the other
add-on payments which are excluded by
statute (for example, IME and DSH addons). We believe that it represents a cost
to the Medicare program that should be
subject to the applicable percent
reduction to the base operating DRG
payment amount which creates the
funding pool for value-based incentive
payments. We also note that this
proposed definition is consistent with
the definition of ‘‘base operating DRG
payment amount’’ that we proposed to
adopt for the Hospital Readmissions
Reduction Program, and we believe that
maintaining consistency to the extent
possible with other Medicare incentive
payment programs is an important goal
for the Hospital VBP Program. There are
no other subsection (d) payment
adjustments that would otherwise apply
to the discharge on a per-claim basis. As
required by the statute, the ‘‘base
operating DRG payment amount’’ would
not include an outlier, IME, DSH, or

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low-volume payment adjustment that
would otherwise apply to the discharge.
We proposed to codify the definition
of the term ‘‘wage-adjusted DRG
operating payment’’ and the definition
of the term ‘‘base-operating DRG
payment amount’’ as it would apply to
most subsection (d) hospitals in our
regulations at 42 CFR 412.160. We
welcomed public comment on these
proposed definitions.
Comment: The majority of
commenters supported our proposed
general definition of base-operating DRG
payment amount. A few commenters
suggested that applicable new
technology add-on payments should not
be included in the definition. These
commenters expressed the belief that
new technology add-on payments are
extrinsic to the base rate and that their
inclusion in the base operating DRG
payment amount definition would be in
conflict with ensuring adequate
payment for new technologies. Two
commenters suggested that CMS clarify
the handling of capital costs in defining
the base operating DRG payment
amount, with one suggesting they
should be included in the definition and
one suggesting they should be excluded.
Response: We thank the commenters
for their support of our proposed
general definition of base operating DRG
payment amount for the Hospital VBP
Program. With respect to the new
technology add on payments, we
disagree with the commenters who
suggested that they should be excluded
from the definition of the term ‘‘base
operating DRG payment amount.’’ We
acknowledge that new technology add
on payments could be viewed as
extrinsic to the base rate, but we
disagree that their inclusion in the
definition of the term base operating
DRG payment amount would be in
conflict with ensuring adequate
payments for the provision of new
technologies. Under the Hospital VBP
Program, hospitals that perform well on
the selected measures may earn back
more than the applicable percent
reduction used to fund the value based
incentive payments. Therefore, a
hospital that provides an effective new
technology and performs well on the
measures would be able to earn an
additional payment under the Program.
We continue to believe that these
payments represent treatment decisions
made by hospitals, and are therefore
appropriately captured in our definition
for this Program. Further, we value
consistency with the definition being
used for the Hospital Readmissions
Reduction Program, which includes
new technology add-on payments. With
respect to capital payments, we did not

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propose to include them in the
definition of base operating DRG
payment amount because section
1886(o)(7)(D)(i) of the Act defines the
base operating DRG payment amount,
with respect to most subsection (d)
hospitals as ‘‘the payment amount that
would otherwise be made under section
1886(d)’’ with certain exclusions.
Capital payments are paid to most acute
care hospitals under section 1886(g) of
the Act and, therefore, are not included
in the payment amount that would
otherwise be made under section
1886(d) of the Act.
Comment: One commenter suggested
that the transfer payment adjustment
should be included in the definition of
base-operating DRG payment amount.
Response: We agree with this
comment and are revising our definition
of the term ‘‘wage-adjusted DRG
operating payment’’ at 42 CFR 412.160
to include an applicable payment
adjustment for a transfer under 42 CFR
412.4(f). The transfer adjustment is a
reduction to the payment amount,
which we apply when a patient leaves
the hospital before the average length of
stay for their DRG, and continues to
receive treatment in either another acute
hospital or a post acute setting. We
believe that the transfer adjustment is
appropriately included in the
adjustment to the standardized amount
for resource utilization because the
transfer adjustment is applied in order
to make the payment that would
otherwise be made to a subsection (d)
hospital that transfers a patient
commensurate with the resources that
the hospital used to treat that patient.
After consideration of the public
comments we received, we are
finalizing the definition of the term
‘‘wage-adjusted DRG operating
payment’’ as the applicable average
standardized amount adjusted for (i)
Resource utilization by the applicable
MS–DRG relative weight, (ii) differences
in geographic costs by the applicable
area wage index (and by the applicable
COLA for hospitals located in Alaska
and Hawaii), and (iii) an applicable
transfer under 42 CFR 412.4(f). We are
also finalizing the definition of the term
‘‘base operating DRG payment amount’’
as that term applies to most subsection
(d) hospitals as the wage-adjusted DRG
operating payment plus any applicable
new technology add-on payments under
42 CFR 412.4(f). We are finalizing that
this amount is determined without
regard to any payment adjustments
under the Hospital Readmissions
Reduction Program, and that it does not
include any additional payments for
indirect medical education under
§ 412.105, the treatment of a

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disproportionate share of low-income
patients under § 412.106, outliers, or a
low volume of discharges under
§ 412.101. We are codifying these
definitions in our regulations at 42 CFR
412.160.
Section 1886(o)(7)(D)(ii)(I) of the Act
states that in the case of a Medicaredependent, small rural hospital (MDH)
(with respect to discharges occurring
during FY 2012 or FY 2013) or a sole
community hospital (SCH), the base
operating DRG payment amount is
defined as the payment amount that
would otherwise be made under section
1886(d) of the Act without regard to
certain factors that affect payments to
these categories of hospitals (sections
1886(b)(3)(I) and (L) of the Act, and
section 1886(d)(5)(D) of the Act for
SCHs, and section 1886(d)(5)(G) of the
Act for MDHs). In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28071),
consistent with the definition we
proposed to adopt for other subsection
(d) hospitals, we proposed to define the
term ‘‘base operating DRG payment
amount’’ for MDHs and SCHs as the
wage-adjusted DRG operating payment
amount plus any applicable new
technology add-on payment. The
proposed base operating DRG payment
amount for SCHs and MDHs would not
include an outlier, IME, DSH, or lowvolume payment adjustment that would
otherwise apply to the discharge.
Consistent with section
1886(o)(7)(D)(ii)(I) of the Act, we also
proposed to exclude from this definition
of base operating DRG payment amount
the difference between the hospitalspecific payment rate and the Federal
payment rate. This proposed definition
is consistent with that being proposed
under the Hospital Readmissions
Reduction Program (discussed in
section IV.A. of this preamble). We
proposed to codify this definition in our
regulations at 42 CFR 412.160.
We welcomed public comment on
this proposed definition of the base
operating DRG payment amount for
MDHs and SCHs under the Hospital
VBP Program. We note that, under
current law, the MDH program is set to
expire at the end of FY 2012, after
which all MDH hospitals would be paid
in the same manner as other subsection
(d) hospitals, unless they qualify for
SCH status, as discussed in section
VIII.C.5.b. of this preamble.
Comment: Commenters were
supportive of our proposed definition of
‘‘base operating DRG payment amount’’
for SCHs and MDHs. One commenter
asked that we clarify that we would
exclude the difference between the
applicable hospital-specific payment
rate and the Federal payment rate for

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both SCHs and for MDHs, should the
MDH provision be extended beyond FY
2012.
Response: We thank the commenters
for their support of the proposed
definition of base operating DRG
payment amount for SCHs and MDHs
and are adopting it as final. If the MDH
program is extended beyond FY 2012,
we will continue to use this definition
for MDHs. For an SCH or an MDH, the
payment adjustment under the Hospital
VBP Program for each discharge will be
calculated by multiplying the SCH or
MDH’s value-based incentive payment
adjustment factor by the base-operating
DRG payment amount that is exclusive
of the amount by which the hospitalspecific payment rate exceeds the
Federal payment rate. The resulting
payment adjustment will then be added
to or subtracted from the hospital’s
payment for the discharge, regardless of
whether the hospital is paid based on
the Federal rate or its hospital-specific
rate. We finalize the methodology for
calculating individual hospitals’ valuebased incentive payment adjustment
factors below, in section VIII.C.5.c. of
this preamble.
After consideration of the public
comments we received, we are
finalizing the definition of the term
‘‘base operating DRG payment amount,’’
with respect to a Medicare-dependent,
small rural hospital that receives
payments under § 412.108(c) or a sole
community hospital that receives
payments under § 412.92(d), as the
wage-adjusted DRG operating payment
plus any applicable new technology
add-on payments under subpart F of 42
CFR Part 412. We are finalizing that this
amount does not include any additional
payments for indirect medical education
under § 412.105, the treatment of a
disproportionate share of low-income
patients under § 412.106, outliers under
subpart F of 42 CFR Part 412, or a low
volume of discharges under § 412.101.
This amount also does not include the
difference between the hospital-specific
payment rate and the Federal payment
rate.
Section 1886(o)(7)(D)(ii)(II) of the Act
states that in the case of a hospital that
is paid under section 1814(b)(3) of the
Act, ‘‘the term ‘base operating DRG
payment amount’ means the payment
amount under that section.’’ Acute care
hospitals located in the State of
Maryland are not paid under the IPPS
but are, instead, paid under a special
waiver provided by section 1814(b)(3) of
the Act. In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28071), for these
hospitals, we proposed that the term
‘‘base operating DRG payment amount’’
means the payment amount under

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section 1814(b)(3) of the Act. This
proposed definition is consistent with
the definition we proposed under the
Hospital Readmissions Reduction
Program (discussed in section IV.A. of
this preamble). We proposed to codify
this definition in our regulations at 42
CFR 412.160. We welcomed public
comment on the proposed definition of
base operating DRG payment amount for
Maryland hospitals under the Hospital
VBP Program.
Comment: One commenter suggested
that the definition of base operating
DRG payment amount for Maryland
hospitals should not be the payment
made under section 1814(b)(3) of the
Act because that payment is inclusive of
payments for medical education,
treatment of a disproportionate share of
low income patients, uncompensated
care, labor-market adjusters, and
assessments to fund other initiatives.
This commenter suggested that CMS
should work with Maryland to develop
an alternative definition. Another
commenter also noted that the payment
received by Maryland hospitals differs
significantly from that received by other
subsection (d) hospitals, urging that we
continue to allow Maryland the
flexibility to continue existing Statebased initiatives for improvement in
quality of care.
Response: Maryland hospitals are
currently paid 94 percent of charges,
and the Maryland Health Services Cost
Review Commission includes IME,
DSH, uncompensated care, and labor
market adjusters in the charges that it
submits to the Secretary for purposes of
calculating the payment amounts for
these hospitals under section 1814(b)(3)
of the Act. We believe that as long as
these amounts are included in the
payment amounts made to these
hospitals under section 1814(b)(3) of the
Act, they are appropriately included in
the definition of the base operating DRG
payment amount for these hospitals
under the Hospital VBP Program. With
regard to the comment that Maryland
should be allowed to continue existing
State-based incentives, we note that
acute care hospitals located in the State
of Maryland have been granted an
exemption from the Hospital VBP
Program for FY 2013 based on the
State’s submission of a report describing
how a similar State program achieves or
surpasses the measured results in terms
of patient health outcomes and cost
savings established under the Hospital
VBP Program. The State will also have
the opportunity to request that these
hospitals be exempted from future years
of the Program, as discussed more fully
in section VIII.C.13 of this preamble.

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After consideration of the public
comments we received, we are
finalizing the definition of the term
‘‘base operating DRG payment amount’’
for hospitals that are paid under section
1814(b)(3) of the Act as the payment
amount made under section 1814(b)(3)
of the Act.
We are also codifying the definition of
the term base-operating DRG payment
amount, as that term is applied to SCHs,
MDHs, and hospitals paid under section
1814(b)(3) of the Act, in our regulations
at 42 CFR 412.160.
b. Calculating the Funding Amount for
Value-Based Incentive Payments Each
Year
Section 1886(o)(7)(B) of the Act
instructs the Secretary to reduce the
base operating DRG payment amount for
a hospital for each discharge in a fiscal
year by an applicable percent. Under
section 1886(o)(7)(A) of the Act, the sum
total of these reductions in a fiscal year
must equal the total amount available
for value-based incentive payments for
all eligible hospitals for the fiscal year,
as estimated by the Secretary. To
implement these sections, and create the
funding pool for value-based incentive
payments for each fiscal year, in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28071), we proposed that beginning
with FY 2013 discharges, every hospital
that meets the definition of a hospital in
section 1886(o)(1)(C) of the Act (referred
to here as an eligible hospital) would
receive a reduction to its base operating
DRG payment amount for each
discharge in a fiscal year, regardless of
whether we have determined that the
hospital has earned a value-based
incentive payment for that fiscal year.
The total amount of the reductions
across all eligible hospitals for a fiscal
year would constitute the total amount
available from which we could make
value-based incentive payments for that
fiscal year. We proposed to estimate the
total amount of the reductions across all
eligible hospitals and the size of the
funding pool prior to the start of each
fiscal year because that is the only way,
operationally, that we can calculate
each hospital’s value-based incentive
payment percentage in a manner such
that the estimated sum total of the
value-based incentive payments for
hospitals for the fiscal year would be
equal to the estimated total amount
available for value-based incentive
payments to all eligible hospitals.
The data we proposed to use to
estimate these amounts is inpatient
claims data from the Medicare Provider
Analysis and Review (MedPAR) file. We
believe that the use of MedPAR data is
appropriate because we also use this

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data to calculate other IPPS payment
adjustment amounts, including the DRG
relative weights, budget neutrality
factors, outlier thresholds, and
standardized amounts. The proposed
use of claims data from the MedPAR file
is also consistent with our proposal to
determine applicable hospitals’ base
operating DRG payment amounts, for
purposes of determining the
readmissions payment adjustment factor
under the Hospital Readmissions
Reduction Program (section IV.A. of this
preamble).
We proposed to run the MedPAR data
for purposes of estimating the base
operating DRG payment reduction
amounts, as well as the size of the
funding pool that will apply to a fiscal
year, in December of the previous fiscal
year so that we can provide preliminary
estimates in the IPPS/LTCH PPS
proposed rule. We also proposed to
provide the final estimates in the IPPS/
LTCH PPS final rule using the March
update. The data will contain inpatient
claims information related to discharges
from the fiscal year that ended the
previous September. For example, with
respect to the FY 2014 Hospital VBP
Program, we would run the MedPAR
data in December, 2012 and that data
would contain claims related to FY 2012
discharges. We would use that data to
provide preliminary estimates in the FY
2014 IPPS/LTCH PPS proposed rule.
The March 2013 update of this MedPAR
data would then be used to provide final
estimates in the FY 2014 IPPS/LTCH
PPS final rule.
We believe that this proposed
approach will enable us to gather the
most recent Medicare utilization data
available in order to estimate the total
amount of the base operating DRG
payment amount reductions and the
size of the value based incentive
payment funding pool for the applicable
fiscal year. We also believe that this
approach will enable us to calculate
each hospital’s value based incentive
payment adjustment factor that will
apply to its discharges in the applicable
fiscal year, and to notify each hospital
of such at the same time that we
proposed to notify each hospital
regarding its performance for purposes
of making this information publicly
available under section 1886(o)(10)(A)
of the Act. In this way, hospitals will be
able to consider this information during
the review and correction period (which
is discussed below). We believe that it
is important to notify a hospital of its
value-based incentive payment
adjustment factor at the start of review
and corrections, so that hospitals can
consider the payment impact of the TPS

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in their determination of whether or not
to request review and corrections.
In order to estimate the total base
operating DRG payment reductions
across all hospitals for a fiscal year, we
proposed to sum the estimated total
base operating DRG payment amount
per discharge for each hospital in that
fiscal year. We would then multiply that
estimated total annual base operating
DRG payment amount by the applicable
percent, which we proposed to define in
our regulations at § 412.160 as the
percentages specified in section
1886(o)(7)(C) of the Act. The product of
the estimated total annual base
operating DRG amount for a hospital
and the applicable percent would be
equal to taking the applicable percent
reduction from each individual base
operating DRG payment amount per
hospital and then summing those
reductions. We welcomed public
comment on this proposed approach to
calculating the available pool of funds
for value-based incentive payments.
Comment: Commenters were
supportive of our proposals.
Response: We thank the commenters
for their support of these proposals and
we are adopting them as final.
After consideration of the public
comments we received, we are
finalizing our proposal to estimate the
total amount of the reductions across all
eligible hospitals and the size of the
funding pool for value-based incentive
payments under the Hospital VBP
Program, prior to the start of each fiscal
year, using MedPAR data. We are
finalizing our proposal to use the
December update to MedPAR for the
purposes of providing the estimates in
the IPPS/LTCH PPS proposed rule each
year, and to utilize the March update to
provide the final estimates in the IPPS/
LTCH PPS final rule each year. We are
also finalizing the definition of the term
‘‘applicable percent’’ in 42 CFR 412.160
of our regulations as the percentages
specified in section 1886(o)(7)(C) of the
Act. Finally, we are finalizing our
proposal to sum the estimated total base
operating DRG payment amount per
discharge for each hospital in a fiscal
year and then multiply that amount by
the applicable percent in order to
estimate the total base operating DRG
payment reductions across all hospitals
for a fiscal year.
For the purpose of estimating the total
amount available for value-based
incentive payments for a fiscal year, we
proposed to apply an inflation factor so
that our estimate of the available pool of
funds will more accurately reflect
estimated total base operating DRG
payments in the fiscal year in which the
value-based incentive payments will

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actually be made. For example, in
estimating the size of the FY 2013
funding pool, we inflated the FY 2011
MedPAR data to FY 2013 dollars
because the value-based incentive
payment amounts will actually be paid
in FY 2013.
Our actuaries provided us with this
inflation factor, which included
assumptions on changes in Medicare
fee-for-service case mix and discharge
levels. According to this proposed
methodology, we originally estimated
the available amount for FY 2013 valuebased incentive payments to be $956
million. We then issued a correction
notice, because reductions to base
operating DRG payment amounts for
Maryland hospitals had inadvertently
been included in the total estimated
amount available for FY 2013 when
Maryland hospitals have been excluded
from the Hospital VBP Program for FY
2013. The revised estimated available
amount was $917 million (CMS–1588–
CN). As noted above, under our
proposed methodology, we proposed
that we would update this estimate
using the March 2012 update of the FY
2011 MedPAR data for purposes of
finalizing it in the FY 2013 IPPS/LTCH
PPS final rule.
We note that, for the purposes of
calculating the value-based incentive
payment adjustment factors under the
Hospital VBP Program, we would be
able to use FY 2011 claims to accurately
calculate the value-based incentive
payment percentage, without
application of this inflation factor. This
is because a constant inflation factor
applied across all hospitals’ total annual
base-operating DRG payment amounts
will not change the slope of the linear
exchange function which we previously
adopted for use in determining each
hospital’s value-based incentive
payment amount. Application of an
inflation factor would, therefore, not
impact the amount of a hospital’s valuebased incentive payment amount under
the Hospital VBP Program for the fiscal
year.
We considered adopting a different
approach that would apply only to the
FY 2013 Hospital VBP Program because
we do not anticipate beginning to make
value-based incentive payments to
hospitals for that program year until
January 2013. Under this approach, we
would have estimated the total amount
of funding available to make the valuebased incentive payments using the
latest available FY 2011 claims data
from MedPAR, with payment amounts
modeled using the rates, factors and
policies finalized in the FY 2013 IPPS/
LTCH PPS final rule. This data would
include claims information that was not

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available at the time we ran the March
update. However we did not propose to
adopt this approach, because we believe
that is important to establish a
consistent process for annually
estimating the total amount available to
make value-based incentive payments to
hospitals, as well determining the valuebased incentive payment adjustments
that will be made to hospitals as a result
of their performance under the Hospital
VBP Program. Beginning with the FY
2014 Hospital VBP Program, we intend
to make the value-based incentive
payments to hospitals as part of the
claims payment process, beginning at
the start of the fiscal year, so it would
not be possible to use the modeled baseoperating DRG payment amount
estimates based on the finalized rates,
factors and policies established in the
IPPS/LTCH PPS final rule applicable to
the fiscal year, as they will typically not
be finalized in time to notify hospitals
of their value-based incentive payment
adjustments at the start of the review
and corrections process.
Further, these factors, rates, and
policies would not typically be finalized
in time for us to notify hospitals of the
net result of the base operating DRG
payment amount reduction and the
value-based incentive payment
adjustment no later than 60 days prior
to the start of the fiscal year, as required
by section 1866(o)(8) of the Act. We also
believe that our proposal to use the
March update of the MedPAR file
represents an accurate estimate of
annual base operating DRG amounts
because it reflects the most recently
available utilization data, while
preserving the interest in notifying
hospitals of the payment impact in time
for them to request review and
correction.
We proposed to use a different
methodology for purposes of estimating
the reduced annual base operating DRG
payment amounts for SCHs and MDHs.
In general, eligible hospitals in the
Hospital VBP Program include SCHs
and current MDHs (we note that MDH
status is set to expire under current law
after FY 2012 and would, therefore, no
longer exist in FY 2013), because they
meet the definition of a ‘‘subsection (d)’’
hospital. SCHs are paid in the interim
(prior to cost report settlement) on a
claim by claim basis at the amount that
is the higher of the payment based on
the hospital-specific rate or the IPPS
Federal rate based on the standardized
amount. At cost report settlement, the
fiscal intermediary or A/B MAC
determines if the hospital would receive
higher aggregate operating IPPS
payments using the hospital-specific
rate (for all claims) or the Federal rate

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(for all claims). MDHs are paid the sum
of the Federal payment amount plus 75
percent of any amount by which the
hospital-specific rate payment exceeds
the Federal rate payment amount.
Although MDH status is to expire at
the end of FY 2012, the payments
reflected on FY 2011 claims for current
MDHs may be based on the hospitalspecific rate. As discussed above, we
generally proposed to use historical
MedPAR data to determine the base
operating DRG payment amounts that
would be used to estimate the amount
of funding available for value-based
incentive payments for the FY 2013
Hospital VBP Program. In the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28072), consistent with that proposal,
for SCHs and hospitals that have MDH
status in FY 2012, we proposed to use
MedPAR data to model the reduced base
operating DRG payment amount for
each claim as if it were paid based on
the Federal standardized amount, rather
than using the payment information on
the claim (that is, regardless of whether
a claim was paid under the hospitalspecific rate or the Federal rate, the
reduced base operating DRG payment
amounts for SCHs and current MDHs
would be estimated using the Federal
rate).
We welcomed public comment on
these proposals. We also welcomed
comment on other suggested approaches
to most accurately estimate these
amounts.
Comment: One commenter asked
CMS to verify that Maryland hospitals
had not been included in the estimated
available funding pool for value-based
incentive payments in FY 2013. One
commenter questioned whether the
amount stated in the proposed rule was
correct, because they arrived at
significantly different number.
Response: We inadvertently included
reductions to payments for Maryland
hospitals in the estimated total amount
available for value-based incentive
payments under the Hospital VBP
Program for FY 2013, in the FY 2013
IPPS/LTCH PPS proposed rule. As
noted above, we subsequently issued a
correction notice (CMS–1588–CN; 77 FR
34326), including a new estimated $917
million total amount available for valuebased incentive payments under the
Hospital VBP Program for FY 2013. Both
the original and the corrected estimates
were calculated using the December
2011 update to the FY 2011 MedPAR
data and with the application of an
inflation factor of 9.75 percent. As
stated in the proposed rule, this
inflation factor was provided by CMS
actuaries and included assumptions
regarding changes in Medicare fee-for-

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53573

service case-mix and discharge levels.
We verified with our actuaries that the
estimated $917 million total amount
available was correct.
After consideration of the public
comments we received, we are adopting
our proposed methodology for
estimating the total amount available for
value-based incentive payments in a
fiscal year under the Hospital VBP
Program. The final estimate for FY 2013,
based on the March, 2012 update to the
FY 2011 MedPAR file, is $963 million.
c. Methodology to Calculate the ValueBased Incentive Payment Adjustment
Factor
In accordance with section
1886(o)(6)(C)(i) of the Act, for each
eligible hospital that receives a TPS
greater than zero with respect to a fiscal
year, we proposed to calculate a valuebased incentive payment percentage for
that hospital for that fiscal year. We
proposed that, in accordance with
section 1886(o)(6)(C)(ii) of the Act, the
value-based incentive payment
percentage that we calculate for the
hospital will be based on that hospital’s
individual TPS, and the total amount of
value-based incentive payments to all
hospitals in the fiscal year will be equal
to the total amount available for valuebased incentive payments for the fiscal
year, as estimated by the Secretary. In
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28073), we proposed to
define the term ‘‘value-based incentive
payment percentage’’ in § 412.160 as the
percentage of the total base operating
DRG payment amount that a hospital
has earned back, based on its TPS for
that fiscal year. The hospital may earn
a value-based incentive payment
percentage that is less than, equal to, or
more than the applicable percent. The
applicable percent that we will use to
reduce the base operating DRG payment
amount for each FY 2013 discharge is
1.0 percent.
A hospital may earn a value-based
incentive payment percentage that is
greater than the applicable percent,
which would result in that hospital
receiving a value-based incentive
payment adjustment factor that is
greater than one and a higher base
operating DRG payment amount for
each discharge than it would have
received in the absence of the Hospital
VBP Program. The proposed calculation
of the value-based incentive payment
adjustment factor is discussed in further
detail below. A hospital may earn a
value-based incentive payment
percentage that is equal to the
applicable percent, which would result
in the hospital receiving a value based
incentive payment adjustment factor of

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1 and the same base operating DRG
payment amount that it would have
received for each discharge in the
absence of the Hospital VBP Program.
Alternatively, a hospital may earn a
value-based incentive payment
percentage that is less than the
applicable percent, which would result
in the hospital receiving a value-based
incentive payment adjustment factor
that is less than one and a lower base
operating DRG payment amount for
each discharge than it would have
received in the absence of the Hospital
VBP Program.
In order to convert a hospital’s TPS
into a value-based incentive payment
factor that would be applied to each
discharge in the applicable fiscal year,
we proposed to use the linear exchange
function that we finalized in the
Hospital Inpatient VBP Program final
rule (76 FR 26534). Under this proposed
methodology, we would use the
following computed amounts:
• The hospital’s estimated total
annual base-operating DRG amount for
all discharges for the applicable fiscal
year;
• The applicable percent for the fiscal
year (1.0 percent in FY 2013);
• The (linear) exchange function
slope; and
• The hospital’s TPS.
The following six (6) steps illustrate
our proposed methodology:
Step 1: Estimate the hospital’s total
annual base-operating DRG amount.
First, we would estimate each hospital’s
total annual base operating DRG amount
for all discharges in the applicable fiscal
year. As we discussed above, we
proposed to estimate this amount using
Medicare inpatient claims data taken
directly from the most recently available
MedPAR files.
Step 2: Calculate the total annual
estimated base operating DRG payment
reduction amount across all eligible
hospitals. Second, we proposed to
estimate the total base operating DRG
reduction amount across all eligible
hospitals (which is the total amount
available for value-based incentive
payments) according to the following
two steps:
Step 2a: Repeat Step 1 for all eligible
hospitals, and multiply the estimated
total amount for each hospital by the
applicable percent. For FY 2013, the
applicable percent is 1.0 percent; then
Step 2b: Add together the amount for
each hospital calculated under Step 2a.
This sum is the total amount available
for value-based incentive payments, and
the numerator of the linear exchange
function slope that is calculated in Step
3 below.

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Step 3: Calculate the linear exchange
function slope. Third, we would
calculate the linear exchange function
slope. As noted above, we finalized the
use of a linear exchange function for the
purpose of converting a hospital’s TPS
into a value-based incentive payment
percentage. We would calculate the
linear exchange function slope using the
following steps:
Step 3a: Convert the TPS for each
hospital into a decimal by dividing it by
100. The TPS may range from zero to
100. In this step, we express it as a
number between zero and 1.
Step 3b: Multiply each hospital’s
estimated total base-operating DRG
payment reduction amount for the
applicable fiscal year (from Step 2a
above) by the hospital’s TPS (decimal
between zero and one from Step 3a
above).
Step 3c: Add together the numbers
computed in Step 3b above. This sum
represents the denominator of the linear
exchange function slope that is
calculated in Step 3d below.
Step 3d: The exchange function slope
equals the sum computed in Step 2b
above divided by the sum computed in
Step 3c above.
Step 4: For each hospital, calculate
the hospital’s value-based incentive
payment percentage for the fiscal year.
We proposed to use the exchange
function slope (from Step 3) and the
hospital’s TPS to calculate the hospital’s
value-based incentive payment
percentage that it earned as a result of
its performance under the Hospital
Inpatient VBP Program for the fiscal
year. We could calculate the valuebased incentive payment percentage by
multiplying the applicable percent by
the amount computed for the hospital in
Step 3a and the exchange function slope
as computed in Step 3d above. This is
the mathematical approach to locating
the place along the linear exchange
function where a given hospital’s TPS
score would be located and identifying
the corresponding value-based incentive
payment percentage. As we note above,
the value-based payment percentage
could be greater than, equal to, or less
than the applicable percent that is
applied to reduce the base operating
DRG payment amount for each
discharge.
Step 5: Compute the net percentage
change in the hospital’s base-operating
DRG payment amount for each
discharge. Fifth, we proposed to
calculate the net percentage change to
the hospital’s base operating DRG
payment amount for each discharge in
the applicable fiscal year. We would
calculate the net change as an
intermediate step, in order to determine

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the value-based incentive payment
adjustment factor described in Step 6,
below. The net percentage change in the
hospital’s base operating DRG payment
amount for each discharge would be the
difference between the applicable
percent and the value-based incentive
payment percentage. We would
calculate this net change for each
hospital by subtracting the applicable
percent used in Step 2a (1 percent for
FY 2013) from the value based incentive
payment percentage computed for the
hospital in Step 4. This net change in
the base-operating DRG payment
amount would be expressed as a
percentage and could be positive, zero,
or negative, depending on the hospital’s
TPS and the exchange function slope.
Step 6: Calculate the value-based
incentive payment adjustment factor. To
calculate this factor, we would convert
the hospital’s individual net percentage
change in its base-operating DRG
payment amount, from Step 5, from a
percentage into a number (by removing
the percent sign and dividing it by 100)
and add it to 1. The 1 would reflect the
base operating DRG payment amount
that the hospital would have received
for a discharge in the absence of the
Hospital VBP Program. The result is that
a hospital with a positive net percentage
change to its total base operating DRG
payment amount would have a valuebased incentive payment adjustment
factor that is greater than one. This
means that we would multiply the
hospital’s base operating DRG payment
amount for each discharge occurring in
the applicable fiscal year by a number
greater than one.
A hospital with no net percentage
change to its total base operating DRG
payment amount percentage would have
a value-based incentive payment
adjustment factor of one. This means
that we would multiply its base
operating DRG payment amount for
each discharge occurring in the
applicable fiscal year by 1, and its baseoperating DRG payment amount would
be equal to what it would have been in
the absence of the Hospital VBP
Program.
A hospital with a negative net
percentage change to its total baseoperating DRG payment amount
percentage would have a value-based
incentive payment adjustment factor
that is less than one. This means that we
would multiply the hospital’s base
operating DRG payment amount for
each discharge occurring in the
applicable fiscal year by a number less
than one.
Example Calculation of the ValueBased Incentive Payment Adjustment
Factor:

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As an example, assume the following
information:
• The hospital’s estimated total
annual base operating DRG payment
amount for all discharges in the
applicable fiscal year = $1,000,000;
• The applicable percent that is
applied to all discharges of eligible
hospitals in FY 2013 = 1.0 percent;
• The exchange function slope = 2.0;
• The hospital’s TPS = 80
Under our proposal, we would
replicate the six steps to convert a
hospital’s TPS into a value-based
incentive payment adjustment factor as
follows:
Step 1: Estimate the hospital’s total
annual base operating DRG payment
amount. We would add together the
estimated base-operating DRG payment
amount for each FY 2013 discharge. In
this example, we assume this total
amount would be $1,000,000.
Step 2: Calculate the total annual
estimated base operating DRG payment
reduction amount across all eligible
hospitals. Second, we would:
Step 2a: Repeat Step 1 for all eligible
hospitals, and multiply the total amount
for each hospital by the applicable
percent, which is 1.0 percent in this
example: $1,000,000 * 0.01 = $10,000;
and
Step 2b: Add together the amount for
each hospital calculated in Step 2a
above. In this example, we assume this
amount is a given. We note that
computing this amount requires
knowledge of all eligible hospitals’
estimated total base operating DRG
payment reduction amount.
Step 3: Calculate the linear exchange
function slope, which we assume in this
example to be 2.0. We note that
computing the slope requires knowledge
of all eligible hospitals’ estimated total
base operating DRG payment reduction
amount and their TPS to compute the
relevant sums that are used in the
numerator and denominator of the
slope.
Step 4: Calculate the hospital’s valuebased incentive payment percentage.
The hospital’s value-based payment
percentage would be computed as
follows: 0.01 (the applicable percent
would be multiplied by 0.80 (the
hospital’s TPS divided by 100) and 2.0
(the exchange function slope)).
Mathematically, 0.01 * 0.80 * 2.0 =
0.016, which can be written as 1.60
percent. Therefore, the hospital’s valuebased incentive payment percentage for
the FY 2013 Hospital VBP Program
would be 1.60 percent ($16,000 in this
example).
Step 5: Compute the net percentage
change in the hospital’s base-operating
DRG payment amount for each

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discharge by subtracting 1.0 percent (the
applicable percent) from the valuebased incentive payment percentage
that the hospital earned based on its
TPS.
In this example, the net percentage
change would equal 1.60 percent minus
1.00 percent, or 0.60 percent. In this
example, the net percentage change is
positive and corresponds to a dollar
amount of 0.60 percent of the estimated
total annual base operating DRG
payment amount for the hospital of
$1,000,000(0.60 percent * $1,000,000 =
$6,000).
Step 6: Compute the value-based
incentive payment adjustment factor as
equal to: the net percentage change
(calculated in Step 5), expressed as a
number, plus one. In this example, the
hospital’s value-based incentive
payment adjustment factor would equal
the sum of 0.006 (0.60 percent
expressed as a number) plus one.
Therefore, this hospital’s value-based
incentive payment adjustment factor
would equal 1.006, and this factor
would be multiplied by the base
operating DRG payment amount for
each discharge occurring in FY 2013.
This hospital had a positive net
percentage change to its total base
operating DRG payment amount and
would have a value-based incentive
payment adjustment factor that is
greater than one, so we would multiply
the hospital’s base operating DRG
payment amount for each discharge
occurring in the applicable fiscal year
by a number greater than one. In this
example, the hospital would earn a total
value-based incentive payment
estimated at $16,000 for all discharges
in the fiscal year), which is greater than
the 1.0 percent base operating DRG
payment reduction amount applied to
each discharge in the fiscal year
(estimated $10,000 total reduction),
which would result in the hospital
receiving a higher payment amount for
each discharge occurring in FY 2013
than it otherwise would have received,
in the absence of the Hospital VBP
Program (an estimated $6000 total
increase in base operating DRG
payments for the fiscal year).
We welcomed comments on this
proposal.
We proposed to codify in our
regulations at § 412.160 definitions of
value-based incentive payment
adjustment factor and value-based
incentive payment percentage.
We proposed to codify in our
regulations at § 412.162 the process for
reducing the base operating DRG
payment amount and applying the
value-based incentive payment amount
adjustment under the Hospital Value-

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Based Purchasing (VBP) Program. We
also proposed regulation text at
§ 412.162 regarding the value-based
incentive payment amount for a
discharge; the total amount available for
value-based incentive payments; the
methodology for calculating the valuebased incentive payment amount; the
methodology for calculating the valuebased incentive payment percentage;
and the methodology for calculation of
the value-based incentive payment
adjustment factor.
Comment: Commenters supported our
proposed methodology to calculate the
value-based incentive payment
adjustment factor for each hospital.
Some commenters requested that CMS
provide hospitals with a statement at
the beginning and end of each fiscal
year. These commenters also suggested
that this statement contain the hospital’s
TPS, estimated and actual payments
withheld, estimated and actual gross
incentive payments, and estimated and
actual net incentive payments made.
Response: We appreciate the
commenters’ support of these proposals
and appreciate their interest in receiving
a summary report. We will provide each
hospital with a hospital-specific report
detailing its TPS and value-based
incentive payment adjustment factor
prior to implementation of payment
adjustments, each fiscal year. We will
provide this report after the end of the
performance period for the applicable
fiscal year. We do not intend to estimate
the resulting payment differences,
because these will vary, depending on
the hospital’s discharge volume and
case mix in the applicable fiscal year.
We may explore the possibility of
providing a payment summary report at
the end of the fiscal year, in the future.
Comment: Some commenters
expressed concern that CMS or its
contractors might inadvertently include
payments for IME, DSH, and outliers in
the base operating DRG payment
amount to which value-based incentive
payment adjustment factors are applied
under this Program. The commenters
further suggested that CMS articulate
and allow comment on how we will
instruct contractors to apply the
payment adjustments, to ensure that
these payments are not affected.
Response: We appreciate the
importance of ensuring that the base
operating DRG payment amounts are
calculated correctly for purposes of
applying the value-based incentive
payment adjustment factor. We do not
believe it is necessary to propose and
solicit public comment on the
operational instructions that we will
provide to our contractors, but we will
make every effort to ensure that the

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payment adjustments under the
Hospital VBP Program are appropriately
processed.
Comment: One commenter noted that
CMS did not indicate the performance
period or exchange function slope used
to calculate the proxy value-based
incentive payment adjustment factors
used in Table 16 of proposed rule.
Response: The value-based payment
incentive adjustment factors that we
used for purposes of generating Table 16
were based on baseline and performance
periods of April 1 through December 31
of 2008 and 2010, respectively. We note
that these are not actual Hospital VBP
Program baseline or performance
periods. We used these periods to
calculate the FY 2013 Hospital VBP
proxy adjustment factors because at the
time we issued the proposed rule, they
were the most recently available periods
for which we had data to calculate
hospital TPSs. We were unable to use
the actual TPS scores for the FY 2013
performance period to calculate these
factors for the final rule, because
hospitals had not yet had the
opportunity to review their own
performance. We note that these proxy
adjustment factors will not be used to
adjust hospital payments. The exchange
function slope, calculated based on the
TPSs and base operating DRG payment
reduction amounts for all hospitals
eligible for this simulated performance
period, was 1.931871792. As discussed
above, we have updated the estimated
total amount available for value-based
incentive payments in FY 2013, using
the March, 2012 update to the FY 2011
MedPAR file. The use of this MedPAR
update affects the linear exchange
function slope and the resulting proxy
value-based payment incentive
adjustment factors, and we have
updated Table 16 to reflect these new
figures. The new linear exchange
function slope used for these
calculations in this final rule is
1.93621799.
We are also taking this opportunity to
clarify that the slope of the payment
exchange function will be calculated
before hospitals receive their initial
confidential reports at the start of the
review and corrections period. This
slope will then be applied to each
hospital’s TPS, in order to calculate the
hospital’s value-based incentive
payment adjustment factor for
discharges occurring in a fiscal year.
Should a hospital identify an error that
requires us to recalculate its TPS, we
will not recalculate the exchange
function slope. Rather, we will apply
the established payment exchange
function slope for the fiscal year to the
newly calculated TPS score. We believe

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that this is the most straightforward
approach to calculating value-based
incentive payment adjustment factors,
taking into account the review and
corrections and appeals periods.
Comment: One commenter suggested
that CMS increase the applicable
percent reduction to the base operating
DRG payment amounts to 2 percent
sooner than the FY 2017 program year,
if CMS believes hospitals have met or
exceeded current quality measure
standards.
Response: We agree that incentivizing
high performance on measures is an
important goal; however, the applicable
percent reduction for each fiscal year is
specifically defined in section
1886(o)(7)(C) of the Act. We believe that
this gradual increase in the applicable
percent is valuable, because it allows
hospitals time to gain experience with
the Hospital VBP Program before their
payments are more significantly
impacted.
After consideration of the public
comments we received, we are
finalizing our proposal to calculate the
value-based incentive payment
adjustment factor for each eligible
hospital each fiscal year under the
Hospital VBP Program using the six
steps detailed above.
We received no comments on our
proposed regulatory definitions of
value-based incentive payment
adjustment factor and value-based
incentive payment percentage, and we
are finalizing them, with revisions. We
are codifying in our regulations at
§ 412.160 that the value-based incentive
payment adjustment factor is defined as
the number by which we will multiply
the base operating DRG payment
amount for each discharge from a
hospital, during a fiscal year, in order to
adjust the hospital’s payment, as a result
of its performance under the Hospital
VBP Program. We are also codifying in
our regulations at § 412.160 that valuebased incentive payment percentage is
defined as the percentage of the base
operating DRG payment amount for
each discharge that a hospital has
earned with respect to a fiscal year,
based on its total performance score for
that fiscal year.
We received no public comments on
our proposed regulatory language at
§ 412.162, regarding the process for
reducing the base operating DRG
payment amount and applying the
value-based incentive payment amount
adjustment under the Hospital VBP
Program; the value-based incentive
payment amount for a discharge; the
total amount available for value-based
incentive payments; the methodology
for calculating the value-based incentive

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payment amount; the methodology for
calculating the value-based incentive
payment percentage; or the
methodology for calculation of the
value-based incentive payment
adjustment factor. We are codifying the
proposed regulatory text, with technical
revisions.
We are codifying in our regulations at
§ 412.162 that, in general, if a hospital
meets or exceeds the performance
standards that apply to the Hospital
VBP Program for a fiscal year, we will
make value-based incentive payments to
the hospital under the requirements and
conditions specified in this section.
We are codifying in our regulations at
§ 412.162 that the value-based incentive
payment amount for a discharge is the
portion of the payment amount that is
attributable to the Hospital VBP
Program and that the total amount
available for value based incentive
payments to all hospitals for a fiscal
year is equal to the total amount of baseoperating DRG payment reductions for
that fiscal year, as estimated by the
Secretary.
We are codifying in our regulations at
§ 412.162 that the value-based incentive
payment amount is calculated by
multiplying the base operating DRG
payment amount by the value-based
incentive payment percentage.
We are codifying in our regulations at
§ 412.162 that the value-based incentive
payment percentage is calculated as the
product of: the applicable percent as
specified in this section, the hospital’s
TPS divided by 100, and the linear
exchange function slope.
We are codifying in our regulations at
§ 412.162 that the value-based incentive
payment adjustment factor is
determined by subtracting the
applicable percent as specified in
paragraph (d) of this section from the
value-based incentive payment
percentage and then adding that
difference to one.
Finally, we are codifying in our
regulations at § 412.160 a definition of
linear exchange function. We previously
finalized this definition in the Hospital
Inpatient VBP Program final rule (76 FR
26531) as the means to translate a
hospital’s TPS into a value-based
incentive payment percentage such that:
(1) Each eligible hospital’s valuebased incentive payment percentage is
based on its TPS; and
(2) The total amount of value-based
incentive payments to all hospitals in a
fiscal year is equal to the total amount
available for value-based incentive
payments in such fiscal year.

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d. Timing of the Base Operating DRG
Payment Amount Reduction and ValueBased Incentive Payment Adjustment
for FY 2013 and Future Hospital VBP
Program Years
The applicable percent reduction and
the value-based incentive payment
adjustment are distinct adjustments
which we are required to make to base
operating DRG payment amounts for
eligible hospitals under the Hospital
VBP Program. In this section, we outline
our proposals for applying these
adjustments to the base-operating DRG
payment amounts.
In the Hospital Inpatient VBP Program
final rule, for the FY 2013 Hospital VBP
Program, we established that we would
incorporate the value-based incentive
payment adjustment into our claims
processing system in January 2013, and
that the adjustment would apply to all
FY 2013 discharges, including those
that occurred beginning on October 1,
2012 (76 FR 26536). Because of this
January 2013 application of the valuebased incentive payment adjustment, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28075), we proposed that we
would not apply the 1.00 percent
applicable reduction to the base
operating DRG payment amount for
each discharge until we apply the valuebased incentive payment adjustment
factor. In other words, we would add
the value-based incentive payment
amount to the hospital’s reduced baseoperating DRG payment amount for
each FY 2013 discharge at the same time
that we apply the 1.00 percent reduction
to the base operating DRG payment
amount. The simultaneous application
of the 1.00 percent reduction to the
base-operating DRG payment amounts
and the value-based incentive payment
amount (if applicable, based on the
hospital’s TPS) would prevent hospitals
from receiving a 1.00 percent reduction
to their base operating DRG payment
amounts before they receive their valuebased incentive payment amount
adjustment. Accordingly, under our
proposal, beginning in January 2013, a
hospital would receive a base operating
DRG payment amount for each
discharge occurring in FY 2013 that is
the net result of the application of the
1.00 percent reduction and the
application of the hospital’s individual
value-based incentive payment amount
adjustment.
In FY 2014 and future years of the
Hospital VBP Program, we proposed to
apply both the applicable percent
reduction and the value-based incentive
payment amount adjustment to the base
operating DRG payment amount for a
discharge during the regular claim

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payment process, beginning in October
of each fiscal year. These adjustments
would be made simultaneously with
respect to each discharge.
We invited public comment on this
proposal.
Comment: Commenters supported the
proposal to delay application of the
reduction to the base-operating DRG
payment amounts in FY 2013 until
those reductions can be applied
simultaneously with the value-based
incentive payment adjustments.
Commenters also supported the
proposal to apply the applicable percent
reduction and the value-based incentive
payment adjustment factor to the base
operating DRG payment amount
simultaneously, beginning in January
2013, when the adjustments are
incorporated into the claims processing
system.
Response: We thank the commenters
for their support of these proposals and
we are adopting them as final.
After consideration of the public
comments we received, we are
finalizing our proposal to delay the
application of the 1.00 percent
applicable reduction to the base
operating DRG payment amount for
each discharge occurring in FY 2013
until we apply the value-based
incentive payment adjustment factor.
We are also finalizing our proposal that
beginning with the incorporation of
value-based incentive payment
adjustments into the claims processing
system in January 2013, a hospital
would receive a base operating DRG
payment amount for each discharge
occurring in FY 2013 that is the net
result of the application of the 1.00
percent reduction and the application of
the hospital’s individual value-based
incentive payment amount adjustment.
We are also finalizing our proposal that,
beginning with October 1, 2013
discharges, we will simultaneously
apply both the applicable percent
reduction and the value-based incentive
payment adjustment to the base
operating DRG payment amount for
each discharge during the regular claim
payment process.
e. Process for Reducing the Base
Operating DRG Payment Amount and
Applying the Value-Based Incentive
Payment Adjustment for FY 2013
In developing our proposal for FY
2013, we considered two different
methodologies for applying the 1.00
percent reduction to the base operating
DRG payment amount for each
discharge, and for applying the valuebased incentive payment adjustment to
the reduced base operating DRG
payment amount: (1) Reprocessing the

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claims submitted prior to January 2013,
which is when we expect to incorporate
the value-based incentive payment
adjustments into our claims processing
system; and (2) modifying the exchange
function slope in such a way as to
redistribute the value-based incentive
payment adjustments for discharges
occurring prior to incorporating the
adjustments into our claims processing
system. Neither approach would require
hospitals to resubmit claims.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28075), we
proposed to reprocess the claims
submitted by hospitals for discharges
occurring between October 1, 2012 and
such time as the value-based incentive
payment adjustments are incorporated
into the claims processing system. We
believe that this approach is the most
straightforward way to address the
January implementation of FY 2013
value-based incentive payment
adjustments. For the second
methodology we considered, we would
need to modify the exchange function
slope, because adjustments would not
have been made beginning on October 1,
2012, the start of FY 2013. As described
in section VIII.C.5.c. of this preamble,
calculation of the exchange function
slope is based on the hospital’s TPS and
the estimated amount available for
value-based incentive payments. The
total amount available to make value
based incentive payments to eligible
hospitals is equal to the total of their
base-operating DRG payment reduction
amounts, as estimated by the Secretary,
according to section 1886(o)(7)(A) of the
Act.
Under this approach, we would
account for this delay in
implementation of applicable percent
reductions and value-based incentive
payment adjustment factors by
modifying the computed exchange
function slope so that we could use it
to calculate a value-based incentive
payment adjustment factor for each
hospital that would distribute the total
amount available for value based
incentive payments between January
and September 30, 2013. We would
modify the exchange function to
accomplish this by multiplying its slope
by the following fraction: the total
number of days in the fiscal year/
(divided by) the number of days
between the date we incorporate
adjustments and the end of the fiscal
year. For example, if the date the valuebased adjustment is incorporated into
the system is January 15, then the
number of days between January 15,
2013 and September 30, 2013 is 258.
Therefore, we would multiply the
exchange function slope by 365/258, in

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order to redistribute the value-based
incentive payment adjustments that
occur on or after January 15, 2013 in
such a manner that they also account for
discharges occurring between October 1,
2012 and January 15, 2013. For purpose
of calculating the exchange function
slope modification, we would assume
that hospitals’ base operating DRG
payments are constant throughout the
fiscal year (that is, DRG payments are
not concentrated in the beginning or the
end of the year, for example).
We believe that this alternative
approach could cause confusion
regarding payment amounts for
discharges that occur between the
beginning of the fiscal year and the
implementation of the value-based
incentive payment adjustments but are
not billed until after the implementation
of the value-based incentive payment
adjustments. Those claims would be
paid as though the applicable percent
reduction and the value-based incentive
payment adjustments were not in effect,
because they would be based on date of
discharge.
We invited public comment on our
proposed approach to reprocess hospital
inpatient claims that are billed between
October 1, 2012 and such time as we are
able to incorporate the value-based
incentive payment adjustments into our
claims processing system in January
2013. We recognize that hospitals would
be responsible for maintaining their
own internal accounting systems in
order to accommodate the reprocessing
of these claims in January 2013;
therefore, we also invited public
comment on the alternative approach
described above of modifying the
exchange function slope to redistribute
the value-based incentive payment
adjustments, or any other approaches
which might minimize the
administrative burden imposed upon
hospitals.
Comment: The majority of
commenters supported the proposal to
reprocess claims, in order to account for
the January 2013 implementation of FY
2013 value-based incentive payment
adjustment factors, because they
believed that the approach is the most
straightforward and least burdensome to
hospitals. Many of these commenters
noted that reprocessing does pose some
administrative burden to hospitals, and
they requested that CMS perform a
timely reprocess or even a dedicated
one.
Response: We thank the commenters
for their support of the proposal to
reprocess claims in January 2013 and
acknowledge the concern that this
places an administrative burden on
hospitals. We appreciate the importance

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of timely reprocessing hospital claims to
reflect the adjustment. While we are
unable to guarantee a dedicated
reprocess for payment adjustments
under the Hospital VBP Program, we
will make every effort to reprocess
claims as quickly as practicable.
Comment: Some commenters stated
that they did not support our proposal
to reprocess claims. A few of these
commenters expressed a preference for
settlement at cost report. One
commenter stated that a lump sum
adjustment would be preferable, that
adjusting the value-based incentive
payment adjustments across the
remainder of the year would be next in
order of preference, and that claims
reprocessing would be the least
preferred option, indicating that it
places a burden on hospitals to track,
validate, and reconcile claims, long after
the services were furnished. This
commenter expressed concern with the
amount of time CMS might take to
reprocess these claims, asking that it be
completed no later than March 31, 2013,
should this option be selected. Another
commenter expressed preference for an
adjustment to the linear exchange
function slope, in order to distribute the
payment adjustments across the
remainder of the fiscal year, stating that
this approach would alleviate financial,
operational, and administrative
challenges associated with reprocessing.
Response: We do not believe a lump
sum adjustment or cost report
settlement will be feasible, because
neither of these adjustments would be
reflected in Medicare claims history.
Either a lump sum adjustment or the
cost report settlement would be made
outside of the claims processing system.
This would mean that the claim would
appear in Medicare claims history to
have been paid without any value-based
incentive payment adjustment factor
when, in reality, an adjustment would
have been made outside of the claims
system. Given that we use Medicare
claims data for a number of programs
and initiatives across the agency, we
believe that reprocessing claims is the
most straightforward approach and that
it allows us to maintain an accurate
claims history. Further, we do not wish
to delay high-performing hospitals’
receipt of their value-based incentive
payment amounts or delay lowperforming hospitals incurring payment
reductions until the cost report is
finalized. We believe that delaying the
settlement of these value-based
incentive payments until cost report
settlement would add a degree of
uncertainty to hospital payments, which
might not be reconciled for several
years.

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We appreciate the comment that an
adjustment to the linear exchange
function might alleviate some
administrative burden; however, we
believe that such an adjustment might
create confusion regarding the payment
amounts made for discharges occurring
prior to the January 2013
implementation of the value-based
incentive payment adjustments but
processed after the implementation.
Further, as noted above, we are
concerned that this result might create
an inaccurate claims history that would
impact other CMS programs for which
this claims history is used. If we were
to adjust claims paid after the January
incorporation of value-based incentive
payment adjustment factors into the
claims processing system, then the
claims history would show a portion of
the year during which claims were not
subject to any value-based incentive
payment adjustments. The claims paid
during the remainder of the year would
then reflect an adjustment that
distributes incentives across less than a
full fiscal year. The concentration of a
fiscal year’s worth of incentives across
less than the full fiscal year might skew
calculations done under other CMS
programs that rely on Medicare claims
data.
Comment: A few commenters
expressed general concern that CMS
would not have the value-based
incentive payment adjustment factors
for FY 2013 in place, in the claims
processing system, until January 2013.
Response: As noted above, we
finalized the January 2013 application
of the value-based incentive payment
adjustment factors, for discharges
occurring in FY 2013, in the Hospital
Inpatient VBP Program final rule (76 FR
26536). We acknowledge that this
results in additional complexities;
however, we previously finalized this
policy in order to meet the statutory
posting and notification deadlines of the
Hospital VBP Program.
After consideration of the public
comments we received, we are
finalizing our proposal to reprocess the
claims submitted by hospitals for
discharges occurring between October 1,
2012 and the January 2013
incorporation of the value-based
incentive payment adjustments into the
claims processing system.
6. Review and Corrections Processes
a. Background
Section 1886(o)(10)(A)(i) of the Act
requires that the Secretary make
information available to the public
regarding individual hospital
performance in the Hospital VBP

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Program, including: (1) The
performance of the hospital on each
measure that applies to the hospital; (2)
the performance of the hospital with
respect to each condition or procedure;
and (3) the hospital’s TPS. To comply
with this requirement, we stated in the
Hospital Inpatient VBP Program final
rule that we intended to publish
hospital scores with respect to each
measure, each hospital’s conditionspecific score (that is, the performance
score with respect to each condition or
procedure, for example, AMI, HF, PN,
and SCIP), each hospital’s domainspecific score, and each hospital’s TPS
on the Hospital Compare Web site (76
FR 26534 through 26536).
Section 1886(o)(10)(A)(ii) of the Act
requires the Secretary to ensure that
each hospital has the opportunity to
review, and submit corrections for, the
information to be made public with
respect to each hospital under section
1886(o)(10)(A)(i) of the Act prior to such
information being made public. In the
CY 2012 OPPS/ASC final rule with
comment period (76 FR 74545), we
finalized procedures that will enable
hospitals to review and correct both the
underlying data and measure rates for
the clinical process of care measures
and HCAHPS dimensions under the
Hospital VBP Program (76 FR 74545
through 74547).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28076), we made
additional proposals that will enable
hospitals to review and correct their
claims-based measure rates, as well as
their condition-specific scores, domainspecific scores, and TPSs.

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b. Review and Corrections Process for
Claims-Based Measure Rates
We use claims/administrative data to
calculate measure rates for measures
that we have adopted for a number of
pay for reporting and pay for
performance programs, such as the
Hospital VBP Program. For claims-based
measures used in the Hospital IQR
Program, we currently provide hospitals
with confidential reports containing the
measure rate calculations and
accompanying confidential detailed
discharge-level information prior to
making the rates available to the public.
With respect to the claims-based
measures we adopt for the Hospital VBP
Program, we proposed to deliver the
same type of confidential reports and
accompanying confidential detailed
discharge-level information for purposes
of providing hospitals an opportunity to
review and submit corrections for their
claims-based measure rates under
section 1886(o)(10)(A)(ii) of the Act.

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The confidential reports would
contain the claims-based measure rate
calculations and would be accompanied
by additional confidential dischargelevel information based on the most
recent administrative data available at
the time we run the data for purposes
of calculating the rates. As we discuss
below, we proposed to create extracts of
the data to be used for measure rate
calculation purposes approximately 90
days after the last discharge date in the
performance period for the measure.
Our intent in providing the confidential
reports and accompanying dischargelevel data to hospitals is twofold: (1) To
provide hospitals with an opportunity
to review and submit corrections for the
measure rates that we will make
available to the public; and (2) to
facilitate hospitals’ quality improvement
efforts with respect to the measures. The
discharge-level information would
contain data derived from claims and
administrative data that were used in
the calculation of the measure rates.
Depending on the measure, this
discharge level information might
include data elements such as dates of
admission, dates of discharge, patient
risk factors, primary and secondary
diagnoses, procedures, dates of death,
dates of service after discharge by the
same or other providers/suppliers, and
provider/supplier numbers. The
confidential reports and accompanying
discharge level data would be delivered
to each hospital via its secure
QualityNet account.
We proposed to provide hospitals a
period of 30-days to review and submit
corrections for the claims-based
measure rates contained in their
confidential reports. This 30-day period
would begin the day hospitals’
confidential reports and accompanying
discharge-level data are posted to
QualityNet. These measure rates will be
used for performance scoring, valuebased incentive payment amount
calculations, and public reporting for
the Hospital VBP Program. Based on our
previous experience with public
reporting of measures under the
Hospital IQR Program, including the 30day risk standardized mortality rates
and the AHRQ Patient Safety Indicators,
we believe this 30-day period will allow
enough time for hospitals to review
their data and notify us of suspected
errors in the measure rate calculations,
and for us to incorporate appropriate
corrections to the calculations. During
the review and correction period,
hospitals should notify us of suspected
errors using the technical assistance
contact information provided in their
confidential reports.

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The review and correction process we
proposed to adopt for the claims-based
measure rates would not allow hospitals
to submit corrections related to the
underlying claims data we used to
calculate the measure rates, or allow
hospitals to add new claims to the
performance period data set that we ran
to calculate the rates. This is because it
is necessary to take a static ‘‘snapshot’’
of the claims in order to perform the
calculations. For purposes of this
Program, we would calculate the claimsbased measures using claims and
corrections to claims submitted by
hospitals that were incorporated into
our claims database during the
approximately 90 day period following
the last date of discharge to be included
in the measure calculation.
We recognize that under our current
timely claims filing policy, hospitals
have up to one year from the date of
discharge to submit a claim. However,
in using claims and other administrative
data to calculate measure rates for the
Hospital VBP Program, we proposed to
create data extracts using claims
information as it exists in our Common
Working File (CWF) approximately 90
days after the last discharge date in the
performance period for the measures.
For example, if the last discharge date
in the performance period for a measure
is June 30, 2011, we would create the
data extraction on or about September
30, 2011 and use that data to calculate
the measure rates for that performance
period. Hospitals would then receive
the measure rates in their confidential
reports and accompanying data, and
they would have an opportunity to
review and submit corrections to those
rates. As we stated above, hospitals
would not be able to submit corrections
to the underlying data that we extracted
on or about September 30, 2011, and
would also not be able to add claims to
the data set. We would consider the
underlying claims and administrative
data to be complete for purposes of the
Hospital VBP Program claims-based
measure rate calculations at the
conclusion of the approximately 90 day
period following the last date of
discharge used in the performance
period.
We considered a number of factors in
determining that an approximately 90
day ‘‘run-out’’ period is appropriate for
purposes of calculating the claims-based
measure rates. First, we seek to provide
timely quality data to hospitals for the
purpose of quality improvement, and to
the public for the purpose of
transparency. Next, we seek to make
payment adjustments to hospitals as
close in time to the applicable
performance period as possible. Finally,

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we seek to have as complete a data set
as possible, recognizing that hospitals
have up to one year from the date of
discharge to submit a claim under our
timely claims filing policy.
After we run the data and create the
data extract for purposes of calculating
the measure rate for a claims-based
measure, it takes several months to
incorporate other data needed to
complete the rate calculation
(particularly in the case of a riskadjusted and/or episode based measure).
We then need to generate and check the
rate calculations, as well as program,
populate, and deliver the confidential
reports and accompanying data to
hospitals. We are also aware that
hospitals would like to receive
performance information under the
Hospital VBP Program as close in time
to the performance period as possible. If
we were to wait to run the data for
purposes of calculating the claims-based
measure rates until at least 12 months
after the last discharge date in the
performance period, we would not, for
operational reasons, be able to provide
the measure rates to hospitals 18 to 24
months after the performance period
ended. We believe that this would
create an unacceptably long delay both
for hospitals that are interested in
receiving timely measure rate
calculations for their own quality
improvement efforts, and for us to (1)
calculate TPSs for a program year and
(2) publicly report hospital performance
on the Hospital Compare Web site.
Therefore, we proposed to extract the
data needed to calculate a claims-based
measure rate approximately 90 days
after the last discharge date for the
measure’s performance period so that
we can best balance our need to provide
timely program information to hospitals
against the need to calculate the claimsbased measures using as complete a data
set as possible.
During the 30-day review and
correction period, hospitals should
notify us of suspected errors in our
calculation of the measure rates using
the technical support contacts provided
in the hospital’s confidential report. We
would investigate the validity of each
submitted correction and notify
hospitals of the results. Should we
confirm that we made an error in
calculating one or more claims-based
measure rates included in a hospital’s
confidential report, we would correct
the calculation(s) and issue a new
confidential report to the hospital. We
proposed that once the 30-day review
and corrections period has concluded,
we would not accept any additional
corrections submitted by a hospital.

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We invited public comment on the
proposed review and correction process
for claims-based measure rates to be
used in the Hospital VBP Program.
Comment: A number of commenters
supported our proposals on review and
correction of claims-based performance
measure data.
Response: We thank commenters for
their support.
Comment: Some commenters urged us
to allow up to 60 days for hospitals to
review and correct their claims-based
measure data under the Hospital VBP
Program, noting that hospitals will
receive discharge-level information on
claims-based measures for the first time.
Response: We believe that the
proposed 30 day review and correction
period is adequate for reviewing
Hospital VBP measure rates and
performance scores. This 30 day time
period is the same amount of time used
in Hospital Compare measure rate
previews, and this time period has
proved to be adequate for hospitals to
review their measure rates. We are also
concerned about the delay that would
result in making value-based incentive
payments if we allowed hospitals 60
days to review and correct their claimsbased measure data. We believe that we
have a responsibility to provide
hospitals with timely reimbursements,
and allowing 60 days for review and
corrections would unacceptably further
delay our ability to make incentive
payments under the Program. Our
experience with delivering similar
reports to hospitals on similar measures
indicates that 30 days is sufficient time
for hospitals to download their reports
and verify the accuracy of the measure
calculations and troubleshoot any
suspected discrepancies with the help
of our contractor. In light of the fact that
we will be providing even more detailed
information than we have previously
provided to hospitals under the Hospital
IQR Program, we believe that 30 days is
sufficient time for hospitals to review
and submit corrections to the claimsbased measure rates that will be used in
the Hospital VBP Program.
After consideration of the public
comments we received, we are
finalizing the claims-based measure rate
review and correction process as
proposed for FY 2014 and all
subsequent payment determinations.
c. Review and Correction Process for
Condition-Specific Scores, DomainSpecific Scores and Total Performance
Scores
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28077), we
proposed to adopt a review and
corrections process that will enable

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hospitals to review and submit
corrections with respect to their
performance on each condition (the
condition-specific score), their
performance on each domain (the
domain-specific score) and their TPSs.
Under this proposed process, we would
provide each hospital with a TPS Report
(this would be a different report than
the hospital confidential report and
accompanying data described above,
and the reports described in previous
rules that will enable hospitals to
review and correct their chart-abstracted
and HCAHPS measure data). A hospital
would have 30 days from the date we
post the report on its QualityNet
account to review the TPS Report and
submit any necessary corrections to us
via QualityNet. This proposed
requirement will enable us to evaluate
corrections requests and provide
decisions on those requests in a timely
manner. As discussed further below, we
also proposed that the submission of a
correction through this process be a
prerequisite to a hospital being able to
submit an appeal of the calculation of
its performance assessment with respect
to the performance standards and/or its
TPS under section 1886(o)(11)(A) of the
Act.
Hospitals would not be able to use
this proposed review and correction
process to ask us to reconsider a
hospital’s eligibility under section
1886(o)(1)(C) of the Act to participate in
the Hospital VBP Program for a fiscal
year. However, we sought public
comment on whether our determination
regarding a hospital’s eligibility should
be subject to correction.
We believe that this proposed review
and corrections process will ensure that
hospitals are able to fully and fairly
review their condition-specific scores,
domain-specific scores, and TPS. We
invited public comment on this
proposal. We note that we anticipate
posting FY 2013 hospital performance
information on Hospital Compare in
April 2013. We proposed to codify the
process for posting hospital-specific
information under the Hospital VBP
Program in our regulations at 42 CFR
412.163.
We view the review and corrections
process as separate and distinct from the
appeals process. Each process is aimed
at allowing hospitals to seek certain
reconsiderations from CMS. The review
and corrections process is aimed at
correcting data that will be made public
on the Hospital Compare Web site,
while the appeals process allows
hospitals to seek reconsideration for
errors that may have been introduced
during the TPS calculation that may
affect hospitals’ payments.

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Comment: Many commenters urged
us to allow up to 60 days for hospitals
to review and correct their TPSs under
the Hospital VBP Program.
Response: As discussed above, we are
concerned about the delay in making
value-based incentive payments to
hospitals that would result if we
allowed hospitals 60 days to review and
correct their TPSs. The proposed 30 day
review and correction period is the
same length of time that we have long
allowed hospitals to preview the data to
be made public under the Hospital IQR
Program, and we believe that this time
period has proven to be adequate for
hospitals to review their measure rates.
We believe that we have a responsibility
to provide hospitals with timely
reimbursements, and allowing 60 days
for review and corrections of TPSs
would, in our view, unacceptably
further delay incentive payments under
the Hospital VBP Program.
After consideration of the public
comments we received, we are
finalizing our proposals on review and
corrections as proposed. We are also
codifying these policies at 42 CFR
412.163.
7. Appeal Process Under the Hospital
VBP Program

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a. Background
Section 1886(o)(11)(A) of the Act
requires the Secretary to establish a
process by which hospitals may appeal
the calculation of a hospital’s
performance assessment with respect to
the performance standards (section
1886(o)(3)(A) of the Act) and the
hospital performance score (section
1886(o)(5) of the Act).
Under section 1886(o)(11)(B) of the
Act, there is no administrative or
judicial review under section 1869 of
the Act, section 1878 of the Act, or
otherwise of the following: (1) The
methodology used to determine the
amount of the value-based incentive
payment under section 1886(o)(6) of the
Act and the determination of such
amount; (2) the determination of the
amount of funding available for the
value-based incentive payments under
section 1886(o)(7)(A) of the Act and the
payment reduction under section
1886(o)(7)(B)(i) of the Act; (3) the
establishment of the performance
standards under section 1886(o)(3) of
the Act and the performance period
under section 1886(o)(4) of the Act; (4)
the measures specified under section
1886(b)(3)(B)(viii) of the Act and the
measures selected under section
1886(o)(2) of the Act; (5) the
methodology developed under section
1886(o)(5) of the Act that is used to

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calculate hospital performance scores
and the calculation of such scores; or (6)
the validation methodology specified in
section 1886(b)(3)(B)(viii)(XI) of the Act.
b. Appeal Process
We solicited public comments on the
general structure and procedures we
should consider when developing an
appeals process for the Hospital VBP
Program in the Hospital Inpatient VBP
Program proposed rule (76 FR 2484). We
took these comments into consideration
when we developed the proposed
appeals process that appears below. In
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28077), we proposed to
implement an administrative appeals
process that provides hospitals with the
opportunity to appeal the calculation of
their performance assessment with
respect to the performance standards, as
well as their TPS.
We proposed to codify this proposed
appeals process and the limitations on
administrative and judicial review in
our regulations at 42 CFR 412.167.132
Under our proposed appeals process,
if a hospital is seeking to appeal a
calculation of the TPS, measure/
dimension score, condition-specific
score, domain specific score, or measure
rate/data for which the hospital could
have submitted a correction during the
review and correction process we have
both previously finalized (with respect
to chart-abstracted and HCAHPS data)
and proposed to adopt in this proposed
rule, we would require that the hospital
first submit a correction to that
calculation, and receive an adverse
determination from us, as part of that
process before the hospital could
challenge it under the appeals process.
We proposed to adopt this requirement
because we believe that we will be able
to resolve many hospital claims through
the review and corrections process, and
thus eliminate the need for an appeal.
To the extent that a hospital seeks to
appeal a calculation that was the subject
of a correction request, we proposed
that the deadline for the hospital to
submit an appeal under section
1886(o)(11)(A) of the Act would be 30
days from the date we informed the
hospital through QualityNet of our
decision on the correction request. For
any other appeals requests, we proposed
that hospitals have up to 30 days after
the conclusion of the review and
corrections period specified above to
submit an appeal. We sought public
comment on the appropriateness of this
proposed appeals timeline and whether
132 We inadvertently also proposed to include
regulation text on the limitations on review at 42
CFR 412.162(e).

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53581

we should consider any other possible
deadlines.
We proposed that all appeals be
submitted through QualityNet and that
they contain the following information:
• Hospital’s CMS Certification
Number (CCN)
• Hospital Name
• Hospital’s basis for requesting an
appeal. This must identify the hospital’s
specific reason(s) for appealing the
hospital’s TPS or performance
assessment with respect to the
performance standards.
• CEO contact information, including
name, email address, telephone number,
and mailing address (must include the
physical address, not just the post office
box).
• QualityNet System Administrator
contact information, including name,
email address, telephone number, and
mailing address (must include the
physical address, not just the post office
box).
Consistent with sections
1886(o)(11)(A) and (B) of the Act, we
proposed that hospitals would be able to
submit an appeal on the following
issues:
• CMS’ decision to deny a hospital’s
correction request that the hospital
submitted under the review and
corrections process;
• Whether the achievement/
improvement points were calculated
correctly;
• Whether CMS properly used the
higher of the achievement/improvement
points in calculating the hospital’s
measure/dimension score;
• Whether CMS correctly calculated
the domain scores, including the
normalization calculation;
• Whether CMS used the proper
lowest dimension score in calculating
the hospital’s HCAHPS consistency
points;
• Whether CMS calculated the
HCAHPS consistency points correctly;
• Whether the correct domain scores
were used to calculate the TPS;
• Whether each domain was weighted
properly;
• Whether the weighted domain
scores were properly summed to arrive
at the TPS; and
• Whether the hospital’s open/closed
status (including mergers and
acquisitions) is properly specified in
CMS’ systems.
We invited public comment on this
proposed administrative appeal process.
Comment: Commenters generally
expressed support for CMS’ proposed
appeals process for the Hospital VBP
Program. Some commenters requested
additional detail on CMS’ timeframe for
resolving appeals.

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Response: We thank the commenters
for their support. We regret that we are
not able to provide further detail on a
timeframe for resolving appeals requests
at this time. The Hospital VBP Program
is new, and we therefore have no basis
on which to estimate the number or
magnitude of appeals requests that we
will need to review. We intend to
resolve all appeals requests under the
Hospital VBP Program as quickly as
possible given available resources.
Comment: Some commenters opposed
CMS’ proposed appeals process, arguing
that, despite their best efforts, hospitals
miss errors during their own internal
accuracy reviews and do not believe
that the proposed timeframe provides
hospitals the ability to fully review their
scoring reports. Commenters argued that
hospitals should have every opportunity
to correct mistakes once they are
identified, even if hospitals identify
those mistakes after the review and
corrections process.
Response: We remind commenters
that they have ample opportunity to
review and correct patient level
HCAHPS and process of care measure
data submission prior to quarterly data
submission deadline as part of our
review and correction process. We also
believe that the proposed limitation on
the appeals process encourages
hospitals to review their score reports as
thoroughly as possible in order to
ensure that we make accurate, timely
value-based incentive payments through
this program.
After consideration of the public
comments we received, we are
finalizing the appeals process for the
Hospital VBP Program as proposed. We
are also codifying this process and the
limitations on review in our regulations
at 42 CFR 412.167.
8. Measures for the FY 2015 Hospital
VBP Program

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a. Relationship Between the National
Strategy and the Hospital VBP Program
Section 399HH of the Public Health
Service Act, as added and amended by
sections 3011 and 10302 of the
Affordable Care Act, requires the
Secretary to establish a national strategy
to improve the delivery of health care
services, patient health outcomes, and
population health. The Secretary
published the ‘‘National Strategy for
Quality Improvement in Health Care’’
on March 21, 2011. The strategy is
available at: http://www.healthcare.gov/
law/resources/reports/
nationalqualitystrategy032011.pdf.
We believe we can incorporate the
goals of the National Quality Strategy
into our policies under the Hospital

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VBP Program. We view the strategy as
an important driver in revamping how
Medicare services are paid for, moving
increasingly towards rewarding
hospitals that deliver better outcomes in
health and health care at lower cost to
the beneficiaries and communities they
serve. Over time, the strategy is also
helping us align the goals for quality
measurement and improvement in
hospitals with those of other providers
and suppliers in the health system,
promoting shared accountability across
care settings for beneficiary care and
quality improvement.
We believe that, given the availability
of endorsed measures and the need to
balance the number and scope of the
measures against the burden on
participating hospitals, as well as
ensuring that the Hospital VBP
Program’s measure set reflects our
quality improvement priorities, the
Hospital VBP Program measures should
as fully as possible reflect the six
measurement domains that arise from
the National Quality Strategy’s six
priorities: Clinical Care; Person- and
Caregiver-Centered Experience and
Outcomes; Safety; Efficiency and Cost
Reduction; Care Coordination; and
Community/Population Health. We
believe that measure sets should
generally rely on a mix of standards,
outcome, process of care measures, and
patient-reported measures including
measures of care transitions, patient
experience, and changes in patient
functional status, with an emphasis on
measurement as close to the patientcentered outcome of interest as possible.
We took all of these factors into
consideration when developing our
measure proposals for the FY 2015
Hospital VBP Program.
In addition, we believe that measure
sets should evolve to include a focused
set of measures that reflect the most
important areas of service and quality
improvement for hospitals as well as a
core set of measure concepts that align
quality improvement objectives across
all provider types and settings.
b. FY 2015 Measures
In the Hospital Inpatient VBP Program
final rule (76 FR 26496 through 26497),
we adopted a policy under which we
would examine whether any clinical
process of care measures that were
otherwise eligible for inclusion in a
Hospital VBP Program measure set were
topped-out, and thus, should be
excluded because measuring hospital
performance on a topped-out measure
would have no meaningful effect on a
hospital’s TPS. Our methodology for
evaluating whether a measure is toppedout focuses on two criteria: (1) National

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measure data show statistically
indistinguishable performance levels at
the 75th and 90th percentiles, and (2)
National measure data show a truncated
coefficient of variation (TCV) less than
0.10.
We analyzed the clinical process of
care measures that we believe are
eligible for the FY 2015 Hospital VBP
Program based on their prior inclusion
in the Hospital IQR Program and posting
on Hospital Compare for ‘‘topped out’’
status, and concluded that one of the
candidate measures for the FY 2015
Program—SCIP–Inf–10: Surgery Patients
with Perioperative Temperature
Management—is now ‘‘topped-out.’’
Therefore, we did not propose to
include this measure in the FY 2015
Hospital VBP Program.
We welcomed public comments on
whether any other existing Hospital
VBP measures may be ‘‘topped out’’ and
should therefore be considered for
removal from the proposed measure set.
We also noted that we do not believe it
is appropriate at this time to test or retest proposed outcome measures for
‘‘topped-out’’ status because such
measures allow CMS to reward
hospitals for high-quality outcomes,
which is a central aim of quality
improvement efforts in the health care
system. We further believe that these
measures are critical to providing
patients with better care and believe it
is important to hold hospitals
accountable for the clinical outcomes
captured by these measures. We invited
public comments on this policy,
including whether we should examine
the proposed outcome measure set for
‘‘topped-out’’ status at this time.
Comment: A number of commenters
supported our continued exclusion of
‘‘topped-out’’ measures from the
Hospital VBP Program.
Response: We thank commenters for
their support.
After consideration of the public
comments we received, we are
finalizing our proposal to remove SCIP–
Inf–10: Surgery Patients with
Perioperative Temperature Management
in the FY 2015 Hospital VBP Program
because it is topped-out.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28079), for the FY
2015 Hospital VBP Program, we
proposed to retain 12 of the 13 clinical
process of care measures that we have
adopted for the FY 2014 Hospital VBP
Program. We proposed to remove SCIP–
VTE–1 from the FY 2015 measure set
because this measure is very similar to
another measure we have adopted for
the Program (SCIP–VTE–2) but, in our
view, is not as closely linked to better
surgical outcomes because it assesses

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
the ordering of VTE prophylaxis, as
opposed to the patient’s actual receipt of
such prophylaxis within 24 hours of
surgery. We also note that, during a
recent maintenance review of SCIP–
VTE–1, the NQF concluded that it
would no longer endorse this measure,
and we proposed in this proposed rule
to remove the measure from the
Hospital IQR Program beginning with
the FY 2015 payment determination.
Therefore, we also proposed to remove
SCIP–VTE–1 from the Hospital VBP
Program measure set beginning with the
FY 2015 Hospital VBP Program. We
note that in the future, we anticipate
proposing to adopt surgical outcome
measures, including one or more
measures that assess complications
arising from VTE prophylaxis
medications, first into the Hospital IQR
Program and then into the Hospital VBP
Program.
We proposed to adopt one additional
clinical process of care measure—AMI–
10: Statin Prescribed at Discharge. This
measure has been specified under the
Hospital IQR Program for the FY 2013
payment determination (75 FR 50200).
AMI–10 measure data were posted on
the Hospital Compare Web site on
January 26, 2012, so as discussed further
below, we proposed a 9-month
performance period for this measure for
FY 2015. We intend to align the
performance period for AMI–10 with
the other clinical process measures’
performance period in future years. The
measure is NQF-endorsed (#0639) and
we did not find it to be ‘‘topped-out’’
when we examined the list of candidate
measures as described above. We also
note that current American College of
Cardiology (ACC)/American Heart
Association (AHA) guidelines place a
strong emphasis on the initiation or
maintenance of statin drugs for patients
hospitalized with AMI, particularly
those with LDL-cholesterol levels at or
above 100 mg/dL. Therefore, we believe
that this measure is appropriate for use
in the Hospital VBP Program.
However, after examining the most
recently-available data, we have
concluded that the AMI–10 measure
meets our definition of ‘‘topped-out.’’
Therefore, we are not finalizing this
measure for the FY 2015 Hospital VBP
Program.
For the Patient Experience of Care
domain, we proposed to retain the eight
dimensions of the HCAHPS survey that
we adopted for the FY 2013 and FY

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2014 Hospital VBP Program. We believe
that the 8 HCAHPS dimensions
finalized for the FY 2013 and FY 2014
Hospital VBP Programs are wellunderstood by hospitals and the public
and capture important aspects of the
patient’s experience in the acute care
environment.
For the Outcome domain, we
proposed to retain the three 30-day
mortality measures that we finalized for
the FY 2014 Hospital VBP Program. As
described above, we continue to believe
that these measures are important to
quality improvement efforts because
outcome measures allow us to reward
hospitals for high-quality outcomes,
which is a central aim of quality
improvement efforts in the health care
system. We further believe that these
measures are critical to providing
patients with better care and believe it
is important to hold hospitals
accountable for the clinical outcomes
captured by these measures. We also
proposed to adopt two additional
outcome measures—PSI–90, the AHRQ
PSI composite measure, and the
CLABSI: Central Line-Associated Blood
Stream Infection measure—for the
Outcome domain.
We initially adopted the CLABSI
measure for the FY 2013 Hospital IQR
Program in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50200 through 50202)
and refer readers to that final rule for
further discussion of the measure.
CLABSI is a HAI measure that assesses
the rate of laboratory-confirmed cases of
bloodstream infection or clinical sepsis
among ICU patients. This measure was
first NQF-endorsed in 2004, and
adopted by the HQA in 2007. The
measure can be stratified by the type of
ICU and is aggregated to the hospital
level by the NHSN. We first posted
hospital performance on this measure
on Hospital Compare on January 26,
2012.
We believe that adoption of the
CLABSI measure for the Hospital VBP
Program is consistent with the intention
captured in the Hospital VBP Program’s
statutory requirement that we consider
measures of HAIs for the FY 2013
Hospital VBP Program’s measure set.
This measure was also included in the
HHS Action Plan to Prevent HAIs,
which is referenced in section
1886(o)(2)(B)(i)(I)(ee) of the Act.
We initially adopted the AHRQ PSI
composite measure (PSI–90) for the FY
2010 Hospital IQR Program in the FY

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2009 IPPS/LTCH PPS final rule (73 FR
48602 through 48603) and refer readers
to that final rule for further discussion
of that measure. PSI–90 is a composite
measure of patient safety indicators
developed and maintained by AHRQ
and measure data were posted on
Hospital Compare on October 14, 2011.
We believe that its use in the Hospital
VBP Program is appropriate in order to
encourage hospitals to take all possible
steps to avoid threats to patient safety
that may occur in the acute care
environment.
For the Efficiency domain, we
proposed to adopt one new measure:
The Medicare Spending per Beneficiary
measure. The proposed measure is
inclusive of all Part A and Part B
payments from 3 days prior to a
subsection (d) hospital admission
through 30 days post discharge with
certain exclusions. It is risk adjusted for
age and severity of illness, and the
included payments are standardized to
remove differences attributable to
geographic payment adjustments and
other payment factors. We submitted the
measure to the NQF for endorsement on
July 2, 2012.
We refer readers to the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51618
through 51627) for a detailed
description of the measure. Additional
information on the measure, including a
detailed specification document can be
found at: http://qualitynet.org/dcs/
ContentServer?c=Page&pagename=Qnet
Public%2FPage%2FQnetTier3&cid=
1228772053996. This measure has been
specified under the Hospital IQR
Program, and performance data was
posted on the Hospital Compare Web
site on April 21, 2012. As discussed
further below, we proposed that the
performance period for this measure for
the FY 2015 Hospital VBP Program
would begin on May 1, 2013, which will
be more than one year after the
performance data was publicly posted.
Further, section 1886(o)(2)(B)(ii) of the
Act requires us to ensure that measures
selected for the Hospital VBP Program
include measures of efficiency,
including measures of Medicare
spending per beneficiary, for FY 2014 or
a subsequent fiscal year. We believe that
this proposed measure fulfills that
requirement.
The proposed FY 2015 Hospital VBP
Program measures appear below:

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PROPOSED QUALITY MEASURES FOR FY 2015 HOSPITAL VBP PROGRAM
Measure ID

Description
Clinical Process of Care Measures

AMI–7a ............................................
AMI–8a ............................................
AMI–10 ............................................
HF–1 ...............................................
PN–3b .............................................
PN–6 ...............................................
SCIP–Inf–1 ......................................
SCIP–Inf–2 ......................................
SCIP–Inf–3 ......................................
SCIP–Inf–4 ......................................
SCIP–Inf–9 ......................................
SCIP–Card–2 ..................................
SCIP–VTE–2 ...................................

Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival.
Primary PCI Received Within 90 Minutes of Hospital Arrival.
Statin Prescribed at Discharge.
Discharge Instructions.
Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic Received in Hospital.
Initial Antibiotic Selection for CAP in Immunocompetent Patient.
Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision.
Prophylactic Antibiotic Selection for Surgical Patients.
Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time.
Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose.
Urinary Catheter Removed on Postoperative Day 1 or Postoperative Day 2.
Surgery Patients on Beta-Blocker Therapy Prior to Arrival Who Received a Beta-Blocker During the
Perioperative Period.
Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxes Within 24 Hours Prior
to Surgery to 24 Hours After Surgery.
Patient Experience Measures

HCAHPS* ........................................

Hospital Consumer Assessment of Healthcare Providers and Systems Survey.
Outcome Measures

AHRQ PSI composite .....................
CLABSI ...........................................
MORT–30–AMI ...............................
MORT–30–HF .................................
MORT–30–PN .................................

Complication/patient safety for selected indicators (composite).
Central Line-Associated Blood Stream Infection.
Acute Myocardial Infarction (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day mortality rate.
Pneumonia (PN) 30-day mortality rate.
Efficiency Measures

MSPB–1 ..........................................

Medicare Spending per Beneficiary.

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* Proposed dimensions of the HCAHPS survey for use in the FY 2015 Hospital VBP Program are: Communication with Nurses, Communication with Doctors, Responsiveness of Hospital Staff, Pain Management, Communication about Medicines, Cleanliness and Quietness of Hospital
Environment, Discharge Information and Overall Rating of Hospital. These are the same dimensions of the HCAHPS survey that have been finalized for prior Hospital VBP Program years.

We invited public comment on the
proposed measure set for the FY 2015
Hospital VBP Program.
Comment: Some commenters asked
that CMS seek the MAP’s evaluation of
stroke measures for possible inclusion
in future Hospital VBP Program years,
arguing that such measures are strongly
aligned with the Hospital VBP
Program’s goals of rewarding better care
value and patient outcomes. Other
commenters suggested that CMS
consider adopting pain assessment
measures for the Hospital VBP Program.
Response: We thank commenters for
the suggestions. We will consider
adopting additional measures for the
Hospital VBP Program as they become
available under the statutory
requirements, as they align with the
National Quality Strategy, and as they
fit within our other quality
improvement priorities.
Comment: Many commenters
applauded the clinical process of care
measure proposals for the FY 2015
Hospital VBP Program. Other
commenters suggested that CMS should
move away from chart-abstracted

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measures for future program years in
favor of more robust measures of quality
that impose less reporting burden on
hospitals.
Response: We thank the commenters
that supported the clinical process of
care measure proposals. With regard to
the suggestion that we move away from
using chart-abstracted measures in the
future, we are aware of the burden that
chart abstraction imposes on hospitals
and intend to move the Hospital VBP
measure set towards measures of
outcomes and efficiency, rather than
clinical processes, which we believe
represent the next steps in quality
measurement and will provide better
incentives to hospitals to manage care
quality and contain costs.
Comment: Commenters generally
supported the proposal to remove SCIP–
VTE–1 from the Hospital VBP Program,
citing agreement with CMS’ rationale
that the SCIP–VTE–2 measure is more
closely linked to outcomes than SCIP–
VTE–1.
Response: We thank commenters for
their support.
Comment: Some commenters objected
to further use of the PN–3b measure

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(blood cultures performed in the
Emergency Department prior to initial
antibiotic received in the hospital) in
the Hospital VBP Program, arguing that
the measure is not directly linked to
improved patient outcomes for
pneumonia patients. Commenters also
noted that NQF is considering
withdrawing its endorsement of this
measure.
Response: To the extent that the NQF
issues updated guidance with respect to
the PN–3b measure, we will take that
guidance into consideration as we
determine whether the measure remains
appropriate for the Hospital VBP
Program. In the meantime, we continue
to believe that the PN–3b measure
should remain in the Hospital VBP
Program measure set because it captures
important clinical quality information.
Given the threat of antibiotic resistance,
we believe that blood cultures prior to
antibiotic administration remains an
important point for quality
improvement in the hospital setting.
Comment: Some commenters argued
that the SCIP–Card–2 measure has
undergone major changes for discharges

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beginning January 1, 2012. Commenters
argued that the changes to the measure’s
specifications are significant and that
the measure should not be used for
value-based purchasing. Commenters
also called on CMS to adopt a
transparent process to indicate when a
VBP measure has changed and to ensure
that changes do not arbitrarily affect
hospitals’ scores.
Response: We disagree with
commenters’ assertion that the changes
made to the SCIP–Card–2 measure’s
specifications are significant enough to
warrant the measure’s exclusion from
the Program. The specifications change
extended the perioperative window in
order to measure hospitals’ continued
administration of beta blockers for
surgery patients on those drugs prior to
arrival. While we understand that this
change occurred during the FY 2013
Program’s performance period, we do
not believe that change to be so
significant as to fundamentally alter the
measure. We further note that NQF did
not consider the change substantive
during its maintenance review. We view
this change as a necessary improvement
to the measure’s specifications to ensure
that the measure aligns with best
clinical practices and the highest quality
standards.
We intend to closely monitor changes
to the Hospital VBP Program, including
the effects of updates to measures, and
should we find that such changes
warrant revisions to our scoring
methodology, we will address the issue
in future rulemaking.
Comment: Some commenters opposed
our proposal to adopt HF–1 for the FY
2015 Program, noting that MAP
recommended its removal. Other
commenters argued that we should not
adopt SCIP–Inf–2, as the Hospital IQR
Program is adopting a surgical site
infection outcome measure.
Response: We view HF–1 as an
important measure of care coordination
and therefore do not believe it
appropriate to remove the measure from
the Hospital VBP measure set at this
time. We note that MAP recommended
removing the HF–1 measure because the
measure has not been recommended for
continued NQF endorsement. If the
NQF issues further guidance with
respect to HF–1, we will take that
guidance into consideration as we
evaluate whether it is appropriate to
retain HF–1 in the measure set.
While we are aware that the Hospital
IQR Program is adopting a Surgical Site
Infection (SSI) measure collected
through the National Health Safety
Network (NHSN), we may not consider
that measure for the Hospital VBP
Program until such time as it meets the

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requirements specified in section
1886(o)(2) of the Act. We therefore
believe it is appropriate to continue to
include SCIP–Inf–2 in the Hospital VBP
Program measure set at this time.
Comment: Some commenters
requested that we clarify that the
Regulatory Impact Analysis included in
the proposed rule correctly omitted the
SCIP–Inf–10 measure, which we stated
is ‘‘topped-out.’’
Response: We thank commenters for
raising this matter. While the proposed
rule referred to the SCIP–Inf–10
measure in its description of the
Regulatory Impact Analysis, the
measure was properly omitted in the
calculations that appear in the
Regulatory Impact Analysis.
Comment: Some commenters
expressed concern about further use of
the HCAHPS survey in the Hospital VBP
Program, arguing that the survey is
biased against urban and safety-net
hospitals. Commenters suggested that
the ‘‘degree of quietness’’ item is unfair
to urban hospitals, as is the survey’s
policy of not adjusting results for very
low-income patients. Other commenters
argued that HCAHPS scores vary
systematically based on factors
unrelated to quality of care and urged
CMS to account for those variables in
HCAHPS scoring.
Response: We have examined the
association between safety net status
and the Patient Experience of Care
(HCAHPS) domain score in the Hospital
VBP Program. We analyzed Patient
Experience of Care scores during the
Hospital VBP Program Dry Run period
(Baseline Period: April–December 2008;
Performance Period: April to December
2010), both overall and among urban
hospitals.
Although we do not have an official
definition or designation of ‘‘safety net’’
hospital, safety net status typically
entails one or more of three criteria:
high Medicaid share; high proportion of
uncompensated patients; and high
county-associated poverty rate. During
the Hospital VBP Program Dry Run, 28
hospitals (7 of them urban) met all three
criteria, 157 hospitals (83 of them
urban) met two of the three criteria, 625
hospitals (391 urban) met one of the
three criteria, and 2,219 hospitals (1,718
urban) met none of the three criteria.
In general, during the Hospital VBP
Program Dry Run, after all HCAHPS
adjustments are applied (patient mix
and survey mode), safety net hospitals
perform similarly to other hospitals. For
example, 24 percent of the hospitals that
meet any of the three safety net criteria
(198/810) scored in the top quartile of
Hospital VBP Patient Experience of Care
domain (versus 25 percent (550/2219) of

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hospitals that met none of the safety net
criteria). For urban hospitals, the figures
are 110/481 safety net hospitals (23
percent) vs. 454/1718 other hospitals
(26 percent). If we consider only those
hospitals that meet two of the three
safety net criteria, then 36/185 safety net
hospitals (20 percent) and 12/90 urban
safety net hospitals (13 percent) are in
the top quartile (with 5 of these 12 in
the top decile).
The HCAHPS patient mix adjustment
model controls for patient
characteristics not under the control of
the hospital that directly impact
response tendencies. It also controls for
socioeconomic status of the patient
population through education, which is
a well-accepted method for controlling
for socioeconomic status, in particular,
in the elderly population. Other
characteristics, such as hospital
characteristics or geographic location,
are not included in the adjustment
models because controlling for hospital
characteristics would mask potential
quality differences across different types
of hospitals.
Comment: Some commenters strongly
supported the inclusion of the Medicare
Spending per Beneficiary measure in
the FY 2015 Hospital VBP Program.
These commenters noted that cost
information is valuable when combined
with other quality measures, in assisting
patients, purchasers, and policymakers
in identifying value in healthcare. Some
commenters suggested that the Medicare
Spending per Beneficiary measure’s
inclusion in the Hospital VBP Program
not be further delayed, citing their belief
that it was important to Congress,
because it is the only measure
specifically required for inclusion in the
Hospital VBP Program.
Response: We thank the commenters
for their support and we agree that the
Medicare Spending per Beneficiary
measure is an important first step
toward identifying value in healthcare.
Further, we believe that the Medicare
Spending per Beneficiary measure
provides an incentive for hospitals to
build stronger relationships with and
better understand the providers and
suppliers that furnish care for their
patients before and after an acute care
hospitalization.
Comment: Some commenters
supported the inclusion of the Medicare
Spending per Beneficiary measure in
the Hospital VBP Program as a first
efficiency measure and encouraged CMS
to work toward building a more robust
efficiency measure set and to focus on
efficiency measures that are connected
to clinical process and outcomes.
Response: We appreciate these
comments and acknowledge the

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potential for building a more robust
Efficiency domain in the Hospital VBP
Program. We will consider these
comments as we evaluate whether to
propose to adopt additional efficiency
measures in the Hospital VBP Program.
Comment: Some commenters
commended CMS for its efforts to
develop a spending measure but
suggested that the Medicare Spending
per Beneficiary measure requires further
development before it should be
included in the Hospital VBP Program.
Response: We appreciate that the
Medicare Spending per Beneficiary
measure is new to hospitals, but we
disagree that the measure is not fully
developed. This measure was developed
and tested by CMS with the help of
expert contractors. We originally
described the measure in depth in the
FY 2012 IPPS/LTCH PPS proposed rule
(76 FR 25896 through 258997). We
considered all public comments
received on the measure and revised it
accordingly. We publicly posted
detailed specifications on February 1,
2012. We also invited public comment
on the measure during a National
Provider Call held in February 2012.
Subsequently, we have conducted
extensive additional testing on the
measure, in preparation for the July 2,
2012 submission to the NQF for
endorsement.
Comment: Some commenters
expressed concern with the Medicare
Spending per Beneficiary measure in
general. A few of those commenters
stated that the Medicare Spending per
Beneficiary measure was a measure of
cost, not efficiency. One commenter
expressed general concern with
rewarding or penalizing providers based
on expenditures per patient. A few
commenters stated that the measure
should be delayed until other valuebased purchasing programs establish
parallel incentives. A few commenters
suggested that the measure should
assess not only cost, but also quality and
expressed concern that a cost-only
measure might have the unintended
consequences of incentivizing cost
reduction at the expense of quality or
access to care. One commenter stated
that smaller hospitals could be unfairly
disadvantaged due to referrals occurring
during the 30 days post discharge, and
one commenter stated that the measure
could unfairly disadvantage urban
hospitals serving large populations of
dual-eligible beneficiaries. One
commenter requested that CMS post
ICD–10 measure specifications in the
final rule.
Response: For the purposes of
inclusion of the Medicare Spending per
Beneficiary measure in the Efficiency

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domain, we define ‘‘efficiency’’ in the
sense of ‘‘cost efficiency.’’ This
definition is consistent with existing
approaches to measuring cost in the
healthcare setting (Pacific Business
Group on Health. Hospital Cost
Efficiency Measurement:
Methodological Approaches. January
2006, available at http://www.pbgh.org/
storage/documents/reports/
PBGHHospEfficiencyMeas_01-2006_
22p.pdf). Efficiency refers to the relative
cost of clinical resources used to
achieve a measured level of quality; as
such, the Medicare Spending per
Beneficiary measure gauges efficiency
by calculating hospitals’ relative costs to
Medicare after adjusting for case mix
differences and other factors.
We also agree that it is beneficial to
view a cost measure in light of other
quality measures. As we stated in the
FY 2012 IPPS/LTCH PPS final rule, for
purposes of the Hospital VBP Program,
we will weight and combine the
Efficiency domain with the other
domain scores, in order to calculate
each hospital’s TPS. This procedure for
calculating a hospital’s TPS ensures that
Medicare spending per beneficiary
makes up only a portion of the TPS and
that the remainder is based on hospitals’
performance on the other measures (76
FR 51622). We further emphasize that
section 1886(o)(2)(B)(ii) of the Act
expressly requires the inclusion of
‘‘measures of Medicare spending per
beneficiary’’ in the Hospital VBP
Program. We do not believe that the
Medicare Spending per Beneficiary
measure itself should assess both cost
and quality. We believe that a distinct
measure of cost, independent of quality,
enables us to identify hospitals involved
in the provision of high quality care at
a lower cost to Medicare.
With regard to some commenters’
suggestions that the implementation of
the Medicare Spending per Beneficiary
measure should be delayed until
parallel incentives are established under
other CMS programs, we disagree.
While we acknowledge the value in
provision of consistent incentives, we
believe that the prompt implementation
of this measure is an important step to
incentivizing care coordination,
improving more effective post acute care
delivery and follow up, and reducing
unnecessary services and preventable
readmissions for Medicare beneficiaries.
We will work with other incentive
programs within CMS in an attempt to
align future incentives to the extent
possible.
We acknowledge that a hospital with
fewer discharges during the
performance period could see its
measure performance more notably

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impacted by a high-cost episode. We
note that although the measure is
reliable using a minimum of 10 cases,
we proposed a minimum of 25 cases
and sought comment on a minimum of
50. Further, we exclude high-cost
outlier episodes from this measure, so
that these types of high cost cases will
not unduly affect a hospital’s Medicare
Spending per Beneficiary measure
performance. We also do not believe
that the measure unfairly disadvantages
urban hospitals serving dual-eligible
beneficiaries. We have included an
adjustment for severity of illness during
the 90 days preceding the Medicare
Spending per Beneficiary episode, in
order to capture chronic conditions that
may be experienced by any Medicare
beneficiaries. Further, as we stated in
the FY 2012 IPPS/LTCH PPS final rule,
we do not believe that a socioeconomic
risk adjustment factor is appropriate.
This policy is consistent with the NQF’s
stated position on not adjusting for
potential demographic (sex or race) or
socioeconomic factors. Because an
adjustment for dual-eligibility could be
considered a proxy for socioeconomic
status, we are not adjusting for this
factor.
With regard to the request that we
include ICD–10 measure specifications
in this final rule, we are unable to
accommodate this request. We do not
currently have ICD–10 specifications for
the Medicare Spending per Beneficiary
measure, but to the extent that future
implementation of ICD–10 affects the
measure specifications already publicly
posted, we will provide updated
specifications to the public as soon as
possible.
Comment: Several commenters
submitted comments related to the postdischarge window in the Medicare
Spending per Beneficiary measure.
Some commenters expressed concern
that the care provided to Medicare
beneficiaries during the 30 days post
hospital discharge is outside of
hospitals’ control, with one noting that
follow-up care may be provided in a
geographically distant location, relative
to a transplant center. One commenter
stated that a 30-day post-discharge
period may be insufficient to capture
long term savings achieved through the
provision of technologies with higher
upfront cost. A few commenters stated
that a 30-day post discharge window
was too long.
One commenter stated that the length
of the post discharge window could, in
some cases, be longer than 30 days
because the total cost of the care that
started within the 30 day period, but
extended longer than 30 days, would be
captured in the measure. This

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commenter suggested that this fact
precludes hospitals from being able to
compare their performance with other
hospitals. One commenter suggested
that planned admissions to other
facilities should be excluded, and one
commenter suggested that the measure
should be limited to services related to
the reason for original index admission.
One commenter expressed concern with
the inclusion of readmissions in this
measure, suggesting that hospitals could
be penalized twice for them.
Response: We do not believe that the
care furnished to beneficiaries after they
are discharged from an acute care
hospital is wholly outside of the
hospital’s control. As we stated in the
FY 2012 IPPS/LTCH PPS final rule, we
believe that hospitals that provide
quality inpatient care, conduct
appropriate discharge planning, and
work with providers and suppliers on
appropriate follow-up care will realize
efficiencies and perform well on the
measure, because the Medicare
beneficiaries they serve will have a
reduced need for excessive postdischarge services (76 FR 51621). We
believe that hospitals can work
effectively to improve care coordination,
even if the post-discharge care is
furnished in a geographically distant
location. We finalized a 30-day post
discharge period for the Medicare
Spending per Beneficiary measure
under the Hospital IQR Program in the
FY 2012 IPPS/LTCH PPS final rule. This
post discharge window is consistent
with other agency initiatives, including
the post-discharge period that applies to
the readmission measures under the
Hospital IQR Program and the Hospital
Readmissions Reduction Program (76
FR 51619). As we indicated in that final
rule, we will consider extending the
length of the post-discharge period in
future rulemaking, as suggested by one
commenter, as both we and hospitals
gain experience with the measure.
We recognize that the measure might
capture Medicare payments for services
initiated during the 30 days following
discharge and continuing beyond them,
but we do not believe that this is a
disadvantage to any particular hospital.
These payments represent actual costs
to Medicare incurred during the
Medicare Spending per Beneficiary
episode surrounding a hospitalization,
and we do not believe it would be
appropriate to sever payments made
under prospective payment systems into
smaller units that are not what Medicare
actually paid. We also disagree that
inclusion of payments for services
extending beyond the 30 day postdischarge window precludes
meaningful comparison between

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hospitals, as all hospitals are subject to
the same methodology in calculating
their Medicare Spending per Beneficiary
amounts and comparing them to the
national median.
We disagree that planned admissions
to other facilities should be excluded
from the Medicare Spending per
Beneficiary measure, because we seek to
incentivize planning for appropriate and
efficient post-discharge care through the
use of this measure. With regard to the
suggestion that services unrelated to the
index admission should be excluded
from the Medicare Spending per
Beneficiary measure, we acknowledge
that unforeseen events which are
unrelated to the hospital stay could
occur. As we stated in the FY 2012
IPPS/LTCH PPS final rule, this facet of
the measure is consistent with the all
cause readmission measure CMS is
finalizing for the Hospital IQR Program
and that determinations of the degree of
relatedness of each subsequent hospital
stay to an initial hospitalization could
be subjective (76 FR 51621). We
continue to believe that attributing all
services provided during the episode is
the best way to encourage quality
inpatient care, care coordination, and
care transitions. As we noted in that
final rule, all hospitals will be subject to
the same method of calculation of their
Medicare spending per beneficiary
amounts, as compared to the median
Medicare spending per beneficiary
amount across all hospitals, so we do
not believe that inclusion of services
which could be determined to be
unrelated to the index admission will
notably disadvantage any individual
hospital (76 FR 51621).
With regard to the comment that
hospitals could be doubly penalized by
the inclusion of readmissions in this
measure, we reiterate, as stated in the
FY 2012 IPPS/LTCH PPS final rule, that
we believe the Medicare payments made
for readmissions must be attributable to
the index hospital stay, in order: To
fully capture Medicare spending relative
to a hospital stay; to encourage the
provision of comprehensive inpatient
care, discharge planning, and follow-up;
and to strengthen incentives to reduce
readmissions (76 FR 51621). The
Medicare spending per beneficiary
measure is not a measure of readmission
rates, but rather is a measure of total
Medicare spending per beneficiary
relative to a hospital stay.
Comment: Several commenters
expressed views related to the risk
adjustment methodology for the
Medicare Spending per Beneficiary
measure. One commenter expressed
support for the methodology. Some
commenters suggested that the risk

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53587

adjustment methodology was not
sufficient and should include
adjustments for factors including
comorbidities, severity of illness, age,
sex, race, socioeconomic factors,
concurrent treatments, transplant status,
education level, ambulation status,
functional status, and range of motion.
One commenter suggested that the
measure should be adjusted for
differences in patients treated in an
academic medical center versus those
treated in community hospitals. One
commenter suggested that the risk
adjustment methodology should use a
hierarchical, rather than a linear
regression.
Response: We agree that the Medicare
Spending per Beneficiary measure
should be adjusted for comorbidities,
severity of illness, and age. Accordingly,
we are utilizing the hierarchical
condition categories (HCCs) applied to
conditions billed during the 90 days
preceding the Medicare Spending per
Beneficiary episode, the beneficiaries’
age, and their institutional status, to risk
adjust the expected spending during the
episode. We believe that concurrent
treatments and transplant status will be
captured in the expected spending for
Medicare beneficiaries with the same
HCCs.
As we indicated in the FY 2012 IPPS/
LTCH PPS final rule, we disagree with
the comments that risk-adjustment for
the Medicare Spending per Beneficiary
measure should include further
adjustment for socioeconomic factors,
beneficiary sex, or beneficiary race.
Consistent with NQF’s position on not
adjusting for potential demographic (sex
or race) or socioeconomic factors, we
believe that the best adjustment for a
payment measure is based on the
beneficiaries’ underlying health status,
not demographic or socioeconomic
factors. (76 FR 51624). In order to
minimize the burden on hospitals, we
have finalized the Medicare Spending
per Beneficiary measure as a claimsbased measure (76 FR 51622). As such,
we would be unable to apply an
adjustment for ambulation status,
functional status, or range of motion.
With regard to the use of a hierarchical
regression, we note that the HCC
categories are calculated in a
hierarchical fashion. The risk
adjustment methodology also allows for
differing relationships between
comorbidities and different MS–DRG
admission diagnoses, with the
understanding that a given comorbidity
may affect a given MS–DRG more or less
than another MS–DRG. As also stated in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51624), we intend to analyze the
risk-adjustment methodology, as we

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gain experience with this measure, to
evaluate whether it could be further
refined.
Comment: Some commenters were
opposed to the inclusion of the
Medicare Spending per Beneficiary
measure in the Hospital VBP Program
for FY 2015 because they stated that
hospitals had been given insufficient
time to become familiar with the
measure. These commenters noted that
the measure was posted on Hospital
Compare in April 2012, stating that this
allowed them less than one calendar
quarter to become familiar with the
measure. One commenter added that
hospitals have only an early
understanding about how hospitals
might make an impact on the cost
without affecting quality. A few
commenters stated that the Medicare
Spending per Beneficiary measure rates
were difficult to interpret.
Response: The Medicare Spending per
Beneficiary measure data was added to
the Hospital Compare Web site on April
19, 2012, after the measure was
finalized for inclusion in the Hospital
IQR Program through notice and
comment rulemaking. We note that this
posting followed a 30-day data preview
in February 2012, during which we
hosted a National Provider Call as well
as accepted public comments via email.
The proposed performance period for
this measure would begin more than a
full year after the April 2012 data
posting. We provided information on
how to interpret the Medicare Spending
per Beneficiary measure data on
Hospital Compare, and we remain
cognizant of the measure’s complexity.
We will make every attempt to respond
to inquiries and further clarify to the
extent necessary how the measure is
calculated as we move forward in
utilizing this measure. When viewed in
conjunction with other quality
measures, the Medicare Spending per
Beneficiary measure enables the public
to recognize hospitals involved in
providing high-quality care at a lower
cost to Medicare.
Comment: Some commenters were
opposed to the inclusion of the
Medicare Spending per Beneficiary
measure in the Hospital VBP Program,
because they believed that CMS had not
provided hospitals with sufficient data
to understand or improve their
performance on the measure. Some of
these commenters stated that CMS had
provided only information regarding
whether the hospitals did better than,
worse than, or the same as the national
average, and some stated that hospitals
would appreciate the raw data so that
they could validate the calculations.

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Response: We disagree with the
commenters who stated that we did not
provide hospitals with specific
information to enable them to
understand or improve their Medicare
Spending per Beneficiary measure
performance. During the February 2012
data preview period, hospitals were
provided with an index admission file
that detailed every inpatient admission
at the hospital during the performance
period and whether or not it was
counted as an index admission for the
Medicare Spending per Beneficiary
measure; a beneficiary risk score file,
which identified the beneficiaries
whose hospitalizations were counted as
index admissions, their index admission
DRG, and data regarding health status
based on the beneficiary’s claims history
in the 90 days prior to the start of an
episode; and an episode file, which
contains information on the care
provided during the stay as well as what
type of care was provided in the
episode. The episode file also provided
the hospitals with the top five providers
of both inpatient and outpatient
services, as defined by actual Medicare
dollars paid, so that the hospitals could
work to better coordinate care. We note
that although we have made the risk
adjustment methodology available, we
are unable to provide the raw data used
for risk adjustment, as that would entail
providing every single claim line
submitted during the 90 days preceding
the episode and throughout the episode,
for every beneficiary hospitalized
nationwide during the performance
period. This amount of data would be
unusable to most of the public and
could have privacy implications.
Comment: Several commenters
expressed their views regarding the data
provided to the public with regard to
the Medicare Spending per Beneficiary
measure. One commenter stated that
CMS had provided ample opportunity
for public comment. Some commenters
expressed concern that CMS had
provided data only to hospitals through
confidential reports, so hospitals were
unable to compare their performance to
other hospitals, and others requested a
public use file that would allow outside
organizations to verify calculations,
analyze potential unintended
consequences, or assist hospitals in
identifying opportunities for hospitals
to reduce spending.
Response: We appreciate the public
interest in data regarding the Medicare
Spending per Beneficiary measure. We
note that some information could only
be provided directly to hospitals,
through confidential reports, because it
contains Medicare beneficiaries’
personally identifiable information.

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That level of data was only provided to
the hospitals that treated the
beneficiaries during the period of
performance. In response to the request
for data, we have posted a file on
Hospital Compare that provides data on
the makeup of the average Medicare
Spending per Beneficiary episodes at
the individual hospital, state, and
national levels. The file is entitled
‘‘MSPB_Spending_Breakdowns_by_
Claim_Type_051510–021411.csv,’’ and
it can be accessed at: http://hospital
compare.hhs.gov/Data/spending-perhospital-patient.aspx. We have also
published an additional file entitled,
‘‘MSPB_Spending_Breakdowns_by_
Claim_Type_051510–021411_File_
Description.docx’’ which provides a
detailed explanation of the data fields
contained in the ‘‘MSPB_Spending_
Breakdowns_by_Claim_Type_051510–
021411.csv’’ file. This file can be
accessed in the ‘‘downloads’’ section of
the Hospital VBP Web site at: https://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/index.html?redirect=/
Hospital-Value-Based-Purchasing/. We
believe that the provision of these files
satisfies the public’s need for data while
protecting beneficiary privacy.
Comment: Several comments
expressed views regarding the reliability
of the Medicare spending per
beneficiary measure. Commenters stated
that reliability testing was not published
and should be before the measure is
finalized.
Response: We appreciate the value of
reliability analyses for the Medicare
Spending per Beneficiary measure, as it
is a new measure type for the Hospital
VBP Program. We proposed to include
the Medicare Spending per Beneficiary
measure in the Hospital VBP Program
for FY 2015, based on our belief that it
would be reliable. This belief was based
not only on the nature of the measure,
in that it captures almost all discharges
during the performance period and is
calculated using payment amounts
obtained from Medicare claims data, but
also on a body of published research
and historical NQF findings related to
claims-based resource use measures.
Because the Medicare Spending per
Beneficiary measure is not conditionspecific, but captures nearly all
discharges from eligible hospitals
during a performance period, most
hospitals were expected to have a large
sample size of Medicare Spending per
Beneficiary episodes. Larger sample
sizes increase the reliability of the
measure.
There is also published research that
indicates that spending for an episode of

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care varies ‘‘greatly’’ among hospitals (N
Engl J Med. 2008; 359: 3–5) and
measures for which there is a larger
inter-hospital variability are more likely
to be reliable. Other studies, such as the
one conducted by Jha and colleagues,
also found statistically significant
differences in the cost of care among
hospitals using a predictive cost model
(Health Aff. 2009; 28(3): 897–906), and
another study found significant
variation in Medicare spending per
discharge for five common conditions
(Healthcare Financial Management
Association. Data Trends. Mar 2011.
Available at http://www.ahd.com/news/
HFM_DataTrends_2011_March.pdf).
Furthermore, MedPAC found that
measures of spending per beneficiary
were an appropriate means of assessing
variation in cost and that ‘‘much of the
variation [remaining] after removing the
effects of input price adjusters is
attributable to the quantity of services
beneficiaries use.’’ The study showed
that even with aggregation at the county
level, only 87.3 percent of beneficiaries
nationally are between 85 percent and
115 percent of average cost per
beneficiary, even after adjusting for
health status, participation in Medicare
Parts A and B, and payment to hospitals
that reflect hospital costs for providing
uncompensated care to the poor and
teaching hospital costs for graduate
medical education. After all such
adjustments, the standard deviation at
the beneficiary level was greater than 10
percent of the average cost per
beneficiary (MedPAC. Report to
Congress: Variation and Innovation in
Medicare, Jun 2003). While these
studies do not explicitly test the
reliability of a beneficiary-level episodebased cost measure, they clearly
establish significant variation in
spending per beneficiary and show that
provider choices drive that part of that
variation.
In addition to this research, the NQF
has found other resource use measures
that are based on Medicare claims data,
such as all-cause readmission measure
(NQF #1789), to be highly reliable. For
the all-cause readmission measure,
‘‘reliability and validity [at the data
element level and at the measured score
level] was generally received as
adequate by the steering committee’’
(NQF: 2012 Proc. Feb 2012, available at
http://www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&
ItemID=70455). Further, in a
memorandum to the NQF Board of
Directors, the NQF’s Senior Vice
President for Performance Measures
report noted that the majority of NQF
committee members stated that the

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Hospital-wide All Cause Readmission
Measure was highly reliable (Burston,
2012: Appeal of Hospital-wide All
Cause Readmission Measure, 95pp.
Available at: http://www.quality
forum.org/WorkArea/linkit.aspx?Link
Identifier=id&ItemID=71398). To further
confirm our expectation that the
Medicare Spending per Beneficiary
measure is sufficiently reliable for
inclusion in the Hospital VBP Program,
we elected to obtain an analysis similar
to that performed for certain other
Hospital VBP measures. That analysis
concluded that the Medicare Spending
per Beneficiary measure has an overall
reliability of 0.951 with a minimum
number of 10 cases. The overall
reliability of the Medicare Spending per
Beneficiary Measure increases by 0.0002
when the minimum number of episodes
increases from 10 to 25. The reliability
analysis may be accessed publicly in the
‘‘Downloads’’ section of our Hospital
VBP Web page, located at: https://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/index.html?redirect=/
Hospital-Value-Based-Purchasing/.
Comment: One commenter noted that
the MAP identified measures of cost as
a high-priority gap area for the Hospital
VBP Program and strongly supported
the measure’s direction, in its February
2012 Final Report to the Department of
Health & Human Services. Some
commenters suggested that CMS should
not finalize the measure until it is
endorsed by the NQF, and some said
that the measure must go through the
NQF endorsement process. Many of
these commenters also noted that that
the MAP did not support inclusion of
the Medicare Spending per Beneficiary
measure at the time of its report.
Response: We appreciate the value of
the NQF’s endorsement of performance
measures. We also agree with the
commenter’s assessment that the MAP
‘‘strongly’’ supported the measure’s
direction pending additional
specification and testing. We have since
made the measure specifications public
and allowed comment through a
National Provider Call held in February
2012. In the FY 2013 IPPS/LTCH PPS
proposed rule, we expressed our intent
to submit the Medicare Spending per
Beneficiary measure to the NQF for
endorsement consideration, and we did
so on July 2, 2012. We disagree with the
commenters who contended that the
measure must go through the NQF
endorsement process before it may be
included in the Hospital VBP Program
and note that we were only required by
statute to give due consideration to any
measures of Medicare spending per

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beneficiary currently endorsed by the
NQF or any other consensus
organizations under section
1886(b)(3)(B)(viii)(IX) of the Act. We
have met that requirement and have also
submitted the measure to the NQF for
consideration for endorsement.
Comment: Some commenters argued
that the proposed AHRQ PSI composite
measure is not sufficiently reliable to
distinguish differences in patient safety
among health care institutions. Other
commenters suggested that this type of
safety measure is not appropriate for use
in a payment program like the Hospital
VBP Program. Some commenters argued
that the measure calculation is too
complex for hospitals and their vendors
to attempt to replicate, and is therefore
difficult as a focus of quality
improvement.
Response: We believe that the
proposed AHRQ PSI composite measure
is sufficiently reliable for purposes of
the Hospital VBP Program when using
the minimum number of cases as
proposed. We believe that one principal
contributor to measure reliability is
measure denominator size. While
reliability will vary for individual
hospitals based on the denominator size
that applies to each hospital, we are
finalizing a minimum number of cases
for this measure that we believe is
sufficiently reliable and appropriately
balances our priorities of including
hospitals in the Program and excluding
hospitals from a measure when their
performance on that measure may not
be meaningfully captured.
We also believe that adopting the
AHRQ PSI composite measure, with the
minimum number of cases specified by
the measure steward, provides strong
incentives for hospitals to ensure that
patients are not harmed by the medical
care they receive, which is a critical
consideration for quality improvement.
We further believe that adopting the
minimum number of cases as proposed
enables those incentives to be extended
to as many hospitals as possible, thus
ensuring that as many patients as
possible will benefit should hospitals
take steps to improve their performance
on the measure.
Further, we are particularly
concerned about the effects that not
finalizing the AHRQ PSI composite
might have on hospitals’ quality
performance. We believe that the PSI
measure, as a composite measure of
patient safety, appropriately encourages
robust hospital attention to patient
safety events. As we have stated in prior
rulemaking, we believe that the Hospital
VBP Program exists to drive quality
improvement in the acute inpatient
setting, and we believe strongly that

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measures of patient safety such as the
AHRQ PSI measure and the CLABSI
measure are important metrics on which
hospitals should focus their quality
improvement efforts.
Finally, while we are sympathetic to
commenters’ concerns about the
composite measure’s complexity, we
note that the measure is composed of
underlying safety indicators on which
hospitals may focus their attention. We
encourage hospitals that are unsure how
to improve their performance on the
AHRQ PSI measure or on any other
measure finalized for the Hospital VBP
Program to contact their QIO for
assistance.
Comment: Two commenters assumed
that because CMS proposed the removal
of several individual AHRQ PSI
measures from the Hospital IQR
Program, we would also remove these
indicators from the calculation of the
AHRQ PSI–90 Composite measure for
both Hospital IQR and the Hospital VBP
Programs. Furthermore, these
commenters believed that the statutory
display requirement for the AHRQ PSI–
90 Composite has not been met because
CMS did not display data for all eight
of the individual AHRQ indicators that
are used in the composite.
Response: We wish to clarify that our
removal of several individual AHRQ
indicators from the Hospital IQR
Program does not in any way change the
composition of the AHRQ PSI–90
composite measure for either the
Hospital IQR or Hospital VBP Programs.
No changes have been proposed for the
AHRQ PSI–90 composite for the
Hospital IQR or Hospital VBP Programs.
We adopted and displayed the NQFendorsed AHRQ PSI–90 Composite
measure for the Hospital IQR Program
(NQF#531) which is comprised of the
following individual indicators: PSI–03,
PSI–06, PSI–07, PSI–08, PSI–12, PSI–13,
PSI–14, and PSI–15. We will continue to
use/display this NQF-endorsed version
of the PSI composite for the Hospital
VBP Program.
Regarding the 1 year display
requirement for the PSI-composite for
the Hospital VBP Program, we have
proposed to use the AHRQ PSI–90
Composite calculation in its totality for
Hospital VBP Program scoring. We
displayed this composite score in its
totality on Hospital Compare beginning
October 2011. Therefore, the PSI–90
Composite meets the display
requirement for use in the Hospital VBP
Program regardless of how many
individual AHRQ indicators were
displayed.
Comment: Some commenters opposed
our proposal to adopt the CLABSI
measure for the FY 2015 Hospital VBP

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Program, arguing that the measure
should be validated before its use in the
Hospital VBP Program. Other
commenters argued that the relatively
limited CLABSI data posted on Hospital
Compare in early 2012 did not meet the
requirement for public display prior to
the measure’s use in the Hospital VBP
Program. Some commenters suggested
that it is not appropriate to adopt the
CLABSI measure for both HAC payment
policy and under the Hospital VBP
Program. Some commenters argued that
CMS should not include HAC measures
in the Hospital VBP Program.
Response: We do not believe that we
should wait until after the measure is
validated before adopting it for the
Hospital VBP Program. The CLABSI
measure captures important information
about infections that present substantial
harm to patients. We believe that
measuring and rewarding hospitals on
their work at curbing CLABSI incidents
is vital to rewarding the provision of
high-quality health care, which is the
central point of the Hospital VBP
Program.
We believe that baseline and
performance period CLABSI data are
sufficiently reliable for purposes of the
Hospital VBP Program. At least 20 State
health departments validated CLABSI
data reported to the NHSN during the
baseline period, which gives us some
assurance that the data is accurate. We
also believe that our CLABSI minimum
case threshold of at least one expected
CLABSI event in the performance
period (discussed more fully below)
contributes to this measure’s reliability,
since we exclude hospitals with the
lowest measure reliability from
receiving a measure score. Our Hospital
IQR Program CLABSI validation process
starting with January 2012 CLABSI
events was finalized through
rulemaking (76 FR 51646 through
51648) to ensure data accuracy during
the performance period. We believe that
commenters may have erroneously
concluded that CMS is adopting
identical quality measures in two
separate programs—in this case, the
Hospital VBP Program, and HAC
payment policy under section
1886(d)(4)(D) of the Act. We do not
believe this to be the case. HAC
measures are based on Medicare claims
and capture only the Medicare
population, while the CLABSI measure
that we have proposed to adopt for the
FY 2015 Hospital VBP Program is a
surveillance measure reported to the
NHSN and captures non-Medicare
patients as well. We view the measures
for each program as complementary and
believe that adoption of these measures
in each program should indicate to

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hospitals the high priority that we place
on curbing infections and the harm they
represent to patients.
We disagree with commenters’
assertion that the measure data posted
on Hospital Compare did not meet the
statutory requirement for public display
under the Hospital VBP Program.
Section 1886(o)(2)(C)(i) of the Act
prohibits the Secretary from selecting a
measure for the Hospital VBP Program
with respect to a performance period
unless that measure has been specified
under the Hospital IQR Program and
included on Hospital Compare for at
least one year prior to the beginning of
the performance period. We posted
CLABSI data on Hospital Compare in
January 2012 in satisfaction of that
requirement.
We believe that current Hospital
Compare data provides a broad national
snapshot of CLABSI performance.
Although the initial January 2012
posting of Hospital Compare data
included only 1 quarter of CLABSI
information, we expect the number of
hospitals for which data is posted on
Hospital Compare to increase to the
majority. In the most recent May 2012
posting, we posted over 1,500 hospitals’
CLABSI data on the Hospital Compare
Web site. This posting included January
through June 2012 CLABSI data. An
additional 500 hospitals submitted
reports that they had insufficient
intensive care unit (ICU) beds, and were
not required in the Hospital IQR
Program to submit CLABSI data. These
hospitals did not treat a sufficient
number of patients eligible to be
included in the CLABSI measure. This
measure exclusion, coupled with the
large number of hospitals that are
reporting CLABSI data, indicates broad
understanding of the measure and
sufficient data for public reporting.
In addition, as described further
below, because we believe that
including more data in the CLABSI
measure calculations will alleviate
commenters’ concerns about the
relatively small number of hospitals that
reported on the measure initially, we
will finalize a 12-month baseline period
for the CLABSI measure for FY 2015
(this is discussed more fully below). By
including all available data from CY
2011 in the resulting performance
standards calculations, we believe we
can ensure that the finalized
performance standards accurately reflect
national performance benchmarks.
Comment: Some commenters
expressed support for CMS’ proposals to
adopt the AHRQ patient safety
composite measure and the CLABSI
measure.

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Response: We thank commenters for
their support.
Comment: Some commenters asked
CMS to wait before adopting the
CLABSI measure that includes both ICU
and non-ICU patients.
Response: We believe that this
measure supports making care safer, one
of the National Quality Strategy’s goals.
We intend to solicit comments from the
MAP and solicit comment on the
expanded measure in future rulemaking.
Comment: Some commenters
supported CMS’ proposal to include
mortality measures in the FY2015
Hospital VBP Program, though
commenters also suggested that CMS
consider additional risk-adjustment to
include socioeconomic status and
clinical factors.
Response: We thank commenters for
their support. We believe the existing
risk-adjustment methodology is
sufficient. These measures were
endorsed by the National Quality
Forum, and the NQF extensively
reviewed the risk adjustment
methodology as part of their overall
review. The 30-day mortality measures
are currently risk-adjusted to include
clinical factors, and we believe that risk
adjustment model to be well-understood
by hospitals and sufficiently robust for
quality measurement. The Hierarchical
Condition Category (HCC) grouping of
clinical conditions and hospital casemix are used for risk adjustment. The
HCC model makes use of all physician
and hospital encounter diagnoses and
was designed to predict a beneficiary’s
expenditures based on the total clinical
profile represented by all of his/her
assigned HCCs. Additionally, there are
several exclusions to the mortality
measures, such as enrollment in a
hospice program. We refer commenters
to the extensive documentation of the
mortality measure methodology at
http://www.qualitynet.org.
Comment: Some commenters
expressed strong opposition to further
use of the 30-day mortality measures in
the Hospital VBP Program, arguing that
the measures are unreliable and should
be the subject of a validity study. Some
commenters also argued that the risk
adjustment process applied to these
measures is insufficient. Commenters
also requested that we pursue a
validation study of the mortality
measures as soon as possible.
Response: We believe that the three
30-day mortality measures are
sufficiently reliable for inclusion in the
Hospital VBP Program. One principal
contributor to measure reliability is
measure denominator size, and the
reliability of a measure is going to vary
for individual hospitals, based on the

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denominator size that applies to each
hospital. Our proposed FY 2015
minimum case threshold increase from
10 to 25 cases for the mortality measures
improves reliability by excluding an
additional estimated 376 to 682
hospitals in FY 2015 with the lowest
number of cases in the measure
denominators and, thus, lowest level of
reliable measure scores. This analysis
was performed subsequent to the
reliability analysis posted on the CMS
Web page https://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/hospital-valuebased-purchasing/Downloads/
HVBP_Measure_Reliability-.pdf in
February 2012. Our proposed FY 2016
expansion of the performance period to
21 months also improves reliability by
increasing the number of cases in the
mortality measure denominator. We
believe that the previously finalized FY
2014 Hospital VBP mortality measures
are sufficiently reliable, since the 12
month performance period is expected
to increase the denominator counts for
most hospitals, relative to the 9 month
FY 2015 mortality measure performance
period.
We believe that our increase in the
minimum number of cases for the
mortality measures for FY 2015
improves overall reliability, since we
excluded hospitals with the lowest
reliability from receiving a score on the
mortality measures. We proposed the 25
case minimum for each of the three 30day mortality measures because we
recognize that each of these measures
are risk adjusted to estimate differences
in hospital patient case mix. Our
process of care measures included in the
Hospital VBP program do not utilize
risk adjustment estimation techniques,
and we believe that our proposal to
increase the minimum case threshold to
25 cases incorporates the increased
reliability necessary for the three
mortality measures using risk
adjustment estimation techniques. We
believe that our 25 case minimum
threshold is also supported by the
central limit theorem, a commonly used
statistical theorem used in sampling
theory and statistical estimation.
According to Rice’s Mathematical
Statistics and Data Analysis (2nd
edition, 1995), this theorem states that
under certain conditions, the mean of a
sufficiently large number of
independent random variables, each
with a finite mean and variance, will be
approximately normally distributed. For
these mortality measures, a 25 case
minimum threshold should be sufficient
to create an approximate normal
distribution of hospital TPSs. We

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believe that the distribution of mortality
measures is sufficiently reliable for
inclusion in the program, based on this
information and the relatively small
contribution of the mortality measures
to the total performance score. We also
proposed to set the the Outcome domain
weight at 30 percent for the FY 2015
program so that the total performance
score continues to be normally
distributed and reliable with the
inclusion of the mortality measures. We
also view the TPS’s reliability is an
important factor when considering
performance periods, minimum
numbers of cases and measures, and
other policies for the Hospital VBP
Program, as the TPS is the basis for
value-based incentive payments.
We also weighed our policy goal to
link payment to patient outcomes for
the vast majority of hospitals in our
proposal to include the 3 mortality
measures with a 25 case minimum. For
the FY 2015 proposed 9 month
performance period and 25 case
threshold, we estimate that about 1,566
hospitals would be included for the
AMI 30-day mortality measure, 2,514
hospital would be included for the HF
30-day mortality measure, and 2,690
hospitals would be included for the PN
30-day mortality measure. Increasing
the minimum case threshold would
dramatically decrease the number of
hospitals receiving a score for these
measures, and would dramatically
reduce the impact on patient health
outcomes that the 3 mortality measures
promote. We further believe that the 3
mortality measures are valid through
their very strong link to patient health
outcomes. The National Quality Forum
endorsed these measures and one
fundamental criterion in their
assessment was a demonstrated link to
patient health outcomes. We believe
that the inclusion of mortality measures
improves the Total Performance Score’s
validity by adding measures with
relatively high correlation with patient
outcomes. We further believe that these
measures, which capture outcomes data,
enable us to provide incentives to
hospitals focusing on a broader picture
of health care quality, rather than
simply rewarding hospitals for
completing clinical processes.
Comment: Some commenters
suggested that we consider additional
HAC measures for the Hospital VBP
Program, including CAUTI and vascular
catheter-associated infection.
Commenters urged us to retain the HAC
measures that we suspended in the CY
2012 OPPS/ASC final rule with
comment period for the FY 2014
Hospital VBP Program and suggested

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that we consider additional HAI
measures for the FY 2015 VBP Program.
Response: We thank commenters for
these suggestions. As stated above, we
will consider additional measures for
the Hospital VBP Program as they
become available under the
requirements set forth in section
1886(o)(2) of the Act and if they are
consistent with the National Quality
Strategy and the agency’s other quality
improvement priorities.
After consideration of the public
comments we received, we are
finalizing the FY 2015 Hospital VBP
Program measure set as proposed, with
the exception, as described further
above, of AMI–10, which we have
concluded is ‘‘topped-out.’’
c. General Process for Hospital VBP
Program Measure Adoption for Future
Program Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28080), in order to
facilitate measure adoption for the
Hospital VBP Program for future years,
as well as further align the Hospital VBP
Program with the Hospital IQR Program,
we proposed to re-adopt measures from
the prior program year for each
successive program year, unless
proposed and finalized otherwise (for
example, because one or more of the
clinical process of care measures is
topped-out). We intend to continue
monitoring Hospital VBP measures for
topped-out status and will propose to
remove topped-out measures from the
program as appropriate in future
rulemaking. We will therefore generally
re-adopt the prior program year’s
measure set unless we propose to add or
remove measures through rulemaking
and in response to public comments.
However, under this policy, once
measures are finalized, we would not
separately re-propose them for each
program year. We invited public
comments on this proposal.

Comment: Some commenters
supported the proposal to re-adopt
Hospital VBP measures automatically
for each program year, noting that the
policy will give stability and
predictability to the program while still
affording CMS flexibility to make
needed changes.
Response: We agree and thank
commenters for their support.
Comment: Some commenters opposed
the proposal to re-adopt measures for
future program years unless CMS
proposes to remove them. Commenters
suggested that new measures may make
older measures redundant or
unnecessary, and argued that
stakeholders should be able to comment
on the entire measure set annually.
Response: We intend to re-evaluate
the entire Hospital VBP measure set
each year, and to propose to remove any
measures that we conclude would be
redundant or unnecessary due to the
addition of other, newer measures. We
also intend to solicit comments on an
annual basis on the entire measure set,
including both newly proposed and
previously finalized measures, and we
will consider and respond to all of these
comments. We view the proposal to
automatically re-adopt measures as a
way to ensure consistency across
Hospital VBP Program years. This
proposal also seeks to assist hospitals in
their planning and quality improvement
efforts through more advanced notice
about Hospital VBP measures to be
included in future program years.
After consideration of the public
comments we received, we are
finalizing our policy enabling automatic
re-adoption of quality measures from
prior program years as proposed.
9. Measures and Domains for the FY
2016 Hospital VBP Program

proposed to retain the three 30-day
mortality measures that were finalized
for the FY 2014 Hospital VBP Program,
and which we are finalizing for the FY
2015 Hospital VBP Program, for the FY
2016 Hospital VBP Program. We also
proposed to retain PSI–90, which is the
AHRQ PSI composite measure that we
are finalizing for the FY 2015 Hospital
VBP Program, for the FY 2016 Hospital
VBP Program. By proposing to adopt
these measures now, we believe we will
be able to adopt a longer performance
period and collect more data for
performance scoring than would be
possible if we waited to make this
proposal until the FY 2014 IPPS/LTCH
PPS proposed rule. We also proposed to
adopt these measures at this time
because we recognize that under section
1886(o)(3)(C) of the Act, we must
establish and announce performance
standards not later than 60 days prior to
the beginning of the performance period
for the fiscal year involved.
Accordingly, we proposed that the
performance period for these measures
would begin October 1, 2012, for
purposes of the FY 2016 Hospital VBP
Program. Because we are finalizing our
proposal above to automatically readopt measures from year to year, the
other proposed FY 2015 measures will
also become part of the FY 2016
measure set (with the exception of the
CLABSI measure) unless we propose
otherwise in future rulemaking. We also
anticipate adopting additional measures
for the FY 2016 Hospital VBP Program
in future rulemaking.
The proposed FY 2016 Hospital VBP
Program 30-day mortality measures and
AHRQ PSI composite measure are
shown below:

a. FY 2016 Measures
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28080), we

PROPOSED OUTCOME MEASURES FOR FY 2016 HOSPITAL VBP PROGRAM
Measure ID

Description

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AHRQ PSI composite ..........................................
MORT–30–AMI ...................................................
MORT–30–HF .....................................................
MORT–30–PN .....................................................

We did not propose to adopt the
CLABSI measure for the FY 2016
Hospital VBP Program at this time, but
stated that we may propose it in future
rulemaking.
We invited public comment on these
proposals.

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Complication/patient safety for selected indicators (composite).
Acute Myocardial Infarction (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day mortality rate.
Pneumonia (PN) 30-day mortality rate.

Comment: Some commenters urged us
to clarify whether CMS will propose to
adopt the CLABSI measure for the FY
2016 Hospital VBP Program.
Response: We anticipate proposing to
adopt CLABSI for the FY 2016 Hospital
VBP Program.

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Comment: Some commenters urged
CMS to exclude patients identified as
needing only hospice or palliative care
from Hospital VBP Program
calculations, arguing that inconsistent
access to these services may result in
unfair penalties to hospitals in areas
without those services.

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Response: As patients needing
hospice or palliative care will still
require resources from hospitals, we do
not believe it would be appropriate to
exclude them from Hospital VBP
Program calculations, nor do we believe
it would be consistent with measure
specifications. We intend to monitor the
effects of the Hospital VBP Program on
care quality in the acute inpatient
setting and will examine this issue in
the future.
After consideration of the public
comments we received, we are
finalizing our proposal to include the
30-day mortality measures, AHRQ PSI
composite measure, and other measures
finalized for the FY 2015 Hospital VBP
measure set (with the exception of the
CLABSI measure) in the FY 2016
measure set. As stated above, we might
propose in future rulemaking to adopt
additional measures beginning with the
FY 2016 Hospital VBP Program.

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b. Quality Measure Domains for the FY
2016 Hospital VBP Program
Currently, measure domains are
defined by the measure type rather than
by measure function. At the time of the
Hospital VBP Program’s development,

we believed this type of measure
classification, which was included in
the 2007 Report to Congress, was
appropriate for the program based on its
clarity and simplicity compared to
alternative scoring models. We refer
readers to the Hospital Inpatient VBP
Program final rule (76 FR 26513 through
26514) for further discussion of our
decision to finalize the Three-Domain
Performance Scoring Model for the
Hospital VBP Program with appropriate
modifications for additional domains as
necessary. The FY 2014 Hospital VBP
Program’s domains are clinical process
of care, outcomes, and patient
experience of care. The FY 2015
Hospital VBP Program’s proposed
domains are clinical process of care,
outcomes, patient experience of care,
and efficiency.
We strive to align quality
measurement and value-based
purchasing efforts with the National
Quality Strategy and across programs.
Value-based purchasing programs in
particular allow us to link the National
Quality Strategy with Medicare
reimbursements to providers and
suppliers on a national scale. Given this

53593

objective, as well as our objective to
focus quality measurement on the
patient-centered outcome of interest to
the extent possible, in the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28081), we proposed to reclassify the
Hospital VBP measures into domains
based on the six priorities of the
National Quality Strategy, beginning
with the FY 2016 Hospital VBP
Program. We made this proposal in this
proposed rule to ensure that we have
ample time to consider all public
comments and finalize any policies in
advance of the FY 2016 program year.
We proposed that the following six
domains serve as a framework for
measurement and TPS calculations for
the Hospital VBP Program beginning
with the FY 2016 program year: Clinical
Care; Person- and Caregiver-Centered
Experience and Outcomes; Safety;
Efficiency and Cost Reduction; Care
Coordination; and Community/
Population Health.
To illustrate how CMS would classify
measures into the proposed new
domains, we offered the following
example using the proposed FY 2015
Hospital VBP measure set:

Proposed FY 2015 measures

Proposed FY 2016 domain

HF–1 Discharge Instructions ...................................................................
AMI–10 Statin Prescribed at Discharge ..................................................
AMI–7a Fibrinolytic Agent Received Within 30 Minutes of Hospital Arrival.
AMI–8a Primary PCI Received Within 90 Minutes of Hospital Arrival ...
Mortality–30–AMI: Acute Myocardial Infarction (AMI) 30-day Mortality
Rate.
Mortality–30–HF: Heart Failure (HF) 30-day Mortality Rate ...................
Mortality–30–PN: Pneumonia (PN) 30-Day Mortality Rate .....................
PN–3b Blood Cultures Performed in the Emergency Department Prior
to Initial Antibiotic Received in Hospital.
PN–6 Initial Antibiotic Selection for Community-Acquired Pneumonia
(CAP) in Immunocompetent Patients.
SCIP Card-2 Surgery Patients on Beta-Blocker Therapy Prior to Arrival Who Received a Beta-Blocker During the Perioperative Period.
SCIP–Inf–01 Prophylactic antibiotic received within 1 hour prior to surgical incision.
SCIP–Inf–02 Prophylactic antibiotic selection for surgical patients ........
SCIP–Inf–03 Prophylactic antibiotics discontinued with 24 hours after
surgery end time.
SCIP–Inf–04 Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose.
SCIP–VTE–2 Surgery Patients Who Received Appropriate Venous
Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to
24 Hours After Surgery.
Medicare spending per beneficiary .........................................................
HCAHPS—Hospital Consumer Assessment of Healthcare Providers
and Systems Survey.
Central Line-Associated Blood Stream Infection (CLABSI) ....................
PSI 90 Complication/Patient Safety for Selected Indicators (Composite).

Care Coordination .........................
Clinical Care ..................................
Clinical Care ..................................

Clinical Process of Care.
Clinical Process of Care.
Clinical Process of Care

Clinical Care ..................................
Clinical Care ..................................

Clinical Process of Care.
Outcomes.

Clinical Care ..................................
Clinical Care ..................................
Clinical Care ..................................

Outcomes.
Outcomes.
Clinical Process of Care.

Clinical Care ..................................

Clinical Process of Care.

Clinical Care ..................................

Clinical Process of Care.

Clinical Care ..................................

Clinical Process of Care.

Clinical Care ..................................
Clinical Care ..................................

Clinical Process of Care.
Clinical Process of Care.

Clinical Care ..................................

Clinical Process of Care.

Clinical Care ..................................

Clinical Process of Care.

Efficiency and Cost Reduction ......
Person- and Caregiver-Centered
Experience and Outcomes.
Safety .............................................
Safety .............................................

Efficiency.
Patient Experience of Care.

We acknowledge that some of the
measures noted above could
appropriately be placed in more than
one domain because the quality

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improvement characteristics they seek
to measure, especially for outcome
measures, are multifaceted. We believe
that the measure classification by

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Proposed FY 2015 domain

Outcome.
Outcome.

domain should reflect the primary
measurement objective and the type of
quality improvement goal the measure
seeks to capture. For example, although

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a reduction in CLABSIs may reflect
improved clinical care, we believe that
it better reflects an improvement in
patient safety because such infections
often cause harm to patients.
We proposed that the TPS would
continue to be determined by
aggregating each hospital’s scores across
all domains. A hospital’s score on each
domain would also continue to be
calculated based on the hospital’s score
on each measure within the domain,
which is based on the higher of its
achievement or improvement during the
applicable performance period.
We welcomed public comment on our
proposal to regroup the Hospital VBP
Program’s quality measures into six
domains that better reflect the National
Quality Strategy, beginning with the FY
2016 Hospital VBP Program.
We also solicited comments on how
to properly weight the domains in FY
2016. We believe that domain weighting
should primarily balance two factors.
First, it should reflect our concept of
quality as it relates to the National
Quality Strategy and the most critical
needs for quality improvement in caring
for beneficiaries. Second, it should
reflect the relative depth and maturity of
measures in each domain. For example,
although improvement in the proposed
Care Coordination domain is a priority,
we would want to take into
consideration whether the care
coordination measures available for
inclusion in that domain in a particular
year capture multiple aspects of care
coordination. If we did not believe that
the measures within a domain captured
enough aspects of care, we would
consider proposing a relatively lower
weight for the domain. We anticipate
that the domain weights will evolve
over time as the measure set changes.
We also recognize that the current
domain weighting system allows us to
place higher value on measures closer to
the patient-centered outcome of interest
by grouping outcome measures into a
single domain. In the proposed domain
reclassification, the 30-day mortality
measures would be grouped with
process measures. Although we
anticipate that the measure set will
evolve over time to be more focused on
outcomes, the current measure set
continues to emphasize clinical
processes. We sought public comment
on whether CMS should continue to
group all outcome measures in a single
domain. In addition, we sought public
comment on the implications of and
alternatives to the proposed approach of
including both clinical process of care
measures and outcome measures in the
proposed Clinical Care domain under
the proposed domain reclassification.

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Comment: Some commenters
expressed support for our proposal to
realign the Hospital VBP measure
scoring domains around the priorities
articulated in the National Quality
Strategy.
Response: We thank commenters for
their support.
Comment: Some commenters
expressed concerns about the proposed
domain reclassification for FY 2016,
suggesting that the proposed structure
could dilute hospitals’ focus on
outcome measures. Commenters
preferred that outcome measures
continue to be grouped together and
given substantial domain weight to
reflect the relatively greater importance
of outcomes to patients and taxpayers.
Other commenters were concerned
about adopting domains based on the
National Quality Strategy with relatively
few measures.
Response: We understand the
commenters’ concern and agree that the
Hospital VBP Program should, over
time, focus its measure set on measures
of outcomes and efficiency rather than
clinical processes. We intend to
continue shifting the focus of the
Hospital VBP Program’s measure set
from clinical processes to measures of
outcomes and efficiency, and will
consider the commenters’ concerns
about diluting hospitals’ focus on
outcome measures in the future.
We are also concerned about adopting
domains with relatively few measures,
but we note that such a policy serves to
focus hospitals’ attention on the
measures captured in such domains. As
noted above, we finalized the FY 2015
Program’s Efficiency domain with one
measure, which we believe shows the
relative importance of efficiency in the
health care sector.
Comment: Some commenters urged
CMS to proceed cautiously in
reclassifying Hospital VBP measure
scoring domains for the FY 2016
Hospital VBP Program. Some
commenters suggested that the National
Quality Strategy’s priorities are more
appropriate for Accountable Care
Organizations or as guiding principles
for quality rather than as quality
domains. Commenters suggested that
CMS allow Hospital VBP Program
scoring previews before completing any
domain reclassification in order to allow
hospitals to evaluate the impact on their
scores. Some commenters also suggested
that CMS wait until hospitals have
actual experience with the Hospital VBP
Program before fundamentally
reshaping its structure.
Response: We thank commenters for
their input. We will consider the
feasibility of providing hospitals with

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scoring previews in the future. As we
are not finalizing this domain
reclassification at this time, we believe
we are meeting commenters’ request
that we wait until hospitals have actual
experience with the Program before
reshaping it. We will consider reproposing this domain reclassification
when we have more information to
evaluate hospitals’ performance under
the Program.
After consideration of the public
comments we received, we are not
finalizing our proposal to reclassify the
Hospital VBP measures into domains
based on the six priorities of the
National Quality Strategy in FY 2016.
We will maintain the existing fourdomain structure in FY 2016. We will
consider these comments should we
address this issue again in future
rulemaking.
10. Performance Periods and Baseline
Periods for the FY 2015 Hospital VBP
Program
Section 1886(o)(4) of the Act requires
the Secretary to establish a performance
period for the Hospital VBP Program for
a fiscal year that begins and ends prior
to the beginning of such fiscal year.
a. Clinical Process of Care Domain
Performance Period and Baseline Period
for FY 2015
In the CY 2012 OPPS/ASC final rule
with comment period (76 FR 74534), for
the FY 2014 Hospital VBP Program, we
finalized a 9-month (3-quarter)
performance period from April 1, 2012
through December 31, 2012 for the
clinical process of care domain
measures.
As we stated in that final rule with
comment period, adopting a 3-quarter
performance period for this domain for
the FY 2014 Hospital VBP Program
would enable us to consider adopting a
12-month performance period for this
domain for FY 2015. Therefore, in the
FY 2013 IPPS/LTCH PPS proposed rule
(77 FR 28082), we proposed to adopt CY
2013 (January 1, 2013 through December
31, 2013) as the performance period for
all but one of the clinical process of care
domain measures for the FY 2015
Hospital VBP Program. This proposed
performance period for FY 2015 would
begin immediately after the end of the
FY 2014 performance period and will
enable us to begin to make value-based
incentive payments to hospitals
beginning October 1, 2014. A 12-month
performance period would also give us
more data on which to score hospital
performance, which is an important goal
both for CMS and for stakeholders. We
also note that a 12-month performance

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period is consistent with the periods
used for the Hospital IQR Program.
However, as noted above, AMI–10
measure data were posted on Hospital
Compare on January 26, 2012.
Therefore, we stated that we did not
believe we could begin a performance
period for this measure on January 1,
2013, which would align with the
proposed performance period for all
other clinical process of care measures.
We considered the most appropriate
way to include this measure in the FY
2015 Hospital VBP Program and
concluded that we should propose a 9month performance period from April 1,
2013 through December 31, 2013. As we
have stated for prior program years, we
believe that a 9-month performance
period provides sufficiently reliable
quality measure data for clinical process
of care measures. We also stated that we
intend to align the AMI–10 measure’s
performance period with all other
clinical process measures for future
program years.
As we explained in the Hospital
Inpatient VBP Program final rule (76 FR
26511), we believe that baseline data
should be used from a comparable prior
period for purposes of calculating the
performance standards. However, we
also strive to balance that belief with
our desire to use the most recentlyavailable data in order to calculate
performance standards, as we believe
that more recent data more closely
reflects current performance on
measures. Therefore, we proposed to
adopt CY 2011 (January 1, 2011 through
December 31, 2011) as the baseline
period for all but one of the Clinical
Process of Care domain measures for the
FY 2015 Hospital VBP Program. As
noted above, we proposed to adopt a 9month performance period for the AMI–
10 measure. In accordance with our
preference for adopting a comparable
prior period for purposes of calculating
the performance standards, we proposed
to adopt a 9-month baseline period of
April 1, 2011 through December 31,
2011 for the AMI–10 measure.
We welcomed public comment on
these proposals.
Comment: Commenters generally
supported CMS’ clinical process of care
performance period proposals for the FY
2015 Hospital VBP Program, including
proposing to use a full calendar year for
most clinical process measures and a
slightly shorter performance period for
AMI–10 consistent with its posting date
on Hospital Compare.
Response: We thank commenters for
their support. However, as described
further above, because we have
concluded that AMI–10 is ‘‘topped-out,’’

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we are not finalizing that measure for
the Hospital VBP Program.
After consideration of the public
comments we received, we are
finalizing the FY 2015 performance
period and baseline period for the
Clinical Process of Care domain as
proposed, with the exception of the
proposed periods for the AMI–10
measure.
b. Patient Experience of Care Domain
Performance Period and Baseline Period
for FY 2015
In the CY 2012 OPPS/ASC final rule
with comment period (76 FR 74534), for
the FY 2014 Hospital VBP Program, we
finalized a 9-month (3-quarter)
performance period from April 1, 2012
through December 31, 2012 for the
Patient Experience of Care domain
measure.
As we stated in that final rule with
comment period, adopting a 3-quarter
performance period for this domain for
the FY 2014 Hospital VBP Program
would enable us to consider adopting a
12-month performance period for this
domain for FY 2015. Consistent with
our goal of adopting a full 12-month
period for this domain in order to
collect a larger amount of HCAHPS
survey data compared to a 9-month
period, in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28083) we
proposed to adopt CY 2013 (January 1,
2013 through December 31, 2013) as the
performance period for the Patient
Experience of Care domain measure for
the FY 2015 Hospital VBP Program.
This proposed performance period for
FY 2015 would begin immediately after
the end of the FY 2014 performance
period and would enable us to begin
making value-based incentive payments
to hospitals beginning on October 1,
2014. We also note that a 12-month
performance period is consistent with
the periods used for the Hospital IQR
Program.
As we explained in the Hospital
Inpatient VBP Program final rule (76 FR
26511), we believe that baseline data
should be used from a comparable prior
period for purposes of calculating the
performance standards. Therefore, we
proposed to adopt CY 2011 (January 1,
2011 through December 31, 2011) as the
baseline period for the Patient
Experience of Care domain measure for
the FY 2015 Hospital VBP Program.
We welcomed public comment on
these proposals.
Comment: Commenters generally
supported the proposal to adopt 12month baseline and performance
periods for the Patient Experience of
Care Domain for the FY 2015 Hospital
VBP Program.

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Response: We thank commenters for
their support.
After consideration of the public
comments we received, we are
finalizing the FY 2015 Patient
Experience of Care performance period
and baseline period as proposed.
c. Efficiency Domain Measure
Performance Period and Baseline Period
for FY 2015
We posted performance data for the
Medicare Spending Per Beneficiary
measure on Hospital Compare on April
21, 2012. We therefore concluded that
the earliest we could begin a
performance period for FY 2015 is one
year from the date on which the data
was posted. In the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28083), we
proposed an end date of December 31,
2013 for this measure’s performance
period. This end date is consistent with
the end dates proposed for the Clinical
Process of Care domain and for the
HCAHPS measure in the Patient
Experience of Care domain.
In the interest of maintaining
consistency across domains, to the
extent possible, and in order to ensure
that data have been posted for at least
1 year prior to the beginning of the
measure performance period, we
proposed to adopt an 8-month
performance period (May 1, 2013
through December 31, 2013) for the
Medicare spending per beneficiary
measure for the FY 2015 Hospital VBP
Program. We believe this proposed
performance period enables us to collect
as much measure data as possible and
the time necessary to process claims and
incorporate measure data into Hospital
VBP Program scores. We further
proposed to adopt a corresponding prior
period (May 1, 2011 through December
31, 2011) as the baseline period for
purposes of calculating the performance
standards. This proposed baseline
period would be consistent with the
baseline period proposed for other
Hospital VBP Program measures in that
it precedes the performance period by
two years.
We welcomed public comment on the
proposed FY 2015 performance and
baseline period for the Medicare
spending per beneficiary measure.
Comment: Some commenters argued
that the proposed performance period
for the Medicare Spending per
Beneficiary measure is not long enough
to produce reliable data on which to
base performance scores.
Response: We disagree. We believe
that the proposed performance period
will enable us to make robust
comparisons of hospitals’ spending
levels, which we note are important

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considerations for quality improvement.
As described in the FY 2013 IPPS/LTCH
PPS proposed rule, we conducted an
independent analysis of the minimum
number of cases necessary for hospitals
to receive a reliable score on the
Medicare Spending per Beneficiary
measure (77 FR 28089–90), and we
believe that the 25 case minimum
finalized below appropriately ensures
that hospitals are being compared using
reliable measure data. In addition, in
order to confirm our expectation that
the Medicare Spending per Beneficiary
measure would be reliable, an
expectation that was based on the large
number of discharges included in the
measure and the body of literature
supporting the ability of cost measures
to assess variability between hospitals,
we have conducted comprehensive
reliability testing of the measure. As
discussed in section VIII.C.8.b of this
preamble, that analysis found the
measure to be reliable with a minimum
of 10 cases. We discuss and finalize our
minimum case number for the Medicare
Spending per Beneficiary measure in
section VIII.C.14.c. of this preamble.
After consideration of the public
comments we received, we are
finalizing the FY 2015 performance
period for the Medicare Spending per
Beneficiary measure as proposed.
d. Outcome Domain Performance
Periods for FY 2015

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(1) Mortality Measures
In the Hospital Inpatient VBP Program
final rule (76 FR 26495), we finalized a
12-month performance period (July 1,
2011–June 30, 2012) for the Outcome
domain for the FY 2014 Hospital VBP
Program. We also finalized a
comparable prior period as the baseline
period (July 1, 2009 through June 30,
2010) for purposes of calculating
improvement points as well as the
performance standards.
Due to the lengthy time needed for us
to compile certain claims-based measure
data at the individual hospital level and
calculate the measure rates and scores
(discussed more fully in section
VIII.C.6.b. of this preamble in the
context of our review and corrections
proposal for claims-based measures), we
must conclude the performance period
for the mortality and AHRQ PSI
measures for FY 2015 by June 30, 2013.
We are concerned about the difficulty
that varied performance periods impose
on participating hospitals. While we
believe the public recognizes the need
for different performance periods due to
varied measure types and collection
methods, we strive to propose
performance periods that are as

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consistent as possible from one program
year to the next. We believe this
consistency is important for all
hospitals that are working to improve
the quality of care they provide to
Medicare beneficiaries and to the
entirety of the patient population.
However, we are also aware that the
Hospital VBP statute requires that we
establish and announce performance
standards for Hospital VBP measures at
least 60 days in advance of the
performance period. Because we
proposed to adopt these measures for
FY 2015 in the FY 2013 IPPS/LTCH PPS
proposed rule, which will not be
effective until 60 days after it is
finalized, we did not believe we could
propose a performance period for these
measures beginning earlier than October
1, 2012.
We note that this proposed
performance period is less than 12
months, which may raise seasonality
concerns with regard to these measures.
We note further that we examined the
independent analysis of these measures’
reliability provided by Mathematica
Policy Research, entitled, ‘‘Reporting
Period and Reliability of AHRQ, CMS
30-day and HAC Quality Measures—
Revised,’’ which is available on our Web
site (http://cms.hhs.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/Downloads/
HVBP_Measure_Reliability-.pdf), and
which concluded that the measures may
not achieve total reliability for all
hospitals for reporting periods as short
as 6 months. However, we believe that
holding all hospitals accountable using
the same period will fairly alleviate
those concerns, particularly because
these measures are risk-adjusted using a
methodology that does not penalize
hospitals for poor performance on the
measure without a relatively larger
sample size. As described further below,
while we are concerned about these
measures’ reliability when adopting a
performance period of less than 12
months, we believe that increasing the
required minimum number of cases will
assure sufficient reliability for these
measures for value-based purchasing.
Based on our stated objective to include
outcome measures in the Hospital VBP
Program, we believe that the proposed
9-month performance period for these
measures will produce sufficiently
reliable results for hospitals.
Therefore, in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28083), we
proposed to adopt a 9-month
performance period for the three 30-day
mortality measures for FY 2015 from
October 1, 2012 through June 30, 2013.
We further proposed a comparable

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baseline period from October 1, 2010
through June 30, 2011.
We welcomed public comment on our
proposal to adopt a performance period
for the proposed FY 2015 mortality
measures that runs from October 1, 2012
through June 30, 2013, and a baseline
period that runs from October 1, 2010,
through June 30, 2011.
Comment: Many commenters
expressed concern about the proposed
performance period for mortality
measures, arguing that the proposed
period is too short to provide reliable
measure scores on which to base TPSs.
Commenters noted that a statistical
report released by CMS concluded that
the mortality measures do not appear to
be reliable even with up to 24 months
of performance information.
Response: As stated above, we believe
that holding all hospitals accountable
using the same time period alleviates
any significant concerns about seasonal
variation in measure performance. We
believe that our proposal is responsive
to concerns about outcome measure
reliability. Our proposals are designed
to increase overall reliability of these
measures, and exclude hospitals with
the most unreliable measure rates from
receiving a score in the outcome
domain. We also considered the
improved validity resulting from
outcome measures that include a higher
correlation with patient outcomes,
relative to process of care measures. As
stated previously, we assessed measure
reliability, TPS reliability and validity,
and alignment with our policy goal to
reduce cost and improve patient health
outcomes when we developed our
proposals.
Comment: Some commenters
expressed concern about the proposed
performance periods, suggesting that
CMS should wait until it can adopt 12month performance and baseline
periods before adopting measures into
the Hospital VBP Program. Commenters
argued that 12-month performance
periods represent the minimum length
that CMS should consider finalizing.
Response: While we are also
concerned about requiring hospitals to
improve on quality metrics during
varied performance periods, as stated
above, we believe the proposed
performance periods enable us to adopt
robust quality measures covering
important clinical topics as quickly as
possible, thereby encouraging hospitals
to improve their performance on the
measures. We believe that the Hospital
VBP Program’s shifting focus from
measures of clinical processes to
outcome and efficiency measures rightly
ensures that hospitals consider how to
improve every aspect of the care

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provided to Medicare beneficiaries, an
aim that we achieve by adopting new
measures into the Hospital VBP Program
as soon as possible.
After consideration of the public
comments we received, we are
finalizing the FY 2015 performance
period and baseline period for the 30day mortality measures as proposed.
(2) AHRQ PSI Composite Measure
We posted hospital performance data
on the AHRQ PSI composite measure on
Hospital Compare on October 14, 2011.
Based on that posting date, we believe
the earliest we could begin a
performance period for FY 2015 is
October 14, 2012. As discussed above,
we must conclude the performance
period for certain claims-based
measures by June 30, 2013 in order to
allow sufficient time to calculate the
measure rates and scores. We note that
we did not specify which measures’
performance period we must end by
June 30, 2013 in the proposed rule; we
intended to refer specifically to the
mortality measures and the AHRQ PSI
composite measure.
Therefore, in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28084), we
proposed to adopt a nearly 9-month
performance period (October 15, 2012
through June 30, 2013) for the AHRQ
PSI composite measure for FY 2015. We
believe that this performance period
will provide us with sufficiently reliable
data on which to base hospitals’ scores.
We further proposed to adopt a
comparable prior period from October
15, 2010 through June 30, 2011 as the
baseline period for purposes of
calculating the performance standards.
While we would prefer to adopt a
performance period longer than nearly
9-months in order to provide the most
reliable measure data possible, we
believe that the proposed period enables
us to ensure that this measure, which
assesses hospital performance on the
critical topic of patient safety, is
included in hospitals’ FY 2015 TPSs
and, therefore, will become a focus of
quality improvement efforts. We note
further that we examined the
independent analysis of this measure’s
reliability provided by Mathematica
Policy Research, entitled, ‘‘Reporting
Period and Reliability of AHRQ, CMS
30-day and HAC Quality Measures—
Revised,’’ which is available on our Web
site (http://cms.hhs.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/Downloads/
HVBP_Measure_Reliability-.pdf), and
which concluded that the AHRQ PSI
composite measure achieves moderate
reliability for the majority of hospitals

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for reporting periods of 6 months or
longer. Based on our objective to
include patient safety measures in the
Hospital VBP Program, we believe that
the proposed nearly 9-month
performance period for this measure
will produce reliable results for
hospitals.
We welcomed public comment on
these proposals.
Comment: Many commenters opposed
the proposed performance period for the
AHRQ PSI composite measure, arguing
that CMS’ standard for reliability testing
for the measure is not sufficient for a
payment program. Some commenters
urged CMS to review measure reliability
at 0.9 or higher to ensure that valuebased incentive payments have high
reliability rates.
Response: As described above, we
believe that the AHRQ PSI composite
measure is sufficiently reliable for
purposes of the Hospital VBP program.
The median reliability level of this
measure is estimated to be 0.7 for a 9
month performance period. In our
measure selection and performance
period assessment, we also assessed the
validity of the measure through its
correlation with patient health
outcomes, and the reliability of the TPS
as indicative of hospital performance.
We do not believe that focusing on the
individual measure’s reliability, to the
exclusion of its contribution to the
reliability of the TPS, is the sole
criterion for assessing the
appropriateness of adopting measures to
the Hospital VBP Program. We note that
the AHRQ PSI composite measure is a
measure of patient safety, a critical topic
for quality measurement and
improvement, and we believe strongly
that adopting this measure for the
Hospital VBP Program will ensure that
hospitals focus on the topic of patient
safety when working towards quality
improvement.
We do not believe that commenters’
suggestion of adopting 0.9 as the
standard for measure reliability to the
exclusion of other criteria is advisable.
We further note that we assess quality
measures for adoption in the Hospital
VBP Program in many ways, including
reliability, the number of hospitals
receiving a score on the measure, the
measure topic, and alignment with
quality priorities.
After consideration of the public
comments we received, we are
finalizing the FY 2015 performance
period and baseline period for the
AHRQ PSI composite measure as
proposed.

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53597

(3) CLABSI Measure
We posted CLABSI measure data on
Hospital Compare on January 26, 2012.
Pursuant to our commitment to post
measure data on Hospital Compare at
least one year prior to the beginning of
a performance period for the Hospital
VBP Program, the earliest we can begin
a performance period for this measure is
January 26, 2013. Because, as described
above, we believe this measure captures
important patient safety data, in this
case related to infections that present
the possibility of significant harm to
hospitalized patients, we believe it is
appropriate to adopt the measure as
soon as possible for as lengthy a
performance period as possible.
Adopting an approximately 11-month
performance period for this measure
will not, in our view, appreciably harm
the measure’s statistical reliability for
purposes of value-based purchasing
scoring, particularly because (as
described below) we also proposed to
adopt the measure steward’s criteria for
minimum number of cases to receive a
measure score.
Therefore, in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28084), we
proposed to adopt an approximately 11month performance period for the
CLABSI measure from January 26, 2013
through December 31, 2013 with a
comparable baseline period of January
26, 2011 through December 31, 2011 for
purposes of calculating the performance
standards.
We welcomed public comment on
these proposals.
Comment: Many commenters were
concerned about the proposed
performance period for the CLABSI
measure. Commenters were specifically
concerned about the quality of CLABSI
data that is being reported publicly, as
they argued that less than 25 percent of
hospitals met the minimum case
threshold for reporting on Hospital
Compare during the first quarter of
public reporting. Commenters asserted
that the relatively small sample is not
representative of hospitals around the
country.
Response: We understand
commenters’ concerns about the
robustness of the CLABSI measure data.
However, we believe that the best way
to address these concerns is to include
as much data from as many
participating hospitals as possible.
While the January 2011 Hospital
Compare display included data for a
relatively small number of hospitals,
approximately 2,300 hospitals reporting
CLABSI data were suppressed on the
January 2011 Hospital Compare due to
insufficient volume of reported data. In

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total, over 2,600 hospitals submitted
CLABSI data during the first quarter
2011 to the NHSN to comply with our
Hospital IQR Program reporting
requirement. An additional 600
hospitals reported to CMS that they did
not treat a sufficient volume of ICU
patients, and were not required to report
CLABSI data to CMS. We also note that
the May 2012 display of Hospital
Compare included over 1,500 hospitals’
CLABSI data, an increase of over 1,000
hospitals from the January posting. We
anticipate the number of hospitals
posted on Hospital Compare will
increase to over 2,000 hospitals when
we collect 12 months of CLABSI data.
We do not believe it is appropriate to
drop January 2011 reported data
because we believe that the increased
reliability using a 12 month
performance period and we believe that
any sampling bias that may have been
introduced by the relatively small

In addition, CDC advised us that
CLABSI measure data may not be easily
disaggregated to incident day, but
rather, may only be reduced to incident
month. For that reason, we are finalizing
that instead of beginning the
performance period for the CLABSI
measure for FY 2015 with January 26,
2013 events, the performance period
will begin with February 1, 2013 events.
After consideration of the public
comments we received, we are
finalizing an FY 2015 performance
period for the CLABSI measure of
February 1, 2013 through December 31,
2013 infection event data, with a
baseline period of January 1, 2011
through December 31, 2011 infection
event data.
The final performance and baseline
periods for all of the FY 2015 measures
appear below:

Domain

Baseline period

Clinical Process of Care .....................................
Patient Experience of Care ................................
Outcome
• Mortality ...................................................
• AHRQ PSI ...............................................
• CLABSI ....................................................
Efficiency
• Medicare Spending Per Beneficiary-1 .....

January 1, 2011–December 31, 2011 .............
January 1, 2011–December 31, 2011 .............

January 1, 2013–December 31, 2013.
January 1, 2013–December 31, 2013.

• October 1, 2010–June 30, 2011 ..................
• October 15, 2010–June 30, 2011 ................
• January 1, 2011–December 31, 2011 .........

• October 1, 2012–June 30, 2013.
• October 15, 2012–June 30, 2013.
• February 1, 2013–December 31, 2013.

• May 1, 2011–December 31, 2011 ...............

• May 1, 2013–December 31, 2013.

e. Performance Periods for FY 2016
Measures

EMCDONALD on DSK67QTVN1PROD with RULES2

number of reporting hospitals in the
first quarter is eliminated by adopting a
12-month baseline period and including
as many hospitals as possible. We
believe that adopting a 12-month
baseline period enables us to calculate
performance standards that fully and
fairly reflect national performance on
the CLABSI measure without including
the effects of seasonal variation.
We also wish to provide hospitals
with baseline performance period data
as soon as feasible to promote hospital
quality improvement efforts. We
anticipate that hospitals will also see
their 12 month baseline performance
period CLABSI data on Hospital
Compare by January 2013. These same
data are posted on Hospital Compare as
part of our Hospital IQR program. We
expect to provide Hospital Compare
preview reports containing this
information to hospitals during fall 2012
calendar year.

In order to provide relatively more
reliable data for the three proposed 30day mortality measures and the AHRQ
PSI composite measure, we considered
how we could adopt a 24-month
performance period for the FY 2016
Hospital VBP Program. We do not
believe it is feasible to do so at this time
given the statutory requirement that we
establish and announce performance
standards at least 60 days in advance of
the applicable performance period.
However, we intend to propose to adopt
a 24-month performance period for
these measures as soon as is practicable
and will consider a 24-month
performance period in future
rulemaking.
Given the time constraints associated
with the annual IPPS/LTCH PPS
rulemaking schedule, we believe that
the longest performance period we can
propose for FY 2016 at this time is 21
months. We believe that this
performance period will provide
relatively more reliable measure data
and will enable us to consider adopting
a 24-month performance period in the
future.

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Performance period

Therefore in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28084), we
proposed to adopt a 21-month
performance period for the three
proposed 30-day mortality measures
and the AHRQ PSI composite measure
for the FY 2016 Hospital VBP Program,
from October 1, 2012 through July 30,
2014. We further proposed a baseline
period of October 1, 2010 through July
30, 2011, for purposes of calculating
performance standards and measuring
improvement. We note that this baseline
period is identical to the proposed
baseline period for these measures for
FY 2015. We also note that this baseline
period is shorter than the proposed
performance period. We believe it is
appropriate to use the most recentlyavailable data to calculate performance
standards and are concerned about the
possibility of using data from several
years prior to the performance period
for performance standards. However, we
sought public comment on whether we
should adopt a 24-month baseline
period.
We welcomed public comment on
this proposal. We also sought comments
on the possibility of adopting a
‘‘rolling’’ 2-year performance period for
certain claims-based measures during

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which we would score hospitals using
24 months of data. As an example,
under such a policy for mortality
measures, hospitals could be scored for
the FY 2018 Hospital VBP Program
using data from the performance periods
for FY 2017 (while not yet proposed,
one possibility for that year could be
July 1, 2013 through June 30, 2015). For
subsequent fiscal years, we would drop
the oldest 12 months of data from that
period and add the next 12 months. The
performance period for the FY 2019
Hospital VBP Program under that policy
could be July 1, 2014 through June 30,
2016.
Comment: Many commenters
applauded CMS’ proposal to move
towards a 24-month performance period
for outcome measures in the future.
However, some commenters argued that
CMS should not finalize shorter
performance periods for these measures
in the interim, citing reliability
concerns.
Response: We thank commenters for
their support. We believe that our
proposal is responsive to concerns about
outcome measure reliability, since we
proposed a 21 month FY 2016
performance period and a 25 case
minimum threshold for including

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
mortality measures for the FY 2015
Hospital VBP Program. Both proposals
are designed to increase the overall
reliability of these measures. We also
considered the improved validity
resulting from more outcome measures
that include a higher correlation with
patient outcomes, relative to process of
care measures. As stated previously, we
assessed measure reliability, TPS
reliability and validity, and alignment
with our policy goal to reduce cost and
improve patient health outcomes when
we developed our proposals. We
disagree that we should exclude these
measures from the TPS until we can
adopt lengthier performance periods.
We believe that scoring hospitals on
these measures, even with relatively
shorter performance periods, ensures
that the topics covered by these
measures remain important components
of hospitals’ quality improvement
efforts.
Comment: Some commenters opposed
the proposal to adopt longer
performance periods for certain
Measure

Baseline period

Mortality ..............................................................
AHRQ PSI ..........................................................

October 1, 2010–June 30, 2011 ......................
October 15, 2010–June 30, 2011 ....................

11. Performance Standards for the
Hospital VBP Program for FY 2015 and
FY 2016
a. Background

EMCDONALD on DSK67QTVN1PROD with RULES2

measures in FY 2016. Commenters
argued that the varied performance
periods are confusing for hospitals, and
that using longer timeframes results in
hospitals being held accountable for old
data.
Response: We understand
commenters’ concerns about the varied
performance periods finalized for the
Hospital VBP Program and about using
relatively older data. However, we make
every effort to communicate with
hospitals about the time periods during
which their performance will be
assessed. We will continue to work to
notify hospitals about the measures,
performance periods, performance
standards, and other components of the
Hospital VBP Program.
We view the use of relatively older
data as a necessary component of the
Hospital VBP Program given the current
state of quality measurement. Many
measures in the Hospital VBP Program
are claims-based, which often require
more time to compile and calculate, and
require relatively longer performance

Section 1886(o)(3)(A) of the Act
requires the Secretary to establish
performance standards for the measures
selected under the Hospital VBP
Program for a performance period for
the applicable fiscal year. The
performance standards must include
levels of achievement and improvement,
as required by section 1886(o)(3)(B) of
the Act, and must be established and
announced not later than 60 days before
the beginning of the performance period
for the fiscal year involved, as required
by section 1886(o)(3)(C) of the Act.
Achievement and improvement
standards are discussed more fully in
the Hospital Inpatient VBP Program
final rule (76 FR 26511 through 26513).
In addition, when establishing the
performance standards, section
1886(o)(3)(D) of the Act requires the
Secretary to consider appropriate
factors, such as: (1) Practical experience
with the measures, including whether a
significant proportion of hospitals failed
to meet the performance standard
during previous performance periods;

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b. Performance Standards for the FY
2015 Hospital VBP Program Measures
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28085), we
proposed to establish performance
standards that apply to the FY 2015
Hospital VBP Program using the same
methodologies that we previously
adopted for the FY 2013 and FY 2014
Hospital VBP Programs. We refer
readers to the Hospital Inpatient VBP
Program final rule (76 FR 26511 through
26513) for a detailed discussion of the
methodology we adopted for the clinical
process of care, patient experience of
care, and outcome measures, and the FY
2012 IPPS/LTCH PPS final rule (76 FR
51654 through 51656) for a discussion
of the methodology we adopted for the
Medicare spending per beneficiary
measure.
We continue to believe that the
finalized methodology for calculating

Frm 00343

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periods than other types of measures to
maximize reliability. While this may
result in hospitals’ being held
accountable for data from prior fiscal
years, we do not believe this policy to
be avoidable at this time.
After consideration of the public
comments we received, we are
finalizing the FY 2016 performance
period and baseline period for the 30day mortality measures as proposed.
However, based on the AHRQ PSI
measure’s posting on Hospital Compare
on October 14, 2011, we do not believe
we can finalize a performance period for
that measure beginning on October 1,
2012. Based on the date of the posting,
we believe that the longest performance
period we could adopt would run from
October 15, 2012 to June 30, 2014, with
a corresponding baseline period from 2
years prior.
The table below displays the final
performance periods and baseline
periods for the FY 2016 mortality and
AHRQ PSI composite measures.
Performance period

(2) historical performance standards; (3)
improvement rates; and (4) the
opportunity for continued
improvement. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28085),
we proposed to codify this for
performance standards in our
regulations at § 412.165.

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53599

October 1, 2012–June 30, 2014.
October 15, 2012–June 30, 2014.

performance standards is appropriate
for the Hospital VBP Program given that
the Program remains relatively new to
hospitals and the public. The proposed
performance standards for the clinical
process, outcome, and Medicare
spending per beneficiary measures
appear in the first table below, while the
proposed performance standards for the
patient experience of care (HCAHPS
survey) measure appears in the second
table below. We note that the
performance standards displayed below
represent estimates based on the most
recently-available data; we are updating
the standards in this final rule. We also
note that the performance standards for
the CLABSI measure and the AHRQ PSI
composite measure are calculated with
lower values representing better
performance, in contrast to other
measures, on which higher values
indicate better performance. We note
further that we inadvertently omitted
the benchmark for the AMI–10 measure
and the achievement threshold and
benchmark for the HF–1 measure in the
proposed rule. We corrected those
omissions in the FY 2013 IPPS/LTCH
PPS proposed rule correction notice (77
FR 34327 through 34328) and the
corrected table appears below.

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

PROPOSED PERFORMANCE STANDARDS FOR THE FY 2015 HOSPITAL VBP PROGRAM CLINICAL PROCESS OF CARE AND
OUTCOME DOMAINS, AND THE MEDICARE SPENDING PER BENEFICIARY MEASURE
[Corrected]
Measure ID

Description

Achievement threshold

Benchmark

Clinical Process of Care Measures
AMI–7a ..............
AMI–8a ..............
AMI–10 ..............
HF–1 ..................
PN–3b ...............
PN–6 .................
SCIP–Card–2 ....
SCIP–Inf–1 ........
SCIP–Inf–2 ........
SCIP–Inf–3 ........
SCIP–Inf–4 ........
SCIP–Inf–9 ........
SCIP–VTE–2 .....

Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival.
Primary PCI Received Within 90 Minutes of
Hospital Arrival.
Statin Prescribed at Discharge .........................
Discharge Instructions ......................................
Blood Cultures Performed in the Emergency
Department Prior to Initial Antibiotic Received in Hospital.
Initial Antibiotic Selection for CAP in
Immunocompetent Patient.
Surgery Patients on Beta-Blocker Therapy
Prior to Arrival Who Received a BetaBlocker During the Perioperative Period.
Prophylactic Antibiotic Received Within One
Hour Prior to Surgical Incision.
Prophylactic Antibiotic Selection for Surgical
Patients.
Prophylactic Antibiotics Discontinued Within 24
Hours After Surgery End Time.
Cardiac Surgery Patients with Controlled 6AM
Postoperative Serum Glucose.
Urinary Catheter Removed on Postoperative
Day 1 or Postoperative Day 2.
Surgery Patients Who Received Appropriate
Venous Thromboembolism Prophylaxes
Within 24 Hours Prior to Surgery to 24
Hours After Surgery.

0.72727 ..........................................

1.00000.

0.92857 ..........................................

1.00000.

0.90474 ..........................................
0.92090 ..........................................
0.97129 ..........................................

1.00000.
1.00000.
1.00000.

0.93671 ..........................................

0.99832.

0.95122 ..........................................

1.00000.

0.97872 ..........................................

1.00000.

0.97882 ..........................................

1.00000.

0.96154 ..........................................

0.99905.

0.94799 ..........................................

0.99824.

0.93333 ..........................................

1.00000.

0.94118 ..........................................

0.99938.

Outcome Measures
MORT–30–AMI
MORT–30–HF ...
MORT–30–PN ...
PSI–90 ...............
CLABSI ..............

Acute Myocardial Infarction (AMI) 30-Day Mortality Rate.
Heart Failure (HF) 30-Day Mortality Rate ........
Pneumonia (PN) 30-Day Mortality Rate ...........
Patient safety for selected indicators (composite).
Central Line-Associated Blood Stream Infection.

0.8477 ............................................

0.8673.

0.8861 ............................................
0.8818 ............................................
0.4006 ............................................

0.9042.
0.9021.
0.2754.

0.442 ..............................................

0.000.

Efficiency Measures
MSPB–1 ............

Medicare Spending per Beneficiary .................

Median Medicare spending per
beneficiary ratio.
across all hospitals during the performance period.

Mean of the lowest decile of Medicare
spending per beneficiary ratios
across all hospitals during the performance period.

PROPOSED PERFORMANCE STANDARDS FOR THE FY 2015 HOSPITAL VBP PROGRAM PATIENT EXPERIENCE OF CARE
DOMAIN
Floor
(percent)

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HCAHPS Survey dimension
Communication with Nurses ........................................................................................................
Communication with Doctors .......................................................................................................
Responsiveness of Hospital Staff ................................................................................................
Pain Management ........................................................................................................................
Communication about Medicines ................................................................................................
Hospital Cleanliness & Quietness ...............................................................................................
Discharge Information ..................................................................................................................
Overall Rating of Hospital ............................................................................................................

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49.23
57.31
34.83
43.05
28.11
40.35
55.10
29.26

31AUR2

Achievement
threshold
(percent)
76.28
79.61
62.75
69.24
60.46
63.79
83.29
67.73

Benchmark
(percent)
85.56
88.72
78.59
78.24
71.72
78.46
89.60
83.13

Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
We welcomed public comment on
these proposed performance standards.
Comment: Some commenters noted
that the performance standards table in
the FY 2013 IPPS/LTCH PPS proposed
rule omitted the achievement thresholds
and benchmarks for HF–1 and AMI–10.
Response: We thank commenters for
their attention to this matter. As noted
above, we published the proposed
performance standards values for those
two measures in the FY 2013 IPPS/
LTCH PPS proposed rule correction
notice (77 FR 34327 through 34328).
Comment: Some commenters
expressed support for the proposed
performance standards for FY 2015.
Response: We thank commenters for
their support.
Comment: Some commenters noted a
slight decline in the Clinical Process of
Care performance standards for the FY
2015 Program compared to the finalized
standards for FY 2014. Commenters
suggested that CMS should analyze
these differences and ascertain whether
this decline was the result of a true
decline in quality performance or other
factors. Other commenters urged CMS to
monitor the Hospital VBP Program
closely, particularly as the first year of
full implementation looms, to ensure
that the program’s goals are met and that
no unintended consequences result.
Response: We thank commenters for
their input. We intend to monitor
hospitals’ performance under the
Hospital VBP Program closely, with
particular attention to changes in
hospitals’ quality performance over
time.
Comment: Some commenters argued
that CMS should display the numerical

values of the performance standards for
the Medicare Spending per Beneficiary
measure rather than the descriptions
(‘‘Median Medicare spending per
beneficiary ratio across all hospitals
during the performance period’’ and
‘‘Mean of the lowest decile of Medicare
spending per beneficiary ratios across
all hospitals during the performance
period’’). These commenters did not
support the methodology for calculating
Medicare Spending per Beneficiary
performance standards because those
numerical values were not provided.
Response: We disagree. We finalized
the methodology we would use to assess
hospital performance on the Medicare
Spending per Beneficiary measure in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51655) and believe that we have
met the requirement to notify hospitals
of the performance standards. We will
provide the numerical equivalents when
they are available, after the conclusion
of the performance period. Further, the
Medicare Spending per Beneficiary
measure is constructed as a measure of
costs attributable to patient care during
the specified episode of care. We do not
believe it is helpful for hospitals to be
compared against performance
standards constructed from baseline
period data, on this payment-based
measure, given potential changes in
Medicare payment policy, changes in
market forces, and changes in utilization
practices. The national median
Medicare Spending per Beneficiary ratio
will be 1.0, because it is the ratio of the
hospital’s score to the national median.
For hospitals’ information, we are
providing historical benchmark and
achievement threshold information

53601

during the period May 15, 2010–
February 14, 2011. For hospitals’
information, we are providing historical
benchmark and achievement threshold
information during the period May 15,
2010–February 14, 2011, in addition to
the measure rates for this period, which
were displayed on Hospital Compare on
April 19, 2012. During this historical
performance period, this median ratio
was associated with a Medicare
Spending per Beneficiary amount of
$17,988.04. Hospitals were given this
national median Medicare Spending per
Beneficiary amount on a Hospital Open
Door Forum. We would also like to
provide hospitals with the amount that
corresponds to what would have been
the benchmark for the measure, were
this an actual Hospital VBP performance
period. The benchmark Medicare
Spending per Beneficiary ratio, or mean
of the lowest decile, was 0.806. This
ratio corresponds to a Medicare
Spending per Beneficiary amount of
$14,495.
After consideration of the public
comments we received, we are
finalizing the FY 2015 performance
standards. As described further above,
we are not finalizing performance
standards for AMI–10 because we are
not including it in the FY 2015 measure
set.
The final performance standards for
the clinical process, outcome, and
Medicare spending per beneficiary
measures appear in the first table below,
while the final performance standards
for the patient experience of care
(HCAHPS survey) measure appears in
the second table below.

FINAL PERFORMANCE STANDARDS FOR THE FY 2015 HOSPITAL VBP PROGRAM CLINICAL PROCESS OF CARE, OUTCOME,
AND EFFICIENCY DOMAINS
Measure ID

Description

Achievement threshold

Benchmark

Clinical Process of Care Measures
AMI–7a ..............
AMI–8a ..............
PN–3b ...............
PN–6 .................

EMCDONALD on DSK67QTVN1PROD with RULES2

SCIP–Card–2 ....
SCIP–Inf–1 ........
SCIP–Inf–2 ........
SCIP–Inf–3 ........
SCIP–Inf–4 ........

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Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival.
Primary PCI Received Within 90 Minutes of
Hospital Arrival.
Blood Cultures Performed in the Emergency
Department Prior to Initial Antibiotic Received in Hospital.
Initial Antibiotic Selection for CAP in
Immunocompetent Patient.
Surgery Patients on Beta-Blocker Therapy
Prior to Arrival Who Received a BetaBlocker During the Perioperative Period.
Prophylactic Antibiotic Received Within One
Hour Prior to Surgical Incision.
Prophylactic Antibiotic Selection for Surgical
Patients.
Prophylactic Antibiotics Discontinued Within 24
Hours After Surgery End Time.
Cardiac Surgery Patients with Controlled 6AM
Postoperative Serum Glucose.

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0.80000 ..........................................

1.00000.

0.95349 ..........................................

1.00000.

0.94118 ..........................................

1.00000.

0.97783 ..........................................

1.00000.

0.95918 ..........................................

1.00000.

0.97175 ..........................................

1.00000.

0.98639 ..........................................

1.00000.

0.98637 ..........................................

1.00000.

0.97494 ..........................................

1.00000.

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

FINAL PERFORMANCE STANDARDS FOR THE FY 2015 HOSPITAL VBP PROGRAM CLINICAL PROCESS OF CARE, OUTCOME,
AND EFFICIENCY DOMAINS—Continued
Measure ID

Description

Achievement threshold

SCIP–Inf–9 ........

Urinary Catheter Removed on Postoperative
Day 1 or Postoperative Day 2.
Surgery Patients Who Received Appropriate
Venous Thromboembolism Prophylaxes
Within 24 Hours Prior to Surgery to 24
Hours After Surgery.

0.95798 ..........................................

0.99767.

0.94891 ..........................................

0.99991.

SCIP–VTE–2 .....

Benchmark

Outcome Measures
MORT–30–AMI
MORT–30–HF ...
MORT–30–PN ...
PSI–90 ...............
CLABSI ..............

Acute Myocardial Infarction (AMI) 30-Day Mortality Rate.
Heart Failure (HF) 30-Day Mortality Rate ........
Pneumonia (PN) 30-Day Mortality Rate ...........
Patient safety for selected indicators (composite).
Central Line-Associated Blood Stream Infection.

0.847472 ........................................

0.862371.

0.881510 ........................................
0.882651 ........................................
0.622879 ........................................

0.900315.
0.904181.
0.451792.

0.437 ..............................................

0.000.

Efficiency Measures
MSPB–1 ............

Medicare Spending per Beneficiary .................

Median Medicare spending per
beneficiary ratio.
across all hospitals during the performance period.

Mean of the lowest decile of Medicare
spending per beneficiary ratios
across all hospitals during the performance period.

FINAL PERFORMANCE STANDARDS FOR THE FY 2015 HOSPITAL VBP PROGRAM PATIENT EXPERIENCE OF CARE DOMAIN
Floor
(percent)

HCAHPS Survey dimension

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Communication with Nurses ........................................................................................................
Communication with Doctors .......................................................................................................
Responsiveness of Hospital Staff ................................................................................................
Pain Management ........................................................................................................................
Communication about Medicines ................................................................................................
Hospital Cleanliness & Quietness ...............................................................................................
Discharge Information ..................................................................................................................
Overall Rating of Hospital ............................................................................................................

We are also aware that once the ICD–
10–CM/PCS coding transition is
completed, we will be faced with
comparing hospitals’ performance from
baseline periods coded using ICD–9–CM
with performance periods coded using
ICD–10–CM/PCS. We note that
constructing performance standards
from such baseline periods could
produce unforeseen consequences for
quality measurement and performance
scoring. Therefore, we sought comments
on how to fairly compare hospitals’
performance on quality measures when
captured in different coding sets.
Comment: Some commenters
expressed concern about how to
measure hospitals’ performance when
measures or coding sets change.
Commenters argued that it would be
unfair to compare hospitals’

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performance using ICD–9–CM in the
baseline period and ICD–10–CM/PCS in
the performance period. Commenters
urged us to re-run the data using the
same coding set for both periods in
order to ensure fair comparisons.
Response: We thank commenters for
their input. We will consider these
comments in future rulemaking and
closely monitor future measure
specification updates incorporating
ICD–10 codes into our future measure
proposals. We will also closely monitor
how measure rates change following
ICD–10 adoption in our future
performance standards and measure
proposals.
c. Performance Standards for FY 2016
Hospital VBP Program Measures
As described further above, in the FY
2013 IPPS/LTCH PPS proposed rule (77

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47.77
55.62
35.10
43.58
35.48
41.94
57.67
32.82

Achievement
threshold
(percent)
76.56
79.88
63.17
69.46
60.89
64.07
83.54
67.96

Benchmark
(percent)
85.70
88.79
79.06
78.17
71.85
78.90
89.72
83.44

FR 28086), we proposed to adopt the
three 30-day mortality measures and the
AHRQ PSI composite measure for the
FY 2016 Hospital VBP Program. We also
proposed to adopt performance
standards for these measures based on
the proposed baseline periods outlined
above. Proposed performance standards
for these measures appear in the table
below. We noted that the performance
standards displayed below represent
estimates based on the most recentlyavailable data, and stated that we would
update the standards in this final rule.
We also note that the performance
standards for the AHRQ PSI composite
measure are calculated with lower
values representing better performance,
in contrast to the mortality measures, on
which higher values indicate better
performance.

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53603

PROPOSED PERFORMANCE STANDARDS FOR FY 2016 HOSPITAL VBP PROGRAMS OUTCOME DOMAIN: MORTALITY/PSI
COMPOSITE MEASURES
Measure ID

Achievement
threshold

Description

Benchmark

Outcome Measures
MORT–30–AMI .................
MORT–30–HF ...................
MORT–30–PN ...................
PSI–90 ..............................

Acute Myocardial Infarction (AMI) 30-day mortality rate .........................................
Heart Failure (HF) 30-day mortality rate ..................................................................
Pneumonia (PN) 30-day mortality rate ....................................................................
Patient safety for selected indicators (composite) ...................................................

Comment: Many commenters
expressed general opposition to the
proposed performance standards for the
FY 2016 Program based on their
opposition to further adoption of the
proposed measures for that program
year.

Response: We responded to comments
opposing the adoption of these
measures above and are finalizing our
adoption of those measures. We do not
interpret the comments as objecting
specifically to the proposed FY 2016
performance standards if we finalized
the measures themselves.

0.8477
0.8861
0.8818
0.4006

0.8673
0.9042
0.9021
0.2754

After consideration of the public
comments we received, we are
finalizing the FY 2016 performance
standards as proposed. Set out below
are the final performance standards for
the three 30-day mortality measures and
the AHRQ PSI composite measure.

FINAL PERFORMANCE STANDARDS FOR FY 2016 HOSPITAL VBP PROGRAMS OUTCOME DOMAIN: MORTALITY/PSI
COMPOSITE MEASURES
Measure ID

Achievement
threshold

Description

Benchmark

Outcome Measures
MORT–30–AMI .................
MORT–30–HF ...................
MORT–30–PN ...................
PSI–90 ..............................

Acute Myocardial Infarction (AMI) 30-day mortality rate .........................................
Heart Failure (HF) 30-day mortality rate ..................................................................
Pneumonia (PN) 30-day mortality rate ....................................................................
Patient safety for selected indicators (composite) ...................................................

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d. Adopting Performance Periods and
Standards for Future Program Years
For prior program years, with the
exception of the Hospital Inpatient VBP
Program proposed and final rules, we
have proposed and finalized policies for
the Hospital VBP Program in the IPPS/
LTCH PPS and OPPS/ASC regulations.
However, we do not believe these two
rulemaking vehicles are ideally suited
for additional Hospital VBP proposals.
While we are aware that it is convenient
for the public when additional
proposals are made in a relatively
limited number of rulemaking vehicles,
we are concerned about the limitations
that these regulations’ schedules place
on our ability to propose and finalize
quality measures, performance periods,
and performance standards in a timely
manner.
In order to facilitate quality measure
adoption for the Hospital VBP Program
and ensure that hospitals are kept fully
aware of the performance standards to
which we intend to hold them
accountable and the performance
periods during which their performance
will be measured, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28087),
we proposed to update performance
periods and performance standards for

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future program years via notice on our
Web site or another publicly-available
Web site. We would establish future
performance standards for the clinical
process of care, outcome, and patient
experience of care measures using the
same methodology that we first
finalized in the Hospital Inpatient VBP
Program final rule (76 FR 26510 through
26513). We would establish future
performance standards for the Medicare
spending per beneficiary measure using
the same methodology that we finalized
in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51654 through 51656). In the
case of other types of measures whose
scoring would not be appropriately
described by the methodologies
outlined above, we intend to propose
and finalize additional scoring
methodologies.
We believe that this proposal will
enable us to adopt measures
representing the best in medical practice
into the Hospital VBP Program more
quickly and will allow us to establish
and announce performance standards
and performance periods when
necessary outside the annual IPPS/
LTCH PPS and OPPS/ASC rulemaking
schedules. We believe this flexibility is
especially necessary as the Hospital
VBP Program continues to evolve and

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0.847472
0.881510
0.882651
0.622879

0.862371
0.900315
0.904181
0.451792

incorporate new types of quality
measures.
We welcomed public comment on
this proposal.
Comment: Many commenters
expressed support for the proposal to
adopt performance standards and
performance periods for future program
years via notice on the CMS Web site or
other publicly-available forum.
Response: We thank commenters for
their support.
Comment: Some commenters
expressed opposition to the proposal to
adopt performance periods and
performance standards outside of the
rulemaking process. Commenters argued
that the annual IPPS rulemaking process
is the most transparent, understood
venue for hospitals to track changes to
Medicare’s programs.
Response: We believe that adopting
performance periods and performance
standards outside the rulemaking
process provides us with more
flexibility than the annual rulemaking
processes allow. We intend to consider
fully any comments we receive on the
Hospital VBP Program each year, and
we do not believe that finalizing this
policy precludes stakeholders from
providing valuable input for our
consideration.

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Comment: Some commenters were
concerned about CMS’ proposal to
adopt performance periods and
performance standards outside the
rulemaking process as they believed that
stakeholders would no longer be able to
comment on the proposals.
Response: As stated above, we intend
to consider fully any public comments
we receive on the Hospital VBP Program
when developing our policies for future
program years. Since we would be
updating performance standards and
performance periods under this policy,
not changing the underlying finalized
methodology in either case, we believe
this policy provides us additional
flexibility without compromising the
public’s ability to provide input.
We also believe that our proposal
would improve quality because it would
enable us to use more recent baseline
information for the performance
standard calculations. Currently, we are
only able to use the most recent data
available at the time we issue the IPPS/
LTCH PPS proposed and final rules.
This proposal would allow us to use
more current data extracts because we
would not be limited by the rulemaking
calendar when posting performance
standards.
Comment: To the extent that CMS
uses rulemaking to adopt requirements
for the Hospital VBP Program in the
future, some commenters urged us to
use a stand-alone regulation, as was
done with the Program’s initial
rulemaking. Commenters suggested that
the proposal and finalization of new
policies in the IPPS and OPPS rules has
been confusing for hospitals and other
stakeholders.
Response: We believe that hospitals
and the public are well aware of the
annual IPPS and OPPS rulemaking
schedules, though we understand that
including Hospital VBP proposals in
both IPPS and OPPS rules may have
been confusing. We believe it is
appropriate to update the Hospital VBP
Program, which generally applies to
IPPS hospitals, in the annual IPPS rule
as necessary because hospitals are
generally aware of that regulation and
monitor it closely. However, we reserve
the right to adopt Hospital VBP policies
in other rulemaking vehicles as
necessary.
After consideration of the public
comments we received, we are
finalizing our proposal to adopt
performance standards and performance
periods via notice on our Web site or
another publicly-available Web site.

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12. FY 2015 Hospital VBP Program
Scoring Methodology
a. General Hospital VBP Program
Scoring Methodology
In the Hospital Inpatient VBP Program
final rule, we adopted a methodology
for scoring clinical process of care,
patient experience of care, and outcome
measures. As noted in that rule, this
methodology outlines an approach that
we believe is well understood by patient
advocates, hospitals, and other
stakeholders because it was developed
during a lengthy process that involved
extensive stakeholder input, and was
based on a scoring methodology we
presented in a report to Congress. We
also noted in that final rule that we had
conducted extensive additional research
on a number of other important
methodology issues to ensure a high
level of confidence in the scoring
methodology (76 FR 26514). In addition,
we believe that, for reasons of
simplicity, transparency, and
consistency, it is important to score
hospitals using the same general
methodology each year, with
appropriate modifications to
accommodate new domains and
measures. We finalized a scoring
methodology for the Medicare spending
per beneficiary measure in the FY 2012
IPPS/LTCH PPS final rule (76 FR 51654
through 51656).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28087), for the FY
2015 Hospital VBP Program, we
proposed to use these same scoring
methodologies to score hospital
performance. We believe these scoring
methodologies continue to
appropriately capture hospital quality as
reflected by the finalized quality
measure sets. We also note that readopting the finalized scoring
methodology from prior program years
represents the simplest and most
consistent policy for providers and the
public.
Comment: Some commenters
suggested that CMS should consider
suspending any further changes to the
Hospital VBP Program for at least two
years in order to allow hospitals to
implement quality improvement
policies. Other commenters argued that
the Hospital VBP Program is challenging
to hospitals due to the burden of chart
abstraction. Commenters argued that
preparing for new measures requires
substantial work by hospital staff, and
further suggested that the complicated
calculations involved in Hospital VBP
Program payments could be simplified
by adding measure scores together and
calculating confidence intervals.

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Response: We do not believe it would
be appropriate to suspend further
changes to the Hospital VBP Program at
this time. While we are aware that chart
abstraction is a burden to hospitals, we
note that, because the Hospital VBP
Program is built on the quality measures
already adopted for the Hospital IQR
Program, the Hospital VBP Program in
this regard does not impose an
additional reporting burden on
hospitals.
We note further that the finalized
Hospital VBP Program scoring
methodology is based on research dating
back to the 2007 Report to Congress, as
further described in the Hospital
Inpatient VBP Program final rule (76 FR
26493). We do not believe that simply
adding measure scores together and
calculating confidence intervals fully
and fairly represents hospitals’
performance on quality measures, nor
does it enable objective comparisons
between hospitals’ scores.
Comment: Some commenters argued
that the Hospital VBP Program TPS
should be risk-adjusted to account for
the challenges faced by urban safety-net
hospitals, including the increased
follow-up and post-discharge care
required by beneficiaries living in
poverty and with limited access to care.
Commenters noted that patients who
choose urban safety-net hospitals are
sicker than typical hospitals patients
and more complicated to treat.
Response: We intend to monitor
closely the effects of the Hospital VBP
Program on hospitals, including any
systemic disparities that may result. We
note that many of the finalized measures
for the Hospital VBP Program are riskadjusted, but we do not believe it is
appropriate to separately risk-adjust
hospitals’ TPSs at this time. We believe
the TPS, as calculated according to the
finalized scoring methodology, is
sufficiently reliable for purposes of
awarding value-based incentive
payments under the Hospital VBP
Program.
Comment: Some commenters urged
CMS to analyze Hospital VBP Program
scores to determine whether events such
as tropical storms Irene and Lee had any
effect on hospitals’ scores. Commenters
noted that the storms interrupted many
services provided by hospitals,
including data collection, and argued
that hospitals should not be penalized
for effects resulting from those extreme
weather events.
Response: As stated above, we intend
to closely monitor the impact of the
Hospital VBP Program on hospitals. We
do not believe that the Hospital VBP
Program requires an additional
mechanism for disaster waivers than is

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provided in the Hospital IQR Program.
We encourage hospitals in areas affected
by tropical storms Irene and Lee, or
other types of natural disasters, to seek
disaster extensions or waivers under the
Hospital IQR Program. Hospitals waived
from Hospital IQR Program data
reporting during applicable Hospital
VBP performance periods and not
meeting Hospital VBP minimum case,
measure, and domain thresholds would
be excluded from the applicable
Hospital VBP Program year and would
not be subject to the base operating DRG
payment amount reduction for that
fiscal year.
Comment: Some commenters argued
that the Hospital VBP Program should
also apply to Medicare Advantage (MA)
beneficiaries in order to reward quality
provided by hospitals more fully. Other
commenters specifically argued that the
AHRQ PSI composite measure should
capture both fee-for-service and
Medicare Advantage beneficiaries.
Response: The Hospital VBP Program
would apply to MA beneficiaries in
cases in which the hospital did not have
an agreement governing payment with
the MA organization, as the hospital
would be entitled, under section
1866(a)(1)(O) of the Act to the same
payment from the MA organization as it
would receive from us if the beneficiary
were not enrolled in a MA plan. In the
case of a hospital that does have an
agreement governing payment with the
MA organization, that agreement would
govern the payment amount, and it
would be up to the parties to that
agreement whether to take the Hospital
VBP Program into account in
establishing payment amounts.
With respect to whether the AHRQ
PSI composite measure should capture
MA beneficiaries, based on the
methodology currently used to collect
this measure (it is claims-based), data
involving MA beneficiaries would not
be captured because claims for those
beneficiaries’ services are handled by
their MA plans.
After consideration of the public
comments we received, we are
finalizing the scoring methodology for
the FY 2015 Hospital VBP Program as
proposed.
b. Domain Weighting for the FY 2015
Hospital VBP Program for Hospitals
That Receive a Score on All Four
Domains
As we stated in the Hospital Inpatient
VBP Program final rule (76 FR 26491),
we believe that domains need not be
given equal weight, and that over time,
scoring methodologies should be
weighted more towards outcomes,
patient experience of care, and

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functional status measures (for example,
measures assessing physical and mental
capacity, capability, well-being and
improvement). We took these
considerations into account when
developing the domain weighting
proposal outlined below.
As discussed above, we proposed to
add the Efficiency domain to the
Hospital VBP Program beginning with
the FY 2015 Hospital VBP Program.
Therefore, we proposed the following
domain weights for the FY 2015
Hospital VBP Program for hospitals that
receive a score on all four proposed
domains:

53605

proposed weighting for the Efficiency
domain, arguing that 20 percent is too
high for a domain containing one
measure and suggesting that placing
such weight on a spending measure may
result in unintended consequences for
patient care.
Response: We appreciate the
comment, but disagree for several
reasons. Since first implementing the
Hospital VBP Program, we have
signaled our intent to move the Program
from measures of clinical processes to
measures of outcomes and efficiency.
We signaled this intention because we
believe that outcome and efficiency
measures provide the most direct
PROPOSED DOMAIN WEIGHTS FOR THE incentives for hospitals to improve their
FY 2015 HOSPITAL VBP PROGRAM quality performance in ways that are
directly applicable to patients. Further,
FOR HOSPITALS RECEIVING A SCORE
efficiency measures provide additional
ON ALL PROPOSED DOMAINS
incentives for hospitals to control costs,
which is an important goal for the
Weight
Domain
Medicare program and for the health
(percent)
system at large. We do not believe that
Clinical Process of Care ...........
20 lowering the domain weighting
Patient Experience of Care ......
30 proposed for outcome or efficiency
Outcome ...................................
30 measures will sufficiently encourage
Efficiency ..................................
20 hospitals to strive for improvements in
the quality of care provided to Medicare
We believe this domain weighting
beneficiaries and to all of their patients.
appropriately reflects our priorities for
As we explain in more detail in
quality improvement in the inpatient
responses to comments above, we
hospital setting and aligns with the
believe that it is appropriate to include
National Quality Strategy’s priorities.
the 30-day mortality measures and the
We believe that the proposed domain
Medicare spending per beneficiary
weighting will continue to improve the
measure in the Hospital VBP Program.
link between Medicare payments to
Comment: Some commenters called
hospitals and patient outcomes,
on CMS to revisit our finalized domain
efficiency and cost, and the patient
weighting for FY 2014.
experience. We note that the proposed
Response: We do not believe it is
domain weighting places the strongest
appropriate to revisit the details of the
relative emphasis on outcomes and the
finalized FY 2014 Hospital VBP
patient experience, which we view as
Program at this time. We have strived to
two critical components of quality
provide hospitals as many details about
improvement in the inpatient hospital
each program year as far in advance of
setting. We further note that the
the applicable performance periods as
proposed domain weighting, for the first possible. We do not believe it would be
time, incorporates a measure of
equitable to hospitals that strove to
efficiency and continues to provide
improve their quality performance on
substantial weight to clinical processes. FY 2014 measures during the FY 2014
We welcomed public comment on this
performance periods to change the
proposed weighting methodology.
finalized FY 2014 domain weights.
Comment: Some commenters
Comment: Some commenters noted
supported the proposed domain
the drop in weighting for clinical
weighting for FY 2015, arguing that it
process of care measures over program
represents an appropriate balance
years. Other commenters argued that
between quality and efficiency domains. clinical processes should receive more
Response: We thank commenters for
weight than outcomes until broader risk
their support.
adjustment is perfected.
Comment: Some commenters opposed
Response: As stated above, we
the proposed domain weighting for FY
signaled our intention to move the
2015, arguing that the proposed
Hospital VBP Program from its initial
outcome measures and the Medicare
focus on measures of clinical processes,
Spending per Beneficiary measure
which are not risk adjusted, towards
should not be included in the Hospital
measures of outcomes and efficiency.
VBP Program and should therefore not
Shifting the program’s focus would
be given any domain weight. Other
necessarily mean reducing the domain
commenters specifically opposed the
weighting for the Clinical Process of

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Care domain over time. We believe that
this reduction is appropriate given the
need for quality improvement efforts to
more closely include measures of
outcomes and efficiency.
We do not believe that further risk
adjustment to the finalized outcome
measures is appropriate at this time. As
described further above, the mortality
measures currently use the Hierarchical
Condition Category (HCC) grouping of
clinical conditions and hospital casemix for risk adjustment. The HCC model
makes use of all physician and hospital
encounter diagnoses and was designed
to predict a beneficiary’s expenditures
based on the total clinical profile
represented by all of his/her assigned
HCCs. Additionally, there are several
exclusions to the mortality measures,
such as enrollment in a hospice
program. We refer commenters to the
extensive documentation of the
mortality measure methodology at
http://www.qualitynet.org. However, as
we have described above, we intend to
monitor the effects of the Hospital VBP
Program on hospitals and will propose
other programmatic changes as
necessary.
Comment: Some commenters
expressed concerns with the weighting
of the Patient Experience of Care
domain, arguing that patients’ severity
of illness negatively affects their
HCAHPS scores. A few commenters
mentioned a Cleveland Clinic analysis
that shows a greater than expected
impact of severity of illness on HCAHPS
scores.
Response: We adjust the HCAHPS
data for patient characteristics that are
not under the control of the hospital and
that may affect patient reports of
hospital experiences. The goal of
adjusting for patient-mix is to estimate
how different hospitals would be rated
if they all provided care to comparable
groups of patients. In developing the
HCAHPS patient-mix adjustment (PMA)
model, we sought important and
statistically significant predictors of
patients’ HCAHPS ratings that also vary
meaningfully across hospitals (O’Malley
et al., 2005). The PMA model includes
self-reported health status, education,
service line (medical, surgical, or
maternity care), age, response percentile
order (also known as ‘‘relative lag time,’’
which is based on the time between
discharge and survey completion),
service by linear age interactions, and
primary language other than English.
With respect to a Cleveland Clinic
analysis mentioned by a few
commenters that shows a greater than
expected impact of severity of illness on
HCAHPS scores, our understanding is
that this analysis does not examine

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associations between those patient
characteristics and HCAHPS scores after
standard CAHPS PMA is applied, which
would be expected to remove most or all
of that association. We also note that
this study is not based on national data.
We are aware of no data suggesting
that patient characteristics result in bias
in the HCAHPS patient-mix adjusted
data used in the Hospital VBP Program.
We therefore do not believe that the
proposed weighting for the Patient
Experience of Care domain is too high
or penalizes hospitals with relatively
sicker patients.
Comment: Some commenters
supported the proposed Efficiency
domain weight of 20 percent, and two
commenters suggested that CMS
consider increasing it to 30 percent over
time. One commenter supported a 30
percent weight for the Efficiency
domain at the outset. Some commenters
suggested that 20 percent was too high,
because the measure is the sole measure
in an Efficiency domain or because the
commenters do not support inclusion of
the Medicare Spending per Beneficiary
measure in the Hospital VBP Program
for FY 2015. These commenters
suggested that the Efficiency domain be
excluded or given a weight of no more
than 5 percent.
Response: We appreciate the
comments in support of an initial
weight of 20 percent for the Efficiency
domain. We will consider increasing the
domain weight for future years, as
hospitals gain experience with the
domain and build stronger relationships
with the providers and suppliers who
care for their patients before and after
hospitalization to maintain high quality
while controlling costs. We disagree
with the commenters who stated that a
20 percent Efficiency domain weight is
too high. We believe that attributing
significant weight to this domain is
critical to ensuring that hospitals make
efforts to provide effective care on an
inpatient basis and build stronger
relationships with the providers and
suppliers who care for their patients
before and after the hospitalization.
Comment: Some commenters argued
that the changing domain weights over
time make it difficult to evaluate a
hospital’s performance over time.
Response: While we are aware that
direct comparisons between program
years become more difficult with the
changes we have proposed in domain
weights over time, we believe that such
changes are necessary to continue
shifting the program from its initial
focus on clinical processes and the
patient experience to accommodate
outcome and efficiency measures as
well.

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After consideration of the public
comments we received, are finalizing
the FY 2015 domain weighting as
proposed. The final domain weights are
set out below.

FINAL DOMAIN WEIGHTS FOR THE FY
2015 HOSPITAL VBP PROGRAM FOR
HOSPITALS RECEIVING A SCORE ON
ALL PROPOSED DOMAINS
Domain
Clinical Process of Care ...........
Patient Experience of Care ......
Outcome ...................................
Efficiency ..................................

Weight
(percent)
20
30
30
20

c. Domain Weighting for Hospitals
Receiving Scores on Fewer Than Four
Domains
In prior program years, we finalized a
policy that hospitals must have received
domain scores on all finalized domains
in order to receive a TPS. However,
since the Hospital VBP Program has
evolved from its initial two domains to
an expanded measure set with four
quality domains, we considered
whether it was appropriate to continue
this policy.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28088), as
described further below, we proposed a
higher minimum number of cases for
the three 30-day mortality measures for
FY 2015 than was finalized for the FY
2014 Hospital VBP Program in order to
improve these measures’ reliability
given the relatively shorter proposed
performance period described above.
However, we are concerned that the
relatively higher minimum number of
cases could result in a substantially
larger number of hospitals being
excluded from the Hospital VBP
Program. We believe that we should
make a concerted effort to include as
many hospitals as possible in the
Program in order to offer quality
incentives to as many hospitals as
possible and encourage quality
improvement as broadly as possible
throughout the health care system while
maintaining our focus on measure and
scoring reliability.
Therefore, we proposed that, for the
FY 2015 Hospital VBP Program and
subsequent fiscal years, hospitals with
sufficient data to receive at least two
domain scores (that is, sufficient cases
and measures to receive a domain score
on at least two domains) will receive a
TPS. We also proposed that, for
hospitals with at least two domain
scores, TPSs would be reweighted
proportionately to the scored domains
to ensure that the TPS is still scored out

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of a possible 100 points and that the
relative weights for the scored domains
remain equivalent to the weighting
outlined above. We believe that this
proposal allows us to include relatively
more hospitals in the Hospital VBP
Program while continuing to focus on
reliably scoring hospitals on their
quality measure performance.
We welcomed public comment on
this proposal.
Comment: Some commenters
supported the proposal to provide a TPS
to hospitals with sufficient data in at
least two domains rather than requiring
that hospitals receive a score in all four
domains to receive a TPS. Commenters
acknowledged CMS’ effort to ensure that
as many hospitals as possible
participate in the Hospital VBP Program
and suggested that CMS monitor the
effects of this proposed change on
included and excluded hospitals.
Response: We thank commenters for
their support. We intend to closely
monitor this policy’s effects on
hospitals’ scores.
Comment: Some commenters
expressed concerns about the proposal
to provide hospitals with TPSs for FY
2015 if they receive domain scores on at
least 2 of the 4 domains. Commenters
were concerned that low-volume
hospitals could be penalized under this
policy and noted that comparing
hospitals’ TPSs would become more
difficult.
Response: We disagree with the
commenters’ characterization of our
proposal. By enabling hospitals to
receive a TPS with domain scores on
just two domains out of four, we believe
we are allowing low-volume hospitals to
participate more broadly in the Hospital
VBP Program than they might have
otherwise. We note that the Hospital
VBP Program’s incentive payments
depend entirely on the relative
distribution of TPSs. Therefore, we
believe that comparisons between
hospitals’ scores are incomplete without
the full context provided by national
TPS information and corresponding
value-based incentive payment
information. We acknowledge that
comparisons among hospitals with
different numbers of domain scores may
become more difficult, but we view this
compromise as necessary in order to
ensure broad participation in the
program by hospitals.
After consideration of the public
comments we received, we are
finalizing our policy to provide a TPS to
hospitals receiving domain scores on at
least 2 of the 4 finalized domains for the
FY 2015 Hospital VBP Program.

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13. Applicability of the Hospital VBP
Program to Hospitals
a. Background
Section 1886(o)(1)(C) of the Act
specifies how the Hospital VBP Program
applies to hospitals. Specifically, the
term ‘‘hospital’’ is defined under section
1886(o)(1)(C)(i) of the Act as a
‘‘subsection (d) hospital (as defined in
section 1886(d)(1)(B [of the Act])).’’
Section 1886(o)(1)(C)(ii) of the Act sets
forth a list of exclusions to the
definition of the term ‘‘hospital’’ with
respect to a fiscal year, including a
hospital that is subject to the payment
reduction under section
1886(b)(3)(B)(viii)(I) of the Act (the
Hospital IQR Program), a hospital for
which, during the performance period
for the fiscal year, the Secretary has
cited deficiencies that pose immediate
jeopardy to the health or safety of
patients, a hospital for which there are
not a minimum number of measures
that apply to the hospital for the
applicable performance period for the
fiscal year, and a hospital for which
there are not a minimum number of
cases for the measures that apply to the
hospital for the performance period for
the fiscal year.
In addition, section 1886(o)(1)(C)(iv)
of the Act states that in the case of a
hospital that is paid under section
1814(b)(3) of the Act, the Secretary may
exempt the hospital from the Hospital
VBP Program if the State submits an
annual report to the Secretary
describing how a similar program in the
State for a participating hospital or
hospitals achieves or surpasses the
measured results in terms of patient
health outcomes and cost savings
established under the Hospital VBP
Program. We interpret the reference to
section 1814(b)(3) of the Act to mean
those Maryland hospitals that are paid
under section 1814(b)(3) of the Act and
that, absent the ‘‘waiver’’ specified by
section 1814(b)(3) of the Act, would
have been paid under the IPPS.
b. Exemption Request Process for
Maryland Hospitals
Acute care hospitals located in the
State of Maryland are not currently paid
under the IPPS in accordance with a
special waiver provided by section
1814(b)(3) of the Act. In the Hospital
Inpatient VBP Program final rule (76 FR
26527 through 26530), we finalized our
policy that the Hospital VBP Program
would apply to acute care hospitals
located in the State of Maryland unless
the Secretary exercises discretion
pursuant to section 1886(o)(1)(C)(iv) of
the Act. We also finalized a procedure
for the State to submit a report pursuant

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to section 1886(o)(1)(C)(iv) of the Act in
a timeframe that would allow it to be
received no later than October 1, 2011,
which is the beginning of the fiscal year
prior to FY 2013.
We received an FY 2013 exemption
request from the Maryland Health
Services Cost Review Commission on
September 30, 2011 and the Secretary
approved the exemption request in
December 2011. This request included a
discussion on how the State program
achieved or surpasses the measured
results in terms of patient health
outcomes and cost savings established
under the Hospital VBP Program. When
evaluating the Maryland Health Services
Cost Review Commission’s request, we
considered the relevant health outcomes
for the State’s hospitals as described in
the Maryland Health Services Cost
Review Commission’s request and noted
that they achieve or surpass the current
national results for Hospital VBP FY
2013 clinical process of care and
HCAHPS dimensions. We also assessed
closely-related clinical outcomes as
measured by quality data reported
through the Hospital IQR Program. For
the FY 2013 Hospital VBP Program,
however, we did not assess the criterion
‘‘cost savings’’ as required by the
statute, as the FY 2013 Hospital VBP
Program does not use any efficiency
measures and is a budget-neutral
program pursuant to section
1886(o)(7)(A) of the Act. Maryland
hospitals are therefore exempt from the
FY 2013 Hospital VBP Program.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28088), beginning
with the FY 2014 Hospital VBP
Program, we proposed to adopt a new
procedure for submission of the report
in order for a hospital within the State
to be exempt from the Hospital VBP
Program. Under this proposed
procedure, if the State seeks an
exemption with respect to a particular
program year, it would need to submit
a report that meets the requirements of
section 1886(o)(1)(C)(iv) of the Act in a
timeframe that allows it to be received
by the Secretary on or before November
15 prior to the effective fiscal year (for
example, the report seeking an
exemption from the FY 2014 Hospital
VBP Program would have to be received
by the Secretary no later than November
15, 2012). We anticipate notifying the
State, as well as each hospital for which
the State has requested an exemption, of
our decision whether to grant the
request no later than 90 days following
the exemption request deadline.
We will evaluate each exemption
request to see if the State has
demonstrated that it has implemented a
similar program for participating

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hospitals that achieves or surpasses the
measured results in terms of patient
health outcomes and cost savings
relative to the Hospital VBP Program.
We welcomed public comment on our
proposals.
Comment: Some commenters asked
that we clarify that the exemption
request process for hospitals paid under
section 1814(b)(3) of the Act will apply
to all such hospitals within a State,
rather than to requesting hospitals.
Response: Future exemptions, if
requested by the Maryland Health
Services Cost Review Commission and
granted by the Secretary, would apply to
all hospitals paid under section
1814(b)(3) of the Act.
We proposed to codify the
applicability of the Hospital VBP
Program to hospitals paid under section
1814(b)(3) of the Act in 42 CFR
412.162(d). We did not receive any
comments on the specific regulatory text
that we proposed. We are finalizing this
provision with minor revisions in a new
42 CFR 412.161(b). We are also
codifying at 42 CFR 412.161(a) that the
Hospital VBP Program applies to
hospitals, as that term is defined in our
regulations at § 412.160.
After consideration of the public
comments we received, we are
finalizing our exemption request
process as proposed.
14. Minimum Numbers of Cases and
Measures for the FY 2015 Hospital VBP
Program

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a. Background
Section 1886(o)(1)(C)(ii)(III) of the Act
requires the Secretary to exclude for the
fiscal year hospitals that do not report
a minimum number (as determined by
the Secretary) of measures that apply to
the hospital for the performance period
for the fiscal year. Section
1886(o)(1)(C)(ii)(IV) of the Act requires
the Secretary to exclude for the fiscal
year hospitals that do not report a
minimum number (as determined by the
Secretary) of cases for the measures that
apply to the hospital for the
performance period for the fiscal year.
In the Hospital Inpatient VBP Program
final rule (76 FR 26527 through 26531),
we finalized minimum numbers of 10
cases and 4 measures in the Clinical
Process of Care domain and 100
completed HCAHPS surveys for the
Patient Experience of Care domain. In
the CY 2012 OPPS/ASC final rule with
comment period (76 FR 74532 through
74534), we finalized a minimum
number of 10 cases for the three 30-day
mortality measures. We also finalized a
minimum number of 2 measures with
respect to the Outcome domain. In both

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rules, we finalized a policy that
hospitals must have sufficient cases and
measures in all domains in order to
receive a TPS.
b. Minimum Numbers of Cases and
Measures for the FY 2015 Outcome
Domain
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28089), as
described further above, we proposed a
9-month performance period for the
three 30-day mortality measures for the
FY 2015 Hospital VBP Program. We
have reassessed the previously finalized
10 case minimum threshold for the
three 30-day mortality measures (76 FR
74533 through 74534), as well as
reexamined the independent analyses
by Brandeis University and
Mathematica Policy Research, when
considering these three measures’
proposed addition. We recognize that
the proposed 9-month performance
period for these measures, in
combination with a minimum number
of 25 cases per measure, would increase
the number of hospitals with
insufficient cases on the measure to
several hundred hospitals, based on past
information.
In order to ensure that the mortality
measure scores remain sufficiently
reliable, we proposed to adopt a 25-case
minimum for the three 30-day mortality
measures for FY 2015. We believe that
this proposal will ensure relatively more
reliable measure data than could be
obtained with the 10-case minimum that
was previously finalized for FY 2014
given the relatively shorter proposed
performance period in FY 2015. As
described above, while this may result
in fewer hospitals receiving scores on
the mortality measures, we have
proposed to reallocate domain
weighting for hospitals with fewer
domain scores than the total number of
finalized domains. By doing so, we
believe we are appropriately allowing as
many hospitals as possible to participate
in the Hospital VBP Program while also
ensuring reliable quality measure and
quality domain data.
We note that this proposed minimum
number of cases is higher than has been
finalized for other types of measures
such as clinical process of care
measures. However, we note that
clinical process of care measures are not
risk-adjusted and are not outcomebased. Because those measures do not
require statistical adjustment to estimate
hospital-specific differences in case
mix, we believe that the relatively
smaller case minimum is acceptable for
clinical process of care measures.
For the AHRQ PSI composite
measure, we proposed to adopt AHRQ’s

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methodology, which uses three cases for
any of the underlying indicators as a
case minimum. For the CLABSI
measure, we proposed to adopt CDC’s
minimum case criteria, which calculates
a standardized infection ratio for a
hospital on the CLABSI measure if the
hospital has 1 predicted infection
during the applicable period. We
believe that the measure stewards’
methodologies for constructing reliable
measure data are most appropriate for
use in the Hospital VBP Program.
Further information on these measures
may be found on the QualityNet Web
site.
In the CY 2012 OPPS/ASC final rule
with comment period we concluded,
based on an independent analysis, that
the minimum number of measures that
a hospital must report in order to
receive a score on the Outcome domain
is two measures. We continue to believe
that this minimum number is
appropriate for the expanded Outcome
domain because adding measure scores
beyond the minimum number of
measures has the effect of enhancing the
domain score’s reliability. For that
reason, we proposed to adopt it for the
FY 2015 Hospital VBP Program.
We welcomed public comment on
these proposals.
Comment: Many commenters
expressed support for the proposal to
raise the minimum number of cases for
mortality measures to 25, though some
expressed concern that this proposed
minimum may not be reliable enough
for performance scoring.
Response: We thank commenters for
their support. We believe that the higher
minimum number of cases provides
sufficiently reliable mortality measure
data for performance scoring. We
believe that our proposal is responsive
to concerns about outcome measure
reliability, since we proposed a 21
month FY 2016 performance period and
a 25 case minimum threshold for
including mortality measures in the FY
2015 Hospital VBP Program. Both
proposals are designed to increase the
overall reliability of these measures, and
exclude hospitals with the most
unreliable measure rates from receiving
measure scores. As stated previously,
we assessed measure reliability, TPS
reliability and validity, and alignment
with our policy goal to reduce cost and
improve patient health outcomes in our
proposals.
Comment: Some commenters opposed
the proposed minimum numbers of
cases and measures for the AHRQ PSI
composite and CLABSI measures,
arguing that the measures are unreliable
at the proposed numbers of cases.

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Response: We disagree. As stated
above, we believe that the AHRQ PSI
measure is sufficiently reliable for the
purposes of the Hospital VBP Program.
Our proposal is responsive to concerns
about outcome measure reliability, since
we proposed a nearly 21 month FY 2016
performance period to include the
AHRQ PSI composite measure in the FY
2016 TPS. That proposal is designed to
increase overall reliability of the
measure and to exclude hospitals with
the most unreliable measure rates from
FY 2016 TPSs. We also considered the
improved validity resulting from more
outcome measures that include a higher
correlation with patient outcomes,
relative to process of care measures. As
stated previously, we assessed measure
reliability, TPS reliability and validity,
and alignment with our policy goal to
reduce cost and improve patient health
outcomes in our proposals. As we stated
further above, we strive to improve both
validity of the TPS through improved
correlation with patient health
outcomes, and its reliability to
accurately incentivize health outcomes,
patient experience of care, and reduced
cost. We also considered both validity
and reliability is of the TPS, in addition
to alignment with policy goals to
improve patient outcomes, as well as of
the individual measure reliability
contributing to the TPS. We also believe
that adopting the minimum numbers of
cases specified by the measure stewards
in the case of the AHRQ PSI and
CLABSI measures is both fully
transparent and fair, as hospitals may
apply their current experience with
these measures to their use in the
Hospital VBP Program.
After consideration of the public
comments we received, we are
finalizing the minimum numbers of
cases for outcome measures as
proposed.
c. Medicare Spending per Beneficiary
Measure Case Minimum
As required by section
1886(o)(1)(C)(iii) of the Act, we obtained
an independent analysis to help us
determine the appropriate minimum
number of cases for the Medicare
spending per beneficiary measure. For
this measure, we proposed to interpret
the term ‘‘case’’ in section
1886(o)(1)(C)(ii)(IV) of the Act as a
Medicare spending per beneficiary
episode. A Medicare spending per
beneficiary episode is inclusive of all
Part A and Part B payments from 3 days
prior to a subsection (d) hospital
admission through 30 days post
discharge with certain adjustments and
exclusions. The independent analysis
examines the tradeoff between

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increasing the minimum number of
episodes, which shrinks the confidence
interval; and reducing the minimum
number of episodes, which widens the
confidence interval but enables more
hospitals to receive a Medicare
spending per beneficiary measure score.
Because the distribution of Medicare
spending per beneficiary episodes is
skewed towards higher cost episodes,
creating confidence intervals using
statistical techniques that assume
spending is normally and symmetrically
distributed will not accurately describe
the likelihood a hospital’s true
efficiency level falls within the
confidence interval bounds.
To account for these statistical issues,
the independent analysis uses a
simulation-based (‘‘non-parametric
bootstrap’’) methodology to measure
how the confidence interval of the
Medicare spending per beneficiary
measure changes when the minimum
episode threshold increases. Medicare
spending per beneficiary is measured
for an ‘‘average’’ hospital, where the
‘‘average’’ hospital case is considered
one with a Medicare spending per
beneficiary episode distribution that
mimics that of the entire population of
Medicare spending per beneficiary
episodes. This methodology simulates
the process of randomly drawing
Medicare spending per beneficiary
episodes from the population, and thus
approximates the actual shape of the
Medicare spending per beneficiary
measure distribution from which
confidence intervals are determined. By
repeatedly calculating (in this case,
10,000 times for each minimum episode
threshold) a Medicare spending per
beneficiary measure for this simulated
hospital under differing assumptions on
the number of episodes observed, one
can create a confidence interval for the
Medicare spending per beneficiary
measure of this ‘‘average’’ hospital. The
upper and lower bounds of the 95
percent confidence interval indicates
that 95 percent of the time, the
hospital’s Medicare spending per
beneficiary measure will fall within this
range when the minimum number of
cases (the minimum episode threshold)
is set at different levels. As the
minimum episode threshold increases,
the width of the confidence interval
becomes narrower, but the number of
hospitals receiving a Medicare spending
per beneficiary measure score decreases.
In developing our proposal, we
considered two options for setting the
minimum number of cases for the
Medicare spending per beneficiary
measure: (1) setting the minimum
number of cases at 25; and, (2) setting
the minimum number of cases at 50.

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We focused on these minimums
because we believe that either of them
provides a sufficiently narrow range at
the 95 percent confidence interval. The
independent analysis concludes that if
the minimum number of cases is set at
25, then 95 percent of the time a
hospital with an average underlying
efficiency level (that is, 1.0) would
receive a Medicare spending per
beneficiary measure score between 0.81
and 1.23. Further, a minimum number
of 25 cases would enable 97.8 percent
of hospitals to receive a Medicare
spending per beneficiary measure score,
based on historical data. The analysis
also showed that the alternative
minimum of 50 cases would result in a
95 percent confidence interval range of
0.86 to 1.16 and would enable 95.9
percent of hospitals to receive a
Medicare spending per beneficiary
measure score, based on historical data.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28090), after
considering the options outlined above,
we proposed to use 25 as the minimum
number of cases required in order to
receive a score for the Medicare
spending per beneficiary measure. We
believe that using a minimum number
of 25 cases achieves an appropriate
balance of our interest in allowing the
maximum possible number of hospitals
the opportunity to receive a score on the
Medicare spending per beneficiary
measure and maintaining a sufficiently
narrow range for the 95 percent
confidence interval. Additionally,
although we proposed to use a
minimum of 25 cases for the Medicare
spending per beneficiary measure, we
also sought comment on whether using
a minimum of 50 cases better reaches
our goal of maintaining a meaningful
measure of Medicare spending across
hospitals.
Comment: A few commenters stated
that they were unable to meaningfully
comment on the proposed minimum
number of cases, because there was not
a reliability study posted. Some
commenters pointed to the reliability of
the mortality measures, suggesting that
100 cases may not be a high enough
minimum for a claims-based measure.
Response: In addition to the
minimum number of cases analysis
described above, we have obtained a
more robust reliability analysis, in order
to confirm our expectation that the
Medicare Spending per Beneficiary
measure would be reliable. As noted
above, the analysis found the Medicare
Spending per Beneficiary measure to
have a reliability of 0.951, with a
minimum of 10 cases, and an increase
in reliability of 0.0002 when the
minimum number of episodes increases

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from 10 to 25. Because we believe this
analysis supports our expectation that a
minimum number of 10 cases for the
measure would be sufficient, we are
confident that the minimum number of
25 cases proposed will produce
sufficient measure reliability. The
analysis may be accessed at https://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/hospital-value-basedpurchasing/index.html?redirect=/
Hospital-Value-Based-Purchasing/, in
the ‘‘Downloads’’ section.
Comment: Many commenters urged
CMS to begin the legislatively required
demonstrations on value-based
purchasing for hospitals not meeting the
minimum numbers of cases and
measures and for Critical Access
Hospitals as soon as possible.
Response: We plan to begin those
demonstrations when possible within
our resource constraints.
After consideration of the public
comments we received, we are
finalizing our minimum number of
cases for the Medicare Spending per
Beneficiary measure as proposed.
15. Immediate Jeopardy Citations
Under section 1886(o)(1)(C)(ii)(II) of
the Act, a hospital is excluded from the
Hospital VBP Program if it has been
cited by the Secretary during the
performance period for deficiencies that
pose immediate jeopardy to the health
or safety of patients. In the Hospital
Inpatient VBP Program final rule (76 FR
26528 through 26530), we finalized our
interpretation of this provision to mean
that any hospital that we cite through
the Medicare State Survey and
Certification process for deficiencies
during the performance period that pose
immediate jeopardy to patients will be
excluded from the Hospital VBP
Program for the fiscal year. We also
finalized our proposal to use the
definition of the term ‘‘immediate
jeopardy’’ that appears in 42 CFR 489.3.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28090), in
proposed § 412.160, we proposed to
define ‘‘immediate jeopardy’’ in the
same way as that term is defined in 42
CFR Part 489, which governs provider
agreements and supplier approval. We
believe that the language in section
1886(o)(1)(C)(ii)(II) of the Act referring
to a hospital having been ‘‘cited’’ for
deficiencies posing an immediate
jeopardy is a reference to the process by
which CMS, through agreements with
State survey agencies, surveys or
inspects hospitals for compliance with
the hospital CoPs at 42 CFR Part 482 or
Emergency Medical Treatment and
Labor Act (EMTALA) regulations at

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§ 489.24, and issues deficiency citations
for non-compliance with Federal health,
safety and quality standards. The survey
process is governed by provisions found
in 42 CFR Part 488, Survey, Certification
and Enforcement Procedures. Further,
provisions at 42 CFR Part 489, Provider
Agreements and Supplier Approval,
define the term ‘‘immediate jeopardy’’ at
§ 489.3; authorize us at § 489.53(a)(3) to
terminate the Medicare provider
agreement for the hospital’s failure to
meet the CoP; authorize us at § 489.53(b)
to terminate the Medicare provider
agreement of a hospital that fails to meet
the EMTALA regulatory requirements;
and provide at § 489.53(d)(2)(i) for a
shortened advance notice to the public
of the termination when a hospital with
an emergency department is in violation
of EMTALA requirements and the
violation poses immediate jeopardy.
Therefore, we believe that the term
‘‘immediate jeopardy’’ should be
defined in our Hospital VBP Program
regulations in the same manner as it is
defined for the purpose of survey,
certification, enforcement, and
termination procedures.
In proposed § 412.160, we proposed
to define the phrase ‘‘cited for
deficiencies that pose immediate
jeopardy.’’ We proposed a definition in
order to avoid potential ambiguities
about the terms ‘‘cited’’ and
‘‘deficiencies.’’ There are several ways
in which a hospital might be found to
have an immediate jeopardy situation.
Appendix Q of the State Operations
Manual (SOM), Pub. No. 100–07,
provides guidance to the State survey
agencies on our policies concerning the
identification and citation of immediate
jeopardy and subsequent enforcement
actions. A common way in which an
immediate jeopardy situation is
identified is when a surveyor or team of
surveyors is in the process of
conducting a survey of compliance with
the Medicare CoP at the hospital and
accurately identifies those situations
which immediately jeopardize the
health and safety of patients. Surveyors
may be expected, according to State
protocols, to consult immediately with
their supervisors before declaring an
immediate jeopardy, and in cases
involving hospitals deemed to meet the
CoP based on their accreditation, the
State must first consult with the CMS
Regional Office (RO). In the case of
EMTALA surveys, only the CMS
Regional Office may determine, after
reviewing the State Survey Agency’s
report, whether there was an EMTALA
violation and, if so, whether it
constituted an immediate jeopardy.
Once an immediate jeopardy situation
is declared, the hospital’s management

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is informed and expected to take steps
to remove the immediate jeopardy,
preferably before the survey team
concludes the on-site portion of its
survey. If the hospital does not remove
the immediate jeopardy while the
survey team is on-site, it has 23 days to
submit an acceptable plan of correction
and have an onsite follow-up survey to
confirm removal. If the hospital fails to
remove the immediate jeopardy in a
timely manner, we may terminate the
hospital’s Medicare provider agreement.
There are also situations where a survey
team does not declare an immediate
jeopardy while on-site, but a subsequent
supervisory or CMS RO review of the
survey team’s findings identifies an
immediate jeopardy situation that
should have been declared. In such
cases, the hospital is promptly advised
of the immediate jeopardy and given 23
days to submit an acceptable plan of
correction and have an onsite follow-up
survey to confirm removal of the
immediate jeopardy. It can also happen
that a supervisory or CMS RO review
will conclude that the survey
documentation does not support a
finding of an immediate jeopardy, and
in such cases no official immediate
jeopardy citation will be issued.
We note that removal of an immediate
jeopardy is not necessarily the same as
correction of the hospital’s
noncompliance deficiencies. Removal
may be accomplished by an interim
measure while the hospital works to
create a systematic and permanent
correction of its deficient practices.
The Form CMS–2567, Statement of
Deficiencies and Plan of Correction, is
issued after each survey of a hospital,
even if only to indicate that no
deficiencies were found during the
survey (SOM Section 2728 and SOM
Exhibit 7A, Principles of
Documentation, Principle #1). The
CMS–2567 form constitutes the official
notice to a healthcare facility of the
survey findings. Statements made by
surveyors to the facility while they are
on-site are always preliminary in nature.
After surveyors have exited the facility,
they prepare the Form CMS–2567 based
on their observations and survey
documentation. Their draft Form CMS–
2567 is then subjected to a supervisory
review and, in the case of hospitals that
are deemed to meet the CoP via
accreditation and are being cited for
serious noncompliance (that is,
condition-level or immediate jeopardy
citation), to a CMS RO review. The
Form CMS–2567 is not considered final
until it is transmitted to the healthcare
facility, either by the State survey
agency or, in certain cases, the CMS RO.

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In the case of a survey where an
immediate jeopardy situation was
found, the Form CMS–2567 must state
that the facility was found to have
immediate jeopardy. This is the case
regardless of whether the immediate
jeopardy was removed while the survey
team was still on-site at the facility,
although on-site removal will be noted
if it occurred. Furthermore, it is
standard survey practice to cite on the
Form CMS–2567 all noncompliance
deficiencies identified during a survey
even when the healthcare facility
corrects those deficiencies after they
have been identified by a surveyor, but
before the survey team exits the facility
(SOM Exhibit 7A, Principles of
Documentation, Principle #4).
We considered whether it would be
reasonable to treat only those hospitals
that failed to remove immediate
jeopardy while a survey team was still
on-site as having been ‘‘cited for an
immediate jeopardy’’ solely for the
purposes of the Hospital VBP Program.
However, we concluded that this would
not be equitable, since there are cases
where an immediate jeopardy is
identified after the survey team has left
the hospital through a supervisory or
CMS RO review, as described above. We
also concluded this approach would not
be consistent with the statutory
requirement given that the Form CMS–
2567 is the official notice to a healthcare
facility of deficiencies found during a
survey and in light of the fact that CMS
includes references to the identification
of an immediate jeopardy on the CMS–
2567, regardless of when or if it was
removed by the facility. We have,
therefore, concluded that ‘‘citation’’ of
an immediate jeopardy within the
context of the Hospital VBP Program
means the identification of an
immediate jeopardy noted on the CMS–
2567 that is issued to the hospital after
a survey.
We also note that section
1886(o)(1)(C)(ii)(II) of the Act refers to
the citation of plural ‘‘deficiencies’’ that
pose immediate jeopardy and that this
requires interpretation of its application
to the Hospital VBP Program. We use an
Automated Survey Processing
Environment (ASPEN) system to catalog
deficient practices identified during a
survey and to generate the CMS–2567
that is issued to the hospital after the
survey. To facilitate processing in the
ASPEN system, we have subdivided the
regulations applicable to each type of
certified healthcare facility into specific
‘‘tags,’’ each one of which has
corresponding interpretive guidelines in
the applicable appendix of the SOM.
Hospital tags are found in Appendix A.
The ASPEN system also differentiates

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between ‘‘condition’’ and ‘‘standard’’
level tags for non-long term care
enforcement, since it is essential to
know whether or not identified
noncompliance is found at the
condition-level, that is, whether it is
considered substantial noncompliance.
Each hospital condition of participation
has its own condition tag. There are also
a varying number of ‘‘standard’’ tags
within each condition. The number of
standard-level tags identified in the
SOM Appendix does not correspond to
the number of individual ‘‘standards’’
required in the regulations; usually
there are more tags than actual
standards, because standards may
involve multiple items or requirements
under specific CoP that lend themselves
to separate evaluation.
While we understand that each tag
identified in a CMS–2567 may be
viewed as a separate deficiency, we also
recognize that the division of the
regulations for each ‘‘condition’’ and
‘‘standard’’ into individual tags was to
facilitate the survey and certification
process for surveyors. Moreover, in
general a set of documented deficient
practices that constitute immediate
jeopardy would be cited at least in two
tags, since there must be a citation at the
condition-level to indicate substantial
noncompliance, along with citation of
any pertinent standard-level tags, which
are subsets of the condition tags. We do
not believe it was the intent of the
statute to count each of these tags
related to the same set of circumstances
or practices as separate deficiencies
under the Hospital VBP Program.
We have concluded, therefore, that a
more reasonable interpretation of the
Hospital VBP statute is to view each
hospital survey for which the CMS–
2567 form cited immediate jeopardy as
a deficiency, for Hospital VBP purposes
only. Thus, a hospital would have to
have been cited on a CMS–2567 for
immediate jeopardy on at least two
surveys during the performance period
in order to be considered as having
multiple deficiencies that pose
immediate jeopardy. Accordingly, we
proposed to define in our regulations
the term ‘‘cited for deficiencies that
pose immediate jeopardy’’ under the
Hospital VBP Program to mean that,
during the applicable performance
period, the hospital had more than one
survey for which it was cited for an
immediate jeopardy on the Form CMS–
2567, Statement of Deficiencies and
Plan of Correction.
As required by the statute, hospitals
cited during the performance period for
multiple deficiencies that pose
immediate jeopardy to the health or
safety of patients would be excluded

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from the Hospital VBP Program for the
applicable fiscal year. Because we
sometimes adopt different performance
periods for different measures for
purposes of the same program year, we
proposed to exclude hospitals cited for
such deficiencies during any of the
finalized performance periods for the
applicable program year for purposes of
that interpretation.
We welcomed public comment on
this interpretation of the immediate
jeopardy exclusion and on our
proposals.
Comment: A majority of commenters
expressed their support for the proposal
to define the phrase ‘‘cited for
deficiencies that pose immediate
jeopardy’’ as meaning that, during the
applicable performance period a
hospital was cited for immediate
jeopardy on at least two surveys using
the Form CMS–2567, Statement of
Deficiencies and Plan of Correction. One
commenter indicated this approach was
reasonable and strikes an appropriate
balance between the importance of
ensuring high quality care and the
punitive nature of disqualifying a
hospital from value-based purchasing
incentives.
Response: We thank those
commenters who support our proposal
and agree that it allows for an
appropriate balance in the Hospital VBP
Program between assuring high quality
care and not unreasonably excluding a
hospital from participation in the
Hospital VBP Program.
Comment: A number of individual
commenters associated with one
hospital, as well as several other
commenters, objected to the proposed
definition for the term ‘‘cited for
deficiencies that pose immediate
jeopardy.’’ The commenters suggested
that there is variation in immediate
jeopardy citation practices which raises
legitimate concerns about the validity of
the citations. One commenter suggested
that CMS eliminate use of immediate
jeopardy citations in the Hospital VBP
Program. Several others suggested the
term be defined to include only those
hospitals whose Medicare provider
agreement is actually terminated as a
result of the inability to remove an
immediate jeopardy within 23 days.
Two commenters suggested that
immediate jeopardy citations based on
violations of the Life Safety Code be
excluded from consideration under the
Hospital VBP Program. These
commenters believed that variations in
Life Safety Code citations are wide and
that these types of deficiencies often are
not related to patient safety. Another
commenter suggested that any
immediate jeopardy that is corrected

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while the surveyors are on-site not be
included in the definition, since a
deficiency that can be corrected in that
timeframe does not warrant the severity
of the punishment related to the
Hospital VBP Program. This commenter
also suggested revising the definition of
‘‘immediate jeopardy’’ given the linkage
to the Hospital VBP Program. The
commenter believes that immediate
jeopardy citations are limited in scope
to single patient occurrences, unlike the
Hospital VBP Program performance
measures that consider a hospital’s
overall performance. This commenter
indicated that such citations in the case
of hospitals previously made them
subject to loss of deemed status, loss of
Medicare certification and civil
monetary penalties, and with this
proposal the penalty of exclusion from
the Hospital VBP Program would be
added. The commenter believes the
definition should reflect the serious
nature of the penalties.
Response: With respect to the
suggestion that we eliminate the use of
the immediate jeopardy exclusion in the
Hospital VBP Program, we do not have
the discretion to do so. Section
1886(o)(1)(C)(ii)(II) of the Act specifies
that a hospital is excluded from the
Hospital VBP Program if it has been
cited by the Secretary during the
performance period for deficiencies that
pose immediate jeopardy to the health
or safety of patients. We believe that the
statute is clearly referring to our
longstanding definition of ‘‘immediate
jeopardy’’ and to citations in connection
with Federal surveys, or inspections, of
hospitals, most of which are conducted
on CMS’ behalf by State Survey
Agencies as part of the Medicare survey
and certification process. We do not
believe the statute refers only to
hospitals whose provider agreements
were terminated as a result of their
failure to correct their cited immediate
jeopardy deficiencies, since the term
‘‘cited’’ is not equivalent to
‘‘terminated.’’ Moreover, any hospital
not participating in the Medicare
program as a result of a termination
action would not be eligible for the
Hospital VBP Program, so it is unlikely
that the statute was intended for such
cases. Likewise, we see no basis for
revising the definition of ‘‘immediate
jeopardy, ’’ which is defined at 42 CFR
489.3 as ‘‘a situation in which a
provider’s noncompliance with one or
more requirements of participation has
caused, or is likely to cause, serious
injury, harm, impairment, or death to a
resident,’’ or not considering certain
types of immediate jeopardy citations
applicable. The definition and the

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criteria for all immediate jeopardy
citations are the same for all types of
certified providers and suppliers, not
just subsection (d) hospitals. As
specified in Appendix Q, Guidelines for
Determining Immediate Jeopardy, (Rev.
1, 05–21–04), of the SOM, there are
three components that must be present
to support an immediate jeopardy
citation: actual or potential serious
harm, injury, impairment or death of
patients; immediacy of the harm, that is,
its likelihood to occur in the very near
future; and culpability, that is, the
hospital knew or should have known
about the situation and taken
appropriate action prior to the survey. It
is not correct to say that immediate
jeopardy citations are limited in scope
to single patient occurrences, since
often such citations reflect serious
systemic problems within a hospital
that could put many patients at risk of
serious harm. Likewise, the issue of
being able to ‘‘remove’’ an immediate
jeopardy while the survey team is on
site should not be confused with the
seriousness of the underlying problem
or the extent of systemic corrections
needed. An immediate jeopardy may be
removed while the survey team is onsite when the hospital takes interim
measures that remove the immediacy of
the threat of future harm,. However, the
substantial noncompliance with the
Medicare health and safety standards in
such cases remains and must be
corrected through systemic changes.
Our survey protocol calls for the
immediate jeopardy to be noted on the
Form CMS–2567 regardless of whether
it was removed while the survey team
was on-site or not. We do not believe it
would be appropriate to modify either
the regulatory definition of immediate
jeopardy or our longstanding protocols
for citing immediate jeopardy for one
type of provider, namely subsection (d)
hospitals, now that such citations are
linked to another Medicare program.
Comment: Multiple commenters
stated that there is wide variation
among States and CMS Regional Offices
and that they can reach differing
opinions on similar facts as to whether
there is an immediate jeopardy finding.
One commenter asserted that CMS
Regional Offices are unlikely to overturn
an immediate jeopardy citation that is
issued by a State surveyor. Several
commenters urged that, given the
additional payment impact under VBP
of immediate jeopardy citations, CMS
should ensure that there is uniform
guidance for State surveyors and that
the definition of immediate jeopardy is
well understood and consistently

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applied by CMS and State Survey
Agencies.
Response: In addition to the
regulatory definition of immediate
jeopardy, we have longstanding,
detailed, uniform guidance in Appendix
Q of the SOM for determining an
immediate jeopardy situation. We also
note that the standard protocol for nonEMTALA surveys requires the surveyor
or survey team which suspects an
immediate jeopardy while they are onsite conducting a survey to call their
State Survey Agency management, per
State protocol. In the case of deemed
hospitals, the CMS Regional Office must
also be consulted before an immediate
jeopardy may be declared. In the case of
an EMTALA survey, only the CMS
Regional Office may determine whether
there was an EMTALA violation and, if
so, whether it constitutes immediate
jeopardy. This necessity for multiple
individuals to agree that an immediate
jeopardy citation is warranted helps to
mitigate the risk of subjectivity in the
determination. In addition, with the
advent of the statutory linkage between
the Hospital VBP Program and
immediate jeopardy citations, we
recognized the importance of increasing
our efforts to ensure consistency across
CMS regions and States in issuing
immediate jeopardy citations. We have
conducted special training for surveyors
and regional office staff on identifying
immediate jeopardy situations related to
the hospital CoP, and will be doing the
same with respect to immediate
jeopardy situations related to the
EMTALA requirements for hospitals. In
addition, now that we have begun
collecting data on immediate jeopardy
citations, we will use the data to
support further education and training
as needed. For the first Hospital VBP
performance period and part of the
second performance period we utilized
a manual process to collect hospital
immediate jeopardy citation information
from each CMS Regional Office. In
addition, the Automated Survey
Processing Environment (ASPEN), an
electronic system that supports our
survey and certification activity, has
been revised to include information
about immediate jeopardy citations in
surveys entered into ASPEN after July,
2012, enabling automated collection of
this data.
We note as a point of information that
over eighty percent of subsection (d)
hospitals are ‘‘deemed’’ to be in
compliance with the Medicare hospital
CoP on the basis of their accreditation
under a CMS-approved hospital
accreditation program. Although we
have the authority to do so, as a matter
of policy we do not take enforcement

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actions based on the results of an
accrediting organization’s survey of a
deemed facility. Accordingly, there are
no Medicare immediate jeopardy
citations based on an accrediting
organization’s survey findings.
However, this does not mean that
deemed hospitals would never be cited
for immediate jeopardy, nor does it
mean that they are not subject to
Medicare hospital surveys conducted
either by State Survey Agencies or
Federal surveyors. With respect to the
Hospital VBP, therefore, there is no
advantage to being deemed versus nonaccredited. In accordance with section
1864(c) of the Act, the Secretary may
authorize State Survey Agencies to
conduct validation surveys of deemed
facilities. There are two types of
validation surveys: (1) Representative
sample validation surveys, where CMS
selects a sample of deemed providers
and suppliers to be surveyed under a
standard survey (i.e., a survey of
compliance with all applicable CoP or
Conditions for Coverage) by the State
Survey Agencies as part of our annual
assessment of the performance of CMSapproved accreditation programs; and
(2) substantial allegation validation
surveys, more generally known as
complaint surveys. The latter are
conducted in response to an allegation
which, if found to be true, would
indicate that a provider or supplier is
not in substantial compliance with one
or more of the applicable Conditions. In
the case of hospitals, the majority of the
Medicare surveys conducted are
validation surveys involving deemed
hospitals. In FY 2010, for example, there
were over 4,200 Medicare complaint
surveys and over 400 standard surveys
of subsection (d) hospitals, and fewer
than 500 of these complaint surveys and
roughly 100 of the standard surveys
were of non-accredited hospitals.
Finally, we also note that accrediting
organizations are required to notify CMS
promptly if they identify a situation
during a survey of a deemed facility
which constitutes an immediate
jeopardy. Upon receiving such
notification, CMS reviews the
information the accrediting organization
provides and, if it agrees that the
situation as described would constitute
an immediate jeopardy, either instructs
the State Survey Agency to promptly
conduct a substantial allegation
validation survey or conducts such a
survey with a team of Federal surveyors.
Comment: One commenter
interpreted the discussion in the
proposed rule of the use of the Form
CMS–2567, Statement of Deficiencies
and Plan of Correction, as implying that

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State Agency surveyors could issue
immediate jeopardy findings using some
other form. The commenter urged CMS
to clarify that only immediate jeopardy
findings issued by CMS or its Regional
Offices on the Form CMS–2567 can
serve as the basis for an immediate
jeopardy determination that will have
payment impact under the Hospital VBP
Program.
Response: Nothing in the proposed
rule indicated that an official notice of
immediate jeopardy could be conveyed
to a hospital via any form other than the
Form CMS–2567. We believe that the
commenter may be confused by the fact
that, in some instances, the Form CMS–
2567 containing the findings of the
Federal survey may be issued or
transmitted to a hospital by the State
Survey Agency rather than the CMS
Regional Office. This could happen in
the following cases: When the survey
was of CoP compliance in a hospital
that does not have Medicare ‘‘deemed’’
status on the basis of its accreditation by
a CMS-approved Medicare accreditation
program; when the survey was of a
hospital whose deemed status was
previously removed by the CMS
Regional Office, as a result of substantial
noncompliance found on a previous
survey; or in the case of a hospital with
deemed status where the CMS Regional
Office has authorized the State Survey
Agency to transmit the specific Form
CMS–2567 to the hospital.
We are also taking this opportunity to
clarify that we will consider only those
Form CMS–2567s which are issued to a
hospital based on a Federal survey, both
for our general enforcement purposes
and for determining immediate jeopardy
citations for the Hospital VBP Program.
We recognize that it is not uncommon
for States to also use the Form CMS–
2567 as a template for them to issue
reports of surveys conducted under
their State licensure authority. Even
though the report may appear on a Form
CMS–2567, and even when the report
may refer to an immediate jeopardy, if
it is not a report resulting from a Federal
survey to assess compliance with
Federal standards, it will not be
considered applicable for our general
enforcement purposes or for the
Hospital VBP Program.
Comment: One commenter asked that
CMS clarify what the operative date will
be for determining the appropriate
performance period to which an
immediate jeopardy citation will be
applied. The commenter noted that the
issuance of the Form CMS 2567 to the
hospital may occur a lengthy time after
surveyors exited the hospital. Another
commenter noted that sometimes the
same event can result in multiple

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53613

immediate jeopardy citations which is a
cause for concern. Another commenter
recommended that CMS apply the
definition in the proposed regulation to
the FY 2013 Hospital VBP Program.
Response: It is possible for several
Federal surveys to be conducted
simultaneously in a hospital. This could
happen, for example, if a particular
complaint warranted an investigation
under both the hospital CoP, 42 CFR
Part 482, and the EMTALA
requirements found in 42 CFR 489. We
recognize that it is more an artifact of
our survey process and the ASPEN
electronic system which supports
Federal surveys that separate Form CMS
2567s are generated when such
simultaneous surveys occur. We have
therefore adopted as part of our protocol
that two Form CMS–2567s with
immediate jeopardy citations and with
the same survey end date are to be
counted as one instance of an
immediate jeopardy citation. However,
use of the survey end date will enable
us to identify those cases where
multiple surveys were conducted
simultaneously.
The survey end date generated in
ASPEN will be the date used for
assignment to a performance period. We
acknowledge that this date will often be
earlier than the date on which the Form
CMS–2567 is issued to the hospital. In
the case of EMTALA surveys, it will
always be earlier, since only the CMS
Regional Office may determine whether
there has been an EMTALA violation,
usually after obtaining a Quality
Improvement Organization (QIO)
physician review of the clinical aspects
of the case when required by the statute.
The survey end date is a date that can
be tracked in ASPEN in an automated
fashion, increasing the accuracy of
identification of all immediate jeopardy
citations for the applicable performance
period.
This final rule concerning the
Hospital VBP Program will be effective
for FY 2013. Therefore, although the
performance period for the FY 2013
Hospital VBP Program occurred prior to
October 1, 2013, the definition of
immediate jeopardy citations will be in
effect and applied to the FY 2013
Hospital VBP performance period.
Comment: Several commenters
indicated that, given their concerns
about the variation they perceive in
immediate jeopardy citation practices
among States and Regional Offices, they
believe that they should be able to
appeal any immediate jeopardy citation
issued to them. One commenter noted
that all appeals should be exhausted
before a hospital would be excluded
from the Hospital VBP Program.

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Response: ‘‘Immediate jeopardy’’ is
one of several levels of noncompliance
that may be cited in a hospital, with the
other two being substantial
noncompliance (that is, so-called
‘‘condition-level’’ noncompliance) and
standard-level deficiencies. In
accordance with 42 CFR 498.3(b)(14),
the level of noncompliance found by
CMS is an initial determination (and
therefore appealable) only in the case of
a skilled nursing facility or nursing
facility, and then only in certain
circumstances. The level of citations
issued to a hospital is, therefore, not
appealable under the current regulation.
Among other things, a hospital may
appeal deficiency findings that lead to
the termination of a provider agreement
under 42 CFR 489.53, which is an initial
determination defined at 42 CFR
498.3(b)(8). Appeals procedures for
providers, including hospitals, and
certified suppliers are found in 42 CFR
Part 498. We will consider future
rulemaking on this issue.
Comment: Several commenters
objected to our proposal that, because
we sometimes adopt different
performance periods for different
measures for purposes of the same
Hospital VBP Program year we would
exclude hospitals cited for immediate
jeopardy during any of the finalized
performance periods for the applicable
program year. Several commenters
noted that the mortality measurements
performance period is 3 years long and
indicated that it is unreasonable to
exclude a hospital from the Hospital
VBP Program for 3 years due to two
immediate jeopardy citations in one
portion of this performance period.
Response: We believe commenters
erred in describing a 3-year performance
period for the 30-day mortality
measures. We finalized above a 21month performance period for these
measures for the FY 2016 VBP Program,
but have not proposed to adopt a
performance period of 3 years. We
interpret the commenters to express
concern about the possibility of
immediate jeopardy citations during a
relatively wide date range resulting in
hospitals’ being excluded from a
Hospital VBP Program year.
Section 1886(o)(1)(C)(i) of the Act
defines the term ‘‘hospital’’ for purposes
of the Hospital VBP Program as ‘‘a
subsection (d) hospital (as defined in
subsection (d)(1)(B),’’ subject to certain
exclusions outlined in section
1886(o)(1)(C)(ii) of the Act. One of those
exclusions, found in subparagraph (II),
excludes from the definition of the term
hospital any hospitals ‘‘for which,
during the performance period for such
fiscal year, the Secretary has cited

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deficiencies that pose immediate
jeopardy to the health or safety of
patients.’’
We do not believe that we have the
statutory authority to include hospitals
in the Hospital VBP Program when they
have been cited for such deficiencies
during any of the finalized performance
periods described further above. Subject
to our interpretation of the term, ‘‘cited
for deficiencies that pose immediate
jeopardy’’ described further above, we
believe that we must exclude hospitals
so cited during any finalized
performance period for a fiscal year
regardless of the length of the applicable
performance period. While we recognize
that, for certain types of measures, the
length of time during which immediate
jeopardy citations may result in
exclusion from the Hospital VBP
Program may be longer than for others,
we believe that the Hospital VBP statute
requires us to exclude those cited
hospitals.
After consideration of the public
comments we received, we are
finalizing our proposed immediate
jeopardy definitions and exclusion
processes without modification,
including our codification of the
definitions of ‘‘cited for deficiencies that
pose immediate jeopardy’’ and
‘‘immediate jeopardy’’ for purposes of
the Hospital VBP Program in 42 CFR
412.160.
D. Long-Term Care Hospital Quality
Reporting (LTCHQR) Program
1. Statutory History
In accordance with section 1886(m)(5)
of the Act, as added by section 3004 of
the Affordable Care Act, the Secretary
established the Long-Term Care
Hospital Quality Reporting (LTCHQR)
Program. Under the LTCHQR Program,
for rate year 2014 and each subsequent
rate year, in the case of a long-term care
hospital (LTCH) that does not submit
data to the Secretary in accordance with
section 1886(m)(5)(C) of the Act with
respect to such a rate year, any annual
update to a standard Federal rate for
discharges for the hospital during the
rate year, and after application of
section 1886(m)(3) of the Act, shall be
reduced by two percentage points.
Section 1886(m)(5)(D)(iii) of the Act
requires the Secretary to publish the
selected measures for the LTCHQR
Program that will be applicable with
respect to the FY 2014 payment
determination no later than October 1,
2012.
Under section 1886(m)(5)(D)(i) of the
Act, the quality measures for the
LTCHQR Program are measures selected
by the Secretary that have been

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endorsed by an entity that holds a
contract with the Secretary under
section 1890(a) of the Act, unless
section 1886(m)(5)(D)(ii) of the Act
applies. This contract is currently held
by the National Quality Forum (NQF).
Section 1886(m)(5)(D)(ii) of the Act
provides that an exception may be made
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 that holds a contract with
the Secretary under section 1890(a) of
the Act. In such a case, section
1886(m)(5)(D)(ii) of the Act authorizes
the Secretary to specify a measure(s)
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. The LTCHQR Program was
implemented in section VII.C. of the FY
2012 IPPS/LTCH PPS final rule (76 FR
51743 through 51756).
2. LTCH Program Measures for the FY
2014 Payment Determination and
Subsequent Fiscal Years Payment
Determinations
a. Process for Retention of LTCHQR
Program Measures Adopted in Previous
Payment Determinations
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28092), for the
LTCHQR Program, we proposed that
once a quality measure is adopted, it is
retained for use in subsequent fiscal
year payment determinations, unless
otherwise stated. For the purpose of
streamlining the rulemaking process, we
proposed that when we initially adopt
a measure for the LTCHQR Program for
a payment determination, this measure
will be automatically adopted for all
subsequent payment determinations or
until we propose to remove, suspend, or
replace the measure. Quality measures
may be considered for removal by CMS
if: (1) Measure performance among
LTCHs is so high and unvarying that
meaningful distinctions in
improvements in performance can be 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) a
more broadly applicable measure
(across settings, populations, or
conditions) for the particular topic is
available; (5) a measure that is more
proximal in time to desired patient
outcomes for the particular topic is
available; (6) a measure that is more
strongly associated with desired patient
outcomes for the particular topic is
available; or (7) collection or public

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reporting of a measure leads to negative
unintended consequences other than
patient harm. For any such removal, the
public will be given a chance to
comment through the annual
rulemaking process. However, if there is
reason to believe continued collection of
a measure raises potential safety
concerns, we will take immediate action
to remove the measure from LTCHQR
Program and will not wait for the
annual rulemaking cycle. Such
measures will be promptly removed and
we will promptly notify LTCHs and the
public of such a decision through the
usual LTCHQR Program communication
channels, including listening sessions,
memos, email notification, and Web
postings and their removal will be
formally announced in the next annual
rulemaking cycle.
We invited public comment on our
proposal that once a quality measure is
adopted, it is retained for use in the
subsequent fiscal year payment
determinations unless otherwise stated.
Comment: Several commenters
supported CMS’ approach to retaining
measures. Other commenters expressed
appreciation for CMS’ proposal to
streamline the process for quality
measure retention and to use the same
process proposed in the Hospital IQR
Program.
Response: We thank the commenters
for their support of our proposed
approach for retaining adopted
measures for use in subsequent fiscal
year payment determinations.
Comment: Many commenters objected
to CMS’ approach to retain quality
measures and suggested that CMS repropose measures each year and invite
public comment before measures are
finalized for use. Another commenter
noted that measures when implemented
may produce unintended consequences
and that stakeholders should have the
opportunity in the rulemaking process
to raise these issues.
Response: Our proposal to retain
previously finalized LTCHQR Program
measures for subsequent fiscal year
determinations aligns with our proposal
to retain measures in other Medicare
quality reporting programs such as the
Hospital IQR Program. We believe this
policy will help streamline the
rulemaking process and that, in most
cases, the comment process during the
year we initially propose to adopt a
measure is sufficient to identify any
potential problem with the measure.
However, if we have any indication that
the continued use of a measure is
causing potential safety concerns, which
includes causing unintended
consequences, we will take immediate
action to remove that measure from the

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program. To the extent that stakeholders
identify other types of unintended
consequences (that is, unintended
consequences that would not raise
patient safety concerns), we also
welcome and would consider comments
on these issues at any time. We also
plan to work with technical experts and
solicit public input through venues such
as technical expert panel meetings,
listening sessions, special open door
forums, and our helpdesk for the
LTCHQR Program to ensure that each of
the adopted measures remains
appropriate for continued inclusion in
the LTCHQR Program.
After consideration of the public
comments we received, we are
finalizing our proposal to retain adopted
quality measures for subsequent fiscal
year payment determinations unless we
propose to remove, suspend, or replace
the measure.
b. Process for Adopting Changes to
LTCHQR Program Measures
As mentioned previously, quality
measures selected for the LTCHQR
Program must be endorsed by the NQF
unless they meet the statutory criteria
for exception. The NQF is a voluntary
consensus standard-setting organization
with a diverse representation of
consumer, purchaser, provider,
academic, clinical, and other healthcare
stakeholder organizations. The NQF was
established to standardize healthcare
quality measurement and reporting
through its consensus development
process (http://www.qualityforum.org/
About_NQF/Mission_and_Vision.aspx).
The NQF undertakes review of: (a) New
quality measures and national
consensus standards for measuring and
publicly reporting on performance, (b)
regular maintenance processes for
endorsed quality measures, (c) measures
with time limited endorsement for
consideration of full endorsement, and
(d) ad hoc review of endorsed quality
measures, practices, consensus
standards, or events with adequate
justification to substantiate the review
(http://www.qualityforum.org/
Measuring_Performance/
Ad_Hoc_Reviews/
Ad_Hoc_Review.aspx).
The NQF solicits information from
measure stewards for annual reviews
and in order to review measures for
continued endorsement in a specific 3year cycle. In this measure maintenance
process, the measure steward is
responsible for updating and
maintaining the currency and relevance
of the measure and for confirming
existing specifications to NQF on an
annual basis. As part of the ad hoc
review process, the ad hoc review

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requester and the measure steward are
responsible for submitting evidence for
review by a NQF Technical Expert panel
which, in turn, provides input to the
Consensus Standards Approval
Committee which then makes a decision
on endorsement status and/or
specification changes for the measure,
practice, or event.
Through NQF’s measure maintenance
process, NQF-endorsed measures are
sometimes updated to incorporate
changes that we believe do not
substantially change the nature of the
measure. Examples of such changes
could be updated diagnosis or
procedure codes, changes to exclusions
to the patient population, definitions, or
extension of the measure endorsement
to apply to other settings. We believe
these types of maintenance changes are
distinct from more substantive changes
to measures that result in what are
considered new or different measures,
and that they do not trigger the same
agency obligations under the
Administrative Procedure Act. In the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28092), we proposed that if the NQF
updates an endorsed measure that we
have adopted for the LTCHQR Program
in a manner that we consider to not
substantially change the nature of the
measure, we would use a subregulatory
process to incorporate those updates to
the measure specifications that apply to
the Program. Specifically, we would
revise the LTCHQR Program Manual so
that it clearly identifies the updates and
provide links to where additional
information on the updates can be
found. We proposed posting updates on
our LTCH Quality Reporting Web site at:
http://www.cms.gov/LTCH–QualityReporting/, with the provision of
sufficient lead time for LTCHs to
implement the changes where changes
to the data collection systems would be
necessary.
We proposed continuing to use the
rulemaking process to adopt changes to
measures when the changes
substantially change the nature of the
measure. We believe that our proposal
adequately balances our need to
incorporate NQF updates to NQFendorsed LTCHQR Program measures in
the most expeditious manner possible,
while preserving the public’s ability to
comment on updates that so
fundamentally change an endorsed
measure that it is no longer the measure
we originally adopted. We invited
public comment on this proposal.
Comment: Commenters noted that
standards of quality may change from
year to year and believed that it was not
clear how CMS will determine what a
‘‘substantial’’ change is, requiring public

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input, versus an ‘‘unsubstantial’’
change, not requiring public input. One
commenter noted that ‘‘even minor
changes to the definitions and
exceptions [of a measure] can result in
a substantive change to a quality
measure.’’ Several commenters
suggested that CMS set out the process
for adopting NQF measure updates that
arise from the NQF review process and
the process for determining what is a
‘‘substantive’’ versus ‘‘non-substantive’’
measure change. Some commenters
stated that CMS should solicit public
comments to adopt these changes.
Response: The NQF regularly
maintains its endorsed measures
through annual and triennial reviews,
which may result in the NQF making
updates to the measures. We believe
that it is important to have in place a
subregulatory process to incorporate
non-substantive updates made by the
NQF into the measure specifications we
have adopted for the LTCHQR Program
so that these measures remain up-todate. We also recognize that some
changes the NQF might make to its
endorsed measures are substantive in
nature and might not be appropriate for
adoption using a subregulatory process.

Therefore, after consideration of the
public comments received, we are
finalizing a policy under which we will
use a subregulatory process to make
non-substantive updates to NQFendorsed measures used for the
LTCHQR Program. With respect to what
constitutes a substantive versus a nonsubstantive change, we expect to make
this determination on a measure-bymeasure basis. Examples of nonsubstantive changes to measures might
include updated diagnosis or procedure
codes, medication updates for categories
of medications, broadening of age
ranges, and exclusions for a measure
(such as the addition of a hospice
exclusion to the 30-day mortality
measures used in the Hospital IQR and
Hospital VBP Programs). We also
believe that non-substantive changes
might include updates to NQF-endorsed
measures based upon changes to
guidelines upon which the measures are
based.
We will continue to use rulemaking to
adopt substantive updates made by the
NQF to the endorsed measures we have
adopted for the LTCHQR Program.
Examples of changes that we might
consider to be substantive would be

those in which the changes are so
significant that the measure is no longer
the same measure, or when a standard
of performance assessed by a measure
becomes more stringent (for example:
changes in acceptable timing of
medication, procedure/process, or test
administration). Another example of a
substantive change would be where the
NQF has extended its endorsement of a
previously endorsed measure to a new
setting, such as extending a measure
from the inpatient setting to the LTCH
setting. We also note that the NQF
process incorporates an opportunity for
public comment and engagement in the
measure maintenance and measure
review process.
These policies regarding what is
considered substantive versus nonsubstantive changes would apply to all
LTCHQR Program measures.
3. CLABSI, CAUTI, and Pressure Ulcer
Measures
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51743 through 51756), we
adopted three quality measures for the
FY 2014 payment determination as
listed in the following table:

PREVIOUSLY FINALIZED LTCHQR QUALITY MEASURES FOR THE FY 2014 PAYMENT DETERMINATION
NQF #0138 ...........................
NQF #0139 ...........................

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Application of NQF #0678 ....

Urinary Catheter-Associated Urinary Tract Infection [CAUTI] rate per 1, 000 urinary catheter days, for Intensive
Care Unit [ICU] Patients.
Central Line Catheter-Associated Blood Stream Infection [CLABSI] Rate for ICU and High-Risk Nursery [HRN]
Patients.
Percent of Residents with Pressure Ulcers That are New or Worsened (Short-Stay).

The three measures finalized for FY
2014 payment determination were NQFendorsed at the time of the FY 2012
IPPS/LTCH PPS final rule, although not
for the LTCH setting. We also stated that
we expected the NQF would review
some of these measures for applicability
to the LTCH setting and we anticipated
this review might result in
modifications to one or more of the
measures.
As part of its endorsement
maintenance process, under NQF’s
Patient Safety Measures Project (http://
www.qualityforum.org/projects/patient_
safety_measures.aspx), the NQF
reviewed the CAUTI and CLABSI
measures previously adopted and
expanded the scope of endorsement to
include additional care settings,
including LTCHs. The original NQFendorsed numbers were retained for
these two expanded measures, but the
measures were re-titled to reflect the
expansion of the scope of endorsement.
NQF #0138 (Urinary CatheterAssociated Urinary Tract Infection
[CAUTI] Rate Per 1,000 Urinary Catheter

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Days, for Intensive Care Unit [ICU]
Patients) is now titled National Health
Safety Network (NHSN) CatheterAssociated Urinary Tract Infection
(CAUTI) Outcome Measure. NQF #0139
(Central Line Catheter-Associated Blood
Stream Infection [CLABSI] Rate for ICU
and High-Risk Nursery (HRN) Patients is
now titled National Health Safety
Network (NHSN) Central LineAssociated Blood Stream Infection
(CLABSI) Outcome Measure (http://
www.qualityforum.org/News_And
_Resources/Press_Releases/2012/
NQF_Endorses_Patient
_Safety_Measures.aspx). These
expanded measures allow for the
calculation of a Standardized Infection
Ratio (SIR).133,134,135,136 For the

remainder of this rule, we refer to these
measures as the CAUTI measure and
CLABSI measure, respectively. We
proposed adopting the changes to the
NQF-endorsed CAUTI and CLABSI
measures that we previously finalized
for the FY 2014 payment determination,
consistent with our stated intention to
update these measures with changes
resulting from NQF’s review of the
measures. Further, we proposed
adopting the NQF-endorsed CAUTI
measure and CLABSI measure for the
FY 2015 payment determination and all
subsequent fiscal year payment
determinations. We also proposed
incorporating any future changes to the
CAUTI measure and CLABSI measure to

133 Centers for Disease Control and Prevention.
(2012, January). Central Line-Associated
Bloodstream Infection (CLABSI) Event. Retrieved
from http://www.cdc.gov/nhsn/PDFs/pscManual/
4PSC_CLABScurrent.pdf.
134 National Quality Forum (2012). National
Healthcare Safety Network (NHSN) Central lineassociated Bloodstream Infection (CLABSI)
Outcome Measure. Retrieved from http://
www.qualityforum.org/QPS/0139.

135 Centers for Disease Control and Prevention.
(2012, January). Catheter Associated Urinary Tract
Infection Event. Retrieved from: http://
www.cdc.gov/nhsn/PDFs/pscManual/
7pscCAUTIcurrent.pdf.
136 National Quality Forum (2012). National
Healthcare Safety Network (NHSN) Catheter
Associated Urinary Tract Infection (CAUTI)
Outcome Measure. Retrieved from http://
www.qualityforum.org/QPS/0138.

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the extent these changes are consistent
with our proposal to update measures.
We proposed retaining an application
to the LTCH setting of the measure
Percent of Residents with Pressure
Ulcers that are New or Worsened (ShortStay) (NQF #0678), as finalized in the
FY 2012 IPPS/LTCH PPS final rule for
the FY 2014 payment determination, for
FY 2015 and all subsequent fiscal year
payment determinations. We also noted
that the Percent of Residents with
Pressure Ulcers that are New or
Worsened (Short-Stay) (NQF #0678)
measure was undergoing NQF review
for expansion in the scope of
endorsement to include additional care
settings, including LTCHs and, to the
extent that the measure is updated in a
manner that does not substantially
change the nature of the measure, we
would incorporate the updates
consistent with our previous proposal to
update measures.
This measure underwent review for
expansion by the NQF Consensus
Standards Approval Committee (CSAC)
on July 11, 2012 (http://www.quality
forum.org/About_NQF/CSAC/Meetings/
2012_CSAC_Meetings.aspx). The CSAC
recommended that the NQF expand its
endorsement of the measure to the
LTCH setting. For the remainder of this
final rule, we refer to this measure as
the Pressure Ulcer measure. For more
information on the history of this
measure in the LTCHQR Program, we
refer readers to the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51753 through
51756).
We invited public comment on our
proposal to adopt the revised CAUTI
measure (NQF #0138) and CLABSI
measure (NQF #0139) beginning with
the FY 2014 payment determination. We
also invited public comment to retain an
application to the LTCH setting of the
Pressure Ulcer measure (NQF #0678)
(which was finalized last year in the FY
2012 IPPS/LTCH PPS final rule for the
FY 2014 payment determination) for the
FY 2015 payment determination and
subsequent fiscal year payment
determinations.
Comment: Many commenters strongly
supported CMS’ use of the HAI
measures CAUTI and CLABSI in the
LTCHQR Program for the FY2014
payment determination and subsequent
fiscal years’ payment determinations.
One commenter noted that although it is
important to move forward with
including these HAI measures, they
specifically expressed concerns related
to the validation of the data pertaining
to these measures.
Response: We appreciate the
commenters’ support of these measures
for use in the LTCHQR Program. We

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interpret the comment expressing
concern related to data validation to be
recommending that we validate HAI
data. We intend to work with the CDC
to develop an efficient, and accurate,
data validation approach, and will
address this issue in future rulemaking.
Furthermore, we recognize that the
validation methods currently being used
by States that have conducted some
level of validation are not standardized
or consistent. We will take these
additional concerns under consideration
as we consider CAUTI and CLABSI data
validation.
Comment: One commenter believed
that the CAUTI rate is open to observer
bias due to a lack of education regarding
colonization versus infection. As a
result, the commenter believed that
almost all facilities will show
progressively improving outcomes in
this measure over time as they improve
the education of staff on the
colonization/infection issue. The
commenter believed that this
demonstrated improvement will be
misleading because, instead of
representing an actual decrease in the
CAUTI rate, it will reflect a decrease in
false positive infection reporting due to
colonization. The commenter believed
that effects of such a distortion would
likely be significant, potentially
rendering the first year or two or
reporting worthless.
Response: Education is always an
important, ongoing component of
surveillance. We agree that a better
distinction by clinicians between true
UTI and asymptomatic bacteriuria may
result from CAUTI surveillance. While
this result could affect reported CAUTI
rates, it would also lead to improved
patient outcomes such as reduction of
unnecessary antimicrobial usage,
reduction in antimicrobial-resistant
organisms and decreased adverse
reactions to unnecessary medications.
Therefore, we do not believe that
delaying CAUTI surveillance so that
LTCHs might better educate clinicians
before implementing the CAUTI
measure is the best method to improve
patient outcomes.
Comment: One commenter expressed
concern about the LTCHQR Program’s
proposal to use the CAUTI measure. The
commenter noted that although the
proposed CAUTI measure intended to
harmonize measures across the SNF,
IRF, and LTCH settings, it did not take
into account the significant differences
between these healthcare settings.
Specifically, the commenter argued that
this proposed measure failed to account
for higher frequency of urinary catheter
use in LTCHs and that this factor had
the potential of severely distorting

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quality measure reporting data. The
commenter believed that, for example,
because the measure denominator is
derived in part from ‘‘the number of
urinary catheter days for each location,’’
disproportionately high LTCH
denominators may significantly skew
interpretations of the data.
Response: Under the LTCHQR
Program, CAUTI data will be analyzed
solely for LTCHs. LTCHQR Program
CAUTI data will not be compared to any
data collected from hospitals, IRFs or
SNFs. We believe that the use of a
CAUTI measure in the Hospital IQR
Program and the IRFQR Program
harmonizes this measure across care
settings and will not skew
interpretations of the measure under the
LTCHQR Program.
We note that, at this time, we do not
require SNF CAUTI surveillance.
Comment: One commenter
recommended not finalizing the CAUTI
measure or at least excluding
Asymptomatic, Bacteremic, Urinary
Tract Infection (ABUTI) from the
measure. The commenter added that
data relating to ABUTI patients is not
relevant to LTCH quality and
performance improvement because
there is no reason for an LTCH to submit
blood cultures for an asymptomatic
patient.
Response: We appreciate the
commenter’s recommendation to
exclude Asymptomatic Bacteremic
Urinary Tract Infection (ABUTI) from
the CAUTI measure or not finalize the
use of the CAUTI measure. However, we
disagree that ABUTI is irrelevant to the
LTCH patient population. Bacteremic
urinary tract infections do occur among
LTCH patients, and these infections may
occur in patients without fever or
localizing urinary tract symptoms. What
is required to meet ABUTI criteria is
presence of the same microorganism(s)
in blood and urine cultures obtained
from the same patient. These
microbiologic findings are indicative of
severe infection, and excluding these
infections from the LTCH measure
would mean omitting what may be
important information about LTCH
quality. The inclusion of ABUTI in the
measure is also part of the NQFendorsed specifications for the measure.
Comment: Several commenters noted
support for the clinical relevance of the
CAUTI measure for the LTCH patient
population.
Response: We appreciate the
commenters’ recognition of the clinical
importance of the CAUTI measure for
the LTCH patient population. We agree
with the importance of catheter
associated urinary tract infections and
role of infection control measures to

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prevent these infections. According to
the CDC, CAUTI is the most common
healthcare-associated infection (HAI)
and is reported 30 percent more
frequently than all other infections
reported through NHSN. As an HAI, the
CDC estimates that there are 449,334
CAUTIs and 13,000 deaths per year with
an estimated associated cost of
$340,000,000.137 Furthermore, as
indicated in the HHS National Action
Plan to Prevent HAIs (http://
www.hhs.gov/ash/initiatives/hai/
actionplan/index.html), catheterassociated urinary tract infection is also
a leading type of preventable HAI.138
Comment: Some commenters
expressed concern with the Pressure
Ulcer measure’s NQF endorsement
status. At the time of proposal,
commenters noted that the measure was
NQF-endorsed for the nursing home
patient population, and was undergoing
NQF review for re-specification and
expansion to additional settings.
Commenters suggested there be more
transparency in the NQF endorsement
process, and that CMS provide links to
NQF documents and measure
specifications. One commenter
expressed a preference to not submit
pressure ulcer quality measure data
until the NQF has completed its review.
Some commenters noted that CMS
failed to provide information pertaining
to this measure’s specifications, and that
LTCHs would also like the opportunity
to review the re-specified measure for
appropriateness before determining
whether it should be finalized for
FY2015 LTCHQR Program.
Response: We thank the commenters
for their input. On July 11, 2012, the
NQF CSAC recommended that the NQF
expand its endorsement of the Pressure
Ulcer measure to other settings,
including the LTCH setting without
changes to the specifications. We expect
that the measure will be ratified for
endorsement by the NQF Board of
Directors, as the final step in the NQF
endorsement process.
Therefore, we expect the measure, if
endorsed for the LTCH setting, will be
the same as the measure that we
previously finalized. We note, however,
that because the NQF has not yet
expanded its endorsement of the
Pressure Ulcer measure to the LTCH
137 Scott, RD. The Direct Medical Costs of
Healthcare-Associated Infections in U.S. Hospitals
and the Benefits of Prevention. March 2009.
Available at: http://www.cdc.gov/ncidod/dhqp/pdf/
Scott_CostPaper.pdf.
138 Klevens RM, Edwards JR, Richards CL, Horan
TC, Gaynes RP, Pollock DA, Cardo DM. Estimating
healthcare-associated infection and deaths in U.S.
hospitals, 2002. Public Health Reports 2007:
122:160–166. Available at http://www.cdc.gov/
ncidod/dhqp/pdf/hicpac/infections_deaths.pdf.

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setting, we cannot adopt the NQFendorsed version of that measure. For
that reason, we are retaining the
measure that we previously finalized in
FY 2012 IPPS/LTCH PPS final rule for
the 2014 LTCHQR Program, which is an
application of this measure to the LTCH
setting.
We do not agree with the commenters’
assertion that we failed to provide
information pertaining to the measure’s
specifications. In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51754
through 51755), we provided the link to
the CMS Web site (http://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/
NursingHomeQualityInits/
index.html?redirect=/
NursingHomeQualityInits/
45_NHQIMDS30TrainingMaterials.asp)
where the Pressure Ulcer measure’s
specifications, as applicable to the
nursing home setting (setting for which
the measure was endorsed and in use at
the time of the FY 2012 IPPS/LTCH PPS
final rule), were publically available.
We further noted that for additional
information related to this measure,
including definitions related to
worsening, unstageable and the staging
of the pressure ulcers, as well as topics
such as the inability to stage pressure
ulcers with eschar or slough
(unstageable), the public could view the
Minimum Data Set 3.0 (MDS 3.0)
Resident Assessment Instrument
Manual, page 24 of Section M, Skin
Conditions, which describes the NPUAP
approach.
Further, on January 31, 2012, we
posted on CMS LTCHQR Program Web
site an initial LTCHQR Program
guidance document, which was
followed by an updated guidance
document on March 8, 2012. These
guidance documents included measure
specifications for the Pressure Ulcer
measure and clearly identified data
elements from the LTCH CARE Data Set
proposed for use in the LTCH-setting.
The March 8, 2012 guidance document
was incorporated into the draft LTCHQR
Program Manual and can be found on
the CMS Web site: http://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/index.html, Appendix E,
Titled: Centers for Medicare & Medicaid
Services Long-Term Care Hospital
Quality Reporting Program Guidance.
Comment: Two commenters
expressed concern that LTCHs would be
held responsible for pressure ulcers that
develop during the time that an LTCH
patient receives care in an acute care
hospital before being transferred back to
the LTCH within three days (also known
as an ‘‘interrupted [LTCH] stay’’). One

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commenter recommended that the
discharge form be modified to exclude
pressure ulcers that were acquired
during an interrupted stay from the
calculation.
Response: LTCH patients that are
transferred from an LTCH for three days
or less are considered to have had an
‘‘interrupted stay,’’ are not discharged
from the LTCH, and are still considered
to be LTCH patients. With respect to
these patients, we believe that LTCHs
should be taking quality of care issues
into account when they arrange for
transfers. However, we also
acknowledge that there might be times
when, despite efforts made by the
LTCH, a patient develops a worsening
pressure ulcer during the time spent in
the other care setting. We are continuing
to evaluate this issue and intend to
address it in future rulemaking. We note
that the LTCHQR Program is a pay-forreporting program, which means that
LTCHs will satisfy their reporting
requirements based on whether or not
they report the existence of a worsening
pressure ulcer, not based on whether the
pressure ulcer actually worsens.
Comment: One commenter expressed
concern regarding the presence of a
pressure ulcer that cannot be staged and
stated that such an ulcer should not be
classified as ‘‘unstageable simply
because it was not examined.’’ This
commenter further noted that patients
being admitted to an LTCH would be
expected to have their wounds assessed
within the 48 hour window and that it
is highly unlikely that a dressing
applied before admission would be left
in place for more than 48 hours on any
wound after admission to a hospital.
This commenter stated that ‘‘it would
border on negligent if a dressing was not
removed from a known wound on an
admission to an LTCH within the 3 days
assessment.’’
The commenter further noted that a
device applied over a known pressure
ulcer, such as a NPWT pump or cast
would never be utilized for a
superficial, partial-thickness stage II
pressure ulcer. An orthopedic device
applied near/over a known pressure
ulcer may not be removable to allow
observation of a pressure ulcer on
admission to an LTCH. However, the
patient hospital discharge information
would have identified the presence of
an ulcer and typically its stage. If a
dressing, wound device or cast was not
removed, it would highly likely be due
to the complexity of the wound,
indicating the ulcer is at least fullthickness.’’ Commenters also stated that
it was unclear whether pressure ulcers
that cannot be examined due to the
placement of a medical device, a cast, or

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
a non-removable dressing can be coded
as ‘‘unstageable’’ on the LTCH CARE
Data Set(s).
Response: We appreciate this
feedback related to the assessment and
coding of unstageable pressure ulcers in
the LTCH setting. The LTCH CARE Data
Set includes data elements to allow
LTCHs to record, at admission and
discharge, the presence of pressure
ulcers that are unstageable due to a
medical device, a cast or non-removable
dressing, or the presence of non-viable
tissue such as slough or eschar. The
instructions for the coding of pressure
ulcers that are unstageable can be found
in the draft LTCHQR Program Manual
located at the CMS Web site: http://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html. For additional information
related to this measure, including
definitions related to worsening,
unstageable and the staging of the
pressure ulcers, as well as topics such

as the inability to stage pressure ulcers
with eschar or slough, we refer readers
to the draft LTCHQR Program Manual
located at the CMS Web site: http://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html.
Further, as noted in the FY 2012
IPPS/LTCH PPS final rule, unstageable
wounds include deep tissue injuries and
pressure ulcers covered by nonremovable dressings, or non-viable
tissue such as slough or eschar. These
are not currently included in this NQFendorsed measure since unstageable
wounds cannot be measured, and
therefore the presence of worsening
cannot be determined. For example, a
pressure ulcer that presents with slough
or eschar cannot be staged, and is not
considered worsened. Only after, and if,
debridement occurs, and the dead tissue
is removed, can such a wound be
properly staged. If after wound
debridement, the wound is staged and

53619

subsequently evaluated to have
increased in the stage, the wound is
considered worsened. However, such a
wound may not be considered worsened
if the stage remains unchanged after
debridement and staging.
After consideration of the public
comments we received, we are retaining
an application to the LTCH setting of
the Pressure Ulcer measure for the FY
2015 payment determination and
subsequent fiscal year payment
determinations. Further, we are
finalizing the adoption of the updated
NQF endorsed CAUTI (http://
www.qualityforum.org/QPS/0138) and
CLABSI
(http://www.qualityforum.org/QPS/
0139) measures for the FY 2014
payment determination and subsequent
fiscal year payment determinations.
Set out below are the quality
measures for the FY 2014, FY 2015, and
subsequent fiscal year payment
determinations.

QUALITY MEASURES FOR THE FY 2014, FY 2015 AND SUBSEQUENT FISCAL YEAR PAYMENT DETERMINATIONS
NQF #0138 ...........................
NQF #0139 ...........................

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Application of NQF #0678 ....

National Health Safety Network (NHSN) Catheter-associated Urinary Tract Infection (CAUTI) Outcome Measure.
National Health Safety Network (NHSN) Central line-associated Blood Stream Infection (CLABSI) Outcome Measure.
Percent of Residents with Pressure Ulcers That are New or Worsened (Short-Stay).

We proposed using the same data
collection and submission methods
finalized for these measures (CAUTI,
CLABSI and Pressure Ulcer) in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51752 through 51756). We proposed
that data collection for these measures,
if they are adopted in the FY 2013 IPPS/
LTCH PPS final rule, would remain the
same for the FY 2014 payment
determination and all subsequent fiscal
year payment determinations.
For the proposed CAUTI measure and
CLABSI measure, descriptions of the
measures are available on the NQF Web
site at: http://www.qualityforum.org/
QPS/0138 and http://www.quality
forum.org/QPS/0139, respectively.
Further, the measure specifications, data
collection and reporting requirements
for CAUTI and CLABSI are available at
http://www.cdc.gov/nhsn/PDFs/
pscManual/7pscCAUTIcurrent.pdf and
http://www.cdc.gov/nhsn/PDFs/
pscManual/4PSC_CLABScurrent.pdf,
respectively. Links to the CDC sites
listed above are also provided in the
LTCHQR Program Manual, which is
available for download on the CMS Web
site: http://www.cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html.

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For the Pressure Ulcer measure, the
data collection instrument is the LongTerm Care Hospital (LTCH) Continuity
Assessment Record & Evaluation
(CARE) Data Set available for download
at http://www.cms.gov/Regulations-andGuidance/Legislation/Paperwork
ReductionActof1995/PRA-Listing-Items/
CMS1252160.html. Because there are no
mandatory standardized data sets being
used in LTCHs, we created a new data
set, the LTCH CARE Data Set, for use in
LTCHs for data reporting for the
Pressure Ulcer measure beginning
October 1, 2012. This data set
incorporates data items contained in
other, standardized and clinically
established pressure ulcer data sets,
including but not limited to the
Minimum Data Set 3.0 (MDS 3.0) and
CARE tool (Continuity Assessment
Records & Evaluation). Beginning on
October 1, 2012, we proposed that
LTCHs will begin to use a data
collection document entitled the ‘‘LTCH
CARE Data Set’’ as the vehicle by which
to collect and electronically submit the
data for the Pressure Ulcer measure for
the LTCHQR Program. This data set
consists of the following components:
(1) Pressure ulcer documentation; (2)
selected covariates related to pressure
ulcers; (3) patient demographic

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information; and (4) a provider
attestation section.
Specific details related to the LTCH
CARE Data Set(s) are available on our
Web site for the LTCHQR Program at
http://www.cms.gov/LTCH-QualityReporting/. The Technical Submission
Specifications Final Version 1.00.3 for
the electronic submission of the data
set(s) is also available on the LTCH
Quality Reporting Technical
Information Web page http://
www.cms.gov/LTCH-Quality-Reporting/
05_LTCHTechnicalInformation.
asp#TopOfPage.
Comment: Some commenters
encouraged CMS to refrain from
implementing the use of the LTCH
CARE Data Set for the FY 2014 and FY
2015 data collection, citing LTCHs’
concern that LTCHs have not been
properly prepared, and might not be
ready to submit the LTCH CARE Data
Set, and that CMS will not be ready to
receive this data.
Response: We appreciate the
commenters’ concerns related to the
readiness of the LTCH CARE Data Set.
However, we believe that the data set
will be ready for use on October 1, 2012.
Furthermore, we believe that we are
able to receive this data beginning on
October 1, 2012.

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We note that, since September 2011,
we have undertaken ongoing activities,
with input from stakeholders such as
LTCHs, technical experts, and measure
developers to support LTCHQR Program
implementation. Further, since we
issued the FY 2012 IPPS/LTCH PPS
final rule, we have undertaken several
key implementation activities including:
The development of the LTCH CARE
Data Set; posting of public notice for its
use (September 21, 2011); issuing a
guidance document (January 31, 2012);
issuing an updated guidance document
(March 8, 2012); and the issuing of a
draft LTCHQR Program Manual (April
27, 2012) which includes coding
instructions, terms and definitions, and
measure specifications for the Pressure
Ulcer measure.
Further, we posted draft technical
submission specifications for the LTCH
CARE Data Set (October 28, 2011) and
final technical submission
specifications (posted on May 31, 2012).
The guidance document, the draft
LTCHQR Program manual, and data
submission specifications as well as
updates and announcements related to
the LTCHQR Program are located and
maintained on the CMS Web site:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html. Further, through our
measure development contractor RTI
International, a technical expert panel
was convened that was comprised of
clinical experts in the care of LTCH
patients that sought input on the
implementation of pressure ulcer items
through the LTCH CARE Data Set
(March 8, 2012), as well as technical
expert panels in January 2011 and July
2011. We also conducted a National
Train-the-Trainer LTCH-focused
training conference (May 1–2, 2012),
held provider-focused special open door
forums (December 16, 2010, September
21, 2011, and April 13, 2012) and
software developer/vendor-focused
open calls (November 16, 2011 and June
28, 2012) to support the implementation
of the LTCHQR Program.
We also received OMB approval for
the use of the LTCH CARE Data Set for
collection of data for the Pressure Ulcer
measure on April 24, 2012 in
accordance with the Paperwork
Reduction Act. The OMB Control
Number is 0938–1163. We believe that
these actions have prepared LTCHs to
implement the LTCHQR Program;
including using the LTCH CARE Data
Set for data submission.
Comment: We received specific
support from MedPAC stating that they
were encouraged by our efforts to
implement the LTCH CARE Data Set,

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applauding CMS’ efforts to collect data
in a uniform manner. MedPAC further
stated that the CARE (Continuity
Assessment Record and Evaluation)
Tool, from which data elements used in
the LTCH CARE Data Set are derived,
performed reliably in LTCHs, Skilled
Nursing Facilities, and Inpatient
Rehabilitation Facilities, as did earlier
testing efforts using other settingspecific instruments.
Several commenters expressed
various concerns about the requirement
to submit quality data using the LTCH
CARE Data Set for the LTCHQR
Program. While many commenters
supported the development of a LTCHspecific tool, they disagreed that the
LTCHQR Program was the appropriate
mechanism for its development. A
commenter noted that LTCHs are at the
extreme end of the acute care spectrum
and should not be included when
discussing sub-acute care settings. This
commenter believed that it would be
more accurate to group LTCHs with
general acute care hospitals than to
group them in the same space with
skilled nursing facilities or nursing
homes. Other commenters expressed
concerns that an assessment tool
specifically for LTCHs would enable a
better understanding of the medical
complexity of patients treated in LTCHs.
One commenter noted that the LTCH
CARE Data Set is not NQF-endorsed for
use as an LTCH quality measure.
Several commenters noted that
requiring LTCHs to submit an
assessment tool goes beyond what was
required or intended in section 3004 of
the Affordable Care Act. Several
commenters were concerned that the
LTCH CARE Data Set requirements were
established in a subregulatory manner.
Another commenter noted that the
CARE Tool has only been used in a
demonstration program and has not
been tested or validated and several
noted that it should incorporate input
from stakeholders.
Response: We thank MedPAC for its
support and recognition of the
importance of uniform and standardized
data collection methods. We interpret
the commenter to mean that although
LTCHs are a post-acute setting, they are
more similar to acute care hospitals, and
that LTCHs should not be included in
discussions or comparisons to skilled
nursing facilities or nursing homes, but
rather be considered more within the
acute care spectrum of care than within
the post-acute realm. We further
interpret this commenter to be
suggesting that quality measures used in
LTCHs should not be of the same
measure construct as those used in the
post-acute setting, and should not use

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the same data elements or data
collection submission method, such as a
method similar to the MDS 3.0. We note
that for the purpose of LTCHQR
Program, we acknowledge that LTCHs
are a unique setting and while LTCHs
share similarities to acute and postacute settings, we do not intend to
undertake comparisons of data for the
Pressure Ulcer measure across postacute or acute settings.
We acknowledge the commenters’
concern regarding some of the data
elements that are included on the LTCH
CARE Data Set. In response to these
concerns, we are clarifying that with
respect to the pressure ulcer measure,
LTCHs will only be required to
complete a subset of the data elements
from the LTCH CARE Data Set. These
elements are: (1) A limited set of
administrative items that are necessary
in order to identify each LTCH and
properly attribute patients to it for
purposes of calculating the measure
rate, (2) the data elements necessary to
populate the pressure ulcer measure,
consistent with application of the NQFendorsed specifications for that measure
to the LTCH setting, and (3) the data
elements necessary to enable CMS to
validate that the pressure ulcer measure
data elements were accurately reported.
All other data elements on the LTCH
CARE Data Set can be completed on a
voluntary basis by LTCHs and will have
no impact on the measure calculations
for the Pressure Ulcer measure or on our
determination of whether the LTCH has
met the reporting requirements under
the LTCHQR Program. We will post on
our Web site a detailed matrix that
identifies which data elements will be
required, and which will be voluntary,
and this matrix will also be
incorporated into the final LTCHQR
Program Manual which will be posted
on CMS LTCHQR Program Web site and
available for download from http://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html.
Comment: Several commenters
expressed concern that the LTCH CARE
Data Set was being implemented in its
entirety for the LTCHQR Program and
that items not required for calculation of
the Pressure Ulcer measure were being
collected unnecessarily. One commenter
also noted that the data on the Pressure
Ulcer measure could be collected
without the LTCH CARE Data Set. One
commenter noted that the only data
elements needed to collect data on the
Pressure Ulcer measure are hospital and
patient identifying information, number
of pressure ulcers (stage 2 or higher) at
admission and discharge. One

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commenter suggested that CMS refrain
from collecting data elements required
for covariate risk-adjustment until such
risk adjustment is to be used to calculate
LTCH performance.
Response: We thank the commenters
for their input. As we note above, we are
limiting the data elements that an LTCH
must complete for purposes of reporting
the Pressure Ulcer measure to those
described above. We note that the
covariate data elements, which enable
the measure rate to reflect a risk
adjustment, are part of the NQFendorsed specifications for the measure
and are also part of the specifications
we have adopted for the application of
this measure to the LTCH setting.
Comment: One commenter stated that
CMS needs to put into place a number
of additional policies before it can
implement the LTCHQR Program. These
policies include clear administrative
requirements; contact information for a
quality administrator; a clear and
reliable data submission process; a
preview period for quality reports prior
to their being made public, an appeals
and reconsideration process; a quality
support infrastructure, a data validation
methodology, and standards for the
minimum number of cases needed to be
reported per measure.
Response: We provide information
specific to the data submission
requirements, for example,
administrative related requirements, in
the LTCH CARE Data Submission
Specifications Overview Document
provided in the downloadable Final
LTCH CARE Data Submission
Specifications (v1.00.3), on the CMS
Web Site http://www.cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
LTCHTechnicalInformation.html, and
will be providing additional
administrative requirements in mid
August, 2012. In addition, we are
working to provide final guidance
related to program requirements in the
LTCHQR Program Manual provided on
the CMS Web site: http://www.cms.gov/
Medicare/Quality-Initiatives-PatientAssessment-Instruments/LTCH-QualityReporting/index.html. Specific details
related to NHSN HAI reporting and
administrative-related requirements for
the CAUTI measure and CLABSI
measure can be found on the CDC Web
site: http://www.cdc.gov/nhsn.
Comment: Several commenters urged
CMS to propose use of the Quality
Improvement and Evaluation System
(QIES) Assessment Submission and
Processing (ASAP) System as the
submission mechanism through the
regulatory process so that the public can
be afforded a proper notice and

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comment period. One commenter was
concerned with whether the QIES ASAP
System has been pilot tested or
validated and whether the burden of
reporting into them has been explored.
Response: The QIES ASAP System is
a secure, intranet-based data submission
and data storage system that we have
adopted for a variety of purposes at
CMS, including the storage of data used
for Home Health Compare and Nursing
Home Compare. The QIES ASAP
System permits information to be shared
securely, quickly, and conveniently
with providers. It has been successfully
used by CMS for 15 years. As part of our
implementation plan for the LTCHQR
Program, we considered various options
for data submission and storage.
We specifically selected the QIES
ASAP System because it is already a
successfully proven system that
provides facilities with the ability to
submit standardized patient-level data
into the QIES National Repository.
Examples of current use include
Inpatient Rehabilitation Facilities (IRF)
submission of the IRF Patient
Assessment Instrument (IRF PAI) data;
Home Health Agencies submission of
the Outcome and Assessment
Information Set (OASIS) data; and
nursing facilities and swing beds
submission of the Minimum Data Set
(MDS) data. Therefore, we selected the
QIES ASAP System to support the data
submission of LTCHQR quality
measures into the QIES national data
base.
Selection of the QIES ASAP System
for data submission and storage was
publically announced on October 2011,
in our LTCH CARE Data Set Data
Submission Specifications Overview
Document, found on the CMS Web site:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
LTCHTechnicalInformation.html. Since
October 2011, we have undertaken
numerous efforts to educate
stakeholders on the QIES ASAP System.
These efforts include hosting LTCH
software developer/vendor calls on
November 2011 and June 28th, 2012.
During these calls we provided details
on the QIES ASAP System our data
submission method. Similarly, we
presented data submission information
at the May 1, 2012 LTCH National
Train-the-Trainer Conference as well as
on our public vendor and software
developer calls, and on the LTCH
Special Open Door Forums. Since
October 2011, through our training and
use of email listservs to the LTCHs and
their vendor community, we have
invited participation on the vendor
calls, using these calls to alert both

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53621

LTCHs and their vendors of the data
submission specifications and to request
comments and questions related to the
LTCH submission methods and
specifications. Lastly, we posted a link
to the CMS technical issues mail box on
the CMS Web site which is:
[email protected].
Comment: Many commenters
supported the use of the NHSN for
reporting and believe it is capable of
handling LTCHQR Program data
collection. However, some commenters
expressed concern at the ability of
NHSN to handle LTCHQR Program data
collection. These commenters
encouraged CMS to work with CDC to
determine NHSN’s readiness to handle
additional programs.
Response: The CDC has assured us
that the NSHN system is adequate and
will be able to handle the LTCHQR
Program HAI data reporting. We also
note that of the 450 LTCHs in the
nation, over 300 are already enrolled
and reporting into NHSN.
For detailed discussions of the history
of the LTCHQR Program, including the
statutory authority and further details
on the three measures previously
finalized for FY 2014 payment
determination, we refer readers to the
FY 2012 IPPS/LTCH PPS final rule (76
FR 51743 through 51756). We have
reproduced a portion of the data
collection and submission timeline
finalized for FY 2014 payment
determination in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51743
through 51756) in the following table.

TIMELINE FOR SUBMISSION OF DATA
FOR THE LTCHQR PROGRAM FOR
THE FY 2014 PAYMENT DETERMINATION

Data collection timeframe: Calendar year
(CY) 2012

Q4 (October 1–December 31, 2012).

Final submission
deadline for data
related to the LTCH
Quality Reporting
Program FY 2014
payment
determination
May 15, 2013

We refer readers to section VIII.D.5. of
the preamble to this final rule for the
timeline for data submission under the
LTCHQR Program for the FY 2015
payment determination.
Comment: Many commenters
expressed concern that key components
of the LTCHQR Program were not yet in
place, yet data collection is to begin on
October 1. Several commenters urged
CMS to delay submission of the LTCH
CARE Data Set. Commenters noted that
CMS did not include details on the

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LTCH CARE Data Set in previous rules.
These commenters also noted that the
data set was not released until April 27,
2012 and the May 1 Provider Training
was the first formal opportunity the
details of the LTCHQR Program were
communicated to the public. One
commenter noted that, given the
continuing revisions to the LTCH CARE
Data Set, the LTCH community will
have insufficient time to prepare and
train. Another commenter suggested
that LTCHs be granted a 90-day deferral
for reporting admissions and discharges
between October 1 and December 31,
2012 (with submissions via NHSN
continuing as finalized).
Response: We thank the commenters
for their input and recommendations.
As we explain in our response to
previous comments, we believe that we
have made substantial and ongoing
efforts to educate LTCHs on the data
submission process and the data
elements in advance of the October 1,
2012 data submission start date.
Although we have made some changes
to the LTCH CARE Data Set since we
first made information about it publicly
available, we advised stakeholders of
the changes and do not consider them
to be significant in nature. In addition
to the training provided on May 1–2,
2012, we have also engaged in
informative and educational
communication with LTCHs and
stakeholders on reporting mechanisms
and submission timeframes through
open door forums, and vendor/software
developer calls, since September, 2011.
We disagree that we provided
insufficient notice to the public
regarding the LTCH CARE Data Set.
Such information was provided during
open door forums, vendor calls, and
publically posted on the CMS Web site
for LTCHs dating back to October 2011.
Further, the Data Set was posted for
public comments under the Paperwork
Reduction Act in the September 2, 2011
Federal Register (76 FR 54776) http://
www.cms.gov/Regulations-andGuidance/Legislation/
PaperworkReductionActof1995/PRAListing-Items/CMS1252160.html, file
number CMS–10409). From comments
received at the live National Train-theTrainer conference, we are working to
integrate additional language, coding
clarification, and corrections that
attendees provided. We intend to issue
these changes in early August 2012.
Comment: Many commenters
requested that CMS release the free,
downloadable LTCH Assessment
Submission Entry & Reporting (LASER)
software no later than August 1, 2012 so
that LTCHs can have at least two
months to implement and practice using

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the software and CMS’ consultant can
have time to correct any problems with
the system.
Response: LASER software is a free,
Java-based application that provides an
option for facilities to collect and
maintain their LTCH CARE Data Set for
subsequent submission to the QIES
ASAP System. We will release a
demonstration-version of LASER in
middle of August to provide LTCHs the
opportunity to familiarize themselves
with the LASER software and the
features of the tool. This demonstration
version of the software tool will give
LTCHs sufficient time to practice using
the software before data submission
begins on October 1, 2012. We will also
offer training on the LASER software in
August and will release the production
version of LASER on the QIES
Technical Support Office Web site by
end of August.
We interpret the reference to ‘‘CMS’
consultant’’ as meaning the CMS
contractor who will be responsible for
supporting LASER. The LASER software
is currently undergoing multi-level and
quality assurance testing to identify
issues, which we anticipate will reduce
the risk of data submission problems.
We do not believe that we should
move up the LASER release dates as
some commenters suggested. The
LASER software is currently undergoing
critical and rigorous testing by quality
assurance (QA) staff. It is vital that the
QA testing of the actual production
version of the software tool continue up
until the end of August to ensure there
are no defects in the final version. In
addition, we released the Validation
Utility Tool (VUT) to allow LTCHs and
their vendors to test their software to
ensure it meets our minimum
requirements for successful completion
and submission of a LTCH CARE Data
Set record. For information related to
LASER and the LTCH CARE Data Set
Data Submission Specifications, please
use the CMS Web site: http://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
LTCHTechnicalInformation.html.
Comment: Several commenters noted
that CMS never finalized the FY 2014
data collection timeline for the Pressure
Ulcer measure. The commenters
believed that CMS only finalized the
data collection period for the CAUTI
and CLABSI measures.
Response: We believe that we
finalized the FY 2014 data collection
period for the Pressure Ulcer measure in
the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51756). We specified that ‘‘we
were adopting as final the proposed
timeline for data submission for the

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New or Worsened Pressure Ulcers
measure and in accordance with the
timetable and schedule set forth in
section VII.C.4.b. of the preamble, with
data collection to begin October 1, 2012,
for the FY 2014 payment
determination.’’ In section VII.C.4.b we
specified that the HAI measure
submission timeframe would be October
1, 2012 through December 31, 2012
events for the FY 2014 payment
determination, and that LTCHs would
have to submit their data no later than
May 15, 2013.
We also included the FY 2014 data
submission timetable for the Pressure
Ulcer measure in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28094),
and we believe that the public has been
given ample opportunity to comment on
it. Therefore, for FY 2014 payment
determination, the data submission
timeframe for the three quality measures
(CAUTI, CLABSI and the Pressure Ulcer
measure) will begin October 1, 2012 and
reporting will include quality data from
October 1, 2012 through December 31,
2012. LTCHs will have until May 15,
2013 to submit the data.
Comment: One commenter expressed
concern about the timeframes for
completing and submitting the LTCH
CARE Data Set. The commenter also
noted that there are several instances of
conflicting directions for its completion
as outlined in the draft LTCHQR
Program Manual and provided specific
examples regarding conflicting
directions. The commenter noted that
the industry was concerned about a
potential conflict between the 3-day rule
for the CARE tool and other reporting
timeframes. The commenter further
noted that the submission time will not
impact patient safety and that the data
entered into LTCH CARE Data Set and
NHSN will not be completely accurate
since neither is risk adjusted.
Response: We thank the commenter
for providing feedback on the draft
LTCHQR Program Manual and for
making recommendations to improve
the clarity of our guidance for
completing the LTCH CARE Data Set
pertaining to assessment of patient’s
‘‘usual status,’’ assessment time frame
for admission assessment, and relevant
approaches to completing each item. In
addition, we have invited the public to
submit questions and comments related
to the LTCHQR Program and the draft
LTCHQR Program Manual to the email
address for the LTCHQR Program at
[email protected].
As a result of this commenter’s
feedback we agree that we have given
conflicting information, specifically
regarding conflicting guidance given in
Chapter 2 of the draft LTCHQR Program

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Manual. In light of this and additional
comments from the public sent to our
LTCH help desk, we have revised
relevant language in Chapter 2 of the
draft LTCHQR Program Manual to
provide further clarification to LTCH
providers on the completion of the
LTCH CARE Data Set. Specifically, we
have clarified language pertaining to
assessment of patient’s ‘‘usual status’’,
assessment time frame for admission
assessment, and relevant approaches to
completing each item on the LTCH
CARE Data Set.
Further, we have clarified language
pertaining to other aspects of the draft
LTCHQR Program Manual, specifically
about the type of staff required to
complete the LTCH CARE Data Set and
timing of data submission requirements
for the LTCH CARE Data Set for the FY
2014 payment update determination.
CMS will be posting this revised manual
for download at the CMS Web site:
http://www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
LTCHTechnicalInformation.html. We
continue to welcome comments from
the public and appreciate the need for
clarity and communication with
providers to ensure successful
implementation of LTCHQR Program.
Hence, we are continuing to provide
additional clarification and guidance
through our Web site, open door forums,
and training material postings.
Information related to these free
resources is provided on the CMS
LTCHQR Program Web site.
We disagree that the current time
frame and guidance will result in
inaccurate and inconsistent data being
entered into the database. We further
disagree that whether or not data is
submitted within these timeframes, it
will have no impact on patient safety. In
the draft LTCHQR Program Manual, we
encourage all providers to follow CDC
recommendations related to the
submission of HAI related data.
Although an absolute end date of May
15th for the submission of HAI data is
given, the purpose of that ultimate
deadline is to allow LTCH facilities time
to submit any corrections or missing
data. Further, data collection approach
and timeframes were set in line with the
NQF-endorsed CAUTI measure, CLABSI
measure and Pressure Ulcer measure. In
our FY 2012 IPPS/LTCH PPS final rule,
we stated that reporting for CAUTI
measure and CLABSI measure should be
in accordance with the CDC guidelines
and reporting should occur as close to
the time of the event as possible.
We also disagree with the
commenter’s suggestion that these
measures are not risk adjusted. The HAI

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measures are risk adjusted and use the
SIR rather than a rate. This is the
preferred form of risk adjustment, will
include stratification at the unit-level
for the CAUTI measure and CLABSI
measure and reflect the NQF-endorsed
CAUTI measure and CLABSI measure
specifications. The NQF-endorsed
Pressure Ulcer measure includes risk
adjustment for factors such as body
mass index, presence of diabetes
mellitus, presence of peripheral
vascular disease/peripheral arterial
disease, bowel incontinence, and
mobility.
After consideration of the public
comments we received, we are
finalizing the use of the data collection
and submission methods finalized for
the CAUTI, CLABSI and Pressure Ulcer
measures for the LTCHQR Program.
4. LTCHQR Program Quality Measures
for the FY 2016 Payment
Determinations and Subsequent Fiscal
Years Payment Determinations
a. Considerations in Updating and
Expanding Quality Measures Under the
LTCHQR Program for FY 2016 and
Subsequent Payment Update
Determinations
We believe that development of a
LTCHQR Program that is successful in
promoting the delivery of high quality
healthcare services in LTCHs is
paramount. We seek to adopt measures
for the LTCHQR Program that promote
better, safer, and more efficient care.
Our measure development and selection
activities for the LTCHQR Program take
into account national priorities, such as
those established by the National
Priorities Partnership
(http://www.nationalprioritiespartner
ship.org/), HHS Strategic Plan (http://
www.hhs.gov/secretary/about/priorities/
priorities.html), and the National
Strategy for Quality Improvement in
Healthcare (http://www.healthcare.gov/
center/reports/quality03212011a.html).
To the extent practicable, we have
sought to adopt measures that have been
endorsed by a national consensus
organization, recommended by multistakeholder organizations, and
developed with the input of providers,
purchasers/payers, and other
stakeholders.
In addition, we consider input from
the multi-stakeholder group, the
Measures Application Partnership
(MAP) (http://www.qualityforum.org/
Setting_Priorities/Partnership/Measure_
Applications_Partnership.aspx), in
selecting measures for the LTCHQR
Program. Section 1890A(a)(1) of the Act,
as added by section 3014(a) of the
Affordable Care Act, requires the entity

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53623

with a contract under section 1890(a) of
the Act, currently the NQF, to convene
multistakeholder groups to provide
input to the Secretary on the selection
of quality and efficiency measures.
Under section 1890A(a)(2) of the Act, as
added by section 3014(b) of the
Affordable Care Act, the Secretary must
make available to the public a list of
quality and efficiency measures
described in section 1890(b)(7)(B) that
the Secretary is considering under title
XVIII of the Act. Section 1890A(a)(3) of
the Act further requires the entity with
a contract under section 1890(a) of the
Act to transmit the input of the
multistakeholder groups to the Secretary
not later than February 1 of each year,
beginning in 2012. Section 1890A(a)(4)
of the Act requires the Secretary to take
into consideration the input of the
multistakeholder groups in selecting
quality and efficiency measures. The
MAP is the public-private partnership
comprised of multi-stakeholder groups
convened by the NQF for the primary
purpose of providing input on measures
as required by section 1890A(a)(3) of the
Act. The MAP’s input on quality and
efficiency measures was transmitted to
the Secretary and is available at
(http://www.qualityforum.org/
WorkArea/linkit.aspx?LinkIdentifier=id
&ItemID=69885). As required by section
1890A(a)(4) of the Act, we considered
the MAP’s recommendations in
selecting quality and efficiency
measures for the LTCHQR Program.
Comment: Several commenters noted
that CMS should, in its selection of
measures, more closely align with the
recommendations of MAP. Some
commenters noted that the MAP did not
recommend any of the measures
proposed for the FY 2016 LTCHQR
Program, but rather, ‘‘supported the
direction’’ of these measures.
Response: While submission of
measures to the MAP and consideration
of their recommendations are part of our
measure selection process, we also
consider the input of stakeholders,
subject matter and industry experts
through the technical expert panels
periodically convened by our measure
development contractor, as well as
national healthcare priorities suggested
by groups such as MedPAC, and as set
forth in the National Quality Strategy.
Comment: Several commenters
encouraged CMS to seek input on
measures from stakeholders such as
LTCH associations as well as technical
expert panels.
Response: Throughout the measure
selection process, we have sought input
from a variety of stakeholders, including
technical experts, stakeholders, and
LTCHs. A CMS Listening Session was

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held on November 15, 2010, Special
Open Door Forums were held on
December 16, 2010, September 21, 2011
and April 13, 2012; and our measure
developer contractor convened LTCHQR
technical expert panels on January 31,
July 6, September 27, December 13
2011, and March 8, 2012. We will
continue to solicit input from
stakeholders throughout the
development and expansion of the
LTCHQR Program.
Comment: One commenter suggested
that CMS consider the MAP
recommendations to pursue measures of
Experience of Care, Care Planning,
Patient/Family/Caregiver Goals, and
Avoiding Unnecessary Hospital and ED
Admissions.
Response: We will continue to work
with the MAP as well as LTCH
stakeholders to identify measure
concepts and measures that address
HHS priorities, align with quality
initiatives in other settings, are
evidence-based, have a low probability
of unintended adverse consequences,
and may drive quality improvement.
Comment: Several commenters
encouraged CMS to adopt only

measures that are NQF-endorsed for the
LTCH setting. One commenter noted
that the NQF needs to add an LTCH
provider to its panel. Several
commenters expressed uncertainty as to
whether the expansion of existing
measures to the LTCH setting would be
a good approach to creating LTCH
measures, and one commenter
encouraged CMS to adopt only
measures that have been specified and
tested in the LTCH setting.
Response: We have generally adopted
NQF-endorsed measures whenever
possible. However, where such
measures do not exist, we may adopt
measures that are not NQF-endorsed
under the Secretary’s exception
authority set out in section
1886(m)(5)(D)(ii) of the Act. We have,
where possible, actively worked with
the NQF to expand endorsement of
measures to LTCH setting, and the NQF
has expanded its endorsement of the
CAUTI and CLABSI measures to LTCHs.
We believe that the NQF endorsement
process is public and transparent and
would encourage LTCHs and
stakeholders to participate in that

process. Furthermore, we are also
working to develop measures on
readmissions and functional status that
are specific to the LTCH setting and will
be seeking NQF endorsement for these
measures.
b. New LTCHQR Program Quality
Measures Beginning With the FY 2016
Payment Determination
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28094), for the FY
2016 payment determination and
subsequent fiscal year payment
determinations, we proposed to adopt
five additional quality measures for the
LTCHQR Program in addition to the
three previously discussed measures
(CAUTI measure, CLABSI measure and
Pressure Ulcer measure), see table
below. Our proposal to add these five
measures is part of our effort to promote
overarching health care aims and goals
in an effective and meaningful manner.
We also seek to minimize the burden of
data collection for LTCHs.
We indicated that we would respond
to public comments on this proposal in
this final rule.

PROPOSED NEW QUALITY MEASURES FOR THE FY 2016 LTCHQR PROGRAM PAYMENT DETERMINATION AND
SUBSEQUENT PAYMENT DETERMINATIONS
NQF Measure ID

Measure title

Application of NQF #0680 ..............

Percent of Nursing Home Residents Who Were Assessed and Appropriately Given the Seasonal Influenza
Vaccine (Short-Stay).
Percent of Residents Who Were Assessed and Appropriately Given the Pneumococcal Vaccine (ShortStay).
Influenza Vaccination Coverage among Healthcare Personnel.
Ventilator Bundle.
Restraint Rate per 1,000 Patient Days.

NQF #0682 .....................................

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NQF #0431 .....................................
Application of NQF #0302 ..............
Not NQF endorsed ..........................

(1) New Quality Measure #1 for the
FY 2016 Payment Determination and
Subsequent Fiscal Years Payment
Determinations: Percent of Residents or
Patients Who Were Assessed and
Appropriately Given the Seasonal
Influenza Vaccine (Short-Stay) (NQF
#0680)
According to the CDC, as of 2011,
there is on average over 200,000
hospitalizations due to influenza every
year.139 The Agency for Healthcare
Research and Quality (AHRQ) reports
that in 2004, there were more than
37,000 hospitalizations in which
influenza was noted during the stay. For
over 21,000 of these hospitalizations,
influenza was listed as the primary
diagnosis. The aggregate hospital costs
for these roughly 21,000
139 Centers for Medicare & Medicaid Services
(2011, May). Adult immunization: Overview.
Retrieved from https://www.cms.gov/
adultImmunizations/.

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hospitalizations were estimated at $146
million.140
Although influenza is prevalent
among all population groups, the rates
of death and serious complications
related to influenza are highest among
those ages 65 and older and those with
medical complications that put them at
higher risk. The CDC reports that an
average of 36,000 Americans die
annually from influenza and its
complications, and most of these deaths
are among people 65 years of age and
over.141 In 2004, 70,000 deaths were
caused by influenza and pneumonia,
140 Milenkovic M, Russo CA, Elixhauser A.
(2006). Hospital stays for influenza, 2004
(Healthcare Cost and Utilization Project statistical
brief no.16). Rockville, MD: Agency for Healthcare
Research and Quality. Retrieved from http://
www.hcup-us.ahrq.gov/reports/statbriefs/sb16.pdf.
141 Centers for Medicare & Medicaid Services
(2011, May). Adult Immunization: overview.
Retrieved from https://www.cms.gov/
Immunizations/.

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and more than 85 percent of these were
among the elderly.142 Given that many
individuals receiving health care
services in LTCHs are elderly and/or
have several medical conditions, many
LTCH patients are within the target
population for the influenza
vaccination.143,144 Healthy People 2010
(Objective 14–29) and Healthy People
2020 (Objective IID–12.8) each set a goal
of 90 percent of adults vaccinated
against influenza in long-term care
142 Gorina Y, Kelly T, Lubitz J, et al. (2008,
February).Trends in influenza and pneumonia
among older persons in the United States. Aging
Trends no. 8. Retrieved from http://www.cdc.gov/
nchs/data/ahcd/agingtrends/08influenza.pdf.
143 Centers for Disease Control and Prevention.
(2008, September). Influenza e-brief: 2008–2009 flu
facts for policymakers. Retrieved from http://
www.cdc.gov/washington/pdf/flu_newsletter.pdf.
144 Zorowitz, RD. Stroke Rehabilitation Quality
Indicators: Raising the Bar in the Inpatient
Rehabilitation Facility. Topics in Stroke
Rehabilitation 2010; 17 (4):294–304.

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facilities.145,146 However, among adults
age 65 years and older, only 72.1
percent were vaccinated during the
2006–2007 influenza season and only
69.6 percent of adults age 65 years and
older were vaccinated during the 2009–
2010 influenza season.147,148 According
to information currently available on the
Nursing Home Compare Web site
(http://www.medicare.gov/NHCompare),
the national average for the percentage
of short-stay residents given the
influenza vaccine is roughly 82
percent.149 No comparable information
is currently available on patients in the
LTCH setting.
In light of the evidence outlined
previously, particularly that many
individuals receiving care in the LTCH
setting are within the target population
for influenza vaccination, in the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28095), we proposed NQF #0680,
Percent of Nursing Home Residents
Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine
(Short-Stay), for application in the
LTCHQR Program for the FY 2016
payment determination and subsequent
fiscal year payment determinations. We
noted that at the time of our proposed
rule this measure was endorsed for
short-stay nursing home residents, but
believed this measure was highly
relevant for the LTCH setting because,
as stated above, many patients receiving
care in the LTCH setting are elderly and
within the target population for
influenza vaccination. The MAP
supports the direction of this measure
and believes it is an important aspect of
care in LTCHs.150
145 U.S. Department of Health and Human
Services, Office of Disease Prevention and Health
Promotion. (n.d.). Healthy People 2010 archive.
Retrieved from http://www.healthypeople.gov
/2010/.
146 U.S. Department of Health and Human
Services, Office of Disease Prevention and Health
Promotion. (2011, June). Healthy People 2020:
Immunization and infectious diseases. Retrieved
from http://www.healthypeople.gov/2020/
topicsobjectives2020/overview.aspx?topicid=23.
147 Centers for Disease Control and Prevention.
(2008). State specific influenza vaccination
coverage among adults—United States, 2006–2007
influenza season. MMWR, 57(38), 1033–1039.
Retrieved from http://www.cdc.gov/mmwr/preview/
mmwrhtml/mm5738a1.htm.
148 Centers for Disease Control and Prevention
(2011, May). Seasonal influenza (flu): final
estimates for 2009–10 seasonal influenza and
influenza A (H1N1) 2009 monovalent vaccination
coverage—United States, August 2009 through May,
2010. Retrieved from http://www.cdc.gov/flu/
professionals/vaccination/
coverage0910estimates.htm.
149 Centers for Medicare & Medicaid Services
(2011). Nursing Home Compare. Available from
http://www.medicare.gov/NHCompare/.
150 National Quality Forum (2012) Input on
Measures for Consideration by HHS for 2012
Rulemaking. Available; http://

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Section 1886(m)(5)(D)(ii) of the Act,
the exception authority 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, 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 NQF’s
consensus endorsed measures and were
unable to identify any NQF-endorsed
measures for influenza vaccination in
the LTCH setting. We are unaware of
any other measures for influenza
vaccination in the LTCH setting that
have been approved by a voluntary
consensus standards body and endorsed
by NQF. Therefore, in the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28096), we proposed adopting the NQFendorsed measure the Percent of
Nursing Home Residents Who Were
Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short-Stay)
(NQF #0680) for application in the
LTCH setting for the LTCHQR Program
under the Secretary’s authority to select
non-NQF measures. This proposal was
also consistent with the 2008 NQF
steering committee recommendation
that ‘‘in the interest of standardization
and minimizing the burden for those
implementing and using measures,
measure harmonization is an important
consideration in evaluating and
recommending measures for
endorsement’’ 151 Data on this measure
as it applies to nursing home residents
are currently collected and reported as
part of the Nursing Home Quality
Initiative.
We proposed that data for this
measure be collected using the same
data collection and submission
framework that we finalized for the FY
2014 payment determination.152 We
intend to revise the LTCH CARE data set
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=69885. pp.
105.
151 National Quality Forum (2008, December)
National Voluntary Consensus Standards for
influenza and pneumococcal vaccinations Available
from http://www.qualityforum.org/Publications/
2008/12/National_Voluntary_Consensus_Standards
_for_Influenza_and_Pneumococcal_Immunizations.
aspx.
152 The LTCH CARE Data Set, the data collection
instrument that will be used to submit data on this
proposed measure, is currently approved under
Paperwork Reduction Act (PRA) by the Office of
Management and Budget. It is discussed in a PRA
notice that appeared in the September 2, 2011
Federal Register (76 FR 54776). The OMB Control
Number is 0938–1163. The file number for the
LTCH PRA package is CMS–10409.

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to include new items which assess
patient’s influenza vaccination status
should this proposed measure be
adopted. These items will be based on
the items from the MDS 3.0 items.153
Further, the draft LTCHQR Program
Manual will be updated with
specifications and data elements once
this measure is finalized. At the current
time, we refer readers to the MDS 3.0
QM User’s Manual available on our Web
site at: https://www.cms.gov/
NursingHomeQualityInits/Downloads/
MDS30QM-Manual.pdf 154 for technical
specifications and data elements for this
measure as it is currently implemented
in the nursing home setting until we
provide guidance for LTCHs in the
LTCHQR Program Manual.
By building on the existing reporting
and submission infrastructure for
LTCHs, such as the LTCH CARE Data
Set, which will be used for data
collection beginning October 1, 2012,
we intend to reduce the administrative
burden related to data collection and
submission for this measure under the
LTCHQR Program. We proposed that the
data collection would cover the period
from October 1 through March 31 of
each year, which corresponds with how
NQF specifies this measure as well as
other endorsed influenza vaccination
measures. We refer readers to section
VIII.D.6. of this preamble to this final
rule for more information on data
collection and submission.
We invited public comment on this
proposed measure for the FY 2016
payment determination and subsequent
FYs payment determinations.
Comment: Several commenters
expressed support for the expansion of
the Percent of Residents or Patients Who
Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine (shortstay) to the LTCHQR Program.
Commenters noted that LTCH patients
are often part of the elderly and/or
vulnerable population, in which
influenza disease is especially
prevalent, and that the measure, which
was originally developed for the nursing
home setting, would be relevant to the
LTCH population and would ensure
appropriate vaccination practice
amongst these vulnerable patients.
Commenters encouraged CMS to move
forward with recommendations to the
153 Centers for Medicare & Medicaid Services).
MDS 3.0 Item Subsets V1.10.4 for the April 1, 2012
pRelease. Retrieved from https://www.cms.gov/
NursingHomeQualityInits/30_NHQIMDS30
TechnicalInformation.asp.
154 Centers for Medicare and Medicaid Services
(2012, March). MDS 3.0 Quality Measures User’s
Manual. V5.0. pp. 15. Retrieved from: https://www.
cms.gov/NursingHomeQualityInits/Downloads/
MDS30QM-Manual.pdf.

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MAP and development of specifications
and testing for use of the measure in
LTCHs.
Response: We appreciate the
commenters’ support for our proposal to
include the Percent of Residents or
Patients Who Were Assessed and
Appropriately Given the Seasonal
Influenza Vaccine (short-Stay) in the
LTCHQR Program. We agree that
influenza is a serious concern amongst
the elderly and vulnerable LTCH
patients and that appropriate
vaccination is important in this
population. The MAP supported the
direction of this measure for use in the
LTCH setting.155
In addition, we applied to the NQF for
expansion of this measure to the LTCH
setting and the expansion was approved
by the NQF Consensus Standards
Approval Committee (CSAC) on April 9,
2012 and ratified by the NQF Board of
Directors on May 2, 2012. Therefore,
this measure is now NQF-endorsed for
use in the LTCH setting. At the time of
NQF endorsement, the title was changed
to reflect that the measure now applies
to other settings, including the LTCH
setting. The title of the measure is now
Percent of Residents or Patients Who
Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine (shortStay). An updated description of the
measure is available on the NQF Web
site at: http://www.qualityforum.org/
QPS/0680.
Comment: Several commenters
expressed concern that the introduction
of the Percent of Residents or Patients
Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine
(short-stay) to the LTCHQR Program is
redundant, given its inclusion in the
Hospital IQR Program. Commenters
remarked that approximately 83 percent
of LTCH discharges had a preceding
stay at an inpatient facility and are
likely to have been vaccinated in the
inpatient facility. Commenters believed
that inclusion of this measure in both
quality reporting programs would result
in wasted resources and inefficiencies.
Commenters also expressed concern
that the inclusion of the measure in both
quality reporting programs could result
in multiple vaccinations of the same
patient, leading to patient safety
concerns.
Response: We appreciate the
comments and acknowledge the
commenters’ concern for redundancy
and over-vaccination. The specifications
155 National Quality Forum (2012) Input on
Measures for Consideration by HHS for 2012
Rulemaking. Available; http://www.qualityforum
.org/WorkArea/linkit.aspx?LinkIdentifier=id&
ItemID=69885. pp. 105; Accessed February 03,
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of the Percent of Residents or Patients
Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine
(short-stay) are written to ensure that
patients are not double counted,
resources are not wasted and patients
are only given one vaccine per influenza
season. Because the numerator
statement of the measure includes
patients who received the influenza
vaccine during the most recent hospital
stay (either inside or outside the
facility/hospital), LTCHs can report that
a patient received the vaccine at another
facility prior to arriving at the LTCH and
is not pressured to re-vaccinate the
patient for purposes of being able to
properly report the measure. The
measure is designed to act as a safe
guard for patients who did not receive
a vaccine in another setting. We
acknowledge that facilities will need to
adhere to the principles of proper care
coordination, and documentation to
avoid over-immunization, as well as
under-immunization. However, the
specifications of the measure are
designed to encourage facilities to only
vaccinate when the patient has not
already received the vaccination in
another setting.
Comment: A few commenters
believed that this measure was not
appropriate for patients in the LTCH
setting, due to the severity of illness of
the patients in the LTCH setting.
Commenters recommended further
testing to determine the risk of
complications from the vaccine and the
appropriateness of the measure in this
setting.
Response: We appreciate the
comment and agree that patients in
LTCHs are especially vulnerable.
However, because these populations are
older and more vulnerable they have
higher rates of death and complications
due to influenza and are in greater need
of protection. CDC reports that
pneumonia and influenza were the fifth
leading cause of death amongst
individuals ≥65 years and that between
1997 and 2007 deaths among people
aged ≥65 years accounted for 87.9
percent of deaths related to pneumonia
and influenza.
Due to their increased vulnerability,
these patients, as the commenters
suggest, are also at increased risk for
complications from the vaccination. For
this reason, the specifications for this
measure were developed in accordance
with current guidelines issued by the
CDC Advisory Committee on
Immunization Practices (ACIP) available
at http://www.cdc.gov/mmwr/preview/
mmwrhtml/mm6033a3.htm. By taking
into account the ACIP guidelines, the
measure is designed to balance the risk

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of complications with the susceptibility
to and mortality from influenza in this
high risk population.
In addition, our measure development
contractor convened a LTCH technical
expert panel and introduced the
Percentage of Nursing Home Residents
Who Were Assessed and Appropriately
Given the Seasonal Influenza Vaccine
(short-stay) (NQF #0680) measure for
discussion. Our measure development
contractor advised us that the panel
identified appropriate preventative
vaccination as an important concept and
good practice in LTCHs. Finally, as
noted above, this measure was recently
NQF-endorsed for the LTCH setting.
Comment: Several commenters
requested clarifications of and changes
to the specifications of the Percent of
Residents or Patients Who Were
Assessed and Appropriately Given the
Seasonal Influenza Vaccine (short-stay)
quality measure. Commenters
specifically asked for clarification of the
definition of ‘‘appropriately given’’ as
mentioned in the title of the measure.
Commenters also expressed concern
that the measure does not allow
providers to utilize clinical judgment
and withhold the vaccine from patients
with contraindications. Some
commenters believed that LTCHs
should not be penalized if a patient
refuses the vaccine. Finally, several
commenters requested that CMS change
the name of the measure to reflect that
it is to be used in the LTCH setting (in
addition to the SNF setting).
Response: We appreciate the
comments and the suggestions for
further clarification. As we noted above,
the title of this measure changed when
the NQF expanded its endorsement to
other settings, including the LTCH
setting.
This measure is designed to
encourage providers to assess
vaccination status and when medically
appropriate, vaccinate the patient. The
term ‘‘appropriately given’’ as used in
the measure specifications indicates that
the vaccination should be given in
accordance with the ACIP guidelines
and LTCHs are directed to the
guidelines in the specifications.
The measure specifications are
written to account for cases when the
patient refuses the vaccine or when the
medical provider documents that the
vaccine was not given due to a
contraindication. The numerator of the
measure includes: those who received
the influenza vaccine during the most
recent influenza vaccine season, either
in the facility/hospital or outside the
facility/hospital; those who were offered
but declined the influenza vaccine; or
those who were ineligible due to

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
contraindication(s) (for example,
previous severe allergic reaction to
influenza vaccine, history of GuillainBarre´ Syndrome within 6 weeks after a
previous influenza vaccination, or bone
marrow transplant within the past 6
months).
Comment: Several commenters were
concerned about obtaining
documentation for patients who
received the vaccine outside of the
LTCH. One commenter remarked that an
LTCH should not be penalized if it
cannot obtain records from outside
facilities reflecting whether and/or
when a patient received the influenza
vaccine, as long as it has made a
reasonable effort to do so. Another
commenter requested that CMS adopt a
regulation which requires other types of
facilities (such as acute care hospitals
and SNFs) to document in the patient’s
chart whether an influenza vaccine has
been administered and the date of the
vaccine and that this documentation be
contained in the transfer form.
Response: We refer commenters to the
description of the NQF-endorsed
measure of at the NQF Web site
http://www.qualityforum.org/QPS/0680.
Further, we refer commenters to the
technical specifications for this measure
as currently implemented for the
nursing home setting and are available
in the MDS 3.0 QM User’s Manual on
our Web site at: https://www.cms.gov/
NursingHomeQualityInits/Downloads/
MDS30QM–Manual.pdf.156
Further, to the extent that the
commenters are asking us to issue
guidance on proper vaccine
documentation for purposes of ensuring
that the receiving facility has an
accurate immunization history, we agree
that care-coordination is essential to
avoid over- as well as underimmunization. The influenza
vaccination measure, however, was not
designed to offer guidance to providers
on how to vaccinate. The measure is
specified to assess if the patient was
vaccinated, where the patient was
vaccinated (if they were vaccinated), or
why the vaccination was not given (if
the patient was not vaccinated). Patients
who were not vaccinated due to a
contraindication and patients who
refused the vaccination are both
counted as numerator hits and are
accounted for separately in the
numerator of the measure.
To that end, and in response to the
comment that ‘‘an LTCH should not be
penalized if it cannot obtain records
156 Centers

for Medicare and Medicaid Services
(2012, March). MDS 3.0 Quality Measures User’s
Manual. V5.0. pp. 15. Retrieved from: https://
www.cms.gov/NursingHomeQualityInits/
Downloads/MDS30QM-Manual.pdf.

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from outside facilities,’’ LTCHs will not
be held accountable for their inability to
obtain a patient’s current vaccination
status. In a situation where the
vaccination status is unknown, we
would expect that the LTCH provider
would make a clinical judgment
whether or not to vaccinate a patient
taking into account the patient’s
medical history and current health
status, as well as the policy of their
LTCH surrounding vaccination. The
LTCH must only report the decision that
is made, that is, whether the vaccination
was or was not given. The measure does
not require an LTCH to provide a
vaccination that was not appropriate
due to a contraindication or a patient
refusal, or to provide a vaccination to a
patient who was already given a
vaccination outside of the LTCH. We
encourage all LTCHs to vaccinate
according to their facilities policies and
the best clinical judgment of the
medical providers treating each
individual patient and to document the
reason for the vaccination decision.
Comment: One commenter suggested
that this measure could be better
addressed through a change in Medicare
CoP. Further, the commenter noted that
CMS can require minimum thresholds
for organizational compliance with the
measure and the measure is better for
CoPs rather than as quality measure.
Response: We thank this commenter
and will take into consideration this
input during our work on the Medicare
CoP. However, at this time, we note that
in light of the evidence outlined
previously and in the FY 2013 IPPS/
LTCH PPS proposed rule, particularly
that many individuals receiving care in
the LTCH setting are elderly and within
the target population for influenza
vaccination, we continue to believe the
measure is highly relevant for the LTCH
setting and appropriate to include in the
LTCHQR Program. Further, the MAP
supports the direction of this measure
and believes it is an important aspect of
care in LTCHs.157
After consideration of the public
comments we received, and in light of
the recent NQF endorsement approval
for the expansion of this measure to the
LTCH setting, we are finalizing the
Residents or Patients Who Were
Assessed and Appropriately Given the
Seasonal Influenza Vaccine (NQF #680),
which is endorsed and specified for the
LTCH setting, for the FY 2016 payment
157 National Quality Forum (2012) Input on
Measures for Consideration by HHS for 2012
Rulemaking. Available; http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=69885. pp.
105.

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53627

determination and subsequent payment
determinations.
(2) LTCH Quality Measure #2 for the
FY 2016 Payment Determination and
Subsequent Fiscal Years Payment
Determinations: Percent of Residents
Assessed and Appropriately Given the
Pneumococcal Vaccine (Short-Stay)
(NQF #0682)
According to the CDC, pneumococcal
disease kills more people in the United
States each year than all other vaccinepreventable diseases combined.158 In
2006, all possible pneumonia diagnoses
(including viral, bacterial, and
unspecified organisms) killed 55,477
people in the United States and were
responsible for 1,232,999 hospital
discharges.159
Older people and those with chronic
health conditions are at higher risk for
pneumococcal disease. In 2011 there
were more than 40,000 cases of invasive
pneumococcal disease in the United
States, and approximately one-third of
these occurred among persons ages 65
years and older.160 A 2011 MedPAC
report found that pneumonia is among
the top 20 most common Medicare
Severity Long-Term Care DiagnosisRelated Groups (MS–LTC–DRG).161 In
2005, Medicare paid an average of
$6,342 per hospital discharge for
pneumonia-related short-stay
hospitalizations.162 Death related to
pneumonia also affects the elderly at a
higher rate. In 2004, 70,000 deaths were
caused by influenza and pneumonia,
and more than 85 percent of these were
amongst the elderly.163
Individuals in the LTCH setting are at
especially high risk of contracting
pneumonia as a complication of another
158 Centers for Disease Control and Prevention.
(2009, March). Pneumococcal polysaccharide
vaccine: What you need to know. Retrieved from
http://www.cdc.gov/vaccines/pubs/vis/downloads/
vis-ppv.pdf.
159 Centers for Disease Control and Prevention,
National Center for Health Statistics. (various years
1988–2006). National Hospital Discharge Survey.
Available from http://www.cdc.gov/nchs/nhds/
nhds_publications.htm#nhds.
160 Centers for Disease Control and Prevention.
(2011). Pneumococcal diseases. In The Pink Book:
epidemiology and prevention of vaccine
preventable diseases (pp. 233–248). Retrieved from:
http://www.cdc.gov/vaccines/pubs/pinkbook/
downloads/pneumo.pdf.
161 Medicare Payment Advisory Committee
(MedPac). (2011, March) Long-term care hospital
services. In Report to the Congress: Medicare
payment Policy (pp 231–456). Washington, DC.
Available from http://www.medpac.gov/documents/
Mar11_EntireReport.pdf.
162 Health Care Financing Review. Statistical
supplement no. 293. (2007). Baltimore, MD: Centers
for Medicare and Medicaid Services.
163 Gorina Y, Kelly T, Lubitz J, et al. (2008,
February). Trends in influenza and pneumonia
among older persons in the United States. Aging
Trends no. 8. Retrieved from http://www.cdc.gov/
nchs/data/ahcd/agingtrends/08influenza.pdf.

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medical condition, such as stroke,
previous or recent surgery, or
ventilation—all of which are conditions
for which patients may spend some of
their recovery time in the
LTCH.164,165,166
Healthy People 2010 (Objective 14–
29f) and Healthy People 2020 (Objective
IID–13.3) each set a goal of 90 percent
of adults vaccinated against
pneumococcal disease in long-term care
facilities.167,168 However, estimated
pneumococcal vaccination coverage
remains below 50 percent in
recommended high-risk groups.169 No
comparable information is currently
available on patients in the LTCH
setting.
In light of the previously described
data which we believe reflects the
significant impact pneumonia has on
Medicare beneficiaries in the LTCH
setting, in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28096), we
proposed a quality measure on the
pneumococcal vaccine. Specifically, we
proposed the measure Percent of
Residents Assessed and Appropriately
Given the Pneumococcal Vaccine
(Short-Stay) (NQF #0682) for
application in the LTCHQR Program for
the FY 2016 payment determination and
subsequent fiscal year payment
determinations. We recognized that at
the time of our proposed rule, the NQF
had endorsed this measure for short stay
nursing home residents but we believed
this measure was highly relevant to
LTCHs as described previously. This
measure reports the percentage of shortstay nursing home residents who were
assessed and appropriately given the
pneumococcal vaccine (PPV) during a
12-month reporting period. We
proposed this measure because, as
164 Fagon JY, Chastre J, Hance AJ, Montravers P,
Novara A, Gibert C. Nosocomial pneumonia in
ventilated patients: a cohort study evaluating
attributable mortality and hospital stay. Am J Med
1993;94:281–8.
165 Gorina Y, Kelly T, Lubitz J, et al. (2008,
February). Trends in influenza and pneumonia
among older persons in the United States. Aging
Trends no. 8. Retrieved from http://www.cdc.gov/
nchs/data/ahcd/agingtrends/08influenza.pdf.
166 Centers for Disease Control and Prevention.
(2011, June). Post-procedure pneumonia (PPP)
event. Retrieved from http://www.cdc.gov/nhsn/
PDFs/pscManual/10pscPPPcurrent.pdf.
167 U.S. Department of Health and Human
Services, Office of Disease Prevention and Health
Promotion. (n.d.). Healthy People 2010 archive.
Retrieved from http://www.healthypeople.gov
/2010/.
168 U.S. Department of Health and Human
Services, Office of Disease Prevention and Health
Promotion. (2011, June). Healthy People 2020:
Immunization and infectious diseases. Retrieved
from http://www.healthypeople.gov/2020/
topicsobjectives2020/overview.aspx?topicid=23.
169 Centers for Disease Control and Prevention,
National Center for Health Statistics. (various years
1988–2006). National Hospital Discharge Survey.

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stated previously, patients in LTCHs are
at high risk of contracting pneumonia as
a complication of another medical
condition. The MAP supports the
direction of this measure and believes it
is an important aspect of care in
LTCHs.170
As indicated previously, section
1886(m)(5)(D)(ii) of the Act provides the
Secretary with authority to adopt nonNQF-endorsed measures. We reviewed
the NQF’s consensus-endorsed
measures and were unable to identify
any NQF-endorsed measures for
pneumococcal vaccination in the LTCH
setting. We are unaware of any other
measures for pneumococcal vaccination
in the LTCH setting that have been
approved by voluntary consensus
standards bodies and endorsed by NQF.
We proposed adopting an application of
the Percent of Residents Assessed and
Appropriately Given the Pneumococcal
Vaccine (Short-Stay) (NQF #0682) for
application in the LTCHQR Program.
This application is also consistent with
the 2008 NQF steering committee
recommendation that ‘‘in the interest of
standardization and minimizing the
burden for those implementing and
using measures, measure harmonization
is an important consideration in
evaluating and recommending measures
for endorsement.’’ 171 Data for this
measure as it applies to nursing home
residents are currently collected and
reported as part of the Nursing Home
Quality Initiative.
A description of this measure’s
technical specifications and the data
elements that are currently used for the
Nursing Home Quality Initiative are
available in the MDS 3.0 QM User’s
Manual available on our Web site at:
http://www.cms.gov/NursingHome
QualityInits/Downloads/MDS30QMManual.pdf.172
We proposed that submission of data
for this measure will be incorporated
into the existing data collection and
submission framework for LTCHs
adopted for the FY 2014 payment
170 National Quality Forum (2012) Input on
Measures for Consideration by HHS for 2012
Rulemaking. Available; http://www.qualityforum.
org/WorkArea/linkit.aspx?LinkIdentifier=id&
ItemID=69885. pp. 105.
171 National Quality Forum (2008, December)
National Voluntary Consensus Standards for
influenza and pneumococcal vaccinations retrieved
from http://www.qualityforum.org/Publications/
2008/12/National_Voluntary_Consensus_Standards
_for_Influenza_and_Pneumococcal_Immunizations
.aspx.
172 Centers for Medicare and Medicaid Services
(2012, March). MDS 3.0 Quality Measures User’s
Manual. V5.0. pp. 15. Retrieved from: https://www.
cms.gov/NursingHomeQualityInits/Downloads/
MDS30QM-Manual.pdf.

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determinations.173 We intended to
revise the LTCH CARE data set to
include new items which assess
patient’s pneumococcal vaccination
status should this proposed measure be
adopted. These items will be based on
the items from the Minimum Data Set
(MDS) 3.0 items.174
By building on the existing LTCH
reporting and submission infrastructure,
such as the LTCH CARE data set, which
will be used by LTCHs for data
collection beginning October 1, 2012,
we intend to reduce the administrative
burden related to data collection and
submission for this measure under the
LTCHQR Program. We invited public
comment on this proposed measure for
the FY 2016 payment determination and
subsequent fiscal years.
Comment: Several commenters
expressed support for the expansion of
the Percent of Residents or Patients Who
Were Assessed and Appropriately Given
the Pneumococcal Vaccine (short-Stay)
to the LTCHQR Program. Commenters
remarked that patients in LTCHs often
come from elderly and/or vulnerable
populations, in which pneumococcal
disease is especially prevalent. As such,
the measure, which was originally
developed for the nursing home setting,
would be relevant to the LTCH
population and would ensure
appropriate vaccination practice among
these vulnerable patients. Commenters
encouraged CMS to move forward with
recommendations to the MAP and
development of specifications and
testing for use of the measure in LTCHs.
Response: We appreciate the
commenters’ support for our proposal to
include the Percent of Residents or
Patients Who Were Assessed and
Appropriately Given the Pneumococcal
Vaccine (short-stay) in the LTCHQR
Program. We agree that pneumococcal
disease is a serious concern amongst the
elderly and vulnerable patients in
LTCHs and that appropriate vaccination
is important in this population. As of
May 2, 2012, the NQF expanded its
endorsement of this measure to the
LTCH setting and changed the title to
Percent of Residents or Patients Who
173 The LTCH CARE Data Set, the data collection
instrument that will be used to submit data on this
measure, is approved under Paperwork Reduction
Act (PRA) review by the Office of Management and
Budget. It is discussed in a PRA notice that
appeared in the September 2, 2011 Federal Register
(76 FR 54776). The OMB Control Number is 0938–
1163. The file number for the LTCH PRA package
is CMS–10409.
174 Centers for Medicare & Medicaid Services.
MDS 3.0 Item Subsets V1.10.4 for the April 1, 2012
Release. Retrieved from https://www.cms.gov/
NursingHomeQualityInits/30_NHQIMDS30
TechnicalInformation.asp.

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Have Been Assessed and Appropriately
Given the Pneumococcal Vaccine.
Comment: Several commenters
expressed concern that the introduction
of the Percent of Residents or Patients
Who Were Assessed and Appropriately
Given the Pneumococcal Vaccine (shortstay) to the LTCHQR Program was
redundant, given its inclusion in the
Hospital IQR Program. Commenters
stated that approximately 83 percent of
LTCH discharges had a preceding stay at
an inpatient facility and are likely to
have been vaccinated in the inpatient
facility. Commenters believed that
inclusion of this measure in both quality
reporting programs would result in
wasted resources and inefficiencies.
Some commenters were concerned that
the inclusion of this measure in both
quality reporting programs could result
in patients getting repeat vaccinations
resulting in patient safety concerns. One
commenter requested more information
regarding the number of residents
receiving more than one vaccination per
season due to lack of documentation
and if this will be further investigated
in the future. One commenter suggested
that CMS track patients’ pneumococcal
vaccination information across settings,
so that multiple doses (which can be
contraindicated, add an unnecessary
cost to patients’ care, and present
potential health risks) can be avoided.
The commenter noted that this is
especially important for patients who
require two doses of the vaccine.
Response: We appreciate the
comments and acknowledge the
commenters’ concerns regarding
redundancy and repeat vaccination. The
specifications of the quality measure are
designed to ensure that patients are not
double counted, resources are not
wasted and patients are only given
vaccine according to CDC ACIP
guidelines for adult and pediatric
pneumococcal vaccination. Since the
proposal of this measure for the
LTCHQR Program, the CDC has advised
CMS that the ACIP guidelines for adult
and pediatric pneumococcal vaccination
are currently being re-evaluated, and
that the measure specifications might
change as a result. For that reason, we
are not finalizing this measure for the
LTCHQR Program at this time. Once we
receive further guidance from the CDC,
we will consider whether to re-propose
this measure and will take the
commenters’ concerns into account at
that time.
Comment: A few commenters
believed that this measure was not
appropriate for patients in the LTCH
setting. Commenters remarked that this
measure is only NQF endorsed for the
SNF setting and it is not appropriate to

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expand a measure to a new setting
without appropriate testing and NQF
endorsement.
Response: We appreciate the
comment and agree that patients in
LTCHs are not identical to SNF
residents. This measure was recently
NQF-endorsed for the LTCH setting.
Because LTCH patients are often elderly
and more vulnerable they have higher
rates of death and complications due to
pneumococcal disease. CDC reports that
pneumonia and influenza were the fifth
leading cause of death amongst
individuals 65 years of age and older.175
Patients in the LTCH setting are
especially at high risk of contracting
pneumonia as a complication of another
medical condition, such as stroke,
previous or recent surgery, or
ventilation—all of which are conditions
for which patients may spend some of
their recovery time in the
LTCH.176,177,178 CDC reports that
pneumonia is the third-most-frequent
HAI among post-surgical patients, with
a prevalence of 15 percent.179 The
specifications for this measure instruct
providers to deliver the pneumococcal
vaccine in accordance with CDC ACIP
guidelines for adult and pediatric
pneumococcal vaccination. We have
recently learned from the CDC,
however, that these guidelines are
currently being re-evaluated and that
the results of this evaluation could
affect this measure. For this reason, we
are not finalizing this measure for the
LTCHQR Program at this time.
Comment: Several commenters
requested clarifications of and changes
to the specifications of the Percent of
Residents or Patients Who Were
Assessed and Appropriately Given the
Seasonal Pneumococcal (short-stay)
quality measure. Commenters
specifically asked for clarification of the
definition of ‘‘appropriately given’’ and
wanted information regarding whether
the measure focused on assessment and
175 Centers for Medicare and Medicaid Services
(2011, May) Adult Immunizations: Overview.
Available from https://www.cms.gov/
adultimmuunizations/.
176 Fagon JY, Chastre J, Hance AJ, et al. (1993).
Nosocomial pneumonia in ventilated patients: A
cohort study evaluating attributable mortality and
hospital stay. Am J Med., 94(3), 281–288.
177 Gorina Y, Kelly T, Lubitz J, et al. (2008,
February). Trends in influenza and pneumonia
among older persons in the United States. Aging
Trends no. 8. Retrieved from http://www.cdc.gov/
nchs/data/ahcd/agingtrends/08influenza.pdf.
178 Centers for Disease Control and Prevention.
(2011, June). Post-procedure pneumonia (PPP)
event. Retrieved from http://www.cdc.gov/nhsn/
PDFs/pscManual/10pscPPPcurrent.pdf.
179 Centers for Disease Control and Prevention.
(2009, March). Pneumococcal polysaccharide
vaccine: What you need to know. Retrieved from
http://www.cdc.gov/vaccines/pubs/vis/downloads/
vis-ppv.pdf.

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education or on delivery of the vaccine.
Commenters expressed that providers
should be able to use medical judgment
in delivering the vaccine and that
facilities should not be penalized for
withholding the vaccine from patients
with contraindications. Some
commenters believed that facilities
should not be penalized if a patient
refuses the vaccine. Finally, several
commenters requested that we change
the name of the measure to reflect the
applicability to the LTCH setting.
Response: As we noted above, the
CDC has advised that the ACIP
guidelines for adult and pediatric
pneumococcal vaccination are currently
being re-evaluated, and that the measure
specifications might change as a result.
For that reason, we are not finalizing
this measure for the LTCHQR Program
at this time. Once we receive further
guidance from the CDC, we will
consider whether to re-propose this
measure and will take the commenters’
concerns into account at that time.
Comment: One commenter suggested
that CMS take responsibility for tracking
vaccinations and sharing this
information across facilities. Several
commenters were concerned about
patients who received the vaccine
outside of the facility, especially for
those who require two doses of the
vaccine. Other commenters expressed
concerns related to exclusions and
requested that patients for whom the
vaccination was contraindicated or
refused to be excluded. A few
commenters remarked that LTCHs
should not be penalized if they cannot
obtain records from outside facilities or
if patient or family cannot remember
this information, as long as it has made
a reasonable effort to obtain
information. One commenter suggested
that this measure could be better
addressed through a change in Medicare
CoP. Further, the commenter noted that
CMS can require minimum thresholds
for organizational compliance with the
measure and the measure is better for
CoPs rather than as quality measure.
Response: As we noted above, the
CDC has advised that the ACIP
guidelines for adult and pediatric
pneumococcal vaccination are currently
being re-evaluated, and that the measure
specifications might change as a result.
For that reason, we are not finalizing
this measure for the LTCHQR Program
at this time. Once we receive further
guidance from the CDC, we will
consider whether to repropose this
measure and will take the commenters’
concerns into account at that time.
Therefore, after consideration of the
public comments we received, we are
not adopting the proposed measure

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than 50 percent of health care personnel
each year received the influenza
vaccination until the 2009–2010 season,
when an estimated 62 percent of health
care personnel got a seasonal influenza
(3) LTCH Quality Measure #3 for the FY
vaccination. In the 2010–2011 season,
2016 Payment Determination and
63.5 percent of health care personnel
Subsequent Fiscal Years Payment
reported influenza vaccination. Healthy
Determinations: Influenza Vaccination
People 2020 (Objective IID–12.9) set a
Coverage among Healthcare Personnel
goal of 90 percent for health care
(NQF #0431)
personnel influenza vaccination.184 It is
For the FY 2016 payment
important to measure influenza
determination and subsequent fiscal
vaccination of health care personnel
years, in the FY 2013 IPPS/LTCH PPS
every season to track progress toward
proposed rule (77 FR 28097 through
this objective and to make sure that
28098), we proposed to adopt the CDChealth care personnel and their patients
developed Influenza Vaccination
are protected from influenza.185
Coverage among Healthcare Personnel
Increased influenza vaccination
(NQF #0431) that is currently collected
coverage among health care personnel is
by the CDC via the NHSN: Influenza
expected to result in reduced morbidity
Vaccination Coverage among Healthcare and mortality related to influenza virus
Personnel (NQF #0431). This measure
infection among patients, aligning with
reports on the percentage of health care
the National Quality Strategy’s aims of
personnel who receive the influenza
better care and healthy people/
vaccination.
communities. Further, the MAP
As previously noted, influenza virus
supported the direction of this measure
infections are a major source of
and believes it is an important aspect of
preventable mortality in the Medicare
care in LTCHs.186
population. Between 1976 and 2007,
In light of the previously described
influenza virus infections resulted in an
data which we believe reflects the
average of 23,607 influenza-related
significant impact influenza has on
deaths with a yearly range of 3,349 to
Medicare beneficiaries in the LTCH
48,615 deaths, with approximately 90
percent of these deaths occurring among setting, in the FY 2013 IPPS/LTCH PPS
persons aged 65 or older.180 Health care proposed rule (77 FR 28097), we
proposed adopting an influenza
personnel are at risk for both acquiring
influenza from patients and transmitting measure. Specifically, we proposed to
it to patients, and health care personnel adopt the CDC-developed Influenza
Vaccination Coverage among Healthcare
often come to work when ill.181 One
Personnel (NQF #0431) measure for the
early report of health care personnel
FY 2016 payment determination and
influenza infections during the 2009
H1N1 influenza pandemic estimated 50 subsequent fiscal year payment
determinations.
percent of infected health care
We also noted that this measure was
personnel had contracted the influenza
undergoing
NQF review as part of
virus from patients or coworkers in the
measure maintenance. As a result of this
healthcare setting.182
The CDC ACIP guidelines recommend NQF review, the measure is NQFendorsed and specified for use for all
that all health care personnel get an
acute care hospital settings (which
influenza vaccine every year to protect
themselves and patients.183 Even though includes LTCHs). We proposed this
measure because, as stated previously, it
levels of influenza vaccination among
aligns with national initiatives. This
health care personnel have slowly
measure has been finalized for reporting
increased over the past 10 years, less
in the Hospital IQR Program and the
ASCQR Program.
180 Thompson MG, Shay DK, Zhou H, et al.

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Percent of Residents or Patients
Assessed and Appropriately Given the
Pneumococcal Vaccination for the
LTCHQR Program at this time.

Estimates of deaths associated with seasonal
influenza—United States, 1976–2007. MMWR Morb
Mortal Wkly Rep. 59(33):1057–1062.
181 Wilde JA, McMillan JA, Serwint J, et al.
Effectiveness of influenza vaccine in healthcare
professionals: A randomized trial. JAMA. 1999; 281:
908–913.
182 Harriman K, Rosenberg J, Robinson S, et al.
Novel influenza A (H1N1) virus infections among
health-care personnel—United States, April–May
2009. MMWR Morb Mortal Wkly Rep. 2009; 58(23):
641–645.
183 Fiore AE, Uyeki TM, Broder K, et al.
Prevention and control of influenza with vaccines:
Recommendations of the Advisory Committee on
Immunization Practices (ACIP), 2010. MMWR
Recomm Rep. 2010. 59(08): 1–62.

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184 U.S. Department of Health and Human
Services, Office of Disease Prevention and Health
Promotion. (2011, June). Healthy People 2020:
Immunization and infectious diseases. Retrieved
from http://www.healthypeople.gov/2020/
topicsobjectives2020/overview.aspx?topicid=23.
185 Lindley MC, Zhang J, Euler G. Health care
personnel flu vaccination (2011, November).
Retrieved from http://www.cdc.gov/flu/pdf/
professionals/vaccination/1112-healthcare.pdf.
186 National Quality Forum (2012) Input on
Measures for Consideration by HHS for 2012
Rulemaking. Available; http://
www.qualityforum.org/WorkArea/
linkit.aspx?LinkIdentifier=id&ItemID=69885. pp.
105.

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This measure reports on the
percentage of health care personnel who
receive the influenza vaccination.
Health care personnel refers to all paid
and unpaid persons working in health
care settings, contractual staff not
employed by the healthcare facility, and
persons not directly involved in patient
care but potentially exposed to
infectious agents that can be transmitted
to and from health care personnel. This
measure is applicable to LTCHs (we
refer readers to the CDC/NHSN Manual,
Healthcare Personnel Safety Component
Protocol Module, Influenza Vaccination
and Exposure Management Modules,
which is available at the CDC Web site
at: http://www.cdc.gov/nhsn/PDFs/
HSPmanual/HPS_Manual.pdf for
measure specifications and additional
details).
We proposed that data collection for
this measure would be through the
CDC/NHSN (http://www.cdc.gov/nhsn/).
It is a secure Internet based surveillance
system maintained by the CDC, and can
be utilized by all types of health care
facilities in the United States, including
LTCHs. NHSN collects data via a Webbased tool hosted by the CDC and
available at: http://www.cdc.nhsn. For
FY 2016 and subsequent fiscal year
payment determinations, we proposed
that the data collection would cover the
period from October 1 through March 31
of each year, which corresponds with
how NQF specifies this measure as well
as other endorsed influenza vaccination
measures.
CDC/NHSN is also the proposed data
collection and submission framework
for reporting on CAUTI and CLABSI
measures for the FY 2015 payment
determination.187 Details related to the
procedures for using the NHSN for data
submission and information on
definitions, numerator data,
denominator data, data analyses, and
measure specifications for the Influenza
Vaccination Coverage among Healthcare
Personnel (NQF #0431) measure can be
found at http://www.cdc.gov/nhsn/hps_
fluVacc.html. By building on the CDC/
NHSN reporting and submission
infrastructure, we intend to reduce the
administrative burden related to data
collection and submission for this
measure under the LTCHQR Program.
For additional information on data
collection and submission, we refer
187 Medicare Program; Hospital Inpatient
Prospective Payment Systems for Acute Care
Hospitals and the Long-Term Care Hospital
Prospective Payment System and FY 2012 Rates;
Hospitals’ FTE Resident Caps for Graduate Medical
Education Payment, Final Rule. Federal Register
(August 18, 2011; 76 FR 51745–51846). Web.
http://www.gpo.gov/fdsys/pkg/FR–2011–08–18/pdf/
2011–19719.pdf.

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readers to section VIII.D.6. of this
preamble to this final rule.
We invited public comment on this
proposed measure for the FY 2016
payment determination and subsequent
fiscal years.
Comment: Many commenters fully
supported the inclusion of the proposed
measure in the LTCHQR Program,
stating that the measure has been tested
in multiple settings, and supported its
extension to the LTCH setting. A
commenter encouraged the
development of an infrastructure to
allow facilities to submit summarized
data on HCP influenza rates to avoid
submission of information unrelated to
the measure. Another commenter
encouraged CMS to develop the
specifications and conduct testing for
use in LTCHs.
Response: We appreciate the
commenters’ strong support for the use
of this measure. CDC added aggregate
reporting of healthcare personnel
influenza vaccination coverage to
NHSN. The measure is NQF-endorsed
for use in acute care hospital settings
including LTCHs.
Comment: One commenter expressed
concern that this measure is not an
indicator of the quality of care provided
by LTCHs, and noted that LTCH
patients do not expire due to health
care-acquired influenza.
Response: We believe that healthcare
personnel vaccination is relevant to the
issue of patient safety. Healthcare
personnel are at risk for both acquiring
influenza from patients and exposing
patients to influenza, and health care
personnel often come to work when
ill.188 Further, influenza virus infection
is common among healthcare personnel.
One study suggested that nearly onequarter of healthcare personnel were
infected during influenza season, but
few of these personnel recalled having
influenza.189 In the 2010–11 season,
63.5 percent of healthcare personnel
reported influenza vaccination. Healthy
People 2020 (Objective IID–12.9) set a
goal of 90 percent for health care
personnel influenza vaccination.190 It is
important to measure influenza
188 Wilde JA, McMillan JA, Serwint J, et al.
Effectiveness of influenza vaccine in healthcare
professionals: A randomized trial. JAMA 1999; 281:
908–913.
189 Elder AG, O’Donnell B, McCruden EA, et al.
Incidence and recall of influenza in a cohort of
Glasgow health-care workers during the 1993–4
epidemic: Results of serum testing and
questionnaire. BMJ. 1996; 313:1241–1242.
190 U.S. Department of Health and Human
Services, Office of Disease Prevention and Health
Promotion. (2011, June). Healthy People 2020:
Immunization and infectious diseases. Retrieved
from http://www.healthypeoplegov/2020/topics
objectives2020/overview.aspx?topicid=23.

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vaccination of health care personnel
every season to track progress toward
this objective and to make sure that
healthcare personnel and their patients
are protected from influenza.191
Comment: One commenter expressed
concern that a LTCH should not be
penalized if a healthcare worker is
offered, but declines, to receive the
influenza vaccine and suggested that
refusals be counted in the numerator.
Response: We thank the commenter
for this comment. We acknowledge that
there may be vaccination refusals. In
addition to including healthcare
personnel who received a vaccine (at
the facility or documented elsewhere),
personnel who did not receive the
vaccine due to contraindications, and
personnel with unknown vaccination
status, the numerator statement of the
measure includes healthcare personnel
who ‘‘declined influenza
immunization.’’ A description of the
measure is available on the NQF Web
site at: http://www.qualityforum.org/
QPS/0431. Measure specifications are
available for download under Candidate
Consensus Standards Review:
Immunizations: 0431—Influenza
Vaccination Coverage Among
Healthcare Personnel on the NQF Web
site at: http://www.qualityforum.org/
Projects/n-r/Population_Health_
Prevention/Population_Health__
Prevention_Endorsement_Maintenance
_-_Phase_1.aspx#t=2&s=&p=&e=1 and
as part of the Final Report of NQF’s
Population Health—Prevention
Endorsement Maintenance Phase 1 on
the NQF Web site at: http://www.
qualityforum.org/Projects/n-r/
Population_Health_Prevention/
Population_Health__Prevention_
Endorsement_Maintenance_-_Phase_
1.aspx#t=1&s=&p=.
Comment: One commenter suggested
that, rather than through the LTCHQR
Program, this measure could be better
addressed through a change in Medicare
CoPs. Further, the commenter noted that
CMS can require minimum thresholds
for organizational compliance with the
measure and the measure is better for
CoPs rather than as quality measure.
Response: We thank this commenter
and will take into consideration this
input during our work on the Medicare
CoP. However, at this time, we note that
in light of the evidence outlined
previously and in the FY 2013 IPPS/
LTCH PPS proposed rule, particularly
that many individuals receiving care in
the LTCH setting are elderly and within
the target population for influenza
191 Lindley MC, Zhang J, Euler G. Health care
personnel flu vaccination. http://www.cdc.gov/flu/
pdf/professionals/vaccination/1112-healthcare.pdf.

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53631

vaccination, we continue to believe the
measure is highly relevant for the LTCH
setting and appropriate to include in the
LTCHQR Program. Our use of this
measure also aligns with the MAP’s
support of the direction of this measure
and belief that it is an important aspect
of care in LTCHs.
Further, as outlined previously and in
the FY 2013 IPPS/LTCH PPS proposed
rule, this measure has been finalized for
reporting in the Hospital IQR Program
and the Ambulatory Surgical Centers
Quality Reporting Program. Hence, we
assert that this measure is an important
aspect of patient safety in all care
settings including LTCHs as outlined
previously and in the FY 2013 IPPS/
LTCH PPS proposed rule.
After consideration of the public
comments we received, we are
finalizing the Influenza Vaccination
Coverage among Healthcare Personnel
measure as proposed (NQF #0431) for
the FY 2016 payment determination and
subsequent fiscal years.
(4) LTCH Quality Measure #4 for the
FY 2016 Payment Determination and
Subsequent Fiscal Years Payment
Determinations: Ventilator Bundle
(Application of NQF #0302)
In 2009, the most frequently occurring
diagnosis in the LTCHs was MS–LTC–
DRG 207 (Respiratory Diagnosis with
Ventilator Support for 96 or more
Hours).192 Ventilator-Associated
Pneumonia (VAP) is a costly, often
deadly infection. A systematic review of
VAP found: (1) Between 10 percent and
20 percent of patients receiving greater
than 48 hours of ventilation will
develop VAP; (2) ill patients who
develop VAP are twice as likely to die
as compared with similar patients
without VAP; (3) patients with VAP
have significantly longer lengths of stay;
and (4) patients who have VAP incur
over $10,000 in additional hospital
costs.193
In light of the previously described
data on VAP which we believe reflects
the significant impact VAP has on
Medicare beneficiaries, our measure
development contractor introduced the
VAP measure for discussion at a
technical expert panel it convened on
January 31, 2011. The TEP identified
VAP as important for the LTCH setting
due to the high percentage of patients
192 Medicare Payment Advisory Commission
(MedPAC). (2011, March). Long-term care hospital
services. In Report to the Congress: Medicare
payment policy (pp. 231–256). Washington, DC:
Retrieved from http://medpacv.gov/documents/
Mar11_EntireReport.pdf.
193 Safdar, N., Dezfulian, C., Collard, H., Saint, S.
‘‘Clinical and Economic Consequences of Ventilator
Associated Pneumonia’’. Critical Care Medicine.
2005: 33(10): 2184–93.

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on ventilators. However, the panel
noted concerns about measuring the rate
of VAP due to lack of a consistent
definition, concerns of inter-rater
reliability, subjective interpretation of
VAP, and variability in diagnosing VAP.
Our measure development contractor
reviewed this concept again and
introduced the Ventilator Bundle (NQF
#0302) measure developed by Institute
of Healthcare Improvement (IHI) for
discussion to address some the concerns
noted previously at a July 7, 2011 TEP
meeting. This comprehensive ventilator
care-bundle process measure is
designed to facilitate protocols such as
weaning, and mitigate ventilator-related
infections, such as VAP. The NQFendorsed ventilator bundle measure
consists of four components: (1) Head of
the bed elevation ≥30°; (2) daily
sedation interruption and assessment of
readiness to wean; (3) peptic ulcer
disease (PUD) prophylaxis; and (4) deep
vein thrombosis (DVT) prophylaxis. The
measure steward, IHI, also recommends
a fifth element be added to the
ventilator bundle-process measure:
daily oral care with Chlorhexidine
(http://www.ihi.org/offerings/
MembershipsNetworks/MentorHospital
Registry/Pages/VentilatorBundle.aspx).
A meta-analysis of oral decontamination
found a statistically significant
reduction in VAP with use of antiseptic
oral decontamination, which supports
such an addition.194
We recognize that the Ventilator
Bundle (NQF #0302) measure is
currently endorsed for ICU patients in
the acute care hospital setting; however,
we believe this measure is highly
relevant for the LTCH setting because
ventilator patients are a large segment of
the LTCH patient population and a
process measure to reduce VAP is
important and relevant for the LTCH
setting. In addition, the MAP supports
the direction of this measure, and stated
that it is an important aspect of care in
LTCHs.195 Further, we proposed this
measure because it supports the
National Quality Strategy by supporting
better and safer care that prevents
infection among patients at risk for
VAP. For the above-described reasons,
in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28099), we
proposed to adopt the Ventilator Bundle
194 Chan, E., Ruest, A., Meade, M., Cook, D. ‘‘Oral
decontamination for prevention of pneumonia in
mechanically ventilated adults: systematic review
and meta-analysis’’. BMJ. 2007; 334: 889.
195 National Quality Forum (2012)Input on
Measures for Consideration by HHS for 2012
Rulemaking. Available; http://www.qualityforum
.org/WorkArea/linkit.aspx?LinkIdentifier=id&
ItemID=69885.. pp. 105.

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measure (NQF #0302) for application in
the LTCH setting.
As indicated previously, section
1886(m)(5)(D)(ii) of the Act provides the
Secretary with authority to adopt nonNQF-endorsed measures. We reviewed
the NQF’s consensus-endorsed
measures and were unable to identify
any NQF-endorsed measures for the
ventilator bundle in the LTCH setting.
We are unaware of any other measures
for the ventilator bundle in the LTCH
setting that have been approved by
voluntary consensus standards bodies
and endorsed by NQF. Therefore, under
the authority of section 1886(m)(5)(D)(ii)
of the Act, we proposed adopting the
Ventilator Bundle (NQF #0302) measure
for application in the FY 2016 LTCHQR
Program payment determination and
subsequent fiscal year payment
determinations.
We further noted that this measure is
undergoing endorsement maintenance
review at the NQF under the Patient
Safety Measures-Complications Project.
(http://www.qualityforum.org/Projects/
n-r/Patient_Safety_Measures_
Complications/Patient_Safety_Measures
_Complications.aspx#t=2&s=&p=).
We proposed that data collection and
submission of this measure will be
through the LTCH CARE Data Set. We
intend to revise the LTCH CARE Data
Set to include new items to evaluate
LTCHs’ compliance with each element
of the ventilator bundle measure. These
items will be based on the data elements
of the ventilator bundle in use within
hospitals implementing the ventilator
bundle process measure (NQF #0302). A
description of this measure, as it applies
to the acute care setting, is available on
the NQF Web site at: http://
www.qualityforum.org/QPS/0302.
By building on the existing LTCH
reporting and submission infrastructure,
such as the LTCH CARE Data Set, which
will be used by LTCHs for data
collection beginning October 1, 2012,
we intend to reduce the administrative
burden related to data collection and
submission for this measure under the
LTCHQR Program.
We invited public comment on this
proposed measure for the FY 2016
payment determination and subsequent
fiscal years.
Comment: Many commenters
supported use of the Ventilator Bundle,
and appreciated CMS’ recognition of
ventilator-associated pneumonia as a
costly and deadly infection that is
highly prevalent in LTCHs.
Response: We agree with the
commenters that ventilator-associated
pneumonia is both a deadly and costly
infection that is highly relevant to the

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LTCH setting. We appreciate the
commenters’ support of this measure.
Comment: Many commenters
expressed concern over the lack of NQF
endorsement of the measure in the
LTCH setting and it not being fully
supported by MAP. One commenter
recommended the measure be further
researched in the LTCH setting.
Commenters also expressed concern
regarding the measure being under
maintenance review under NQFs
infections disease project, which has not
begun yet.
Response: While we realize that the
MAP did not fully support this measure,
it supported the direction of the
measure and stated that it is an
important aspect of care in LTCHs. We
also agree with the value of the NQF
endorsement process. We proposed an
application of the Ventilator Bundle
measure (NQF #0302) with the
understanding that the measure was
being submitted to NQF for
maintenance review and update. Our
expectation was that the measure would
be re-endorsed to include a fifth element
(oral cleansing with Chlorhexidine
solution), added medical exceptions for
each of the five components of the
bundle, and expansion to settings
beyond the ICU. While the public
comments included many concerns
related to this proposal, it was our
expectation that many of these concerns
would be allayed by the update and
expansion of the measure.
Subsequent to the proposed rule, we
learned that the measure steward, the
Institute for Healthcare Improvement
(IHI), made a decision to withdraw the
Ventilator Bundle measure from
consideration for NQF re-endorsement.
After consideration of the public
comments we received, and in light of
the IHI’s withdrawal of this measure
from the NQF re-endorsement process,
we have decided to not finalize the
Ventilator Bundle measure for the
LTCHQR Program at this time. We plan
to propose an updated version of this
measure during future rulemaking.
Comment: Some commenters were
concerned about the measure requiring
peptic ulcer disease prophylaxis,
specifically that this requirement may
put patients at risk of clostridium
difficile infections.
Response: We appreciate and are
aware of the concerns posed these
commenters; however there is also
evidence that such prophylaxis is
beneficial to ventilated patients. A
prospective cohort study found patients
on mechanical ventilation more than 48
hours had 15.6 times the odds of
developing clinically important
gastrointestinal bleeding. A multiple

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regression analysis demonstrated such
ventilation to be an independent risk
factor. The same study further
demonstrated that clinically important
gastrointestinal bleeding is associated
with an increase in mortality 196. The
Institute for Health Improvement, the
steward of this measure, also notes that
peptic ulcer disease is a risk factor that
increases the mortality and morbidity of
ventilator patients and should be
maintained in the bundle. They have
further specified that if a patient has a
medical contraindication to any element
of the bundle, as evidenced in the
medical record, the patient is
considered compliant for that
element.197 However, for the reasons we
noted above, we are not adopting this
measure in this final rule.
Comment: One commenter noted that
daily sedation vacations and assessment
or readiness to wean would not be
applicable to LTCH patients because
they are usually not orally intubated
and often may not be sedated. Another
commenter noted that there is no
standard definition of ‘‘wean.’’
Additional commenters noted this
measure is intended for short-term
ventilator patients.
Response: While we appreciate this
comment, we disagree that this measure
is solely intended for the short-term
ventilator patient that is orally
intubated. We believe that this measure
is intended for patients dependent on
ventilators, regardless of airway tube
placement and length of ventilator use.
Our interpretation of the intention of
this measure is to support processes that
mitigate complications commonly
associated with ventilator use, and that
it is not solely for ‘‘ventilator weaning.’’
However, for the reasons we noted
above, we are not adopting this measure
in this final rule.
Comment: One commenter requested
that each element of the ventilator
bundle be modified to allow for the
treating physician to determine if it is
warranted and in the patient’s best
interest. Specifically, the commenter
requested that an element of the bundle
should only be applicable if it is not
medically contraindicated. Another
commenter noted that failure to
accommodate for such contraindications
means the measure is not patientcentered.
196 Cook, D., Griffith, L., Walter, S., Guyatt, G.,
Meade, M., Heyland, D., Kirby, A., Tryba, A. ‘‘The
attributable mortality and length of intensive care
unit stay of clinically important gastrointestinal
bleeding in critically ill patients’’. Critical Care. 5.
6 (2001): 368–375.
197 http://www.ihi.org/knowledge/Pages/Changes/
ImplementtheVentilatorBundle.aspx.

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Response: We thank the commenters
for the measure revision
recommendations. For the reasons we
noted above, we are not adopting this
measure in this final rule. We will take
the commenter’s concerns into account
if we consider proposing to adopt an
updated version of this measure in
future rulemaking.
Comment: Some commenters noted
that the CDC has ‘‘decertified the
traditional VAP measure used within
NHSN and is currently monitoring the
development and use of ventilatorassociated events’’ and requested that
we delay implementation of this
measure until CDC releases an updated
definition of pertaining to ventilatorassociated pneumonia.
Response: We are aware of the work
the CDC is doing relative to the VAP
measure and ventilator associated
events, and we are encouraged by its
efforts. For the reasons we noted above,
we are not adopting this measure in this
final rule. We will take the commenters’
concern into account if we consider
proposing to adopt an updated version
of this measure in future rulemaking.
Comment: Several commenters
believed CMS has not ‘‘clearly
communicated the methods by which
the data will be measured and
interpreted’’ for the ventilator bundle
measure. Further, another commenter
noted that data collection for this
measure ‘‘would be significant.’’
Response: We appreciate the concerns
expressed by the commenters and will
take them into account if we consider
proposing to adopt this measure in
future rulemaking.
Comment: One commenter noted that
CMS failed to identify whether the
measure is an outcome measure or a
process measure. Another commenter
encouraged use of an outcome-based
measure.
Response: We noted in the proposed
rule that the ventilator bundle is
comprehensive process measure
designed to mitigate ventilator-related
infections, such as VAP. As we also
noted, an outcome-based measure based
on ventilator-associated pneumonia was
not supported by technical experts due
to the difficulty in defining and
diagnosing the condition.
Comment: One commenter noted that
while CMS convened a technical expert
panel to opine on a ventilator associated
pneumonia measure, no additional
technical expert panels was held to
discuss the ventilator bundle.
Response: Both a ventilator associated
pneumonia measure and ventilator
bundle were discussed at a technical
expert panel held on July 11, 2011. The
panel was supportive of the ventilator

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bundle measure compared to the
ventilator-associated pneumonia
measure.
After consideration of the public
comments we received, as noted above,
we are not adopting this measure in this
final rule.
(5) LTCH Quality Measure #5 for the
FY 2016 Payment Determination and
Subsequent Fiscal Year Payment
Determinations: Restraint Rate per 1,000
Patient Days
Restraints are used to control behavior
for people who exhibit disruptive,
aggressive, or dangerous behavior in
health care settings. 198,199,200,201 The
negative outcomes of restraints may
include strangulation, loss of muscle
tone, decreased bone density (with
greater susceptibility for fractures),
pressure sores, increased infections,
decreased mobility, depression,
agitation, loss of dignity, social
isolation, incontinence, constipation,
functional decline, abnormal changes in
body chemistry and muscular function,
and in some cases, patient
death.202,203,204,205,206,207,208,209,210,211
198 Sullivan-Marx E, Strumpf N, Evans L, et al.
Initiation of physical restraint in nursing home
residents following restraint reduction efforts. Res
Nurs Health. 1999;22:369–79.
199 Capezuti E, Evans L, Strumpf N, et al. Physical
restraint use and falls in nursing home residents. J
Am Geriatr Soc. 1996;44:627–33.
200 Castle N, Mor V. Physical restraints in nursing
homes: a review of the literature since the Nursing
Home Reform Act of 1987. Med Care Res Rev.
1998;55(2):139–70.
201 Minnick AF, MIon LC, Johnson ME,
Catrambone C, Lepzig R. Prevalence and variation
of physical restraint in the acute care setting in the
US. J Nurs Scholarsh. 2007; 39(1): 30–37.
202 Castle N, Mor V. Physical restraints in nursing
homes: a review of the literature since the Nursing
Home Reform Act of 1987. Med Care Res Rev.
1998;55(2):139–70.
203 Williams C, Finch C. Physical restraints: not
fit for woman, man, or beast. J Am Geriatr Soc.
1997;45:773–5.
204 Sullivan-Marx E. Achieving restraint-free care
of acutely confused older adults. J Gerontol
Nurs.2001;27(4):56–61.
205 Evans L, Strumpf N, Allen-Taylor S, et al. A
clinical trial to reduce restraints in nursing homes.
J Am Geriatr Soc. 1997;45(6):675–81.
206 Capezuti E, Maislin G, Strumpf N, et al. Side
rail use and bed-related fall outcomes among
nursing home residents. J Am Geriatr Soc.
2002;50(1):90–6.
207 Parker K, Miles S. Deaths caused by bed rails.
J Am Geriatr Soc. 1997;45:797–802.
208 Feinsod FM, Moore M, Levenson S.
Eliminating full-length bed rails from long term care
facilities. Nurs Home Med. 1997;5:257–63.
209 Minnick AF, MIon LC, Johnson ME,
Catrambone C, Lepzig R. Prevalence and variation
of physical restraint in the acute care setting in the
US. J Nurs Scholarsh. 2007; 39(1): 30–37.
210 Mohoney JE. Immobility and falls. Clin Geriatr
Med. 1998. 14 (4): 699–726.
211 Inouye SK, Wagner DR, Acompara D, et al A
predictive index for functional decline in
hospitalized elderly medical patients. J Gen Intern
Med. 1993; 8(12):645–652.

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The use of physical restraints also often
constitutes a disproportionate
infringement on an individuals’
autonomy.212,213
Research suggests that other clinical
interventions are more effective than
restraints in preventing injuries from
falls. Interventions involving
physiologic care, psychosocial care and
environmental manipulation, have been
shown to be more effective than
restraints, generally without increasing
staff time or overall cost of
treatment.214,215,216,217,218,219
The principle of freedom from
physical or pharmacological restraint is
generally understood and accepted by
professional and academic
organizations. Groups such as the
National Citizens’ Coalition for Nursing
Home Reform (NCCNHR), the
Alzheimer’s Association, and the
American Physical Therapy
Association, as well as numerous
nursing homes and academic medical
research institutions are involved in
limiting the use of restraints. The Untie
the Elderly campaign has been working
since 1989 to raise public awareness of
restraint abuse,220 and the Advancing
Excellence in America’s Nursing Homes
has recently embedded reduction of the
use of restraints in nursing homes as
part of an overall goal to increase
resident mobility to help nursing home
staff address mobility issues including
the use of restraints, walking, range of
motion, transfer, and prevention of
falls.221
212 Gastmans C, Milison K. Use of physical
restraint in nursing homes: clinical-ethical
considerations. J Med Ethics. 2006;32:148–52.
213 McBrian B. Exercising restraint: clinical, legal
and ethical considerations for the patient with
Alzheimers’s disease. Accide emeg nurs. 2997 Apr
15 (2):94–100.
214 Capezuti E, Evans L, Strumpf N, et al. Physical
restraint use and falls in nursing home residents. J
Am Geriatr Soc. 1996;44:627–33.
215 Castle N, Mor V. Physical restraints in nursing
homes: a review of the literature since the Nursing
Home Reform Act of 1987. Med Care Res Rev.
1998;55(2):139–70.
216 Minnick AF, MIon LC, Johnson ME,
Catrambone C, Lepzig R. Prevalence and variation
of physical restraint in the acute care setting in the
US. J Nurs Scholarsh. 2007; 39(1): 30–37.
217 Williams C, Finch C. Physical restraints: Not
fit for woman, man, or beast. J Am Geriatr Soc.
1997;45:773–5.
218 Sullivan-Marx E. Achieving restraint-free care
of acutely confused older adults. J Gerontol
Nurs.2001;27(4):56–61.
219 Evans L, Strumpf N, Allen-Taylor S, et al. A
clinical trial to reduce restraints in nursing homes.
J Am Geriatr Soc. 1997;45(6):675–81.
220 Untie the Elderly Web site; accessed January
21, 2010, at http://ute.kendaloutreach.org/
Default.aspx
221 Advancing Excellence in America’s Nursing
Homes Web site; accessed March 24, 2012, at http:
//www.nhqualitycampaign.org/files/NewGoals_
030612.pdf and Physical Restraints Tracking Tool

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CMS and other Federal agencies have
issued several regulations regarding
restraint use in healthcare settings. In
the 2006 Medicare and Medicaid
Programs; Hospital Conditions of
Participation: Patients’ Rights final rule
(71 FR 71378 through 71428), we stated
that the use of restraints or seclusion
‘‘may only be imposed to ensure the
immediate physical safety of the patient,
a staff member, or others’’ (71 FR
71382).222 Additionally, in 2010, the
Food and Drug Administration’s
Hospital Bed Safety workgroup released
clinical guidance for limiting the use of
bed rails, reflecting concern about the
safety of restraints.223 To better align
with our guidelines, The Joint
Commission updated its standards to
establish guidelines limiting the use of
restraints and seclusion, and clarifying
the documentation and usage protocols
for hospitals in 2009.224
Recognizing the importance of a
restraint rate measure, our measure
development contractor convened a
technical expert panel to review
restraint measures for potential use in
the LTCHQR Program. The TEP
reviewed several NQF-endorsed
measures for restraint use, including
Restraint Prevalence (vest and limb
only) (NQF #0203) endorsed for shortterm acute care hospitals, HBIPS–2
Hours of Physical Restraint Use (NQF
#0640) endorsed for inpatient
psychiatric facilities, HBIPS–3 Hours of
Seclusion Use (NQF #0641) endorsed
for inpatient psychiatric facilities, and
Percent of Residents who were
Physically Restrained (Long-Stay) (NQF
# 0687) endorsed for residents who have
been in the nursing home for over 100
days. We note the measures are NQFendorsed, although not for the LTCH
setting. We submitted NQF #0687
mentioned above to the MAP for
consideration. While the MAP
supported the direction of this measure,
it also advised the measure needed to
tested in and specified for the LTCH
setting. Subsequently, we also
determined that all four of the abovev1.1 (December, 2011) accessible through http://
www.nhqualitycampaign.org/files/campaign_
updates.htm#cms.
222 CMS Medicare and Medicaid Programs;
Hospital Conditions of Participation: Patients’
Rights final rule. 2006. Available from https://www.
cms.gov/CFCsAndCoPs/downloads/finalpatient
rightsrule.pdf.
223 FDA Hospital Bed Safety Workgroup; accessed
January 25, 2010. Available from: http://www.fda.
gov/MedicalDevices/ProductsandMedical
Procedures/MedicalToolsandSupplies/Hospital
Beds/default.htm.
224 The Joint Commission. Restraint/Seclusion for
hospitals that use the joint commission for deemed
status purposes. 2009. Available from http://www.
jointcommission.org/standards_information/jcfaqde
tails.aspx?StandardsFaqId=260&ProgramId=1.

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referenced NQF measures were limited
in their potential to produce a
meaningful measurement in the LTCH
setting since these measures have look
back and monitoring periods that are
problematic for the LTCH setting.
Upon further investigation, we
identified the ‘‘Restraint Rate per 1,000
Patient Days’’ measure which was
developed by the National Association
of Long Term Hospitals (NALTH) and is
a non-core measure for The Joint
Commission ORYX Initiative. This
measure is not NQF-endorsed but it is
currently specified for and is in use by
some LTCHs that submit data for this
measure to the NALTH Health
Information System. Thus, this measure
is a feasible and practical measure for
LTCH setting. Therefore we believe it
addresses the concerns raised by MAP
with respect to NQF #0687 which is the
need for specification and use in the
LTCH setting.
After review of the previously
referenced NQF-endorsed restraint
measures, in the FY 2013 IPPS/LTCH
PPS proposed rule (77 FR 28100), we
proposed the Restraint Rate per 1,000
Patient Days measure for the FY 2016
LTCHQR Program payment
determination and subsequent fiscal
year payment determinations under the
authority in section 1886(m)(5)(D)(ii) of
the Act. We proposed to use the
exception authority because there are no
NQF endorsed measures on restraints
for the LTCH setting. Further, as
explained previously, we have given
due consideration to the existing NQF
measures on restraints (although not
endorsed for the LTCH setting) and we
believe they are not appropriate for the
LTCHQR Program. We proposed this
measure because we believe it is a
relevant, scientifically sound, valid, and
an important measure which is also
feasible for data collection in the LTCH
setting compared to the existing NQFendorsed restraint measures previously
discussed. For this measure, the
measure specifications will be made
available on the LTCHQR Program Web
site at http://www.cms.gov/LTCHQuality-Reporting/.
We proposed that the data collection
and submission of this measure will be
through the LTCH CARE Data Set. This
is the same data collection and
submission framework which we would
use to support LTCHs for reporting on
the Percent of Residents with Pressure
Ulcers That Are New or Worsened
(Short-Stay) (NQF #0678) measure.225
225 The LTCH CARE Data Set, the data collection
instrument that will be used to submit data on this
measure, is currently approved under Paperwork
Reduction Act (PRA) review by the Office of

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By building on existing data reporting
and submission infrastructure, we
intend to reduce the administrative
burden related to data collection and
submission for this measure under the
LTCHQR Program.
We invited public comment on this
proposed measure for the FY 2016
payment determination and subsequent
fiscal year payment determinations.
Comment: Several commenters
expressed support for inclusion of
Restraint Rate per 1,000 Patient Days
measure in the LTCHQR Program.
Response: We appreciate the
commenters’ support of this measure.
Comment: Several commenters stated
that this measure is not appropriate for
the LTCH setting because restraint use
is often necessary and medically
appropriate in this setting. Commenters
added that this measure has not been
tested in the LTCH setting and that
support for this measure relies heavily
on data obtained regarding restraint use
in other settings. Commenters remarked
that restraints are needed to prevent
harm to the patient caused by removing
necessary tubes and lines and that
patients in LTCHs more frequently
receive more invasive and lifesaving
treatments when compared to SNFs and
other healthcare settings on which the
data supporting this measure is based.
Response: We appreciate the
commenters’ concerns that restraint use
is often medically appropriate in the
LTCH setting and that a measure of
restraint use would thus not be
appropriate in the LTCH setting. We
agree that there are occasions in which
restraint use is appropriate, and do not
intend that a quality measure evaluating
restraint use eliminate all uses of
restraint. However, there are many
potential negative outcomes of restraints
(strangulation, loss of muscle tone,
decreased bone density, pressure sores,
increased infections, decreased
mobility, depression, agitation, loss of
dignity, social isolation, incontinence,
constipation, functional decline,
abnormal changes in body chemistry
and muscular function, patient death,
and the loss of autonomy 226,227,228,229,
230,231,232,233,234,235,236,237,238) and research
Management and Budget. It is discussed in a PRA
notice that appeared in the September 2, 2011
Federal Register (76 FR 54776). The OMB Control
Number is 0938–1163. The file number for the
LTCH PRA package is CMS–10409.
226 Castle N, Mor V. Physical restraints in nursing
homes: a review of the literature since the Nursing
Home Reform Act of 1987. Med Care Res Rev.
1998;55(2):139–70.
227 Williams C, Finch C. Physical restraints: not
fit for woman, man, or beast. J Am Geriatr Soc.
1997;45:773–5.
228 Sullivan-Marx E. Achieving restraint-free care
of acutely confused older adults. J Gerontol
Nurs.2001;27(4):56–61.

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suggests that other clinical interventions
such as psychosocial care and
environmental
manipulation 239,240,241,242,243 are more
effective than restraints in preventing
injuries from falls, including
physiologic care. Therefore, we cannot
ignore the patient safety risks
introduced by the use of restraints and
the need to reduce their use. Our goal
is to implement a measure which
encourages providers to think more
carefully when using restraints and only
use restraints when absolutely
necessary.
Comment: A few commenters
expressed concerns regarding the
definition and specifications of this
measure. One commenter was
specifically concerned that this measure
229 Evans L, Strumpf N, Allen-Taylor S, et al. A
clinical trial to reduce restraints in nursing homes.
J Am Geriatr Soc. 1997;45(6):675–81.
230 Capezuti E, Maislin G, Strumpf N, et al. Side
rail use and bed-related fall outcomes among
nursing home residents. J Am Geriatr Soc.
2002;50(1):90–6.
231 Parker K, Miles S. Deaths caused by bed rails.
J Am Geriatr Soc. 1997;45:797–802.
232 Feinsod FM, Moore M, Levenson S.
Eliminating full-length bed rails from long term care
facilities. Nurs Home Med. 1997;5:257–63.
233 Minnick AF, MIon LC, Johnson ME,
Catrambone C, Lepzig R. Prevalence and variation
of physical restraint in the acute care setting in the
US. J Nurs Scholarsh. 2007; 39(1): 30–37.
234 Parker K, Miles SH. Deaths caused by bedrails.
J Am Geriatr Soc 1997; 45 (7): 797–802.
235 Mohoney JE. Immobility and falls. Clin Geriatr
Med. 1998. 14 (4): 699–726.
236 Feinsod FM, Moore M, Levenson S.
Eliminating full-length bed rails from long term care
facilities. Nurs Home Med. 1997;5:257–63. Minnick
AF, MIon LC< Johnson ME< Catrambone C, Lepzig
R. Prevalence and variation of physical restraint in
the acute care setting int eh US. J Nurs Scholarsh.
2007; 39(1): 30–37. Parker K, Miles SH. Deaths
caused by bedrails. J Am Geriatr Soc 1997; 45 (7):
797–802. Mohoney JE. Immobility and falls. Clin
Geriatr Med. 1998. 14 (4): 699–726 Inouye SK,
Wagner DR, Acompara D, et al. A predictive index
for functional decline in hospitalized elderly
medical patients. J Gen Intern Med. 1993;
8(12):645–652.
237 Gastmans C, Milison K. Use of physical
restraint in nursing homes: clinical-ethical
considerations. J Med Ethics. 2006;32:148–52.
238 McBrian B. Exercising restraint: clinical, legal
and ethical considerations for the patient with
Alzheimers’s disease. Accide emeg nurs. 2997 Apr
15 (2):94–100.
239 Capezuti E, Evans L, Strumpf N, et al. Physical
restraint use and falls in nursing home residents. J
Am Geriatr Soc. 1996;44:627–33.
240 Castle N, Mor V. Physical restraints in nursing
homes: a review of the literature since the Nursing
Home Reform Act of 1987. Med Care Res Rev.
1998;55(2):139–70.
241 Minnick AF, MIon LC, Johnson ME,
Catrambone C, Lepzig R. Prevalence and variation
of physical restraint in the acute care setting int eh
US. J Nurs Scholarsh. 2007; 39(1): 30–37.
242 Williams C, Finch C. Physical restraints: not
fit for woman, man, or beast. J Am Geriatr Soc.
1997;45:773–5.
243 Sullivan-Marx E. Achieving restraint-free care
of acutely confused older adults. J Gerontol Nurs.
2001;27(4):56–61.

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53635

does not exclude patients who were
restrained for acute anxiety or delirium
and does not clearly define whether
restrains would be mechanical,
chemical or both. Another commenter
suggested that this measure would
compare the number of incidents of
restraint per 1,000 days and should
instead record the amount of time spent
in restraint as incidents can vary
widely.
Response: We appreciate the
comment and the concern for ensuring
that the measure allows for the proper
use of restraints. The specifications of
the Restraint Rate per 1,000 Patient Days
measure clarify that the numerator
includes ‘‘physical restraints according
to the CMS and NQF definition—‘a
physical restraint is any manual method
or physical or mechanical device,
material, or equipment attached or
adjacent to the patient’s body that he or
she cannot easily remove that restricts
freedom of movement or normal access
to one’s body.’ ’’ The measure excludes
‘‘Restraints that are only associated with
medical, dental, diagnostic or surgical
procedures and are based on the
standard practice for the procedure.’’
In developing the specifications for a
quality measure that measures
restraints, we do appreciate that some
restraints are necessary and that it is not
possible to avoid using restraints at all
times. As we explain below, we are not
finalizing our proposal to adopt this
measure for the LTCHQR Program at
this time. We intend to implement a
quality measure which reflects the
commenters’ concerns and encourages
reduced use of restraints and frequent
re-evaluation of necessity.
Comment: Several commenters
expressed concern that this measure is
not NQF-endorsed and encouraged CMS
to use measures which have been vetted
through the NQF process. Commenters
encouraged CMS to harmonize across
settings and consider using the Hours of
Physical Restraint Use measure
proposed for inclusion in the IPFQR
Program.
Response: We appreciate the
comments and understand the
commenters’ concerns that this measure
is not NQF-endorsed. A technical expert
panel hosted by our development
contractor on January 31, 2011 and
September 27, 2011 recommended the
use of the Restraint Rate per 1,000
Patient Days in the LTCH setting.
However, we also value the guidance of
NQF and appreciate the importance of
measures that help us achieve our goal
of harmonizing measures across
settings.
After consideration of the public
comments we received, we are not

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adopting the Restraint Rate per 1,000
Patient Days in the LTCHQR Program.
We intend to further consider this and
other measures of restraint use,
including the HBIPS–2 Hours of

Physical Restraint Use (NQF #0640). We
intend to propose a patient restraint
measure for the LTCHQR Program in
future rulemaking.

Set out below are the quality
measures for the FY 2016 payment
determination and subsequent payment
determinations.

NEW QUALITY MEASURES FOR THE FY 2016 LTCHQR PROGRAM PAYMENT DETERMINATION AND SUBSEQUENT PAYMENT
DETERMINATIONS
NQF Measure ID

Measure title

NQF #0138 .....................................

National Health Safety Network (NHSN) Catheter-associated Urinary Tract Infection (CAUTI) Outcome
Measure.**
National Health Safety Network (NHSN) Central line-associated Blood Stream Infection (CLABSI) Outcome
Measure.**
Percent of Residents with Pressure Ulcers That are New or Worsened (Short-Stay).**
Percent of Residents or Patients Who Were Assessed and Appropriately Given the Seasonal Influenza
Vaccine (Short-Stay).*
Influenza Vaccination Coverage among Healthcare Personnel.*

NQF #0139 .....................................
Application of NQF #0678 ..............
NQF #0680 .....................................
NQF #0431 .....................................

** Adopted for the FY 2014 payment determination and subsequent payment determinations.
* Adopted for the FY 2016 payment determination and subsequent payment determinations.

5. Timeline for Data Submission Under
the LTCHQR Program for the FY 2015
Payment Determination
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28100), for the FY
2015 payment determination, we
proposed requiring data submission on
LTCH discharges occurring from
January 1, 2013 through December 31,
2013 (CY 2013). We proposed that
LTCHs would follow the deadlines
presented in the table below to complete

submission of data for each quarter for
each proposed measure for the FY 2015
payment determination. For each
quarter outlined in the table below
during which LTCHs are required to
collect data, we proposed a final
submission deadline occurring
approximately 135 days after the end of
each quarter by which all data collected
during that quarter must be submitted.
We believe that this is a reasonable
amount of time to allow providers to
submit data and make any necessary

corrections given that this is a new
quality reporting program.
We invited public comment on a
proposed submission timeline for the
FY 2015 payment determination.
We did not receive any public
comments. We are finalizing the FY
2015 timeline for data submission, as
proposed.
Set out below is the timeline for
submission of LTCHQR Program quality
data for the FY 2015 payment
determination.

TIMELINE FOR SUBMISSION OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2015 PAYMENT DETERMINATION
Final submission deadline
for data related to the
LTCH Quality Reporting
Program FY 2015 payment
determination

Data collection timeframe: CY 2013

Q1
Q2
Q3
Q4

(January–March 2013) ..............................................................................................................................................
(April–June 2013) .....................................................................................................................................................
(July–September 2013) ............................................................................................................................................
(October–December 2013) .......................................................................................................................................

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6. Timeline for Data Submission Under
the LTCHQR Program for the FY 2016
Payment Determination
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28101), for the FY
2016 payment determination, we
proposed to require data submission on
LTCH discharges occurring from
January 1, 2014 through December 31,
2014 (CY 2014). We proposed this
timeframe because we believe this will
provide sufficient time for LTCHs and
CMS to put processes and procedures in
place to meet the additional quality
reporting requirements. We proposed
that LTCHs would follow the deadlines
presented in the table below to complete
submission of data for each quarter. For
each quarter outlined in the table below

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during which LTCHs are required to
collect data, we proposed a final
deadline occurring approximately 45
days after the end of each quarter by
which all data collected during that
quarter must be submitted. We believe
that this is a reasonable amount of time
to allow LTCHs to submit data and
make any necessary corrections. We also
proposed that similar calendar year
collection and submission deadlines
would apply to future years payment
determinations.
We invited public comment on a
proposed submission timeline for the
FY 2016 payment determination.
Comment: One commenter objected to
the reduction of the submission
timeframe from 135 days to 45 days
after each quarter.

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August 15, 2013.
November 15, 2013.
February 15, 2014.
May 15, 2014.

Response: During the early phase of
LTCHQR Program, recognizing that
LTCHQR Program is a new reporting
requirement for LTCHs, we are allowing
135 days after each quarter for
submission of data for the FY 2014 and
FY 2015 payment update
determinations. For the FY 2016
payment determination, we will allow
45 days and believe this is sufficient
time for LTCHs to submit data because
they will have had an opportunity to
become familiar with the data
submission requirements.
After consideration of the public
comments we received, we are
finalizing the timeline for FY 2016, as
proposed. Set out below is the timeline
for submission of LTCHQR Program

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53637

quality data for the FY 2016 payment
determination.

TIMELINE FOR SUBMISSION OF LTCHQR PROGRAM QUALITY DATA FOR THE FY 2016 PAYMENT DETERMINATION AND
SUBSEQUENT FISCAL YEAR PAYMENT DETERMINATIONS
Final submission deadlines
for the LTCHQR Program
FY 2016 payment
determination

Data collection timeframe: CY 2014

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Q1
Q2
Q3
Q4

(January–March 2014) ..............................................................................................................................................
(April–June 2014) .....................................................................................................................................................
(July–September 2014) ............................................................................................................................................
(October–December 2014) .......................................................................................................................................

7. Public Display of Data Quality
Measures

Program prior to making quality data
public.

Under section 1886(m)(5)(E) of the
Act, the Secretary is required to
establish procedures for making any
quality data submitted by LTCHs under
section 1886(m)(5)(C) of the Act
available to the public. In addition,
section 1886(m)(5)(E) of the Act requires
that such procedures shall ensure that a
LTCH has the opportunity to review the
data that is to be made public with
respect to its facility, prior to such data
being made public. In addition, the
statute requires that the Secretary shall
report quality measures that relate to
services furnished in LTCHs on our
Internet Web site. Therefore, the
Secretary will publicly report quality
measure data that is reported under the
LTCHQR Program. We did not propose
procedures or timelines for public
reporting of LTCHQR Program data in
the proposed rule.
Comment: One commenter urged
CMS to publicly report the LTCHQR
Program data on Hospital Compare.
This commenter further noted that the
lack of established procedures or
timelines for public reporting of these
data is inappropriate and does not
reflect the commitment to
accountability and transparency CMS
has shown in other quality reporting
programs. Another commenter noted
that a preview period of quality reports
prior to their being made public must be
present.
Response: We agree with these
commenters. We appreciate the need for
accountability and transparency for the
LTCHQR Program similar to our other
quality reporting programs. To this end,
we are continuing to undertake efforts to
establish procedures and a timeline for
the public reporting of data for the
LTCHQR Program and we will
communicate this information as soon
as it is available. Further, similar to our
other quality reporting programs, we
will provide for a preview period of
quality reports under the LTCHQR

E. Quality Reporting Requirements
Under the Ambulatory Surgical Center
Quality Reporting (ASCQR) Program

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1. Background
Section 109(b) of the Medicare
Improvements and Extension Act of
2006, under Division B, Title I of the
Tax Relief and Health Care Act of 2006,
Public Law 109–432 (MIEA–TRHCA)
amended section 1833(i) of the Act by
redesignating clause (iv) as clause (v)
and adding new clause (iv) to paragraph
(2)(D) and by adding new paragraph (7).
Section 1833(i)(2)(D)(iv) of the Act
authorizes, but does not require, the
Secretary to implement the revised ASC
payment system ‘‘in a manner so as to
provide for a reduction in any annual
update for failure to report on quality
measures in accordance with paragraph
(7).’’ Paragraph (7) contains
subparagraphs (A) and (B).
Subparagraph (A) of paragraph (7) states
the Secretary may provide that an ASC
that does not submit ‘‘data required to
be submitted on measures selected
under this paragraph with respect to a
year’’ to the Secretary in accordance
with this paragraph will incur a 2.0
percentage point reduction to any
annual increase provided under the
revised ASC payment system for such
year. It also specifies that this reduction
applies only with respect to the year
involved and will not be taken into
account in computing any annual
increase factor for a subsequent year.
Subparagraph (B) of paragraph (7)
states ‘‘[e]xcept as the Secretary may
otherwise provide,’’ the provisions of
subparagraphs (B) through (E) of
paragraph (17) of section 1833(t) of the
Act, which contain requirements for
quality reporting for hospital outpatient
services, ‘‘shall apply with respect to
services of [ASCs] under this paragraph
in a similar manner to the manner in
which they apply under such
paragraph’’ and any reference to a

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May 15, 2014
August 15, 2014
November 15, 2014
February 15, 2015

hospital, outpatient setting, or
outpatient hospital services is deemed a
reference to an ASC, the setting of an
ASC, or services of an ASC,
respectively. Pertinent to this proposed
rule are subparagraphs (B) and (E) of
section 1833(t)(17) of the Act.
Subparagraph (B) of section 1833(t)(17)
of the Act requires subsection (d)
hospitals to ‘‘submit data on measures
selected under this paragraph to the
Secretary in a form and manner, and at
a time, specified by the Secretary for
purposes of this paragraph.’’
Subparagraph (E) of section 1833(t)(17)
of the Act requires the Secretary to
‘‘establish procedures for making data
submitted under this paragraph
available to the public.’’ Further, these
procedures shall ensure that hospitals
have the opportunity to review the data
before these data are made public.
Additionally, the Secretary must ‘‘report
quality measures of process, structure,
outcome, patients’ perspectives on care,
efficiency, and costs of care that relate
to services furnished in outpatient
settings in hospitals’’ on CMS’ Internet
Web site.
Thus, subsections (i)(7)(B) and
(t)(17)(B) of section 1833 of the Act, read
together, require that ASCs submit
quality data in a form and manner, and
at a time, that the Secretary specifies.
Pertinent to this final rule, subsections
(i)(7)(B) and (t)(17)(B) of section 1833 of
the Act, read together, require the
Secretary to establish procedures for
making data submitted available to the
public and to report quality measures of
process, structure, outcome, patients’
perspectives on care, efficiency, and
cost of care that relate to services
furnished in ASCs on CMS’ Internet
Web site. Subsection (i)(7)(B) of section
1833 of the Act also specifies that these
provisions apply except as the Secretary
may otherwise provide.
In the CY 2012 OPPS/ASC final rule
with comment period, we finalized our
proposal to implement the ASC Quality
Reporting (ASCQR) Program beginning

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with the CY 2014 payment
determination (76 FR 74492 through
74517). We adopted claims-based
measures for the CY 2014 payment
determination for services furnished
between October 1, 2012 and December
31, 2012. For the CY 2015 payment
determination, we adopted the same
claims-based measures as adopted for
the CY 2014 payment determination and
two structural measures. We did not
specify the data collection period for the
claims-based measures for the CY 2015
payment determination, but specified
that reporting for the structural
measures would be between July 1, 2013
and August 15, 2013, for services
furnished between January 1, 2012 and
December 31, 2012, using an online
measure submission Web page available
at: http://www.QualityNet.org. For the
CY 2016 payment determination, we
adopted the same claims-based and
structural measures as adopted for the
CY 2015 payment determination and
one process of care measure. We did not
specify the data collection period for the
claims-based or structural measures, but
specified that data collection for the
process of care measure would be via
the National Healthcare Safety Network
beginning on October 1, 2014, and
continuing through March 31, 2015.
In the CY 2012 OPPS/ASC final rule
with comment period (76 FR 74515), we
indicated our intent to issue proposals
for administrative requirements, data
validation and completeness
requirements, and reconsideration and
appeals processes in the FY 2013 IPPS/
LTCH PPS proposed rule rather than in
the CY 2013 OPPS/ASC proposed rule
because the FY 2013 IPPS/LTCH PPS
proposed rule is scheduled to be
finalized earlier and before data
collection for the CY 2014 payment
determination, which is to begin with
services furnished on October 1, 2012.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28101 through
28105), we issued proposals for
administrative requirements, data
completeness requirements,
extraordinary circumstance waiver or
extension requests, and a
reconsideration process. As discussed
below, we did not propose to validate
claims-based and structural measures.
Further, we intend to address appeals of
reconsideration decisions in a future
rulemaking. To be eligible to receive the
full annual increase, we proposed that
ASCs must comply with the
requirements specified below for the
respective payment determination year.
We invited public comment on these
proposals.

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2. Requirements for Reporting Under the
ASCQR Program
a. Administrative Requirements
(1) Requirements Regarding QualityNet
Account and Administrator for the CYs
2014 and 2015 Payment Determinations
A QualityNet account is required to
submit quality measure data to the
QualityNet Web site and, in accordance
with CMS policy, a QualityNet
administrator is necessary to set-up a
user account for the purpose of
submitting this information to the
QualityNet Web site. The main purpose
of a QualityNet administrator is to serve
as a point of contact for security
purposes for quality reporting programs.
We believe from our experience that a
QualityNet administrator typically
fulfills a variety of tasks related to
quality reporting, such as creating,
approving, editing, and terminating
QualityNet user accounts within an
organization, and monitoring
QualityNet usage to maintain proper
security and confidentiality measures.
Thus, we highly recommend that ASCs
have and maintain a QualityNet
administrator. However, in the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28102), we did not propose that ASCs
be required to do so for the CY 2014
payment determination because ASCs
are not required to submit data to the
quality data warehouse for the CY 2014
payment determination (76 FR 74504)
and we do not want to unduly burden
ASCs by requiring ASCs to have a
QualityNet administrator. We note that
a QualityNet account is not necessary to
access information that is posted to the
QualityNet Web site, such as
specifications manuals and educational
materials.
As finalized in the CY 2012 OPPS/
ASC final rule with comment period (76
FR 74504 through 74509), for the CY
2015 payment determination, we
require ASCs to submit structural
measure data to the QualityNet Web
page. To enter these data into our data
system, we proposed that ASCs will
need to identify and register a
QualityNet administrator who follows
the registration process located on the
QualityNet Web site and submits the
information as specified on this site.
Because submission of structural
measure data is not required until the
July 1, 2013 to August 15, 2013 time
period, we proposed that ASCs would
be required to have a QualityNet
administrator at the time facilities
submit structural measure data in 2013
for the CY 2015 payment determination,
which is no later than August 15, 2013.
ASCs may have a QualityNet

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administrator prior to this date, but we
did not propose that ASCs be required
to do so.
We note that there are necessary
mailing and processing procedures for
having a QualityNet administrator
assigned by CMS separate from
completion of the forms by the ASC that
can require significant time to complete
and we strongly caution ASCs to not
wait until the deadline to apply;
instead, we recommend allowing a
minimum of 2 weeks, while strongly
suggesting allowing additional time
prior to the deadline to submit required
documentation in case of unforeseen
issues. Because ASCs will need a
QualityNet administrator only to have
the ability to set up a user account for
the purpose of submitting structural
measure data once a year, we proposed
that ASCs would not be required to
maintain a QualityNet administrator
after the entry of the structural measure
data in 2013 for the CY 2015 payment
determination. Although we highly
recommend that ASCs have and
maintain a QualityNet administrator, we
believe that requiring an ASC to
maintain a QualityNet administrator
throughout the year would increase the
burden on ASCs.
We invited public comment on these
proposals.
Comment: Some commenters
supported not requiring ASCs to
maintain a QualityNet administrator
until 2013, but recommended that the
inactivity deactivation window be
extended to one year because many
ASCs will need to access their accounts
solely on an annual basis.
Response: We appreciate the
commenters’ support. We understand
the commenters’ concerns that the
QualityNet accounts may be deactivated
because ASCs would not be submitting
data frequently. As a commenter noted
in the CY 2012 OPPS/ASC final rule
with comment period (76 FR 74515),
QualityNet accounts are automatically
deactivated after a 120-day period of
inactivity in accordance with CMS
security policy. Both the length of this
timeframe and the requirement to
maintain a QualityNet administrator
when a facility is submitting data to a
CMS system are dictated by our security
policy. If an account is deactivated due
to inactivity, it can be reactivated by
contacting the QualityNet Help Desk;
contact information for the QualityNet
Help Desk is located on the QualityNet
Web site.
After consideration of the public
comments we received, we are
finalizing our proposals without
modification that ASCs will need to
identify and register a QualityNet

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administrator who follows the
registration process located on the
QualityNet Web site and submits the
information as specified on this site and
that ASCs would be required to have a
QualityNet administrator at the time
facilities submit structural measure data
in 2013 for the CY 2015 payment
determination, which is no later than
August 15, 2013.
(2) Requirements Regarding
Participation Status for the CY 2014
Payment Determination and Subsequent
Payment Determination Years
We finalized in the CY 2012 OPPS/
ASC final rule with comment period a
policy to consider an ASC as
participating in the ASCQR Program for
the CY 2014 payment determination if
the ASC includes Quality Data Codes
(QDCs) specified for the Program on
their CY 2012 claims relating to the
finalized measures (76 FR 74516).
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28103), we
proposed that once an ASC submits any
quality measure data, it would be
considered as participating in the
ASCQR Program. Further, we proposed
that, once an ASC submits any quality
measure data and is considered to be
participating in the ASCQR Program, an
ASC would continue to be considered
participating in the Program, regardless
of whether the ASC continues to submit
quality measure data, unless the ASC
withdraws from the Program by
indicating on a participation form that
it is withdrawing, as discussed below.
For example, if an ASC includes any
QDCs on its claims for the CY 2014
payment determination, it would be
considered participating in the ASCQR
Program for the CY 2014 payment
determination and for every subsequent
payment determination unless the ASC
withdraws. Likewise, if an ASC did not
submit any QDCs for the CY 2014
payment determination, but submitted
quality measure data for the CY 2015
payment determination, the ASC would
be considered participating in the
ASCQR Program starting with the CY
2015 payment determination and
continuing for subsequent payment
determinations unless the ASC
withdraws from the Program.
We considered whether to propose
that an ASC be required to complete and
submit a notice of participation form for
the CY 2015 payment determination or
subsequent payment determination
years to indicate that the ASC is
participating in the ASCQR Program as
we require for hospitals, but decided
against this proposal because we were
concerned about the burden on ASCs.
We believe these proposals will reduce

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burden on ASCs while accomplishing
the purpose of notifying CMS of an
ASC’s participation in the ASCQR
Program.
We proposed that any and all quality
measure data submitted by the ASC
while participating in the ASCQR
Program could be made publicly
available. This policy would allow us to
provide information on the quality of
care provided to Medicare beneficiaries
which promotes transparency.
We proposed that, once an ASC
submits quality measure data indicating
its participation in the ASCQR Program,
an ASC must complete and submit an
online participation form indicating
withdrawal to withdraw from the
Program. This form would be located on
the QualityNet Web site starting in July
2013. We proposed that an ASC would
indicate on the form the initial payment
determination year to which the
withdrawal applies. We proposed a
different process for ASCs to withdraw
from participation than the process we
proposed for an ASC to participate in
the ASCQR Program because of the
payment implications of withdrawal.
We proposed that, in withdrawing from
the Program, the ASC would incur a 2.0
percentage point reduction in its annual
payment update for that payment
determination year and any subsequent
payment determination year(s) in which
it is withdrawn.
We will not make quality measure
data publicly available for that payment
determination year and any subsequent
payment determination year(s) for
which the ASC is withdrawn from the
Program.
We proposed that an ASC would
continue to be deemed withdrawn
unless the ASC starts submitting quality
measure data again. Once an ASC starts
submitting quality measure data, the
ASC would be considered participating
unless the ASC withdraws, as discussed
above. Again, we believe that these
proposals would reduce the burden on
ASCs of having to notify CMS as to
when they are participating.
We proposed that an ASC can
withdraw from the Program at any time
up to August 31, 2013 for the CY 2014
payment determination; we anticipate
that this will be the latest date possible
to allow an ASC to withdraw before
payment determinations affecting CY
2014 payment are made. We proposed
that an ASC can withdraw from the
Program at any time up to August 31,
2014, for the CY 2015 payment
determination. We will propose
withdrawal dates for later payment
determinations in future rulemakings.
We proposed that these
administrative requirements would

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53639

apply to all ASCs designated as open in
the CASPER system before January 1,
2012, for the CY 2014 payment
determination. Because ASCs are not
required to include QDCs on claims
until October 2012 for the CY 2014
payment determination, an ASC
designated as open in the CASPER
system before January 1, 2012, would be
operating for at least 10 months before
having to report any data. We believe
this would be a sufficient amount of
time for ASCs to be established to report
quality data for the CY 2014 payment
determination.
For the CY 2015 payment
determination, we proposed that these
administrative requirements would
apply to all ASCs designated as open in
the CASPER system for at least 4
months prior to January 1, 2013. We
believe that this date and length of
operations experience would provide
new ASCs sufficient time before having
to meet quality data reporting
requirements after the ASCQR
Program’s initial implementation year.
We invited public comment on these
proposals.
Comment: Commenters supported the
CMS proposal that ASCs would indicate
their participation in the ASCQR
Program solely by beginning to submit
QDCs to CMS because they believe this
is the least burdensome means for ASCs
to indicate their participation status.
Response: We appreciate the
commenters’ support. We believe this is
the least burdensome means for ASCs to
indicate their participation status.
Comment: Commenters supported the
CMS proposal to have an active
mechanism for ASCs to withdraw from
the ASCQR Program. Commenters also
agreed quality measure data should not
be publicly available for a payment
determination year and any subsequent
payment determination year(s) for
which an ASC is withdrawn from the
Program. One commenter stated that
this active mechanism will help
distinguish those ASCs who are aware
of the requirements, but choose not to
participate, from those that are
participating unsuccessfully or who are
not aware of the Program, and could
allow for more targeted educational
efforts.
Response: We appreciate the
commenters’ support.
Comment: Commenters agreed that
CMS had the right to make any data
collected under the ASCQR Program
publicly available, but made suggestions
regarding various facets of public
reporting including the ability of
facilities to preview data, delaying
public reporting, the ability of facilities
to resolve accuracy concerns, limiting

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the information reported for the first
years of the Program to whether the ASC
successfully participated in the ASCQR
Program, and including explanatory
narrative for individual measures.
Response: We thank the commenters
for their views and suggestions.
Regarding public reporting, we only
proposed that any and all quality
measure data submitted by the ASC
while participating in the ASCQR
Program could be made publicly
available; commenters agreed with this
proposal. We did not make any other
proposals regarding public reporting.
We will consider these additional
comments addressing public reporting
of ASCQR Program data in future
rulemaking.
After consideration of the public
comments we received, we are
finalizing our proposals without
modification regarding participation in
and withdrawing from the ASCQR
Program as discussed above.
b. Requirements Regarding Form,
Manner, and Timing for Claims-Based
Measures for CYs 2014 and 2015
Payment Determinations

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(1) Background
In the CY 2012 OPPS/ASC final rule
with comment period, we adopted
claims based measures for the CYs 2014
and 2015 payment determinations (76
FR 74504 through 74509). We also
finalized that, to be eligible for the full
CY 2014 ASC annual payment update,
an ASC must submit complete data on
individual quality measures through a
claims-based reporting mechanism by
submitting the appropriate QDCs on the
ASC’s Medicare claims (76 FR 74515
through 74516). Further, we finalized
the data collection period for the CY
2014 payment determination, as the
Medicare fee-for-service ASC claims
submitted for services furnished
between October 1, 2012 and December
31, 2012. We did not finalize a date by
which claims would be processed to be
considered for CY 2014 payment
determinations.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28104), we
proposed that claims for services
furnished between October 1, 2012 and
December 31, 2012 would have to be
paid by the administrative contractor by
April 30, 2013 to be included in the data
used for the CY 2014 payment
determination. We believe that this
claim paid date would allow ASCs
sufficient time to submit claims while
allowing sufficient time for CMS to
complete required data analysis and
processing to make payment
determinations and to supply this

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information to administrative
contractors.
We did not finalize a data collection
and processing period for the CY 2015
payment determination, but stated that
we intended to do so in the CY 2013
OPPS/ASC proposed rule.
We invited public comments on these
proposals.
Comment: Some commenters agreed
with the CMS proposal that claims for
services furnished between October 1,
2012 and December 31, 2012 that are
paid by April 30, 2013 be included in
the data used for the CY 2014 payment
determination stating that they believed
that this April 30, 2013 date would
allow for sufficient time for claims
processing. However, other commenters
believed the proposed period for the
collection of claims data may be too
abbreviated to capture all pertinent data.
Because ASCs have up to 1 year to
submit claims for services rendered,
some commenters suggested that the
period for the collection of claims data
be as close to 1 year from the date the
service was provided to be included in
a payment determination. Some of the
commenters that suggested that a longer
time period for claims be included,
suggested that claims for services
furnished between January 1, 2013 and
December 31, 2013 be processed by June
30, 2014 for the CY 2015 payment
determination.
Response: We appreciate the
commenters’ support of our proposals
that claims for services furnished
between October 1, 2012 and December
31, 2012 that are paid by April 30, 2013
be included in the data used for the CY
2014 payment determination. We agree
that sufficient time should be allowed
for claims processing to obtain complete
data. We have conducted an internal
analysis of claims submission by ASCs
and have found that over 90 percent of
ASC claims are submitted and paid in
our proposed timeframe. Therefore, we
believe that our proposed April 30 paid
date provides sufficient time for claims
to be submitted. In addition, while we
appreciate that a longer timeframe, for
example to June 30, may be desirable,
we believe that April 30 is the latest
date that would still allow us to acquire
and analyze the claims data, make
payment determinations, and
importantly, allow sufficient time for
the administrative contractors to
program their systems.
We did not make any proposals
regarding a data collection and
processing period for the CY 2015
payment determination, but have done
so in the CY 2013 OPPS/ASC proposed
rule.

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Comment: One commenter expressed
concern with the lag between the
quality data reporting period and the
payment reductions in the ASCQR
Program, noting that CMS finalized its
proposal to reduce ASC payments in
2014 based on data submitted in 2012.
This commenter believed that CMS
should align the penalty reporting
period with the penalty year.
Response: We understand the
commenter’s concern with the lag
between when data are reported and
when payment is affected, and we will
strive to reduce this lag without
significant adverse effects on data
completeness and quality. We interpret
the commenter’s desire to align the
penalty reporting period with the
penalty year to mean that, for example,
claims for services furnished in CY 2014
would be used to affect CY 2014
payment. This could only be
accomplished if we applied any
reduction retroactively and recouped
funds for any such reduction. We do not
believe this a feasible approach because
it could cause undue financial hardship
on an ASC to have to refund monies and
it would be administratively
burdensome for us.
After consideration of the public
comments we received, we are
finalizing our proposal, without
modification, that claims for services
furnished between October 1, 2012, and
December 31, 2012 be paid by the
administrative contractor by April 30,
2013, to be included in the data used for
the CY 2014 payment determination.
(2) Minimum Threshold for ClaimsBased Measures Using QDCs
In the CY 2012 OPPS/ASC final rule
with comment period, we finalized that
data completeness for claims-based
measures would be determined by
comparing the number of claims
meeting measure specifications that
contain the appropriate QDCs with the
number of claims that would meet
measure specifications, but did not have
the appropriate QDCs on the submitted
claim. In other words, the numerator
will be the total number of claims
meeting measure specifications that
have QDCs and the denominator will be
the total number of claims meeting
measure specifications. We stated our
intent to propose how we would assess
data completeness for claims-based
measures in this proposed rule (76 FR
74516). For the initial reporting years,
we believe that a lower threshold for
data completeness should be established
for data collection because ASCs are not
familiar with how to report quality data
under the ASCQR Program, and because
many ASCs are relatively small and they

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may need more time to set up their
reporting systems.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28104), for the
CYs 2014 and 2015 payment
determinations, we proposed that the
minimum threshold for successful
reporting be that at least 50 percent of
claims meeting measure specifications
contain QDCs. We believe 50 percent is
a reasonable minimum threshold based
upon the considerations discussed
above for the initial implementation
years of the ASCQR Program. We intend
to propose to increase this percentage
for subsequent payment determination
years as ASCs become more familiar
with reporting requirements for the
ASCQR Program.
As stated in CY 2012 OPPS/ASC final
rule with comment period (76 FR
74516), ASCs will add the appropriate
QDCs on their Medicare Part B claim
forms, the Form CMS–1500s submitted
for payment, to submit the applicable
quality data. A listing of the codes with
long and short descriptors is available in
transmittal 2425, Change Request 7754
released March 16, 2012 which can be
found on our Web site at: http://www.
cms.gov/Regulations-and-Guidance/
Guidance/Transmittals/Downloads/
R2425CP-.pdf. Details on how to use
these codes for submitting numerators
and denominator information has been
available since April 2012 in the
ASCQR Program Specifications Manual
and the QualityNet Web site at
https://www.qualitynet.org/dcs/Content
Server?c=Page&pagename=QnetPublic
%2FPage%2FQnetBasic&cid=12287
72323772.
We invited public comment on these
proposals.
Comment: Several commenters
strongly supported the proposed 50
percent minimum threshold for data
completeness of claims-based measures
for the CYs 2014 and 2015 payment
determinations. Some commenters
recommended that claims where
Medicare is the secondary payer should
be excluded from calculations of data
completeness for the CY 2014 payment
determination because private payers
will not be fully informed of the Gcodes until the January 2013 tape
release.
Response: We appreciate the
commenters’ support. We understand
that, although CMS issued the G-codes
for the ASCQR Program with the April
2012 HCPCS release, private payers will
not have the files for use until January
1, 2013. When we finalized our policy
for calculating data completeness for the
CY 2014 payment determination in the
CY 2012 OPPS/ASC final rule with
comment period (76 FR 74516), we did

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not specify whether claims where
Medicare is the secondary payer would
be included for data completeness.
However, in the CY 2013 OPPS/ASC
proposed rule, we stated that we were
proposing to use the same method for
determining data completeness that was
finalized for the CY 2014 payment
determination for the CY 2015 payment
determination and subsequent payment
determination years and specified that,
in calculating data completeness, claims
where Medicare is the primary or
secondary payer would be included.
However, because private payers will
not have the QDCs in their required
HCPCS data files until January 1, 2013,
claims with QDCs received prior to
January 1, 2013, can be rejected for
having invalid codes. As it is not
possible for ASCs to submit differing
codes on primary versus secondary
payer claims for at least some payers,
we are specifying that only claims
where Medicare is the primary payer—
not the secondary payer—will be used
in the calculation of data completeness
for the CY 2014 payment determination.
We intend to finalize what claims
would be included in calculating data
completeness for the CY 2015 payment
determination in the CY 2013 OPPS/
ASC final rule with comment period.
Comment: One commenter claimed
that statistics from the PQRS Program,
which uses G-codes on claims for
quality measure reporting, show that
claims-based reporting is much less
accurate than registry-based reporting.
This commenter recommended that
ASCs not be subject to payment
reductions for CY 2014, the first year
when payment can be reduced under
the ASCQR Program.
Response: We thank the commenter
for this information. However, we do
not know of any analysis for claimsbased and registry-based data collected
under the PQRS to support the claim
that statistics from the PQRS Program
show that claims-based reporting is less
accurate than registry-based reporting.
We are aware of a recently released
competitive Request for Proposal (RFP)
entitled ‘‘Physician Quality Reporting
System and Electronic Prescribing
Incentive Program Data Assessment,
Accuracy and Improper Payments
Identification Support’’ where we seek,
among other purposes, to validate and
verify the accuracy of Group Practice
Reporting Option claims and registry
data submitted by or on behalf of
eligible professionals. This RFP is
currently available and results from any
connected work have not yet been
initiated.
We do not agree that all ASCs should
not be subject to payment reductions for

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53641

the first year of the Program. We
delayed the start of required data
collection for the CY 2014 payment
determination until October 1, 2012 (76
FR 74516) as suggested by public
comments. We have provided time for
ASCs to practice using QDCs. QDCs for
ASCQR Program reporting may be used
beginning with April 2012 services.
Based upon an internal analysis, ASCs
are successfully submitting these codes
on their Medicare claims. Therefore, we
did not propose and are not delaying the
implementation of the payment
reduction under the ASCQR Program.
Comment: Many commenters
expressed their views on and made
suggestions for ASCQR Program
measures and measure specifications.
Response: We thank the commenters
for taking the time to express these
views and suggestions. However, we did
not make any proposals regarding
measures or measure specifications. We
will consider these comments when we
make proposals regarding ASCQR
Program measures or measure
specifications.
After consideration of the public
comments we received, we are
finalizing our proposal that the
minimum threshold for successful
reporting for the CYs 2014 and 2015
payment determinations be that at least
50 percent of claims meeting measure
specifications contain QDCs. As
discussed above, only claims where
Medicare is the primary payer will be
used in the calculation of data
completeness for the CY 2014 payment
determination.
c. ASCQR Program Validation of
Claims-Based and Structural Measures
We received comments on the CY
2012 OPPS/ASC proposed rule
requesting that rules for data validation
be adopted as soon as possible (76 FR
74515). We noted that structural
measures historically have not been
validated through independent medical
record review in our quality reporting
programs for hospitals due to the lack of
relevant information in medical record
documentation for specific data
elements of the measures, such as use of
a safe surgery checklist. Likewise, we
have not historically validated claimsbased measures for hospitals. Thus, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28104), consistent with
other CMS quality reporting programs,
we did not propose to validate claimsbased measures (beyond the usual
claims validation activities conducted
by our administrative contractors) and
structural measures for the ASCQR
Program.

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Comment: Several commenters urged
CMS to reconsider the need for data
validation to ensure standardization and
accuracy. Some of these commenters
believed that such a data validation
process should involve independent
review of medical records. One
commenter stated that, although it may
be acceptable at this time to not perform
validity testing on the data, it
recommended that prior to using ASC
measures for accountability purposes
(for example, public reporting, pay for
performance), CMS develop and deploy
a plan for such testing. The commenter
believed that scientific acceptability of
the measure is, in part, based on the
quality of the data that is used. Having
taken such a validation step would be
informative in both refining the measure
and arriving upon a set of ASC
measures.
Response: We appreciate and share
the commenters’ concern about
standardization and the desire for
accuracy. We agree that, before using
data collected for a quality data
reporting program for such activities as
public reporting, it is preferable to be
able to assess the accuracy of the data
reported (we note that the ASCQR
Program is a pay for reporting program
and not pay for performance program).
However, this preference is
counterbalanced by the feasibility of
being able to do so. Structural measures
historically have not been validated
through independent medical record
review in our quality reporting
programs for hospitals (the Hospital IQR
and Hospital OQR Programs). We have
not validated structural measures due to
the lack of relevant information in
medical record documentation for
specific data elements of the measures,
such as use of a safe surgery checklist.
Because we do not believe at this time
that there is a method for us to
effectively validate structural measure
data, we are not requiring a data
validation process for our current
structural measures under the ASCQR
Program.
In regard to the current ASCQR
Program claims-based measures, the
number of events expected to be
reported is small because most of the
measures are for adverse or rare events.
In this situation, any random selection
of cases would require a burdensome
sample size. Further, we expect the
accuracy for reported adverse events to
be high. Because we do not believe at
this time that any results that could be
obtained justify the burden associated
with a data validation process which
would necessitate an independent
validation effort, we also are not

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requiring a data validation process for
our current claims-based measures.
As we gain more experience with the
ASCQR Program, we will reassess
whether a data validation process for
claims-based and structural measures is
needed.
3. Extraordinary Circumstances
Extension or Waiver for the CY 2014
Payment Determination and Subsequent
Payment Determination Years
In our experience, there have been
times when facilities have been unable
to submit information to meet program
requirements due to extraordinary
circumstances that are not within their
control. It is our goal to not penalize
such entities for such circumstances and
we do not want to unduly increase their
burden during these times. Therefore, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28104 through 28105), we
proposed procedures for extraordinary
circumstance extension or waiver
requests for the submission of
information, including but not limited
to, QDCs submitted on claims, required
under the ASCQR Program.
In the event of extraordinary
circumstances, such as a natural
disaster, that is not within the control of
the ASC, we proposed to adopt a
process for an extension or waiver for
submitting information for meeting
program requirements that is similar to
the one adopted for the Hospital OQR
Program because this process has been
effective for hospitals, and we believe
such a process also would be effective
for ASCs. We proposed that an ASC
would complete a request form that
would be made available on the
QualityNet Web site and submit the
request to CMS. We proposed that the
following information must be noted on
the form:
• ASC CMS Certification Number
(CCN) and related National Provider
Identifier(s) [NPI(s)];
• ASC Name;
• Contact information for a person at
the ASC with whom CMS can
communicate about this request,
including name, email address,
telephone number, and mailing address
(must include a physical address, a post
office box address is not acceptable);
• ASC’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 ASC would be able
to submit required ASCQR Program
information, and a reasonable basis for
the proposed date.

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We proposed that the request form
would be signed by a person who has
authority to sign on behalf of the ASC
and a request form would be required to
be submitted within 45 days of the date
that the extraordinary circumstance
occurred.
Following receipt of such a request,
we proposed that CMS would—
(a) Provide a written
acknowledgement using the contact
information provided in the request,
notifying the ASC contact that the ASC’s
request has been received;
(b) Provide a formal response to the
ASC contact using the contact
information provided in the request
notifying the ASC of our decision; and
(c) Complete its review of any request
and communicate its response within 90
days following CMS’s receipt of such a
request.
We proposed that we would also have
discretion to grant waivers or extensions
to ASCs that have not been formally
requested by them when we determine
that an extraordinary circumstance,
such as an act of nature (for example,
hurricane) affects an entire region or
locale. We proposed that, if we make the
determination to grant a waiver or
extension to ASCs in a region or locale,
we would communicate this decision to
ASCs and vendors through routine
communication channels, including, but
not limited to, emails and notices on the
QualityNet Web site.
We invited public comment on this
proposed process for granting
extraordinary circumstances extensions
or waivers for the submission of
information for the ASCQR Program.
Comment: Many commenters
supported having a process for ASCs to
apply for an extension or waiver of the
submission of information under the
ASCQR Program in the event of
extraordinary circumstances. Some of
these commenters recommended that
the period of time an ASC can apply be
extended, for example, to 90 days after
such an event, rather than 45 days as
proposed.
Response: We appreciate the
commenters’ support. Regarding the
timeframe to request an extension or
waiver, we have found that 45 days is
sufficient time for hospitals to make
such a request under the Hospital OQR
Program. We believe that 45 days also
would be sufficient time for ASCs to
make such requests. We believe that
more than 45 days to complete and
submit a form will only serve to delay
the process. We also proposed and are
finalizing a policy that we would have
discretion to grant waivers or extensions
to ASCs that have not been formally
requested by them when we determine

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that an extraordinary circumstance,
such as an act of nature (for example,
hurricane) affects an entire region or
locale.
Comment: Some commenters noted
unforeseen issues related to information
technology failures that could prevent
ASCs from participating in the ASCQR
Program. Examples of such included
clearinghouses stripping the QDCs from
claims before the claims go to the MAC
for processing and problems with billing
software not allowing the reporting of a
code with a zero dollar charge.
Response: We are aware of situations
where clearinghouses are removing
QDCs from claims as well as of nonMedicare payers rejecting claims with
QDCs as having invalid codes. We note
that we issue an update tape containing
all valid HCPCS codes and that
clearinghouses should abide by the
complete listing of HCPCS codes and
should not remove these HCPCS codes
from claims. However, we would
consider inappropriate removal or
rejection of QDCs by clearinghouses as
well as private payers an extraordinary
circumstance if the ASC was able to
sufficiently document refusal by a
clearinghouse or private payer to follow
our HCPCS usage standards that could
result in the ASC suffering substantial
risk of having a payment reduction
under the ASCQR Program. This
documentation must include
substantive efforts made by the ASC to
inform the clearinghouse or private
payer of the need to follow our HCPCS
usage standards. We also are aware of
the need for the placement of a nominal
value in the payment field for some
billing software and we have issued
guidance on this issue. This guidance is
currently available in the Question and
Answer Tool on the QualityNet Web site
located at http://www.Qualitynet.org
under the question with Answer ID
158904 entitled ‘‘What are the G-codes
for the ASC measures, and where and
how do I use them?’’
After consideration of the public
comments we received, we are
finalizing our proposals without
modification regarding a process for an
extension or waiver of the submission of
information required under the ASCQR
Program.
4. ASCQR Program Reconsideration
Procedures for the CY 2014 Payment
Determination and Subsequent Payment
Determination Years
We have established similar processes
by which participating hospitals can
submit requests for reconsideration of
quality reporting program payment
determinations for the Hospital IQR
Program and the Hospital OQR Program.

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We believe these reconsideration
processes have been effective in the
hospital quality reporting programs and
such a process would be effective for
ASC quality reporting. Therefore, in the
FY 2013 IPPS/LTCH PPS proposed rule
(77 FR 28105), we proposed to
implement a reconsideration process for
the ASCQR Program modeled after the
reconsideration processes we
implemented for the Hospital IQR and
Hospital OQR Programs.
We proposed that an ASC seeking
reconsideration would be required to
submit to CMS a Reconsideration
Request form that would be made
available on the QualityNet Web site.
We proposed that the request form
would be signed by a person who has
authority to sign on behalf of the ASC
and that this form must be submitted by
March 17 of the affected payment year
(for example, for the CY 2014 payment
determination, the request must be
submitted by March 17, 2014).
We proposed to use a deadline of
March 17 to provide sufficient time for
an ASC to see the effects of a payment
reduction on its January claims.
Administrative contractors have 30 days
to process (pay or deny) clean claims.
Administrative contractors have 45 days
to process claims other than clean ones
(that is, claims that require the
contractor to query for more
information, look at medical
documentation, among others) (Claims
Processing Manual, Chapter 1, Section
80; sections 1869(a)(2), 1816(c)(2) and
1842(c)(2) of the Act). We proposed
March 17 because this date is 45 days
after an ASC would have had the
opportunity to provide one full month
of services (that is, March 17 is 45 days
after January 31).
This Reconsideration Request form
would contain the following
information:
• ASC CCN and related NPI(s);
• ASC Name;
• CMS-identified reason for not
meeting the affected payment year’s
ASCQR Program requirements as
provided in any CMS notification to the
ASC;
• ASC basis for requesting
reconsideration. We proposed that the
ASC must identify the ASC’s specific
reason(s) for believing it met the
affected payment year’s ASCQR
Program requirements and should
receive the full ASC annual payment
update;
• Contact information for a person at
the ASC with whom CMS can
communicate about this request,
including name, email address,
telephone number, and mailing address

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(must include physical address, not just
a post office box); and,
• A copy of all materials that the ASC
submitted to comply with the affected
payment year’s ASCQR Program
requirements. With regard to
information submitted on claims, we
proposed that ASCs would not be
required to submit copies of all
submitted claims, but instead would
focus on the specific claims at issue.
Thus, ASCs would submit relevant
information, which could include
copies of the actual claims at issue.
Following receipt of a request for
reconsideration, we proposed that we
would:
• Provide an email acknowledgement,
using the contact information provided
in the reconsideration request, to the
ASC contact notifying the ASC that the
ASC’s request has been received; and
• Provide a formal response to the
ASC contact, using the contact
information provided in the
reconsideration request, notifying the
ASC of the outcome of the
reconsideration process.
We stated that we intend to complete
any reconsideration reviews and
communicate the results of these
determinations within 90 days
following the deadline for submitting
requests for reconsideration.
We stated that we intend to issue
proposals regarding appeals of ASCQR
Program reconsideration decisions in a
future rulemaking.
We invited public comment on our
proposed reconsideration procedures.
Comment: Several commenters
supported the CMS proposal to have a
reconsideration process. Some of these
commenters recommended longer
timeframes for an ASC to submit a
request than the proposed March 17th
deadline, including April 15th and a
minimum of 90 days.
Response: We appreciate the
commenters’ support. We also
appreciate suggestions by some
commenters to extend the time to
submit a reconsideration request.
However, we believe the March 17
deadline to submit a reconsideration
request provides ASCs with sufficient
time to assess the effects of a payment
reduction on their January claims. We
also note that the March 17 deadline is
later than the February 2 deadline that
the Hospital OQR Program allows and
the Hospital OQR Program also involves
a calendar year payment determination.
Comment: Some commenters believed
that the need for appeals could be
mitigated if CMS incorporates a
reporting feedback program that
periodically updates ASCs on their
reporting status.

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Response: We thank these
commenters for expressing this view.
An automated reporting system with
feedback reports as is supplied for the
Hospital IQR and OQR Programs will be
available for the ASCQR Program. We
plan to begin a reporting feedback
program during 2013. We intend to
provide feedback on the October 1,
2012, to December 31, 2012 claimsbased measures, via a report that will be
supplied via an ASC’s QualityNet
account. ASCs will be able to access
these automated reports via their
QualityNet accounts beginning in 2013.
Information regarding feedback reports
will be available on the QualityNet Web
site (http://www.QualityNet.org).
After consideration of the public
comments we received, we are
finalizing our proposals regarding
ASCQR Program reconsideration
procedures for the CY 2014 payment
determination and subsequent payment
determination years.
Comment: Commenters expressed
views and suggestions regarding
additional topics including mechanisms
to increase ASC awareness of the
ASCQR Program and alternate reporting
mechanisms.
Response: We thank these
commenters for their suggestions for
improving the ASCQR Program.
Although we did not make proposals on
these topics, we will consider these
views for future rulemaking and
program development. We have been
making efforts to supply information to
ASCs regarding the ASCQR Program
including information posted on the
QualityNet Web site (http://
www.QualityNet.org), an educational
mailing to ASCs, and an online question
and answer tool (http://cmsocsq.custhelp.com) which is also
accessible via the QualityNet Web site.

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F. Inpatient Psychiatric Facilities
Quality Reporting (IPFQR) Program
1. Statutory Authority
Section 1886(s)(4) of the Act, as added
and amended by sections 3401(f) and
10322(a) of the Affordable Care Act,
requires the Secretary to implement a
quality reporting program for inpatient
psychiatric hospitals and psychiatric
units. Section 1886(s)(4)(A)(i) of the Act
requires that, for rate year (RY) 2014 and
each subsequent rate year, the Secretary
shall reduce any annual update to a
standard Federal rate for discharges
occurring during such rate year by 2.0
percentage points for any inpatient
psychiatric hospital or psychiatric unit
that does not comply with quality data
submission requirements with respect to
an applicable rate year.

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We note that section 1886(s)(4)(A)(i)
of the Act uses the term ‘‘rate year.’’
Beginning with the annual update of the
inpatient psychiatric facility prospective
payment system (IPF PPS) that took
effect on July 1, 2011 (RY 2012), we
aligned the IPF PPS update with the
annual update of the ICD–9–CM codes,
which are effective on October 1 of each
year. The change allows for annual
payment updates and the ICD–9–CM
coding update to occur on the same
schedule and appear in the same
Federal Register document, thus
making updating rules more
administratively efficient. To reflect the
change to the annual payment rate
update cycle, we revised the regulations
at 42 CFR 412.402 to specify that,
beginning October 1, 2012, the 12month period of October 1 through
September 30 is referred to as a fiscal
year (76 FR 26435). For more
information regarding this terminology
change, we refer readers to section III.
of the RY 2012 IPF PPS final rule (76 FR
26434 through 26435). For purposes of
the discussion below, the term ‘‘rate
year’’ and ‘‘fiscal year’’ both refer to the
period beginning October 1 and ending
September 30. To avoid any confusion
that may be caused by using the term
‘‘rate year’’ with respect to the inpatient
psychiatric hospitals and psychiatric
units quality reporting program, we will
use the term ‘‘fiscal year’’ rather than
‘‘rate year’’ throughout this proposed
rule, even when we are referring to
statutory provisions that refer to ‘‘rate
year.’’
As provided in section
1886(s)(4)(A)(ii) of the Act, the
application of the reduction for failure
to report under section 1886(s)(4)(A)(i)
of the Act may result in an annual
update of less than 0.0 percent for a
fiscal year, and may result in payment
rates under section 1886(s)(1) of the Act
being less than such payment rates for
the preceding year. In addition, section
1886(s)(4)(B) of the Act requires that the
application of the reduction to a
standard Federal rate update be
noncumulative across fiscal years. Thus,
any reduction applied under section
1886(s)(4)(A) of the Act will apply only
with respect to the fiscal year rate
involved and the Secretary shall not
take into account such reduction in
computing the payment amount under
the system described in section
1886(s)(1) of the Act for subsequent
years.
Section 1886(s)(4)(C) of the Act
requires that, for FY 2014 (October 1,
2013 through September 30, 2014) and
each subsequent year, each psychiatric
hospital and psychiatric unit shall
submit to the Secretary data on quality

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measures as specified by the Secretary.
Such data shall be submitted in a form
and manner, and at a time, specified by
the Secretary. Under section
1886(s)(4)(D)(i) of the Act, measures
selected for the quality reporting
program must have been endorsed by
the entity with a contract under section
1890(a) of the Act. The NQF currently
holds this contract. The NQF is a
voluntary, consensus-based, standardsetting 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 generally
prefer to adopt NQF-endorsed measures
in our reporting programs with some
exceptions as provided by law.
For purposes of the Inpatient
Psychiatric Facilities Quality Reporting
(IPFQR) Program, section
1886(s)(4)(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, 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.
Finally, pursuant to section
1886(s)(4)(D)(iii) of the Act, the
Secretary shall publish the measures
applicable to the FY 2014 IPFQR
Program no later than October 1, 2012.
Section 1886(s)(4)(E) of the Act
requires the Secretary to establish
procedures for making public the data
submitted by inpatient psychiatric
hospitals and psychiatric units under
the quality reporting program. Such
procedures must ensure that a facility
has the opportunity to review its data
prior to such data being made public.
The Secretary must report quality
measures that relate to services
furnished by the psychiatric hospitals
and units on a CMS Web site.
2. Application of the Payment Update
Reduction for Failure To Report for FY
2014 Payment Determination and
Subsequent Years
Beginning in FY 2014, section
1886(s)(4)(A)(i) of the Act requires the
application of a 2.0 percentage point
reduction to the applicable annual
update to a Federal standard rate for
those psychiatric hospitals and
psychiatric units that fail to comply
with the quality reporting requirements
implemented in accordance with

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section 1886(s)(4)(C) of the Act, as
detailed below. The application of the
reduction may result in an annual
update for a fiscal year that is less than
0.0 percent and in payment rates for a
fiscal year being less than the payment
rates for the preceding fiscal year.
Pursuant to section 1886(s)(4)(B) of the
Act, any such reduction is not
cumulative and it will apply only to the
fiscal year involved. In the FY 2013
IPPS/LTCH PPS proposed rule (77 FR
28106), we proposed to add new
regulatory text at 42 CFR 412.424 to
codify these requirements.
We invited public comment on the
proposed application of the payment
reduction to the annual update of the
standard Federal rate for failure to
report data on measures selected for FY
2014 and subsequent years. We did not
receive any public comments on this
issue.
We are finalizing the policy for the
application of the payment reduction to
the annual update of the standard
Federal rate for failure to report quality
data for FY 2014 and subsequent years
as proposed.
3. Covered Entities
The quality reporting requirements in
this final rule cover those psychiatric
hospitals and psychiatric units that are
reimbursed under Medicare’s IPF PPS
(42 CFR 412.404(b)). For more
information on the application of and
exceptions to the IPF PPS
reimbursement, we refer readers to the
section IV. of the November 15, 2004
IPF PPS final rule (69 FR 66926). In this
final rule, we are using the term
‘‘inpatient psychiatric facility’’ (IPF) to
refer to both inpatient psychiatric
hospitals and psychiatric units. This
usage follows the terminology we have
used in the past in our IPF PPS
regulations (42 CFR 412.402).
Comment: A few commenters
requested that CMS clarify the
applicability of the IPFQR Program. One
commenter recommended that CMS
indicate the applicable patient
population and facilities for the IPFQR
Program. One commenter asked for
clarification on the applicability of the
IPFQR Program to acute care hospitals
containing psychiatric units that are
paid under the IPF PPS. A few
commenters requested clarification on
whether the program applies to an
inpatient psychiatric unit within a
children’s hospital, where both have the
same CCN number, and whether the
payment reduction applies to that unit’s
patients or to the entire hospital.
Response: As we note in the above
section, the IPFQR Program applies to
all IPFs paid under the IPF PPS. The IPF

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PPS is applicable to freestanding
psychiatric hospitals, including
government-operated psychiatric
hospitals, and distinct part psychiatric
units of acute care hospitals and critical
access hospitals (CAHs). The IPFQR
Program does not apply to inpatient
psychiatric units within a children’s
hospital because children’s hospitals are
paid under a different payment system.
More specifically, the IPF PPS applies to
inpatient hospital services furnished by
Medicare participating entities in the
United States 244 that are classified as
psychiatric hospitals or psychiatric
units as specified in § 412.22,
§ 412.23(a), §§ 482.60 through 82.62,
§ 412.25, and § 412.27. However,
hospitals paid under the provisions
specified in § 412.22(c) are not paid
under the IPF PPS.245 If a person is an
inpatient of an IPF, then all services
(both physical and psychiatric) must be
provided by the IPF and are bundled
into the IPF payment.246
Comment: One commenter suggested
that CMS partner with the American
Hospital Association (AHA) to educate
IPFs about IPFQR Program applicability
and to consider delaying the
implementation of the IPFQR Program
until outreach and education has been
conducted.
Response: We thank the commenter
for their suggestions and will consider
collaborating with the AHA and other
entities in future outreach and
education efforts. We note that we
conducted two Listening Sessions on
June 2, 2011 and June 8, 2011 for
outreach and educational purposes. The
transcript is available on the CMS Web
site at: http://cms.gov/Medicare/
Quality-Initiatives-Patient-AssessmentInstruments/HospitalQualityInits/
HospitalHighlights.html.
We believe these public listening
sessions have provided stakeholders
adequate information to implement the
IPFQR Program within their respective
entities/organizations. We considered
the burden associated with quality data
244 As specified in § 400.200, the United States
means the 50 States, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands,
Guam, American Samoa, and the Northern Mariana
Islands.
245 These include Department of Veterans Affairs
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 specified in section
402(a) of Public Law 90–248 (42 U.S.C. 1395b–1) or
section 222(a) of Public Law 92–603 (42 U.S.C.
1395b–1(note)), and nonparticipating hospitals
furnishing emergency services to Medicare
beneficiaries.
246 Section 412.404 states that the IPF must
furnish all the necessary covered services to a
Medicare beneficiary who is an inpatient of the IPF,
either directly or under arrangement.

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reporting, the comments received in this
rule and during these public listening
sessions, and the statutory mandate to
begin this program effective with the FY
2014 payment determination. Based on
the general overall support in this rule
and the public listening sessions, we
believe that the public benefit of
reporting of quality data outweighs the
burden associated with quality data
reporting. We are implementing the
IPFQR Program in accordance with the
proposed schedule.
4. Quality Measures
a. Considerations in Selecting Quality
Measures
For purposes of the IPFQR Program,
section 1886(s)(4)(D)(i) of the Act
requires that any measure specified by
the Secretary must have been endorsed
by the entity with a contract under
section 1890(a) of the Act. The statutory
requirements under section
1886(s)(4)(D)(ii) of the Act provide an
exception 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, 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 implementing the IPFQR Program,
our overarching objective is to support
the HHS National Quality Strategy’s
three-part aim of better health care for
individuals, better health for
populations, and lower costs for health
care services (http://www.ahrq.gov/
workingforquality/nqs/#aims).
Implementation of the IPFQR Program
will help achieve the three-part aim by
creating transparency around the quality
of care provided at IPFs to support
patient decision-making and quality
improvement. Over time, the IPFQR
Program will help align the goals for
quality measurement and improvement
at IPFs with those of other providers in
the health care system.
We seek to collect data in a manner
that balances the need for information
related to the full spectrum of quality
performance and the need to minimize
the burden of data collection and
reporting. We have focused on measures
that have high impact and support CMS
and HHS priorities for improved quality
and efficiency of care provided by IPFs.
We applied the following considerations
for the development and selection of
measures:

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• Given the availability of wellvalidated measures and the need to
balance breadth with minimizing
burden, the measures should address, as
fully as possible, the six domains of
measurement that arise from the six
priorities of the National Quality
Strategy (NQS): Clinical care; personand caregiver-centered experience and
outcomes; safety; efficiency and cost
reduction; care coordination; and
community/population health.
• Public reporting should rely on a
mix of standards, outcomes, process of
care measures, and patient experience of
care measures, including measures of
care transitions and changes in patient
functional status, with an emphasis on
measurement as close to the patientcentered outcome of interest as possible.
• The measure sets should evolve so
that they include a focused set of
measures appropriate to IPFs that
reflects the level of care and the most
important areas of service and measures
for IPFs as well as measures addressing
a core set of measure concepts that align
quality improvement objectives across
all provider and supplier types and
settings.
• Measures should address gaps in
quality of inpatient psychiatric care.
• As part of our burden reduction
efforts, we continuously seek to weigh
the relevance and utility of the measures
compared to the burden on hospitals in
submitting data under the IPFQR
Program. As appropriate, we will align
our measures with other Medicare and
Medicaid quality programs and may
consider how we can incorporate data
reporting by means of electronic
reporting mechanisms, so that the
collection of performance information is
part of care delivery.
• To the extent practicable, measures
used by CMS should be nationally
endorsed by a multistakeholder
organization. Measures should be
aligned with best practices among other
payers and the needs of the end users
of the measures. We take into account
widely accepted criteria established in
medical literature. We consider
suggestions and input from technical
expert panels (TEPs), convened by CMS
contractors, which evaluate IPFQR
quality measures for importance,
scientific soundness, usability, and
feasibility.
We also take into account national
priorities and HHS Strategic Plans and
Initiatives:
• HHS engaged a wide range of
stakeholders to develop the National
Quality Strategy, as required by the
Affordable Care Act, which pursues
three aims (better care, healthy people,

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and affordable care) that establish a
framework with six identifiable
priorities (http://www.hhs.gov/
secretary/about/priorities.html and
http://www.ahrq.gov/workingforquality/
ngs):
•• Ensuring that each person and
family is engaged as partners in
their care.
•• Promoting effective
communication and coordination of
care.
•• Promoting the most effective
prevention and treatment practices
for the leading causes of mortality,
starting with cardiovascular
disease.
•• Working with communities to
promote wide use of best practices
to enable healthy living.
•• Making quality care more
affordable for individuals, families,
employers, and governments by
developing and spreading new
health care delivery models.
•• Making care safer by reducing
harm caused in the delivery of care.
• We consider recommendations of
the MAP for the inclusion of clinical
quality measures (http://
www.qualityforum.org.map/). The MAP
is a public-private partnership convened
by the NQF for the primary purpose of
providing input to HHS on selecting
performance measures for quality
reporting programs and pay-forreporting programs.
• HHS is the United States
Government’s principal department for
protecting the health of all Americans.
HHS accomplishes its mission through
programs and initiatives. The goals of
the HHS Strategic Plan for FYs 2010
through 2015 are: Strengthen Health
Care; Advance Scientific Knowledge
and Innovation; Advance the Health,
Safety, and Well-Being of the American
People; Increase Efficiency,
Transparency, and Accountability of
HHS Programs; and Strengthen the
Nation’s Health and Human Services
Infrastructure and Workforce (http://
www.hhs.gov/secretary/about/
priorities.html). HHS will update this
strategic plan every 4 years and measure
its progress in addressing specific
national problems, needs, or missionrelated challenges.
HHS prioritizes policy and program
interventions to address the leading
causes of death and disability in the
United States, including heart disease,
cancer, stroke, chronic lower respiratory
diseases, unintentional injuries, and
preventable behaviors. Initiatives such
as the HHS Action Plan to Reduce
Healthcare-Associated Infections in
clinical settings and the Partnership for
Patients exemplify these programs.

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• CMS Strategic Plan—CMS strives:
(1) To ensure measures for different
Medicare and Medicaid quality
programs are aligned with priority
quality goals, measure specifications are
aligned across settings, and outcome
measures are used whenever possible;
and (2) to move towards the collection
of quality measures from electronic
health records (EHRs) as appropriate.
We invited public comments on the
considerations used for the
development and selection of quality
measures for the IPFQR Program.
Comment: Two commenters believed
that measures adopted for the IPFQR
Program should be evidence-based,
nationally endorsed, mirror the NQS,
and measure high cost, high volume,
and problem prone areas. Additionally,
the commenters stated that the
methodology for adding and removing
measures should mirror that of the
Hospital IQR Program. Also, the
commenters recommended that CMS
not add new measures in the near future
while IPFs are acquiring more
experience with the IPFQR Program.
Response: We thank the commenters
for the input on the IPFQR Program
quality measures. As indicated in the
proposed rule and moving forward in
future rulemakings, we intend to
consider widely accepted measure
criteria established in medical literature,
adopt measures that are endorsed by
multi-stakeholders, address the
priorities of the NQS, and address high
cost, high volume and problem prone
areas. Our goal is to align the
administrative requirements of the
IPFQR Program with other quality
reporting programs such as the Hospital
IQR Program.
After consideration of the public
comments we received, we are
finalizing the considerations which we
will use for the development and
selection of the quality measures for the
IPFQR Program in the future.
b. Quality Measures Beginning with FY
2014 Payment Determination and
Subsequent Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28107), we
proposed to adopt six quality measures
for FY 2014 and subsequent fiscal years.
In selecting the proposed quality
measures discussed below, we strived to
achieve several objectives. First, we
believe the measures we proposed relate
to the general aims of better care, better
health, and lower cost and address the
six domains of quality measurement as
fully as possible. Second, we believe the
measures are tailored to the needs of
improved quality in IPFs; thus, the
measures selected are those most

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relevant to IPFs. Third, we believe the
measures promote alignment of quality
improvement objectives across provider
settings. Finally, we believe the
measures are minimally burdensome to
IPFs.
We recognize that any quality
reporting program will impose certain
data collection and reporting
requirements on participating facilities.
However, we believe that the proposed
measures minimize the collection and
reporting burden on IPFs because, under
Medicare’s IPF CoPs (42 CFR 482.61),
IPFs must maintain documentary
evidence of detailed treatment
approaches and aftercare
considerations. Further, under 42 CFR
482.21, IPFs are required to develop,
implement, and maintain an effective,
ongoing, hospital-wide data-driven
quality assessment and performance
improvement (QAPI) program as well as
documentary evidence of such program
for purposes of demonstrating their
operation to CMS. More importantly,
§ 482.21 requires that IPFs measure,
analyze, and track certain quality
indicators, including adverse patient
events, and other aspects of
performance that enable the hospital to
assess processes of care, hospital
services, and operations as part of their
QAPI Program. Because the proposed
IPFQR Program measures cover
processes that IPFs are currently
recording as Medicare CoPs, we do not
believe that reporting on the proposed
measures under the IPFQR Program
would impose a significant additional
burden on IPFs. We note that over onequarter of IPFs 247 are also already
reporting data needed to calculate the
proposed measures to The Joint
Commission (TJC) for purposes of TJC
accreditation. Thus, the IPFQR Program
will impose little additional burden for
those IPFs.
After considering the
recommendations and feedback from
content area experts and multiple
stakeholders, we proposed, for the FY
2014 payment determination and
subsequent years, six NQF-endorsed,
Hospital-Based Inpatient Psychiatric
Services (HBIPS) measures, which have
been developed by and are maintained
by TJC for purposes of assessing the
quality of inpatient psychiatric services.
These measures are: (1) HBIPS–2: Hours
of Physical Restraint Use (NQF #0640);
(2) HBIPS–3: Hours of Seclusion Use
(NQF #0641); (3) HBIPS–4: Patients
Discharged on Multiple Antipsychotic
247 Out of the 1,741 existing IPFs, 450 are
currently reporting the proposed measures to TJC.
This equates to approximately 26 percent of IPFs
that already report the measures on a regular basis.

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Medications (NQF #0552); (4) HBIPS–5:
Patients Discharged on Multiple
Antipsychotic Medications with
Appropriate Justification (NQF #0560);
(5) HBIPS–6: Post Discharge Continuing
Care Plan Created (NQF #0557); and (6)
HBIPS–7: Post-Discharge Continuing
Care Plan Transmitted to Next Level of
Care Provider Upon Discharge (NQF
#0558).248
These six proposed process measures
are NQF-endorsed and were
recommended by the MAP 249 for
inclusion in the IPFQR Program. The six
proposed measures align with three of
the six priorities of the National Quality
Strategy: Patient safety, promoting
effective prevention and treatment
practices (clinical quality of care), and
promoting effective communication and
coordination of care. Technical
specifications for these measures can
currently be found on the Web site of
TJC, the measure steward, at: http://
www.manual.jointcommission.org/
releases/TJC2012B/HospitalBased
InpatientPsychiatricServices.html.
As noted earlier, these six HBIPS
measures are currently in use by an
estimated 450 TJC-accredited IPFs,
thereby posing minimal collection
burden for these facilities. We note that
an estimated 1,100 facilities, which do
not routinely report to TJC, will incur
some data collection burden. In
addition, summary analyses of current
measure results provided to CMS by TJC
demonstrate variation in performance
among the facilities currently reporting
results for these measures, suggesting
continued opportunity for quality
improvement.
Section 1886(s)(4)(D)(i) of the Act
requires that quality measures selected
for the IPFQR Program be endorsed by
the entity with a contract under section
1890(a) of the Act. As discussed earlier,
the current holder of this contract is
NQF. The proposed measures are
currently NQF-endorsed for reporting
overall performance rates and rates for
four age groups (children, adolescents,
adults, and older adults). We proposed
to require reporting of data for all four
age groups for which the measures are
currently endorsed. More details
regarding this proposal are included in
section VIII.F.7. of the preamble of this
final rule. In addition to aligning with
248 TJC has developed seven Hospital-Based
Inpatient Psychiatric Services (HBIPS) measures.
Only six of these seven measures were proposed for
the FY 2014 payment determination; HBIPS–1 was
not proposed.
249 Measure Application Partnership, PreRulemaking Final Report: Input on Measures under
Consideration by HHS for 2012 Rulemaking, pages
95–96,. Available at: http://www.qualityforum.org/
map/.

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previous collection and reporting of
these measures by TJC, our proposal
reflects the feedback provided by the
subject-matter TEP convened by the
CMS measure development contractor
for this program and focus groups of
hospitals and vendors involved in
providing inpatient psychiatric services.
We proposed to collect aggregate data
rather than patient-level data for FY
2014 and subsequent years in
recognition of the considerable burden
to IPFs not accustomed to reporting
patient-level data. Hospitals are free to
use our paper abstraction tool and
utilize commonly available software,
like spreadsheets, to enter and compute
measure rates. We intend to provide a
template using a commonly available
spreadsheet format used by many
hospitals which will be available on the
QualityNet Web site (http://
www.qualitynet.org/). Further, IPFs are
free to procure services from TJC
vendors to assist them with data
collection. However, we note that we do
not require the use of TJC vendors.
Proposals for collection requirements
and submission timeframes are included
in section VIII.F.7. of the preamble of
this final rule. The six proposed
measures for FY 2014 and subsequent
years are described in more detail
below.
Comment: Many commenters strongly
supported the six proposed measures for
the IPFQR Program. The commenters
believed that these measures are
appropriate and will make these data
available on behavioral health public
and will provide opportunities for
national benchmarking and maximizing
performance improvement.
Response: We appreciate the
encouragement and support of the
measures. We are committed to
promoting and improving the quality of
care for Medicare beneficiaries with
mental illnesses.
(1) HBIPS–2 (Hours of Physical
Restraint Use)
The use of physical restraints
increases a patient’s risk of physical
injury as well as psychological
harm.250,251 This intervention is
intended for use only if a patient is in
imminent danger to him/herself or
others and if less restrictive
interventions have failed. It is not
intended to address staff shortages or to
250 Evans, D., Wood, J., & Lambert, L. (2003).
Patient injury and physical restraint devises: a
systematic review. Journal of Advanced Nursing,
41: 274–282.
251 New Freedom Commission on Mental Health,
Achieving the Promise: Transforming Mental Health
Care in America. Final Report. DHHS Pub. No.
SMA–03–3832. Rockville, MD: 2003.

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be used as a form of discipline or
coercion. The President’s New Freedom
Commission on Mental Health 252
explicitly recommends the reduction of
restraint use to improve quality of care.
A measure designed to reduce the use
of restraints will also help achieve the
National Quality Strategy’s goal to
improve patient safety and reduce the
risk of harm from care.
In addition to initiatives to reduce the
use of restraints, the subject-matter TEP
convened by our measure development
contractor identified patient safety as an
important measure concept and
recommended the use of the measure
HBIPS–2 (Hours of Physical Restraint
Use) in a national IPF quality reporting
program. HBIPS–2 is a process measure
that is reported as the total number of
hours of physical restraint (HBIPS–2)
use for all patients admitted to an
inpatient psychiatric facility. We believe
that fewer reported hours of physical
restraint use suggest higher quality of
care because reduced restraint time
lowers patient risk for physical injury
and psychological harm.
The numerator is defined as the total
number of hours that all psychiatric
inpatients were maintained in physical
restraint. The denominator is defined as
the number of psychiatric inpatient
hours overall. Total leave days are
excluded from the denominator.
In addition to meeting the statutory
requirements as provided in section
1886(s)(4)(D) of the Act, we believe
HBIPS–2 also meets a number of
additional considerations we take into
account when proposing quality
measures for the IPFQR Program. The
measure assesses the quality of care
provided for inpatient psychiatric
patients at the facility level.
Approximately 450 IPFs are already
collecting data on the measure for
purposes of TJC accreditation. HBIPS–2
received support from the MAP and is
aligned with the National Quality
Strategy priority for providing safer
care.
We invited public comments on the
inclusion of the proposed quality
measure HBIPS–2, Hours of Physical
Restraint Use, in the IPFQR Program
beginning with the FY 2014 payment
determination. We discuss our
proposals for collection requirements
and submission timeframes in section
VIII.F.7. of the preamble of this final
rule.
Comment: Several commenters
supported the inclusion of this
proposed measure.
252 New Freedom Commission on Mental Health,
Achieving the Promise: Transforming Mental Health
Care in America. Final Report. DHHS Pub. No.
SMA–03–3832. Rockville, MD: 2003.

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Response: We thank the commenters
for the support of this measure.
Comment: One commenter
recommended that HBIPS–2 be revised
to reduce provider burden and data
variability.
Response: We thank the commenter
for the feedback on the measure. The
NQF submission materials for HBIPS–2
submitted by TJC included data from a
sample of pilot hospitals that
demonstrated that the data elements for
the measure can be collected in a
standardized and reliable manner. As
we have mentioned, data on this
measure are currently reported by
approximately 450 TJC-accredited IPFs.
During focus groups with
representatives of these facilities,
convened by our measure development
contractor, respondents reported that
burden of reporting data on the HBIPS–
2 measure was not unreasonable as it is
already reported by a subset of IPFs, and
is consistent with the level of burden
associated with other quality measures.
We recognize that some reporting
burden may occur; however, we believe
that the significance and importance of
the measurement of hours of physical
restraints use in IPFs outweighs the
burden of reporting.
Comment: One commenter
recommended risk adjusting or
stratifying the measure by diagnosis
category and admission characteristics
(for example, voluntary versus
involuntary) to increase its usefulness
and interpretability. The commenter
further recommended excluding the day
of admission when assessing the
number of hours of restraint to control
for variation related to diagnosis
category and admission characteristics.
Response: We appreciate the
commenter’s feedback. This measure is
consistent with current treatment
guidelines, endorsed by NQF, and
currently reported, as specified, to TJC.
We note that in making its endorsement
decision, NQF carefully considered the
measurement period that includes the
day of admission and the need to risk
adjust or stratify performance on
HBIPS–2. TJC is currently monitoring
reported performance to further assess
the use of physical restraints.
Comment: One commenter
recommended modifying the measure to
assess the amount of time spent in
restraint in minutes rather than in
hours.
Response: We appreciate the
commenter’s feedback. During focus
groups sessions with both TJCaccredited IPFs and nonaccredited IPFs,
our measure development contractor
found that the current practice of
reporting HBIPS–2 in hours is useful

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and understandable to them. We believe
that reporting HBIPS–3 in minutes
would require additional user testing
before it could be implemented.
After consideration of the public
comments we received, we are
finalizing the HBIPS–2, Hours of
Physical Restraint Use measure for the
FY 2014 payment determination and
subsequent years.
(2) HBIPS–3 (Hours of Seclusion Use)
The use of seclusion increases a
patient’s risk of physical injury as well
as psychological harm.253,254 This
intervention is intended for use only if
a patient is in imminent danger to him/
herself or others and if less restrictive
interventions have failed. It is not
intended to address staff shortages or to
be used as a form of discipline or
coercion. The President’s New Freedom
Commission on Mental Health explicitly
recommends the reduction of seclusion
use to improve quality of care.255
Measures designed to reduce the use of
seclusion will also help achieve the
National Quality Strategy’s goal to
improve patient safety and reduce the
risk of harm from care.
The subject-matter TEP convened by
our measure development contractor
identified patient safety as an important
measure concept and recommended the
use of HBIPS–3 (Hours of Seclusion
Use) in a national IPF quality reporting
program. HBIPS–3 is a process measure
that is reported as the total number of
hours of seclusion use for all patients
admitted to an IPF. We believe that
fewer reported hours of seclusion use
suggest higher quality of care because
reducing seclusion time lowers patient
risk for physical injury and
psychological harm.
The numerator is defined as the total
number of hours all psychiatric
inpatients were held in seclusion. The
denominator is defined as the number of
psychiatric inpatient hours overall.
Total leave days are excluded from the
denominator.
In addition to meeting the statutory
requirements as provided in section
1886(s)(4)(D) of the Act, we believe
HBIPS–3 also meets a number of
additional considerations we take into
253 Holmes, D., Kennedy, S.L., & Perron, A.
(2004). The mentally ill and social exclusion: a
critical examination of the use of seclusion from the
patient’s perspective. Issues in Mental Health
Nursing, 25: 559–578.
254 New Freedom Commission on Mental Health,
Achieving the Promise: Transforming Mental Health
Care in America. Final Report. DHHS Pub. No.
SMA–03–3832. Rockville, MD: 2003.
255 New Freedom Commission on Mental Health,
Achieving the Promise: Transforming Mental Health
Care in America. Final Report. DHHS Pub. No.
SMA–03–3832. Rockville, MD: 2003.

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account when proposing quality
measures for the IPFQR Program. The
measure assesses the quality of care
provided for inpatient psychiatric
patients at the facility level.
Approximately 450 IPFs are already
collecting the measure for purposes of
TJC accreditation. HBIPS–3 received
support from the MAP and is aligned
with the National Quality Strategy
priority for providing safer care.
We invited public comment on the
inclusion of the proposed quality
measure HBIPS–3, Hours of Seclusion
Use, in the IPFQR Program beginning
with the FY 2014 payment
determination. We discuss our
proposals for collection requirements
and submission timeframes in section
VIII.F.7. of the preamble of this final
rule.
Comment: Several commenters
supported the inclusion of this
proposed measure.
Response: We thank the commenters
for the support of this measure.
Comment: One commenter suggested
that HBIPS–3 should be revised to
reduce provider burden and data
variability.
Response: We thank the commenters
for their feedback on the measure.
The NQF submission materials for
HBIPS–3 submitted by TJC included
data from a sample of pilot hospitals
that demonstrated that the data
elements for the measure can be
collected in a standardized and reliable
manner. As we have mentioned, this
measure is currently reported by
approximately 450 TJC-accredited IPFs.
During focus groups with
representatives of these facilities,
convened by our measure development
contractor, respondents reported that
burden of reporting HBIPS–3 was not
unreasonable as it is already reported by
a subset of IPFs, and is consistent with
that associated with other quality
measures. We recognize there may be
some reporting burden. However, we
believe that the significance and
importance of the measurement of hours
of seclusion use in IPFs outweighs the
burden of reporting.
Comment: One commenter
recommended risk adjusting or
stratifying the measure by diagnosis
category and admission characteristics
(for example, voluntary versus
involuntary) to increase its usefulness
and interpretability. The commenter
further recommended excluding the day
of admission when assessing the
number of hours of seclusion to control
for variation related to diagnosis
category and admission characteristics.
Response: We appreciate the
commmenter’s feedback. This measure

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is consistent with current treatment
guidelines, endorsed by NQF, and
reported, as specified, to TJC. We note
that in making its endorsement
decision, NQF carefully considered the
measurement period that includes the
day of admission and the need to risk
adjust or stratify performance on
HBIPS–3. TJC is currently monitoring
reported performance to further assess
the use of seclusion.
Comment: One commenter
recommended modifying the measure to
assess the amount of time spent in
seclusion in minutes rather than in
hours.
Response: We appreciate the
commenter’s recommendations. During
focus group sessions with TJCaccredited IPFs and non-accredited
IPFs, our measure development
contractor found that the current
practice of reporting HBIPS–2 in hours
is useful and understandable to them.
We believe that reporting HBIPS–3 in
minutes would require additional user
testing before it could be implemented.
After consideration of the public
comments we received, we are
finalizing the HBIPS–3 (Hours of
Seclusion Use) measure for the FY 2014
payment determination and subsequent
years
(3) HBIPS–4 (Patients Discharged on
Multiple Antipsychotic Medications)
An estimated 30 percent to 50 percent
of patients in IPFs are treated with two
or more antipsychotic medications,
which can lead to serious side effects.
Among patients without a history of
treatment failure on a single
antipsychotic, there is insufficient
evidence to conclude that patients
experience better outcomes if they are
prescribed multiple antipsychotics
compared to a single antipsychotic.
Given the risk of side effects,
stakeholders such as the National
Association of State Mental Health
Program Directors have called for the
reduction of unnecessary use of
multiple antipsychotics.256 The
American Psychiatric Association
recommends the use of multiple
antipsychotics only if a patient has had
failed attempts on single antipsychotics.
In efforts to promote effective treatment
practices, a National Quality Strategy
priority, in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28109), we
proposed to include the process
measure HBIPS–4, Patients Discharged
256 National Association of State Mental Health
Program Directors. Technical report on
polypharmacy. Alexandria, VA: 2001. Retrieved
from http://www.nasmhpd.org/general_files/
publications/med_directors_pubs/
Polypharmacy.PDF.

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on Multiple Antipsychotic Medications,
in the FY 2014 IPFQR Program. The
MAP and the subject-matter TEP
convened by our measure development
contractor support the inclusion of this
measure in the IPFQR Program.
TJC designed HBIPS–4 as part of a
paired set with HBIPS–5 (described
below), meaning they were developed to
be used together. HBIPS–4 is reported as
the rate of patients discharged on
multiple antipsychotics among patients
discharged on at least one antipsychotic
medication. We believe that lower rates
are indicative of higher quality of care
because reducing the use of multiple
antipsychotics reduces the potential
risks of harmful side effects to patients.
However, there is no expectation that
zero percent is the desired outcome
because it is recognized that in some
circumstances, use of multiple
antipsychotics may be appropriate.
The numerator is defined as
psychiatric inpatients discharged on
two or more routinely scheduled
antipsychotic medications. The
denominator is defined as all
psychiatric inpatient discharges in
which the patient was discharged on
one or more antipsychotic medications.
The measure excludes patients who
died, patients with an unplanned
departure resulting in discharge due to
elopement, and patients with an
unplanned departure resulting in
discharge due to failing to return from
leave.
Taken together, HBIPS–4 and HBIPS–
5 are intended to help reduce
unnecessary use of multiple
antipsychotics and to promote better
clinical outcomes and reduced side
effects for patients.
In addition to meeting the statutory
requirements as provided in section
1886(s)(4)(D) of the Act, we believe
HBIPS–4 also meets a number of
additional considerations we take into
account when proposing quality
measures for the IPFQR Program. The
measure assesses the quality of care
provided for inpatient psychiatric
patients at the facility level.
Approximately 450 IPFs already are
collecting and reporting the measure for
purposes of TJC accreditation. HBIPS–4
received support from the MAP and is
aligned with the National Quality
Strategy priority for promoting effective
prevention and treatment practices.
We invited public comment on the
inclusion of the proposed quality
measure HBIPS–4, Patients Discharged
on Multiple Antipsychotic Medications,
in the IPFQR Program beginning with
the FY 2014 payment determination. We
discuss our proposals for collection
requirements and submission

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timeframes in section VIII.F.7. of the
preamble of this final rule.
Comment: Several commenters
supported the inclusion of this
proposed measure.
Response: We appreciate the
commenters’ support of the measure.
Comment: One commenter objected to
the paired measures HBIPS–4 and
HBIPS–5, as they are currently
specified, citing the potential for
misinterpretation since a low
performance rate on HBIPS–4 indicates
higher quality care while a high
performance rate on HBIPS–5 indicates
higher quality care. The commenter
suggested combining HBIPS–4 and
HBIPS–5 into a single measure.
Response: We appreciate the
commenter’s input on HBIPS–4 and
HBIPS–5. Currently, these two measures
are endorsed by NQF as paired
measures; the measure specifications are
consistent with medical guidelines and
are currently reported, as specified, to
TJC. Consistent with our experience
with other reporting programs, we
understand that some consumers may
misinterpret low rates on HBIPS–4 as
poor performance. In order to minimize
confusion and misunderstanding, we
intend to test displays with target
audiences and incorporate feedback into
the display before public reporting.
Comment: Two commenters believed
that the denominator for HBIPS–4 is
defined as ‘‘psychiatric inpatients
discharged on one or more routinely
scheduled antipsychotic medications’’
as opposed to ‘‘all psychiatric inpatient
discharges.’’
Response: We inadvertently did not
correctly describe the denominator in
the proposed rule. We clarify that the
denominator is all psychiatric inpatient
discharges ‘‘in which a patient was
discharged on one or more
antipsychotic medications.’’ We will
ensure that the language is accurate in
future documents.
After consideration of the public
comments we received, we are
finalizing the HBIPS–4 (Patients
Discharged on Multiple Antipsychotic
Medications) measure for the FY 2014
payment determination and subsequent
years. We note that the denominator is
defined as all psychiatric inpatient
discharges in which a patient was
discharged on one or more
antipsychotic medications.
(4) HBIPS–5 (Patients Discharged on
Multiple Antipsychotic Medications
With Appropriate Justification)
In efforts to promote effective
treatment practices, a National Quality
Strategy priority, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28109),

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we proposed to include the process
measure HBIPS–5, Patients Discharged
on Multiple Antipsychotic Medications
with Appropriate Justification, in the FY
2014 IPFQR Program. The MAP and the
subject-matter TEP convened by our
measure development contractor
support the inclusion of this measure in
the IPFQR Program.
TJC designed HBIPS–5 as part of a
paired set with HBIPS–4, meaning they
were developed to be used together.
HBIPS–5 is collected on those patients
discharged on multiple antipsychotics
and is reported as the rate of patients
discharged on multiple antipsychotics
with appropriate justification. This
measure was designed in recognition
that there is a subsample of patients for
whom multiple antipsychotic use may
be appropriate. TJC has identified the
following justifications as appropriate
reasons for discharging a patient on
multiple antipsychotics: (1) The medical
record contains documentation of a
history of a minimum of three failed
trials of monotherapy; (2) the medical
record contains documentation of a
recommended plan to taper to
monotherapy or documentation of a
plan to decrease the dosage of one or
more antipsychotic medications while
increasing the dosage of another
antipsychotic medication to a level that
manages the patient’s symptoms with
one antipsychotic medication (that is,
cross-taper); and (3) the medical record
contains documentation of
augmentation of Clozapine. Higher rates
on HBIPS–5 indicate higher quality of
care because documenting the reasons
for assigning two or more antipsychotics
suggests that careful consideration of
the benefits of this course of treatment
were weighed against the potential
patient side effects.
The numerator statement is defined as
psychiatric inpatients discharged on
two or more routinely scheduled
antipsychotic medications with
appropriate justification. The
denominator is defined as psychiatric
inpatients discharged on two or more
routinely scheduled antipsychotic
medications. The measure excludes
patients who died, patients with an
unplanned departure resulting in
discharge due to elopement, patients
with an unplanned departure resulting
in discharge due to failing to return
from leave, and patients with a length
of stay less than or equal to 3 days.
Taken together, we believe that
HBIPS–4 and HBIPS–5 will help reduce
unnecessary use of multiple
antipsychotics and will lead to better
clinical outcomes and reduced side
effects for patients.

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In addition to meeting the statutory
requirements as provided in section
1886(s)(4)(D) of the Act, we believe
HBIPS–5 also meets a number of
additional considerations we take into
account when proposing quality
measures for the IPFQR Program. The
measure assesses the quality of care
provided for inpatient psychiatric
patients at the facility level.
Approximately 450 IPFs are already
collecting and reporting the measure for
purposes of TJC accreditation. HBIPS–5
received support from the MAP and is
aligned with the National Quality
Strategy priority for promoting effective
prevention and treatment practices.
We invited public comment on the
inclusion of the proposed quality
measure HBIPS–5, Patients Discharged
on Multiple Antipsychotic Medications
with Appropriate Justification, in the
IPFQR Program beginning with the FY
2014 payment determination. We
discuss our proposals for collection
requirements and submission
timeframes in section VIII.F.7. of the
preamble of this final rule.
Comment: Several commenters
supported the inclusion of this
proposed measure.
Response: We appreciate the
commenters’ support of the measure.
After consideration of the public
comments we received, we are
finalizing the HBIPS–5 (Patients
Discharged on Multiple Antipsychotic
Medications with Appropriate
Justification) measure for the FY 2014
payment determination and subsequent
years.
(5) HBIPS–6 (Post-Discharge Continuing
Care Plan Created)
When patients are discharged from
the hospital, they may benefit from
communication of information
regarding the care they received or
recommendations for their continued
care. For a seamless transition from one
treatment setting to another, providers
that receive patients from inpatient
settings need to know information
regarding the patient’s treatment during
hospitalization, recommendations for
post-discharge care, and any
medications the patient was discharged
on. A discharge plan facilitates this
transition of information from one
setting to another and has been shown
to have positive effects on readmissions.
The promotion of effective care
coordination is a National Quality
Strategy priority. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28110),
we proposed process measure HBIPS–6,
Post-Discharge Continuing Care Plan
Created, to promote care coordination
for patients in inpatient psychiatric

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settings. TJC designed HBIPS–6 as part
of a paired set with HBIPS–7; they were
developed to be used together. HBIPS–
6 measures whether a post-discharge
continuing care plan is created.
However, the creation of a care plan
does not necessarily mean the plan is
communicated to the patient’s next
provider. Therefore, HBIPS–7 measures
whether a post-discharge continuing
care plan is created and transmitted to
the next level of care provider. Together,
these two measures can assist facilities
in determining where breakdowns in
care processes occur. Quality care under
HBIPS–6 is indicated by patients who
are discharged with a continuing care
plan that includes the reason for the
hospitalization, the principal discharge
diagnosis, discharge medications, and
the next level of care recommendations.
HBIPS–6 is collected on all patients
admitted to IPFs. We believe that higher
rates on this measure suggest better
quality of care because greater numbers
of post-discharge plans indicate greater
opportunities for improved patientprovider and provider-provider
communication, thus leading to
improved patient care and health.
The numerator is defined as
psychiatric inpatients for whom the
post-discharge continuing care plan is
created and contains all of the
following: reason for hospitalization,
principal discharge diagnosis, discharge
medications, and next level of care
recommendations. The denominator is
defined as all psychiatric inpatient
discharges. Populations excluded from
the denominator include patients who
died, patients with an unplanned
departure resulting in discharge due to
elopement, patients or their guardians
who refused aftercare, patients or
guardians who refused to sign
authorization to release information,
and patients with an unplanned
departure resulting in discharge due to
failing to return from leave.
In addition to meeting the statutory
requirements as provided in section
1886(s)(4)(D) of the Act, we believe
HBIPS–6 also meets a number of
additional considerations we take into
account when proposing quality
measures for the IPFQR Program. It is
appropriate to facility-level assessment
of quality of care provided by IPFs.
Approximately 450 IPFs are already
collecting and reporting the measure for
purposes of TJC accreditation. HBIPS–6
received support from the MAP and is
aligned with the National Quality
Strategy priority for promoting better
care coordination.
We invited public comment on the
inclusion of the proposed quality
measure HBIPS–6, Post-Discharge

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Continuing Care Plan Created, in the
IPFQR Program beginning with the FY
2014 payment determination. We
discuss our proposals for collection
requirements and submission
timeframes in section VIII.F.7. of the
preamble of this final rule.
Comment: Several commenters
supported the inclusion of this
proposed measure.
Response: We appreciate the
commenters’ support for the measure.
Comment: One commenter stated that
for this measure, patient lab results and
pending tests should be included in care
plans.
Response: We thank the commenters
for the input for this measure. We agree
that, when appropriate, this information
should be provided in care plans.
However, for purposes of this measure,
these are not required data elements.
Comment: One commenter objected to
HBIPS–6 because the commenter
believed that it is simply a ‘‘check-box’’
measure that does not advance quality
of care.
Response: We disagree with the
commenter’s characterization of this
measure. We believe that assessing the
creation of a continuing care plan that
includes important post-discharge
information is an important step in
improving care coordination and quality
of care. Furthermore, the measure
specifications are consistent with
clinical guidelines and have been
endorsed by NQF.
Comment: Two commenters
recommended expanding the exclusion
for the measure to cover other possible
reasons for a lack of post-discharge care,
such as out of jurisdiction, no
psychiatric care required, and
admission for observation with prearranged discharge back to sending
provider or to another facility, such as
a jail.
Response: We appreciate the helpful
feedback from the commenters. This
measure is endorsed by NQF, and the
measure specifications are consistent
with medical guidelines; it is currently
reported as specified. We regularly
review measure specifications and
consider whether they continue to be
consistent with best medical practices.
We will consider these suggestions
during the measure maintenance
process.
After consideration of the public
comments we received, we are
finalizing the HBIPS–6 (Post-Discharge
Continuing Care Plan Created) measure
for the FY 2014 payment determination
and subsequent years.

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(6) HBIPS–7 (Post-Discharge Continuing
Care Plan Transmitted to the Next Level
of Care Provider Upon Discharge)
The promotion of effective care
coordination is a National Quality
Strategy priority. In the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28110),
we proposed process measure HBIPS–7,
Post-Discharge Continuing Care Plan
Transmitted to Next Level of Care
Provider upon Discharge, to promote
care coordination for patients in
inpatient psychiatric settings. TJC
designed HBIPS–7 as part of a paired set
with HBIPS–6; they were developed to
be used together. While the creation of
a discharge care plan (as measured in
HBIPS–6) is an important part of
providing coordinated care, simply
creating the plan does not ensure that
the necessary information is transferred
to the patient’s next provider. HBIPS–7
measures both aspects of coordinated
care—the creation of a discharge plan
and the transmittal of that plan to the
next provider. Together, these two
measures can assist facilities in
determining where breakdowns in care
processes occur. As specified by TJC,
the discharge plan should be
transmitted by the fifth post-discharge
day. This measure is collected on all
patients admitted to IPFs. We believe
that higher rates on this measure suggest
better quality care because the greater
the number of post-discharge plans
created and transmitted, the greater
opportunities for improved patientprovider and provider-provider
communication and understanding of
what is necessary to improve patient
health.
The numerator is defined as
psychiatric inpatients for whom the
post-discharge continuing care plan was
transmitted to the next level of care. The
denominator statement is defined as all
psychiatric inpatient discharges.
Populations excluded from the
denominator include patients who died,
patients with an unplanned departure
resulting in discharge due to elopement,
patients who refused (or whose
guardians refused) aftercare, patients
who refused to sign (or whose guardians
refused to sign) authorization to release
information, and patients with an
unplanned departure resulting in
discharge due to failing to return from
leave.
In addition to meeting the statutory
requirements as provided in section
1886(s)(4)(D) of the Act, we believe
HBIPS–7 also meets a number of
additional considerations we take into
account when proposing quality
measures for the IPFQR Program. The
measure assesses the quality of care

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provided for inpatient psychiatric
patients at the facility level.
Approximately 450 IPFs are already
collecting and reporting the measure for
purposes of TJC accreditation. HBIPS–7
received support from the MAP and is
aligned with the National Quality
Strategy priority for promoting better
care coordination.
We invited public comment on the
inclusion of the proposed quality
measure HBIPS–7, Post-Discharge
Continuing Care Plan Transmitted to
Next Level of Care Provider upon
Discharge, in the IPFQR Program
beginning with the FY 2014 payment
determination. We discuss our
proposals for collection requirements
and submission timeframes in section
VIII.F.7. of the preamble of this final
rule.
Comment: Several commenters
supported the inclusion of this
proposed measure.

Response: We appreciate the
commenters’ support for the measure.
Comment: One commenter
recommended changing the timeframe
for transmittal of the discharge plan
from ‘‘by the fifth post-discharge day’’ to
‘‘within one post-discharge day.’’ One
commenter suggested an exclusion be
added to the specifications for instances
where the next level of care is
unavailable; for instance, effective
follow-up care may not be obtainable for
uninsured homeless patients. Two
commenters recommended expanding
the exclusion for the measure to cover
other reasons for a lack of postdischarge care such as out of
jurisdiction, no psychiatric care
required, and admission for observation
with pre-arranged discharge back to
sending provider or to another facility,
such as a jail.
Response: We appreciate the
suggestions for this measure. We believe
that the timeframe and exclusions

currently included in the NQF-endorsed
measure are valid as specified.
After consideration of the public
comments we received, we are
finalizing the HBIPS–7 (Post-Discharge
Continuing Care Plan Transmitted to the
Next Level of Care Provider upon
Discharge) measure for the FY 2014
payment determination and subsequent
years.
In summary, we are finalizing six
quality measures to be reported in
aggregate form for FY 2014 and
subsequent years. These six measures
are shown in the table below. Measures
adopted for the IPFQR Program will
remain in the quality program for all
subsequent years unless specifically
stated otherwise (for example, through
removal or replacement). We discuss the
adopted collection requirements and
submission timeframes for these
measures in section VIII.F.7. of the
preamble of this final rule.

QUALITY MEASURES BEGINNING WITH THE FY 2014 IPFQR PROGRAM
National quality strategy priority

NQF No.

Patient Safety ...................................
Clinical Quality of Care .....................
Care Coordination ............................

0640
0641
0552
0560

HBIPS–2
HBIPS–3
HBIPS–4
HBIPS–5

0557
0558

HBIPS–6 .............
HBIPS–7 .............

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c. Maintenance of Technical
Specifications for Quality Measures
We will provide a user manual that
will contain links to measure
specifications, data abstraction
information, data submission
information, a data submission
mechanism known as the Web-based
Measure Tool, and other information
necessary for IPFs to participate in the
IPFQR Program. This manual will be
posted on the QualityNet Web site at:
https://www.QualityNet.org. We will
maintain the technical specifications for
the quality measures by updating this
manual periodically and including
detailed instructions for hospitals to use
when collecting and submitting data on
the required measures. These updates
will be accompanied by notifications to
IPFQR Program participants, providing
sufficient time between the change and
effective dates in order to allow users to
incorporate changes and updates to the
measure specifications into data
collection systems.
Many of the quality measures used in
different Medicare and Medicaid
reporting programs are NQF-endorsed.

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Measure ID
.............
.............
.............
.............

Measure description
Hours of Physical Restraint Use.
Hours of Seclusion Use.
Patients Discharged on Multiple Antipsychotic Medications.
Patients Discharged on Multiple Antipsychotic Medications with Appropriate Justification.
Post-Discharge Continuing Care Plan Created.
Post-Discharge Continuing Care Plan Transmitted to Next Level of Care
Provider Upon Discharge.

As part of its regular maintenance
process for NQF-endorsed performance
measures, the NQF requires measure
stewards to submit annual measure
maintenance updates and undergo
maintenance of endorsement review
every 3 years. In the measure
maintenance process, the measure
steward (owner/developer) is
responsible for updating and
maintaining the currency and relevance
of the measure and will confirm existing
or minor specification changes to NQF
on an annual basis. NQF solicits
information from measure stewards for
annual reviews, and it reviews measures
for continued endorsement in a specific
3-year cycle.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28111), we stated
that, through NQF’s measure
maintenance process, NQF-endorsed
measures are sometimes updated to
incorporate changes that we believe do
not substantially change the nature of
the measure. Examples of such changes
could be updated diagnosis or
procedure codes, changes to exclusions
to the patient population, definitions, or

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extension of the measure endorsement
to apply to other settings. We stated in
the proposed rule that we believe these
types of maintenance changes are
distinct from more substantive changes
to measures that result in what are
considered new or different measures,
and that they do not trigger the same
agency obligations under the
Administrative Procedure Act. In the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28111), we proposed that if the NQF
updates an endorsed measure that we
have adopted for the IPFQR Program in
a manner that we consider to not
substantially change the nature of the
measure, we would use a subregulatory
process to incorporate those updates to
the measure specifications that apply to
the program. Specifically, we would
revise the Specifications Manual so that
it clearly identifies the updates and
provide links to where additional
information on the updates can be
found. We also would post the updates
on the CMS QualityNet Web site at
https://www.QualityNet.org. We would
provide sufficient lead time for IPFs to
implement the changes where changes

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to the data collection systems would be
necessary.
We would continue to use the
rulemaking process to adopt changes to
measures that we consider to
substantially change the nature of the
measure. We believe that this proposal
adequately balances our need to
incorporate NQF updates to NQFendorsed IPFQR Program measures in
the most expeditious manner possible,
while preserving the public’s ability to
comment on updates that so
fundamentally change an endorsed
measure that it is no longer the same
measure that we originally adopted. We
invited public comment on this
proposal.
We did not receive any public
comments on our proposal to use a
subregulatory process to incorporate
updates that do not substantially change
the nature of the measure. However, we
proposed the same approach for
incorporating measure updates across
the various quality reporting programs
in the FY 2013 IPPS/LTCH PPS
proposed rule, and we did receive
public comments on that approach for
other systems. We are making changes
here in response to those public
comments in order to adopt consistent
policy for the IPFQR program.
Comment: Many commenters
supported the proposed subregulatory
process to update the measure
specifications of adopted NQF-endorsed
measures in the Specifications Manual
for nonsubstantive changes that arise
from the NQF maintenance review, as
well as the continuation of the
rulemaking process for substantive
changes that arise from NQF review.
Several commenters objected to these
proposals, and expressed concern that
there is no clear definition of
nonsubstantive updates. These
commenters believed that changes such
as conversion of measures to ICD–10
codes and eMeasures format, and
exclusions to the patient population
should be considered substantive
changes that would warrant rulemaking.
Some commenters stated that all
changes to measures that are not NQFendorsed measures should be subject to
the rulemaking process.
Response: We thank those
commenters that supported our
proposal to update NQF-endorsed
measures using a subregulatory process.
The NQF regularly maintains its
endorsed measures through annual and
triennial reviews, which may result in
the NQF making updates to the
measures. We believe that it is
important to have in place a
subregulatory process to incorporate
nonsubstantive updates made by the

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NQF into the measure specifications we
have adopted for the IPFQR Program so
that these measures remain up-to-date.
We also recognize that some changes the
NQF might make to its endorsed
measures are substantive in nature and
might not be appropriate for adoption
using a subregulatory process.
Therefore, we are finalizing a policy
under which we will use a
subregulatory process to make
nonsubstantive updates to NQFendorsed measures used for the IPFQR
Program. With respect to what
constitutes substantive versus
nonsubstantive changes, we expect to
make this determination on a case-bycase basis. Examples of nonsubstantive
changes to measures might include
updated diagnosis or procedure codes,
medication updates for categories of
medications, broadening of age ranges,
and exclusions for a measure. We
believe that nonsubstantive changes
may include updates to NQF endorsed
measures based upon changes to
guidelines upon which the measures are
based.
We will continue to use notice-andcomment rulemaking to adopt
substantive updates made by the NQF to
the endorsed measures we have adopted
for the IPFQR Program. Examples of
changes that we might consider to be
substantive would be those in which the
changes are so significant that the
measure is no longer the same measure,
or when a standard of performance
assessed by a measure becomes more
stringent (for example: changes in
acceptable timing of medication,
procedure/process, or test
administration). Another example of a
substantive change would be where the
NQF has extended its endorsement of a
previously endorsed measure to a new
setting, such as extending a measure
from the inpatient setting to hospice.
These policies regarding what is
considered substantive versus
nonsubstantive would apply to all
measures in the IPFQR program. We
note that the NQF process incorporates
an opportunity for public comment and
engagement in the measure maintenance
process. We will revise the
Specifications Manual so that it clearly
identifies updates and provide links to
where additional information on the
updates can be found.
5. Possible New Quality Measures for
Future Years
We seek to develop a comprehensive
set of quality measures to be available
for widespread use for informed
decision-making and quality
improvement in the inpatient
psychiatric setting. Therefore, through

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53653

future rulemaking, we intend to propose
new measures that will help us further
our goal of achieving better health care
and improved health for Medicare
beneficiaries who obtain inpatient
psychiatric services, through the
widespread dissemination and use of
performance information. Additionally,
we are considering initiating a call for
future measures to solicit input to assess
the following measure domains: clinical
quality of care; care coordination;
patient safety; patient and caregiver
experience of care; population/
community health; and efficiency. This
approach will enhance better
psychiatric care while bringing the
IPFQR Program in line with other
established quality reporting and
performance improvement programs
such as the Hospital IQR Program, the
Hospital OQR Program, and the ESRD
QIP.
We welcomed public comment on
considerations of additional measure
topics for the IPFQR Program in future
rulemaking.
Comment: One commenter asserted
that measures with regard to the
monitoring of patients on antipsychotic
medications for metabolic syndrome,
primary care follow-up, treatment
adherence post-acute care, and
coordination of care between
psychiatric care and alcohol/substance
abuse treatment are needed. The
commenter also suggested that CMS
include measures assessing patients’
experience with care, such as the
National Association of State Mental
Health Program Directors’ Inpatient
Consumer Survey, in the IPFQR
Program. Another commenter
recommended risk-adjustment models
be considered in the measures for the
IPFQR Program to address patient
characteristic differences. A commenter
suggested including the HBIPS–1:
Admission Screening for Violence Risk,
Substance Use, Psychological Trauma
History and Patient Strengths
Completed, which was developed by
TJC in conjunction with the other six
HBIPS measures.
Response: We thank the commenters
for the valuable input and will take it
into consideration for future measure
development and selection.
6. Public Display Requirements for the
FY 2014 Payment Determination and
Subsequent Years
Section 1886(s)(4)(E) of the Act
requires the Secretary to establish
procedures for making the data
submitted under the IPFQR Program
available to the public. Such procedures
shall ensure that an IPF has the
opportunity to review the data that is to

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be made public with respect to the
psychiatric hospital or unit prior to such
data being made public. The data
collected will be displayed on the CMS
Web site. Under these requirements, for
each payment determination year, we
proposed to publicly display the
submitted data on the CMS Web site
beginning in the first quarter of the
calendar year following the respective
payment determination year. In the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28112), we proposed that, before the
data are publicly displayed, IPFs will
have the opportunity to preview their
data between September 20 and October

19 of the respective payment
determination year.
We believe the proposed timeframe
allows sufficient time for both IPFs and
CMS to correct any potential mistakes
and fulfill the preview requirement in
section 1886(s)(4)(E) of the Act.
We welcomed public comment on the
proposed preview and public display
procedures for FY 2014 and subsequent
years.
Comment: Some commenters
suggested that a footnote should be used
in cases where a hospital has a small
sample size (n) and that rates should not
be reported. One commenter

recommended that CMS establish a
minimum number of cases.
Response: We thank the commenters
for the suggestions for the footnote and
the minimum number of cases and will
take them into consideration when we
gain experience from this coming year’s
data.
After consideration of the public
comments we received, we are
finalizing the public display
requirements for preview and public
display procedures for the FY 2014
payment determination and subsequent
years as proposed. Set out below are the
preview and public display timeframes
for FY 2014 through FY 2016.

PUBLIC DISPLAY FOR FY 2014, FY 2015, AND FY 2016
Payment determination
year
(Fiscal year)

30-day Preview period

FY 2014 ......................
FY 2015 ......................
FY 2016 ......................

September 20, 2013–October 19, 2013 ...............................................................................................
September 20, 2014–October 19, 2014 ...............................................................................................
September 20, 2015–October 19, 2015 ...............................................................................................

7. Form, Manner, and Timing of Quality
Data Submission for the FY 2014
Payment Determination and Subsequent
Years

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a. Background
Section 1886(s)(4)(C) of the Act
requires that, for the FY 2014 payment
determination and each subsequent
year, each IPF submit to the Secretary
data on quality measures as specified by
the Secretary. Such data shall be
submitted in a form and manner, and at
a time, specified by the Secretary. As
required by section 1886(s)(4)(A) of the
Act, for any IPF that fails to submit
quality data in accordance with section
1886(s)(4)(C) of the Act, the Secretary
will reduce any annual update to a
standard Federal rate for discharges
occurring during such fiscal year by 2.0
percentage points. The complete data
submission requirements, submission
deadlines, and data submission
mechanism known as the Web-Based
Measure Tool will be posted on the
QualityNet Web site at: http://
www.qualitynet.org/. The Web-Based
Measure Tool is an Internet database for
IPFs to submit their aggregate data. We
proposed that IPFs submit data in
accordance with the specifications for
the appropriate proposed reporting
periods to the Web-Based Measures
Tool found in the IPF section on the
QualityNet Web site (http://
www.qualitynet.org/).

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b. Procedural Requirements for the FY
2014 Payment Determination and
Subsequent Years
In order to participate in the IPFQR
Program for the FY 2014 payment
determination and subsequent years, in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28112), we proposed that
IPFs must comply with the procedural
requirements outlined below. We have
aligned these procedural requirements
with the Hospital IQR Program to avoid
imposing additional burden on
providers and to increase efficiencies by
virtue of allowing providers to use
similar submission requirements across
programs. We proposed that facilities
must do the following:
• Register with QualityNet before the
IPF begins reporting, regardless of the
method used for submitting the data.
• Identify a QualityNet Administrator
who follows the registration process
located on the QualityNet Web site
(http://www.qualitynet.org/).
• Complete a Notice of Participation
(NOP). IPFs that wish to participate in
the IPFQR Program must complete an
online NOP. Submission of an NOP is
an indication that the IPF agrees to
participate in the IPFQR Program and
public reporting of their measure rates.
The timeframe for completing the NOP
is between January 1 and August 15
before each respective payment
determination year. Accordingly, for the
FY 2014 payment determination year,
we proposed that the timeframe for
completing the NOP would be between
January 1, 2013 and August 15, 2013.

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Public display
(Calendar year)
2014
2015
2016

• Any IPF that receives a new CMS
Certification Number (CCN) on or after
the beginning of the respective payment
determination year and wishes to
participate in the IPFQR Program but
has not otherwise submitted a NOP
using the new CCN must submit a
completed NOP no later than 180 days
from the date identified as the open date
(that is, the Medicare acceptance date)
on the approved CMS Quality
Improvement Evaluation System to
participate in the IPFQR Program.
• Withdrawals from the IPFQR
Program will be accepted no later than
August 15 before the beginning of each
respective payment determination year.
We believe the August 15 deadline will
give us sufficient time to update
payment determinations for each
respective year. Accordingly, we
proposed that the withdrawal period for
the FY 2014 payment determination
year be between January 1, 2013 and
August 15, 2013. If in a given payment
determination year, an IPF withdraws
from the program, it will receive a
reduction of 2.0 percentage points to
that year’s applicable percentage
increase. Once an IPF has submitted a
NOP, it is considered to be an active
IPFQR Program participant until such
time as the IPF submits a withdrawal
form to CMS.
• We will determine if an IPF has
complied with our data submission
requirements by validating each IPF’s
CCN and their aggregated data
submission on the QualityNet Web site.

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• IPFs must submit the aggregated
numerator and denominator data for all
age groups, for all measures, to avoid
the 2.0 percentage point reduction.
As previously noted, we believe that
this proposed aggregated data collection
mode using a Web page will reduce
burden to IPFs. We anticipate that IPFs
already reporting de-identified patientlevel data to TJC would be able to easily
aggregate and report these data on a
secure Web page to CMS.
We welcomed public comment on the
proposed procedural requirements for
the FY 2014 payment determination and
subsequent years.
Comment: One commenter supported
the proposal regarding the registration
process.
Response: We appreciate the
commenter’ support.
After consideration of the public
comment we received, we are finalizing
the procedural requirements for the FY
2014 payment determination and
subsequent years as proposed.
c. Reporting and Submission
Requirements for the FY 2014 Payment
Determination
IPFs choosing to participate in the
IPFQR Program must meet the specific
data collection and submission
requirements as described on the
QualityNet Web site (http://www.quality
net.org/) and TJC’s Specifications
Manual for Joint Commission National
Quality Measures (Specifications
Manual) at: http://www.manual.joint
commission.org/releases/TJC2012B/
HospitalBasedInpatientPsychiatric
Services.html. We note that the
Specifications Manual is updated at
least twice a year (and may be updated
more often as necessary), and IPFs are
responsible for using the requirements
in the most recent manual. The most
current version can be found on the
Web site at: https://manual.joint
commission.org/bin/view/Manual/Web
Home. In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28113), we
proposed that IPFs submit aggregate
data on the measures on an annual
basis, beginning in FY 2014. As noted
earlier, IPFs must submit the data to the
Web-Based Measures Tool found in the
Inpatient Psychiatric Facility section on
the QualityNet Web site. However, the
data input forms on the QualityNet Web
site for such submission will require
aggregate data for each separate quarter.
Therefore, IPFs will need to track and
maintain quarterly records for their
data.
For the FY 2014 payment
determination, we proposed that IPFs
report on the proposed measures for
services provided between Q4 of CY

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2012 and Q1 of CY 2013. These two
quarters’ data constitute the expected
data available to CMS when we assess
reporting compliance. The 6-month
timeframe will allow us to establish a
full calendar year of reporting by FY
2016 as discussed below. We proposed
that IPFs submit their aggregated data
between July 1, 2013 and August 15,
2013. The following table summarizes
this information.
We welcomed public comment on the
proposed reporting and data submission
requirements for the FY 2014 payment
determination.
Comment: Some commenters
requested that CMS allow data file
submission from vendors to the
QualityNet Web site because it will be
in alignment with existing data
submission of the Hospital IQR and
OQR Programs.
Response: We thank the commenters
for their input. We intend to align the
data submission practice with the
Hospital IQR and Hospital OQR
Programs. Based on these comments, we
have decided that IPFs may choose to
delegate to a vendor the submission of
the following two requirements only: (1)
Aggregate measure data; and (2)
population and sample size data. IPFs
may choose to submit their own data to
CMS and forego any costs associated
with paying vendors to submit data on
their behalf. If an IPF decides to use a
vendor, it is important to note that the
IPF, not the vendor, is responsible for
all data submitted to CMS and for
meeting all the procedural requirements
established in this rule.
Comment: A few commenters
expressed concern that the start of the
program, which is on October 1, 2012,
may prove to be unattainable for some
facilities, therefore they recommended
we delay and implement incremental
phases beginning with FY 2014. A few
commenters considered April 1, 2013 as
a reasonable date to implement the
IPFQR Program and several commenters
suggested that CMS consider allowing
IPFs to only attest or agree to participate
instead of reporting data for FY 2014,
the first payment year.
Response: We thank the commenters
for their input. We recognize that some
facilities, especially those facilities that
are not currently reporting quality
measures, may face challenges.
However, we are not requiring facilities
to begin submitting data until July 1,
2013 through August 15, 2013. The lag
time between October 1, 2012 and the
beginning of the data submission period
is approximately 9 months which we
think provides IPFs sufficient time to be
prepared.

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53655

Comment: One commenter considered
the CMS data collection proposal as
duplicative because some IPFs are
already submitting the data to TJC. The
commenter urged CMS to grant
‘‘deemed’’ status to those IPFs that are
already submitting the data to TJC.
Response: We thank the commenter
for the input. However, the purpose of
the IPFQR Program is to ensure facilitywide quality reporting and ultimately
improve quality of care for Medicare
beneficiaries receiving behavioral
services in the IPF settings. The granting
of ‘‘deemed’’ status to some IPFs will
make our data collection incomplete
and does not meet our intended
objectives to obtain all quality measure
data from each IPF, apply the
appropriate payment, and display the
measure rates on the CMS Web site.
Comment: One commenter urged
CMS to work with TJC to establish a
process for automatic data exchange
between CMS and TJC in order to
reduce the reporting burden for
accredited IPFs. Another commenter
recommended using the same process
for data submission used by TJC to
avoid burden to IPFs.
Response: We thank the commenters
for their input. We strive to work closely
with TJC to attain maximum alignment
in current reporting practices, reporting
requirements, and reporting format. We
will consider establishing a process for
automatic data exchange between CMS
and TJC for future efforts through the
rulemaking process. We also recognize
that approximately 1,500 IPFs are not
reporting any IPF quality data to TJC.
The vast majority of these IPFs are not
hospital-based, and use a different
process for accreditation than the TJC.
Comment: One commenter supported
the CMS proposal requiring IPFs to
submit aggregate versus patient-level
data. A few commenters supported the
proposed electronic submission of data
and expressed concern that the burden
of collection occurs at the patient-level
of reporting.
Response: We appreciate the
commenters’ support and input. We
recognize there will be some challenges
when a new program is initiated. We
believe that requiring IPFs to submit
aggregate versus patient-level data will
prove less burdensome and will allow
more time for IPFs to become familiar
with our reporting processes, especially
for those IPFs that are not currently
reporting the measures.
Furthermore, the selected measures
minimize the collection and reporting
burden on IPFs because, under
Medicare’s IPF CoPs (42 CFR 482.61),
IPFs must maintain documentary
evidence of detailed treatment

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approaches and aftercare
considerations. In addition, under 42
CFR 482.21, IPFs are required to
develop, implement, and maintain an
effective, ongoing, hospital-wide datadriven quality assessment and
performance improvement (QAPI)
program as well as documentary
evidence of such program for purposes
of demonstrating their operation to
CMS.
Comment: A few commenters
requested clarification on whether the
IPFQR Program requires data validation.
Response: We are requiring IPFs to
submit aggregated data. We did not
propose any data validation approach
and, therefore, are not requiring one.
However, we encourage the IPFs to use
a validation method and conduct their
own analysis. In future years, should we
modify the program to require patientlevel data, we will consider proposals
for an appropriate validation method via
rulemaking.
Comment: One commenter objected to
the collection of aggregate data because
it does not allow for validation of data
accuracy. The commenter was
concerned that consumers could
potentially be making healthcare
decisions about the quality of care at
IPFs based on unvalidated and
inaccurate data.
Response: We thank the commenter
for the input. We considered both the
reduced burden of collecting aggregate
data for IPFs, and the challenges in
validating aggregate data. We recognize
that we cannot feasibly validate

aggregate data using a random sample of
medical records for all proposed
measures because we cannot sample
from a list of records submitted by the
IPF. We intend to assess accuracy of
aggregate reported data to other sources,
including TJC. At this time, we believe
that the reduced burden of collecting
aggregate data outweighs the need to
validate patient-level records. We seek
to maximize quality reporting among all
facilities, including the facilities not
currently reporting to TJC. We believe
that IPFs will submit accurate data, and
base this belief in part on the
requirement that IPFs participating in
the IPFQR Program acknowledge the
accuracy and completeness of their data.
This acknowledgement will provides us
with some assurance that the submitted
data are validated and accurate. We
believe that not establishing a validation
process at this time will enable IPFs to
learn these measures during the initial
reporting year. This approach is
consistent with our approach to
validation requirements in the Hospital
OQR and ASCQR Programs during the
initial years of these programs. Initially,
we want to encourage IPFs to begin
reporting quality data and using the
quality measure information for quality
improvement purposes.
Comment: One commenter inquired
about the possibility of requiring
patient-level data in future years and, if
so, whether CMS would offer an on-line
tool for patient-level data.
Response: In the future, we may
consider modifying the IPFQR Program

to require patient-level data; if we do
pursue such a change, we would do so
through rulemaking. We intend to host
National Provider Calls to conduct
outreach and education sessions and
will consider providing educational
materials during the sessions. Please
check the QualityNet Web site (http://
qualitynet.org//) periodically for
updates.
Comment: One commenter expressed
its inability to comment on the data
submission for FY 2014 because the
forms have not been posted on
QualityNet.
Response: We regret the commenter
could not comment on our data
submission method. However, although
the forms are not yet available, we
believe we provided sufficient
description of the data submission
process in the proposed rule to enable
meaningful comment.
After consideration of the public
comments we received, we are
finalizing the reporting and submission
requirements for the FY 2014 payment
determination as proposed. IPFs must
ensure that all the reporting and
submission requirements are followed
by their vendors (if data are submitted
by vendors on their behalf) because IPFs
remain responsible for all submitted
data regardless if data are submitted by
a vendor or by the entity/organization
themselves. Set out below are the final
quality reporting periods and
submission timeframes for FY 2014.

QUALITY REPORTING PERIODS AND SUBMISSION TIMEFRAMES FOR FY 2014
Payment determination
(Fiscal year)
FY 2014 ......................

Reporting period for services provided
(Calendar year)
Q4 2012
(October
Q1 2013
(January

........................................................................................................................
1, 2012–December 31, 2012) .......................................................................
........................................................................................................................
1, 2013–March 31, 2013).

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d. Reporting and Submission
Requirements for the FY 2015 and FY
2016 Payment Determinations
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28113), we
proposed that IPFs report on measures
for services provided in Q2, Q3, and Q4
of CY 2013 for the FY 2015 payment
determination and in Q1, Q2, Q3, and
Q4 of CY 2014 for the FY 2016 payment
determination. For FY 2014 and FY
2015, we proposed that IPFs report data
on the proposed measures for inpatient
psychiatric services provided for 6 and
9 months, respectively, to move towards
data reporting of services provided

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Data submission timeframe

Jkt 226001

within a full calendar year (12 months)
by FY 2016.
The reporting of data within the
timeframes outlined previously will
allow us to align the IPFQR Program
with other quality reporting programs
that base their data reporting on a
calendar year.
We welcomed public comment on the
proposed reporting and data submission
requirements for the FY 2015 and FY
2016 payment determinations.
Comment: One commenter agreed
with the CMS proposed reporting period
for FY 2015. Although the commenter
agreed with the proposed reporting
period for FY 2016, the commenter

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July 1, 2013–August 15, 2013.

urged CMS to delay finalizing the
proposed reporting requirements for FY
2016 until the FY 2014 rulemaking
cycle in order to be more flexible if the
data collection efforts do not go as
planned.
Response: We thank the commenter
for the input. We recognize that as the
IPFQR Program evolves, lessons learned
from each payment year will be valuable
to improve our reporting processes. We
will consider these lessons in future
proposals through rulemaking.
After consideration of the public
comments we received, we are
finalizing the reporting and submission
requirements for the FY 2015 and FY

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2016 payment determinations as
proposed. Set out below are the final
quality reporting periods and

53657

submission timeframes for FY 2015 and
FY 2016.

QUALITY REPORTING PERIODS AND SUBMISSION TIMEFRAMES FOR FY 2015 AND FY 2016 PAYMENT DETERMINATIONS
Payment determination
(Fiscal year)

Reporting period for services provided
(Calendar year)

FY 2015 ......................

Q2 2013 ........................................................................................................................
(April 1, 2013–June 30, 2013) ......................................................................................
Q3 2013 ........................................................................................................................
(July 1, 2013–September 30, 2013).
Q4 2013 ........................................................................................................................
(October 1, 2013–December 31, 2013).
Q1 2014 ........................................................................................................................
(January 1, 2014–March 31, 2014) ..............................................................................
Q2 2014 ........................................................................................................................
(April 1, 2014–June 30, 2014).
Q3 2014 ........................................................................................................................
(July 1, 2014–September 30, 2014).
Q4 2014 ........................................................................................................................
(October 1, 2014–December 31, 2014).

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FY 2016 ......................

e. Population, Sampling, and Minimum
Case Threshold for FY 2014 and
Subsequent Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28114), we
proposed that participating IPFs must
meet specific population, sample size,
and minimum reporting case threshold
requirements as specified in TJC’s
Specifications Manual. The
Specifications Manual is updated at
least twice a year (and may be updated
more often as necessary), and IPFs must
follow the requirements in the most
recent manual. The most current version
can be found on the Web site at:
https://manual.jointcommission.org/
bin/view/Manual/WebHome.
We proposed that the target
population for the proposed measures
include all patients, not solely Medicare
beneficiaries, to improve quality of care.
We believe it is important to require
IPFs to submit measures on all patients
because quality improvement is of
industry-wide importance and should
not be focused exclusively on a certain
subset of patients. In addition, we need
this scope of data in order to be able to
assess the quality of care being provided
to Medicare beneficiaries. We proposed
that IPFs use the applicable sample size
requirements found in the
Specifications Manual. We noted that
the Specifications Manual gives IPFs the
option of sampling their data quarterly
or monthly. We erroneously noted that
the Specifications Manual does not
require sampling procedures for
measures HBIPS–2 and HBIPS–3. As
noted below, the correct language
should have been that ‘‘the
Specifications Manual does not allow
sampling procedures for measures
HBIPS–2 and HBIPS–3.’’ Therefore, IPFs

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are required to submit data on all cases
for these two measures.
The Specifications Manual uses the
term ‘‘minimum required stratum
sample size’’ to refer to the required
sample size for a given initial patient
population stratum.257 To comply with
our proposed reporting requirements, if
the initial patient population stratum
size is below a certain number of
cases,258 for measures HBIPS–4, HBIPS–
5, HBIPS–6, and HBIPS–7, IPFs must
submit all applicable measure data
rather than sample data. More details on
sampling procedures are located in the
Specifications Manual available at the
Web site: https://
manual.jointcommission.org/bin/view/
Manual/WebHome.
IPFs that have no data to report for a
given measure must enter zero for the
population and sample counts. For
example, an IPF that has no hours of
physical restraint use (HBIPS–2) to
report for a given quarter is still
required to submit a zero for its
quarterly aggregate population for
HBIPS–2 in order to meet the reporting
requirement. We believe it is important
for IPFs to submit data on all measures
even when the population size for a
given measure is zero or small because
it provides us with the opportunity to
identify, assess, and evaluate the
baseline for the number of cases for each
measure in future years. This will also
assist us in determining the minimum
case threshold for future years in the
257 For example, for initial population stratum
size of 211–877, the most current version of the
Specifications Manual requires a minimum stratum
sample size of 20 percent of the initial population
stratum size. If the initial population size is 44–220,
the minimum required stratum sample size is 44.
258 In the most current version of the
Specifications Manual this number is 44.

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Data submission timeframe
July 1, 2014–August 15, 2014.

July 1, 2015–August 15, 2015.

rule. In cases where the measure rates
are calculated based on low caseloads,
when the submitted data are publicly
displayed on the QualityNet Web site,
we proposed to clearly note that the
affected measure rates were calculated
based on low caseloads that may affect
the result.
We invited public comment on the
proposed population, sampling, and
case thresholds and welcomed any
comments on methods and approaches
for future years.
Comment: One commenter applauded
the CMS sampling proposal and
recognized that requiring data on all
patients, not just Medicare patients, is
important for the program.
Response: We appreciate the
commenter’s support.
Comment: One commenter
recommended that CMS continue to
maintain consistency with TJC’s
requirements on the population,
sampling, case threshold, and other
technical aspects to ensure future ability
to perform benchmarking and quality
improvement assessment across the TJC
program and IPFQR Program.
Response: We thank the commenter
for the input. We seek to align efforts as
much as possible, but must also
recognize that the IPFQR Program is a
separate and distinct program from
TJC’s program. The IPFQR Program’s
population of patients includes only
inpatient psychiatric facility patients.
We expect that IPFs will submit data on
Medicare and non-Medicare patients
treated under the IPFs CCN, not acute
care hospital CCNs. For Medicare feefor-service patients, the IPF should
require their Medicare claims
processing department or contractor to
correctly identify patients treated and

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billed under the IPF PPS. We also
clarify that the IPFs will identify their
applicable non-Medicare patient
population by accessing their claims for
inpatient psychiatric services submitted
to non-Medicare payers, such as Blue
Cross Blue Shield. By maintaining
consistency in reporting, these efforts
will serve to stabilize the data and set
benchmarks for future years.
Comment: One commenter noted that
the Specifications Manual indicates that
it does not ‘‘allow’’ sampling procedures
for HBIPS–2 and HBIPS–3 rather than
‘‘require’’ sampling procedures, which
is the term CMS used, and which
implies that a hospital may choose to
require their vendor to implement
sampling procedures.
Response: We thank the commenter
for pointing out this issue. We have
addressed the issue in the introductory
discussion above to correctly reflect the
Specifications Manual.
After consideration of the public
comments we received, we are
finalizing the population, sampling, and
minimum case threshold for FY 2014
and subsequent years as proposed.
f. Data Accuracy and Completeness
Acknowledgement Requirements for the
FY 2014 Payment Determination and
Subsequent Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28114), we
proposed to require IPFs to
acknowledge their data accuracy and
completeness once annually using a
QualityNet Web site Web page. To
affirm that the data provided to meet the

FY 2014 IPFQR Program data
submission requirement is accurate and
complete to the best of a facility’s
knowledge, an IPF would be required to
submit the Data Accuracy and
Completeness Acknowledgment (DACA)
form. We would provide a link to this
form once IPFs have completed entry of
all aggregated measure data. Data
submission would not be complete until
the IPF submits the DACA form. We
proposed that the deadline for
submission of both measure data and
the DACA form would be no later than
August 15 prior to the applicable IPFQR
Program payment determination year.
For the FY 2014 payment
determination, for which participating
IPFs are required to report data for
discharges occurring between Q4 of CY
2012 and Q1 of CY 2013, we proposed
to make the submission deadline for the
DACA no later than August 15, 2013.
We proposed that the DACA submission
deadlines for FY 2015 and FY 2016
would be August 15 of CY 2014 and CY
2015, respectively. We proposed August
15 as the DACA submission deadline for
several reasons. First, requiring IPFs to
acknowledge their data’s accuracy and
completeness by August 15 of the year
before the respective payment
determination year provides us with
sufficient time to ensure compliance
with the program by October 1, the start
of the fiscal year, and, therefore, with
sufficient time to calculate and apply
the annual payment update. Second, we
believe that it is reasonable to make the
deadline for the DACA the same as the
data submission deadline in order to

reduce the reporting burden to IPFs.
Lastly, using August 15 as the DACA
deadline allows us to align our data
acknowledgment deadline with other
quality reporting programs, such as the
Hospital IQR Program.
We invited public comment on our
proposed DACA requirements.
Comment: One commenter
recommended aligning the DACA
deadlines among the Hospital IQR,
Hospital OQR, and IPFQR Programs to
make it easier for hospitals and IPFs to
keep track when completing these tasks.
Response: We thank the commenter
for the input regarding the DACA
deadline. We strive to align our quality
reporting programs across settings to
make quality reporting as efficient as
possible for the stakeholders. As noted
in our proposed rule, we have made
every effort to align the IPFQR Program
with the Hospital IQR and Hospital
OQR Programs. Any differences in the
DACA deadlines among the programs
result from the inherent differences in
the nature of the programs, the kind of
measures used, and the timing of the
statutorily mandated implementation. In
the future, we will continue to work to
align DACA deadlines to the extent
possible.
After consideration of the public
comments we received, we are
finalizing the DACA requirements for
the FY 2014 payment determination and
subsequent years as proposed. Set out
below are the DACA deadlines for the
FY 2014 through FY 2016 payment
determinations.

DATA ACCURACY AND COMPLETENESS ACKNOWLEDGMENT (DACA) DEADLINES FOR FY 2014, FY 2015, AND FY 2016
PAYMENT DETERMINATIONS
Payment determination
(Fiscal year)
FY 2014 ..............................................
FY 2015 ..............................................

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FY 2016 ..............................................

Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

2012
2013
2013
2013
2013
2014
2014
2014
2014

8. Reconsideration and Appeals
Procedures for the FY 2014 Payment
Determination and Subsequent Years
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28115), we
proposed a reconsideration process
whereby IPFs can request a
reconsideration of their payment update

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Data accuracy and
completeness
acknowledgement
deadline

Reporting period for services provided
(Calendar year)

Jkt 226001

(October 1, 2012–December 31, 2012) .........................................
(January 1, 2013–March 31, 2013).
(April 1, 2013–June 30, 2013) ........................................................
(July 1, 2013–September 30, 2013).
(October 1, 2013–December 31, 2013).
(January 1, 2014–March 31, 2014) ................................................
(April 1, 2014–June 30, 2014).
(July 1, 2014—September 30, 2014).
(October 1, 2014–December 31, 2014).

reduction in the event an IPF believes
that its annual payment update has been
incorrectly reduced for failure to report
quality data under the IPFQR Program.
We proposed to institute an annual
reconsideration process similar to the
Hospital IQR Program (74 FR 43892).
We would not utilize reconsideration
policies and procedures related to the

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August 15, 2013.
August 15, 2014.
August 15, 2015.

Hospital IQR Program validation
requirement because the IPFQR Program
does not currently include an annual
validation requirement for IPFs. For FY
2014 and subsequent years, we
proposed that the deadline for IPFs to
submit a request for reconsideration of
their payment determination would be
30 days from the date identified on the

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payment determination notification
letter. While we want to ensure that
IPFs have an opportunity to request
reconsiderations when warranted, we
also need to balance this goal with our
need to complete the reconsideration
process in a timely manner and with the
IPFs’ need to obtain final decisions on
their requests in a timely manner. We
believe that a 30-day timeframe best
achieves this balance.
We believe that requiring IPFs to
submit a request for reconsideration
prior to filing an appeal before the
Provider Reimbursement Review Board
(PRRB) is more efficient for both CMS
and IPFs because it decreases the
number of appeals by resolving issues
earlier in the process. We proposed that,
together with a request for
reconsideration, an IPF must submit all
documentation and evidence that
supports its request for reconsideration.
The documentation should include
copies of any communication, such as
emails, that the IPF believes
demonstrates its compliance with the
program requirements, as well as any
other records that may support the IPF’s
rationale for seeking reconsideration.
We proposed to codify the
reconsideration procedures that IPFs
must follow at new § 412.434 under 42
CFR Part 412, Subpart N. Under these
procedures, an IPF must submit to CMS,
no later than 30 days from the date
identified on the IPFQR Program
payment determination notification
letter provided to the IPF, a
Reconsideration Request form
containing the following information:
• The IPF’s CMS Certification
Number (CCN).
• The name of the IPF.
• Contact information for the IPF’s
chief executive officer and QualityNet
system administrator, including each
individual’s name, email address,
telephone number, and physical mailing
address.
• A summary of the reason(s), as set
forth in the IPFQR Program Annual
Payment Update Notification Letter, that
CMS concluded the IPF did not meet
the requirements of the IPFQR Program.
• A detailed explanation of why the
IPF believes that it complied with the
requirements of the IPFQR Program for
the applicable fiscal year.
• Any evidence that supports the
IPF’s reconsideration request, such as
emails and other documents.
Following receipt of a request for
reconsideration, we will provide—
• An email acknowledgment, using
the contact information provided in the
reconsideration request, to the CEO and
the QualityNet Administrator that the
request has been received; and

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• Written notification to the hospital
CEO, using the contact information
provided in the reconsideration request,
regarding our decision. We expect the
process to take approximately 90 days
from the receipt of the reconsideration
request.
We proposed that IPFs must submit a
request for reconsideration, as described
previously, and receive a decision on
that request from CMS before they can
file an appeal with the PRRB. If
dissatisfied with the decision rendered
at the reconsideration level, IPFs can
appeal the decision with the PRRB
under 42 CFR Part 405, Subpart R. We
proposed to codify this requirement at
new § 412.434(c).
We intend to work with our Medicare
administrative contractors to process
updated IPF claims in an expeditious
manner to pay IPFs when our annual
payment update reduction decision is
overturned in reconsideration or PRRB
review. The timeframe for updating
payment through retroactive claims
processing widely varies, and is
dependent on the number of IPFs, the
number of affected claims, and the
advance time needed by the Medicare
administrative contractor.
We invited public comment on the
proposed procedures for reconsideration
and appeals.
Comment: One commenter supported
the CMS proposal for reconsideration
whereby IPFs are afforded 30 days from
the date identified on the payment
determination notification letter to file a
request for reconsideration.
Response: We appreciate the
commenter’ support.
After consideration of the public
comment we received, we are finalizing
the policy on reconsideration and
appeals procedures for the FY 2014
payment determination and subsequent
years as proposed.
9. Waivers From Quality Reporting
Requirements for the FY 2014 Payment
Determination and Subsequent Years
In our experience with other quality
reporting and/or performance programs,
we have noted occasions when IPFs
have been unable to submit required
quality data due to extraordinary
circumstances that are not within their
control (for example, natural disasters).
It is our goal to avoid penalizing IPFs in
such circumstances or to unduly
increase their burden during these
times. Therefore, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28115),
we proposed that, for FY 2014 and
subsequent years, IPFs may request and
we may grant waivers with respect to
the reporting of required quality data
when extraordinary circumstances

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beyond the control of the facility may
warrant. When waivers are granted, IPFs
will not incur payment reductions for
failure to comply with the requirements
of the IPFQR Program.
Under the proposed process, in the
event of extraordinary circumstances
not within the control of the IPF, such
as a natural disaster, the IPF may
request a reporting extension or a
complete waiver of the requirement to
submit quality data for one or more
quarters. Such facilities would submit a
request form to CMS that would be
made available on the QualityNet Web
site. The following information should
be noted on the form:
• The IPF’s CCN;
• The IPF’s name;
• Contact information for the IPF’s
CEO and any other designated
personnel, including name, email
address, telephone number, and mailing
address (the address must be a physical
address, not a post office box);
• The IPF’s reason for requesting an
extension or waiver;
• Evidence of the impact of
extraordinary circumstances, including
but not limited to photographs,
newspaper and other media articles; and
• A date when the IPF will again be
able to submit IPFQR Program data, and
a justification for the proposed date.
We proposed that the request form
must be signed by the IPF’s CEO, and
must be submitted within 30 days of the
date that the extraordinary
circumstances occurred. Following
receipt of the request form, we would:
(1) Provide a written acknowledgement,
using the contact information provided
in the request, to the CEO and any
additional designated IPF personnel,
notifying them that the IPF’s request has
been received; and (2) provide a formal
response to the CEO and any additional
designated IPF personnel, using the
contact information provided in the
request, notifying them of our decision.
We indicated in the proposed rule
that this proposal would not preclude
us from granting waivers or extensions
to IPFs that have not requested them
when we determine that an
extraordinary circumstance, such as an
act of nature (for example, a hurricane
or other natural disaster that could
reasonably affect a facility’s ability to
compile or report data), affects an entire
region or locale. If we make the
determination to grant a waiver or
extension to IPFs in a region or locale,
we proposed to communicate this
decision through routine
communication channels to IPFs and
vendors, by means of memoranda,
emails, and notices on the QualityNet
Web site, among other means.

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We invited public comment on this
proposal.
Comment: Some commenters
supported providing waivers when
there are extraordinary circumstances
beyond the IPF’s control.
Response: We appreciate the
commenters’ support.
After consideration of the public
comments we received, we are
finalizing the requirements for waivers
from the quality reporting requirements
for the FY 2014 payment determination
and subsequent years as proposed.
10. Electronic Health Records (EHRs)
Although for initial reporting, the
opportunity to utilize EHRs for
automatic data collection is not
applicable because the proposed
measures will be submitted as aggregate
data, we encourage IPFs to take steps
towards adoption of EHRs (also referred
to as electronic medical records) that
will allow for reporting of clinical
quality data from EHRs directly to a
CMS repository. We encourage IPFs that
are implementing, upgrading, or
developing EHR systems to ensure that
the technology obtained, upgraded, or
developed conforms to standards
adopted by HHS. Although the IPFQR
Program is in its initial implementation
stages, we suggest that IPFs take due
care and be diligent to ensure that their
EHR systems accurately capture quality
data and that, ideally, such systems
provide point-of-care decision support
that promotes optimal levels of clinical
performance.
In the future, we will continue to
work with standard-setting
organizations and other entities to
explore processes through which EHRs
could speed the collection of data and
minimize the resources necessary for
quality reporting.
We welcomed public comment on the
adoption of EHRs for the IPFQR
Program in the future.
Comment: One commenter urged
CMS to encourage Congress to fund an
extension of the EHR incentives to
behavioral health in order to improve
care coordination across mental health
providers.
Response: We thank the commenter
for the input. We will continue our
efforts to minimize burden and at the
same time, improve quality of care
across all behavioral health settings by
supporting innovative strategies such as
the EHR in future years when funding
is available.
Comment: Some commenters
suggested that CMS not collect the
IPFQR measure data on all patients until
eMeasures are available because the
proposed data collection and reporting

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would ‘‘add burden of already strapped
resources at the local level.’’
Response: We thank the commenters
for the input. We are committed to
improving quality of care and health
outcomes for Medicare beneficiaries
who suffer from behavioral/mental
conditions. We cannot meet the
statutory requirements if we delay the
implementation of the IPFQR Program.
We thank the commenters for their
input on the EHRs and IPFQR Program.
IX. MedPAC Recommendations and
Other Related Studies and Reports for
the IPPS and the LTCH PPS
A. MedPAC Recommendations for the
IPPS for FY 2013
Under section 1886(e)(4)(B) of the
Act, the Secretary must consider
MedPAC’s recommendations regarding
hospital inpatient payments. Under
section 1886(e)(5) of the Act, the
Secretary must publish in the annual
proposed and final IPPS rules the
Secretary’s recommendations regarding
MedPAC’s recommendations. We have
reviewed MedPAC’s March 2012
‘‘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 final rule.
MedPAC recommendations for the IPPS
for FY 2013 are addressed in Appendix
B to this final 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: http://
www.medpac.gov.
B. Studies and Reports on Reforming the
Hospital Wage Index
1. Secretary’s Report to Congress on
Wage Index Reform
Section 3137(b) of the Affordable Care
Act requires the Secretary of Health and
Human Services to submit to Congress
a report that includes a plan to
comprehensively reform the Medicare
wage index applied under section
1886(d) of the Act relating to the IPPS.
In developing the plan, the Secretary
was directed to take into consideration
the goals for reforming the wage index
that were set forth by MedPAC in its
June 2007 report entitled ‘‘Report to
Congress: Promoting Greater Efficiency
in Medicare.’’ This report is available
via the Internet at: http://
www.medpac.gov/documents/
jun07_entirereport.pdf, and was
discussed in the FY 2009 IPPS final rule
(73 FR 48567 through 48574), the FY
2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43824 and 43825), and the FY

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2011 IPPS/LTCH PPS final rule (75 FR
50158 and 50159).
In developing the Report to Congress
required by section 3137(b) of the
Affordable Care Act, CMS contracted
with Acumen L.L.C. (Acumen) to review
the June 2007 MedPAC report and
recommend a methodology for an
improved Medicare wage index system.
(The Acumen reports are available via
the Internet at: http://
www.acumenllc.com/reports/cms. After
consultation with relevant parties
during the development of the plan
(which included an April 12, 2011
special wage index reform open door
forum, along with a review of
electronically submitted comments and
concerns), the Secretary submitted a
‘‘Report to Congress—Plan to Reform
the Medicare Hospital Wage Index’’ that
describes the concept of a Commuting
Based Wage Index (CBWI) as a potential
replacement to the current Medicare
wage index methodology. The following
is a summary of the highlights of the
report. The complete report can be
accessed on the CMS Web site at:
http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/Wage-IndexReform.html.
As discussed in section III.B. of the
preamble of this final rule, the current
wage index methodology relies on labor
markets that are based on statistical area
definitions (Core-Based Statistical Areas
(CBSAs)) established by the Office of
Management and Budget (OMB).
Hospitals are grouped by geographic
location into either an urban labor
market (that is, a metropolitan statistical
area (MSA) or metropolitan division) or
a statewide rural labor market (any area
of a State that is not defined as urban).
The current system establishes wage
indexes for hospital labor market areas,
not for individual hospitals. Many
parties have argued that these
definitions, in many instances, are not
reflective of the true cost of labor for any
given hospital, particularly for hospitals
located on the periphery of labor
markets or at labor market boundaries.
Multiple exceptions and adjustments
have been put into place in attempts to
correct perceived inequities. However,
many of these exceptions and
adjustments may create or further
exacerbate distortions in labor market
values. The issue of ‘‘cliffs,’’ or
significant differences in wage index
values between proximate hospitals, can
often be attributed to one hospital
benefiting from such an exception and
adjustment when another hospital
cannot.
On April 11, 2012, the Secretary
submitted to Congress a report, ‘‘Plan to

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Reform the Medicare Hospital Wage
Index.’’ This broad-based plan for
reforming the hospital wage index
included a fundamental change in the
description and definition of labor
market areas. The concept, referred to as
the commuting based wage index
(CBWI), would improve upon
Medicare’s existing wage index method
by using commuting data to define
hospital labor market areas. The CBWI
is based on data on the number of
hospital workers commuting from home
to work to define a hospital’s labor
market. To derive the CBWI, commuting
flows would be used to identify the
specific areas (for example, zip code or
census tracts) from which a hospital
hires its workers and to determine the
proportion of its workers hired from
each area. A CBWI system could use
either current hospital cost report data
or other alternative sources, such as the
Bureau of Labor Statistics (BLS)
Occupational Employment Survey data,
to calculate labor market area average
wage values. While the current wage
index system aggregates wage data
within geographic CBSA-based areas
where hospitals are located, the CBWI
would aggregate wage data based upon
where the hospital workers reside.
Once the hiring proportions by area
and area wage levels are determined, the
hospital’s benchmark wage level would
be calculated as the weighted average of
these two elements. This value would
then be divided by the national average.
This calculation would result in a
hospital-specific value, which reflects
wage levels in the areas from which a
hospital hires, accounting for variation
in the proportion of workers hired from
each area.
Using more precisely-defined labor
markets, the CBWI values can vary for
hospitals within the same CBSA or
county and, thus, more precisely reflect
wage differences within and across
CBSA boundaries and address intra-area
variation more precisely than the
current system. Although the CBWI
would allow wage index values to vary
within a CBSA, the CBWI is less likely
to produce large differences—or
‘‘cliffs’’—between wage index values for
nearby hospitals in adjacent CBSAs
because nearby hospitals likely hire
workers from areas in similar
proportions.
Acumen found in its analysis that the
CBWI system would more closely reflect
hospitals’ actual wages than the current
CBSA-based system and the MedPAC
proposal. As MedPAC suggested in its
proposal, the exceptions and
adjustments to the wage index system
are the primary cause of the often
significant ‘‘cliffs’’ between wage

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indexes of nearby hospitals. Acumen
suggested the CBWI has the potential to
reduce the need for exceptions and
adjustments and further manipulation of
wage index values (as is central to the
MedPAC proposal) to prevent these
‘‘cliffs’’ between labor market areas.
The Report to Congress detailed
several findings relevant to
implementation of a CBWI:
• Because the CBWI accounts for
specific differences in hospitals’
geographic hiring patterns, it would
yield wage index values that more
closely correlate to actual labor costs
than either the current wage index
system (with or without geographic
reclassification) or a system that
attempts to reduce wage index
differences across geographic
boundaries, such as MedPAC’s
proposed wage index based on Bureau
of Labor Statistics (BLS) data for health
care industry workers.
• While a CBWI could be constructed
with the most recent Census commuting
data, were the CBWI to be adopted, a
more up-to-date reporting system for
collecting commuting data from
hospitals would have to be established
so that the wage index calculations
would accurately reflect the commuting
patterns of hospital employees. We
believe that creating a system of more
up-to-date commuting data could be
achieved with a modest addition to the
current reporting requirements.
• Concerns about a CBWI leading to
hospitals altering hiring patterns and
distorting labor markets do not appear
to be worse than under the current
system and could be managed with
minimal policy adjustments.
• As current statutory provisions
governing the Medicare wage index and
exceptions to that wage index were
designed for the current MSA-based
wage index system, their applicability
would need to be reviewed if a CBWI
were to be adopted.
• The Medicare statute has
traditionally applied payment changes
in a budget neutral manner. If a CBWI
were to be adopted in a budget neutrally
manner, payments for some providers
would increase while payments for
other providers would decrease.
The Secretary was directed to
‘‘consult with relevant affected parties’’
during the development of the plan. In
a special Medicare wage index open
door forum held on April 12, 2011,
hospital and hospital association
representatives presented several
concerns, which included issues with
commuting data availability, the
continuation of certain exceptions and
adjustment policies, and the impacts of
the CBWI upon other nonhospital

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payment systems. Several commenters
expressed concern that a CBWI could
encourage providers to alter or
manipulate hiring practices in order to
improve wage index calculations.
However, based upon our findings and
analysis, we believe it is dubious
whether any alteration of a hospital’s
employment patterns would improve its
competitive advantage over other
hospitals that employ workers in the
same area. We also share a concern
expressed by multiple commenters
regarding whether a CBWI should be
applied to other nonhospital payment
systems. Currently, several other
payment systems are based upon the
Medicare pre-reclassified hospital wage
index. It is not clear whether it would
be advantageous, or even possible, to
apply a CBWI to these provider types.
2. Institute of Medicine (IOM) Study on
Medicare’s Approach To Measuring
Geographic Variations in Hospitals’
Wage Costs
In addition to submitting the
aforementioned Report to Congress, in
April 2010, the Secretary commissioned
the Institute of Medicine (IOM) to
evaluate Medicare’s approach for
measuring geographic variation in the
wage costs faced by hospitals. The
IOM’s Phase I report, published in
September 2011, is available via the
Internet at: http://iom.edu/Reports/
2011/Geographic-Adjustment-inMedicare-Payment-Phase-I-ImprovingAccuracy.aspx. In that report, IOM’s
Committee on Geographic Adjustment
Factors in Medicare Payment proposed
a set of recommendations for modifying
the hospital wage index in both the
method used in its construction and the
data used in its calculation.
In constructing the wage index, the
IOM recommends altering the current
labor market definitions to account for
the out-commuting patterns of health
care workers who travel to a place of
employment in an MSA other than the
one in which they live. The IOM’s
recommendation is based on its theory
that county-to-MSA commuting patterns
reveal the degree of integration of labor
markets across geographically drawn
boundaries (that is, MSAs) and a
commuting-based smoothing adjustment
to the wage index would more
accurately measure the market wage
each hospital faces. The IOM model
uses workers’ out-commuting patterns
to smooth wage index values for
hospitals in different counties, similar
to the out-migration adjustment used in
the current wage index system. The IOM
also suggests that using out-commuting
shares in the smoothing adjustment
creates an index based on the wage

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levels of workers living in that area in
which a hospital is located, as opposed
to wage levels of workers employed in
that area, as in the CBWI model. In
calculating its smoothed wage index,
the IOM uses the following four steps:
• Step 1—Compute a wage index for
each MSA, adhering to Medicare’s
current approach for calculating the
average hourly wage (AHW) paid by all
IPPS hospitals located in the MSA (this
step replicates the current prereclassification wage index).
• Step 2—Compute an area wage for
each county equal to a weighted average
of MSA-level AHWs, where the weight
for each MSA measures the share of all
hospital workers living in the county
who commute to hospitals located in
that MSA.
• Step 3—Assign all hospitals located
in the county a hospital wage index
value equal to the county area wage
index.
• Step 4—Normalize wage indices to
ensure budget neutrality, similar to the
approach currently implemented by
Medicare.
In addition, the IOM’s wage index
model uses hourly wage data from the
BLS Occupational Employment Survey
rather than from hospital cost reports.
The IOM also recommends measuring
hourly wages using data for all health
care workers rather than only hospital
workers and using a fuller set of
occupations incorporated in the hospital
wage index occupational mix
adjustment. The IOM suggests that BLS
data would reduce administrative
burdens placed upon hospitals and, by
broadening the array of reported
occupations from what is currently
covered in the hospital cost report,
would achieve more accurate labor
market definitions and reduce year-toyear volatility. The IOM encourages
CMS to establish an ongoing agreement
with the BLS to use occupational survey
data specific to health care workers to
calculate average hourly wage values.
The IOM suggests, for instance, that the
5-year American Community Survey is
a potential source of the necessary
commuting information, assuming CMS
can arrange to obtain certain nonpublic
‘‘micro-data’’ from the BLS.
Preliminary findings demonstrate that
the IOM hospital wage index method
would result in the reduction in wage
index ‘‘cliffs,’’ and would diminish the
need to maintain current wage index
exceptions and adjustments. The IOM
also recommends that the hospital wage
values should be applied to other
nonhospital health care providers,
shifting to a single measurement of
geographic variation to be used in
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systems. However, we believe that, by
creating a wage index that measures the
wage level only of workers who live
near a hospital rather than of all workers
who could potentially work at the
hospital (including those who live far
away from the hospital), IOM’s
approach may have some problematic
implications. First, some of the wage
information used by the IOM index is
based on workers employed outside of
the hospital’s pertinent labor market.
Second, the IOM index neglects marketrelevant information regarding the
wages of workers employed at the
hospital who live outside the county of
the hospital’s location. If the incommuting workers come from high
wage areas, this information should
contribute to increasing the hospital’s
wage index values. Likewise, if such
workers live in low wage areas, they
should contribute to decreasing the
hospital’s wage index values.
We are aware of numerous concerns
from hospital and hospital association
representatives regarding whether the
BLS Occupational Employment Survey
data is an acceptable source for hospital
wage index calculations. (We refer
readers to a discussion of the BLS
occupational survey data in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74
FR 43824 and 43825).) While the IOM
proposal suggested a more refined use of
BLS data than did the previous MedPAC
recommendation, there may be
significant operational challenges in
accessing and compiling health care
sector specific wage, occupational mix,
and commuting data from the available
datasets. Additional research would be
required to determine whether the IOM
recommendation for applying its
hospital wage index to nonhospital
providers would be appropriate.
Comment: The AHA commented that,
in June 2011, the AHA Board of
Trustees created the AHA Area Wage
Index Task Force to further review the
CMS, MedPAC, and IOM reports, as
well as examine other design issues
around the wage index. The AHA
anticipates issuing a report on the
subject by early 2013. Most other
commenters indicated they were
withholding opinion pending an
analysis of the AHA study. Many
commenters supported the concept of
significant wage reform, and some
commenters indicated that an ideal
wage index system would reduce or
eliminate the need for wage index
reclassifications.
Response: We look forward to
reviewing the findings of the upcoming
AHA report, and appreciate the
commenters’ continued interest and

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support in the wage index reform
process.
Comment: MedPAC expressed
concerns regarding several aspects of
the CBWI methodology. MedPAC
favored a methodology that includes a
broader definition of labor inputs than
one limited to hospital workers and is
concerned that the CBWI could
potentially create a ‘‘great circularity
risk’’ due to its reliance on hospitalspecific employment patterns.
MedPAC stated that the CBWI
contradicts the following principles
contained in the IOM report:
• Geographic adjustment for input
price differences is intended to reflect
the input prices faced by providers, not
the costs incurred by providers.
• Geographic adjustment, where
possible, should reflect the areawide
input prices for labor faced by all
employers operating in the same local
market and should not be drawn
exclusively from data on the prices paid
by hospitals or health care practitioners.
Response: We disagree with
MedPAC’s assertion that the CBWI
contradicts these certain key principles.
The IOM principles refer to the
characteristics of the wage data used in
constructing the wage index, not the
method used to group those data into
wage areas that attempt to reflect the
boundaries of labor markets. The
advantage of the CBWI is its method for
refining the boundaries of labor markets.
The CBWI can be constructed with
many different sources of wage data—
the more closely the data reflect input
prices faced by providers, the better;
CBWI does not require that the wage
data be limited to data from hospitals or
health care practitioners. The empirical
application of the CBWI described in
the proposed rule was constructed with
the CMS wage survey data that are
currently used for the Medicare wage
index. That choice facilitates
comparisons of the CBWI to the current
wage index by isolating the effect of the
method for defining labor markets from
the effect of the wage data. The CMS
wage survey data are based on wages
paid solely by hospitals, but they are
adjusted for differences in the
occupational mix of nurses, in an
attempt to make the reported wages
more closely reflect input prices.
Regarding the increased risk of
‘‘circularity’’ and distortions in labor
markets, MedPAC provides an example
of a town with one hospital, with that
hospital essentially setting its own wage
index. MedPAC expresses its preference
for methods that ‘‘draw on a bigger pool
of workers (all workers in an entire
MSA) and are therefore less influenced
by an individual hospital’s wages.’’

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However, we believe that these
statements do not acknowledge that
much of the impetus for geographic
reclassification and other modifications
of the current Medicare wage index
result from inaccuracies in current
MSA-based labor market boundaries.
These boundary problems rarely would
occur in areas where there are few
hospitals, but in areas where many
hospitals draw their employees from
overlapping areas. By defining wage
areas on the basis of areas from which
hospitals draw their employees, the
CBWI provides a method for refining
boundaries that offers potential for
addressing the central problem of the
current wage index. We further point
out that circularity issues exist within
the current wage index system, as well
as the existent current single provider
MSAs. However, as discussed in the
Report to Congress, we believe relatively
minor policy revisions can be
implemented to mitigate any related
effects within a CBWI system, including
expanding ZIP or census tract areas to
ensure a minimum number of different
hospital employees are represented in
any given labor market.
Comment: MedPAC stated that ‘‘CMS
should publish simulated data on a
hospital-by-hospital basis to make sure
that hospitals in the same city would
not have materially different wage
indexes under the proposed wage index
system.’’
Response: The empirical application
of the CBWI based on commuting data
from the 2000 Census examined this
relationship and found that the closer
together two hospitals were, the more
similar were their CBWI values (‘‘Report
to Congress: Plan to Reform the

Medicare Wage Index—Technical
Appendix A,’’ April 2012, p. 6). We
agree with MedPAC that further
simulations would be helpful, but only
if more up-to-date commuting pattern
data were to be made available. We note
that data are available to simulate or
reconstruct the CBWI in the ‘‘Wage
Index Reform’’ section of the CMS Web
page at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/.
Comment: MedPAC asserted that the
CBWI is not consistent with how
hospital labor markets work because it
‘‘ignores well understood relationships
between wage rates and commuting
costs and implicitly assumes that
workers will demand the same wage
from a job with an hour commute as a
job with a 10 minute commute.’’
Response: It is possible to adjust the
CBWI for commuting costs, but it might
be impractical to do so and would
certainly add considerable complexity
to the CBWI. Commuting times and
costs may vary widely within an MSA,
and we are not convinced that failing to
account for commuting costs would be
more of a problem for the CBWI than it
is for an MSA-based wage index.
Comment: MedPAC stated that using
the correlation of the wage index and
actual wages is a poor measure of the
validity of a wage index, noting that an
index set equal to the hospital wage
would have a correlation of 1.0.
Response: We agree that candidate
wage index methodologies should not
be measured solely based on their
correlation with a hospital’s observed
wage, but the correlation does provide
useful information describing the
relationship between a hospital’s wage

index values and reported wages. The
correlation coefficient assists in
identifying whether sharp differences
exist between actual and fitted wages;
sizable differences would arise if a wage
index induces artificial cliffs across
boundaries that do not mirror actual
circumstances. An R-squared statistic in
a regression model would serve a
similar role.
Comment: MedPAC stated that CMS
erroneously reported the properties of
the three proposals (CMS’, IOM’s and
MedPAC’s). MedPAC noted that the
table in the proposed rule at 77 FR
28119 failed to include its
recommendation that MedPAC’s
proposed hospital compensation index
should be used in the home health and
skilled nursing facility prospective
payment systems. MedPAC also stated
that ‘‘contrary to the claims in the table
at * * * [77 FR] 28119, no occupational
mix adjustment is necessary under
MedPAC’s proposal or the IOM
proposal.’’
Response: We agree that we made an
error in not including MedPAC’s
recommendation for nonhospital
providers in the table in the proposed
rule. Therefore, we have corrected this
error in the table below. The
‘‘Occupational Mix’’ section of the table
is intended to show how each of the
wage index proposals would
incorporate occupational data,
including those established in the BLS
Occupational Employment Survey. We
did not intend to imply that a separate
occupational mix adjustment would be
necessary under the MedPAC or IOM
methodology. We have added a footnote
in the table below to clarify this point.

COMPARISON OF WAGE INDEX REFORM PROPOSALS
Current wage index

IOM

MedPAC

CBWI

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Labor Market Definition
Labor Market Area ............

MSAs or Metropolitan Divisions/rural ‘‘rest of
State’’ areas.

MSAs or Metropolitan Divisions/rural ‘‘rest of
State’’ areas.

Blend of county and MSA
labor market definitions
(50/50).

Commuting Adjustment .....

Section 505 Out-Commuting Adjustment.

Adjusts hospitals’ wage
index values based on
the out-commuting patterns of health care
workers.

None ..................................

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Creates separate but
linked labor-market for
each hospital using
small geographic areas
(for example, zip codes).
Uses in-commuting patterns relevant for individual hospitals to
weight benchmark
wages constructed for
small geographic areas.

53664

Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
COMPARISON OF WAGE INDEX REFORM PROPOSALS—Continued

Other Adjustments .............

Current wage index

IOM

MedPAC

Multiple Reclassifications
and/or Floors (for example, Frontier State floor,
Lugar counties,
MGCRB, and Section
508 reclassifications and
special exceptions).

IOM proposes three
smoothing specifications:
(1) Apply to all counties;
(2) Apply only to counties
to which at least 10 percent of workers commute;
(3) Apply only to counties
to which at least 10 percent of workers commute and hospital wage
index is higher than
home-county hospital
wage index.

Smoothing algorithm uses
iterative process to
eliminate large differences in index values
across county boundaries.

CBWI
None.

Measurement of Worker Wages
Wage Data Source ............

Hospital cost reports .........

BLS Occupational Employment Survey.

BLS Occupational Employment Survey.

Industry Sectors Used to
Measure Wages.

Hospitals ...........................

Health care sector .............

Occupational Mix* .............

Occupational mix adjustment based on occupational categories of
nurses reported on cost
reports.

Occupational mix adjustment based on all occupations.

All Industries (for example,
hospitals, other health
care and nonhealth care
sectors).
Occupational mix adjustment based on 30 occupations with the highest
wage share in the hospital industry.

Any source of establishment wage data could
potentially be used (for
example, hospital cost
reports, BLS Occupational Employment Survey).
The CBWI could be implemented using any industry sector.
Occupational mix adjustment based on all occupations available in the
wage data source selected.

Other Provider Settings
Wage Index for Nonhospital Providers.

Pre-floor, pre-reclassificaUse identical hospital
tion version of the curwage index methodrent hospital wage index.
ology, except create an
A version of this index with
industry-specific occupaan occupational mix adtional mix adjustment for
justment has also been
each provider type.
used for payments for
other specialized hospital inpatient services.

Use hospital compensation
index for home health
and skilled nursing facility prospective payment
systems.

Considerations include:
(1) Collect commuting data
for each provider type
and apply CBWI;
(2) Apply CBWI framework, but use hospital
wage and commuting
data; or
(3) Measure using a
weighted average of
nearby-hospital CBWI
values.

* ‘‘Occupational Mix’’ refers to any occupationally weighted adjustment that is performed as a separate process during the wage index development process, or is included in an established wage data set (for example, BLS Occupational Employment Survey)

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X. Quality Improvement Organization
(QIO) Regulation Changes Related to
Provider and Practitioner Medical
Record Deadlines and Claims Denials
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28119 through
28120), we explained that QIOs have
historically experienced difficulty in
obtaining medical information in a
timely manner from providers and even
more difficulty obtaining this
information in a timely manner from
practitioners. Although the regulations
at 42 CFR Part 476 refer to practitioners’
responsibilities in certain instances,
§ 476.78, which relates to the

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submission of medical information,
addresses only the obligations of
providers and not practitioners.
Moreover, we explained that while
§ 476.90 addresses steps that a QIO may
take when providers or practitioners fail
to cooperate with the QIO, § 476.90(b)
limits the QIO’s authority to deny
claims to providers for failing to
respond to a QIO’s request for
information, and no similar provision
exists for practitioners.
In light of the issues discussed above,
in the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28119 and 28120),
we proposed several changes to the

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regulations at §§ 476.1, 476.78, and
476.90 to more clearly convey the
responsibilities of providers and
practitioners in submitting medical
information and to specify the QIO’s
authority should the information not be
received.
• We proposed to add a definition of
‘‘providers’’ under § 476.1 to clearly
denote that certain requirements in Part
476 apply to health care facilities,
institutions, and organizations involved
in the delivery of health care services to
Medicare beneficiaries.
• We proposed to change the section
heading of § 476.78 from

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
‘‘Responsibilities of health care
facilities’’ to ‘‘Responsibilities of
providers and practitioners’’. In
addition, we proposed to add references
to ‘‘practitioners’’ in § 476.78(b)(2) so
that the 21-day and 30-day timeframes
for submittal of information apply
equally to practitioners and providers.
We also proposed one minor technical
change to § 476.78 that is unrelated to
the application of timeframes to
providers or practitioners. We proposed
to remove the sentence, ‘‘QIOs pay
providers paid under the prospective
payment system for the costs of
photocopying records required 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’’, because
it is merely a reference to paragraph (c)
of § 476.78.
• We proposed changes to § 476.90
that will provide improved instructions
to QIOs when attempting to resolve
issues associated with practitioners and
providers that fail to submit medical
information within the timeframes set
forth in § 476.78. These proposed
changes included: changing the section
heading from ‘‘Lack of cooperation by a
health care facility or practitioner’’ to
‘‘Lack of cooperation by a provider or
practitioner’’; incorporating the broader
term ‘‘provider’’ (as reflected in our
proposed change to § 476.1) within
§ 476.90, as well as references to
‘‘practitioners’’, where appropriate. We
proposed to add references to
‘‘practitioners’’ in § 476.90(a)(2) to
denote that the QIO’s authority includes
the ability to make financial liability
determinations for both providers and
practitioners, and we proposed to add
the word ‘‘may’’ to clarify that the QIO
has the discretion to report a provider’s
or practitioner’s failure to provide
evidence of the medical necessity or
quality of care provided to the Inspector
General. In addition, we proposed
modifications to § 476.90 (b) to denote
that QIOs will also deny claims if
practitioners fail to submit medical
information as requested. We also
proposed to add new language to
§ 476.90(b) to convey the right of
providers and practitioners to request a
reconsideration by the QIO of its
decision to deny the claim based on the
failure to receive the medical
information, and that no further appeal
rights exist beyond the QIO.
• We proposed to make a technical
correction to a cross-reference to
‘‘§ 474.30(c)’’ that appears in
§ 476.90(a)(1). This cross-reference is to
the Office of Inspector General
regulations that convey the obligations

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of providers and practitioners; these
regulations are now located in 42 CFR
1004.10(c).
We invited public comment on our
proposals, including the definition of
‘‘providers’’, the timeframes for
practitioners and providers to follow in
submitting medical information, the
QIO’s authority when medical
information is not received, as well as
the technical corrections. We did not
receive any public comments on these
proposed changes. Therefore, in this
final rule, we are adopting the proposed
changes as final.
XI. 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: http://
www.cms.hhs.gov/Medicare/MedicareFee-for-Service-Payment/
AcuteInpatientPPS/index.html. We
listed the data files and the cost for each
file, if applicable, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28120
through 28122).
Commenters interested in discussing
any data used in constructing this final
rule should contact Nisha Bhat at (410)
786–5320.
B. Collection of Information
Requirements
1. Statutory Requirement for Solicitation
of Comments
Under the Paperwork Reduction Act
of 1995, we are required to provide 60day 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.
• 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.

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53665

In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28122), we
solicited public comment on each of
these issues for the following sections of
this document that contain information
collection requirements (ICRs). We
discuss and respond to any public
comments we received in the relevant
sections.
2. ICRs for Add-On Payments for New
Services and Technologies
Section II.I.1. of the preamble of the
proposed rule and this final rule
discusses add-on payments for new
services and technologies. Specifically,
this section states that applicants for
add-on payments for new medical
services or technologies for FY 2014
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 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 12month period. In FYs 2008, 2009, 2010,
2011, 2012, and 2013, we received 1, 4,
5, 3, 3, and 5 applications, respectively.
We did not receive any public
comments regarding these information
collections.
3. ICRs for the Occupational Mix
Adjustment to the FY 2013 Index
(Hospital Wage Index Occupational Mix
Survey)
Section II.F. of the preamble of the
proposed rule and this final rule
discusses the occupational mix
adjustment to the FY 2013 wage index.
While the preamble does not contain
any new ICRs, we 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

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

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 OCN 0938–
0907, with an expiration date of
February 28, 2013.
We did not receive any public
comments regarding these information
collections.
4. Hospital Applications for Geographic
Reclassifications by the MGCRB
Section III.H.3. of the preamble of the
proposed rule and this final rule
discusses proposed 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 was previously
approved under OCN 0938–0573.
However, the information collection
expired on December 31, 2011. We are
currently seeking to reinstate the
information collection and, as required
by the PRA, will announce public notice
and comment periods in the Federal
Register separate from this rulemaking.

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5. ICRs for Application for GME
Resident Slots
The information collection
requirements associated with the
distribution of additional residency
positions under section 5503 of the
Affordable Care Act, addressed under
section IV.I.3. of this preamble, are not
subject to the Paperwork Reduction Act
(44 U.S.C. Chapter 35), as stated in
section 5503(c) of the Affordable Care
Act. The information collection
requirements associated with the
preservation of resident cap positions
from closed hospitals, addressed under
section IV.I.4. of this preamble, also are
not subject to the Paperwork Reduction
Act, as stated in section 5506 of the
Affordable Care Act.

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We did not receive any public
comments regarding these information
collections.
6. 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. The
collection of information associated
with the original starter set of quality
measures was previously approved
under OMB control number 0938–0918.
We are currently seeking reinstatement
of the information collection and will
publish the required 60-day and 30-day
notices in the Federal Register to solicit
public comments.
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 was previously approved
under OMB control number 0938–1022.
We are currently seeking reinstatement
of the information collection and will
publish the required 60-day and 30-day
notices in the Federal Register to solicit
public comments.
For the FY 2015 payment updates, we
are seeking OMB approval for a revised
information collection request using the
same OMB control number (0938–1022).
In the revised request, we will add 1
chart-abstracted measure (Elective
Delivery Prior to 39 Weeks Gestation), 1
survey-based measure, and 3 claimsbased measures. In addition, we will
remove 1 chart-abstracted measure
(SCIP–VTE–1: Surgery patients with
recommended venous
thromboembolism prophylaxis) and 16
claims-based measures. We estimate
that the changes to our FY 2015
payment determination measure set will
result in a total collection burden to

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IPPS hospitals of approximately
6,750,000 hours per year.
With respect to the new chartabstracted measure for the FY 2015
payment determination, we are adding
add a chart-abstracted measure: Elective
delivery Prior to 39 Completed Weeks
Gestation: Percentage of babies
electively delivered prior to 39
completed weeks gestation. Hospitals
will be required to submit data on
patients with elective vaginal deliveries
or elective cesarean sections at >=37
and <39 weeks of gestation completed.
We estimate that IPPS hospitals will
incur an additional 170,000 burden
hours resulting from the addition of this
measure. We estimate that hospitals will
submit approximately 1,006,917 cases
annually for this measure, and the
information needed to calculate these
measures requires an average of 10
minutes to abstract from medical
records for each case.
We are also adding three new claimsbased measures for the FY 2015
payment determination. We do not
believe that these claims-based
measures will create any additional
burden for hospitals because they will
be collected and calculated by CMS
based on the Medicare FFS claims the
hospitals have already submitted to
CMS.
One additional survey measure will
be added to the existing HCAHPS
survey measures for the FY 2015
payment determination. Burden for
HCAHPS data collection is approved
through OMB No. 0938–0981.
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
remove one chart-abstracted measures,
SCIP–VTE–1: Surgery patients with
recommended venous
thromboembolism prophylaxis
beginning with the FY 2015 payment
determination. In addition, beginning
with the FY 2015 payment
determination, we are removing 16
claims-based measures. We estimate
that the removal of these measures will
reduce the total burden to hospitals by
a total of 150,000 hours.
We are adding a structural measure
for the FY 2016 payment determination,
the Safe Surgery Checklist Use measure.
This measure will require hospitals to
report their yes/no response regarding
use of a safe surgery checklist. We
estimate that 3,300 hospitals will spend
about 2 minutes each to answer this
question each year, resulting in an
estimated total increase of 110 hours in
terms of the total burden to hospitals
each year.

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7. ICRs for PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program
As discussed in section VIII.B. of the
preamble of this final rule, section
1866(k) of the Act requires, for purposes
of FY 2014 and each subsequent fiscal
year, that a hospital described in section
1886(d)(1)(B)(v) of the Act (a PPSexempt cancer hospital, or a PCH)
submit data in accordance with section

program. Therefore, we intend to reduce
and avoid duplicative reporting efforts,
whenever possible, by leveraging
existing infrastructure.
For the FY 2014 program year, as we
proposed, we are adopting five NQFendorsed quality measures, two of
which were developed by the CDC and
three of which were developed by the
American College of Surgeons’
Commission on Cancer (ACoS/CoC).

Topic

Quality meassures

Cancer-Specific Treatments ...........

Adjuvant Chemotherapy is considered or administered within 4 months (120 days) of surgery to patients
under the age of 80 with AJCC Stage III (lymph node positive) colon cancer (NQF #0223).
Combination Chemotherapy is considered or administered within 4 months (120 days) of diagnosis for
women under 70 with AJCC T1c, or Stage II or III hormone receptor negative Breast Cancer (NQF
#0559).
Adjuvant Hormonal Therapy (NQF #0220).
National Healthcare Safety Network (NHSN) Central Line-Associated Bloodstream Infection (CLABSI) Outcome Measure (NQF #0139).
National Healthcare Safety Network (NHSN) Catheter-Associated Urinary Tract Infection (CAUTI) Outcome
Measure (NQF #0138).

Healthcare
(HAIs).

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1866(k)(2) of the Act with respect to
such fiscal year. To comply with the
statutory mandate, we are implementing
the PCHQR Program in an effort to
improve the quality of care for inpatient
cancer patients. It is our aim and goal
to encourage PCHs to furnish high
quality care in a manner that is effective
and meaningful, while remaining
mindful of the reporting burden created
by the implementation of this new

53667

Acquired

Infections

We estimate that 11 PCHs will submit
data on approximately 27,273 cases
annually for these measures, and it will
require, on average, 2.5 hours for a PCH
to abstract the information from medical
records and submit it for each case.
Although PCHs have not previously
reported data on quality measures to
CMS, they have some familiarity and
experience with the reporting of quality
data. More specifically, out of the 11
existing PCHs, 10 (or 91 percent) are
currently reporting the proposed cancerspecific measures to the ACoS/CoC.
Likewise, a majority of the PCHs are
currently submitting data on the HAI
measures to the CDC. We believe that
because the majority of the PCHs have
demonstrated the ability to report these
measures, the reporting requirements
we are finalizing in this final rule for the
PCHQR Program will not significantly
impact PCHs.
Furthermore, we estimate that
reporting the quality data to the CDC
and the CMS contractor will not be
costly to PCHs. In our burden
calculation, we have included the time
used for chart abstraction and for
training personnel on collection of
chart-abstracted data, as well as training
for submitting the data through these
entities (CDC and the CMS contractor).
We estimate that the annual hourly
burden to each PCH for the collection,
submission, and training of personnel
for submitting all quality measure data
will be approximately 6,293.5 hours per
year for each PCH. The average hourly
burden to each PCH will be
approximately 524 hours per month.
This final rule would affect all PCHs
participating in Medicare. The facilities

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would have to register with QualityNet
and take the proper training in order to
be adequately prepared to use the
QualityNet system to submit the Notice
of Participation form. The anticipated
burden to these providers consists of the
following: (1) The initial registration
with the CDC, CMS contractor, and CMS
QualityNet; (2) training of the
appropriate staff members on how to
use the QualityNet reporting program;
(3) the time required for collection of
data; and (4) the time required for entry
of the data to the CDC and the CMS
contractor database by the PCH’s
representative.
Comment: Commenters urged CMS to
leverage with the ACoS/CoC
infrastructure because the PCHQR
Program could pose a ‘‘sizeable expense
for each participating institution and a
significant time investment.’’
Response: We are appreciative of the
commenters’ concerns surrounding
administrative burden and duplicative
reporting. We intend to align closely
with the ACoS/CoC data infrastructure
and apply consistent reporting format in
an effort to minimize burden.
8. ICRs for the Hospital Value-Based
Purchasing (VBP) Program
In section VIII.C. of the preamble of
the proposed rule and this final rule, we
discuss requirements for the Hospital
VBP Program. Specifically, in this final
rule, for the FY 2015 program, we are
removing a measure from the Clinical
Process of Care domain. We are adding
two additional measures in the Outcome
domain, an AHRQ Patient Safety
Indicators composite measure and
CLABSI: Central Line-Associated Blood

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Stream Infection. We also are adding a
measure, Medicare Spending per
Beneficiary, in the Efficiency domain.
All of these additional measures are
required for the Hospital IQR Program;
therefore, their 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.
9. ICRs for the Long Term Care Hospital
Quality Reporting (LTCHQR) Program
In section VIII.D. of the preamble of
this final rule, we discuss the
implementation of section 3004(a) of the
Affordable Care Act, which added
section 1886(m)(5) to the Act. Section
1886(m)(5) of the Act provides that, for
rate year 2014 and each subsequent rate
year, in the case of an LTCH that does
not submit data to the Secretary in
accordance with section 1886(m)(5)(C)
of the Act with respect to such a rate
year, any annual update to a standard
Federal rate for discharges for the
hospital during the rate year, and after
application of section 1886(m)(3) of the
Act, shall be reduced by 2 percentage
points. The initial requirements for the
LTCH Quality Reporting (LTCHQR)
Program were finalized in section VII.C.
of the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51743 through 51756).
In section VIII.D.3.d. of the preamble
of this final rule, for FY 2015, we have
finalized the use of three quality
measures that were previously finalized
for use in the LTCHQR Program in the
FY 2012 IPPS/LTCH PPS final rule.
These measures are: (1) CatheterAssociated Urinary Tract Infections
(CAUTI); (2) Central Line Catheter-

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Associated Blood Stream Infection
Event (CLABSI); and (3) Pressure Ulcers
that are New or Have Worsened. We
stated that the NQF had expanded the
scope of endorsement of the CAUTI and
CLABSI measures to additional care
settings, including LTCHs. The revision
of these measures has not changed the
way that the data for these measures is
to be collected.
In this final rule, we are finalizing our
adoption of the expanded versions of
the CAUTI and CLABSI measures for
the FY 2014 payment determination and
all subsequent fiscal year payment
determinations. We are also retaining an
application of the Pressure Ulcer
measure for the FY 2014 and subsequent
years payment determinations.
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51780 through 51781), we
estimated that the total yearly cost to all
LTCH that are paid under the LTCH PPS
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) will be
approximately $756,326. We believe
that this remains a valid estimation of
the total financial burden that all LTCHs
will incur as a result of the LTCHQR
Program, even considering that the
CAUTI and CLABSI measures were
reviewed and expanded by the NQF.
We do not believe that the burden
estimate we made in the FY 2012 IPPS/
LTCH PPS final rule is affected by the
NQF’s expansion of the CAUTI and
CLABSI measures because these
expanded measures are essentially the
same measures that were adopted in the
FY 2012 IPPS/LTCH PPS final rule.
While the measures will now be
calculated using a standardized
infection ratio (SIR), the expansion of
the CAUTI and CLABSI measures has
made no differences in the way that
these data are to be collected and
reported by LTCHs. Thus, use of the
expanded CAUTI and CLABSI measures
will place no additional burden on
LTCHs. In addition, we believe that this
burden should remain relatively stable
over the first several years of this quality
reporting program, subject to normal
inflationary increases, such as increased
labor wage rates.
As stated in section VIII.D.3.d. of the
preamble of this final rule, for the FY
2016 LTCHQR Program, we had
proposed the addition of five new
quality measure but are finalizing the
addition of only two of these new
quality measures to the LTCHQR
Program measure set. The quality
measures that we have finalized in this
rule are: (1) Percent of Residents or
Patients Who Were Assessed and

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Appropriately Given the Seasonal
Influenza Vaccine (Short-Stay) (NQF
#0680); and (2) Influenza Vaccination
Coverage Among Healthcare Personnel
(NQF #0431).
Data for three of the LTCH measures,
namely Catheter-Associated Urinary
Tract Infection (CAUTI) Outcome
Measure, NHSN Central Line-Associated
Bloodstream Infection (CLABSI)
Outcome Measure, and Influenza
Vaccination Coverage among Healthcare
Personnel, will be collected via the
CDC’s NHSN online data submission
system (http://www.cdc.gov/nhsn/). As
we proposed, LTCHs will report data on
these measures according to measure
specifications of these NQF-endorsed
measures.
The NHSN is a secure, Internet-based
surveillance system that 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 442 LTCHs in operation in
the United States and, according to
CDC, over 200 of these LTCHs already
submit HAI data to NHSN. For these
LTCHs, we believe the burden related to
complying with the requirements of the
quality reporting program will be
reduced because of pre-existing
familiarity with the NHSN submission
process.
Further, the initial setup and
acclimation to the NHSN system will
have already occurred through the
implementation of the NHSN CatheterAssociated Urinary Tract Infection
(CAUTI) Outcome Measure and the
NHSN Central Line-Associated
Bloodstream Infection (CLABSI)
Outcome Measure for the FY 2014
LTCHQR Program payment
determination. Even though these
measures have been recently reviewed
by the NQF and expanded to postacute
care settings, including LTCHs, there
has been no change in the way that the
data for these measures is to be
collected and reported to NHSN.
Likewise, there has been no change in
the registration and training
requirements for providers that are new
to the NHSN reporting system. In
addition, LTCH providers will begin to
use the NHSN system to report CAUTI
and CLABSI data on October 1, 2012. By
the time that any new measures are
finalized and reporting of the same
begins, LTCH providers should be very
familiar and comfortable with the NHSN
reporting system.
The burden associated with these
quality measures is the time and effort
associated with collecting and
submitting the data concerning CAUTI,
CLABSI, and Influenza Vaccination

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Coverage among Healthcare Personnel
to NHSN for LTCHs that are not
currently reporting such data. As we
have stated above, for LTCHs that
already submit data regarding these
measures to NHSN, we believe there
should be little, if any, additional
burden. For LTCHs that submit data to
NHSN for other HAIs, but not data for
these three proposed measures, there
may be some added burden. However,
we believe that this burden will be
significantly decreased because these
LTCHs will already be enrolled in the
NHSN system and will be already
familiar with the NHSN data submission
process. The CDC reports that 321
LTCHs are presently enrolled and are
reporting data through the NHSN
system and that 198 of these LTCHs are
presently submitting data on the CAUTI
measure, for example.
There are currently 442 LTCHs in the
United States paid under the LTCH PPS.
We estimate that each LTCH will submit
approximately 12 NHSN submissions (6
CAUTI events and 6 CLABSI events) per
month (144 events per LTCH annually).
This equates to a total of approximately
63,648 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 database. Based on this estimate,
we expect each LTCH will 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
United States for reporting to NHSN is
26,520 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 will be
$1,739 and the total yearly cost to all
LTCHs for the submission of CAUTI and
CLABSI data to NHSN will be
$768,497.259 While these requirements
are subject to the Paperwork Reduction
Act, we believe the associated burden
hours are accounted for in the
259 Nursing Time—24 hours @ $41.59 per hour =
$998.16; $998.16 × 442 LTCHs = approximately
$441,187.
Admin Time—36 hours @ $20.57 per hour =
$740.52; $740.52 × 442 LTCHs = approximately
$327,310.
TOTAL = $441,187 + $327,310 = $768,497.

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
information collection request currently
approved, OCN 0920–0666.
We analyzed the information
collection requirements for the FY 2014
LTCHQR Program quality reporting
measure ‘‘Percent of Residents with
Pressure Ulcers that are New or
Worsened (NQF #0678)’’ in the FY 2012
IPPS/LTCH PPS final rule (76 FR
51781). This same estimate applies to
the measures affecting the FY 2015
payment determination as they are the
same three (3) measures.
As stated in section VIII.D.3.d. of this
final rule, the other new quality
measure that we have finalized for
addition to the LTCHQR Program is the
Percent of Residents or Patients Who
Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine. This
measure is to be collected using the
LTCH CARE Data Set. In order to do so,
the LTCH CARE Data Set will require
modification with the addition of the
item sets necessary to collect the data
needed for this measure.
In the FY 2013 IPPS/LTCH PPS
proposed rule collection of information
section, we proposed that we would
post the specific additional data
elements that would need to be added
to the LTCH CARE Data set in order to
collect the data necessary to calculate
the Percent of Residents or Patients Who
Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine
measure. We further proposed to post
the corresponding modified technical
data specifications at a later date, on our
LTCH Quality Reporting Program Web
site. We made this proposal because, we
had not yet completed the necessary
technical development of the data items
and the modifications to the data
collection instrument that LTCHs will
use to submit the data for this new
measure. Because the forms are still
under development, we cannot make a
complete burden estimate at this time.
We proposed that reporting and
submission of the Percent of Residents
or Patients Who Were Assessed and
Appropriately Given the Seasonal
Influenza Vaccine measure be
incorporated into the existing data
collection and submission framework of
the LTCH CARE Data Set. This is the
same data collection and submission
framework that will be used by CMS to
support providers for reporting on the
Percent of Residents with Pressure
Ulcers That Are New or Worsened
measure.260
260 The LTCH CARE Data Set, the data collection
instrument that will be used to submit data on this
measure, is currently under Paperwork Reduction
Act (PRA) review by the Office of Management and
Budget. It is discussed in a PRA Notice which
appeared in the Federal Register on September 2,

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By building upon preexisting
resources for data collection and
submission, we intend to foster
alignment between measures that helps
to reduce the administrative burden
related to data collection and
submission. We anticipate that the
initial setup and acclimation to the data
collection by the LTCH CARE Data Set
will have already occurred with the
adoption of the Pressure Ulcer measure
for the LTCHQR Program for the FY
2014 payment determination. Therefore,
we believe the transition to reporting
the four measures via the LTCH CARE
Data Set may be less burdensome.
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
on all patients provides the most robust
and accurate reflection of quality in the
LTCH setting.
At this time, we have not completed
development of the information
collection instrument that LTCHs would
have to submit to comply with the
aforementioned reporting requirements
regarding the measures proposed for
data collection by the LTCH CARE Data
Set for the FY 2016 LTCHQR payment
determination. Because the forms are
still under development, we cannot
make a complete burden estimate at this
time. Once the forms are available, we
will prepare and submit the required
Paperwork Reduction Act (PRA)
package which will fully set forth the
anticipated burden to LTCH providers
as a result of the new data items
(questions) that need to be added to the
LTCH CARE Data Set. The PRA process
provides for the publication of two PRA
notices in the Federal Register which
are followed by 60 and 30 day comment
periods respectively. The PRA notice
and comment process is similar to that
provided for with the proposed and
final rule notice and comment process.
Therefore, even though it is not
possible, at this time, for CMS to
provide all of the necessary burden
estimate information related to the new
measures that we proposed to add to the
LTCHQR Program, stakeholders will
still be afforded opportunities to submit
public comments in accordance with
the PRA rules and guidelines.
Comment: Several commenters
expressed concern about CMS’ burden
estimate. They believed that 50 hours
per LTCH per year (or roughly 20
minutes per patient) for submission of
the pressure ulcer measure is
2011 (Volume 76, Issue 171). The file number for
the LTCH PRA package is CMS–10409.

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unrealistic. Several commenters
estimated that data collection and
submission would take closer to 2 hours
per patient. One commenter noted that
in order for LTCHs to achieve the 20
minute estimate, CMS needs to reduce
the amount of data collected for
calculating the pressure ulcer measure.
Several commenters noted that CMS’
conclusion that reporting four measures
via the LTCH CARE Data Set will not be
burdensome because data collection
using this data collection mechanism is
a preexisting tool is flawed because
CMS’ burden estimate for the pressure
ulcer measure is underestimated.
Several commenters noted that LTCHs
believe it will be necessary to hire at
least one additional staff member in
order to meet the reporting
requirements. One commenter added
that CMS was incorrect in its
assumption that clerical staff will be
able to collect these data, when many
data will need to be collected by wound
care or nursing staff (both of whom
generally have higher wages). Another
commenter argued that it is not
necessary to complete the LTCH CARE
Data Set for all patients and all care
transitions.
Response: We acknowledge the
commenters’ concern regarding the
number of data elements that are
included on the LTCH Care Data Set and
the amount of time that it may take to
complete the LTCH CARE Data Set. We
are sensitive to the commenters’
concern for the amount of time and
money that they will have to expend to
comply with the reporting pressure
ulcer data.
In response to those concerns, we
have carefully reviewed the LTCH
CARE Data Set and our rationale for the
collection quality measure data in the
LTCH setting. We have given much
consideration to the benefits of
collecting quality measure data versus
the burden that will be placed upon
LTCH providers when required to report
this data to CMS using the LTCH CARE
Data Set or the National Healthcare
Safety Network (NHSN). In addition, we
considered the number and types of
LTCHs that are present in the United
States today and the effect that size,
financial status, access to technical
vendor services, and other factors that
may have an impact upon each LTCHs
abilities to comply with the demands of
reporting quality data using the LTCH
CARE Data Set. We further considered
the likelihood of and degree of burden
to which LTCHs of various sizes,
corporate structure, financial status and
varying specialties would be able to
successfully comply with the
requirements of the section 3004 of the

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Affordable Care Act for the LTCHQR
Program.
For reasons that we explain in section
VIII.D.3.a. of the preamble of this final
rule, we are finalizing that certain data
elements contained on the LTCH CARE
Data Set will be voluntary. What we
mean by this is that failure to submit
data on these items will not cause CMS
to find an LTCH provider to be in
noncompliance with the rules and
regulations of the LTCHQR Program.
LTCHs can submit data on these items
on a voluntary basis, and we strongly
encourage this.
Under this policy, LTCHs will only be
required to complete a subset of the data
elements that comprise the LTCH CARE
Data Set. For purposes of this
discussion, we have broken down the
items which make up the LTCH CARE
Data Set into three categories and have
deemed them to be either required or
voluntary. These elements are: (1) A
limited set of administrative items that
are necessary in order to identify each
LTCH and properly attribute patients to
it for purposes of calculating the
measure rate; (2) the data elements
necessary to populate the pressure ulcer
measure, consistent with the NQFendorsed specifications for that
measure; (3) the data elements necessary
to enable CMS to validate that the
pressure ulcer measure data elements
were accurately reported. All other data
elements on the LTCH Care Data Set can
be completed on a voluntary basis but
will have no impact on the measure rate
calculations or on our determination of
whether the LTCH has met the reporting
requirements under the LTCHQR
Program. We will post on the CMS Web
site a detailed matrix that identifies
which data elements will be required
and which will be voluntary.
As noted above, we have decided to
make a portion of the LTCH CARE Data
Set voluntary. However, we are required
by the Paperwork Reduction Act of 1995
to report the burden for information
collection requests that are voluntary.
Therefore, even though our position has
changed with respect to how many of
the LTCH CARE Data Set items are now
considered to be required for successful
reporting, this will not affect the burden
estimate that we must render.
Although we have reviewed and made
some adjustments to our policy related
to the mandatory or voluntary nature of
each item in the LTCH CARE Date set,
we believe that these adjustments have
no effect on our previously stated
burden estimates. Upon review of the
burden calculations that we previously
put forth in the proposed rule, we were
not able to find any information that
would lead us to believe that it will take

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close to 2 hours per patient to complete
the full LTCH CARE Data Set (including
all required and voluntary items).
Furthermore, we have not been able to
find any facts that would lead us to
believe that LTCHs would have to
dedicate one full-time staff position to
the responsibility for completion of a
full LTCH CARE Data Set assessment for
each patient, or for an assessment that
does not include all of the voluntary
items. The likelihood of the need for a
dedicated staff person is further reduced
by our decision to make a portion of the
items on the LTCH CARE Data Set
voluntary in nature. We have several
rationales in support of our conclusions,
which we will discuss below.
First, we note that the full LTCH
CARE Data Set Admission Assessment
consists of 29 data items (which shall
now be divided into required and
voluntary categories). When we
originally calculated our burden
estimate for the LTCH CARE Data set,
we considered burden information data
pertaining to how long it took to
complete similar data items on similar
assessment instruments. Data obtained
during the Post Acute Care Payment
Reform Demonstration (PAC–PRD)
included estimates of the response time
necessary for each CARE tool item.
PAC–PRD data revealed that it took
approximately 0.7 minutes to complete
each question on the CARE tool that was
being used during this demonstration.
In addition, we also considered
burden estimates from other data
collection tools such as the Outcome
and Assessment Information Set
(OASIS–C). The OASIS–C is a data
collection instrument which is
approved under OMB control number
0938–0760. The OASIS–C is used by
home health providers for Medicare
payment and quality reporting
purposes. We have estimated that the
time required to complete this
information collection is estimated to
average 0.7 minutes per response,
including the time to review
instructions, search existing data
resources, gather the data needed and
complete and review the information
collection. The time estimates for these
quality data collection instruments are
consistent with our previously stated
time estimate of approximately 20
minutes for completion of the LTCH
CARE Data Set or 0.7 minutes per
response (either voluntary or required).
Second, the first 20 data items on the
LTCH CARE Data Set consist of basic
patient demographic information
typically collected by most providers. A
portion of these items, while not
necessary for the calculation of the
pressure ulcer measure, are required in

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order for the record to be accepted by
the CMS online data submission system.
Often, this information is provided to
the LTCH by the transferring facility, or
by the patient and/or their family
members upon admission. Only rarely
should the person responsible for the
completion of the LTCH CARE Data Set
have to elicit this information directly
from the patient or their family
members. Because the patient’s
demographic information should be
readily available in the patient’s
medical records, we believe that it
should take no more that the estimated
0.7 minutes per item to complete these
particular data items, whether these
items are required or voluntary (A0050
to A1820).
Third, many LTCHs are now using
EHRs. With the recent movement
towards use of EHRs and the
advancement of this technology, those
LTCHs using EHR technology may gain
additional time efficiencies in the
completion of the LTCH CARE Data Set
by working with their vendors to pull
the specified patient demographic data
(A0050 to A1820) from their EHRs to
populate the corresponding field of the
LTCH–CARE data set. We are in the
process of obtaining Logical Observation
Identifiers Names & Codes (LOINC)
codes for all LTCH–CARE data items to
facilitate electronic interoperability.
Fourth, a review of the remaining
nine data items of the LTCH CARE Data
Set reveal that these are items related to
a clinical physical assessment of various
body systems or functions. Several of
these items on the LTCH CARE Data Set
that are necessary for the calculation of
the pressure ulcer measure as well as
matching of patient data at admission
and discharge for the calculation of the
pressure ulcer measure remain
mandatory items, while others (items
that are not necessary for the calculation
of the pressure ulcer measure) are
considered voluntary. We will post on
our Web site a detailed matrix that
identifies which data elements of the
LTCH CARE Data Set are mandatory
(that is, will be required), and which
will be voluntary. This matrix will also
be incorporated into the final LTCHQR
Program Manual which will be posted
on CMS LTCHQR Program Web site and
available for download from http://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
index.html. Each of these sections
contain data items that are assessmentbased and should be performed on an
ongoing basis by clinical staff for each
patient as a routine part of safe and
effective patient care, and irrespective of
the requirements for completion of the

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LTCH CARE Data Set. Therefore, most,
if not all LTCHs, should be assessing
their patients for the information that is
captured in the LTCH CARE Data Set 261
and documenting their findings in the
medical record as part of their normal
patient care.
As with the patient demographic
questions, completion of the patient
physical assessment data items may be
possible through the use of EHR
technology. Data required for the LTCH
CARE Data Set could be electronically
captured directly from the patient’s
electronic medical records and placed
into the LTCH CARE Data Set to
populate the data item fields. The time
required for the LTCHs with the
capability to complete the entire LTCH
CARE Data Set in this manner may be
significantly less than that for those
LTCHs that do not use this type of
technology.
Finally, we do not believe that it
should take more than 20 minutes to
complete a full LTCH CARE Data Set
assessment on each LTCH patient
because, pursuant to PRA requirements,
we are not required to include in our
burden estimates, any time that a
provider would spend in the
performance of normal patient care. Nor
are we required to factor into our
burden estimate any other work that an
LTCH provider would perform in the
normal course of business (that is, if
they had not been asked to collect the
information that is the LTCH CARE Data
Set). This principle would apply to all
data items, whether they are voluntary
or required, because pursuant to the
Paperwork Reduction Act of 1995, we
are obligated to report the burden for all
information collection requests, whether
they be voluntary or mandatory.
Collection of patient demographic
information is done in the normal
course of business, typically when a
patient is received into an LTCH
facility. Patient assessment, and more
particularly, the skin assessments are
performed and the results documented
by the LTCH clinical staff on an ongoing
basis during the patient’s stay. To the
extent that we ask LTCHs to provide any
of this information to us on the LTCH
CARE Data Set, this information is
already being collected and documented
261 Mandatory data elements are the
administrative section, skin conditions section, and
assessment of risk factors used as covariates for the
NQF-endorsed Pressure Ulcer measure (NQF)678)
of the LTCH CARE Data Set. The covariate items
include: functional status assessment, bowel
continence, active diagnosis such as diabetes and
peripheral vascular disease, documentation of
height and weight to calculate patient body mass
index, and skin assessment to capture new or
worsening of pressure ulcers (Stage 2, 3 or 4)
between admission and discharge assessment.

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during the normal course of business
and in the normal course of patient care,
and we are not required to factor it into
our burden assessment.
Comment: Several commenters noted
that CMS provided a burden estimate
for NHSN data submission but did not
provide data for the estimated level of
burden for submission of LTCH CARE
Data Set data for the newly proposed
measures.
Response: In the FY 2013 IPPS/LTCH
PPS proposed rule, we noted that we
could not provide a burden estimate for
the time that it will take to complete the
LTCH CARE Data Set given the newly
proposed measures selected for use in
the LTCHQR Program, as the LTCH
CARE Data set has not yet been updated
to include the data items needed for the
measures CMS is finalizing. We further
explained that the data for four of these
new measures is to be collected using
the LTCH CARE Data Set. However,
since the time of the publication of the
proposed rule, we have elected not to
proceed with three of the new measures
that we had named in the proposed rule.
We instead decided to proceed with the
addition of two new measures (that is,
Percent of Residents or Patients Who
Were Assessed and Appropriately Given
the Seasonal Influenza Vaccine (ShortStay) (NQF #0680); and Influenza
Vaccination Coverage Among
Healthcare Personnel (NQF #0431), in
addition to the three measures that were
previously finalized for use in the
LTCHQR Program.
The data for the staff influenza
vaccination measure will be reported by
LTCHs to NHSN. However, the addition
of the inpatient influenza vaccination
measure has required us to add
additional item sets to the LTCH CARE
Data Set. We are currently in the process
of developing these new item sets but
this work has not yet been completed.
We cannot provide an accurate burden
estimate for revised LTCH CARE Data
Set which incorporates the new item
sets until these new items have been
completely developed.
We also stated in the FY 2013 IPPS/
LTCH PPS proposed rule that, upon
completion of the revised LTCH CARE
Data Set (which will contain the new
item sets), we will file a PRA package
in which we will provide a complete
burden estimate for the revised LTCH
CARE Data Set. This PRA process will
supply LTCH providers with not only
one, but two separate notices and
comment periods which will afford
them with the opportunity to view PRA
documents that we file and to submit
public comments related to these PRA
documents.

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The PRA process provides for the
publication of an initial 60 day PRA
notice in the Federal Register. LTCHs
will have 60 days from the date of
publication of this 60 day PRA notice in
which to file their public comments in
response to the PRA documents that we
file. These PRA documents will be
posted on the CMS PRA Web site. After
the expiration of the 60-day notice and
comment period, we will respond to any
comments that we receive. Thereafter, a
second, 30 day PRA notice will be
posted in the Federal Register which
will begin the 30-day notice and
comment period. This is an additional
opportunity to file public comments in
response to the second PRA publication
and posting.
Comment: One commenter expressed
concern regarding the burden of
inputting data into LASER because
LASER was developed without user
input.
Response: While the LTCHQR
Program and the LASER program are
new, the LASER program was
developed by CMS contractors who
have had extensive experience with the
design, development, and
implementation of similar data
collection programs. These computer
programs correspond to data collection
instruments that are used by CMS to
obtain data for payment and quality
measurement purposes. One such
program is the JIRVEN program that is
used to collect data from the Inpatient
Rehabilitation Facility AssessmentPatient Assessment Instrument (IRF–
PAI). This instrument is used to
determine IRF PPS payments and will
also be used for the collection of IRF
quality reporting program data
beginning on October 1, 2012. Another
such program is the RAVEN software,
which is used to collect data for the
Minimum Data Set, 3.0 (MDS 3.0). The
MDS 3.0 data collection instrument is
used in skilled nursing facilities to
collect information that is used for
payment and quality measurement
purposes. CMS also offers another free
software program to stakeholders,
known as HAVEN, which is used to
collect data for OASIS–C.
We believe that the CMS contractors
who created the LASER program have
used the past knowledge and
experience, which they gained from
development of similar data collection
programs when creating the LASER
program. In addition, during the design
process for the LASER program, the
contractors were in frequent contact
with the various CMS subject matter
experts and technical advisors, who
provided them with information about
the LTCH setting, so that the LASER

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program would be customized to fit the
needs of the LTCH setting.
We disagree with the contention that
we did not get user input during the
creation of the LASER program, or that
lack of input will cause increased
burden to LTCHs. When the LASER
program was being created, we made
numerous attempts to reach out to the
LTCH community to educate the
community about the LTCHQR Program
and to also seek input about various
areas of the LTCHQR Program,
including the development of the
LASER program. We held vendor calls
on November 16, 2011 and June 28,
2012, during which the LTCH
community and their vendors were
invited to participate and share their
questions and concerns about the
LASER program.
We have also reached out to the LTCH
community through the use of several
different types of activities, including
Open Door Forums, the posting of
information on the LTCH Quality
Reporting Program Web page (https://
www.cms.gov/Medicare/QualityInitiatives-Patient-AssessmentInstruments/LTCH-Quality-Reporting/
LTCHTechnicalInformation.html and a
2-day in-person training conference.
LTCH Special Open Door Forums were
held on September 21, 2011 and April
13, 2012. Open Door Forums provided
an opportunity for LTCHs to receive
information about selected topics and to
ask questions and seek information
about the LTCH quality reporting
program. A tape recording of each of
these Open Door Forums was made
available for a short period of time
following the date of the presentation.
Also, a transcript of each Open Door
Forum is available at the CMS Open
Door Forum Web site and the LTCHQR
Program Web page.
Finally, we have posted informational
updates about the status of the LTCHQR
Program on an ongoing basis to the
LTCHQR Program Web page.
Information about the LASER data
collection program for the LTCHQR
Program also has been posted, including
draft and final technical specifications.
In summary, we believe that the
LASER Program was created by
experienced CMS contractors with input
from the LTCH vendors and provider
community, as well as CMS subject
matter experts, taking into account
provider and vendor comments and
interactions as outlined above, so we do
not foresee any increased burden to
providers caused by the method in
which this program was created.

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10. ICRs for the Ambulatory Surgical
Center (ASC) Quality Reporting Program
In section VIII.E. of the preamble of
the proposed rule and this final rule, we
discuss the requirements for the ASCQR
Program for payment determinations
affecting CY 2014 and subsequent years.
In section XIV.K. of the CY 2012 OPPS/
ASC final rule with comment period (76
FR 74492 through 74517), we finalized
our proposal to implement a quality
reporting program for ASCs beginning
with the CY 2014 payment
determination. We refer readers to the
CY 2012 OPPS/ASC final rule with
comment period (76 FR 74554) for a
detailed discussion of the ASCQR
Program collection of information
requirements for the claims-based and
structural measures for the CY 2014 and
CY 2015 payment determinations.
In the CY 2012 OPPS/ASC final rule
with comment period (76 FR 74516), we
finalized our proposal to consider an
ASC to be participating in the ASCQR
Program for the CY 2014 payment
determination if the ASC includes
Quality Data Codes (QDCs) specified for
the program on their CY 2012 claims
relating to the finalized measures.
For the CY 2015 payment
determination and subsequent payment
determination years, we proposed and
are finalizing that once an ASC submits
any quality measure data, it would be
considered to be participating in the
ASCQR Program. For the CY 2014
payment determination and subsequent
payment determination years, if the
ASC submits quality measure data, there
is no additional action required by the
ASC to indicate participation in the
Program. Once an ASC submits quality
measure data indicating its participation
in the ASCQR Program, in order to
withdraw, an ASC must complete and
submit an online form indicating that it
is withdrawing from the quality
reporting program.
The burden associated with the
requirements to withdraw from the
program is the time and effort associated
with accessing, completing, and
submitting the online form. Based on
the number of hospitals that have
withdrawn from the Hospital OQR
Program over the past 4 years, we
estimate that 2 ASCs would withdraw
per year and that an ASC would expend
30 minutes to access and complete the
form, for a total burden of 1 hour per
year.
For the CY 2015 payment
determination, we proposed and are
finalizing the requirement that ASCs
identify and register a QualityNet
administrator in order to set up
accounts necessary to enter structural

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measure data. We estimate that, based
upon previous experience with the
Hospital OQR Program, it would take an
ASC 10 hours to obtain, complete, and
submit an application for a QualityNet
administrator and then set up the
necessary accounts for structural
measure data entry. We estimate the
total burden to meet these requirements
to be 51,750 hours (10 hours × 5,175
ASCs). We previously discussed the
burden associated with the data entry of
structural measure information for the
ASCQR Program in the CY 2012 OPPS/
ASC final rule with comment period (76
FR 74554).
We proposed and are finalizing a
process for an extension or waiver for
submitting information required under
the ASCQR Program due to
extraordinary circumstances that are not
within the ASC’s control for the CY
2014 payment determination and
subsequent payment determination
years. We proposed and are finalizing
that an ASC would complete a request
form that would be available on the
QualityNet Web site, supply requested
information, and submit the request.
The burden associated with these
requirements is the time and effort
associated with gathering required
information as well as accessing,
completing, and submitting the form.
Based on the number of hospitals that
have submitted a request for an
extension or waiver from the Hospital
OQR Program over the past 4 years, we
estimate that 1 ASC per year would
request an extension or waiver and that
an ASC would expend 2 hours to gather
required information as well as access,
complete, and submit the form, for a
total burden of 2 hours per year.
We also proposed and are finalizing a
reconsideration process that would
apply to the CY 2014 payment
determination and subsequent payment
determination years under the ASC
Quality Reporting Program. While there
is burden associated with an ASC filing
a reconsideration request, the
regulations at 5 CFR 1320.4 for the
Paperwork Reduction Act of 1995
exclude collection activities during the
conduct of administrative actions such
as redeterminations, reconsiderations,
and/or appeals.
We requested public comments on
these information collection
requirements.
We did not receive any public
comments regarding these information
collections.

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11. ICRs for the Inpatient Psychiatric
Facilities Quality Reporting (IPFQR)
Program
In section VIII.F. of the preamble of
the proposed rule and this final rule, we
discuss the implementation of the
Inpatient Psychiatric Facilities Quality
Reporting (IPFQR) Program.
Historically, IPFs have not been
required to report quality data to CMS.
However, they have been required to
report quality measures to other entities
such as TJC or State survey and
certification organizations. Therefore,
although IPFs have not reported on
quality measures to CMS, they have
some familiarity with and experience in
reporting of quality data. More
specifically, out of the 1,741 existing
IPFs, 450 are currently reporting the
proposed measures to TJC. This equates
to 26.02 percent of IPFs that already
report the measures on a regular basis.
The fact that over one-quarter of the
IPFs have demonstrated the ability to
report the measures indicates the
proposed regulation would not
significantly impact IPFs.
Furthermore, we estimate that
reporting aggregated-level data on
QualityNet will not be costly to IPFs. In
our burden calculation, we have
included the time used for chart
abstraction and for training personnel
on collection of chart-abstracted data,
aggregation of the data, as well as
training for submitting the aggregatelevel data through QualityNet. We
estimate that the annual hourly burden
to each IPF for the collection,
submission, and training of personnel
for submitting all quality measures is
approximately 821 hours in a year for
each IPF. The average hourly burden to
each IPF is approximately 68 hours per
month.
This rule would affect all IPFs
participating in Medicare. The facilities
would have to register with QualityNet
and take the proper training in order to
be adequately prepared to use the
QualityNet system to submit the data.
The anticipated burden to these
providers consists of the following: (1)
The initial registration of the facility
with QualityNet; (2) training of the
appropriate staff members on how to
use the QualityNet reporting program;
(3) the time required for collection and
aggregation of data; and (4) the time
required for entry of the data into the
QualityNet database by the IPF’s
representative.
This rule would affect all IPFs that
currently do not already report data to
CMS. These facilities will have to
register with CMS and take the proper
training in order to be adequately

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prepared to use the CMS QualityNet
System for data submission.
Those IPFs that already report quality
measures to the TJC will be minimally
affected because the abstraction
methods, population, sampling, and
reporting approaches are similarly
adopted by CMS. Therefore, IPFs that
report the proposed IPFQR Program
quality measures will experience a
minimum burden.
We requested public comments on
these information collection
requirements.
We did not receive any public
comments regarding these information
collections.

53673

42 CFR Part 413

Hospital Readmissions Reduction
Program. This reduction will be made
through an adjustment to the hospital’s
base operating DRG payment amounts
under the prospective payment system
for inpatient operating costs.
(6) This part implements section
1886(o)(1)(B) of the Act, which directs
the Secretary to begin to make valuebased incentive payments under the
Hospital Value-Based Purchasing
Program to hospitals for discharges
occurring on or after October 1, 2012,
through an adjustment to the base
operating DRG payment amounts under
the prospective payment system for
inpatient operating costs.
*
*
*
*
*
■ 3. Section 412.64 is amended—
■ a. Revising paragraph (d)(1)(iv).
■ b. Revising the introductory text of
paragraph (h)(4).
■ c. Revising paragraph (h)(4)(v).
■ d. Adding a new paragraph (h)(4)(vi).
The revisions and addition read as
follows:

Health facilities, Kidney diseases,
Medicare, Puerto Rico, Reporting and
recordkeeping requirements.

§ 412.64 Federal rates for inpatient
operating costs for Federal fiscal year 2005
and subsequent fiscal years.

42 CFR Part 424

*

List of Subjects
42 CFR Part 412
Administrative practice and
procedure, Health facilities, Medicare,
Puerto Rico, Reporting and
recordkeeping requirements.

Conditions for Medicare payment.
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, the Centers for Medicare &
Medicaid Services is amending 42 CFR
Chapter IV as follows:
PART 412—PROSPECTIVE PAYMENT
SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
1. The authority citation for Part 412
continues to read as follows:

■

Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395hh), and sec. 124 of Pub. L. 106–113
(113 Stat. 1501A–332).

2. Section 412.1 is amended by adding
new paragraphs (a)(5) and (a)(6) to read
as follows:

■

§ 412.1

Scope of part.

(a) * * *
(5) This part implements section
1886(q) of the Act, which provides that,
effective for discharges from an
‘‘applicable hospital’’ beginning on or
after October 1, 2012, payments to those
hospitals under section 1886(d) of the
Act will be reduced to account for
certain excess readmissions, under the

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*
*
*
*
(d) * * *
(1) * * *
(iv) For fiscal years 2012 and 2013,
the percentage increase in the market
basket index less a multifactor
productivity adjustment (as determined
by CMS) and less 0.1 percentage point
for prospective payment hospitals (as
defined in § 413.40(a) of this
subchapter) for hospitals in all areas.
*
*
*
*
*
(h) * * *
(4) For discharges on or after October
1, 2004 and before October 1, 2013,
CMS establishes a minimum wage index
for each all-urban State, as defined in
paragraph (h)(5) of this section. This
minimum wage index value is
computed using the following
methodology.
*
*
*
*
*
(v) The product determined under
paragraph (h)(4)(iv) of this section is the
minimum wage index value for the
State, except as provided under
paragraph (h)(4)(vi) of this section;
(vi) For discharges on or after October
1, 2012 and before October 1, 2013, the
minimum wage index value for the State
is the higher of the value determined
under paragraph (h)(4)(iv) of this section
or the value computed using the
following alternative methodology:
(A) CMS estimates a percentage
representing the average percentage
increase in wage index for hospitals
receiving the rural floor due to such
floor.

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(B) For each all-urban State, CMS
makes a onetime determination of the
lowest hospital wage index in the State
(including all adjustments to the
hospital’s wage index, except for the
rural floor, the rural floor budget
neutrality, and the outmigration
adjustment) and increases this wage
index by the percentage determined
under paragraph (h)(4)(vi)(A) of this
section, the result of which establishes
the alternative minimum wage index
value for the State.
*
*
*
*
*
■ 4. Section 412.92 is amended by—
■ a. Revising paragraph (b)(2)(i).
■ b. Adding paragraphs (b)(2)(v) and
(b)(3)(iv).
The revision and additions read as
follows:
§ 412.92 Special treatment: Sole
community hospitals.

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*

*
*
*
*
(b) * * *
(2) * * * (i) Sole community hospital
status is effective 30 days after the date
of CMS’ written notification of approval,
except as provided in paragraph
(b)(2)(v) of this section.
*
*
*
*
*
(v) If a hospital that is classified as an
MDH under § 412.108 applies for
classification as a sole community
hospital because its status under the
MDH program expires with the
expiration of the MDH program, and
that hospital’s sole community hospital
status is approved, the effective date of
approval of sole community hospital
status is the day following the
expiration date of the MDH program if
the hospital—
(A) Applies for classification as a sole
community hospital prior to 30 days
before the expiration of the MDH
program; and
(B) Requests that sole community
hospital status be effective with the
expiration of the MDH program.
(3) * * *
(iv) A sole community hospital must
report to the fiscal intermediary or MAC
any factor or information that could
have affected its initial classification as
a sole community hospital.
(A) If CMS determines that a sole
community hospital has failed to
comply with the requirement of
paragraph ((b)(3)(iv) of this section,
CMS may cancel the hospital’s
classification as a sole community
hospital effective with the date the
hospital failed to meet the criteria for
such classification, consistent with the
provisions of § 405.1885 of this chapter.
(B) Effective on or after October 1,
2012, if a hospital reports to CMS any

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factor or information that could have
affected its initial determination and
CMS determines that the hospital
should not have qualified for sole
community hospital status, CMS will
cancel the sole community hospital
status effective 30 days from the date of
the determination.
*
*
*
*
*
5. 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, or inpatient hospice
services.
*
*
*
*
*
6. Section 412.140 is amended by
revising paragraphs (a)(3)(i) and (b) to
read as follows:

■

§ 412.140 Participation, data submission,
and validation requirements under the
Hospital Inpatient Quality Review (IQR)
Program.

(a) * * *
(3) * * *
(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 calendar year preceding the first
quarter of the calendar year in which
data submission is required for any
given fiscal year.
*
*
*
*
*
(b) Withdrawal from the Hospital IQR
Program. A subsection (d) hospital may
withdraw from the Hospital IQR
Program by submitting to CMS a
withdrawal form that can be found in
the secure portion of the QualityNet
Web site. The hospital must submit the
withdrawal form by May 15 prior to the
start of the payment year affected. For
example, if a hospital seeks to withdraw
from the FY 2015 payment
determination, the hospital must submit
the withdrawal form to CMS by May 15,
2014.
*
*
*
*
*
7. Subpart I is added to part 412 to
read as follows:

■

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Subpart I—Adjustments to the Base
Operating DRG Payment Amounts Under
the Prospective Payment Systems for
Inpatient Operating Costs
Sec.
412.150 Basis and scope of subpart.
Payment Adjustments Under the Hospital
Readmissions Reduction Program
412.152 Definitions for the Hospital
Readmissions Reduction Program.
412.154 Payment adjustments under the
Hospital Readmissions Reduction
Program.
412.155–412.159 [Reserved]
Incentive Payments Under the Hospital
Value-Based Purchasing Program
412.160 Definitions for the Hospital ValueBased Purchasing (VBP) Program.
412.161 Applicability of the Hospital
Value-Based Purchasing (VBP) Program
412.162 Process for reducing the base
operating DRG payment amount and
applying the value-based incentive
payment amount adjustment under the
Hospital Value-Based Purchasing (VBP)
Program.
412.163 Process for making hospitalspecific performance information under
the Hospital Value-Based Purchasing
(VBP) Program available to the public.
412.164 Measure selection under the
Hospital Value-Based Purchasing (VBP)
Program.
412.165 Performance standards under the
Hospital Value-Based Purchasing (VBP)
Program.
412.167 Appeal under the Hospital ValueBased Purchasing (VBP) Program.
412.168–412.169 [Reserved]

Subpart I—Adjustments to the Base
Operating DRG Payment Amounts
Under the Prospective Payment
Systems for Inpatient Operating Costs
§ 412.150

Basis and scope of subpart.

(a) Section 1886(q) of the Act requires
the Secretary to establish a Hospital
Readmissions Reduction program,
under which payments to applicable
hospitals are reduced in order to
account for certain excess readmissions,
effective for discharges beginning on
October 1, 2012. The rules for
determining the payment adjustment
under the Hospital Readmission
Reductions Program are specified in
§§ 412.152 and 412.154.
(b) Section 1886(o) of the Act requires
the Secretary to establish a Value-Based
Purchasing (VBP) Program for inpatient
hospitals (Hospital VBP Program),
which requires CMS to make valuebased incentive payments to hospitals
that meet performance standards for
applicable performance periods,
effective for discharges beginning on
October 1, 2012. The rules for
determining the payment adjustment
under the Hospital Value-Based

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Purchasing Program are specified in
§§ 412.160 through 412.167.
Payment Adjustments Under the
Hospital Readmissions Reduction
Program

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§ 412.152 Definitions for the Hospital
Readmissions Reduction Program.

As used in this section and in
§ 412.154, the following definitions
apply:
Aggregate payments for all discharges
is, for a hospital for the applicable
period, the sum of the base operating
DRG payment amounts for all
discharges for all conditions from such
hospital for such applicable period.
Aggregate payments for excess
readmissions is, for a hospital for the
applicable period, the sum, for the
applicable conditions, of the product for
each applicable condition of:
(1) The base operating DRG payment
amount for the hospital for the
applicable period for such condition;
(2) The number of admissions for
such condition for the hospital for the
applicable period; and
(3) The excess readmission ratio for
the hospital for the applicable period
minus 1.
Applicable condition is a condition or
procedure selected by the Secretary
among conditions and procedures for
which:
(1) Readmissions represent conditions
or procedures that are high volume or
high expenditures; and
(2) Measures of such readmissions
have been endorsed by the entity with
a contract under section 1890 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).
Applicable hospital is a hospital
described in section 1886(d)(1)(B) of the
Act or a hospital in Maryland that is
paid under section 1814(b)(3) of the Act
and that, absent the waiver specified by
section 1814(b)(3) of the Act, would
have been paid under the hospital
inpatient prospective payment system.
Applicable period is, with respect to
a fiscal year, the 3-year period (specified
by the Secretary) from which data are
collected in order to calculate excess
readmission ratios and adjustments
under the Hospital Readmissions
Reduction Program.
Base operating DRG payment amount
is the wage-adjusted DRG operating
payment plus any applicable new
technology add-on payments under
subpart F of this part. This amount is
determined without regard to any
payment adjustments under the

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Hospital Value-Based Purchasing
Program, as specified under § 412.162.
This amount does not include any
additional payments for indirect
medical education under § 412.105, the
treatment of a disproportionate share of
low-income patients under § 412.106,
outliers under subpart F of this part, and
a low volume of discharges under
§ 412.101.
Excess readmissions ratio is a
hospital-specific ratio for each
applicable condition for an applicable
period, which is the ratio (but not less
than 1.0) 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.
Floor adjustment factor is the value
that the readmissions adjustment factor
cannot be less than for a given fiscal
year. The floor adjustment factor is set
at 0.99 for FY 2013, 0.98 for FY 2014,
and 0.97 for FY 2015 and subsequent
fiscal years.
Readmission is 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
of 30 days from the date of such
discharge.
Readmissions adjustment factor is
equal to the greater of:
(1) 1 minus the ratio of the aggregate
payments for excess readmissions to
aggregate payments for all discharges; or
(2) The floor adjustment factor.
Wage-adjusted DRG operating
payment is the applicable average
standardized amount adjusted for
resource utilization by the applicable
MS–DRG relative weight and adjusted
for differences in geographic costs by
the applicable area wage index (and by
the applicable cost-of-living adjustment
for hospitals located in Alaska and
Hawaii). This amount includes an
applicable payment adjustment for
transfers under § 412.4(f).
§ 412.154 Payment adjustments under the
Hospital Readmissions Reduction Program.

(a) Scope. This section sets forth the
requirements for determining the
payment adjustments under the
Hospital Readmissions Reduction
Program for applicable hospitals to
account for excess readmissions in the
hospital.
(b) Payment adjustment. (1) General.
To account for excess readmissions,
except as provided for in paragraph (d)
of this section, an applicable hospital’s
base operating DRG payment amount is
adjusted for each discharge occurring
during the fiscal year. The payment

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53675

adjustment for each discharge is
determined by subtracting the product
of the base operating DRG payment
amount (as defined in § 412.152) for
such discharge by the hospital’s
readmission payment adjustment factor
for the fiscal year (determined under
paragraph (c) of this section) from the
base operating DRG payment amount for
such discharge.
(2) Special treatment for sole
community hospitals. In the case of a
sole community hospital that receives
payments under § 412.92(d) based on
the hospital-specific rate, the difference
between the hospital-specific rate
payment and the Federal rate payment
determined under subpart D of this part
is not affected by this payment
adjustment.
(c) Methodology to calculate the
readmissions payment adjustment
factor. A hospital’s readmissions
payment adjustment factor is the higher
of the ratio described in paragraph (c)(1)
of this section or the floor adjustment
factor set forth in paragraph (c)(2) of this
section.
(1) Ratio. The ratio is equal to 1 minus
the ratio of the aggregate payments for
excess readmissions as defined in
§ 412.152 and the aggregate payments
for all discharges as defined in
§ 412.152.
(2) Floor adjustment factor. The floor
adjustment factor is:
(i) For FY 2013, 0.99;
(ii) For FY 2014, 0.98; and
(iii) For FY 2015 and subsequent
fiscal years, 0.97.
(d) Hospitals paid under section
1814(b)(3) of the Act (certain Maryland
hospitals). The Secretary will consider
whether to exempt Maryland hospitals
that are paid under section 1814(b)(3) of
the Act and that, absent the provisions
of section 1814(b)(3) of the Act, would
be paid under section 1886(d) of the Act
from the Hospital Readmissions
Reduction Program, provided that the
State submits an annual report to the
Secretary describing how a similar
program to reduce hospital
readmissions in that State achieves or
surpasses the measured results in terms
of health outcomes and cost savings for
the Hospital Readmissions Reduction
Program as applied to hospitals
described in section 1886(d)(1)(B) of the
Act.
(1) CMS will establish criteria for
evaluation of Maryland’s annual report
to the Secretary to determine whether
Maryland will be exempted from the
program for a given fiscal year.
(2) Maryland’s annual report to the
Secretary and request for exemption
from the Hospital Readmissions

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Reduction Program must be resubmitted
and reconsidered annually.
(e) Limitations on review. There is no
administrative or judicial review under
this subpart of the following:
(1) The determination of base
operating DRG payment amounts.
(2) The methodology for determining
the adjustment factor under paragraph
(c) of this section, including the excess
readmissions ratio, aggregate payments
for excess readmissions, and aggregate
payments for all discharges.
(3) The applicable period.
(4) The applicable conditions.
(f) Reporting of hospital-specific
information. CMS will make
information available to the public
regarding readmissions rates of each
applicable hospital (as defined in
§ 412.152) under the Hospital
Readmissions Reduction Program.
(1) To ensure that an applicable
hospital has the opportunity to review
and submit corrections for its excess
readmission ratios for the applicable
conditions for a fiscal year that are used
to determine its readmissions payment
adjustment factor under paragraph (c) of
this section, CMS will provide each
applicable hospital with confidential
hospital-specific reports and discharge
level information used in the
calculation of its excess readmission
ratios.
(2) Applicable hospitals will have a
period of 30 days after receipt of the
information provided in paragraph (f)(1)
of this section to review and submit
corrections for the excess readmission
ratios for each applicable condition that
are used to calculate the readmissions
payment adjustment factor under
paragraph (c) of this section for the
fiscal year.
(3) The administrative claims data
used to calculate an applicable
hospital’s excess readmission ratios for
the applicable conditions for a fiscal
year are not subject to review and
correction under paragraph (f)(1) of this
section.
(4) CMS will post the excess
readmission ratios for the applicable
conditions for a fiscal year for each
applicable hospital on the Hospital
Compare Web site.

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§§ 412.155–412.159

[Reserved]

Incentive Payments Under the Hospital
Value-Based Purchasing Program
§ 412.160 Definitions for the Hospital
Value-Based Purchasing (VBP) Program.

As used in this section and in
§§ 412.161 through 412.167:
Achievement threshold (or
achievement performance standard)
means the median (50th percentile) of

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hospital performance on a measure
during a baseline period with respect to
a fiscal year.
Applicable percent means the
following:
(1) For FY 2013, 1.0 percent;
(2) For FY 2014, 1.25 percent;
(3) For FY 2015, 1.50 percent;
(4) For FY 2016, 1.75 percent; and
(5) For FY 2017 and subsequent fiscal
years, 2.0 percent.
Base operating DRG payment amount
means the following:
(1) With respect to a subsection (d)
hospital (as defined in section
1886(d)(1)(B) of the Act), the wageadjusted DRG operating payment plus
any applicable new technology add-on
payments under subpart F of this part.
This amount is determined without
regard to any payment adjustments
under the Hospital Readmissions
Reduction Program, as specified under
§ 412.154. This amount does not include
any additional payments for indirect
medical education under § 412.105, the
treatment of a disproportionate share of
low-income patients under § 412.106,
outliers under subpart F of this part, or
a low volume of discharges under
§ 412.101.
(2) With respect to a Medicaredependent, small rural hospital that
receives payments under § 412.108(c) or
a sole community hospital that receives
payments under § 412.92(d), the wageadjusted DRG operating payment plus
any applicable new technology add-on
payments under subpart F of this part.
This amount does not include any
additional payments for indirect
medical education under § 412.105, the
treatment of a disproportionate share of
low-income patients under § 412.106,
outliers under subpart F of this part, or
a low volume of discharges under
§ 412.101. This amount also does not
include the difference between the
hospital-specific payment rate and the
Federal payment rate determined under
subpart D of this part.
(3) With respect to a hospital that is
paid under section 1814(b)(3) of the Act,
the payment amount under section
1814(b)(3) of the Act.
Benchmark means the arithmetic
mean of the top decile of hospital
performance on a measure during the
baseline period with respect to a fiscal
year.
Cited for deficiencies that pose
immediate jeopardy means that, during
the applicable performance period, the
Secretary cited the hospital for
immediate jeopardy on at least two
surveys using the Form CMS–2567,
Statement of Deficiencies and Plan of
Correction.

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Domain means a grouping of
measures used for purposes of
calculating the Total Performance Score
for each hospital with respect to a fiscal
year.
Domain score means the total number
of points awarded to a hospital for a
domain.
Hospital means a hospital described
in section 1886(d)(1)(B) of the Act, but
does not include a hospital, with respect
to a fiscal year, for which one or more
of the following applies:
(1) The hospital is subject to the
payment reduction under section
1886(b)(3)(B)(viii)(I) of the Act for the
fiscal year;
(2) The Secretary cited the hospital for
deficiencies that pose immediate
jeopardy to the health or safety of
patients during the performance period
that applies with respect to the fiscal
year;
(3) There are not a minimum number
of measures that apply to the hospital
for the performance period for the fiscal
year; or
(4) There are not a minimum number
of cases for the measures that apply to
the hospital for the performance period
for the fiscal year.
Immediate jeopardy has the same
meaning as that term is defined in
§ 489.3 of this chapter.
Improvement threshold (or
improvement performance standard)
means an individual hospital’s
performance level on a measure during
the baseline period with respect to a
fiscal year.
Linear Exchange Function is the
means to translate a hospital’s total
performance score into a value-based
incentive payment percentage such that:
(1) Each eligible hospital’s valuebased incentive payment percentage is
based on its total performance score;
and
(2) The total amount of value-based
incentive payments to all hospitals in a
fiscal year is equal to the total amount
available for value-based incentive
payments in such fiscal year.
Performance period means the time
period during which data are collected
for the purpose of calculating hospital
performance on measures with respect
to a fiscal year.
Performance standards are the levels
of performance that hospitals must meet
or exceed in order to earn points under
the Hospital VBP Program.
Total Performance Score means the
numeric score ranging from 0 to 100
awarded to each hospital based on its
performance under the Hospital VBP
Program with respect to a fiscal year.
Value-based incentive payment
adjustment factor is the number that

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will be multiplied by the base operating
DRG payment amount for each
discharge from a hospital, during a
fiscal year, in order to adjust the
hospital’s payment as a result of its
performance under the Hospital VBP
Program.
Value-based incentive payment
percentage means the percentage of the
base operating DRG payment amount for
each discharge that a hospital has
earned with respect to a fiscal year,
based on its Total Performance Score for
that fiscal year.
Wage-adjusted DRG operating
payment is the applicable average
standardized amount adjusted for—
(1) Resource utilization by the
applicable MS-DRG relative weight;
(2) Differences in geographic costs by
the applicable area wage index (and by
the applicable cost-of-living adjustment
for hospitals located in Alaska and
Hawaii); and
(3) Any applicable payment
adjustment for transfers under § 412.4(f).
§ 412.161 Applicability of the Hospital
Value-Based Purchasing (VBP) Program

(a) General rule. Except as provided in
paragraph (b) of this section, the
Hospital VBP Program applies to
hospitals, as that term is defined in
§ 412.160.
(b) Special rule for hospitals paid
under section 1814 of the Act. The
Secretary may exempt hospitals paid
under section 1814 of the Act from the
requirements of the Hospital VBP
Program for a fiscal year if the State
submits an annual report to the
Secretary describing how a similar
program in the State for a participating
hospital or hospitals achieves or
surpasses the measured results in terms
of patient health outcomes and cost
savings established under the Hospital
VBP Program.

EMCDONALD on DSK67QTVN1PROD with RULES2

§ 412.162 Process for reducing the base
operating DRG payment amount and
applying the value-based incentive payment
amount adjustment under the Hospital
Value-Based Purchasing (VBP) Program.

(a) General. If a hospital meets or
exceeds the performance standards that
apply to the Hospital VBP Program for
a fiscal year, CMS will make valuebased incentive payments to the
hospital under the requirements and
conditions specified in this section.
(b) Value-based incentive payment
amount. (1) Available amount. The
value-based incentive payment amount
for a discharge is the portion of the
payment amount that is attributable to
the Hospital VBP Program. The total
amount available for value based
incentive payments to all hospitals for
a fiscal year is equal to the total amount

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of base-operating DRG payment
reductions for that fiscal year, as
estimated by the Secretary.
(2) Calculation of the value-based
incentive payment amount. The valuebased incentive payment amount is
calculated by multiplying the base
operating DRG payment amount by the
value-based incentive payment
percentage.
(3) Calculation of the value-based
incentive payment percentage. The
value-based incentive payment
percentage is calculated as the product
of: the applicable percent as defined in
§ 412.160, the hospital’s Total
Performance Score divided by 100, and
the exchange function slope.
(c) Methodology to calculate the
value-based incentive payment
adjustment factor. The value-based
incentive payment adjustment factor for
each discharge is determined by
subtracting the applicable percent as
specified in § 412.160 from the valuebased incentive payment percentage and
then adding that difference to one.
§ 412.163 Process for making hospitalspecific performance information under the
Hospital Value-Based Purchasing (VBP)
Program available to the public.

(a) CMS will make information
available to the public regarding the
performance of each hospital under the
Hospital VBP Program.
(b) To ensure that a hospital has the
opportunity to review and submit
corrections for the information to be
made public under this section, CMS
will provide each hospital with
confidential hospital-specific reports
and discharge level information used in
the calculation of its performance with
respect to each measure, condition, and
domain, and the calculation of its Total
Performance Score.
(c) Hospitals will have a period of 30
days after CMS provides the information
specified in paragraph (b) of this section
to review and submit corrections for the
information.
(d) CMS will post the information
specified in paragraph (b) for each
hospital on the Hospital Compare Web
site.
§ 412.164 Measure selection under the
Hospital Value-Based Purchasing (VBP)
Program.

(a) CMS will select measures, other
than measures of readmissions, for
purposes of the Hospital VBP Program.
The measures will be a subset of the
measures specified under section
1886(b)(3)(B)(viii) of the Act (the
Hospital Inpatient Quality Reporting
Program).
(b) CMS will post data on each
measure on the Hospital Compare Web

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site for at least 1 year prior to the
beginning of a performance period for
the measure under the Hospital VBP
Program.
§ 412.165 Performance scoring under the
Hospital Value-Based Purchasing (VBP)
Program.

(a) Points awarded based on hospital
performance. (1) CMS will award points
to hospitals for performance on each
measure for which the hospital reports
the applicable minimum number of
cases during the applicable performance
period.
(2) CMS will award from 1 to 9 points
for achievement to each hospital whose
performance on a measure during the
applicable performance period meets or
exceeds the achievement threshold but
is less than the benchmark for that
measure.
(3) CMS will award from 0 to 9 points
for improvement to each hospital whose
performance on a measure during the
applicable performance period exceeds
the improvement threshold but is less
than the benchmark for that measure.
(4) CMS will award 10 points to a
hospital whose performance on a
measure during the applicable
performance period meets or exceeds
the benchmark for that measure.
(b) Calculation of the Total
Performance Score. The hospital’s Total
Performance Score for a program year is
calculated as follows:
(1) CMS will calculate a domain score
for a hospital when it reports the
minimum number of measures in the
domain.
(2) CMS will sum all points awarded
for each measure in a domain to
calculate an unweighted domain score.
(3) CMS will normalize each domain
score to ensure that it is expressed as a
percentage of points earned out of 100.
(4) CMS will weight the domain
scores with the finalized domain
weights for each fiscal year.
(5) The sum of the weighted domain
scores is the hospital’s Total
Performance Score for the fiscal year.
§ 412.167 Appeal under the Hospital ValueBased Purchasing (VBP) Program.

(a) A hospital may appeal the
following issues:
(1) CMS’ decision to deny a hospital’s
correction request that the hospital
submitted under the review and
corrections process;
(2) Whether the achievement/
improvement points were calculated
correctly;
(3) Whether CMS properly used the
higher of the achievement/improvement
points in calculating the hospital’s
measure/dimension score;

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(4) Whether CMS correctly calculated
the domain scores, including the
normalization calculation;
(5) Whether CMS used the proper
lowest dimension score in calculating
the hospital’s HCAHPS consistency
points;
(6) Whether CMS calculated the
HCAHPS consistency points correctly;
(7) Whether the correct domain scores
were used to calculate the Total
Performance Score;
(8) Whether each domain was
weighted properly;
(9) Whether the weighted domain
scores were properly summed to arrive
at the Total Performance Score; and,
(10) Whether the hospital’s open/
closed status (including mergers and
acquisitions) is properly specified in
CMS’ systems.
(b) Appeals must be submitted within
30 days of CMS’ decision to deny a
corrections request under § 412.163 or
within 30 days of the conclusion of the
review and corrections period, as
applicable, and must contain the
following information:
(1) Hospital’s CMS Certification
Number (CCN).
(2) Hospital name.
(3) Hospital’s basis for requesting an
appeal. This must identify the hospital’s
specific reason(s) for appealing the
hospital’s Total Performance Score or
performance assessment with respect to
the performance standards.
(4) CEO contact information,
including name, email address,
telephone number, and mailing address
(must include the physical address, not
just the post office box).
(5) QualityNet System Administrator
contact information, including name,
email address, telephone number, and
mailing address (must include the
physical address, not just the post office
box).
(c) Limitations on review. There is no
administrative or judicial review of the
following:
(1) The methodology used to
determine the amount of the valuebased incentive payment under section
1886(o)(6) of the Act and the
determination of such amount.
(2) The determination of the amount
of funding available for value-based
incentive payments under section
1886(o)(7)(A) of the Act and the
payment reduction under section
1886(o)(7)(B)(i) of the Act.
(3) The establishment of the
performance standards under section
1886(o)(3) of the Act and the
performance period under section
1886(o)(4) of the Act.
(4) The measures specified under
section 1886(b)(3)(B)(viii) of the Act and

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the measures selected under section
1886(o)(2) of the Act.
(5) The methodology developed under
section 1886(o)(5) of the Act that is used
to calculate hospital performance scores
and the calculation of such scores.
(6) The validation methodology that is
specified under section
1886(b)(3)(B)(viii)(XI) of the Act.
§§ 412.168–412.169

[Reserved].

8. Section 412.424 is amended by
adding a new paragraph (d)(1)(vi) to
read as follows:

■

§ 412.424 Methodology for calculating the
Federal per diem payment amount.

*

*
*
*
*
(d) * * *
(1) * * *
(vi) Applicable percentage change for
fiscal year 2014 payment determination
and for subsequent years. (A) In the case
of an inpatient psychiatric facility that
is paid under the prospective payment
system in § 412.1(a)(2) that does not
submit quality data to CMS, in the form
and manner and at a time specified by
CMS, the applicable annual update to a
Federal standard rate is reduced by 2.0
percentage points.
(B) Any reduction in the applicable
annual update to a Federal standard rate
will apply only to the fiscal year
involved and will not be taken into
account in computing the annual
payment update for a subsequent year.
*
*
*
*
*
■ 9. Section 412.434 is added to subpart
N to read as follows:
§ 412.434 Reconsideration and appeals
procedures of Inpatient Psychiatric
Facilities Quality Reporting (IPFQR)
Program decisions.

(a) An inpatient psychiatric facility
may request reconsideration of a
decision by CMS that the inpatient
psychiatric facility has not met the
requirements of the IPFQR Program for
a particular fiscal year. An inpatient
psychiatric facility must submit a
reconsideration request to CMS no later
than 30 days from the date identified on
the IPFQR Program Annual Payment
Update Notification Letter provided to
the inpatient psychiatric facility.
(b) A reconsideration request must
contain the following information:
(1) The inpatient psychiatric facility’s
CMS Certification Number (CCN);
(2) The name of the inpatient
psychiatric facility;
(3) Contact information for the
inpatient psychiatric facility’s chief
executive officer and QualityNet system
administrator, including each
individual’s name, email address,
telephone number, and physical mailing
address;

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(4) A summary of the reason(s), as set
forth in the IPFQR Program Annual
Payment Update Notification Letter, that
CMS concluded the inpatient
psychiatric facility did not meet the
requirements of the IPFQR Program;
(5) A detailed explanation of why the
inpatient psychiatric facility believes
that it complied with the requirements
of the IPFQR Program for the applicable
fiscal year; and
(6) Any evidence that supports the
inpatient psychiatric facility’s
reconsideration request, such as emails
and other documents.
(c) An inpatient psychiatric facility
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.
■ 10. Section 412.523 is amended by—
■ a. Adding a new paragraph (c)(3)(ix).
■ b. Revising paragraph (d)(3).
The addition and revision read as
follows:
§ 412.523 Methodology for calculating the
Federal prospective payment rates.

*

*
*
*
*
(c) * * *
(3) * * *
(ix) For long-term care hospital
prospective payment system fiscal year
beginning October 1, 2012, and ending
September 30, 2013. (A) The standard
Federal rate for the long-term care
hospital prospective payment system
beginning October 1, 2012, and ending
September 30, 2013, is the standard
Federal rate for the previous long-term
care hospital prospective payment
system fiscal year updated by 1.8
percent, and further adjusted, as
appropriate, as described in paragraph
(d) of this section.
(B) With respect to discharges
occurring on or after October 1, 2012
and before December 29, 2012,
payments are based on the standard
Federal rate in paragraph (c)(3)(ix)(A) of
this section without regard to the
adjustment provided for under
paragraph (d)(3)(ii) of this section.
*
*
*
*
*
(d) * * *
(3)(i) General. The Secretary reviews
payments under this prospective
payment system and may make a onetime prospective adjustment to the longterm care hospital prospective payment
system rates no earlier than December
29, 2012, so that the effect of any
significant difference between the data
used in the original computations of
budget neutrality for FY 2003 and more
recent data to determine budget
neutrality for FY 2003 is not

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perpetuated in the prospective payment
rates for future years.
(ii) Adjustment to the standard
Federal rate. The standard Federal rate
determined in paragraph (c)(3) of this
section is permanently adjusted by 3.75
percent to account for the estimated
difference between projected aggregate
payments in FY 2003 made under the
prospective payment system
implemented under this subpart and the
projected aggregate payments that
would have been made in FY 2003
under Part 413 of this chapter without
regard to the implementation of the
prospective payment system
implemented under this subpart,
excluding the effects of sections
1886(b)(2)(E) and (b)(3)(J) of the Act.
This adjustment is transitioned over 3
years beginning in FY 2013.
(iii) Special rule for certain discharges
occurring during FY 2013. The
adjustment applied under paragraph
(d)(3)(ii) of this section is not applicable
when making payments under this
subpart for discharges occurring on or
after October 1, 2012, and on or before
December 28, 2012.
*
*
*
*
*
■ 11. Section 412.529 is amended by
revising paragraph (d)(4)(i)(C) to read as
follows:
§ 412.529 Special payment provisions for
short-stay outliers.

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*

*
*
*
*
(d) * * *
(4) * * *
(i) * * *
(C) The payment amount specified
under paragraph (d)(4)(i)(B) of this
section may not exceed the full amount
comparable to what would otherwise be
paid under the hospital inpatient
prospective payment system determined
under paragraph (d)(4)(i)(A) of this
section.
*
*
*
*
*
■ 12. Section 412.534 is amended by—
■ a. In the following paragraphs,
removing the date ‘‘October 1, 2012’’
and adding in its place the date
‘‘October 1, 2013’’:
■ 1. Paragraph (c)(1) heading;
■ 2. Paragraph (c)(1)(i);
■ 3. Paragraph (c)(1)(ii);
■ 4. Paragraph (c)(2) heading;
■ 5. Paragraph (d)(1) heading;
■ 6. Paragraph (d)(1)(i);
■ 7. Paragraph (d)(2) heading;
■ 8. Paragraph (e)(1) heading;
■ 9. Paragraph (e)(1)(i); and
■ 10. Paragraph (e)(2) heading.
■ b. Revising paragraph (c)(3).
■ c. Revising paragraph (d)(3).
■ d. Revising paragraph (e)(3).
■ e. Revising paragraphs (h)(4) and
(h)(5).

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f. Adding a new paragraph (h)(6).
The revisions and addition read as
follows:

■

§ 412.534 Special payment provisions for
long-term care hospitals within hospitals
and satellites of long-term care hospitals.

*

*
*
*
*
(c) * * *
(3) For a long-term care hospital
satellite facility described in
§ 412.22(h)(3)(i), payments are
determined as follows:
(i) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2012, and for cost
reporting period beginning on or after
October 1, 2012 and before October 1,
2013, payment will be determined using
the methodology specified in paragraph
(c)(1) of this section, except that the
applicable percentage threshold for
Medicare discharges is 50 percent.
(ii) For cost reporting periods
beginning on or after July 1, 2012, and
before October 1, 2012, for discharges
occurring on or after October 1, 2012,
and before the beginning of the next cost
reporting period, payment will be
determined using the methodology
specified in paragraph (c)(1) of this
section, except that the applicable
percentage threshold for Medicare
discharges is 50 percent.
(iii) In determining the percentage of
patients admitted to a satellite from the
co-located hospital, patients on whose
behalf an outlier payment was made to
the co-located hospital are not counted
toward the 50-percent threshold.
(d) * * *
(3) For cost reporting periods
beginning on or after July 1, 2007, and
before July 1, 2012, and beginning on or
after October 1, 2012, and before
October 1, 2013, payment for a longterm care hospital satellite facility
described in § 412.22(h)(3)(i) are
determined as follows:
(i) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2012, and for cost
reporting period beginning on or after
October 1, 2012 and before October 1,
2013, payment will be determined using
the methodology specified in paragraph
(c)(1) of this section, except that the
applicable percentage threshold for
Medicare discharges is 75 percent.
(ii) For cost reporting periods
beginning on or after July 1, 2012, and
before October 1, 2012, for discharges
occurring on or after October 1, 2012,
and before the beginning of the next cost
reporting period, payment will be
determined using the methodology
specified in paragraph (c)(1) of this
section, except that the applicable
percentage threshold for Medicare
discharges is 75 percent.

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(iii) In determining the percentage of
patients admitted to a satellite from the
co-located hospital, patients on whose
behalf an outlier payment was made to
the co-located hospital are not counted
toward the 75-percent threshold.
(e) * * *
(3) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2012 and for cost
reporting periods beginning on or after
October 1, 2012, and before October 1,
2013, payments for a long-term care
hospital satellite facility described in
§ 412.22(h)(3)(i) are determined as
follows:
(i) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2012, and for cost
reporting period beginning on or after
October 1, 2012 and before October 1,
2013, payment will be determined using
the methodology specified in paragraph
(c)(1) of this section, except that the
applicable percentage threshold for
Medicare discharges is 75 percent.
(ii) For cost reporting periods
beginning on or after July 1, 2012, and
before October 1, 2012, for discharges
occurring on or after October 1, 2012,
and before the beginning of the next cost
reporting period, payment will be
determined using the methodology
specified in paragraph (c)(1) of this
section, except that the applicable
percentage threshold for Medicare
discharges is 75 percent.
(iii) In determining the percentage of
patients admitted to a satellite from the
co-located hospital, patients on whose
behalf an outlier payment was made to
the co-located hospital are not counted
toward the 75-percent threshold.
*
*
*
*
*
(h) * * *
(4) Except as provided in paragraph
(h)(6) of this section, for a long-term
care hospital described in
§ 412.23(e)(2)(i) that meets the criteria in
§ 412.22(f), the policies set forth in this
paragraph (h) and in § 412.536 do not
apply for discharges occurring in cost
reporting periods beginning on or after
July 1, 2007 and before July 1, 2012, and
for cost reporting periods beginning on
or after October 1, 2012 and before
October 1, 2013.
(5) Except as provided in paragraph
(h)(6) of this section, for a long-term
care hospital or satellite facility that, as
of December 29, 2007, was co-located
with an entity that is a provider-based,
off-campus location of a subsection (d)
hospital which did not provide services
payable under section 1886(d) of the Act
at the off-campus location, the policies
set forth in this paragraph (h) and in
§ 412.536 do not apply for discharges

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occurring in cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2012, and for cost
reporting periods beginning on or after
October 1, 2012 and before October 1,
2013.
(6) For long-term care hospitals and
satellite facilities with cost reporting
periods beginning on or after July 1,
2012 and before October 1, 2012.
(i) Payments to long-term care
hospitals and satellite facilities
described in paragraphs (h)(4) and (h)(5)
of this section are determined using the
methodology specified in paragraph
(c)(1) of this section for discharges
occurring prior to October 1, 2012
during the hospital’s or satellite
facility’s cost reporting period beginning
on or after July 1, 2012 and before
October 1, 2012. Such policies will not
be applied to discharges occurring on or
after October 1, 2012 and before the
beginning of the hospital’s or satellite
facility’s next cost reporting period.
(ii) In determining the percentage of
Medicare discharges admitted from the
co-located hospital under this
paragraph, patients on whose behalf a
Medicare high-cost outlier payment was
made at the co-located referring hospital
are not counted toward that threshold.
■ 13. Section 412.536 is amended by
revising the introductory text of
paragraph (a)(2) and adding a new
paragraph (a)(3) to read as follows:

EMCDONALD on DSK67QTVN1PROD with RULES2

§ 412.536 Special payment provisions for
long-term care hospitals and satellites of
long-term care hospitals that discharged
Medicare patients admitted from a hospital
not located in the same building or on the
same campus as the long-term care
hospital or satellite of the long-term care
hospital.

(a) * * *
(2) For cost reporting periods
beginning on or after July 1, 2007 and
before July 1, 2012, and for cost
reporting periods beginning on or after
October 1, 2012 and before October 1,
2013, the policies set forth in this
section are not applicable to discharges
from:
*
*
*
*
*
(3) For certain long-term care
hospitals with cost reporting periods
beginning on or after July 1, 2012 and
before October 1, 2012—
(i) Payments to long-term care
hospitals described in paragraph
(a)(1)(iv) of this section are determined
using the methodology specified in
either paragraph (b)(1) or paragraph
(b)(2) of this section, except that such
policies will not be applied to
discharges occurring on or after October
1, 2012, and before October 1, 2012.
(ii) In determining whether the
percentage of long-term care hospital

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discharges during a long-term care
hospital’s cost reporting period
beginning on or after July 1, 2012 and
before July 1, 2013 exceeds the 25
percent threshold, those discharges
occurring on or after October 1, 2012,
and before October 1, 2013, will not be
counted towards that threshold.
(iii) In determining the percentage of
Medicare discharges admitted to the
long-term care hospital from any
referring hospital not co-located with
the long-term care hospital or with the
satellite facility of a long-term care
hospital under paragraphs (b)(1) and
(b)(2) of this section, patients on whose
behalf a Medicare high cost outlier
payment was made to the referring
hospital are not counted toward the 25
percent threshold from that referring
hospital.
*
*
*
*
*
PART 413—PRINCIPLES OF
REASONABLE COST
REIMBURSEMENT; PAYMENT FOR
END–STAGE RENAL DISEASE
SERVICES; OPTIONAL
PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED
NURSING FACILITIES
14. 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).

15. Section 413.24 is amended by
revising paragraph (a) to read as follows:

■

§ 413.24
finding.

Adequate cost data and cost

(a) Principle. Providers receiving
payment on the basis of reimbursable
cost must provide adequate cost data.
This must be based on their financial
and statistical records which must be
capable of verification by qualified
auditors. The cost data must be based on
an approved method of cost finding and
on the accrual basis of accounting,
except for—
(1) Governmental institutions which
operate on a cash basis method of
accounting. Cost data based on such
basis of accounting will be acceptable,
subject to appropriate treatment of
capital expenditures.
(2) Costs of qualified defined benefit
pension plans shall be reported on a
cash basis method of accounting, as
described at § 413.100(c)(2)(vii)(D) for

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cost reporting periods beginning on or
after October 1, 2011.
*
*
*
*
*
■ 16. Section 413.79 is amended by—
■ a. Revising paragraphs (e)(1), (e)(2),
(e)(3), and (e)(4).
■ b. Adding a new paragraph (e)(5).
■ c. Revising paragraph (f)(7)(i)(B).
■ d. Redesignating paragraphs (n)(2)(ii)
and paragraph (n)(2)(iii) as paragraphs
(n)(2)(iii) and paragraph (n)(2)(iv),
respectively.
■ e. Adding new paragraph (n)(2)(ii).
■ f. Revising newly redesignated
paragraphs (n)(2)(iii) and (n)(2)(iv).
The revisions and addition read as
follows:
§ 413.79 Direct GME payments:
Determination of the weighted number of
FTE residents.

*

*
*
*
*
(e) * * *
(1) If a hospital had no allopathic or
osteopathic residents in its most recent
cost reporting period ending on or
before December 31, 1996, and it begins
training residents in a new medical
residency training program(s) for the
first time on or after January 1, 1995, but
before October 1, 2012, the hospital’s
unweighted FTE resident cap under
paragraph (c) of this section may be
adjusted for new residency training
programs based on the sum of the
products of the highest number of FTE
residents in any program year during
the third year of the first new program’s
existence and the number of years in
which residents are expected to
complete the program based on the
minimum accredited length for each
type of program. The adjustment to the
cap may not exceed the number of
accredited slots available to the hospital
for the new program. If a hospital had
no allopathic or osteopathic residents in
its most recent cost reporting period
ending on or before December 31, 1996,
and it begins training residents in a new
medical residency training program(s)
for the first time on or after October 1,
2012, the hospital’s unweighted FTE
resident cap under paragraph (c) of this
section may be adjusted for new
residency training programs based on
the sum of the products of the highest
number of FTE residents in any program
year during the fifth year of the first new
program’s existence and the number of
years in which residents are expected to
complete the program based on the
minimum accredited length for each
type of program. The adjustment to the
cap may not exceed the number of
accredited slots available to the hospital
for the new program.
(i) If a hospital begins training
residents in a new medical residency

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training program(s) for the first time on
or after January 1, 1995, but before
October 1, 2012, and if the residents are
spending portions of a program year (or
years) at one hospital and the remainder
of the program at another hospital(s),
the adjustment to each qualifying
hospital’s cap for a new medical
residency training program(s) is equal to
the sum of the products of the highest
number of FTE residents in any program
year during the third year of the first
new program’s existence and the
number of years in which residents are
expected to complete the program based
on the minimum accredited length for
each type of program and the number of
years the residents are training at each
respective hospital. If a hospital begins
training residents in a new medical
residency training program(s) for the
first time on or after October 1, 2012,
and if the residents are spending
portions of a program (or years) at one
hospital and the remainder of the
program at another hospital(s), the
adjustment to each qualifying hospital’s
cap for new residency training program
(s) is equal to the sum of the products
of three factors (limited to the number
of accredited slots for each program):
(A) The highest total number of FTE
residents trained in any program year
during the fifth year of the first new
program’s existence at all of the
hospitals to which the residents in the
program rotate;
(B) The number of years in which
residents are expected to complete the
program, based on the minimum
accredited length for each type of
program.
(C) The ratio of the number of FTE
residents in the new program that
trained at the hospital over the entire 5year period to the total number of FTE
residents that trained at all hospitals
over the entire 5-year period.
(ii) If a hospital begins training
residents in a new medical residency
training program(s) for the first time on
or after January 1, 1995, but before
October 1, 2012, prior to the
implementation of the hospital’s
adjustment to its FTE cap beginning
with the fourth year of the hospital’s
first new residency program(s), the
hospital’s cap may be temporarily
adjusted during each of the first 3 years
of the hospital’s first new residency
program using the actual number of
residents participating in the new
program. The adjustment may not
exceed the number of accredited slots
available to the hospital for each
program year. If a hospital begins
training residents in a new medical
residency training program(s) for the
first time on or after October 1, 2012,

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prior to the implementation of the
hospital’s adjustment to its FTE cap
beginning with the sixth year of the
hospital’s first new residency
program(s), the hospital’s cap may be
adjusted temporarily during each of the
first 5 years of the hospital’s first new
residency program using the actual
number of FTE residents participating
in the new program. The adjustment
may not exceed the number of
accredited slots available to the hospital
for each program year.
(iii) If a hospital begins training
residents in a new medical residency
training program for the first time on or
after January 1, 1995, but before October
1, 2012, the cap will not be adjusted for
new programs established more than 3
years after residents begin training in
the first new program, or if a hospital
begins training residents in a new
medical residency training program for
the first time on or after October 1, 2012,
the cap will not be adjusted for new
programs established more than 5 years
after residents begin training in the first
new program.
(iv) Effective for Medicare GME
affiliation agreements entered into on or
after October 1, 2005, an urban hospital
that qualifies for an adjustment to its
FTE cap under paragraph (e)(1) of this
section is permitted to be part of a
Medicare GME affiliated group for
purposes of establishing an aggregate
FTE cap only if the adjustment that
results from the affiliation is an increase
to the urban hospital’s FTE cap.
(v) A rural hospital that qualifies for
an adjustment to its FTE cap under
paragraph (e)(1) of this section is
permitted to be part of a Medicare GME
affiliated group for purposes of
establishing an aggregate FTE cap.
(2) If a hospital had allopathic or
osteopathic residents in its most recent
cost reporting period ending on or
before December 31, 1996, the hospital’s
unweighted FTE cap may be adjusted
for a new medical residency training
program(s) established on or after
January 1, 1995, and on or before
August 5, 1997. The adjustment to the
hospital’s FTE resident cap for new
residency training programs is based on
the sum of the product of the highest
number of FTE residents in any program
year during the third year of the newly
established program and the number of
years in which residents are expected to
complete each program based on the
minimum accredited length for the type
of program.
(i) If the residents are spending
portions of a program year (or years) at
one hospital and the remainder of the
program at another hospital(s), the
adjustment to each respective hospital’s

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53681

cap for each program is equal to the
product of the highest number of FTE
residents in any program year during
the third year of each program’s
existence and the number of years in
which residents are expected to
complete the program based on the
minimum accredited length for each
type of program and the number of years
the residents are training at each
respective hospital.
(ii) Prior to the implementation of the
hospital’s adjustment to its FTE cap
beginning with the fourth year of the
hospital’s residency program, the
hospital’s cap may be temporarily
adjusted during each of the first 3 years
of the hospital’s new residency program,
using the actual number of FTE
residents in the new programs. The
adjustment may not exceed the number
of accredited slots available to the
hospital for each program year.
(3) If a rural hospital participates in
new medical residency training
programs, regardless of whether the
rural hospital had allopathic or
osteopathic residents in its most recent
cost reporting period ending on or
before December 31, 1996, the hospital’s
unweighted FTE cap may be adjusted in
the same manner described in paragraph
(e)(2) of this section to reflect the
increase for residents training in a new
medical residency training program(s)
established after August 5, 1997 and
before October 1, 2012. If a rural
hospital participates in new medical
residency training programs on or after
October 1, 2012, the hospital’s
unweighted FTE cap is adjusted in
accordance with paragraph (e)(1) of this
section, except that the adjustment is
based on the sum of the products of the
highest number of FTE residents in any
program year during the fifth year of
each new program’s existence and the
number of years in which residents are
expected to complete the program based
on the minimum accredited length for
each type of program.
(4) A hospital seeking an adjustment
to its FTE cap must provide
documentation to its fiscal intermediary
justifying the adjustment.
(5) The cap will not be adjusted for
expansion of existing or previously
existing programs.
(f) * * *
(7) * * *
(i) * * *
(B) Specify the effective period of the
emergency Medicare GME affiliation
agreement (which must, in any event,
terminate at the conclusion of four
academic years following the academic
year in which the section 1135
emergency period began).
*
*
*
*
*

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(n) * * *
(2) * * *
(ii) If a hospital receives an increase
in the otherwise applicable FTE resident
cap under paragraph (n)(1) of this
section, and does not use all of that
increase in its final (12-month or partial)
cost report of the 5-year period
beginning July 1, 2011 and ending June
30, 2016, the Medicare contractor will
remove the applicable unused slots, and
the hospital’s increase in the otherwise
applicable FTE resident cap received
under paragraph (n)(1) of this section
will be reduced for portions of cost
reporting periods on or after July 1,
2016. The number of applicable unused
slots is equal to the difference between
the increase in the otherwise applicable
FTE resident cap and the applicable
slots used. In determining the
applicable slots used, the following
amounts are added, as relevant:
(A) If a hospital uses the increase in
the otherwise applicable FTE resident
cap under paragraph (n)(1) of this
section to expand an existing
program(s), the used slots are equal to
the lesser of the number of slots used for
an expansion(s) in the fourth 12-month
cost report or the final cost report.
(B) If a hospital uses the increase in
the otherwise applicable FTE resident
cap under paragraph (n)(1) of this
section to start a new program(s), the
used slots are equal to the number of
slots used for a new program(s) in the
final cost report.
(C) The portion, if any, of the increase
in the otherwise applicable FTE resident
cap under paragraph (n)(1) of this
section used for cap relief, subject to the
requirements in paragraph (n)(2)(i) of
this section.
(iii) CMS may determine whether a
hospital has met the requirements under
paragraphs (n)(2)(i) and (n)(2)(ii) of this
section during the 5-year period of July
1, 2011, through June 30, 2016, in such
manner and at such time as CMS
determines appropriate, including at the
end of such 5-year period.
(iv) In a case where the Medicare
contractor determines that a hospital
did not meet the requirements under
paragraphs (n)(2)(i), (n)(2)(ii), and
(n)(2)(iii) of this section in a cost
reporting period within the 5-year time
period, the Medicare contractor will
reduce the otherwise applicable FTE
resident cap of the hospital by the
amount by which such limit was
increased under paragraph (n)(1) of this
section from the earliest cost reporting
period that is reopenable in which it
would be determined that the hospital
did not meet the requirements.
*
*
*
*
*

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17. Section 413.100 is amended by
adding a new paragraph (c)(2)(vii)(D) to
read as follows:

■

§ 413.100 Special treatment of certain
accrued costs.

*

*
*
*
*
(c) * * *
(2) * * *
(vii) * * *
(D) Exception: Qualified defined
benefit pension plans, which are funded
deferred compensation arrangements,
shall be reported on a cash accounting
basis as follows:
(1) The allowable pension cost shall
be equal to the amount of actual pension
contributions funded during the
hospital’s current Medicare cost
reporting period, plus any contributions
funded in a prior period and carried
forward, subject to the limit under
paragraph (c)(2)(vii)(D)(2) of this
section.
(2) Except as provided in paragraph
(c)(2)(vii)(D)(3) of this section, the
allowable pension cost shall not exceed
150 percent of the average
contribution(s) funded during the three
consecutive Medicare cost reporting
periods that produce the highest average
contribution(s), out of the five most
recent Medicare cost reporting periods
(ending with the current cost reporting
period). Contributions in excess of the
limit may be carried forward to future
period(s). In the case of a newly adopted
pension plan, the 5-year look-back
period and/or the 3-year averaging
period will be limited to the number of
cost reporting periods the provider
sponsored a qualified defined benefit
pension plan.
(3) A waiver of the limit imposed
under paragraph (c)(2)(vii)(D)(2) of this
section may be granted for a specific
Medicare cost reporting period for all or
a portion of the contributions in excess
of the limit imposed under paragraph
(c)(2)(vii)(D)(2) of this section if it is
determined that such excess costs are
reasonable and necessary for that
period.
*
*
*
*
*
PART 424—CONDITIONS FOR
MEDICARE PAYMENT
18. The authority citation for Part 424
continues to read as follows:

■

Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395(hh)).

19. Section 424.30 is revised to read
as follows:

■

§ 424.30

Scope.

This subpart sets forth the
requirements, procedures, and time

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limits for claiming Medicare payments.
Claims must be filed in all cases except
when services are furnished on a
prepaid capitation basis by an MA
organization, or through cost settlement
with either a health maintenance
organization (HMO), a competitive
medical plan (CMP), or a health care
prepayment plan (HCPP), or as part of
a demonstration. Therefore, claims must
be filed by hospitals seeking IME
payment under § 412.105(g) of this
chapter, and/or direct GME payment
under § 413.76(c) of this chapter, and/or
nursing or allied health education
payment under § 413.87 of this chapter
associated with inpatient services
furnished on a prepaid capitation basis
by an MA organization. Hospitals that
must report patient data for purposes of
the DSH payment adjustment under
§ 412.106 of this chapter for inpatient
services furnished on a prepaid
capitation basis by an MA organization,
or through cost settlement with an
HMO/CMP, or as part of a
demonstration, are required to file
claims by submitting no pay bills for
such inpatients. Special procedures for
claiming payment after the beneficiary
has died and for certain bills paid by
organizations are set forth in subpart E
of this part.
PART 476—UTILIZATION AND
QUALITY CONTROL REVIEW
20. 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)).

21. Section 476.1 is amended by
adding a definition of ‘‘Provider’’ in
alphabetical order, to read as follows:

■

§ 476.1

Definitions.

*

*
*
*
*
Provider means a health care facility,
institution, or organization, including
but not limited to a hospital, involved
in the delivery of health care services
for which payment may be made in
whole or in part under Title XVIII of the
Act.
*
*
*
*
*
■ 22. Section 476.78 is amended by
revising the section heading and the
introductory text of paragraph (b)(2) to
read as follows:
§ 476.78 Responsibilities of providers and
practitioners.

*

*
*
*
*
(b) * * *
(2) Providers and practitioners must
provide patient care data and other
pertinent data to the QIO at the time the
QIO is collecting review information

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that is required for the QIO to make its
determinations. When the QIO does
postadmission, preprocedure review,
the provider must provide the necessary
information before the procedure is
performed, unless it must be performed
on an emergency basis. Providers and
practitioners must—
*
*
*
*
*
■ 23. Section 476.90 is revised to read
as follows:
§ 476.90 Lack of cooperation by a provider
or practitioner.

(a) If a provider or practitioner refuses
to allow a QIO to enter and perform the
duties and functions required under its
contract with CMS, the QIO may—
(1) Determine that the provider or
practitioner has failed to comply with
the requirements of 42 CFR 1004.10(c)
and report the matter to the HHS
Inspector General; or
(2) Issue initial denial determinations
for those claims it is unable to review,
make the determination that financial
liability will be assigned to the provider
or practitioner, and may report the
matter to the HHS Inspector General.
(b) If a QIO gives a provider or
practitioner sufficient notice and a
reasonable amount of time to respond to
a request for information about a claim,
and if the provider or practitioner does
not respond in a timely manner, the QIO
will deny the claim. A provider or
practitioner may request that the QIO
reconsider its decision to deny the
claim. No further appeal rights are
available.
(Catalog of Federal Domestic Assistance
Program No. 93.773, Medicare—Hospital
Insurance; Program No. 93.774, Medicare—
Supplementary Medical Insurance Program;
and Program No. 93.778, Medical Assistance)
Dated: July 27, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare
& Medicaid Services.
Dated: July 31, 2012.
Kathleen Sebelius,
Secretary.

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Note: The following Addendum and
Appendixes will not appear in the Code of
Federal Regulations.

Addendum—Schedule of Standardized
Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With
Cost Reporting Periods Beginning On or
After October 1, 2012 and Payment
Rates for LTCHs Effective for
Discharges Occurring On or After
October 1, 2012
I. Summary and Background
In this Addendum, we are setting
forth a description of the methods and

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data we used to determine the
prospective payment rates for Medicare
hospital inpatient operating costs and
Medicare hospital inpatient capitalrelated costs for FY 2013 for acute care
hospitals. We also are setting forth the
rate-of-increase percentages for updating
the target amounts for certain hospitals
excluded from the IPPS for FY 2013. 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 final rule, we are
finalizing the rate-of-increase
percentages for updating the target
amounts for certain hospitals excluded
from the IPPS that are effective for cost
reporting periods beginning on or after
October 1, 2012.
In addition, we are setting forth a
description of the methods and data we
used to determine the standard Federal
rate that would be applicable to
Medicare LTCHs for FY 2013.
In general, except for SCHs and
hospitals located in Puerto Rico, for FY
2013, 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
hospital-specific rate based on the FY
2006 costs per discharge.
We note that, as discussed in section
IV.G. of the preamble of this final rule,
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, the MDH program was
to be in effect through the end of FY
2011 only.) Therefore, due to the
expiration of the MDH program
beginning with FY 2013, we are not
including hospitals that are currently
MDHs (until October 1, 2012) in our
update of the hospital-specific rates for
FY 2013.
For hospitals located in Puerto Rico,
the payment per discharge is based on

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the sum of 25 percent of an updated
Puerto Rico-specific rate based on
average costs per case of Puerto Rico
hospitals for the base year and 75
percent of the Federal national rate. (We
refer readers to section II.D.3. of this
Addendum for a complete description.)
As discussed below in section II. of
this Addendum, we are making changes
in the determination of the prospective
payment rates for Medicare inpatient
operating costs for acute care hospitals
for FY 2013. In section III. of this
Addendum, we discuss our policy
changes for determining the prospective
payment rates for Medicare inpatient
capital-related costs for FY 2013. In
section IV. of this Addendum, we are
setting forth our changes for
determining the rate-of-increase limits
for certain hospitals excluded from the
IPPS for FY 2013. In section V. of this
Addendum, we are making changes in
the determination of the standard
Federal rate for LTCHs paid under the
LTCH PPS for FY 2013. The tables to
which we refer in the preamble of this
final rule are listed in section VI. of this
Addendum and are available via the
Internet.
II. Changes to Prospective Payment
Rates for Hospital Inpatient Operating
Costs for Acute Care Hospitals for FY
2013
The basic methodology for
determining prospective payment rates
for hospital inpatient operating costs for
acute care hospitals for FY 2005 and
subsequent fiscal years is set forth under
§ 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 under §§ 412.211 and
412.212. Below we discuss the factors
used for determining the prospective
payment rates for FY 2013.
In summary, the 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 Rico-specific 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.
• An update of 1.8 percent for all
areas (that is, the FY 2013 estimate of

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the market basket rate-of-increase of 2.6
percent less an adjustment of 0.7
percentage point for MFP and less 0.1
percentage point), as required by section
1886(b)(3)(B)(i) of the Act, as amended
by sections 3401(a) and 10319(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 update is –0.2 percent (that
is, the FY 2013 estimate of the market
basket rate-of-increase of 2.6 percent,
less 2.0 percentage points for failure to
submit data under the Hospital IQR
Program, less an adjustment of 0.7
percentage point for MFP, and less 0.1
percentage point).
• An update of 1.8 percent to the
Puerto Rico-specific standardized
amount (that is, the FY 2013 estimate of
the market basket rate-of-increase of 2.6
percent less an adjustment of 0.7
percentage point for MFP 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 under
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 laborrelated share in certain circumstances)
had not been enacted.
• An adjustment to ensure the effects
of geographic reclassification are budget
neutral, as provided for under section
1886(d)(8)(D) of the Act, by removing
the FY 2012 budget neutrality factor and
applying a revised factor.
• An adjustment to ensure the effects
of the rural community hospital
demonstration program 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 program for an
additional 5 years, are budget neutral as
required under section 410A(c)(2) of
Public Law 108–173.
• An adjustment to remove the FY
2012 outlier offset and apply an offset

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for FY 2013, as provided for under
section 1886(d)(3)(B) of the Act.
• As discussed below and in section
II.D. of the preamble of this final rule,
an adjustment to meet the requirements
of sections 7(b)(1)(A) and 7(b)(1)(B) of
Public Law 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. As
discussed below, for FY 2013, we are
making an adjustment to the
standardized amounts to complete the
necessary adjustments required by the
provisions of sections 7(b)(1)(A) and
7(b)(1)(B) of Public Law 110–90. (We
note as discussed in greater detail in
section II.D. of the preamble of this final
rule, at this time, we are not finalizing
our proposed adjustment to the
standardized amount for FY 2013 to
offset the estimated amount of the
increase in aggregate payments due to
the effect of documentation and coding
that did not reflect real changes in casemix for discharges occurring during FY
2010.)
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 2012, for FY 2013, we are
continuing 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 to the
wage index, we are applying a uniform,
national budget neutrality adjustment to
the FY 2013 wage index for the rural
floor. We note that, as finalized in the
FY 2012 IPPS/LTCH PPS final rule, we
extended the imputed floor through FY
2013 (76 FR 51593). Therefore, for this
final rule, we are continuing to include
the imputed floor in calculating the
uniform, national rural floor budget
neutrality adjustment to the wage
indices. Thus, the imputed floor is
reflected in the FY 2013 wage index.
Additionally, in the FY 2013 IPPS/
LTCH PPS proposed rule, we proposed
an alternative temporary methodology
for computing the imputed floor index
in section II.G.2. of the preamble of that
proposed rule. We are finalizing that
alternative methodology and have
included this alternative methodology
in our calculation of rural floor budget
neutrality in this final rule.
We note that, in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51788
through 51790), we finalized an

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adjustment of 1.1 percent to the
standardized amount (that is, a factor of
1.011) in light of the Cape Cod decision.
The adjustment is a one-time permanent
adjustment that is left permanently on
the standardized amount.
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
Rico-specific 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
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 casemix, differences in area wage levels,
cost-of-living adjustments for Alaska
and Hawaii, IME costs, and costs to
hospitals serving a disproportionate
share of low-income patients.
In accordance with section
1886(d)(3)(E) of the Act, the Secretary
estimates, from time-to-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
nonlabor-related amounts; only the
proportion considered to be the laborrelated 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

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this provision to the labor-related share
for hospitals located in Puerto Rico.)
For FY 2013, we are continuing to use
a labor-related share of 68.8 percent for
discharges occurring on or after October
1, 2012, 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 laborrelated share of 68.8 percent of the
national standardized amount. For FY
2013, all Puerto Rico hospitals have a
wage index less than 1.0. Therefore, the
national labor-related share is 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 standardized amounts for
operating costs appear in Tables 1A, 1B,
and 1C that are listed and published in
section VI. of the Addendum to this
final rule and are available via the
Internet.

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2. Computing the Average Standardized
Amount
Section 1886(d)(3)(A)(iv)(II) of the Act
requires that, beginning with FY 2004
and thereafter, an equal standardized
amount be computed for all hospitals at
the level computed for large urban
hospitals during FY 2003, updated by
the applicable percentage update.
Section 1886(d)(9)(A)(ii)(II) of the Act
equalizes the Puerto Rico-specific urban
and rural area rates. Accordingly, we are
calculating the FY 2013 national
standardized amount and Puerto Ricospecific rate 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.H. of the
preamble of this final 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
reducing the FY 2013 applicable

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percentage increase (which is based on
the second quarter 2012 forecast of the
FY 2006-based IPPS market basket) by
the MFP adjustment (the 10-year
moving average of MFP for the period
ending FY 2013) of 0.7 percent, which
is calculated based on IHS Global
Insight, Inc.’s (IGI’s) second quarter
2012 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 further updating the standardized
amount for FY 2013 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) 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 2012 second
quarter forecast of the hospital market
basket increase (as discussed in
Appendix B of this final rule), the most
recent forecast of the hospital market
basket increase for FY 2013 is 2.6
percent. Thus, for FY 2013, the update
to the average standardized amount is
1.8 percent for hospitals in all areas
(that is, the FY 2013 estimate of the
market basket rate-of-increase of 2.6
percent less an adjustment of 0.7
percentage point for MFP and less 0.1
percentage point). For hospitals that do
not submit quality data pursuant to
section 1886(b)(3)(B)(viii) of the Act, the
estimated update to the operating
standardized amount is ¥0.2 percent
(that is, the FY 2013 estimate of the
market basket rate-of-increase of 2.6
percent, less 2.0 percentage points for
failure to submit data under the
Hospital IQR Program, less an
adjustment of 0.7 percentage point for
MFP, and less 0.1 percentage point).
The 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,

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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 is
subject to the applicable percentage
increase set forth under 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
finalizing an applicable percentage
increase to the Puerto Rico-specific
standardized amount of 1.8 percent.
Although the update factors for FY
2013 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 2013
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 final
recommendation on the update factors
is set forth in Appendix B of this final
rule.
4. Other Adjustments to the Average
Standardized Amount
As in the past, we are adjusting the
FY 2013 standardized amount to remove
the effects of the FY 2012 geographic
reclassifications and outlier payments
before applying the FY 2013 updates.
We then apply budget neutrality offsets
for outliers and geographic
reclassifications to the standardized
amount based on FY 2013 payment
policies.
We do not remove the prior year’s
budget neutrality adjustments for
reclassification and recalibration of the
DRG relative 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 MS–DRG
classifications, recalibration of the MS–
DRG relative weights, updates to the
wage index, and different geographic
reclassifications). We include outlier
payments in the simulations because

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they may be affected by changes in these
parameters.
In order to appropriately estimate
aggregate payments in our modeling, we
make several inclusions and exclusions
so that the appropriate universe of
claims and charges are included. We
discuss IME Medicare Advantage
payment amounts, fee-for-service only
claims, and charges for anti-hemophilic
blood factor and organ acquisition
below.
First, consistent with our
methodology established in the FY 2011
IPPS/LTCH PPS 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. We
refer readers to the FY 2011 IPPS/LTCH
PPS final rule for a complete discussion
on our methodology of identifying and
adding the total Medicare Advantage
IME payment amount to the budget
neutrality adjustments.
Second, consistent with the
methodology in the FY 2012 IPPS/LTCH
PPS final rule, in order to ensure that
we capture only fee-for-service claims,
we are only including claims with a
‘‘Claim Type’’ of 60 (which is a field on
the MedPAR file that indicates a claim
is a fee-for-service claim).
Third, consistent with our
methodology established in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50422
through 50423), we examined the
MedPAR file and removed pharmacy
charges for anti-hemophilic 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.
Comment: One commenter noted that
it is still likely that CMS is including
charges for anti-hemophilic blood factor
(which are paid separately under the
IPPS) in the MedPAR claims used to
determine the budget neutrality
adjustments. The commenter explained
that the majority of patients receiving
blood clotting drugs have a pharmacy

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indicator of ‘‘5’’, which denotes
‘‘general drugs and/or IV therapy and
blood clotting drugs.’’ The commenter
searched the MedPAR file and found
67,548 claims reporting patients
receiving blood clotting drugs and 843
of these claims had a pharmacy
indicator of ‘‘3’’. From the subset of 843
claims, 5 had pharmacy charges in
excess of $100,000 and 724 claims had
pharmacy charges greater than $100,000
with a pharmacy indicator of ‘‘5’’. The
commenter noted that the bulk of these
843 claims contain a pharmacy
indicator of ‘‘5’’; however, the MedPAR
file as currently constructed does not
allow for the separation of antihemophilic blood factor charges from
other pharmacy charges. The
commenter concluded that the inclusion
of all pharmacy charges with a
pharmacy indicator of ‘‘5’’ is
inappropriate.
Response: We appreciate the
commenter’s concern regarding
including charges that may not be
appropriate to include within our
modeling. As acknowledged by the
commenter, the MedPAR file as
currently constructed does not allow for
the separation of anti-hemophilic blood
factor charges from other pharmacy
charges. We will explore the possibility
of uniquely identifying anti-hemophilic
blood factor pharmacy charges within
the MedPAR file for future rulemaking.
Section 3021 of the Affordable Care
Act, codified under section 1115A of the
Act, authorizes CMS to test innovative
payment and service delivery models
with the goal of reducing Medicare
program expenditures while preserving
or enhancing the quality of care
furnished to individuals. Because
initiatives established under this
authority could result in IPPS hospitals
receiving a payment that is different
from what they otherwise would receive
under the IPPS, we believe it is
important to identify how these
initiatives are addressed in the context
of our budget neutrality calculations.
The Bundled Payments for Care
Improvement (BPCI) initiative,
developed by CMS’ Center for Medicare
and Medicaid Innovation under the
authority of section 3021 of the
Affordable Care Act (codified under
section 1115A of the Act), will test four
payment models that link payments for
multiple services during an episode of
care. On August 23, 2011, CMS invited
providers to apply to help develop and
test four models of bundling payments
under the BPCI. We refer readers to
section IV.H.4. of the preamble of this
final rule for a discussion on the BPCI
initiative. We note that under Models 1,
2, and 4, participating IPPS hospitals

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could receive a payment for all or
selected IPPS claims under the BPCI
that differs from payments they would
otherwise receive under the IPPS. We
also note that Model 3 addresses
payments for related readmissions and
postacute care services. Therefore, we
believe it is not necessary to address the
treatment of any data for participating
hospitals in Model 3.
In the proposed rule, for purposes of
computing the budget neutrality
calculations to determine the average
standardized amount, we proposed to
include all applicable data from
subsection (d) hospitals participating in
BPCI Models 1, 2, and 4 in our IPPS
payment modeling and ratesetting
calculations (which includes
recalibration of the MS–DRG relative
weights, ratesetting, calculation of the
budget neutrality factors, and the impact
analysis). In essence, we would
continue to treat these hospitals the
same as in prior fiscal years for
purposes of the FY 2013 (and
subsequent years) IPPS payment
modeling and ratesetting process
without regard to a hospital’s
participation within these three bundled
payment models (that is, we would treat
these hospitals as if they are not
participating in Model 1, Model 2, or
Model 4 under the BPCI initiative). We
stated that we believe it is appropriate
to include all applicable data from these
subsection (d) hospitals in our IPPS
payment modeling and ratesetting
calculations because these hospitals are
still receiving IPPS payments under
section 1886(d) of the Act (in addition
to the reconciliation payment the
hospital may receive under Model 2 of
the BPCI initiative). Moreover, the
Secretary has the authority to make
appropriate adjustments for payment
amounts under section 1886(d)(5)(I)(i) of
the Act to include all applicable data
from these ‘‘subsection (d)’’ hospitals in
our IPPS ratesetting calculations. We
further stated that we believe it is
appropriate to use the Secretary’s
authority under section 1886(d)(5)(I)(i)
of the Act to include all IPPS short-term
acute care hospitals and their data
within the IPPS ratesetting calculations
because excluding these hospitals
would diminish the number of
providers used to determine the IPPS
rates, which could cause fluctuations to
the IPPS rates and could produce
instability in the IPPS rates. We did not
receive any public comments on this
proposal and, therefore, we are
finalizing our proposal as presented in
the FY 2013 IPPS proposed rule (77 FR
28138 through 28139) and summarized
above without modification.

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Specifically, we are adopting as final
our methodology to include all
applicable data from subsection (d)
hospitals participating in BPCI Models
1, 2, and 4 in our IPPS payment
modeling and ratesetting calculations
(which includes recalibration of the
MS–DRG relative weights, ratesetting,
calculation of the budget neutrality
factors, and the impact analysis).
The Affordable Care Act established
the Hospital Readmissions Reduction
Program and the Hospital Value-Based
Purchasing (VBP) Program which adjust
payments to certain IPPS hospitals
beginning with discharges on or after
October 1, 2012. Because the
adjustments made under these programs
affect the estimation of aggregate IPPS
payments, in the proposed rule we
stated that we believe it is appropriate
to include adjustments for these
programs within our budget neutrality
calculations. We discuss the treatment
of these two programs in the context of
budget neutrality adjustments below.
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 ‘‘Hospital Readmissions 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. Under the Hospital
Readmissions Reduction Program under
section 1886(q) of the Act, payments for
discharges from an ‘‘applicable
hospital’’ will be in an amount equal to
the product of the ‘‘base operating DRG
payment amount’’ and an ‘‘adjustment
factor’’ that accounts for excess
readmissions for the hospital for the
fiscal year, for discharges beginning on
October 1, 2012. (The statute also
specifies that any applicable add-on
payments for IME, DSH, outliers and
low-volume hospitals provided for
under sections 1886(d)(5)(A), (d)(5)(B),
(d)(5)(F), and (d)(12) of the Act,
respectively, are not affected by the
adjustment for excess readmissions
under the Hospital Readmissions
Reduction Program.) In other words,
payment under section 1886(q) is the
base operating DRG payment amount
multiplied by the adjustment factor,
calculated separately from any outliers,
IME, DSH, or low-volume payment
adjustment the hospital may otherwise
receive. We refer readers to section
IV.A. of the preamble of this final rule
for full details of our implementation of
the Hospital Readmissions Reduction
Program for FY 2013, including

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definitions of the ‘‘base operating DRG
payment amount.’’ Under current law,
the Hospital Readmissions Reduction
Program under section 1886(q) of the
Act is not budget neutral.
Section 1886(o) of the Act requires the
Secretary to establish a hospital valuebased purchasing program under which,
beginning in FY 2013, value-based
incentive payments will be made in a
fiscal year to eligible subsection (d)
hospitals that meet performance
standards established for a performance
period for that fiscal year. As specified
under section 1886(o)(7)(B)(i) of the Act,
the cost of these value-based incentive
payments are funded by a reduction
applied to each eligible hospital’s baseoperating DRG payment amount, for
each discharge occurring in the fiscal
year, beginning with FY 2013. For FY
2013, the reduction amount is equal to
1.00 percent. As required by section
1886(o)(7)(A) of the Act, the total
amount of allocated funds available for
value-based incentive payments with
respect to a fiscal year is equal to the
total amount of estimated base-operating
DRG payment reductions (the applicable
percent reduction for FY 2013 is 1.0), as
estimated by the Secretary. We refer
readers to section VIII.C. of the
preamble of this final rule for details
regarding our implementation of the
Hospital VBP Program, including the
definition of the ‘‘base operating DRG
payment amount.’’
Unlike the Hospital Readmissions
Reduction Program (where an
adjustment factor is applied to reduce
the base-operating DRG payment
amount for excess readmissions), the
Hospital VBP Program is estimated to
have no effect on overall payments. As
mentioned above, for FY 2013, the total
amount of the funding pool for valuebased incentive payments is estimated
to equal the total amount of the eligible
hospitals’ base-operating DRG payment
amount reductions. In other words, the
funding pool that CMS sets aside for the
Hospital VBP Program is then equally
redistributed by applying the hospital
VBP adjustment. However, both the
hospital readmissions payment
adjustment (reduction) and the hospital
VBP adjustment (redistribution) are
applied on a claim by claim basis by
adjusting, as applicable, the baseoperating DRG payment amount for
individual subsection (d) hospitals,
which affects the overall sum of
aggregate payments on each side of the
comparison within the budget neutrality
calculations. For example, when we
calculate the budget neutrality factor for
MS–DRG reclassification and
recalibration of the relative weights, we
compare aggregate payments estimated

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using the prior year’s GROUPER and
relative weights to estimated payments
using the new GROUPER and relative
weights. (We refer readers to section
II.4.a. of this Addendum for full details.)
Other factors, such as the DSH and IME
payment adjustments, are the same on
both sides of the comparison because
we are only seeking to ensure that
aggregate payments do not increase or
decrease as a result of the changes of
MS–DRG reclassification and
recalibration. In order to properly sum
aggregate payments on each side of the
comparison, we proposed to apply the
hospital readmissions payment
adjustment and the hospital VBP
adjustment on each side of the
comparison. We did not receive any
public comments on this proposal.
Therefore, to assure that aggregate
payments are estimated correctly in
light of the effects of the Hospital
Readmissions Reduction Program and
the Hospital VBP Program, we are
finalizing our proposal as presented in
the FY 2013 IPPS/LTCH PPS proposed
rule (77 FR 28138 through 28139)
without modification, and are applying
the readmissions payment adjustment
and the Hospital VBP payment
adjustment on both sides of our
comparison of aggregate payments when
determining all budget neutrality factors
described in section II.A.4. of this
Addendum.
For the proposed rule, for the purpose
of modeling the aggregate payments for
excess readmissions and the
readmissions adjustment factors, we
used excess readmission ratios for the
applicable hospitals from the 3-year
period of July 1, 2007, to June 30, 2010
(the 3-year period preceding the FY
2013 ‘‘applicable period’’ of July 1,
2008, to June 30, 2011, that was
finalized in last year’s rulemaking (76
FR 51671 through 51672), because the
underlying data from this period had
already been made available to the
public on the Hospital Compare Web
site (as of July 2011). At that time, the
data from the 3-year applicable period
of July 1, 2008, to June 30, 2011, for FY
2013 had not been through the review
and correction process required by
section 1886(q)(6) of the Act. As we
indicated in the proposed rule, for this
final rule, we are using excess
readmission ratios based on admissions
for the finalized applicable period of
July 1, 2008, to June 30, 2011, to
calculate the aggregate payments for
excess readmissions and ultimately to
calculate the readmissions payment
adjustment factors for FY 2013, because
applicable hospitals have had the
opportunity to review and correct these

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data before the data were made public
under our proposal set forth in the
proposed rule regarding the reporting of
hospital-specific readmission rates,
consistent with section 1886(q)(6) of the
Act (as discussed in section IV.A.3.d. of
the preamble of this final rule).
a. Recalibration of MS–DRG Relative
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.H. of the preamble of this final rule,
we normalized the recalibrated MS–
DRG relative weights by an adjustment
factor so that the average case relative
weight after recalibration is equal to the
average case relative weight prior to
recalibration. However, equating the
average case relative weight after
recalibration to the average case relative
weight before recalibration does not
necessarily achieve budget neutrality
with respect to aggregate payments to
hospitals because payments to hospitals
are affected by factors other than
average case relative weight. Therefore,
as we have done in past years, we are
making a budget neutrality adjustment
to ensure that the requirement of section
1886(d)(4)(C)(iii) of the Act is met.
Section 1886(d)(3)(E)(i) of the Act
requires us to update the hospital wage
index on an annual basis beginning
October 1, 1993. This provision also
requires us to make any updates or
adjustments to the wage index in a
manner that ensures that aggregate
payments to hospitals are not affected
by the change in the wage index.
Section 1886(d)(3)(E)(i) of the Act
requires that we implement the wage
index adjustment in a budget neutral
manner. However, section
1886(d)(3)(E)(ii) of the Act sets the
labor-related share at 62 percent for
hospitals with a wage index less than or
equal to 1.0, and section 1886(d)(3)(E)(i)
of the Act provides that the Secretary
shall calculate the budget neutrality
adjustment for 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 wage indices
less than or equal to 1.0 at the more
advantageous level of 62 percent.

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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 laborrelated share of 62 percent. Consistent
with current policy, for FY 2013, we are
adjusting 100 percent of the wage index
factor for occupational mix. We describe
the occupational mix adjustment in
section III.F. of the preamble of this
final rule.
For FY 2013, to comply with the
requirement that MS–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 2011 discharge data to simulate
payments and compared aggregate
payments using the FY 2012 laborrelated share percentages, the FY 2012
relative weights, and the FY 2012 prereclassified wage data and applied the
FY 2013 hospital readmissions payment
adjustments and estimated FY 2013
hospital VBP payment adjustments to
aggregate payments using the FY 2012
labor-related share percentages, the FY
2013 relative weights, and the FY 2012
pre-reclassified wage data and applied
the same hospital readmissions payment
adjustments and estimated hospital VBP
adjustments. Based on this comparison,
we computed a budget neutrality
adjustment factor equal to 0.998431. As
discussed in section IV. of this
Addendum, we also are applying the
MS–DRG reclassification and
recalibration budget neutrality factor of
0.998431 to the hospital-specific rates
that are effective for cost reporting
periods beginning on or after October 1,
2012.
In order to meet the statutory
requirements that we do not take into
account the labor-related 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 MS–DRG
reclassification and recalibration of the
relative weights and the updated wage
index and labor-related share have no
effect on aggregate payments for IPPS
hospitals. We first determined an MS–
DRG reclassification and recalibration
budget neutrality factor of 0.998431 (by
using the same methodology described
above to determine the MS–DRG
reclassification and recalibration budget
neutrality factor for the Puerto Rico
standardized amount and hospitalspecific rates). Secondly, to compute a
budget neutrality factor for wage index
and labor-related share changes, we
used FY 2011 discharge data to simulate
payments and compared aggregate

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payments using FY 2013 relative
weights and FY 2012 pre-reclassified
wage indices, applied the FY 2012
labor-related share of 68.8 percent to all
hospitals (regardless of whether the
hospital’s wage index was above or
below 1.0) and applied the FY 2013
hospital readmissions payment
adjustment and the FY 2013 estimated
hospital VBP payment adjustment when
estimating aggregate payments using the
FY 2013 relative weights and the FY
2013 pre-reclassified wage indices,
applied the labor-related share for FY
2013 of 68.8 percent to all hospitals
(regardless of whether the hospital’s
wage index was above or below 1.0),
and applied the same FY 2013 hospital
readmissions payment adjustments and
estimated FY 2013 hospital VBP
payment adjustments. In addition, we
applied the MS–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 2012 to FY
2013. By applying this methodology, we
determined a budget neutrality factor of
1.000331 for changes to the wage index.
Finally, we multiplied the MS–DRG
reclassification and recalibration budget
neutrality factor of 0.998431(derived in
the first step) by the budget neutrality
factor of 1.000331 for changes to the
wage index (derived in the second step)
to determine the MS–DRG
reclassification and recalibration and
updated wage index budget neutrality
factor of 0.998761.
b. Reclassified Hospitals—Budget
Neutrality Adjustment
Section 1886(d)(8)(B) of the Act
provides that, effective with discharges
occurring on or after October 1, 1988,
certain rural hospitals are deemed
urban. In addition, section 1886(d)(10)
of the Act provides for the
reclassification of hospitals based on
determinations by the MGCRB. Under
section 1886(d)(10) of the Act, a hospital
may be reclassified for purposes of the
wage index.
Under section 1886(d)(8)(D) of the
Act, the Secretary is required to adjust
the standardized amount to ensure that
aggregate payments under the IPPS after
implementation of the provisions of
sections 1886(d)(8)(B) and (C) and
1886(d)(10) of the Act are equal to the
aggregate prospective payments that
would have been made absent these
provisions. We note that the wage index
adjustments provided for 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

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not be taken into account ‘‘in applying
any budget neutrality adjustment with
respect to such index’’ under section
1886(d)(8)(D) of the Act. To calculate
the budget neutrality factor for FY 2013,
we used FY 2011 discharge data to
simulate payments and compared total
IPPS payments with FY 2013 relative
weights, FY 2013 labor-related share
percentages, and FY 2013 wage data
prior to any reclassifications under
sections 1886(d)(8)(B) and (C) and
1886(d)(10) of the Act and applied the
FY 2013 hospital readmissions payment
adjustments and the estimated FY 2013
hospital VBP payment adjustments to
total IPPS payments with FY 2013
relative weights, FY 2013 labor-related
share percentages, and FY 2013 wage
data after such reclassifications and
applied the same hospital readmissions
payment adjustments and the estimated
hospital VBP payment adjustments.
Based on these simulations, we
calculated an adjustment factor of
0.991276 to ensure that the effects of
these provisions are budget neutral,
consistent with the statute.
The FY 2013 budget neutrality
adjustment factor is applied to the
standardized amount after removing the
effects of the FY 2012 budget neutrality
adjustment factor. We note that, the FY
2013 budget neutrality adjustment
reflects FY 2013 wage index
reclassifications approved by the
MGCRB or the Administrator.
c. Rural Floor and Imputed Floor Budget
Neutrality Adjustment
As noted above, as discussed in
section III.G. 2.b. of the preamble of this
final rule, in the FY 2012 IPPS/LTCH
PPS final rule, we extended the imputed
floor through FY 2013. 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) and the imputed floor under
§ 412.64(h)(4) of the regulations are not
affected. In addition, we note in section
III.G.2.b. of the preamble of this final
rule, we are finalizing our proposal to
use an alternative temporary
methodology for computing the imputed
floor index. In the proposed rule, we did
not apply this alternative in our
calculation of the proposed uniform,
national rural floor budget neutrality
adjustment to the wage indices because
the projected impact of that proposal
was estimated at less than $5 million
and, therefore, would have a negligible
impact on the adjustment. For this final
rule, consistent with our methodology
for treating the imputed floor, we have
included this alternative methodology
for computing the imputed floor index

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in the calculation of the uniform,
national rural floor budget neutrality
adjustment in this final rule. Consistent
with section 3141 of the Affordable Care
Act and as discussed in section III.G. of
the preamble of this final rule, the
budget neutrality adjustment for the
rural and imputed floors is a national
adjustment to the wage index.
Since FY 2012, there has been one
hospital in rural Puerto Rico. Therefore,
similar to our calculation in the FY 2012
IPPS/LTCH final rule (76 FR 51593), for
FY 2013, we are calculating a national
rural Puerto Rico wage index (used to
adjust the labor-related share of the
national standardized amount for
hospitals located in Puerto Rico which
receive 75 percent of the national
standardized amount) and a rural Puerto
Rico-specific wage index (which is used
to adjust the labor-related share of the
Puerto Rico-specific standardized
amount for hospitals located in Puerto
Rico that receive 25 percent of the
Puerto Rico-specific standardized
amount). Because this rural Puerto Rico
hospital still has no established wage
data, our calculation is based on the
policy adopted in the FY 2008 IPPS
final rule with comment period (72 FR
47323). A complete discussion
regarding the computation of the rural
Puerto Rico wage index can be found in
the FY 2012 IPPS/LTCH PPS final rule.
To calculate the national rural floor
and imputed floor budget neutrality
adjustment factor and Puerto Ricospecific rural floor budget neutrality
adjustment factor, we used FY 2011
discharge data and FY 2013 postreclassified national and Puerto Ricospecific wage indices to simulate IPPS
payments. First, we compared the
national and Puerto Rico-specific
simulated payments without the
national rural floor and imputed floor
and Puerto Rico-specific rural floor
applied to the national and Puerto Ricospecific simulated payments with the
national rural floor and imputed floor
and Puerto Rico-specific rural floor
applied to determine the national rural
budget neutrality adjustment factor of
0.991340 and the Puerto Rico-specific
budget neutrality adjustment factor of
0.987620. The national adjustment is
applied to the national wage indices to
produce a national rural floor budget
neutral wage index and the Puerto Ricospecific adjustment is applied to the
Puerto Rico-specific wage indices to
produce a Puerto Rico-specific rural
floor budget neutral wage index.
d. Case-Mix Budget Neutrality
Adjustment
Below we summarize the adjustments
to the FY 2013 payment rates to account

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53689

for the effect of changes in
documentation and coding that do not
reflect real changes in case-mix. We
refer readers to section II.D. of the
preamble of this final rule for a
complete discussion regarding our
proposals and final policies (including
our historical adjustments to the
payment rates) to eliminate the
estimated effect of changes in
documentation and coding that do not
reflect real changes in case-mix.
(1) Prospective Adjustments for
Documentation and Coding in FY 2008
and FY 2009 Authorized by Section
7(b)(1)(A) of Public Law 110–90 and
Section 1886(d)(3)(A)(vi) of the Act
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.
For FY 2013, as proposed, we are
finalizing a ¥1.9 percent adjustment to
the standardized amount to complete
the adjustment required under section
7(b)(1)(A) of Public Law 110–90. We
refer readers to section II.D. of the
preamble of this final rule for a
complete discussion on our historical
adjustments and the FY 2013
adjustment to the standardized amount
pursuant to section 7(b)(1)(A) of Public
Law 110–90.
(2) Prospective Adjustments for
Documentation and Coding in FY 2010
Authorized by 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 if the Secretary
determines such adjustments to be
necessary for any subsequent fiscal
years in order to eliminate the effect of
coding or classification changes that do
not reflect real changes in case mix.
After reviewing public comments and
recommendations received from
MedPAC, we analyzed claims data in
FY 2010 to determine whether any
additional adjustment would be
required to ensure that the introduction
of MS–DRGs was implemented in a

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budget neutral manner. As discussed in
section II.D. of the preamble of this final
rule, our analysis showed a
documentation and coding effect in FY
2010 of 0.8 percent, and we proposed to
make an additional ¥0.8 percent
adjustment to account for the effects of
documentation and coding that did not
reflect an increase in case-mix severity
in FY 2010.
As discussed earlier in this preamble,
we are not finalizing an additional ¥0.8
percent adjustment to the FY 2013
standardized amount to account for
documentation and coding that did not
reflect an actual increase in case-mix in
FY 2010. (However, as discussed above,
we still are making an adjustment of
¥1.9 percent to the standardized
amount, accounting for all
documentation and coding effects
observed between FY 2008 though FY
2009.)
(3) Recoupment or Repayment
Adjustment for Documentation and
Coding in FY 2008 and FY 2009
Authorized by Section 7(b)(1)(B) of
Public Law 110–90
Section 7(b)(1)(B) of Public Law 110–
90 requires the Secretary to make an
adjustment to the standardized 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.
As discussed in section II.D.5. of the
preamble of this final rule, we
determined that an aggregate adjustment
of ¥5.8 percent in FYs 2011 and 2012
would be necessary in order to meet
these statutory requirements.
In the FY 2011 IPPS/LTCH PPS final
rule, for FY 2011, we made an
adjustment to the standardized amount
of ¥2.9 percent, representing
approximately half of the required
adjustment. For FY 2012, in accordance
with 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
completed 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 (76 FR 51489 and
51498). Therefore, the required
recoupment for overpayments due to
documentation and coding effects on
discharges occurring in FYs 2008 and

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2009 has been completed within the
required statutory timeframes. However,
to avoid continuing the ¥2.9 percent
adjustment finalized in FY 2012, for FY
2013, we are finalizing the +2.9 percent
adjustment to the standardized amount
as we proposed. This adjustment
removes the one-time ¥2.9 percent
adjustment implemented in FY 2012.
(4) Documentation and Coding
Adjustment to the Puerto Rico-Specific
Standardized Amount
As discussed in section II.D.9. of the
preamble of this final 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 based on the Puerto
Rico-specific standardized amount. 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 standardized
amount. Therefore, because the Puerto
Rico-specific standardized amount
received a full prospective adjustment
of ¥2.6 percent in FY 2011, in section
II.D.9. of the preamble of this final rule,
as we proposed, we are not making any
further adjustment for FY 2013. For a
complete discussion on our policy, we
refer readers to section II.D.9. of the
preamble of this final rule.
We note that, based upon our analysis
of FY 2010 claims data; we found no
significant additional effect of
documentation and coding that would
warrant any additional adjustment to
the Puerto Rico-specific standardized
amount.
e. Rural Community Hospital
Demonstration Program Adjustment
As discussed in section IV.K. of the
preamble to this final rule, section 410A
of Public Law 108–173 originally
required the Secretary to establish a
demonstration program 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

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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 program for an
additional 5-year period, and allowed
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 2012 IPPS/LTCH PPS final
rule (76 FR 51700 through 51705), 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
program 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 program, 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.
For FY 2013, for the 23 hospitals
participating in the demonstration
program, we are adjusting the national
IPPS payment rates according to the
methodology set forth elsewhere in this
final rule. For this final rule, the
estimated amount for the adjustment to
the national IPPS payment rates for FY
2013 is $34, 288,129. (For the proposed
rule, the estimated amount for the
adjustment to the national IPPS
payment rates for FY 2013 was
$35,077,708.) Accordingly, to account
for the estimated costs of the
demonstration program for the specific
time periods as explained in detail in
section IV.K. of the preamble of this
final rule, for FY 2013, we computed a
factor of 0.999677 for the rural
community hospital demonstration
program budget neutrality adjustment
that will be applied to the IPPS standard
Federal payment rate.
In the proposed rule, we stated that if
updated data became available prior to
the publication of the FY 2013 IPPS/
LTCH PPS final rule, we would use that
data, to the extent appropriate, to
estimate the costs of the demonstration

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program in FY 2013. Therefore, this
estimated budget neutrality offset
amount in this final rule reflects
updated data.
In addition, we proposed in the
proposed rule that if settled cost reports
for all of the demonstration hospitals
that participated in the applicable fiscal
year (2007, 2008, 2009, or 2010) were
made available prior to this FY 2013
IPPS/LTCH PPS final rule, we would
incorporate into the FY 2013 budget
neutrality offset amount the difference
between the final cost of the
demonstration in any of these years (as
described previously) and the budget
neutrality offset amount applicable to
such year as finalized in the respective
year’s IPPS final rule. Because settled
cost reports are not available for these
years, we are not incorporating into the
FY 2013 budget neutrality offset amount
the difference between the final cost of
the demonstration in any of these years
and the budget neutrality offset amount
applicable to such year as finalized in
the respective year’s IPPS final rule. We
expect that the settled cost reports will
be available prior to the FY 2014 IPPS/
LTCH PPS proposed rule, and that we
will be able to propose to make this
adjustment at the appropriate time.
f. 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 ‘‘fixedloss’’ 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 2013 is 80
percent, the same marginal cost factor
we have used since FY 1995 (59 FR
45367).
In accordance with section
1886(d)(5)(A)(iv) of the Act, outlier
payments for any year are projected to

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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: http://www.cms.hhs.gov/
Medicare/Medicare-Fee-for-ServicePayment/AcuteInpatientPPS/
index.html?redirect=AcuteInpatient
PPS/04_outlier.asp#TopOfPage.
(1) FY 2013 Outlier Fixed-Loss Cost
Threshold
For FY 2013, we proposed to continue
to use the same methodology that we
first 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 2013, we proposed to apply an
adjustment factor to the CCRs to account
for cost and charge inflation (as
explained below). As we have done in
the past, to calculate the proposed FY
2013 outlier threshold, we simulated
payments by applying proposed FY
2013 payment rates and policies using
cases from the FY 2011 MedPAR file.
Therefore, in order to determine the
proposed FY 2013 outlier threshold, we
inflated the charges on the MedPAR
claims by 2 years, from FY 2011 to FY
2013.
We also proposed 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.

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Using the most recent data available,
we calculated the 1-year average
annualized rate-of-change in charges per
case from the last quarter of FY 2010 in
combination with the first quarter of FY
2011 (July 1, 2010, through December
31, 2010) to the last quarter of FY 2011
in combination with the first quarter of
FY 2012 (July 1, 2011, through
December 31, 2011). This rate-of-change
was 6.8 percent (1.068003) or 14.06
percent (1.140630) over 2 years. As we
have done in the past, we established
the proposed FY 2013 outlier threshold
using hospital CCRs from the December
2011 update to the Provider-Specific
File (PSF)—the most recent available
data at the time of the 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 2013, we proposed to continue to
use the same methodology to calculate
the CCR adjustment by using the FY
2011 operating cost per discharge
increase in combination with the actual
FY 2011 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 2011 actual
(otherwise referred to as ‘‘final’’)
operating market basket percentage
increase reflects historical data, whereas
the published FY 2011 operating market
basket update factor was based on IGI’s
2010 second quarter forecast with
historical data through the first quarter
of 2010. We also note that, while the FY
2011 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 2011
published capital market basket update
factor was based on the FY 2002-based
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.
Under our proposal to continue to use
the same methodology to calculate the
CCR adjustment for FY 2013, we
determined the proposed adjustment by
taking the percentage increase in the
operating costs per discharge from FY
2009 to FY 2010 (1.0160) from the cost
report and dividing it by the final
operating market basket percentage
increase from FY 2010 (1.0210). This

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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 2007
to FY 2008 percentage increase of
operating costs per discharge of 1.0505
divided by the FY 2008 final operating
market basket percentage increase of
1.0400, and the FY 2008 to FY 2009
percentage increase of operating costs
per discharge of 1.0295 divided by the
FY 2009 final operating market basket
percentage increase of 1.0260). For FY
2013, we averaged the differentials
calculated for FY 2008, FY 2009, and FY
2010, which resulted in a mean ratio of
1.0029. We multiplied the 3-year
average of 1.0029 by the FY 2011 final
operating market basket percentage
increase of 1.0270, which resulted in an
operating cost inflation factor of 2.99
percent or 1.029948. We then divided
the operating cost inflation factor by the
1-year average change in charges
(1.068003) and we proposed to apply an
adjustment factor of 0.964368 to the
operating CCRs from the 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
proposed adjustment by taking the
percentage increase in the capital costs
per discharge from FY 2009 to FY 2010
(1.0102) from the cost report and
dividing it by the final capital market
basket percentage increase from FY
2010 (1.010). 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 2007

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to FY 2008 percentage increase of
capital costs per discharge of 1.0809
divided by the FY 2008 final capital
market basket percentage increase of
1.0150, and the FY 2008 to FY 2009
percentage increase of capital costs per
discharge of 1.0499 divided by the FY
2009 final capital market basket
percentage increase of 1.0150). For FY
2013, we averaged the differentials
calculated for FY 2008, FY 2009, and FY
2010, which resulted in a mean ratio of
1.0332. We multiplied the 3-year
average of 1.0332 by the FY 2011 final
capital market basket percentage
increase of 1.0120, which resulted in a
capital cost inflation factor of 4.56
percent or 1.045567. We then divided
the capital cost inflation factor by the 1year average change in charges
(1.068003) and we proposed to apply an
adjustment factor of 0.978993 to the
capital CCRs from the PSF (calculation
performed on unrounded numbers). We
proposed 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 2013, we
applied the proposed FY 2013 rates and
policies using cases from the FY 2011
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.G.3. of the preamble of
this final 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 2013, 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 2013. If we did not

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take into account this provision, our
estimate of total FY 2013 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.
In the proposed rule, we stated that
our estimate of the cumulative effect of
changes in documentation and coding
due to the adoption of the MS–DRGs of
5.4 percent from FY 2008 and FY 2009
and 0.8 percent from FY 2010 is already
included within the claims data (FY
2011 MedPAR files) used to calculate
the proposed FY 2013 outlier threshold.
We also stated in the proposed rule that
we estimated 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 2011 MedPAR claims data, and we
did not believe there was any need to
inflate FY 2011 claims data for any
additional case-mix growth projected to
have occurred since FY 2010.
As we did in establishing the FY 2009
outlier threshold (73 FR 57891), in our
projection of FY 2013 outlier payments,
we did not propose to make any
adjustments for the possibility that
hospitals’ CCRs and outlier payments
may be reconciled upon cost report
settlement. We indicated that we
continue to believe that, due to the
policy implemented in the June 9, 2003
outlier final rule (68 FR 34494), CCRs
will no longer fluctuate significantly
and, therefore, few hospitals will
actually have these ratios reconciled
upon cost report settlement. In addition,
it is difficult to predict the specific
hospitals that will have CCRs and
outlier payments reconciled in any
given year. We also noted that
reconciliation occurs because hospitals’
actual CCRs for the cost reporting period
are different than the interim CCRs used
to calculate outlier payments when a
bill is processed. Our simulations
assume that CCRs accurately measure
hospital costs based on information
available to us at the time we set the
outlier threshold. For these reasons, we
proposed not to make any assumptions
about the effects of reconciliation on the
outlier threshold calculation.
As described in sections IV.A. and
VIII.B., respectively, of the preamble of
this final rule, sections 1886(q) and
1886(o) of the Act establish the Hospital
Readmissions Reduction Program and
the Hospital VBP Program, respectively.
As we discussed in the proposed rule,
we do not believe it is appropriate to
include the hospital VBP payment
adjustments and the hospital

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readmissions payment adjustments in
the outlier threshold calculation or the
outlier offset to the standardized
amount. Specifically, consistent with
our proposed definition of the base
operating DRG payment amount for the
Hospital Readmissions Reduction
Program under proposed § 412.152 and
the Hospital VBP Program under
proposed § 412.160, we indicated that
outlier payments under section
1886(d)(5)(A) of the Act are not affected
by these payment adjustments.
Therefore, outlier payments would
continue to be calculated based on the
unadjusted base DRG payment amount
(as opposed to using the base-operating
DRG payment amount adjusted by the
hospital readmissions payment
adjustment and the hospital VBP
adjustment). Consequently, we
proposed to exclude the hospital VBP
payment adjustments and the hospital
readmissions payment adjustments from
the calculation of the outlier fixed-loss
cost threshold.
Using this methodology, we proposed
an outlier fixed-loss cost threshold for
FY 2013 equal to the prospective
payment rate for the DRG, plus any IME
and DSH payments, and any add-on
payments for new technology, plus
$27,425.
We note that on June 11, 2012, we
published a correction notice to the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 34326 through 34331). In that
correction notice, we stated that we
inadvertently applied the incorrect
adjustment factors to the operating and
capital cost-to-charge ratios (CCRs) from
the PSF when performing the
calculation of the proposed FY 2013
outlier fixed-loss cost threshold for the
proposed rule. The correction of this
error resulted in a decrease in the
proposed outlier fixed-loss cost
threshold of approximately $1,000,
which resulted in a corrected proposed
FY 2013 outlier fixed-loss cost threshold
of $26,337.
We also noted in that correction
notice that the corrected proposed FY
2013 outlier fixed-loss cost threshold
represented a $3,952 (or 17.7 percent)
increase from the final FY 2012 outlier
fixed-loss cost threshold of $22,385.
Since FY 2009, the outlier fixed-loss
cost threshold has been between
$20,185 and $23,140. Therefore, we
were concerned about this large increase
in the outlier fixed-loss cost threshold
from FY 2012.
In the proposed rule, we further noted
that the proposed 2-year charge inflation
factor of 14.06 percent applied to the FY
2011 MedPAR claims used to compute
the FY 2013 outlier fixed-loss cost
threshold is higher than the 2-year

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charge inflation factor of 7.94 percent
applied to the FY 2010 MedPAR claims
used to compute the FY 2012 final
outlier fixed-loss cost threshold. We
stated that we believe that a large
increase in the charge inflation factor for
FY 2013 (from FY 2012) increased
projected total outlier payments. With
an increase in projected outlier
payments, in order for CMS to meet the
5.1 percent target, it would be necessary
to reduce the amount of outlier
payments by raising the outlier fixedloss cost threshold. Therefore, in
addition to being concerned about the
large increase in the fixed-loss threshold
proposed for FY 2013 compared to FY
2012, we were concerned about this
large charge inflation increase and how
it potentially affected the proposed FY
2013 outlier fixed-loss cost threshold.
As described above, to determine the 1year average annualized rate-of-change
in charges per case, we currently use a
methodology that compares the average
charge per case from the most recent 6month period of MedPAR data that are
available to the same 6-month period of
MedPAR data from the prior year. We
adopted this methodology in the FY
2005 IPPS final rule (69 FR 49277) as a
result of the special circumstances
surrounding the revisions to the outlier
payment methodology at that time. In
that rule, we stated that we would
continue to consider other
methodologies for determining charge
inflation when calculating the outlier
threshold in the future. We welcomed
public comment on possible
modifications to our current
methodologies, including the possibility
of looking at a larger time period beyond
6 months to determine the average
charge per case to measure the charge
inflation factor.
In addition, as pointed out by
commenters who responded to the
policies presented in last year’s final
rule (76 FR 51793 through 51795), in
this year’s proposed rule we noted that
CMS has not met the 5.1 percent target
for some time and the commenters have
recommended enhancements to the
methodology to improve the calculation
of the outlier fixed-loss cost threshold.
Commenters have focused on CMS’
underestimation of actual outlier
payments. Since FY 2009, we have used
the same methodology to calculate the
outlier fixed-loss cost threshold. While
we have been reluctant to make changes
to our methodology, as discussed below,
our proposed estimate for FY 2011 was
that outlier payments would be
approximately 4.7 percent of actual total
MS–DRG payments and for FY 2012
outlier payments would be

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53693

approximately 6.0 percent of actual total
MS–DRG payments (we have revised
both of these estimates for the final rule
using the latest data available as
discussed below). In the proposed rule,
we stated that while these estimates
differ—with one being under the target
and one above the target—they draw
attention to the potential for improving
our estimation methodology so that we
meet the 5.1 percent target. We
welcomed public comment on ways to
enhance the accuracy of our
methodology to calculate the FY 2013
outlier fixed-loss cost threshold,
especially additional analyses that
could inform potential technical
improvements.
Comment: Commenters analyzed the
CCRs used in the proposed rule to
calculate the outlier fixed-loss cost
threshold and found that CMS used
outdated CCRs for the proposed rule.
The commenters attempted to match the
CCRs from the proposed rule impact file
to the CCRs in the March 2012 PSF
update with an effective date prior to
January 15, 2012, and found that the
CCRs in the impact file matched the
CCRs in the March 2012 PSF update for
only 200 providers. The commenter
used CMS’ methodology to calculate the
outlier fixed-loss cost threshold and
determined that the proposed outlier
fixed-loss cost threshold should have
been $23,780 for FY 2013.
Response: We appreciate the
commenters pointing out this error.
After further research, we discovered
that we inadvertently removed all CCRs
from the December 2011 PSF update
that had an effective date after
December 2010. Therefore, we used
‘‘outdated’’ CCRs to calculate the
proposed outlier fixed-loss cost
threshold. After this error was brought
to our attention, we calculated the
proposed outlier fixed-loss cost
threshold with the ‘‘best available’’
CCRs. Specifically, we used operating
and capital CCRs from the latest
effective date in the December 2011
update of the PSF and determined that
the proposed outlier fixed-loss cost
threshold for FY 2013 should have been
$23,630.
Comment: Many commenters
expressed concern that CMS is still not
reaching the 5.1 percent target for
outlier payments and believed there is
still room for improvement. The
commenters made various suggestions
to improve the current methodology
used to calculate the outlier threshold.
Several commenters suggested three
alternative methodologies (discussed
below) to adjust the CCRs, while other
commenters only recommended the first
and third options listed below. The

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commenters that suggested the three
methodologies stated that they believed
that a 1-year CCR adjustment is not
appropriate since hospitals have
different fiscal year ends and, therefore,
different adjustments should be applied
to the CCRs.
The first methodology the
commenters recommended was for CMS
to project CCRs over periods of time
based on variations in hospital cost
reporting fiscal year ends rather than 1
year in order to better reflect the CCRs
as they are expected to exist during FY
2013 (we received similar comments in
response to the policies presented in
last year’s rule recommending the
adoption of this methodology to adjust
the CCRs (75 FR 51793)). Using this
methodology to adjust the CCRs, the
commenters determined an outlier
fixed-loss cost threshold for FY 2013 of
$23,190.
The second methodology suggested by
commenters was similar to the first
methodology but projected CCRs by
quarter rather than using hospital cost
reporting fiscal year ends. For example,
commenters suggested that CCRs in the
PSF from June 2011 through September
2011 be projected 2 years from June
2013 through September 2013. Using
this methodology to adjust the CCRs, the
commenters determined an outlier
fixed-loss cost threshold for FY 2013 of
$23,195.
The third methodology recommended
by commenters used historical CCR data
from the PSF to compute a rate-ofchange in CCRs. Under this approach,
the average case-weighted operating and
capital CCR from October 2010 was
compared to the average case-weighted
operating and capital CCR from October
2011, and determined a ¥2.73 percent
reduction for the operating CCRs and a
¥2.25 percent reduction for the capital
CCRs. Although this adjustment would
still be based on 1 year’s data, the
commenters believed that the use of
historical data to adjust the CCRs is
consistent with CMS’ estimation of
charge inflation.
Similar to comments received in
response to the policies presented last
year (76 FR 51793 through 51794), one
commenter suggested that, if CMS did
not incorporate the changes described
above to its methodology for estimating
outlier payments, it would recommend
incorporating an ‘‘estimate adjustment
factor’’ into the outlier projections. This
commenter explained that outlier
payments have been underpaid in every
year since FY 2003. Based on estimated
actual payments determined by the
commenter’s data analysis, the
commenter asserted that the
underpayment has exceeded 0.5 percent

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in all years since FY 2003. The
commenter recommended that CMS
determine an outlier fixed-loss cost
threshold that would maintain the 5.1
percent target by applying an ‘‘estimate
adjustment factor’’ when determining
the outlier fixed-loss cost threshold. The
commenter provided an example by
taking the average variance of 0.68
percentage point in the actual payment
from FY 2009 and FY 2011. Based on
this factor, CMS would model the
threshold to a level of 5.78 percent (5.1
percent plus 0.68 percent). If CMS were
to estimate that it made outlier
payments in excess of the 5.1 percent
target, then the ‘‘estimate adjustment
factor’’ would be negative. The
commenter stated that this would fulfill
the statutory requirement under section
1886(d)(5)(A) of the Act that requires
CMS to establish thresholds such that
outlier payments will be projected to
achieve at least 5.1 percent of DRG
payments and would more closely
achieve a result that is fully consistent
with the statute.
Some commenters noted that some
hospitals are at a financial disadvantage
compared to others and outliers should
not be among the reasons of this
disadvantage. The commenters
recommended that CMS lower the
threshold, thereby increasing the chance
that CMS will pay within the
congressionally mandated target range
of 5 to 6 percent. Another commenter,
from a society representing transplant
surgeons, applauded CMS’ recognition
and concern for the large increase in the
outlier threshold. The commenter was
concerned that the large increase in the
outlier fixed-loss cost threshold may
affect the reimbursement for transplant
cases because these cases are typically
high in costs and, therefore, reach
outlier payment status. The commenter
requested that CMS study the rapid rise
in the outlier fixed-loss cost threshold
while assuring stability in the outlier
fixed-loss cost threshold and
authorizing appropriate additional
payment to transplant centers facing
extraordinarily resource-intensive cases.
Other commenters recommended that
CMS maintain the outlier fixed-loss cost
threshold from FY 2012 for FY 2013
until CMS develops a more reliable
methodology for determining the outlier
fixed-loss cost threshold.
Response: We appreciate the
commenters providing multiple
alternative methodologies to adjust the
CCRs used in our outlier fixed-loss cost
threshold. Due to the many options the
commenters presented, we believe the
most prudent approach is to study the
merits of each methodology and, if
appropriate, make a proposal in next

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year’s proposed rule if we believe
making a change to our current
methodology would improve our
methodology for projecting the outlier
fixed-loss cost threshold. As we have
stated in prior years, using our current
methodology, it is possible that some of
the CCRs in the March 2012 PSF will be
used in FY 2013 for actual outlier
payments, while other CCRs may be 1
year old. Therefore, we apply a 1-year
adjustment to the CCRs. The adjusted
CCR is applied throughout the fiscal
year within the outlier model. For this
final rule, we are continuing to use the
methodology we have used since FY
2009 to adjust the CCRs used to
determine the outlier fixed-loss cost
threshold. However, as stated above, we
intend to study the merits of the
commenters’ suggestions for future
rulemaking.
With regard to the comment that CMS
implement an ‘‘estimate adjustment
factor’’, as we stated last year, further
analysis by CMS is necessary to
determine if the commenter’s approach
to applying such a factor is appropriate.
We will consider the commenter’s
suggestion to apply an ‘‘estimate
adjustment factor’’ (in conjunction with
analyzing the alternative methodologies
to adjust the CCRs discussed above), for
future rulemaking if, based on our
analysis, we determine that application
of an ‘‘estimate adjustment factor’’ is
appropriate and consistent with the
statute.
Also, as noted above, section
1886(d)(5)(A)(iv) of the Act requires
outlier payments to be not less than 5
percent nor more than 6 percent of total
estimated or projected payments.
Therefore, we cannot adopt the
commenter’s suggestion to maintain the
FY 2012 outlier fixed-loss cost threshold
for FY 2013 because setting a threshold
that is based on the current fiscal year
for the coming fiscal year is inconsistent
with the statute.
Comment: Commenters noted that
from FYs 2007 through 2011, in each
rulemaking cycle the final threshold is
always significantly lower than the
proposed threshold. The commenters
believed this decline is most likely the
result of using more recently updated
CCRs in the calculations for the final
rule. The commenter emphasized the
need for CMS to use the most recent
data available when it calculates the
outlier fixed-loss cost threshold.
One commenter recommended that
CMS use the June 2012 PSF update
instead of the March 2012 update to the
PSF to calculate the outlier fixed-loss
cost threshold for the final rule. The
commenter explained that there was a
delay in hospitals filing the form CMS

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2552–10 cost reports and the March
2012 update to the PSF does not contain
CCRs from these cost reports. The
commenter stated that the June 2012
PSF is probably the first update that
would contain updated CCRs from the
CMS 2552–10 cost reports.
Response: CMS’ historical policy is to
use the best available data when setting
the payment rates and factors in both
the proposed and final rules. Sometimes
there are variables that change between
the proposed and final rule due to the
availability of more recent data, such as
the charge inflation factor and the CCR
adjustment factors that can cause
fluctuations in the threshold amount.
Other factors such as changes to the
wage indexes and market basket
increase can also cause the outlier fixedloss cost threshold to fluctuate between
the proposed and final rule each year.
CMS uses the latest data that is available
at the time of the proposed and final
rule, such as the most recent update of
MedPAR claims data and CCRs from the
most recent update of the PSF.
With regard to the commenters
recommendation to use the June 2012
PSF update, this file was not available
in time for the FY 2013 final rule and,
therefore, we used the latest data
available, which was the March 2012
PSF update.
Comment: One commenter was
concerned that CMS did not include
outlier reconciliations in developing the
outlier fixed-loss cost threshold, and its
failure to provide objective data
concerning the number of hospitals that
have been subjected to reconciliation
and the amount recovered during this
process. The commenter searched
Worksheet E, Part A, line 24.99 and line
52 and provided a summary table of
operating outlier dollars (total of
$82,080,928) recovered through the
reconciliation process. The commenter
concluded that absent the disclosure of
data showing that these recoveries were
immaterial, the commenter requested
that CMS consider these recoveries in
its determination of the outlier fixedloss cost threshold.
Response: We received a similar
comment in response to the policies
presented in last year’s rule, and we
appreciate the commenter, again,
informing us of its concern regarding
our policy of not including outlier
reconciliation within the development
of the outlier fixed-loss cost threshold.
However, as stated above, we continue
to believe that, due to the policy
implemented in the June 9, 2003 outlier
final rule (68 FR 34494), CCRs will no
longer fluctuate significantly and,
therefore, few hospitals will actually
have these ratios reconciled upon cost

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report settlement. In addition, it is
difficult to predict the specific hospitals
that will have CCRs and outlier
payments reconciled in any given year.
We also noted that reconciliation occurs
because hospitals’ actual CCRs for the
cost reporting period are different than
the interim CCRs used to calculate
outlier payments when a bill is
processed. Our simulations assume that
CCRs accurately measure hospital costs
based on information available to us at
the time we set the outlier threshold.
For these reasons, we proposed and are
again finalizing our policy not to make
any assumptions about the effects of
reconciliation on the outlier threshold
calculation.
Also, outlier reconciliation is a
function of the cost report and Medicare
contractors record the outlier
reconciliation amount on each
provider’s cost report (and are not
required to report these data to CMS
outside of the cost report settlement
process). Therefore, the outlier
reconciliation data that the commenter
is requesting is publicly available
through the cost report. Since the
effective date of Change Request 7192
on April 1, 2011, we have approved the
reconciliation of outlier payments for
some providers. Other providers that
were flagged for outlier reconciliation
are still under review for approval. In
addition, some providers flagged for
outlier reconciliation may experience a
delay in reconciling their outlier
payments due to circumstances that
prevent the Medicare contractor from
finalizing the hospital’s cost report
(such as other payments that may need
to be reconciled aside from outlier
payments).
We note that we did not receive any
public comments on possible
modifications to our current charge
inflation methodology or the possibility
of looking at a larger time period beyond
6 months to determine the average
charge per case to measure the charge
inflation factor.
Because we are not making any
changes to our methodology for this
final rule, for FY 2013, we are using the
same methodology we proposed to
calculate the outlier threshold for FY
2013 (using the most recent data
available at the time of this final rule).
Using the most recent data available,
we calculated the 1-year average
annualized rate-of-change in charges per
case from the first quarter of FY 2011 in
combination with the second quarter of
FY 2011 (October 1, 2010, through
March 31, 2011) to the first quarter of
FY 2012 in combination with the
second quarter of FY 2012 (October 1,
2011 through March 31, 2011). This

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53695

rate-of-change was 4.24 percent
(1.042411) or 8.94 percent (1.0866203)
over 2 years. As we have done in the
past, we established the final FY 2013
outlier threshold using hospital CCRs
from the March 2012 update to the
PSF—the most recent available data at
the time of this final rule.
For FY 2013, we calculated the CCR
adjustment by using the FY 2011
operating cost per discharge increase in
combination with the actual FY 2011
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. (As
noted above, the FY 2011 actual
(otherwise referred to as ‘‘final’’)
operating market basket percentage
increase reflects historical data, whereas
the published FY 2011 operating market
basket update factor was based on IGI’s
2010 second quarter forecast with
historical data through the first quarter
of 2010. As also noted above, while the
FY 2011 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 2011 published capital
market basket update factor was based
on the FY 2002-based 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 2013, we determined
the adjustment by taking the percentage
increase in the operating costs per
discharge from FY 2009 to FY 2010
(1.0290) from the cost report and
divided it by the final operating market
basket percentage increase from FY
2010 (1.0160). 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 2007 to FY 2008
percentage increase of operating costs
per discharge of 1.0505 divided by the
FY 2008 final operating market basket
percentage increase of 1.0400, and the

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FY 2008 to FY 2009 percentage increase
of operating costs per discharge of
1.0295 divided by FY 2009 final
operating market basket percentage
increase of 1.0260). For FY 2013, we
averaged the differentials calculated for
FY 2008, FY 2009, and FY 2010, which
resulted in a mean ratio of 1.0029. We
multiplied the 3-year average of 1.0029
by the FY 2011 final operating market
basket percentage increase of 1.0270,
which resulted in an operating cost
inflation factor of 2.99 percent or
1.029948. We then divided the
operating cost inflation factor by the 1year average change in charges
(1.042411) and applied an adjustment
factor of 0.988044 to the operating CCRs
from the PSF (calculation performed on
unrounded numbers).
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 2009 to FY 2010
(1.0102) from the cost report and
dividing it by the final capital market
basket percentage increase from FY
2010 (1.010). We repeated this
calculation for 2 prior years to
determine the 3-year average of the rateof-adjusted change in costs between the
capital market basket percentage
increase and the increase in cost per
case from the cost report (the FY 2007
to FY 2008 percentage increase of
capital costs per discharge of 1.0809
divided by the FY 2008 final capital
market basket percentage increase of
1.0150, and the FY 2008 to FY 2009
percentage increase of capital costs per
discharge of 1.0499 divided by the FY
2009 final capital market basket
percentage increase of 1.0150). For FY
2013, we averaged the differentials
calculated for FY 2008, FY 2009, and FY
2010, which resulted in a mean ratio of
1.0332. We multiplied the 3-year
average of 1.0332 by the FY 2010 final
capital market basket percentage
increase of 1.0120, which resulted in a
capital cost inflation factor of 4.56
percent or 1.045567. We then divided
the capital cost inflation factor by the 1year average change in charges
(1.042411) and applied an adjustment
factor of 1.003028 to the capital CCRs
from the PSF (calculation performed on
unrounded numbers). We are using the
same charge inflation factor for the
capital CCRs that was used for the
operating CCRs. The charge inflation
factor is based on the overall billed
charges.
As stated above, for FY 2013, we
applied the final FY 2013 payment rates
and policies using cases from the FY
2011 MedPAR file in calculating the

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final outlier fixed-loss cost threshold for
FY 2013.
As discussed in section III.B.3. of the
preamble of the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50160 and 50161)
and in section III.F. of the preamble of
this final 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 final outlier fixed-loss
cost threshold for FY 2013, it was
necessary to apply this provision by
adjusting the wage index of those
eligible hospitals in a frontier State
when calculating the outlier fixed-loss
cost threshold that results in outlier
payments being 5.1 percent of total
payments for FY 2013. If we did not
take into account this provision, our
estimate of total FY 2013 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.
Also, for this final rule, the
cumulative effect of documentation and
coding that we estimate has occurred is
already reflected within the FY 2011
MedPAR claims data, and we did not
believe there was any need to inflate FY
2011 claims data for any additional
case-mix growth projected to have
occurred since FY 2010.
As discussed above, in our projection
of FY 2013 outlier payments, we did not
make any adjustments for the possibility
that hospitals’ CCRs and outlier
payments may be reconciled upon cost
report settlement. Also, we are
finalizing our proposal to exclude the
hospital VBP payment adjustments and
the hospital readmissions payment
adjustments from the calculation of the
outlier fixed-loss cost threshold.
Using this methodology, we
calculated a final outlier fixed-loss cost
threshold for FY 2013 equal to the
prospective payment rate for the MS–
DRG, plus any IME and DSH payments,
and any add-on payments for new
technology, plus $21,821. We note, that

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the final outlier fixed-loss cost threshold
is $1,089 less than the revised corrected
proposed threshold amount ($23,630)
mentioned above (which used the
correct CCRs from December 2010 PSF
update and properly adjusted the CCRs).
We believe this decrease is attributable
to the reduction in the charge inflation
factor from 14.06 percent in the
proposed rule to 8.94 percent in this
final rule (a reduction of 5.12 percentage
points). A lower charge inflation factor
decreases the projected total outlier
payments. With a decrease in projected
outlier payments, in order for CMS to
meet the 5.1 percent target, it would be
necessary to increase the amount of
outlier payments by reducing the outlier
fixed-loss cost threshold.
In addition, at this time, we are not
finalizing our proposal to make an
adjustment to the standardized amounts
to offset the estimated amount of the
increase in aggregate payments due to
the effect of documentation and coding
that did not reflect real changes in casemix for discharges occurring during FY
2010. Therefore, an increase to the
standardized amount relative to the
proposed rule also decreases the
projected total outlier payments, which
requires a reduction in the outlier fixedloss cost threshold in order to increase
the amount of outlier payments. Also,
the final outlier fixed-loss cost threshold
of $21,821 is $1,369 less than the outlier
fixed-loss cost threshold of $23,190
requested by the commenters above.
Because we are using the most recent
available CCR data to calculate the final
outlier fixed-loss cost threshold and the
final outlier fixed-loss cost threshold is
much lower than the threshold amount
requested by the commenters, as
discussed above, we believe it is
prudent to closely analyze the
commenters’ suggestions on modifying
the methodology to calculate the outlier
fixed-loss cost threshold and how to
improve our estimation of the outlier
payout from prior years after this final
rule so that, if warranted, we can make
any proposals related to these issues in
a future rulemaking.
(2) Other Changes Concerning Outliers
As stated in the FY 1994 IPPS final
rule (58 FR 46348), we establish an
outlier threshold that is applicable to
both hospital inpatient operating costs
and hospital inpatient capital-related
costs. When we modeled the combined
operating and capital outlier payments,
we found that using a common
threshold resulted in a lower percentage
of outlier payments for capital-related
costs than for operating costs. We
project that the thresholds for FY 2013
will result in outlier payments that will

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
statewide average capital CCRs. Again,
the CCRs in Tables 8A and 8B will be
used during FY 2013 when hospitalspecific 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 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,
Operating
2005, which updated Chapter 3, Section
Capital
standardized
20.1.2 of the Medicare Claims
federal rate
amounts
Processing Manual. The manual update
National .....
0.948999
0.936209 covered an array of topics, including
Puerto Rico
0.944760
0.925579 CCRs, reconciliation, and the time value
of money. We encourage hospitals that
We are applying the outlier
are assigned the statewide average
adjustment factors to the FY 2013 rates
operating and/or capital CCRs to work
after removing the effects of the FY 2012 with their fiscal intermediary or MAC
outlier adjustment factors on the
on a possible alternative operating and/
standardized amount.
or capital CCR as explained in Change
To determine whether a case qualifies Request 3966. Use of an alternative CCR
for outlier payments, we apply hospital- developed by the hospital in
specific CCRs to the total covered
conjunction with the fiscal intermediary
charges for the case. Estimated operating or MAC can avoid possible
and capital costs for the case are
overpayments or underpayments at cost
calculated separately by applying
report settlement, thus ensuring better
separate operating and capital CCRs.
accuracy when making outlier payments
These costs are then combined and
and negating the need for outlier
compared with the outlier fixed-loss
reconciliation. We also note that a
cost threshold.
hospital may request an alternative
Under our current policy at § 412.84,
operating or capital CCR ratio at any
we calculate operating and capital CCR
time as long as the guidelines of Change
ceilings and assign a statewide average
Request 3966 are followed.
CCR for hospitals whose CCRs exceed
Additionally, as mentioned above, we
3.0 standard deviations from the mean
published an additional manual update
of the log distribution of CCRs for all
(Change Request 7192) to our outlier
hospitals. Based on this calculation, for
policy on December 3, 2010, which also
hospitals for which the fiscal
updated Chapter 3, Section 20.1.2 of the
intermediary or MAC computes
Medicare Claims Processing Manual.
operating CCRs greater than 1.146 or
The manual update outlines the outlier
capital CCRs greater than 0.166, or
reconciliation process for hospitals and
hospitals for which the fiscal
Medicare contractors. To download and
intermediary or MAC is unable to
view the manual instructions on outlier
calculate a CCR (as described under
reconciliation, we refer readers to the
§ 412.84(i)(3) of our regulations),
CMS Web site: http://www.cms.hhs.gov/
statewide average CCRs are used to
manuals/downloads/clm104c03.pdf.
determine whether a hospital qualifies
(3) FY 2011 and FY 2012 Outlier
for outlier payments. Table 8A listed in
Payments
section VI. of this Addendum (and
available only via the Internet) contains
In the FY 2012 IPPS final rule (76 FR
the statewide average operating CCRs
51795 through 51796), we stated that,
for urban hospitals and for rural
based on available data, we estimated
hospitals for which the fiscal
that actual FY 2011 outlier payments
intermediary or MAC is unable to
would be approximately 4.7 percent of
compute a hospital-specific CCR within actual total MS–DRG payments. This
the above range. Effective for discharges estimate was computed based on
occurring on or after October 1, 2012,
simulations using the FY 2010 MedPAR
these statewide average ratios will
file (discharge data for FY 2010 claims).
replace the ratios posted on the Internet That is, the estimate of actual outlier
at http://www.cms.gov/AcuteInpatient
payments did not reflect actual FY 2011
PPS/FR2012/list.asp#TopOfPage. Table claims, but instead reflected the
8B listed in section VI. of this
application of FY 2011 payment rates
Addendum (and available via the
and policies to available FY 2010
Internet) contains the comparable
claims.

EMCDONALD on DSK67QTVN1PROD with RULES2

equal 5.1 percent of operating DRG
payments and 6.38 percent of capital
payments based on the Federal rate.
In accordance with section
1886(d)(3)(B) of the Act, we are
reducing the FY 2013 standardized
amount by the same percentage to
account for the projected proportion of
payments paid as outliers.
The outlier adjustment factors that are
applied to the standardized amount
based on the FY 2013 outlier threshold
are as follows:

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Our current estimate, using available
FY 2011 claims data, is that actual
outlier payments for FY 2011 were
approximately 4.8 percent of actual total
MS–DRG payments. Thus, the data
indicate that, for FY 2011, the
percentage of actual outlier payments
relative to actual total payments is lower
than we projected for FY 2011.
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 2011 are equal
to 5.1 percent of total MS–DRG
payments.
In the proposed rule, we estimated
that actual outlier payments for FY 2012
will be approximately 6.0 percent of
actual total MS–DRG payments,
approximately 0.9 percentage point
higher than the 5.1 percent we projected
when setting the outlier policies for FY
2012. This estimate of 6.0 percent was
based on simulations using the FY 2011
MedPAR file (discharge data for FY
2011 claims). We note that, similar to
our error in estimating the proposed
outlier fixed-loss cost threshold, this
estimate was incorrect because we
inadvertently used CCRs with an
effective date prior to December 2010.
For this final rule, using the latest CCRs
from the March 2012 update of the PSF,
we estimate that actual outlier payments
for FY 2012 will be approximately 5.0
percent of actual total MS–DRG
payments, approximately 0.1 percentage
point lower than the 5.1 percent we
projected when setting the outlier
policies for FY 2012. This estimate of
5.0 percent is based on simulations
using the FY 2011 MedPAR file
(discharge data for FY 2011 claims).
Comment: Commenters disagreed
with CMS’ use of modeled data versus
actual payment data to compute the
outlier payment percentage for FY 2011.
The commenters stated that they
performed their own analyses using
actual payment information in the
MedPAR file, which resulted in outlier
payments being 4.42 percent of actual
MS–DRG payments for FY 2011. The
commenters recommended that CMS
determine the FY 2011 outlier payment
percentage using actual payments rather
than modeled payments.
The commenters disagreed with CMS’
reasons presented in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50431) for
using modeled data instead of actual
data. In that final rule, CMS supported
its decision to use modeled data in part
because ‘‘while accurate at the time the
MedPAR file is constructed, claims can
be cancelled, edited and resubmitted to
NCH after the MedPAR file is built, and,

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therefore, the payment field shown on
MedPAR is subject to change and does
not necessarily represent the final
payment on that claim.’’ The
commenters stated that while this is
true, the argument applies equally to
modeling payments from the MedPAR
data. The commenters explained that if
a claim is cancelled after the MedPAR
file is built, the modeled payment for
that claim will be included in overall
estimates.
The commenters further noted that, in
the FY 2011 IPPS/LTCH PPS final rule,
CMS expressed concern that SCHs and
MDHs complicate the use of the
payment field shown on the MedPAR
file (75 FR 50431). The commenter
disagreed with CMS and stated that
CMS’ argument is valid for determining
the DRG-based operating payments
needed to calculate outlier payment
levels; however, the SCH/MDH
argument does not apply to outlier
payments. The commenters claimed that
‘‘the PRICER program determines outlier
payments for all hospitals, including
SCH/MDHs, based on the Federal rate
only.’’ The commenters added that ‘‘the
outlier payments are recorded in the
‘‘OUTLIER AMOUNT’’ field (and not
included in the DRG PRICE).’’
Therefore, the commenters asserted that
‘‘obtaining the outlier payments directly
from the MedPAR file does not
introduce complications related to the
SCH/MDH status.’’ Moreover, the
commenters stated, ‘‘that SCH/MDH
hospitals represent a small percent of
hospitals overall.’’
The commenters also believed that
CMS’ estimate is not as accurate as it
could be. The commenter noted that
CMS’ statement in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51796)
indicates that CMS estimated outlier
payments for FY 2010 using a single
CCR. The commenter stated that they
were perplexed that CMS would not use
the actual CCRs utilized in the actual
payment process given that they are
readily available in the PSF.
Using actual payment data, the
commenter computed an outlier payout
of 4.74 percent and 4.13 percent for FY
2009 and FY 2010 respectively, versus
the 5.3 percent and 4.7 percent that
CMS published in the FY 2011 and FY
2012 final rules. The commenter
concluded that using modeled data has
consistently overestimated outlier
payments. The commenter
recommended that CMS publish in the
final rule the outlier percentage for FYs
2009 through 2011 based on actual
payments.
Response: We responded to similar
comments in response to policies
presented in last year’s final rule and

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refer readers to the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51796).
Comment: One commenter was not
aware that in determining the FY 2011
outlier payout, CMS first identifies
SCHs then sums up the total Federal
payments and hospital-specific rate
(HSP) payments and then excludes from
the outlier calculation those SCHs
whose HSP payments were greater than
their Federal payments. Using actual
payments, the commenter performed a
similar edit for SCHs and an edit for
MDHs (by excluding 75 percent of their
standard Federal rate based on MS–DRG
and outlier payments). Using the
payment amounts on the claims, the
commenter determined an outlier
payout of 4.39 percent for FY 2011. The
commenter also modeled the FY 2011
outlier payout by incorporating the
same edit described above for SCHs and
MDHs, and used CCRs that were in
effect during FY 2011 from the March
2012 PSF update, and DSH and IME
factors from the FY 2011 final rule
impact file. The commenter used FY
2011 payment rates and determined a
modeled outlier payout of 4.42 percent
for FY 2011. The commenter noted that
the modeled outlier percentage of 4.42
was very close to the actual outlier
payment percentage of 4.39. The
commenter added that using this model,
an outlier fixed-loss cost threshold of
$20,055 would have resulted in an
outlier payout of 5.1 percent for FY
2011 versus CMS’ final FY 2011 outlier
fixed-loss cost threshold of $23,075
(which represents a 15 percent error in
setting the threshold).
The commenter also used cost report
data from the March 2012 HCRIS update
to analyze the historical actual outlier
payout from 2003 through 2010. To
determine the outlier payout for each
year, the commenter summed up total
MS–DRG payments and outlier
payments for each fiscal year based on
cost report begin dates within the fiscal
year. The commenters stated that CMS
did not meet the 5.1 percent target in
any of these fiscal years.
The commenter also stated that it is
important for CMS to assess how closely
the prior year’s threshold achieved its
target. The commenter explained that if
outlier payments from the prior year
closely approximate the target, unless
there are policy changes imposed by
Congress or the agency or indications
that demographic or public health
factors had an impact on inpatient
service intensity, then there is little
need for dramatic change to the
threshold from the prior year for the
upcoming fiscal year.
The commenter modeled the FY 2012
outlier payout by using FY 2011

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MedPAR data and inflating the charges
by 6.8 percent. The commenter used the
FY 2012 IPPS/LTCH PPS final rule
impact file for payment variables and
FY 2012 payment rules and determined
an outlier payment of 5.8 percent. In the
proposed rule, CMS calculated a 6.0
percent outlier payout for FY 2012. The
commenter believed that the reason for
this high outlier payout is due to the use
of out of date CCRs. The commenter
explained that they used CCRs from the
March 2012 PSF update for the first
three quarters of FY 2012 and projected
forward CCRs by 1 year for the last
quarter of FY 2012. The commenter
noted that the estimate of 5.8 percent
may still be too high because it is
expected that many hospitals will have
their CCRs updated in the last quarter of
FY 2012 due to the delay in filing form
CMS 2552–10 cost reports (and CCRs
tend to trend lower over time which
would lower the threshold). The
commenter noted that this delay
probably impacts the estimated FY 2012
outlier payout because hospitals did not
have their CCR updated in the PSF,
which caused relatively ‘‘older’’ CCRs to
be used for payment of outliers longer
than normal. (These older CCRs
typically are higher than more recent
updated CCRs, which would result in
higher outlier payments during FY
2012.)
Response: We appreciate the
commenter’s analysis above. We believe
it is necessary to annually recompute
the outlier fixed-loss cost threshold
because section 1886(d)(5)(A)(iv) of the
Act requires outlier payments to be not
less than 5 percent nor more than 6
percent of total estimated or projected
payments. Additionally, aside from the
statute, there are many variables such as
the market basket increase, wage index,
charge inflation factor and other
adjustments to the standardized amount
that could affect the outlier fixed-loss
cost threshold from one year to the next,
which warrants an annual recalculation
of the outlier fixed-loss cost threshold
factoring in these changes so that we
can meet our target of a 5.1 percent
outlier payout. However, we recognize
the commenter’s concerns with our
methodology for calculating the outlier
fixed-loss cost threshold and our
calculation of the outlier payout from
prior years. Therefore, as stated above,
we plan to closely analyze the
commenters’ suggestions for modifying
the methodology to calculate the outlier
fixed-loss cost threshold amount and to
improve our estimation of the outlier
payout from prior years after this final
rule so that, if warranted, we can make

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any proposals on these issues in a future
rulemaking.
5. FY 2013 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
applying to all hospitals, except
hospitals located in Puerto Rico, for FY
2013. The Puerto Rico-specific amounts
are shown in Table 1C listed and
published in section VI. of this
Addendum (and available via the
Internet). The amounts shown in Tables
1A and 1B differ only in that the laborrelated 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 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 standardized amounts reflecting the
applicable percentage increase of 1.8
percent for FY 2013, and an update of
¥0.2 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
discharge-weighted average of the
national large urban standardized
amount (this amount is set forth in
Table 1A). The labor-related and
nonlabor-related portions of the national
average standardized amounts for
Puerto Rico hospitals for FY 2013 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 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

53699

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
changes from the FY 2012 national
standardized amount. The second
column shows the changes from the FY
2012 standardized amounts for hospitals
that satisfy the quality data submission
requirement and, therefore, receive the
full update of 1.8 percent. The third
column shows the changes for hospitals
receiving the reduced update of ¥0.2
percent. The first row of the table shows
the updated (through FY 2012) average
standardized amount after restoring the
FY 2012 offsets for outlier payments,
demonstration budget neutrality, the
geographic reclassification budget
neutrality, and the retrospective
documentation and coding adjustment
under section 7(b)(1)(B) of Public Law
110–90. The MS–DRG reclassification
and recalibration wage index budget
neutrality factors are cumulative.
Therefore, those FY 2012 factors are not
removed from this table.

COMPARISON OF FY 2012 STANDARDIZED AMOUNTS TO THE FY 2013 STANDARDIZED AMOUNT WITH FULL AND REDUCED
UPDATE

EMCDONALD on DSK67QTVN1PROD with RULES2

FY 2012 Base Rate, after removing geographic reclassification budget neutrality,
rural community hospital demonstration
program budget neutrality, cumulative FY
2008 and FY 2009 documentation and
coding adjustment, FY 2012 documentation and coding recoupment, and outlier
offset (based on the labor-related share
percentage for FY 2012).
FY 2013 Update Factor .................................
FY 2013 MS-DRG Recalibration and Wage
Index Budget Neutrality Factor.
FY 2013 Reclassification Budget Neutrality
Factor.
FY 2013 Rural Community Demonstration
Program Budget Neutrality Factor.
FY 2013 Operating Outlier Factor .................
Documentation and coding adjustments required under sections 7(b)(1)(A) and
7(b)(1)(B) of Pub. L. 110–90.
National Standardized Amount for FY 2013 ..

The following table illustrates the
changes from the FY 2012 Puerto Ricospecific payment rate for hospitals
located in Puerto Rico. The second
column shows the changes from the FY
2012 Puerto Rico specific payment rate

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Full update
(1.8 percent); wage
index is greater than
1.0000

Full update
(1.8 percent); wage
index is less than or
equal to 1.0000

Reduced update
(¥0.2 percent); wage
index is greater than
1.0000

Reduced Update
(¥0.2 percent); Wage
index is less than or
equal to 1.0000

Labor: $4,060.65 ........
Nonlabor: $1,841.46 ..

Labor: $3,659.31 ........
Nonlabor: $2,242.80 ..

Labor: $4,060.65 ........
Nonlabor: $1,841.46 ..

Labor: $3,659.31.
Nonlabor: $2,242.80.

1.018 ..........................
0.998761 ....................

1.018 ..........................
0.998761 ....................

0.998 ..........................
0.998761 ....................

0.998.
0.998761.

0.991276 ....................

0.991276 ....................

0.991276 ....................

0.991276.

0.999677 ....................

0.999677 ....................

0.999677 ....................

0.999677.

0.948999 ....................
0.9478 ........................

0.948999 ....................
0.9478 ........................

0.948999 ....................
0.9478 ........................

0.948999.
0.9478.

Labor: $3,679.95 ........
Nonlabor: $1,668.81 ..

Labor: $3,316.23 ........
Nonlabor: $2,032.53 ..

Labor: $3,607.65 ........
Nonlabor: $1,636.02 ..

Labor: $3,251.08.
Nonlabor: $1,992.59.

for hospitals with a Puerto Rico-specific
wage index greater than 1.0000. The
third column shows the changes from
the FY 2012 Puerto Rico specific
payment rate for hospitals with a Puerto
Rico-specific wage index less than

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1.0000. The first row of the table shows
the updated (through FY 2012) Puerto
Rico-specific payment rate after
restoring the FY 2012 offsets for Puerto
Rico-specific outlier payments, rural
community hospital demonstration

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program budget neutrality, and the
geographic reclassification budget
neutrality. The MS–DRG recalibration

budget neutrality factor is cumulative
and is not removed from this table.

COMPARISON OF FY 2012 PUERTO RICO-SPECIFIC PAYMENT RATE TO THE FY 2013 PUERTO RICO-SPECIFIC PAYMENT
RATE
Update
(1.8 percent);
wage index is less than or equal
to 1.0000

Update
(1.8 percent); wage index is
greater than 1.0000
FY 2012 Puerto Rico Base Rate, after removing geographic reclassification budget neutrality, the rural community hospital demonstration program budget neutrality, Puerto Rico outlier offset (based on
the Puerto Rico specific labor-related share percentage for FY
2012).
FY 2013 Update Factor ...........................................................................
FY 2013 MS–DRG Recalibration Budget Neutrality Factor ....................
FY 2013 Reclassification Budget Neutrality Factor ................................
FY 2013 Rural Community Hospital Demonstration Program Budget
Neutrality Factor.
FY 2013 Puerto Rico Operating Outlier Factor ......................................
Puerto Rico-Specific Payment Rate for FY 2013 ...................................

B. 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 used to calculate the
prospective payment rates for hospitals
located in the 50 States, the District of
Columbia, and Puerto Rico for FY 2013.
This section addresses two types of
adjustments to the standardized
amounts that are made in determining
the prospective payment rates as
described in this Addendum.
1. Adjustment for Area Wage Levels

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Sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act require that
we make an adjustment to the laborrelated portion of the national and
Puerto Rico prospective payment rates,
respectively, to account for area
differences in hospital wage levels. This
adjustment is made by multiplying the
labor-related portion of the adjusted
standardized amounts by the
appropriate wage index for the area in
which the hospital is located. In section
III. of the preamble of this final rule, we
discuss the data and methodology for
the FY 2013 wage index.
2. Adjustment for Cost-of-Living in
Alaska and Hawaii
Section 1886(d)(5)(H) of the Act
provides discretionary authority to the
Secretary to make ‘‘such adjustments
* * * as the Secretary deems
appropriate’’ to take into account the
unique circumstances of hospitals
located in Alaska and Hawaii. Higher
labor-related costs for these two States

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Labor: $1,643.77 ...........................
Nonlabor: $1,003.21 ......................

Labor: $1,641.13
Nonlabor: $1,005.85.

1.018 ..............................................
0.998431 ........................................
0.991276 ........................................
0.999677 ........................................

1.018.
0.998431.
0.991276.
0.999677.

0.944760 ........................................
Labor: $1,564.17 ...........................
Nonlabor: $954.62 .........................

0.944760.
Labor: $1,561.65
Nonlabor: $957.14.

are taken into account in the adjustment
for area wages described above. To
account for higher nonlabor-related
costs for these two States, we multiply
the nonlabor-related portion of the
standardized amount for hospitals in
Alaska and Hawaii by an adjustment
factor. For FY 2011 and in prior fiscal
years, we used the most recent cost-ofliving adjustment (COLA) factors
obtained from the U.S. Office of
Personnel Management (OPM) Web site
at http://www.opm.gov/oca/cola/rates.
asp to update this nonlabor portion.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28145 and 28146),
we explained that 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. We
further explained in the proposed rule
that, beginning in FY 2012, as OPM
transitioned away from COLAs, we
continued to use the same ‘‘frozen’’
COLA factors (published by OPM) that
we used to adjust payments in FY 2011
(which were based on OPM’s 2009
COLA factors) to adjust the nonlaborrelated portion of the standardized
amount for hospitals located in Alaska
and Hawaii. We refer readers to the FY
2013 IPPS/LTCH PPS proposed rule for
a more detailed discussion of our
rationale for continuing to use the
frozen COLAs.
In the FY 2013 IPPS/LTCH PPS
proposed rule, for FY 2013, we
proposed to continue to use the same
COLA factors that are used to adjust

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payments in FY 2012 (as originally used
to adjust payments in FY 2011, which
are based on OPM’s 2009 COLA factors),
and we also proposed a methodology to
update the COLA factors published by
OPM beginning in FY 2014.
Specifically, we proposed to update the
COLA factors published by OPM that
we used to adjust payments in FY 2011
(which are based on OPM’s 2009 COLA
factors) by using the comparison of the
growth in the overall CPI relative to the
growth in the CPI in Anchorage and
Honolulu to update the COLA
adjustment factors for all areas in Alaska
and Hawaii, respectively. We noted that
OPM’s COLA factors were calculated
with a statutorily mandated cap of 25
percent, and we have exercised our
discretionary authority to adjust Alaska
and Hawaii payments by incorporating
this cap. We again refer readers to the
FY 2013 IPPS/LTCH PPS proposed rule
for a more detailed discussion of our
methodology. Lastly, as we stated in the
proposed rule, we are updating the
COLA factors based on our methodology
every 4 years, at the same time as the
update to the labor-related share of the
IPPS market basket. The labor-related
share of the IPPS market basket is
currently not scheduled to be updated
until FY 2014.
We did not receive any public
comments on this proposal. Therefore,
we are finalizing our proposals without
modification. Specifically, we are
adopting as final our proposed
methodology to update the COLA
factors annually beginning in FY 2014.
We also are finalizing our proposal for
FY 2013 to continue to use the same
COLA factors used to adjust payments

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
in FY 2012. Therefore, the COLA factors
which will be used to adjust the
nonlabor-related portion of the
standardized amount for hospitals
located in Alaska and Hawaii for FY
2013 remain unchanged from FY 2012.
The table below shows the COLA factors
that we are establishing for FY 2013:

FY 2013 COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII
HOSPITALS
Area

Cost of
living adjustment factor

Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by
road ...................................
City of Fairbanks and 80-kilometer (50-mile) radius by
road ...................................
City of Juneau and 80-kilometer (50-mile) radius by
road ...................................
Rest of Alaska .......................
Hawaii:
City and County of Honolulu
County of Hawaii ...................
County of Kauai ....................
County of Maui and County
of Kalawao .........................

1.23
1.23
1.23
1.25
1.25
1.18
1.25
1.25

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C. Calculation of the Prospective
Payment Rates
General Formula for Calculation of the
Prospective Payment Rates for FY 2013
In general, the operating prospective
payment rate for all hospitals paid
under the IPPS located outside of Puerto
Rico, except SCHs, for FY 2013 equals
the Federal rate. (As noted above, due
to the expiration of the MDH program,
beginning with FY 2013, we are not
including MDHs in our discussion of
the update of the hospital-specific rates
for FY 2013.)
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
hospital-specific rate based on the FY
2006 costs per discharge to determine
the rate that yields the greatest aggregate
payment.
The prospective payment rate for
SCHs for FY 2013 equals the higher of
the applicable Federal rate, or the
hospital-specific rate as described
below. The prospective payment rate for
hospitals located in Puerto Rico for FY
2013 equals 25 percent of the Puerto

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Rico-specific payment rate plus 75
percent of the applicable national rate.
1. Federal Rate
The Federal rate is determined as
follows:
Step 1—Select the applicable average
standardized amount depending on
whether the hospital submitted
qualifying quality data (full update for
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
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.D. of the
preamble of this final rule. Finally, the
base-operating DRG payment amount
may be further adjusted by the hospital
readmissions payment adjustment and
the hospital VBP payment adjustment as
described under sections 1886 (q) and
1886(o) of the Act, respectively.
2. Hospital-Specific Rate (Applicable
Only to SCHs)
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

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53701

2006 costs per discharge to determine
the rate that yields the greatest aggregate
payment. For a more detailed discussion
of the calculation of the hospitalspecific rates, we refer readers 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).
We note that, in the FY 2012 IPPS/
LTCH final rule (76 FR 51799), we
finalized an adjustment of 0.9 percent to
the hospital-specific rate (that is, a
factor of 1.009) in light of the Cape Cod
decision. The adjustment is a one-time
permanent adjustment to the hospitalspecific rates.
b. Updating the FY 1982, FY 1987, FY
1996 and FY 2006 Hospital-Specific
Rate for FY 2013
Section 1886(b)(3)(B)(iv) of the Act
provides that the applicable percentage
increase applicable to the hospitalspecific rates for SCHs 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 equal to the update factor for
all other IPPS hospitals, the update to
the hospital-specific rates for SCHs is
subject to the 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
applicable percentage increase to the
hospital-specific rates applicable to
SCHs is 1.8 percent (that is, the FY 2013
estimate of the market basket rate-ofincrease of 2.6 percent less an
adjustment of 0.7 percentage point for
MFP and less 0.1 percentage point) for
hospitals that submit quality data or
¥0.2 percent (that is, the FY 2013
estimate of the market basket rate-ofincrease of 2.6 percent, less 2.0
percentage points for failure to submit
data under the Hospital IQR Program,
less an adjustment of 0.7 percentage
point for MFP, and less 0.1 percentage
point) 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, we refer readers to section
IV.B. of the preamble of this final rule.
In addition, because SCHs use the
same MS–DRGs as other hospitals when
they are paid based in whole or in part
on the hospital-specific rate, the
hospital-specific rate is adjusted by a
budget neutrality factor to ensure that
changes to the MS–DRG classifications
and the recalibration of the MS–DRG
relative weights are made in a manner

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so that aggregate IPPS payments are
unaffected. Therefore, a SCH’s hospitalspecific rate is adjusted by the MS–DRG
reclassification and recalibration budget
neutrality factor of 0.998431, as
discussed in section III. of this
Addendum. The resulting rate is used in
determining the payment rate an SCH
will receive for its discharges beginning
on or after October 1, 2012.
c. Documentation and Coding
Adjustment to the FY 2013 HospitalSpecific Rate for SCHs
As discussed in section II.D. of the
preamble of this final rule, because
hospitals paid based in whole or in part
on the hospital-specific rate (that is,
SCHs and, until October 1, 2012, MDHs)
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
hospital-specific 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 final 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 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 to ensure
rates are not increased in a manner that
does not reflect real changes in casemix, and 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 final rule, we have
determined that a cumulative
adjustment of ¥5.4 percent is required
to eliminate the full effect of changes in
documentation and coding that
occurred in FY 2008 and FY 2009 on
future payments to SCHs. Currently, we
have made cumulative adjustments to

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the hospital-specific rates to account for
4.9 percent of the 5.4 percent effect of
changes in documentation and coding
that occurred in FY 2008 and FY 2009.
(For FY 2011, we established a
prospective adjustment of ¥2.9 percent
to the hospital-specific rates, and, for FY
2012, we established a prospective
adjustment to the hospital-specific rates
of ¥2.0 percent.) In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51499), we
indicated that, because the ¥2.0 percent
adjustment we made in FY 2012 did not
reflect the entire remaining required
adjustment amount of ¥2.5 percent, an
additional ¥0.5 percent adjustment to
the hospital-specific rates would be
required in a future rulemaking.
In this final rule, as we proposed, we
are finalizing a ¥0.5 percent
prospective adjustment to the hospitalspecific rate to account for the
remainder of the 5.4 percent effect of
documentation and coding that
occurred in FY 2008 and FY 2009. We
continue to believe that hospitals paid
based on their hospital-specific rate
(that is, SCHs and, until October 1,
2012, MDHs) had the same opportunity
to benefit from improvements in
documentation and coding that did not
reflect an increase in patient severity,
and we continue to believe that any
resulting adjustments should be applied
similarly to all subsection (d) hospitals,
when possible.
As discussed in section II.D. of the
preamble of this final rule, consistent
with our policy for IPPS hospitals based
upon a review of FY 2010 claims data
using the same methodology, we
proposed to make an additional ¥0.8
percent adjustment to the hospitalspecific rates to account for
documentation and coding that did not
reflect an actual increase in case-mix in
FY 2010. In the proposed rule, we stated
that we believe that a full prospective
adjustment is the most appropriate
means to take into account the effect of
documentation and coding changes on
payments, while maintaining equity as
much as possible between different IPPS
hospitals paid using the MS–DRG
system. Therefore, as discussed in more
detail in the preamble of this final rule,
we proposed a combined adjustment of
¥1.3 percent (¥0.5 percent + ¥0.8
percent) to the hospital-specific rates,
accounting for all documentation and
coding effects observed between FY
2008 though FY 2010.
As discussed in section II.D. of the
preamble of this final rule, we are not
finalizing an additional ¥0.8 percent
adjustment to the FY 2013 hospitalspecific rates to account for
documentation and coding that did not
reflect an actual increase in case-mix in

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FY 2010. However, as stated above, we
are making an adjustment of ¥0.5
percent to the hospital-specific rates,
accounting for all documentation and
coding effects observed during FY 2008
and FY 2009.
3. General Formula for Calculation of
Prospective Payment Rates for Hospitals
Located in Puerto Rico Beginning on or
after October 1, 2012, and before
October 1, 2013
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-Specific Rate
The Puerto Rico-specific prospective
payment rate is determined as follows:
Step 1—Select the applicable average
standardized amount considering the
applicable wage index (obtained from
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 (obtained from 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 Prospective Payment 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 (obtained from 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-specific
rate and the national prospective
payment rate computed above equals

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the prospective payment for a given
discharge for a hospital located in
Puerto Rico. This rate is then further
adjusted if the hospital qualifies for
either the IME or DSH adjustment.
III. Changes to Payment Rates for Acute
Care Hospital Inpatient Capital-Related
Costs for FY 2013
The PPS for acute care hospital
inpatient capital-related costs was
implemented for cost reporting periods
beginning on or after October 1, 1991.
Effective with that cost reporting period,
hospitals were paid during a 10-year
transition period (which extended
through FY 2001) to change the
payment methodology for Medicare
acute care hospital inpatient capitalrelated costs from a reasonable costbased 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 capital Federal rate for FY
2013, which is effective for discharges
occurring on or after October 1, 2012.
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 exceptions
under § 412.348. (We note that, as
discussed below in section III.A.4. of
this Addendum, there is no longer a
need for an exceptions payment
adjustment factor.) 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

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DRG weights and changes in the
geographic adjustment factor (GAF) are
budget neutral.
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.
Effective October 1, 2004, in accordance
with section 504 of Public Law 108–173,
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 25
percent of the applicable standardized
amount specific to Puerto Rico hospitals
and 75 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, 2004, we also revised the
methodology for computing capital
payments made to hospitals located in
Puerto Rico to be based on a blend of
25 percent of the Puerto Rico capital
rate and 75 percent of the national
capital Federal rate (69 FR 49185).
A. Determination of Federal Hospital
Inpatient Capital-Related Prospective
Payment Rate Update
In the discussion that follows, we
explain the factors that we used to
determine the capital Federal rate for FY
2013. In particular, we explain why the
FY 2013 capital Federal rate increases
approximately 1.0 percent, compared to
the FY 2012 capital Federal rate. As
discussed in the impact analysis in
Appendix A to this final rule, we
estimate that capital payments per
discharge will increase 1.8 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

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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 update factor for FY
2013 under that framework is 1.2
percent based on the best data available
at this time. The update factor under
that framework is based on a projected
1.2 percent increase in the CIPI, a 0.0
percent adjustment for intensity, a 0.0
percent adjustment for case-mix, a 0.0
percent adjustment for the FY 2011 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 2013 CIPI projection in that same
section of this Addendum. (We note
that, as discussed in section V.C. of the
preamble of this final rule, at this time,
we are not finalizing our proposal to
apply a ¥0.8 percent adjustment to the
capital Federal rate in FY 2013 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
applying in the update framework for
FY 2013.
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’’ casemix change);
• Changes in hospital documentation
and coding of patient records result in
higher weighted 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

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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 to the FY 2006
IPPS final rule (70 FR 47707).)
For FY 2013, we are projecting a 0.5
percent total increase in the case-mix
index. We estimated that the real casemix increase will also equal 0.5 percent
for FY 2013. The 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 net
adjustment for case-mix change in FY
2013 is 0.0 percentage point.
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 indexrelated changes other than those due to
patient severity of illness. Due to the lag
time in the availability of data, there is
a 2-year 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 2011 DRG
reclassification and recalibration as part
of our update for FY 2013. We estimate
that FY 2011 DRG reclassification and
recalibration resulted in no change in
the case-mix when compared with the
case-mix index that would have resulted
if we had not made the reclassification
and recalibration changes to the DRGs.
Therefore, we are making a 0.0 percent
adjustment for reclassification and
recalibration in the update framework
for FY 2013.
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 0.0 percentage point
was calculated for the FY 2013 update.

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That is, current historical data indicate
that the forecasted FY 2011 CIPI (1.2
percent) used in calculating the FY 2011
update factor is the same as the actual
realized price increases (1.2 percent).
Because we estimate forecast error for
the FY 2011 CIPI, we are making a 0.0
percent adjustment for forecast error in
the update for FY 2013.
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 discharge. This component
accounts for changes in the use of
quality-enhancing services, for changes
within DRG severity, and for expected
modification of practice patterns to
remove noncost-effective services. Our
intensity measure is based on a 5-year
average.
We calculate case-mix constant
intensity as the change in total cost per
discharge, adjusted for price level
changes (the CIPI for hospital and
related services) and changes in real
case-mix. Without reliable estimates of
the proportions of the overall annual
intensity increases that are due,
respectively, to ineffective practice
patterns and the combination of qualityenhancing 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 qualityenhancing technology.
In this final rule, we are continuing to
use a Medicare-specific intensity
measure that is based on a 5-year
adjusted average of cost per discharge
for FY 2013 (we refer readers to the FY
2011 IPPS/LTCH PPS final rule (75 FR
50436) for a full description of our
Medicare-specific intensity measure).
Specifically, for FY 2013, we are using
an intensity measure that is based on an
average of cost per discharge data from
the 5-year period beginning with FY
2005 and extending through FY 2010.
Based on these data, we estimated that
case-mix constant intensity declined
during FYs 2005 through 2010. In the
past, when we found intensity to be
declining, we believed a zero (rather
than a negative) intensity adjustment
was appropriate. Consistent with this
approach, because we estimate that

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intensity declined during that 5-year
period, we believe it is appropriate to
continue to apply a zero intensity
adjustment for FY 2013. Therefore, we
are making a 0.0 percent adjustment for
intensity in the update for FY 2013.
Above, we described the basis of the
components used to develop the 1.2
percent capital update factor under the
capital update framework for FY 2013 as
shown in the table below.

CMS FY 2013 UPDATE FACTOR TO
THE CAPITAL FEDERAL RATE
Capital Input Price Index ....................
Intensity ..............................................
Case-Mix Adjustment Factors:
Real Across DRG Change ..............
Projected Case-Mix Change ...........

1.2
0.0
¥0.5
0.5

Subtotal .......................................
Effect of FY 2011 Reclassification
and Recalibration ............................
Forecast Error Correction ...................

1.2
0.0
0.0

Total Update ................................

1.2

b. Comparison of CMS and MedPAC
Update Recommendation
In its March 2012 Report to Congress,
MedPAC did not make a specific update
recommendation for capital IPPS
payments for FY 2013. (We refer readers
to MedPAC’s Report to the Congress:
Medicare Payment Policy, March 2012,
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 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 2012, we estimated that outlier
payments for capital would equal 6.18
percent of inpatient capital-related
payments based on the capital Federal
rate in FY 2012. 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 6.38 percent for inpatient capitalrelated payments based on the capital
Federal rate in FY 2013. Therefore, we
are applying an outlier adjustment

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factor of 0.9362 in determining the
capital Federal rate for FY 2013. Thus,
we estimate that the percentage of
capital outlier payments to total capital
Federal rate payments for FY 2013 will
be somewhat higher than the percentage
for FY 2012. This increase in estimated
capital outlier payments is primarily
due to the decrease in the outlier
threshold used to identify outlier cases
for both inpatient operating and
inpatient capital-related payments,
which is discussed in section II.A. of
this Addendum. That is, because the
outlier threshold used to identify outlier
cases is lower, cases will receive higher
outlier payments and more cases will
qualify for outlier payments.
The outlier reduction factors are not
built permanently into the capital rates;
that is, they are not applied
cumulatively in determining the capital
Federal rate. The FY 2013 outlier
adjustment of 0.9362 is a ¥0.21 percent
change from the FY 2012 outlier
adjustment of 0.9382. Therefore, the net
change in the outlier adjustment to the
capital Federal rate for FY 2013 is
0.9976 (0.9362/0.9382). Thus, the
outlier adjustment will decrease the FY
2013 capital Federal rate by 0.21 percent
compared to the FY 2012 outlier
adjustment.
3. Budget Neutrality Adjustment Factor
for Changes in DRG Classifications and
Weights and the GAF
Section 412.308(c)(4)(ii) requires that
the capital Federal rate be adjusted so
that aggregate payments for the fiscal
year based on the capital Federal rate
after any changes resulting from the
annual DRG reclassification and
recalibration and changes in the GAF
are projected to equal aggregate
payments that would have been made
on the basis of the capital Federal rate
without such changes. Because we
implemented a separate GAF for Puerto
Rico, we apply separate budget
neutrality adjustments for the national
GAF and the Puerto Rico GAF. We
apply the same budget neutrality factor
for 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.
To determine the factors for FY 2013,
we compared (separately for the
national capital rate and the Puerto Rico
capital rate) estimated aggregate capital
Federal rate payments based on the FY
2012 MS–DRG classifications and
relative weights and the FY 2012 GAF
to estimated aggregate capital Federal
rate payments based on the FY 2012
MS–DRG classifications and relative

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weights and the FY 2013 GAFs. To
achieve budget neutrality for the
changes in the national GAFs, based on
calculations using updated data, we are
applying an incremental budget
neutrality adjustment factor of 1.0003
for FY 2013 to the previous cumulative
FY 2012 adjustment factor of 0.9908,
yielding an adjustment factor of 0.9911,
through FY 2013. For the Puerto Rico
GAFs, we are applying an incremental
budget neutrality adjustment factor of
1.0056 for FY 2013 to the previous
cumulative FY 2012 adjustment factor
of 1.0043, yielding a cumulative
adjustment factor of 1.0100 through FY
2013.
We then compared estimated
aggregate capital Federal rate payments
based on the FY 2012 MS–DRG relative
weights and the FY 2013 GAFs to
estimate aggregate capital Federal rate
payments based on the cumulative
effects of the FY 2013 MS–DRG
classifications and relative weights and
the FY 2013 GAFs. The incremental
adjustment factor for DRG
classifications and changes in relative
weights is 0.9996 both nationally and
for Puerto Rico. The cumulative
adjustment factors for MS–DRG
classifications and changes in relative
weights and for changes in the GAFs
through FY 2013 are 0.9904 nationally
and 1.0095 for Puerto Rico. We note that
all the values are calculated with
unrounded numbers.
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 MS–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 MS–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 2012, we established a GAF/
DRG budget neutrality adjustment factor
of 1.0004 (76 FR 51803). For FY 2013,
we are establishing a GAF/DRG budget
neutrality adjustment factor of 0.9998.
The GAF/DRG budget neutrality
adjustment factors are built permanently
into the capital rates; that is, they are

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53705

applied cumulatively in determining the
capital Federal rate. This follows the
requirement that estimated aggregate
payments each year be no more or less
than they would have been in the
absence of the annual DRG
reclassification and recalibration and
changes in the GAFs. The incremental
change in the adjustment factor from FY
2012 to FY 2013 is 0.9998. The
cumulative change in the capital
Federal rate due to this adjustment is
0.9904 (the product of the incremental
factors for FYs 1995 through 2012 and
the incremental factor of 0.9998 for FY
2013). (For a historical listing of the
DRG and GAF budget neutrality
adjustment factors, we refer readers to
section III. of the Addendum to the FY
2012 IPPS/LTCH PPS final rule (76 FR
51803).)
The factor accounts for the MS–DRG
reclassifications and recalibration and
for changes in the GAFs. It also
incorporates the effects on the GAFs of
FY 2013 geographic reclassification
decisions made by the MGCRB
compared to FY 2012 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.
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, as discussed in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51804), 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). Therefore, beginning
with FY 2012, there is no longer a need
for an exceptions payment adjustment
factor.

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5. Capital Federal Rate for FY 2013
For FY 2012, we established a capital
Federal rate of $421.42 (76 FR 51804).
We are establishing an update of 1.2
percent in determining the FY 2013
capital Federal rate for all hospitals. (As
discussed in greater detail in section
V.E. of the preamble of this final rule,
at this time we are not adopting our
proposal to make an additional ¥0.8
percent adjustment to the national
capital Federal rate in FY 2013 to
account for the effect of changes in casemix resulting from documentation and
coding changes that do not reflect real
changes in the case-mix in light of the
adoption of MS–DRGs. However, the
cumulative documentation and coding
adjustment factor of 0.9479 applied in
determining the FY 2012 capital Federal
rate remains applied to that rate. As a
result of the 1.2 percent update and
other budget neutrality factors discussed
above, we are establishing a national

capital Federal rate of $425.49 for FY
2013. The national capital Federal rate
for FY 2013 was calculated as follows:
• The FY 2013 update factor is
1.0120, that is, the update is 1.2 percent.
• The FY 2013 budget neutrality
adjustment factor that is applied to the
capital Federal rate for changes in the
MS–DRG classifications and relative
weights and changes in the GAFs is
0.9998.
• The FY 2013 outlier adjustment
factor is 0.9362.
Because the 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
making additional adjustments in the
capital Federal rate for these factors,
other than the budget neutrality factor
for changes in the MS–DRG
classifications and relative weights and
for changes in the GAFs. (As discussed

in section III.A.4. of this Addendum,
there is no longer a need for an
exceptions payment adjustment factor
in determining the capital Federal rate.)
We are providing the following chart
that shows how each of the factors and
adjustments for FY 2013 affects the
computation of the FY 2013 national
capital Federal rate in comparison to the
FY 2012 national capital Federal rate.
The FY 2013 update factor has the effect
of increasing the capital Federal rate by
1.2 percent compared to the FY 2012
capital Federal rate. The GAF/DRG
budget neutrality adjustment factor has
the effect of decreasing the capital
Federal rate by 0.02 percent. The FY
2013 outlier adjustment factor has the
effect of decreasing the capital Federal
rate by 0.21 percent compared to the FY
2012 capital Federal rate. The combined
effect of all the changes will increase the
national capital Federal rate by 0.97
percent compared to the FY 2012
national capital Federal rate.

COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2012 CAPITAL FEDERAL RATE AND FY 2013 CAPITAL FEDERAL RATE
FY 2012
Update Factor 1 ................................................................................................................
GAF/DRG Adjustment Factor 1 ........................................................................................
Outlier Adjustment Factor 2 ..............................................................................................
Capital Federal Rate ........................................................................................................

1.0150
1.0040
0.9382
$421.42

FY 2013
1.0120
0.9998
0.9362
$425.49

Change
1.0120
0.9998
1.0019
1.0097

Percent
change
1.20
¥0.02
¥0.21
0.97

1 The update factor and the GAF/DRG budget neutrality adjustment factors are built permanently into the capital Federal rates. Thus, for example, the incremental change from FY 2012 to FY 2013 resulting from the application of the 0.9998 GAF/DRG budget neutrality adjustment factor
for FY 2013 is a net change of 0.9998 (or ¥0.02 percent).
2 The outlier reduction factor is not built permanently into the capital Federal rate; that is, the factor is not applied cumulatively in determining
the capital Federal rate. Thus, for example, the net change resulting from the application of the FY 2013 outlier adjustment factor is 0.9362/
0.9382, or 0.9979 (or ¥0.21 percent).

In this final rule, we also are
providing the following chart that
shows how the final FY 2013 capital

Federal rate differs from the proposed
FY 2013 capital Federal rate as

presented in the FY 2013 IPPS/LTCH
PPS proposed rule.

COMPARISON OF FACTORS AND ADJUSTMENTS: PROPOSED FY 2013 CAPITAL FEDERAL RATE AND FINAL FY 2013
CAPITAL FEDERAL RATE
Proposed *
FY 2013
Update Factor ..................................................................................................................
GAF/DRG Adjustment Factor ..........................................................................................
Outlier Adjustment Factor ................................................................................................
MS–DRG Documentation and Coding Adjustment Factor ..............................................
Capital Federal Rate ........................................................................................................

1.0130
1.0002
0.9357
0.9404
$422.47

Final FY
2013
1.0120
0.9998
0.9362
0.9479
$425.49

Change
0.9990
0.9997
1.0005
1.0080
1.0071

Percent
change
¥0.10
¥0.03
0.05
0.80
0.71

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* The proposed FY 2013 capital Federal rate reflects the correction to the outlier adjustment factor presented in the FY 2013 IPPS/LTCH PPS
correction notice (77 FR 34328).

6. Special Capital Rate for Puerto Rico
Hospitals
Section 412.374 provides for the use
of a blended payment system for
payments made to hospitals located in
Puerto Rico under the PPS for acute care
hospital inpatient capital-related costs.
Accordingly, under the capital PPS, we

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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,
beginning with discharges occurring on
or after October 1, 2004, capital
payments made to hospitals located in

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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).

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To adjust hospitals’ capital payments
for geographic variations in capital
costs, we apply a GAF to both portions
of the blended capital rate. The GAF is
calculated using the operating IPPS
wage index, and varies depending on
the labor market area or rural area in
which the hospital is located. We use
the Puerto Rico wage index to determine
the GAF for the Puerto Rico part of the
capital-blended 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
adjustment factors for the national GAF
and for the Puerto Rico GAF. However,
we apply the same budget neutrality
adjustment factor for MS–DRG
reclassifications and recalibration
nationally and for Puerto Rico. The
budget neutrality adjustment factors for
the national GAF and for the Puerto
Rico GAF, and the budget neutrality
factor for MS–DRG reclassifications and
recalibration (which is the same
nationally and for Puerto Rico) is
discussed above in section III.A.3. of
this Addendum.
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).
For FY 2012, the special capital rate
for hospitals located in Puerto Rico was
$203.86 (76 FR 51805). With the
changes we are making to the other
factors used to determine the capital
Federal rate, the FY 2013 special capital
rate for hospitals in Puerto Rico is
$207.25.
B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY
2013
For purposes of calculating payments
for each discharge during FY 2013, the
capital 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

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each fiscal year. Section 412.312(c)
provides for a single set of thresholds to
identify outlier cases for both inpatient
operating and inpatient capital-related
payments. The outlier thresholds for FY
2013 are in section II.A. of this
Addendum. For FY 2013, 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 fixed-loss amount of
$21,821.
Currently, as provided under
§ 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
fixed-weight 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 weightedaverage of past capital purchase prices
up to and including the current year.
We periodically update the base year
for the operating and capital input price
indexes to reflect the changing
composition of inputs for operating and
capital expenses. In 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 2013
Based on the latest forecast by IHS
Global Insight, Inc. (second quarter of
2012), we are forecasting the FY 2006based CIPI to increase 1.2 percent in FY
2013. This reflects a projected 1.8

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percent increase in vintage-weighted
depreciation prices (building and fixed
equipment, and movable equipment),
and a projected 1.9 percent increase in
other capital expense prices in FY 2013,
partially offset by a projected 2.3
percent decline in vintage-weighted
interest expenses in FY 2013. The
weighted average of these three factors
produces the 1.2 percent increase for the
FY 2006-based CIPI as a whole in FY
2013.
IV. Changes to Payment Rates for
Excluded Hospitals: Rate-of-Increase
Percentages
Historically, hospitals and hospital
units excluded from the prospective
payment system received payment for
inpatient hospital services they
furnished on the basis of reasonable
costs, subject to a rate-of-increase
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-ofincrease 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 rateof-increase ceiling based on the
hospital’s own historical cost
experience. (We note that, in accordance
with § 403.752(a), RNHCIs are also
subject to the rate-of-increase limits
established under § 413.40 of the
regulations.)
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 27998), we
proposed that the FY 2013 rate-ofincrease percentage for updating the
target amounts for cancer and children’s
hospitals and RNHCIs would be the
estimated percentage increase in the FY
2013 IPPS operating market basket, in
accordance with applicable regulations
at § 413.40. In the proposed rule, we
estimated the percentage increase in the
FY 2013 IPPS operating market basket to
be 3.0 percent (that is, the estimate of
the market basket rate-of-increase).
Based on IHS Global Insight, Inc.’s 2012

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first quarter forecast, with historical
data through the 2011 fourth quarter, we
estimated the IPPS operating market
basket update would be 3.0 percent for
FY 2013. However, we proposed 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 2013. Therefore,
based on IHS Global Insight, Inc.’s 2012
second quarter forecast, with historical
data through the 2012 first quarter, we
estimate that the final FY 2013 update
to the IPPS operating market basket is
2.6 percent. For cancer and children’s
hospitals and RNHCIs, the final FY 2013
rate-of-increase percentage that will be
applied to the FY 2012 target amounts
in order to determine the final FY 2013
target amount is 2.6 percent.
IRFs, IPFs, and LTCHs were
previously paid under the reasonable
cost methodology. However, the statute
was amended to provide for the
implementation of prospective payment
systems for IRFs, IPFs, and LTCHs. In
general, the prospective payment
systems for IRFs, IPFs, and LTCHs
provide transitioning periods of varying
lengths of time during which a portion
of the prospective payment was based
on cost-based reimbursement rules
under 42 CFR Part 413 (certain
providers do not receive a transition
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 final rule for the
update changes to the Federal payment
rates for LTCHs under the LTCH PPS for
FY 2013. The annual updates for the IRF
PPS and the IPF PPS are issued by the
agency in separate Federal Register
documents.
V. Changes to the Payment Rates for the
LTCH PPS for FY 2013

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A. LTCH PPS Standard Federal Rate for
FY 2013
1. Background
In section VII. of the preamble of this
final rule, we discuss our changes to the
payment rates, factors, and specific
policies under the LTCH PPS for FY
2013.
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

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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.
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 update 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 made an adjustment for 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). For FY 2012, we
updated the standard Federal rate by the
most recent estimate of the LTCH PPS
market basket at that time, including
additional statutory adjustments
required by section 1886(m)(3)(A) of the
Act.
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 described in section
1886(b)(3)(B)(xi)(II) of the Act (which

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we refer to as ‘‘the multifactor
productivity (MFP) adjustment’’) as
discussed in section VII.D.2.d. of the
preamble of this final rule.
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.D.2.d. of the preamble of this
final 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 use the term
‘‘fiscal year’’ rather than ‘‘rate year’’ for
2011 and subsequent years.)
For FY 2012, 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 of 2.9
percent and the 1.1 percentage point
reductions required by sections
1886(m)(3)(A)(i) and (m)(4)(C) of the
Act. Accordingly, at § 412.523(c)(3)(viii)
of the regulations, we established an
annual update of 1.8 percent to the
standard Federal rate for FY 2012 (76 FR
51769 through 51771 and 51807).
In this final rule, for FY 2013, as
discussed in greater detail in section
VII.D.2. of the preamble of this final
rule, we are establishing an annual
update to the LTCH PPS standard
Federal rate based on the full estimated
increase in the LTCH PPS market
basket, less the MFP adjustment
consistent with section 1886(m)(3)(A)(i)
of the Act and less the 0.1 percentage
point required by sections
1886(m)(3)(A)(ii) and (m)(4)(C) of the
Act. Specifically, in this final rule,
based on the best available data, we are
establishing an annual update to the
standard Federal rate of 1.8 percent,
which is based on the full estimated
increase in the LTCH PPS market basket
of 2.6 percent, less the MFP adjustment
of 0.7 percentage point consistent with
section 1886(m)(3)(A)(i) of the Act and
less the 0.1 percentage point required by
sections 1886(m)(3)(A)(ii) and (m)(4)(C)
of the Act.
2. Development of the FY 2013 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

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basket, including any statutory
adjustments. Consistent with our
historical practice, we applied the
annual update to the LTCH PPS
standard Federal rate from the previous
year. In determining the standard
Federal rate for FY 2013, we also made
certain regulatory adjustments.
Specifically, we made a one-time
prospective adjustment to the standard
Federal rate under § 412.523(d)(3), as
discussed in greater detail in section
VII.E.4. of the preamble of this final rule
(which will not be applicable to
payments for discharges occurring prior
to December 29, 2012, consistent with
the statute. In addition, in determining
the FY 2013 standard Federal rate, we
applied a budget neutrality adjustment
factor for the changes related to the area
wage adjustment (that is, changes to the
wage data and labor-related share) in
accordance with § 412.523(d)(4).
In the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51769 through 51771 and
51807), we established an annual
update to the LTCH PPS standard
Federal rate of 1.8 percent for FY 2012
based on the full estimated LTCH PPS
market basket increase of 2.9 percent,
less the MFP adjustment of 1.0
percentage point consistent with section
1886(m)(3)(A)(i) of the Act and less the
0.1 percentage point required by
sections 1886(m)(3)(A)(ii) and (m)(4)(C)
of the Act. Accordingly, at
§ 412.523(c)(3)(viii), we established an
annual update to the standard Federal
rate for FY 2012 of 1.8 percent. That is,
we applied an update factor of 1.018 to
the FY 2011 Federal rate of $39,599.95
to determine the FY 2012 standard
Federal rate. Furthermore, for FY 2012,
we applied an area wage level budget
neutrality factor of 0.99775 to the
standard Federal rate to ensure that any
changes to the area wage level
adjustment (that is, the 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 established a standard
Federal rate for FY 2012 of $40,222.05
(calculated as $39,599.95 × 1.018 ×
0.99775), which is applicable to LTCH
PPS discharges occurring on or after
October 1, 2011, through September 30,
2012.
In the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28153), we
proposed to establish an annual update
to the LTCH PPS standard Federal rate
of 2.1 percent for FY 2013, based on the
full estimated increase in the proposed
LTCH PPS market basket of 3.0 percent
less the proposed MFP adjustment of 0.8
percentage point, consistent with
section 1886(m)(3)(A)(i) of the Act, and

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less the 0.1 percentage point required by
sections 1886(m)(3)(A)(ii) and(m)(4)(C)
of the Act. Therefore, under proposed
§ 412.523(c)(3)(ix)(A), we proposed to
apply a factor of 1.021 to the FY 2012
standard Federal rate of $40,222.05 (as
established in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51807)) to
determine the proposed FY 2013
standard Federal rate. In that same
proposed rule, we also proposed that
the standard Federal rate for FY 2013
would be further adjusted by the
proposed one-time prospective
adjustment factor for FY 2013 of
0.98734 under proposed § 412.523(d)(3)
(ii)(which would not be applicable to
payments for discharges occurring prior
to December 29, 2012, consistent with
the statute). In addition, for FY 2013, we
proposed to apply an area wage level
budget neutrality factor of 0.99903 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, that same
proposed rule, we proposed to establish
a standard Federal rate for FY 2013 of
$40,507.48 (calculated as $40,222.05 ×
1.021 × 0.98734 × 0.99903).
Furthermore, consistent with the
statute, the proposed one-time
prospective adjustment to the standard
Federal rate for FY 2013 of 0.98734
would not apply to payments for
discharges occurring before December
29, 2012. Therefore, we proposed that
payment for discharges occurring on or
after October 1, 2012 and on or before
December 28, 2012, would not reflect
that proposed adjustment and instead
would be paid based on a standard
Federal rate of $41,026.88 (calculated as
$40,507.48 divided by 0.98734).
Comment: One commenter stated that
the proposed update to the standard
Federal rate for FY 2013 did not take
into account the expected ‘‘across the
board 2-percent payment cut or
sequester’’ that will be effective in
January 2013 under current law. In light
of the impending sequester, the
commenter recommended that CMS
vacate the implementation of the
proposed MFP adjustment and the 0.1
percentage point reduction required by
sections 1886(m)(3)(A)(ii) and(m)(4)(C)
of the Act, as well as the proposed onetime prospective adjustment of
approximately ¥1.3 percent. Another
commenter requested that CMS provide
guidance on how CMS will implement
the 2-percent sequestration reduction to
Medicare payment to LTCHs that will

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take effective in January 2013, as
required under current law.
Response: Section 1886(m)(3)(A) of
the 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
1886(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’’) described in section
1886(b)(3)(B)(xi)(II) of the Act.
Specifically, for FY 2013, section
1886(m)(3)(A)(i) of the Act requires that
any annual update to the standard
Federal rate be reduced by the
productivity adjustment (‘‘the MFP
adjustment’’) described in section
1886(b)(3)(B)(xi)(II) of the Act, and
sections 1886(m)(3)(A)(ii) and
1886(m)(4)(C) of the Act require that any
annual update to the standard Federal
rate be reduced by 0.1 percentage point.
Therefore, we are not adopting the
commenter’s suggestion to not apply
these statutorily required adjustments in
determining the FY 2013 standard
Federal rate. In section VII.E.4. of the
preamble of this final rule, we discuss
and provide responses to the public
comments we received on our proposal
to apply a one-time prospective
adjustment of approximately ¥1.3
percent in determining the FY 2013
standard Federal rate. For the reasons
discussed in that section, we continue
to believe it is appropriate to apply a
one-time prospective adjustment to the
standard Federal rate for FY 2013, and
therefore are not adopting the
commenter’s suggestion to vacate the
application of that adjustment.
We are not addressing the
implementation of the spending
reductions (sequestration order)
required by Public Law 112–25 (the
Budget Control Act of 2011) in this final
rule as those provisions would impact
Medicare payments across settings, and
not just affect LTCH PPS payments.
In this final rule, for FY 2013, as
noted above and as discussed in greater
detail in section VII.D.2. of the preamble
of this final rule, consistent with our
historical practice, we are establishing
an annual update to the LTCH PPS
standard Federal rate of 1.8 percent,
based on the full estimated increase in
the LTCH PPS market basket of 2.6
percent less the MFP adjustment of 0.7
percentage point consistent with section
1886(m)(3)(A)(i) and less the 0.1
percentage point required by sections
1886(m)(3)(A)(ii) and(m)(4)(C) of the

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Act. Furthermore, as discussed in
section VII.E.4. of the preamble of this
final rule, in determining the standard
Federal rate for FY 2013, we are making
a one-time prospective adjustment to
the standard Federal rate under
§ 412.523(d)(3) of approximately ¥1.3
percent (which will not be applicable to
payments for discharges occurring prior
to December 29, 2012, consistent with
the statute).
In this final rule, under
§ 412.523(c)(3)(ix)(A), we applied a
factor of 1.018 to the FY 2012 standard
Federal rate of $40,222.05 (as
established in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51807)) to
determine the FY 2013 standard Federal
rate. In addition, as discussed in section
VII.E.4. of the preamble of this final
rule, the standard Federal rate is further
adjusted by the one-time prospective
adjustment factor of 0.98734 for FY
2013 under § 412.523(d)(3)(ii). However,
consistent with the statute, we specify at
§ 412.523(c)(3)(ix)(B) that, for payments
for discharges occurring on or after
October 1, 2012, and before December
29, 2012, payments are based on the
standard Federal rate in paragraph
(c)(3)(ix)(A) of this section without
regard to the one-time prospective
adjustment provided for under
§ 412.523(d)(3)(ii). In addition, as
discussed in greater detail in section
V.B.5. of this Addendum, for FY 2013,
we applied an area wage level budget
neutrality factor of 0.999265 to the
standard Federal rate to ensure that any
changes to the area wage level
adjustment (that is, the 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, in this final rule, under
§ 412.523(c)(3)(ix)(A), we established a
standard Federal rate for FY 2013 of
$40,397.96 (calculated as $40,222.05 ×
1.018 × 0.98734 × 0.999265).
Furthermore, consistent with section
114(c)(4) of the MMSEA, as amended by
sections 3106(a) and 10312 of the
Affordable Care Act, the one-time
prospective adjustment to the standard
Federal rate for FY 2013 of 0.98734 will
not be applied to payments for
discharges occurring before December
29, 2012. Therefore, payment for
discharges occurring on or after October
1, 2012, and on or before December 28,
2012, will not reflect this adjustment
and instead will be paid based on a
standard Federal rate of $40,915.95
(calculated as $40,397.96 divided by
0.98734).

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B. Adjustment for Area Wage Levels
Under the LTCH PPS for FY 2013
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.
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 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 56015 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.

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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) (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.
(The OMB bulletin is available on the
OMB Web site at http://
www.whitehouse.gov/OMB. Go to
‘‘Agency Information’’ and click on
‘‘Bulletins’’.) 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 adopted their
continued use for FY 2012 (76 FR
51808).
In 2013, OMB plans to announce new
area delineations based on its 2010
standards (75 FR 37246) and the 2010
Census data. We did not receive any
public comments on our proposal.
Therefore, in this final rule, consistent
with our proposal, for the FY 2013 area
wage adjustment, we will continue to
use the same labor market areas that we
adopted for FY 2012.
3. LTCH PPS Labor-Related Share
Under the adjustment for differences
in area wage levels at § 412.525(c), the
labor-related 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

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the labor-related portion of operating
costs (Wages and Salaries, Employee
Benefits, Professional Fees: LaborRelated, Administrative and Business
Support Services, and All-Other: LaborRelated Services) and a labor-related
portion of capital costs using the
applicable LTCH PPS market basket.
For FY 2012, we revised and rebased
the market basket used under the LTCH
PPS by adopting the newly created FY
2008-based RPL market basket.
Accordingly, the current LTCH PPS
labor-related share is based on the
relative importance of the labor-related
share of operating costs and capital
costs of the RPL market basket based on
FY 2008 data, as those were the best
available data at that time that reflected
the cost structure of LTCHs. For FY
2012, we established a labor-related
share of 70.199 percent based on the
best available data at that time from the
FY 2008-based RPL market basket for
FY 2012 (76 FR 51766 through 51769
and 51808). (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).)
As discussed in section VII.C. of the
preamble of this final rule, we are
revising and rebasing the market basket
used under the LTCH PPS by adopting
the newly created FY 2009-based LTCHspecific market basket. As we proposed,
in this final rule, we determined the
labor-related share for FY 2013 as the
sum of the FY 2013 relative importance
of each labor-related cost category of the
FY 2009-based LTCH-specific market
basket. Consistent with the current
labor-related share determined from the
relative importance of each labor-related
cost category of the FY 2008-based RPL
market basket, we determined the LTCH
PPS labor-related share for FY 2013
based on the relative importance of the
labor-related share of operating costs
(Wages and Salaries, Employee Benefits,
Professional Fees: Labor-Related,
Administrative and Business Support
Services, and All Other: Labor-Related
Services) and the labor-related share of
capital costs of the LTCH-specific
market basket based on FY 2009 data, as
we believe these are currently the best
data available to reflect the cost
structure of LTCHs.
In this final rule, consistent with our
proposal to use the most recent
available data to determine the laborrelated share for FY 2013, we are
establishing a labor-related share under
the LTCH PPS for FY 2013 based on
IGI’s second quarter 2012 forecast of the

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FY 2009-based LTCH-specific market
basket for FY 2013, as these are the most
recent available data at this time that
reflect the cost structure of LTCHs. As
discussed in greater detail in section
VII.D.3.f. of this preamble, the sum of
the relative importance for FY 2013 for
operating costs (Wages and Salaries,
Employee Benefits, Professional Fees:
Labor-Related, Administrative and
Business Support Services, and AllOther: Labor-Related Services) is 58.843
percent and the labor-related share of
capital costs is 4.253 percent. Therefore,
in this final rule, under the authority set
forth in section 123 of the BBRA as
amended by section 307(b) of the BIPA,
we are establishing a labor-related share
of 63.096 percent (58.843 percent plus
4.253 percent) under the LTCH PPS for
FY 2013, which will be effective for
discharges occurring on or after October
1, 2012, and through September 30,
2013. (For additional details on the
development of the LTCH PPS laborrelated share for FY 2013, we refer
readers to section VII.D.3.f. of the
preamble of this final rule.)
4. LTCH PPS Wage Index for FY 2013
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 2012 LTCH PPS final rule
(76 FR 51808 through 51809), we
calculated the FY 2012 LTCH PPS wage
index values using the same data used
for the FY 2012 acute care hospital IPPS
(that is, data from 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, as
these were the most recent complete
data available at that time. In that same
final rule, we indicated that we
computed the FY 2012 LTCH PPS wage
index values consistent with the urban
and rural geographic classifications
(labor market areas) and consistent with
the pre-reclassified IPPS wage index
policy (that is, our historical policy of
not taking into account IPPS geographic
reclassifications in determining
payments under the LTCH PPS). 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

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53711

where the campus (or campuses) are
located (as discussed in section III.D. of
the preamble of this final rule). 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 2013, under the broad
authority conferred upon the Secretary
by section 123 of the BBRA, as amended
by section 307(b) of BIPA, to determine
appropriate adjustments under the
LTCH PPS, as we proposed, we used
wage data collected from cost reports
submitted by IPPS hospitals for cost
reporting periods beginning during FY
2009, without taking into account
geographic reclassification under
sections 1886(d)(8) and 1886(d)(10) of
the Act. We used FY 2009 data because
these data are the most recent complete
data available. These are the same data
used to compute the FY 2013 acute care
hospital inpatient wage index, as
discussed in section III. of the preamble
of this final 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).)
As we proposed, the FY 2013 LTCH
PPS wage index values we are
presenting in this final 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 final
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.G. of the preamble of this
final rule). Furthermore, in determining
the FY 2013 LTCH PPS wage index
values in this final rule, as we proposed,
we continued to use our existing policy
for determining wage index values in
areas where there are no IPPS wage
data.
As discussed in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 28154),
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 as we proposed, we are

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continuing to use this methodology for
FY 2013. (We refer readers to the RY
2009 LTCH PPS final rule (73 FR 26817
through 26818) for an explanation of
and rationale for our policy for
determining LTCH PPS wage index
values for areas that have no IPPS wage
data.)
There are currently no LTCHs located
in labor areas without IPPS hospital
wage data (or IPPS hospitals) for FY
2013. However, we calculate LTCH PPS
wage index values for these areas using
our established methodology in the
event that, in the future, a LTCH should
open in one of those areas. Under our
existing 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, and the LTCH PPS
wage index value for rural areas with no
IPPS wage data is determined by using
the unweighted average of the wage
indices from all of the CBSAs that are
contiguous to the rural counties of the
State.
Based on the FY 2009 IPPS wage data
that we used to determine the FY 2013
LTCH PPS wage index values in this
final rule, there are no IPPS wage data
for the urban area Hinesville-Fort
Stewart, GA (CBSA 25980). Consistent
with the methodology discussed above,
we calculated the FY 2013 wage index
value for CBSA 25980 as the average of
the wage index values for all of the
other urban areas within the State of
Georgia (that is, CBSAs 10500, 12020,
12060, 12260, 15260, 16860, 17980,
19140, 23580, 31420, 40660, 42340,
46660, and 47580), as shown in Table
12A, which is listed in section VI. of the
Addendum to this final rule and
available via the Internet on the CMS
Web site). We note that, as IPPS wage
data are dynamic, it is possible that
urban areas without IPPS wage data will
vary in the future.
Based on FY 2009 IPPS wage data that
we used to determine the FY 2013
LTCH PPS wage index values in this
final rule, there are no rural areas
without IPPS hospital wage data.
Therefore, it is not necessary to use our
established methodology to calculate a
LTCH PPS wage index value for rural
areas with no IPPS wage data for FY
2013. We note that, as IPPS wage data
are dynamic, it is possible that rural
areas without IPPS wage data will vary
in the future.
The FY 2013 LTCH wage index values
that will be applicable for LTCH
discharges occurring on or after October
1, 2012, through September 30, 2013,
are presented in Table 12A (for urban
areas) and Table 12B (for rural areas),
which are listed in section VI. of the

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Addendum of this final rule and
available via the Internet on the CMS
Web site.
5. 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. In the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51771
through 51773 and 51809), under
§ 412.525(c)(2), we established that any
changes to the wage index values or
labor-related share will be made in a
budget neutral manner such that
estimated aggregate LTCH PPS
payments are unaffected; that is, will be
neither greater than nor less than
estimated aggregate LTCH PPS
payments without such changes to the
area wage level adjustment. Under this
policy, we determine an area wage level
adjustment budget neutrality factor that
will be applied to the standard Federal
rate to ensure that any changes to the
area wage level adjustment are budget
neutral such that any changes to the
wage index values or labor-related share
will not result in any change (increase
or decrease) in estimated aggregate
LTCH PPS payments. Accordingly,
under § 412.523(d)(4), we established
that we will apply an area wage level
adjustment budget neutrality factor in
determining the standard Federal rate,
and we also established a methodology
for calculating an area wage level
adjustment budget neutrality factor.
For FY 2013, in accordance with
§ 412.523(d)(4), we applied an area wage
level adjustment budget neutrality factor
to adjust the standard Federal rate to
account 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 using the methodology we
established in the FY 2012 IPPS/LTCH
PPS final rule (76 FR 51773).
Specifically, as we proposed, we
determined an area wage level
adjustment budget neutrality factor that
will be applied to the standard Federal
rate under at § 412.523(d)(4) for FY 2013
using the following methodology:
Step 1—We simulated estimated
aggregate LTCH PPS payments using the
FY 2012 wage index values (as
established in Tables 12A and 12B
listed in the Addendum to the FY 2012
IPPS/LTCH PPS final rule and available
via the Internet on the CMS Web site)
and the FY 2012 labor-related share of
70.199 percent (as established in the FY
2012 IPPS/LTCH PPS final rule (76 FR
51767 and 51808).

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Step 2—We simulated estimated
aggregate LTCH PPS payments using the
FY 2013 wage index values (as shown
in Tables 12A and 12B listed in the
Addendum to this final rule and
available via the Internet on the CMS
Web site) and the FY 2013 labor related
share of 63.096 percent (based on the
latest available data as discussed in
section VII.C.3.f. of this preamble).
Step 3—We calculated the ratio of
these estimated total LTCH PPS
payments by dividing the estimated
total LTCH PPS payments using the FY
2012 area wage level adjustments
(calculated in Step 1) by the estimated
total LTCH PPS payments using the FY
2013 area wage level adjustments
(calculated in Step 2) to determine the
area wage level adjustment budget
neutrality factor for FY 2013.
Step 4—We then applied the FY 2013
area wage level adjustment budget
neutrality factor from Step 3 to
determine the FY 2013 LTCH PPS
standard Federal rate after the
application of the FY 2013 annual
update (discussed in section V.A.2. of
the Addendum to this final rule). For
this final rule, using the steps in the
methodology described above, we
determined a FY 2013 area wage level
adjustment budget neutrality factor of
0.999265. Accordingly, in section V.A.2.
of the Addendum to this final rule, to
determine the FY 2013 LTCH PPS
standard Federal rate, we applied an
area wage level adjustment budget
neutrality factor of 0.099265, in
accordance with § 412.523(d)(4). The FY
2013 LTCH PPS standard Federal rate
shown in Table 1E of the Addendum to
this final rule reflects this adjustment
factor.
C. LTCH PPS Cost-of-Living Adjustment
for LTCHs Located in Alaska and
Hawaii
Under § 412.525(b), a cost-of-living
adjustment (COLA) is provided 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.
Historically, we used the most recent
updated COLA factors obtained from the
U.S. Office of Personnel Management
(OPM) Web site at http://www.opm.gov/
oca/cola/rates.asp to adjust the LTCH
PPS payments for LTCHs in Alaska and
Hawaii. Recent statutory changes

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transition the Alaska and Hawaii COLAs
to locality pay (phased in over a 3-year
period beginning in January 2010, with
COLA rates being frozen as of October
28, 2009, and then proportionately
reduced to reflect the phase-in of
locality pay). As stated previously, we
do not believe it is appropriate to use
either the 2010 or 2011 reduced COLA
factors to adjust the nonlabor-related
portion of the standard Federal rate for
LTCHs in Alaska and Hawaii for
Medicare payment purposes. Therefore,
for FY 2012, we continued to use the
same COLA factors (published by OPM)
that we used to adjust payments in FY
2011 (which were based on OPM’s 2009
COLA factors) to adjust the nonlaborrelated portion of the standard Federal
rate for LTCHs located in Alaska and
Hawaii.
As we discuss in section VII.D.4. of
the preamble of this final rule, we
believe it was appropriate to use
‘‘frozen’’ COLA factors to adjust
payments in FY 2012, while we
explored alternatives for updating the
COLA factors in the future. In the FY
2013 IPPS/LTCH PPS proposed rule (77
FR 28019 through 28020 and 28155), we
proposed to continue to use the same
‘‘frozen’’ COLA factors used in FY 2012
to adjust the nonlabor-related portion of
the standard Federal rate for LTCHs in
Alaska and Hawaii in FY 2013 under
§ 412.525(b). In that same proposed rule,
we also proposed a methodology to
update the COLA factors for Alaska and
Hawaii, beginning in FY 2014, based on
a comparison of the growth in the CPIs
for Anchorage, Alaska and Honolulu,
Hawaii relative to the growth in the CPI
for the average U.S. city as published by
the Bureau of Labor Statistics (BLS). As
discussed in section VII.D.4. of the
preamble of this final rule, we did not
receive any public comments on these
proposals and we are adopting them as
final, without modification, in this final
rule. As explained previously, we
believe using these COLA factors will
appropriately adjust the nonlaborrelated portion of the standard Federal
rate for LTCHs in Alaska and Hawaii.
(For additional details on the
methodology we are adopting in this
final rule to update the COLA factors for
Alaska and Hawaii beginning in FY
2014, we refer readers to section VII.D.4.
of the preamble of this final rule.)
In this final rule, for FY 2013, 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, consistent with
our current policy, we are applying a
COLA to the LTCH PPS payments to
LTCHs located in Alaska and Hawaii by

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multiplying the nonlabor-related
portion of the standard Federal payment
rate by the factors listed in the chart
below. These factors are the same COLA
factors used to adjust payments in FY
2012 (which are based on OPM’s 2009
COLA factors). As stated above, we
believe using these COLA factors will
appropriately adjust the nonlaborrelated portion of the standard Federal
rate for LTCHs in Alaska and Hawaii
under § 412.525(b).

COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND HAWAII HOSPITALS FOR THE LTCH PPS FOR FY
2013
Alaska:
City of Anchorage and 80-kilometer
(50-mile) radius by road ..............
City of Fairbanks and 80-kilometer
(50-mile) radius by road ..............
City of Juneau and 80-kilometer
(50-mile) radius by road ..............
All other areas of Alaska .............
Hawaii:
City and County of Honolulu ...........
County of Hawaii .............................
County of Kauai ..............................
County of Maui and County of
Kalawao .......................................

1.23
1.23
1.23
1.25
1.25
1.18
1.25
1.25

(The above factors are based on data obtained from the U.S. Office of Personnel Management Web site at: http://www.opm.gov/oca/
cola/rates.asp.)

D. Adjustment for LTCH PPS High-Cost
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

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exceeds the adjusted LTCH PPS
payment for the MS–LTC–DRG plus a
fixed-loss amount. Specifically, in
accordance with § 412.525(a)(3) (in
conjunction with § 412.503), we make
an additional payment for 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 fixedloss 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
a. Background
The following is a discussion of CCRs
that are used in determining payments
for HCO and SSO cases under the LTCH
PPS, at § 412.525(a) and § 412.529,
respectively. Although this section is
specific to HCO cases, because CCRs
and the policies and methodologies
pertaining to them are used in
determining payments for both HCO
and SSO cases (to determine the
estimated cost of the case at
§ 412.529(d)(2)), we are discussing the
determination of CCRs under the LTCH

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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 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, in the
proposed rule, using our established

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methodology for determining the LTCH
total CCR ceiling (described above),
based on IPPS total CCR data from the
December 2011 update of the PSF, we
proposed 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, 2012,
through September 30, 2013. Consistent
with our historical policy of using the
best available data, we also proposed
that if more recent data became
available, we would use such data to
establish a total CCR ceiling for FY 2013
in the final rule. We did not receive any
public comments on our proposals
related to determining the LTCH total
CCR ceiling for FY 2013, and are
adopting them as final, without
modification, in this final rule.
In accordance with
§ 412.525(a)(4)(iv)(C)(2) for HCOs and
§ 412.529(f)(4)(iii)(B) for SSOs, in this
final rule, as we proposed, using our
established methodology for
determining the LTCH total CCR ceiling
(described above), based on IPPS total
CCR data from the latest available data
(that is, the March 2012 update of the
PSF), we are establishing a total CCR
ceiling of 1.212 under the LTCH PPS
that will be effective for discharges
occurring on or after October 1, 2012,
through September 30, 2013.
c. LTCH Statewide Average CCRs
Our general methodology established
for determining the statewide average
CCRs used under the LTCH PPS is
similar to our established methodology
for determining the LTCH total CCR
ceiling (described above) because it is
based on ‘‘total’’ IPPS CCR data. Under
the LTCH PPS HCO policy at
§ 412.525(a)(4)(iv)(C) and the SSO
policy at § 412.529(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

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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.)
In the proposed rule, using our
established methodology for
determining the LTCH statewide
average CCRs, based on the most recent
complete IPPS total CCR data from the
December 2011 update of the PSF, we
proposed LTCH PPS statewide average
total CCRs for urban and rural hospitals
that would be effective for discharges
occurring on or after October 1, 2012,
through September 30, 2013, in Table
8C listed in section VI. of the
Addendum to that proposed rule and
available via the Internet. We did not
receive any public comments on our
proposals related to determining the
LTCH PPS statewide average CCRs for
FY 2013, and are adopting them as final,
without modification, in this final rule.
Consistent with our historical practice
of using the best available data, in this
final rule, using our established
methodology for determining the LTCH
statewide average CCRs, based on the
most recent complete IPPS ‘‘total CCR’’
data from the March 2012 update of the
PSF, we are establishing LTCH PPS
statewide average total CCRs for urban
and rural hospitals that will be effective
for discharges occurring on or after
October 1, 2012, through September 20,
2013, in Table 8C listed in section VI.
of the Addendum to this final rule (and
available via the Internet).
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. 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, as we proposed,
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 final rule, we
continue to use, 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

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detail in the FY 2007 IPPS final rule (71
FR 48120)).

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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 LTCH PPS
Fixed-Loss Amount for FY 2013
When we implemented the LTCH
PPS, as discussed in the August 30,
2002 LTCH PPS final rule (67 FR 56022
through 56026), under the broad
authority of section 123 of the BBRA as
amended by section 307(b) of BIPA, we
established a fixed-loss amount so 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 the FY 2013 IPPS/LTCH PPS
proposed rule (77 FR 28175), we
presented our proposals regarding the
methodology and data we would use to
calculate the fixed-loss amount for FY
2013. In general, we proposed to
continue to use our existing
methodology to calculate a fixed-loss
amount for FY 2013 using the best
available data that would maintain
estimated HCO payments at the
projected 8 percent of total estimated

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LTCH PPS payments (based on the rates
and policies presented in that proposed
rule). (For additional detail on the
rationale for setting the HCO payment
‘‘target’’ at 8 percent of total estimated
LTCH PPS payments, we refer readers to
the to the FY 2003 LTCH PPS final rule
(67 FR 56022 through 56024).) Using
our existing methodology, we proposed
a fixed-loss amount of $15,728 for FY
2013. (We refer readers to the FY 2013
IPPS/LTCH PPS proposed rule for
additional details on our proposals
related to the development of the fixedloss amount for FY 2013 (77 FR 28157).)
Comment: A few commenters
expressed support for the proposed
fixed-loss amount for FY 2013, stating
that the lower fixed-loss amount
calculated using our proposed
methodology would maintain estimated
HCO payments at the projected 8
percent of total estimated LTCH PPS
payments, consistent with current
policy.
Response: We appreciate the
commenters’ support for our proposed
methodology.
In this final rule, we are adopting our
proposal as final without modification.
However, consistent with our historical
practice of using the best available data,
and our proposal to use more recent
data if they become available, we used
the most recent available LTCH claims
data and CCR data at this time to
calculate the fixed-loss amount for FY
2013 for this final rule.
In this final rule, we continued to use
our existing methodology to calculate
the fixed-loss amount for FY 2013
(based on the data and the rates and
policies presented in this final rule) in
order to maintain estimated HCO
payments at the projected 8 percent of
total estimated LTCH PPS payments.
Consistent with our historical practice
of using the best data available, in
determining the fixed-loss amount for
FY 2013, we used the most recent
available LTCH claims data and CCR
data at this time. Specifically, for this
final rule, we used LTCH claims data
from the March 2012 update of the FY
2011 MedPAR file and CCRs from the
March 2012 update of the PSF to
determine a fixed-loss amount that
would result in estimated outlier
payments projected to be equal to 8
percent of total estimated payments in
FY 2013 because these data are the most
recent complete LTCH data available at
this time.
Under the broad authority of section
123(a)(1) of the BBRA and section
307(b)(1) of BIPA, we established a
fixed-loss amount of $17,931 for FY
2012. For this final rule, we are
establishing a fixed-loss amount of

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53715

$15,408 for FY 2013. Thus, we will
make an additional payment for 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
fixed-loss amount of $15,408). We also
note that the fixed-loss amount of
$15,408 for FY 2013 is lower than the
FY 2012 fixed-loss amount of $17,931
and slightly lower than the proposed FY
2013 fixed-loss amount of $15,728.
Based on our payment simulations
using the most recent available data at
this time, the decrease in the fixed-loss
amount for FY 2013 is 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, 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 less than the current
regulatory 8-percent requirement
because a higher fixed-loss amount
would result in fewer cases qualifying
as outlier cases. In addition,
maintaining the higher fixed-loss
amount would result in 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
fixed-loss amount) would be larger. For
these reasons, we believe that lowering
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 an SSO case
(as defined in the regulations at
§ 412.529 in conjunction with § 412.503)
and also as an HCO case. In this
scenario, a patient could be hospitalized
for less than five-sixths of the geometric
average length of stay for the specific
MS–LTC–DRG, and yet incur
extraordinarily high treatment costs. If
the estimated costs exceeded the HCO
threshold (that is, the SSO payment plus
the fixed-loss amount), the discharge is
eligible for payment as an HCO. Thus,
for an SSO case in FY 2013, 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 fixed-loss amount of $15,408

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and the amount paid under the SSO
policy as specified in § 412.529).

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E. Computing the Adjusted LTCH PPS
Federal Prospective Payments for FY
2013
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
applicable LTCH PPS wage index (FY
2013 values shown in Tables 12A and
12B listed in section VI. of the
Addendum of this final 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 applicable cost-ofliving factor (FY 2013 factors shown in
the chart in section V.C. of the

Addendum of this final rule) in
accordance with § 412.525(b). In this
final rule, we are establishing a standard
Federal rate for FY 2013 of $40,397.96
(however, payment for discharges
occurring on or after October 1, 2012,
and before December 29, 2012 will not
reflect that adjustment consistent with
the statute, and instead will be paid
based on a standard Federal rate of
$40,915.95), as discussed above in
section V.A.2. of the Addendum of this
final rule. We illustrate the methodology
to adjust the LTCH PPS Federal
standard rate for FY 2013 in the
following example:
Example:
During FY 2013, a Medicare patient is in
a LTCH located in Chicago, Illinois (CBSA
16974) and discharged on January 1, 2013.
The FY 2013 LTCH PPS wage index value for
CBSA 16974 is 1.0600 (obtained from Table
12A listed in section VI. of the Addendum
of this final rule and available via the
Internet on the CMS Web site). The Medicare

patient is classified into MS–LTC–DRG 28
(Spinal Procedures with MCC), which has a
relative weight for FY 2013 of 1.1124
(obtained from Table 11 listed in section VI.
of the Addendum of this final rule and
available via the Internet on the CMS Web
site).
To calculate the LTCH’s total adjusted
Federal prospective payment for this
Medicare patient in FY 2013, we computed
the wage-adjusted Federal prospective
payment amount by multiplying the
unadjusted FY 2013 standard Federal rate
($40,397.96) by the labor-related share
(63.096 percent) and the wage index value
(1.0600). This wage-adjusted amount is then
added to the nonlabor-related portion of the
unadjusted standard Federal rate (36.904
percent; adjusted for cost of living, if
applicable) to determine the adjusted Federal
rate, which is then multiplied by the MS–
LTC–DRG relative weight (1.1124) to
calculate the total adjusted Federal LTCH
PPS prospective payment for FY 2013
($46,693.95). The table below illustrates the
components of the calculations in this
example.

Unadjusted Standard Federal Prospective Payment Rate ...................................................................
Labor-Related Share .............................................................................................................................
Labor-Related Portion of the Federal Rate ...........................................................................................
Wage Index (CBSA 16974) ...................................................................................................................
Wage-Adjusted Labor Share of Federal Rate .......................................................................................
Nonlabor-Related Portion of the Federal Rate ($40,397.96 × 0.36904) ...............................................
Adjusted Federal Rate Amount .............................................................................................................
MS–LTC–DRG 28 Relative Weight .......................................................................................................

$40,397.96
× 0.63096
= $25,489.49
× 1.0600
= $27,018.6
+ $14,908.46
= $41,927.32
× 1.1124

Total Adjusted Federal Prospective Payment ................................................................................

= $46,639.95

VI. Tables Referenced in this Final Rule
and Available Only Through the
Internet on the CMS Web Site
This section lists the tables referred to
throughout the preamble of this final
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, similar to FY 2012, for
the FY 2013 rulemaking cycle, the IPPS
and LTCH tables will not be published
as part of the annual IPPS/LTCH PPS
proposed and final rulemakings and
will be available only through the
Internet. Specifically, IPPS Tables 2, 3A,
3B, 4A, 4B, 4C, 4D, 4E, 4F, 4J, 5, 6A, 6B,
6C, 6D, 6E, 6F, 6G, 6I, 6I.1, 6.I.2, 6J, 6J.1,
6K, 7A, 7B, 8A, 8B, 9A, 9C, 10 and new
Tables 15 and 16 and LTCH PPS Tables
8C, 11, 12A, 12B, 13A, and 13B will be
available only through the Internet. IPPS
Tables 1A, 1B, 1C, and 1D, and LTCH
PPS table 1E, displayed at the end of
this section, will continue to be
published in the Federal Register as
part of the annual proposed and final
rules. As discussed in section II.G.9. of
the preamble of this final rule, for FY
2013, there will be one change to the
ICD–9–CM coding system, effective

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October 1, 2012. We are creating new
procedure code 00.95 (Injection or
infusion of glucarpidase). The new
procedure code is listed in Table 6B
(New Procedure Codes) for this final
rule, which is available via the Internet.
There are no new, revised, or deleted
diagnosis codes and no revised or
deleted procedure codes effective
October 1, 2012, that are usually
announced in Tables 6A (New Diagnosis
Codes), 6C (Invalid Diagnosis Codes),
6D (Invalid Procedure Codes), 6E
(Revised Diagnosis Code Titles), and 6F
(Revised Procedure Codes). Therefore,
IPPS Tables 6A, 6C, 6D, 6E and 6F are
not being published as part of this FY
2013 rulemaking cycle. As discussed in
section IV.E. of the preamble of this
final rule, effective FY 2013 and
forward, the low-volume hospital
definition and payment adjustment
methodology under section 1886(d)(12)
of the Act returns to the pre-Affordable
Care Act definition and payment
adjustment methodology (we refer
readers to section IV.E. for complete
details on the low-volume hospital
payment adjustment). Therefore, we are
no longer including a table (previously

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Table 14) in this final rule that lists the
low-volume payment adjustments.
Readers who experience any problems
accessing any of the tables that are
posted on the CMS Web sites identified
below should contact Michael Treitel at
(410) 786–4552.
The following IPPS tables for this FY
2013 final rule are available only
through the Internet on the CMS Web
site at: http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/
AcuteInpatientPPS/index.html. Click on
the link on the left side of the screen
titled, ‘‘FY 2013 IPPS Final Rule Home
Page’’ or ‘‘Acute Inpatient—Files for
Download’’.
Table 2.—Acute Care Hospitals CaseMix Indexes for Discharges Occurring
in Federal Fiscal Year 2011; Hospital
Wage Indexes for Federal Fiscal Year
2013; Hospital Average Hourly Wages
for Federal Fiscal Years 2011 (2007
Wage Data), 2012 (2008 Wage Data),
and 2013 (2009 Wage Data); and 3–
Year Average of Hospital Average
Hourly Wages
Table 3A.—FY 2013 and 3-Year*
Average Hourly Wage for Acute Care
Hospitals in Urban Areas by CBSA

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Table 3B.—FY 2013 and 3-Year*
Average Hourly Wage for Acute Care
Hospitals in Rural Areas by CBSA
Table 4A.—Wage Index and Capital
Geographic Adjustment Factor (GAF)
for Acute Care Hospitals in Urban
Areas by CBSA and by State—FY
2013
Table 4B.—Wage Index and Capital
Geographic Adjustment Factor (GAF)
for Acute Care Hospitals in Rural
Areas by CBSA and by State—FY
2013
Table 4C.—Wage Index and Capital
Geographic Adjustment Factor (GAF)
for Acute Care Hospitals That Are
Reclassified by CBSA and by State—
FY 2013
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 Statewide Rural Floor or Imputed
Floor Wage Index—FY 2013
Table 4E.—Urban CBSAs and
Constituent Counties for Acute Care
Hospitals—FY 2013
Table 4F.—Puerto Rico Wage Index and
Capital Geographic Adjustment Factor
(GAF) for Acute Care Hospitals by
CBSA—FY 2013
Table 4J.—Out-Migration Adjustment
for Acute Care Hospitals—FY 2013
Table 5.—List of Medicare Severity
Diagnosis-Related Groups (MS–
DRGs), Relative Weighting Factors,

and Geometric and Arithmetic Mean
Length of Stay—FY 2013
Table 6B.—New Procedure Codes—FY
2013
Table 6G.—Additions to the CC
Exclusions List-FY 2013
Table 6I.—Major CC List—FY 2013
Table 6I.2.—Summary of Deletions from
the MS–DRG MCC List—FY 2013
Table 6J.—Complete CC List—FY 2013
Table 6J.1.—Summary of Additions to
the MS–DRG CC List—FY 2013
Table 6K.—Complete List of CC
Exclusions—FY 2013
Table 7A.—Medicare Prospective
Payment System Selected Percentile
Lengths of Stay: FY 2011 MedPAR
Update—March 2012 GROUPER
V29.0 MS–DRGs
Table 7B.—Medicare Prospective
Payment System Selected Percentile
Lengths of Stay: FY 2011 MedPAR
Update—March 2012 GROUPER
V30.0 MS–DRGs
Table 8A.—FY 2013 Statewide Average
Operating Cost-to-Charge Ratios
(CCRs) for Acute Care Hospitals
(Urban and Rural)
Table 8B.—FY 2013 Statewide Average
Capital Cost-to-Charge Ratios (CCRs)
for Acute Care Hospitals
Table 9A.—Hospital Reclassifications
and Redesignations—FY 2013
Table 9C.—Hospitals Redesignated as
Rural under Section 1886(d)(8)(E) of
the Act—FY 2013
Table 10.—New Technology Add-On
Payment Thresholds for Applications
for FY 2014

53717

Table 15.—FY 2013 Final Readmissions
Adjustment Factors
Table 16.—Proxy Hospital Inpatient
Value-Based Purchasing (VBP)
Program Adjustment Factors for FY
2013
The following LTCH PPS tables for
this FY 2013 final rule are available
only through the Internet on the CMS
Web site at http://www.cms.gov/
Medicare/Medicare-Fee-for-ServicePayment/LongTermCareHospitalPPS/
index.html under the list item for
Regulation Number CMS–1588–F.
Table 8C.—FY 2013 Statewide Average
Total Cost-to-Charge Ratios (CCRs) for
LTCHs (Urban and Rural)
Table 11.—MS–LTC–DRGs, Relative
Weights, Geometric Average Length of
Stay, and Short-Stay Outlier (SSO)
Threshold for Discharges Occurring
from October 1, 2012 through
September 30, 2013 under the LTCH
PPS
Table 12A.—LTCH PPS Wage Index for
Urban Areas for Discharges Occurring
from October 1, 2012 through
September 30, 2013
Table 12B.—LTCH PPS Wage Index for
Rural Areas for Discharges Occurring
from October 1, 2012 through
September 30, 2013
Table 13A.—Composition of LowVolume Quintiles for MS–LTC–
DRGs—FY 2013
Table 13B.—No-Volume MS–LTC–DRG
Crosswalk for FY 2013

TABLE 1A—NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (68.8 PERCENT LABOR
SHARE/31.2 PERCENT NONLABOR SHARE IF WAGE INDEX IS GREATER THAN 1)—FY 2013
Full update (1.8 percent)

Reduced update
(¥0.2 percent)
Nonlaborrelated

Labor-related
$3,679.95 .....................................................................................................................................

$1,668.81

Labor-related
$3,607.65

Nonlaborrelated
$1,636.02

TABLE 1B—NATIONAL ADJUSTED OPERATING STANDARDIZED AMOUNTS, LABOR/NONLABOR (62 PERCENT LABOR SHARE/
38 PERCENT NONLABOR SHARE IF WAGE INDEX IS LESS THAN OR EQUAL TO 1)—FY 2013
Full update (1.8 percent)

Reduced update
(¥0.2 percent)
Nonlaborrelated

Labor-related

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$3,316.23 .....................................................................................................................................

$2,032.53

Labor-related
$3,251.08

Nonlaborrelated
$1,992.59

TABLE 1C—ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR—FY 2013
Rates if wage index is greater
than 1
Labor
National ............................................................................................................
Puerto Rico ......................................................................................................

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$3,679.95
1,564.17

Nonlabor
$1,668.81
954.62

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31AUR2

Rates if wage index is less
than or equal to 1
Labor
$3,316.23
1,561.65

Nonlabor
$2,032.53
957.14

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TABLE 1D—CAPITAL STANDARD
FEDERAL PAYMENT RATE—FY 2013
Rate
National .................................
Puerto Rico ...........................

$425.49
207.25

TABLE 1E—LTCH STANDARD FEDERAL
PROSPECTIVE
PAYMENT
RATE—FY 2013
Rate
Standard Federal Rate * .......

$40,397.96

* Consistent with section 114(c)(4) of the
MMSEA as amended by sections 3106(a) and
10312 of the Affordable Care Act, the onetime prospective adjustment to the standard
Federal rate for FY 2013 of 0.98734 is not applied to payments for discharges occurring before December 29, 2012. Therefore, payment
for discharges occurring on or after October 1,
2012, and on or before December 28, 2012,
does not reflect that adjustment and instead
such discharges are paid based on a standard
Federal rate of $40,915.95 (calculated as
$40,397.96 divided by 0.98734).

Appendix A: Economic Analyses

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I. Regulatory Impact Analysis
A. Introduction
We have examined the impacts of this final
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 final rule is
a major rule as defined in 5 U.S.C. 804(2). We
estimate that the changes for FY 2013 acute
care hospital operating and capital payments
will redistribute amounts in excess of $100
million to acute care hospitals. The
applicable percentage increase to the IPPS
rates required by the statute, in conjunction
with other payment changes in this final rule,
will result in an estimated $2.45 billion
increase in FY 2013 operating payments (or
2.3 percent change) and an estimated $154
million increase in FY 2013 capital payments

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(or 1.8 percent change). These changes are
relative to payments made in FY 2012. The
impact analysis of the capital payments can
be found in section I.I. of this Appendix. In
addition, as described in section I.J. of this
Appendix, LTCHs are expected to experience
an increase in payments by $92 million in FY
2013 relative to FY 2012.
Our operating impact estimate includes the
1.0 percent documentation and coding
adjustment applied to the IPPS standardized
amounts (which accounts for the ¥1.9
percent documentation and coding
adjustment and +2.9 percent adjustment to
restore the one-time recoupment adjustment
made to the national standardized amount for
FY 2012). In addition, our operating impact
estimate includes the 1.8 percent hospital
update to the standardized amount (which
includes the 2.6 percent market basket
update less 0.7 percentage point for the
multifactor productivity adjustment and less
0.1 percentage point required under the
Affordable Care Act). The estimates of IPPS
operating payments to acute care hospitals do
not reflect any changes in hospital
admissions or real case-mix intensity, which
will also affect overall payment changes.
The analysis in this Appendix, in
conjunction with the remainder of this
document, demonstrates that this final 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. This final rule will affect
payments to a substantial number of small
rural hospitals, as well as other classes of
hospitals, and the effects on some hospitals
may be significant.
B. Need
This final 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 final rule also is necessary to
make payment and policy changes for
Medicare hospitals under the LTCH PPS
payment system.
C. Objectives of the IPPS
The primary objective of the IPPS is to
create incentives for hospitals to operate
efficiently and minimize unnecessary costs
while at the same time ensuring that
payments are sufficient to adequately
compensate hospitals for their legitimate
costs in delivering necessary care to
Medicare beneficiaries. In addition, we share
national goals of preserving the Medicare
Hospital Insurance Trust Fund.
We believe the changes in this final rule
will further each of these goals while
maintaining the financial viability of the
hospital industry and ensuring access to high
quality health care for Medicare
beneficiaries. We expect that these changes
will ensure that the outcomes of the
prospective payment systems are reasonable
and equitable while avoiding or minimizing
unintended adverse consequences.
D. Limitations of Our Analysis
The following quantitative analysis
presents the projected effects of our policy

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changes, as well as statutory changes
effective for FY 2013, 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.
E. 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 45 such hospitals in Maryland
remain excluded from the IPPS pursuant to
the waiver under section 1814(b)(3) of the
Act.
As of July 2012, there are 3,423 IPPS acute
care hospitals included in our analysis. This
represents about 67 percent of all Medicareparticipating hospitals. The majority of this
impact analysis focuses on this set of
hospitals. There also are approximately 1,328
CAHs. These small, limited service hospitals
are paid on the basis of reasonable costs
rather than under the IPPS. There are also
1,268 IPPS-excluded hospitals and 2,063
IPPS-excluded hospital units. These IPPSexcluded 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
final rule. The impact of the update and
policy changes to the LTCH PPS for FY 2013
is discussed in section I.J. of this Appendix.
F. Effects on Hospitals and Hospital Units
Excluded From the IPPS
As of July 2012, there were 3,331 hospitals
and hospital units excluded from the IPPS.
Of these, 94 children’s hospitals, 11 cancer
hospitals, and 18 RNHCIs are being paid on
a reasonable cost basis subject to the rate-ofincrease ceiling under § 413.40. The
remaining providers, 231 rehabilitation
hospitals and 908 rehabilitation units, and
442 LTCHs, are paid the Federal prospective
per discharge rate under the IRF PPS and the
LTCH PPS, respectively, and 472 psychiatric
hospitals and 1,155 psychiatric units are paid
the Federal per diem amount under the IPF
PPS. As stated above, IRFs and IPFs are not
affected by the rate updates discussed in this
final rule. The impacts of the changes on
LTCHs are discussed in section I.J. 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

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and children’s hospitals continue to be paid
on a reasonable cost basis subject to TEFRA
limits for FY 2013. 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
estimated FY 2013 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 2012 second
quarter forecast, with historical data through
the 2012 first quarter, we are estimating that
the FY 2013 update based on the IPPS
operating market basket is 2.6 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 0.7
percentage point) and a 0.1 percentage point
reduction to the market basket update
resulting in a 1.8 percent applicable
percentage increase for IPPS hospitals subject
to a reduction of 2.0 percentage points if the
hospital fails to submit quality data under
rules established by the Secretary in
accordance with section 1886(b)(3)(B)(viii) of
the Act. RNCHIs, children’s hospitals and
cancer hospitals are not subject to the
reductions 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 update is the
same as for children’s and cancer hospitals,
which is the percentage increase in the FY
2013 IPPS operating market basket, estimated
at 2.6 percent, without the reductions
required under the Affordable Care Act.
The impact of the update in the rate-ofincrease limit on those excluded hospitals
depends on the cumulative cost increases
experienced by each excluded hospital since
its applicable base period. For excluded
hospitals that have maintained their cost
increases at a level below the rate-of-increase
limits since their base period, the major effect
is on the level of incentive payments these
excluded hospitals receive. Conversely, for
excluded hospitals with cost increases above
the cumulative update in their rate-ofincrease limits, the major effect is the amount
of excess costs that will not be paid.
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
the lesser of 50 percent of its reasonable costs
in excess of 110 percent of the limit, or 10
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.
G. Quantitative Effects of the Policy Changes
Under the IPPS for Operating Costs
1. Basis and Methodology of Estimates
In this final rule, we are announcing policy
changes and payment rate updates for the

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IPPS for FY 2013 for operating costs of acute
care hospitals. The FY 2013 updates to the
capital payments to acute care hospitals are
discussed in section I.I. of this Appendix.
Based on the overall percentage change in
payments per case estimated using our
payment simulation model, we estimate that
total FY 2013 operating payments will
increase by 2.3 percent compared to FY 2012.
In addition to the applicable percentage
increase, this amount reflects the FY 2013
adjustments for documentation and coding
described in section II.D. of the preamble of
this final rule: 1.0 percent for the IPPS
national standardized amounts and ¥0.5
percent for the IPPS hospital-specific rates.
The impacts do not reflect changes in the
number of hospital admissions or real casemix intensity, which will also affect overall
payment changes.
We have prepared separate impact analyses
of the changes to each system. This section
deals with the 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 changes in this
final rule. However, there are other changes
for which we do not have data available that
will allow us to estimate the payment
impacts using this model. For those changes,
we have attempted to predict the payment
impacts based upon our experience and other
more limited data.
The data used in developing the
quantitative analyses of changes in payments
per case presented below are taken from the
FY 2011 MedPAR file and the most current
Provider-Specific File (PSF) that is used for
payment purposes. Although the analyses of
the changes to the operating PPS do not
incorporate cost data, data from the most
recently available hospital cost 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
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 2011 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
2013 are discussed in section I.I. of this
Appendix.
We discuss the following changes below:
• The effects of the application of the
documentation and coding adjustment and

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applicable percentage increase (including the
market basket update, the multifactor
productivity adjustment and the applicable
percentage reduction in accordance with the
Affordable Care Act) to the standardized
amount and hospital-specific rates.
• The effects of the annual reclassification
of diagnoses and procedures, full
implementation of the MS–DRG system and
100 percent cost-based MS–DRG relative
weights.
• The effects of the changes in hospitals’
wage index values reflecting updated wage
data from hospitals’ cost reporting periods
beginning during FY 2009, compared to the
FY 2008 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 geographic
reclassifications by the MGCRB that will be
effective in FY 2013.
• The effects of the rural floor and imputed
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 frontier State 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 the implementation of
section 505 of Public Law 108–173, which
provides for an increase in a hospital’s wage
index if the hospital qualifies by meeting a
threshold percentage of residents of the
county where the hospital is located who
commute to work at hospitals in counties
with higher wage indexes.
• The effects of the policies for
implementation of the Hospital Readmissions
Reduction Program under section 3025 of the
Affordable Care Act, that adjusts hospital’s
base operating DRG amount by an adjustment
factor to account for a hospital’s excess
readmissions.
• The effects of the expiration of the
special payment status for MDHs under
section 3124 of the Affordable Care Act
under which MDHs that currently receive the
higher of payments made under the Federal
standardized amount or the payments made
under the Federal standardized amount plus
75 percent of the difference between the
Federal standardized amount and the
hospital-specific rate will be paid based on
the Federal standardized amount starting in
FY 2013.
• The total estimated change in payments
based on the FY 2013 policies relative to
payments based on FY 2012 policies that
include the applicable percentage increase of
1.8 percent (or 2.6 percent market basket
update with a reduction of 0.7 percentage
point 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 FY 2013
changes, our analysis begins with a FY 2012
baseline simulation model using: The FY
2013 applicable percentage increase of 1.8
percent and the documentation and coding

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adjustment of 1.0 percent to the Federal
standardized amount and the ¥0.5 percent
documentation and coding adjustment to the
hospital-specific rate; the FY 2012 MS-DRG
GROUPER (Version 29.0); the most current
CBSA designations for hospitals based on
OMB’s MSA definitions; the FY 2012 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 and
each subsequent year, the update factor will
include a reduction of 2.0 percentage points
for any subsection (d) hospital that does not
submit data on measures 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, 52 hospitals did not receive
the full market basket rate-of-increase for FY
2012 because they failed the quality data
submission process or did not choose to
participate. For purposes of the simulations
shown below, we modeled the payment
changes for FY 2013 using a reduced update
for these 52 hospitals. However, we do not
have enough information at this time to
determine which hospitals will not receive
the full update factor for FY 2013.
Each policy change, statutory or otherwise,
is then added incrementally to this baseline,
finally arriving at an FY 2013 model
incorporating all of the changes. This
simulation allows us to isolate the effects of
each change.
Our final comparison illustrates the
percent change in payments per case from FY
2012 to FY 2013. Three factors not discussed
separately have significant impacts here. The
first factor is the update to the standardized
amount. In accordance with section
1886(b)(3)(B)(i) of the Act, we are updating
the standardized amounts for FY 2013 using
an applicable percentage increase of 1.8
percent. This includes our forecasted IPPS
operating hospital market basket increase of
2.6 percent with a reduction of 0.7
percentage point 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 an update of ¥0.2
percent (this update includes the 2.0
percentage point reduction for failure to
submit these data)). Under section
1886(b)(3)(B)(iv) of the Act, the updates to
the hospital-specific amounts for SCHs are
also equal to the applicable percentage

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increase, or 1.8 percent. In addition, we are
updating the Puerto Rico-specific amount by
an applicable percentage increase of 1.8
percent.
A second significant factor that affects the
changes in hospitals’ payments per case from
FY 2012 to FY 2013 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 2012 that are no longer reclassified in FY
2013. Conversely, payments may increase for
hospitals not reclassified in FY 2012 that are
reclassified in FY 2013.
A third significant factor is that we
currently estimate that actual outlier
payments during FY 2012 will be 5.0 percent
of total MS-DRG payments. Our updated FY
2012 outlier estimate accounts for changes to
the FY 2012 IPPS payments required under
the Affordable Care Act. When the FY 2012
final rule was published, we projected FY
2012 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
2012 (as discussed in the Addendum to this
final rule) are reflected in the analyses below
comparing our current estimates of FY 2012
payments per case to estimated FY 2013
payments per case (with outlier payments
projected to equal 5.1 percent of total MSDRG payments).
Comment: Some commenters stated that
CMS’ FY 2013 IPPS/LTCH PPS proposed rule
showed an increase in operating payments of
0.9 percent or $904 million by 2013, but that
the estimated 0.9 percent increase failed to
account for a decrease in IME payments
which will be the consequence of changes
CMS makes in calculating the number of
beds to be included in its bed-to-resident
ratio, as well as the expiration of temporary
increases arising from the Affordable Care
Act.
Response: Section H of the Addendum
provides the impacts of other policy changes
that we are not able to model in the IPPS
payment simulation model in the IPPS
Operating Impact statement. Finally, all
estimates due to policy changes in the FY
2013 IPPS/LTCH PPS final rule are included
in the Accounting Statement.
2. Analysis of Table I
Table I displays the results of our analysis
of the changes for FY 2013. 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 3,423 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

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urban; and rural. There are 2,497 hospitals
located in urban areas included in our
analysis. Among these, there are 1,373
hospitals located in large urban areas
(populations over 1 million), and 1,124
hospitals in other urban areas (populations of
1 million or fewer). In addition, there are 926
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
implications for capital payments) are 2,512;
1,383; 1,129; and 911, 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 2,392 nonteaching hospitals in our
analysis, 789 teaching hospitals with fewer
than 100 residents, and 242 teaching
hospitals with 100 or more residents.
In the DSH categories, hospitals are
grouped according to their DSH payment
status, and whether they are considered
urban or rural for DSH purposes. The next
category groups together hospitals considered
urban or rural, in terms of whether they
receive the IME adjustment, the DSH
adjustment, both, or neither.
The next five rows examine the impacts of
the changes on rural hospitals by special
payment groups (SCHs, RRCs, and MDHs).
There were 203 RRCs, 326 SCHs, 195 former
MDHs, and 118 hospitals that are both SCHs
and RRCs, and 18 hospitals that were former
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
of total patient days. These data were taken
from the FY 2009 or FY 2008 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 2013. The second grouping
shows the MGCRB rural reclassifications.
The final category shows the impact of the
policy changes on the 19 cardiac hospitals.
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a. Effects of the Hospital Update and
Documentation and Coding Adjustment
(Column 2)
As discussed in section II.D. of the
preamble of this final rule, this column
includes the hospital update, including the
2.6 percent market basket update, the
reduction of 0.7 percentage point 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 FY 2013
documentation and coding adjustment of 1.0
percent on the national standardized amount,
which includes the ¥1.9 percent prospective
adjustment for documentation and coding
and a 2.9 percent adjustment to restore the
one-time recoupment adjustment made to the
national standardized amount for FY 2012.
As a result, we are making a 2.8 percent
update to the national standardized amount.
This column also includes the 1.3 percent
update to the hospital-specific rates, which
includes the 1.8 percent for the hospital
update and ¥0.5 percent documentation and
coding adjustment.
Overall, hospitals will experience a 2.7
percent increase in payments primarily due
to the effects of the hospital update and
documentation and coding adjustment on the
national standardized amount. Hospitals that
are paid under the hospital-specific rate,
namely SCHs, will see a 1.3 percent increase
in payments; therefore, hospital categories
with SCHs paid under the hospital-specific
rate will see increases in payments less than
2.8 percent.
b. Effects of the Changes to the MS–DRG
Reclassifications and Relative Cost-Based
Weights with Recalibration Budget Neutrality
(Column 3)
Column 3 shows the effects of the changes
to the MS–DRGs and relative weights with
the application of the recalibration budget
neutrality factor to the standardized amounts.
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. 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 final rule, the FY 2013 MS–
DRG relative weights will be 100 percent
cost-based and 100 percent MS–DRGs. For
FY 2013, the MS–DRGs are calculated using
the FY 2011 MedPAR data grouped to the
Version 30.0 (FY 2013) 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 final rule.
The ‘‘All Hospitals’’ line in Column 3
indicates that changes due to the MS–DRGs
and relative weights will result in a 0.0
percent change in payments with the

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application of the recalibration budget
neutrality factor of 0.998431 on to the
standardized amount. Due to the changes to
the MS–DRG GROUPER in this final rule,
there were some shifts in payments due to
changes in the relative weights with rural
hospitals experiencing a 0.1 percent decrease
in payments.
c. Effects of the Wage Index Changes
(Column 4)
Column 4 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 wage index for acute care
hospitals for FY 2013 is based on data
submitted for hospital cost reporting periods
beginning on or after October 1, 2008 and
before October 1, 2009. The estimated impact
of the updated wage data and labor share on
hospital payments is isolated in Column 4 by
holding the other payment parameters
constant in this simulation. That is, Column
4 shows the percentage change in payments
when going from a model using the FY 2012
wage index, based on FY 2008 wage data, the
current labor-related share and having a 100percent occupational mix adjustment
applied, to a model using the FY 2013 prereclassification wage index with the laborrelated share, also having a 100-percent
occupational mix adjustment applied, based
on FY 2009 wage data (while holding other
payment parameters such as use of the
Version 30.0 MS–DRG GROUPER constant).
The occupational mix adjustment is based on
the 2010 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
the Act. Therefore, for FY 2013, 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 wage budget neutrality factor is
1.000331, and the overall payment change is
0 percent.
Column 4 shows the impacts of updating
the wage data using FY 2009 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 4. Among the

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53727

regions, the largest increase is in the urban
New England region, which experiences a 0.9
percent increase. 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 3.3
percent compared to FY 2012. Therefore, the
only manner in which to maintain or exceed
the previous year’s wage index was to match
or exceed the national 3.3 percent increase in
average hourly wage. Of the 3,409 hospitals
with wage data for both FYs 2012 and 2013,
1,529, or 44.9 percent, experienced an
average hourly wage increase of 3.3 percent
or more.
The following chart compares the shifts in
wage index values for hospitals due to
changes in the average hourly wage data for
FY 2013 relative to FY 2012. Among urban
hospitals, none 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. Among rural hospitals, none
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, 926 rural hospitals will
experience increases or decreases of less than
5 percent, while 2,483 urban hospitals will
experience increases or decreases of less than
5 percent. No urban hospitals will experience
decreases in their wage index values of more
than 5 percent and less than 10 percent. No
urban hospitals will experience decreases in
their wage index values of more than 10
percent. No rural hospitals will experience a
decrease of more than 10 percent. No 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 ‘‘pre-reclassified, occupational
mix-adjusted wage index,’’ that is, the wage
index before the application of geographic
reclassification, the rural floor, the outmigration adjustment, and other wage index
exceptions and adjustments. (We refer
readers to sections III.G.2. through III.I. of the
preamble of this final rule for a complete
discussion of the exceptions and adjustments
to the wage index.) We note that the ‘‘postreclassified wage index’’ or ‘‘payment wage
index,’’ the final wage index that includes all
such exceptions and adjustments (as
reflected in Tables 2, 4A, 4B, 4C, and 4F of
the Addendum to this final rule, which are
available via the Internet on the CMS Web
site) is used to adjust the labor-related share
of a hospital’s standardized amount, either
68.8 percent or 62 percent, depending upon
whether a hospital’s wage index is greater
than 1.0 or less than or equal to 1.0.
Therefore, the pre-reclassified wage index
figures in the chart below may illustrate a
somewhat larger or smaller change than will
occur in a hospital’s payment wage index
and total payment.
The following chart shows the projected
impact of changes in the average hourly wage
data for urban and rural hospitals.

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53728

Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
Number of hospitals
Percentage change in area wage index values
Urban

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Increase more than 10 percent .......................................................................................................................................
Increase more than 5 percent and less than 10 percent ................................................................................................
Increase or decrease less than 5 percent .......................................................................................................................
Decrease more than 5 percent and less than 10 percent ..............................................................................................
Decrease more than 10 percent ......................................................................................................................................

d. Combined Effects of the MS–DRG and
Wage Index Changes (Column 5)
Section 1886(d)(4)(C)(iii) of the Act
requires that changes to MS–DRG
reclassifications and the relative weights
cannot increase or decrease aggregate
payments. In addition, section 1886(d)(3)(E)
of the Act specifies that any updates or
adjustments to the wage index are to be
budget neutral. We computed a wage budget
neutrality factor of 1.000331, and a
recalibration budget neutrality factor of
0.998431 (which is applied to the Puerto
Rico-specific standardized amount and the
hospital-specific rates). The product of the
two budget neutrality factors is the
cumulative wage and recalibration budget
neutrality factor. The cumulative wage and
recalibration budget neutrality adjustment is
0.998761, or approximately ¥0.1 percent,
which is applied to the national standardized
amounts. Because the wage budget neutrality
and the recalibration budget neutrality are
calculated under different methodologies
according to the statute, when the two budget
neutralities are combined and applied to the
standardized amount, the overall payment
impact is not necessarily budget neutral.
However, in this final rule, we are estimating
that the changes in the 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 changes to the relative weights and MS–
DRGs and the updated wage data with budget
neutrality applied will result in 0.1 percent
increase in payments for urban hospitals and
0.3 percent decrease in payments for rural
hospitals. Urban New England hospitals will
experience a 0.9 percent increase in
payments due to increases in their wages
compared to the national average, while the
urban East South Central area will experience
a 0.8 decrease in payments and rural South
Atlantic will experience a 0.6 decrease in
payments because of below average increases
in wages.
e. Effects of MGCRB Reclassifications
(Column 6)
Our impact analysis to this point has
assumed acute care hospitals are paid on the
basis of their actual geographic location (with
the exception of ongoing policies that
provide that certain hospitals receive
payments on other bases than where they are
geographically located). The changes in
Column 6 reflect the per case payment
impact of moving from this baseline to a
simulation incorporating the MGCRB
decisions for FY 2013 which affect hospitals’
wage index area assignments.
By spring of each year, the MGCRB makes
reclassification determinations that will be

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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, we are applying an adjustment of
0.991276 to ensure that the effects of the
reclassifications under section 1886(d)(10) of
the Act are budget neutral (section II.A. of the
Addendum to this final rule). Geographic
reclassification generally benefits hospitals in
rural areas. We estimate that the geographic
reclassification will increase payments to
rural hospitals by an average of 2.1 percent.
By region, all the rural hospital categories,
with the exception of 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 2.9 percent increase
in payments and rural hospitals in the
Mountain region will experience a 0.4
percent increase in payments. Urban
hospitals in New England and the Middle
Atlantic will experience an increase in
payments of 0.7 percent and 0.1 percent,
respectively, largely due to reclassifications
of hospitals in Connecticut and New Jersey.
Table 9A listed in section VI. of the
Addendum to this final rule and available via
the Internet reflects the reclassifications for
FY 2013.
f. Effects of the Rural and Imputed Floor,
Including Application of National Budget
Neutrality (Column 7)
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 final rule, section 4410 of Public Law
105–33 established the rural floor by
requiring that the wage index for a hospital
in any urban area cannot be less than the
wage index received by rural hospitals in the
same State. We apply a uniform budget
neutrality adjustment to the wage index. In
addition, the imputed floor, which is budget
neutral, was extended in FY 2012 for 2
additional years. In the past only urban
hospitals in New Jersey had been receiving
the imputed floor. As discussed earlier in
this final rule, we are finalizing the proposal
in the FY 2013 IPPS/LTCH PPS proposed
rule to establish an alternative temporary
methodology for the imputed floor, which

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0
0
2,483
0
0

Rural
0
0
926
0
0

will result in an imputed floor for Rhode
Island for FY 2013.
The imputed floor for Rhode Island is also
accounted for in the calculation of the rural
floor and imputed rural floor budget
neutrality factor. The Affordable Care Act
requires that we apply one rural floor budget
neutrality factor to the wage index nationally,
and the imputed floor is part of the rural
floor budget neutrality factor applied to the
wage index nationally. The FY 2013 rural
floor budget neutrality factor applied to the
wage index is 0.991340, which will reduce
wage indexes by ¥0.87 percent.
Column 7 shows the projected impact of
the rural floor and imputed floor with the
national rural floor budget neutrality factor
applied to the wage index. The column
compares the post-reclassification FY 2013
wage index of providers before the rural floor
and imputed floor adjustment and the postreclassification FY 2013 wage index of
providers with the rural floor and imputed
floor adjustment. Only urban hospitals can
benefit from the rural floor provision.
Because the provision is budget neutral, 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 0.3 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 3.6
percent increase in payments primarily due
to the application of the rural floor in
Massachusetts and the application of
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
value, including rural floor budget neutrality,
of 1.3047. 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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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
is established by the conversion of a CAH to
an IPPS hospital that is geographically
located in rural Massachusetts. We estimate
that Massachusetts hospitals will receive
approximately a 5.7 percent increase in IPPS
payments due to the application of rural
floor.
Urban Mountain hospitals are estimated to
receive a 0.6 percent increase in payments
due to an increase in the rural floor for
Arizona hospitals, as compared to our
estimates published in the FY 2013 IPPS/
LTCH PPS proposed rule. The Arizona rural
floor wage index increased significantly from
0.9243 to 1.0661, attributable to one urban
hospital that reclassified to rural Arizona
under § 412.103 of the Medicare regulations.
As a result, 46 out of the 53 urban hospitals
in Arizona will benefit from the rural floor
of 1.0661. Urban Arizona hospitals will
experience a 2.2 percent increase in
payments (approximately $33 million) due to
the increase in the 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. Urban Puerto Rico
hospitals will receive a rural floor as a result
of a one IPPS hospital located in rural Puerto
Rico setting a rural floor. We are applying a
rural floor budget neutrality factor to the
Puerto Rico-specific wage index of 0.987620
or ¥1.2 percent. The Puerto Rico-specific
wage index adjusts the Puerto Rico-specific
standardized amount, which represents 25
percent of payments to Puerto Rico hospitals.
There are 29 hospitals in New Jersey that
benefit from the extension of the imputed
floor and will receive the imputed floor wage
index value, including rural floor budget
neutrality of 1.0994, which we estimate will
increase their payments by approximately
$29 million. Urban Middle Atlantic hospitals
will experience a 0.3 percent decrease in
payments, which reflects the increase in
payments for New Jersey hospitals receiving
the imputed floor and a decrease for all other
urban hospitals in the in the Middle Atlantic
region. Four Rhode Island hospitals benefit
from the newly established imputed rural
floor and will receive an additional $2.5
million.

53729

In response to a public comment addressed
in the FY 2012 IPPS/LTCH PPS final rule (76
FR 51593), we are providing the payment
impact of the rural floor and imputed floor
with budget neutrality at the State level.
Column 1 of the table below displays the
number of IPPS hospitals located in each
State. Column 2 displays the number of
hospitals in each State that will receive the
rural floor or imputed floor wage index for
FY 2013. Column 3 displays the percentage
of total payments each State will receive or
contribute to fund the rural floor and
imputed floor with national budget
neutrality. The column compares the postreclassification FY 2013 wage index of
providers before the rural floor and imputed
floor adjustment and the post-reclassification
FY 2013 wage index of providers with the
rural floor and imputed floor adjustment.
Column 4 displays the estimated payment
amount that each State will gain or lose due
to the application of the rural floor and
imputed floor with national budget
neutrality.

FY 2013 IPPS ESTIMATED PAYMENTS DUE TO RURAL FLOOR AND IMPUTED FLOOR WITH NATIONAL BUDGET NEUTRALITY

EMCDONALD on DSK67QTVN1PROD with RULES2

State

Number of
hospitals

Number of
hospitals
receiving
rural floor
or imputed
floor

Percent
change in
payments
due to
application
of rural
floor and
imputed
floor with
budget
neutrality

Difference
(in millions)

(1)

(2)

(3)

(4)

Alabama ...........................................................................................................
Alaska ..............................................................................................................
Arizona .............................................................................................................
Arkansas ..........................................................................................................
California ..........................................................................................................
Colorado ..........................................................................................................
Connecticut ......................................................................................................
Delaware ..........................................................................................................
Florida ..............................................................................................................
Georgia ............................................................................................................
Hawaii ..............................................................................................................
Idaho ................................................................................................................
Illinois ...............................................................................................................
Indiana .............................................................................................................
Iowa .................................................................................................................
Kansas .............................................................................................................
Kentucky ..........................................................................................................
Louisiana ..........................................................................................................
Maine ...............................................................................................................
Massachusetts .................................................................................................
Michigan ...........................................................................................................
Minnesota ........................................................................................................
Mississippi ........................................................................................................
Missouri ............................................................................................................
Montana ...........................................................................................................
Nebraska ..........................................................................................................
Nevada .............................................................................................................
New Hampshire ...............................................................................................
New Jersey ......................................................................................................
New Mexico .....................................................................................................
New York .........................................................................................................
North Carolina ..................................................................................................
North Dakota ....................................................................................................
Ohio .................................................................................................................
Oklahoma .........................................................................................................

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96
6
58
45
311
46
32
6
169
108
14
14
130
89
34
55
65
98
20
61
96
51
66
76
12
23
24
13
65
27
168
88
6
139
85

E:\FR\FM\31AUR2.SGM

3
4
45
0
180
7
11
0
8
0
0
0
8
0
0
0
0
7
0
60
0
0
0
2
1
0
4
9
29
0
0
0
4
8
0

31AUR2

¥0.4
1.5
1.7
¥0.5
0.9
0.5
1
¥0.5
¥0.4
¥0.4
¥0.4
¥0.3
¥0.5
¥0.5
¥0.4
¥0.4
¥0.4
¥0.4
¥0.5
5.7
¥0.5
¥0.5
¥0.4
¥0.4
¥0.3
¥0.4
¥0.4
2.1
0.4
¥0.3
¥0.5
¥0.4
¥0.2
¥0.4
¥0.4

¥$8.2
2.3
31.4
¥5.2
98.5
5.8
16.7
¥2.1
¥28.3
¥12.7
¥1.1
¥1.0
¥26.2
¥11.7
¥4.4
¥3.5
¥8.4
¥7.1
¥2.4
188.0
¥21.2
¥8.6
¥5.5
¥10.9
¥0.7
¥2.5
¥3.2
10.0
14.4
¥1.5
¥46.8
¥16.4
¥0.6
¥15.0
¥5.7

53730

Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

FY 2013 IPPS ESTIMATED PAYMENTS DUE TO RURAL FLOOR AND IMPUTED FLOOR WITH NATIONAL BUDGET
NEUTRALITY—Continued

State

Number of
hospitals

Number of
hospitals
receiving
rural floor
or imputed
floor

Percent
change in
payments
due to
application
of rural
floor and
imputed
floor with
budget
neutrality

Difference
(in millions)

(1)

(2)

(3)

(4)

EMCDONALD on DSK67QTVN1PROD with RULES2

Oregon .............................................................................................................
Pennsylvania ....................................................................................................
Puerto Rico ......................................................................................................
Rhode Island ....................................................................................................
South Carolina .................................................................................................
South Dakota ...................................................................................................
Tennessee .......................................................................................................
Texas ...............................................................................................................
Utah .................................................................................................................
Vermont ...........................................................................................................
Virginia .............................................................................................................
Washington ......................................................................................................
Washington, D.C ..............................................................................................
West Virginia ....................................................................................................
Wisconsin .........................................................................................................
Wyoming ..........................................................................................................

33
154
52
11
56
18
97
325
32
6
79
48
7
33
65
11

0
14
13
4
5
0
10
2
0
0
1
5
0
2
8
0

¥0.5
¥0.4
0.1
0.5
¥0.3
¥0.3
¥0.3
¥0.4
¥0.4
¥0.3
¥0.4
¥0.3
¥0.5
¥0.3
¥0.3
¥0.1

¥4.1
¥17.5
0.1
2.1
¥5.9
¥0.8
¥7.4
¥33.0
¥1.8
¥0.7
¥10.1
¥6.3
¥2.5
¥2.9
¥5.0
¥0.2

g. Effects of the Application of the Frontier
State Wage Index (Column 8)

h. Effects of the Wage Index Adjustment for
Out-Migration (Column 9)

i. Effects of the Expiration of MDH Special
Payment Status (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, four States (Montana, North
Dakota, South Dakota, and Wyoming) are
considered frontier States and 45 hospitals
located in those States will receive a frontier
wage index of 1.0. Although Nevada is also,
by definition, a frontier State and was
assigned a frontier floor value of 1.0000 for
FY 2012, its FY 2013 rural floor value of
1.0256 is greater and, therefore, is the State’s
minimum wage index for FY 2013. As a
result, hospitals located in Nevada will not
experience a change in payment as a result
of this provision. Overall, this provision is
not budget neutral and is estimated to
increase IPPS operating payments by
approximately $69 million.
Urban hospitals located in the West North
Central region and urban hospitals located in
the Mountain region will receive an increase
in payments by 0.8 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 0.8 percent and 0.2
percent, respectively.

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 out-migration
wage adjustment. Rural DSH providers with
less than 100 beds will experience a 0.4
percent increase in payments. Urban New
England hospitals will experience a 0.3
percent increase in payments due to
increases in their out-migration wage
adjustment attributable to the hospitals
located in counties neighboring
Massachusetts that has a higher wage index
due to the Massachusetts rural floor. There
are 287 providers that will receive the outmigration wage adjustment in FY 2013. This
out-migration wage adjustment is not budget
neutral, and we estimate the impact of these
providers receiving the out-migration
increase to be approximately $53 million.

Column 10 shows our estimate of the
changes in payments due to the expiration of
MDH status, a nonbudget neutral payment
provision, under section 3124 of the
Affordable Care Act. Hospitals that qualified
to be MDHs receive the higher of payments
made under the Federal standardized amount
or the payments made under the Federal
standardized amount plus 75 percent of the
difference between the Federal standardized
amount and the hospital-specific rate (a
hospital-specific cost-based rate). Because
this provision was not budget neutral, the
expiration of this payment provision results
in a 0.2 percent decrease in payments overall.
There are currently 213 MDHs, of which 98
were estimated to be paid under the blended
payment of the federal standardized amount
and hospital-specific rate. Because those 98
MDHs will no longer receive the blended
payment and will be paid only under the
Federal standardized amount in FY 2013, it
is estimated that those hospitals will
experience an overall decrease in payments
of approximately $183 million.
MDHs were generally rural hospitals, so
the expiration of the MDH program will
result in an overall decrease in payments to
rural hospitals of 1.4 percent. Rural New
England hospitals can expect a decrease in
payments of 3.4 percent because 8 out of the
23 rural New England hospitals are MDHs
that will lose this special payment status
under the expiration of the program at the
end of FY 2012. MDHs can expect a decrease
in payments of 7.8 percent.

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
j. Effects of the Hospital Readmissions
Reduction Program (Column 11)
Column 11 shows our estimates of effects
of the policies for implementation of the
Hospital Readmissions Reduction Program,
which was established under section 3025 of
the Affordable Care Act. The Hospital
Readmissions Reduction Program requires a
reduction to a hospital’s base operating DRG
payments to account for excess readmissions,
which is based on a hospital’s risk-adjusted
readmission rate during a 3-year period for
three applicable conditions: Acute
Myocardial Infarction, Heart Failure, and
Pneumonia. This provision is not budget
neutral. A hospital’s readmission adjustment
is the higher of a ratio of the hospital’s
aggregate payments for excess readmissions
to their aggregate payments for all discharges,
or a floor, which has been defined in statute
as 0.99 (or a 1-percent reduction) for FY
2013. A hospital’s base operating DRG
payment (that is, wage-adjusted DRG
payment amount, as discussed in section
IV.A. of the preamble of this final rule) is the
portion of the IPPS payment subject to the
readmissions payment adjustment (DSH,
IME, outliers and low-volume add-on
payments are not subject to the readmissions
adjustment). In this final rule, we estimate
that 2,206 hospitals will have their base
operating DRG payments reduced by the
readmissions adjustment, resulting in a 0.3
percent decrease in payments to hospitals
overall.
Urban hospitals in the Middle Atlantic,
rural hospitals in the East South Central
region, West South Central region, rural DSH
hospitals and hospitals with Medicare
utilization of over 65 percent will experience
the highest decreases of 0.4 percent among
the different hospital categories. Urban
hospitals in the West South Central region,
Mountain region and Pacific region will
experience the smallest decreases of 0.1
percent in payments. Puerto Rico hospitals
show a 0 percent change in payments
because they are exempt from the provision.
k. Effects of All FY 2013 Changes (Column
12)
Column 12 shows our estimate of the
changes in payments per discharge from FY
2012 and FY 2013, resulting from all changes
reflected in this final rule for FY 2013. It
includes combined effects of the previous
columns in the table.
The average increase in payments under
the IPPS for all hospitals is approximately 2.3
percent for FY 2013 relative to FY 2012. As
discussed in section II.D. of the preamble of
this final rule, this column includes the FY
2013 documentation and coding adjustment
of 1.0 percent on the national standardized
amount (the ¥1.9 percent documentation
and coding adjustment and the 2.9 percent
adjustment to restore the one-time

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recoupment adjustment made to national
standardized amount) and the ¥0.5 percent
documentation and coding adjustment on the
hospital-specific rates. In addition, this
column includes the annual hospital update
of 1.8 percent to the national standardized
amount. This annual hospital update
includes the 2.6 percent market basket
update, the reduction of 0.7 percentage point
for the multifactor productivity adjustment,
and the 0.1 percentage point reduction under
section 3401 of the Affordable Care Act. As
described in Column 2, the annual hospital
update, combined with the documentation
and coding adjustment, results in a 2.7
percent increase in payments in FY 2013
relative to FY 2012. In addition, Column 8
describes an estimated 0.1 percent increase
in payments due to the frontier State wage
index. Column 10 describes the estimated 0.2
percent decrease in payments due to the
expiration of the MDH status under section
3124 of the Affordable Care Act. Column 11
shows the estimated 0.3 percent decrease in
payments due to the establishment of the
Hospital Readmissions Reduction Program,
which reduces a hospital’s base operating
DRG payments by a readmission adjustment
factor based on a hospital’s performance on
readmissions for specified conditions. In
addition, although not shown in the impacts
table, payments are estimated to decrease by
0.1 due to the expiration of section 508
reclassifications that had been extended for
6 months of FY 2012 under section 302 of the
Temporary Payroll Tax Cut Continuation Act
of 2011 (Pub. L. 112–78), as amended by
section 3001 of the Middle Class Tax Relief
and Job Creation Act of 2012 (Pub. L. 112–
96). Section 508 was not a budget-neutral
provision. The impact of moving from our
estimate of FY 2012 outlier payments, 5.0
percent, to the estimate of FY 2013 outlier
payments, 5.1 percent, results in an increase
of 0.1 percent in FY 2013 payments relative
to FY 2012. 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 12 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 2013 is estimated to increase by 2.3
percent. The payment increase among the
hospital categories is largely attributed to the
updates to the rate including the hospital
update. Hospitals in urban areas will
experience an estimated 2.5 percent increase
in payments per discharge in FY 2013
compared to FY 2012. Hospital payments per
discharge in rural areas are estimated to
increase by 0.3 percent in FY 2013 as
compared to FY 2012 due to the expiration
of MDH status.
Among urban census divisions, the Urban
New England hospitals will experience an

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53731

estimated 1.5 percent increase in payments,
less than the national average, because many
of the urban providers in this region had
benefited from section 508 reclassifications
in FY 2012 that will expire for FY 2013.
Urban hospitals in the Pacific will see the
largest payment increases (4.0 percent)
because the hospitals are benefitting from the
rural floors in their States.
Among the rural regions, the hospitals in
the New England Region will experience the
estimated decreases in payments of 0.8
percent, due to the expiration of MDH status.
Rural hospitals in the Mountain Region are
estimated to experience a 1.1 percent
increase because the rural providers in this
region benefit from MGCRB reclassification
and the application of the Frontier wage
index, which offsets decreases due to the
rural floor and the expiration of MDH status.
Among special categories of hospitals,
former MDHs will receive an estimated
payment decrease of 6.4 percent due to the
expiration of the MDH status. SCHs are paid
the higher of their Federal rate and the
hospital-specific rate. Overall, SCHs are
estimated to experience a payment increase
of 0.1 percent due to the application of the
rural floor budget neutrality and the
implementation of the Hospital Readmissions
Reduction Program.
Rural hospitals reclassified for FY 2013
will receive an estimated 1.1 percent
payment increase. Rural hospitals that are
not reclassifying are estimated to receive a
payment decrease of 1.1 percent due to lower
wage data, the application of rural floor
budget neutrality and expiration of MDH
status. Urban reclassified hospitals will
experience an estimated payment increase at
2.6 percent due to the benefits under MGCRB
reclassification and the rural floor. Urban
nonreclassified hospitals will experience an
estimated payment increase of 2.5 percent.
Cardiac hospitals are expected to
experience a payment increase 3.9 percent in
FY 2013 relative to FY 2012 primarily due to
benefits to the changes in the relative weights
and the application of the Frontier wage
index.
3. Impact Analysis of Table II
Table II presents the projected impact of
the changes for FY 2013 for urban and rural
hospitals and for the different categories of
hospitals shown in Table I. It compares the
estimated average payments per discharge for
FY 2012 with the average payments per
discharge for FY 2013, as calculated under
our models. Thus, this table presents, in
terms of the average dollar amounts paid per
discharge, the combined effects of the
changes presented in Table I. The estimated
percentage changes shown in the last column
of Table II equal the estimated percentage
changes in average payments per discharge
from Column 12 of Table I.

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TABLE II—IMPACT ANALYSIS OF CHANGES FOR FY 2013 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT
SYSTEM

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[Payments per discharge]

All hospitals ......................................................................................................................
By Geographic Location:
Urban hospitals .........................................................................................................
Large urban areas (populations over 1 million) .......................................................
Other urban areas (populations of 1 million or fewer) .............................................
Rural hospitals ..........................................................................................................
Bed Size (Urban):
0–99 beds .................................................................................................................
100–199 beds ...........................................................................................................
200–299 beds ...........................................................................................................
300–499 beds ...........................................................................................................
500 or more beds .....................................................................................................
Bed Size (Rural):
0–49 beds .................................................................................................................
50–99 beds ...............................................................................................................
100–149 beds ...........................................................................................................
150–199 beds ...........................................................................................................
200 or more beds .....................................................................................................
Urban by Region:
New England ............................................................................................................
Middle Atlantic ..........................................................................................................
South Atlantic ...........................................................................................................
East North Central ....................................................................................................
East South Central ...................................................................................................
West North Central ...................................................................................................
West South Central ..................................................................................................
Mountain ...................................................................................................................
Pacific .......................................................................................................................
Puerto Rico ...............................................................................................................
Rural by Region:
New England ............................................................................................................
Middle Atlantic ..........................................................................................................
South Atlantic ...........................................................................................................
East North Central ....................................................................................................
East South Central ...................................................................................................
West North Central ...................................................................................................
West South Central ..................................................................................................
Mountain ...................................................................................................................
Pacific .......................................................................................................................
Puerto Rico ...............................................................................................................
By Payment Classification:
Urban hospitals .........................................................................................................
Large urban areas (populations over 1 million) .......................................................
Other urban areas (populations of 1 million or fewer) .............................................
Rural areas ...............................................................................................................
Teaching Status:
Non-teaching ............................................................................................................
Fewer than 100 Residents .......................................................................................
100 or more Residents .............................................................................................
Urban DSH:
Non-DSH ..................................................................................................................
100 or more beds .....................................................................................................
Less than 100 beds ..................................................................................................
Rural DSH:
SCH ..........................................................................................................................
RRC ..........................................................................................................................
100 or more beds .....................................................................................................
Less than 100 beds ..................................................................................................
Urban teaching and DSH:
Both teaching and DSH ............................................................................................
Teaching and no DSH ..............................................................................................
No teaching and DSH ..............................................................................................
No teaching and no DSH .........................................................................................
Rural Hospital Types:

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Number of
hospitals

Average
FY 2012
payment
per
discharge

Average
FY 2013
payment
per
discharge

All
FY 2013
changes

(1)

(2)

(3)

(4)

3,423

10,477

10,716

2.3

2,497
1,373
1,124
926

10,881
11,503
10,117
7,845

11,153
11,803
10,355
7,868

2.5
2.6
2.4
0.3

633
780
448
430
206

8,343
9,192
9,955
11,133
13,424

8,550
9,423
10,212
11,428
13,733

2.5
2.5
2.6
2.6
2.3

321
347
153
58
47

6,307
7,335
7,605
8,544
9,656

6,241
7,214
7,681
8,673
9,847

¥1.1
¥1.7
1
1.5
2

120
318
380
399
151
165
372
159
382
51

11,852
11,929
9,958
10,128
9,590
10,519
10,152
11,045
13,625
5,384

12,025
12,136
10,183
10,392
9,765
10,839
10,391
11,394
14,174
5,526

1.5
1.7
2.3
2.6
1.8
3
2.4
3.2
4
2.6

23
69
166
120
173
98
181
65
30
1

10,465
8,345
7,518
8,083
7,186
8,344
6,882
8,690
10,613
2,151

10,376
8,334
7,560
8,079
7,233
8,358
6,889
8,787
10,709
2,213

¥0.8
¥0.1
0.6
¥0.1
0.7
0.2
0.1
1.1
0.9
2.9

2,512
1,383
1,129
911

10,860
11,483
10,088
8,046

11,133
11,778
10,332
8,077

2.5
2.6
2.4
0.4

2,392
789
242

8,783
10,309
15,381

8,963
10,571
15,737

2
2.5
2.3

700
1,558
345

9,142
11,334
7,706

9,335
11,621
7,899

2.1
2.5
2.5

258
232
34
296

7,801
8,946
7,042
6,214

7,761
9,088
7,093
6,093

¥0.5
1.6
0.7
¥1.9

825
139
1,078
470

12,413
10,146
9,300
8,659

12,720
10,375
9,547
8,870

2.5
2.3
2.6
2.4

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53733

TABLE II—IMPACT ANALYSIS OF CHANGES FOR FY 2013 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT
SYSTEM—Continued
[Payments per discharge]

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RRC ..........................................................................................................................
SCH ..........................................................................................................................
Former MDH .............................................................................................................
SCH and RRC ..........................................................................................................
Former MDH and RRC .............................................................................................
Type of Ownership:
Voluntary ...................................................................................................................
Proprietary ................................................................................................................
Government ..............................................................................................................
Medicare Utilization as a Percent of Inpatient Days:
0–25 ..........................................................................................................................
25–50 ........................................................................................................................
50–65 ........................................................................................................................
Over 65 .....................................................................................................................
Hospitals Reclassified by the Medicare Geographic Classification Review Board: FY
2013 Reclassifications:
All Reclassified Hospitals FY 2013 ..........................................................................
All Non-Reclassified Hospitals FY 2013 ..................................................................
Urban Reclassified Hospitals FY 2013 ....................................................................
Urban Non-reclassified Hospitals FY 2013 ..............................................................
Rural Reclassified Hospitals FY 2013 ......................................................................
Rural Nonreclassified Hospitals FY 2013 ................................................................
All Section 401 Reclassified Hospitals .....................................................................
Other Reclassified Hospitals (Section 1886(d)(8)(B)) ..............................................
Specialty Hospitals:
Cardiac Hospitals .....................................................................................................

H. Effects of Other Policy Changes
In addition to those policy changes
discussed above that we are able to model
using our IPPS payment simulation model,
we are making various other changes in this
final rule. Generally, we have limited or no
specific data available with which to estimate
the impacts of these changes. Our estimates
of the likely impacts associated with these
other changes are discussed below.
1. Effects of Policy on HACs, Including
Infections
In section II.F. of the preamble of this final
rule, we discuss our implementation of
section 1886(d)(4)(D) of the Act, which
requires the Secretary to identify conditions
that are: (1) High cost, high volume, or both;
(2) result in the assignment of a case to an
MS–DRG that has a higher payment when
present as a secondary diagnosis; and (3)
could reasonably have been prevented
through application of evidence-based
guidelines. For discharges occurring on or
after October 1, 2008, hospitals will not
receive additional payment for cases in
which one of the selected conditions was not
present on admission, unless, based on data
and clinical judgment, it cannot be
determined at the time of admission whether
a condition is present. That is, the case will
be paid as though the secondary diagnosis
were not present. However, the statute also
requires the Secretary to continue counting
the condition as a secondary diagnosis that

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Number of
hospitals

Average
FY 2012
payment
per
discharge

Average
FY 2013
payment
per
discharge

All
FY 2013
changes

(1)

(2)

(3)

(4)

203
326
195
118
18

8,917
8,428
6,519
9,737
8,576

9,105
8,437
6,101
9,868
7,505

2.1
0.1
¥6.4
1.4
¥12.5

1,971
868
563

10,618
9,318
11,148

10,857
9,539
11,406

2.3
2.4
2.3

376
1,834
974
166

14,621
10,970
8,581
7,914

15,111
11,239
8,711
7,943

3.4
2.4
1.5
0.4

654
2,769
320
2,137
334
531
46
62

9,828
10,644
10,707
10,921
8,383
7,044
10,030
7,497

10,037
10,891
10,984
11,195
8,477
6,968
10,083
7,349

2.1
2.3
2.6
2.5
1.1
¥1.1
0.5
¥2

19

10,925

11,350

3.9

results in a higher IPPS payment when doing
the budget neutrality calculations for MS–
DRG reclassifications and recalibration.
Therefore, we will perform our budget
neutrality calculations as though the
payment provision did not apply, but
Medicare will make a lower payment to the
hospital for the specific case that includes
the secondary diagnosis. Thus, the provision
results in cost savings to the Medicare
program.
We note that the provision will only apply
when one or more of the selected conditions
are the only secondary diagnosis or diagnoses
present on the claim that will lead to higher
payment. Medicare beneficiaries will
generally have multiple secondary diagnoses
during a hospital stay, such that beneficiaries
having one MCC or CC will frequently have
additional conditions that also will generate
higher payment. Only a small percentage of
the cases will have only one secondary
diagnosis that would lead to a higher
payment. Therefore, if at least one
nonselected secondary diagnosis that leads to
higher payment is on the claim, the case will
continue to be assigned to the higher paying
MS–DRG and there will be no Medicare
savings from that case. In addition, as
discussed in section II.F.3. of the preamble of
this final 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

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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 final
rule, we are adding two HACs for FY 2013:
Surgical Site Infection (SSI) Following
Cardiac Implantable Electronic Device (CIED)
Procedures and Iatrogenic Pneumothorax
with Venous Catheterization. Similar to the
current HACs, only a very small number of
discharges would have only one secondary
diagnosis that would lead to a higher
payment. Therefore, there will likely be very
few discharges where the MS–DRG is
reassigned for these proposed conditions and
this would result in a minimal payment
impact.
The HAC payment provision went into
effect on October 1, 2008. Our savings
estimates for the next 5 fiscal years are
shown below:
Year
FY
FY
FY
FY
FY

2013
2014
2015
2016
2017

................................
................................
................................
................................
................................

Savings
(in millions)
$24
26
28
30
33

2. Effects of Policy Relating to New Medical
Service and Technology Add-On Payments
In section II.I. of the preamble to this final
rule, we discuss four applications for add-on

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payments for new medical services and
technologies for FY 2013, as well as the
status of the new technology that was
approved to receive new technology add-on
payments in FY 2012. 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 final
rule, we are approving three of the four
applications for new technology add-on
payments for FY 2013. In this final rule, we
also are continuing to make new technology
add-on payments in FY 2013 for the
AutoLITTTM (because the technology is still
within the 3-year anniversary of the
product’s entry onto the market). 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 estimates below
are based on the increase in add-on payments
for FY 2013 as if every claim that would
qualify for a new technology add-on payment
would receive the maximum add-on
payment. For the AutoLITTTM, for FY 2011,
the applicant estimated 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 new technology addon payments for the AutoLITTTM will
increase overall FY 2013 payments by
$900,000. For Voraxaze®, for FY 2013, the
applicant estimates that approximately 140
Medicare beneficiaries will be eligible for the
technology. Therefore, we currently estimate
that new technology add-on payments for
Voraxaze® will increase overall FY 2013
payments by $6,300,000. For DificidTM, for
FY 2013, the applicant estimates that
approximately 40,138 Medicare beneficiaries
will be eligible for the technology. Therefore,
we currently estimate that new technology
add-on payments for DificidTM will increase
overall FY 2013 payments by $34,839,784.
For the Zenith® F. Graft, for FY 2013, the
applicant estimates that approximately 500
Medicare beneficiaries will be eligible for the
technology. Therefore, we currently estimate
that new technology add-on payments for the
Zenith® F. Graft will increase overall FY
2013 payments by $4,085,750. The total
increase in overall FY 2013 payments due to
new technology add-on payment is estimated
to be $46,125,534.
3. Effects of Policy Changes Relating to SCHs
In section IV.B.2. of the preamble of this
final rule, we discuss our clarification of the
regulations related to the termination of a
hospital’s status as an SCH. We are adding
a provision to the regulations to clarify that
if CMS determines that the hospital was
incorrectly designated as an SCH, SCH status
may be cancelled retroactively, consistent
with the provisions at 42 CFR 405.1885. We
also are specifying that if a hospital that was
incorrectly designated as an SCH notifies
CMS of that error, the SCH classification
status may be terminated effective 30 days
from CMS’ date of determination. We believe
it is difficult to quantify the payment impact

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of these clarifications because we cannot
estimate the number of SCHs that will be
affected by these policies. However, we
believe any impact will be insignificant
because the policies only affect hospitals that
were incorrectly classified as SCHs. In the
proposed rule, we solicited public comments
on these issues. Any public comments that
we received are addressed in section IV.B.2.
of the preamble of this final rule.
In section IV.B.3. of the preamble of this
final rule, we discuss our addition of a
provision to the regulations to allow
hospitals that are currently classified as
MDHs to apply for classification as SCHs
upon the expiration of the MDH program on
September 30, 2012. We are providing that,
for any MDH that applies for SCH
classification at least 30 days prior to the
expiration of the MDH program and requests
that SCH classification status be effective
with the expiration of the MDH program, and
the hospital is approved for SCH status, the
effective for SCH status will be the day
following the expiration of the MDH
program. We believe it is difficult to quantify
the payment impact of this policy because we
cannot estimate the number of MDHs that
will be applying for SCH status.
4. Effects of the Payment Adjustment for
Low-Volume Hospitals for FY 2013
In section IV.D. of the preamble to this
final rule, we discuss the provisions of the
Affordable Care Act that expanded the
definition of low-volume hospital and
modified the methodology for determining
the payment adjustment for hospitals
meeting that definition for FYs 2011 and
2012. In accordance with section 1886(d)(12)
of the Act, beginning with FY 2013, the lowvolume hospital definition and payment
adjustment methodology will revert back to
the statutory requirements that were in effect
prior to the amendments made by the
Affordable Care Act. Therefore, effective for
FY 2013 and subsequent years, in order to
qualify as a low-volume hospital, a
subsection (d) hospital must be more than 25
road miles from another subsection (d)
hospital and have less than 200 discharges
(that is, less than 200 discharges total,
including both Medicare and non-Medicare
discharges) during the fiscal year.
Based on FY 2011 claims data (March 2012
update of the MedPAR file), we estimate that
approximately 600 hospitals in our database
qualified as a low-volume hospital for FY
2012, but will no longer meet the mileage
and discharges criteria to qualify as a lowvolume hospital under section 1886(d)(12) of
the Act for FY 2013. Because we estimate
that these hospitals will no longer qualify for
the low-volume hospital adjustment in FY
2013 (due to the statutory change in the
qualifying criteria), we project that these
hospitals will experience a decrease in
payments of approximately $318 million in
FY 2013 as compared to the payments that
they would have otherwise received in FY
2013 in absence of the statutory change in the
low-volume hospital qualifying criteria.

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5. Effects of Policy Changes Relating to
Payment Adjustments for Medicare
Disproportionate Share Hospitals (DSHs) and
Indirect Medical Education (IME)
In section IV.F. of the preamble of this final
rule, we discuss our finalization of a proposal
to include ancillary labor and delivery beds
in the available bed count used to determine
the DSH payment adjustment and the IME
payment adjustment. The impact of the
changes to the DSH payment adjustment
should be negligible, as the DSH payment
adjustment is determined mainly by the
demographic composition of an individual
hospital’s patient population, and not its
overall bed count. However, we note that
some hospitals’ bed counts do not meet the
minimum threshold required to qualify for
the DSH payment adjustment. For these
hospitals that do not meet the minimum bed
count required to qualify for the DSH
payment adjustment, an increase in the
number of available beds could now allow
them to qualify for the DSH payment
adjustment. For purposes of the IME payment
adjustment, an increase in a hospital’s
number of available beds would result in a
decrease in the resident-to-bed ratio. The
inclusion of bed days associated with labor
and delivery patients in the available bed
count for IME will increase the available
beds, decrease the resident-to-bed ratio, and,
consequently, decrease IME payments to
teaching hospitals, depending on the number
of these hospitals’ labor and delivery beds.
Based on labor and delivery patient days
currently reported in the Medicare hospital
cost report database, we estimate that the
inclusion of labor and delivery beds in the
available bed day count will decrease IME
payments by $40 million in FY 2013.
Comment: One commenter was unable to
replicate our proposed estimate of $170 in
savings due to the inclusion of labor and
delivery days in the available bed day count
for IME. The commenter sought additional
information on how the estimate was made.
Response: We thank the commenter for the
comment. In the proposed rule, we
determined our estimate based on Medicare
hospital cost report data from 2010, which is
the most recently available data for when
hospitals began reporting their labor and
delivery patient days. We used these data to
estimate the number of available bed days
with the inclusion of the labor and delivery
patient days for teaching hospitals. We then
calculated the change in IME payments with
the revised bed count. Because only a subset
of providers had submitted their 2010
Medicare hospital cost report data at the time
of our estimate, we had to extrapolate our
estimate to apply to all teaching hospitals. In
the proposed rule, we inadvertently added
our estimate of labor and delivery bed days
to hospitals’ total bed day count, not their
bed day count used to determine IME
payments, resulting in a greater estimate of
savings. We have corrected our estimate of
savings to $40 million, as stated above in this
final rule.

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6. Effects of the Policy Changes Relating to
GME and IME
a. Effects of Clarification and Policy
Regarding Timely Filing Requirements Under
Fee-for-Service Medicare
In section IV.E.2. of the preamble of this
final rule, we discuss a clarification related
to the time limits for filing claims for IME,
direct GME, and nursing and allied health
education payments for services furnished to
MA enrollees. This clarification is intended
to make clear to hospitals that they must
follow the regulations governing the time
limits for filing claims at § 424.44 in order to
receive IME, and/or direct GME, and/or
nursing or allied health education program
payments associated with Medicare
Advantage enrollees. Because we are not
making any policy changes (but rather
clarifying the existing timely filing
requirements), there is no financial impact
for this clarification.
In section IV.E.2. of the preamble of this
final rule, we also are adopting a policy
under which hospitals that are required to
submit no pay bills for services furnished on
a prepaid capitation basis by an MA
organization, or through cost settlement with
either a health maintenance organization, a
competitive medical plan, a health care
prepayment plan, or a demonstration, for the
purpose of calculating the DPP that is used
in determining the DSH payment adjustment
must do so within the time limits for filing
claims at § 424.44. We do not anticipate that
this policy will have any impact, as providers
are already submitting no pay bills for
purposes of the DPP.
b. Effects of Policy Changes Relating to New
Teaching Hospitals: New Program Growth
From 3 Years to 5 Years
In section IV.I.2. of the preamble of this
final rule, we discuss our finalization of a
proposal to extend the period a new teaching
hospital has to establish its caps for direct
GME and IME payment purposes from 3
years to 5 years. We are revising the
regulations to state that if a new teaching
hospital participates in training residents in
a new program for the first time on or after
October 1, 2012, that new teaching hospital’s
caps will be based on the products of the
highest number of FTE residents training in
any program year during the fifth year of
each new program’s existence for all new
residency training programs and the number
of years in which residents are expected to
complete the program based on the minimum
accredited length for each type of program.
The cap will be applied beginning with the
sixth academic year of the first new program.
We note that, in the preamble, we have also
provided a formula for calculating the FTE
resident cap when residents in the new
program rotate to more than one hospital
during the 5 years. We believe the expansion
of the cap-building period from 3 years to 5
years would make our policies for the
establishment of a hospital’s cap more
compatible with current accreditation
requirements that hospitals must meet to
establish new residency training programs.
We estimate that these policies will cost
approximately $175 million over the next 10
years. However, because these changes to the

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cap growth period from 3 years to 5 years
will only affect new programs beginning on
or after October 1, 2012, we estimate that no
cost will be incurred until FY 2016. This
estimate assumes that there could be 20 new
teaching hospitals each year.
c. Effects of Changes Relating to 5-Year
Period Following Implementation of
Reductions and Increases to Hospitals’ FTE
Resident Caps for GME Payment Purposes
Under Section 5503 of the Affordable Care
Act
In section IV.I.3. of the preamble of this
final rule, we discuss our final policies
related to the 5-year period following
implementation of reductions and increases
to hospitals’ FTE resident caps for GME
payment purposes under section 5503 of the
Affordable Care Act. Section 5503 of the
Affordable Care Act amended the Medicare
statute by adding a new section 1886(h)(8) of
the Act, which provides for reductions in the
statutory FTE resident caps for direct GME
and IME under Medicare for certain
hospitals, and authorizes a ‘‘redistribution’’
to certain hospitals of the estimated number
of FTE resident slots resulting from the
reductions. The amendments made by
section 5503 also specify that a hospital that
receives an increase in its cap shall ensure,
during the 5-year period beginning on the
date of such increase (July 1, 2011), that
certain requirements, referred to as the
primary care average and 75-percent
threshold, are met in order to retain those
slots. Otherwise, the Medicare statute
authorizes the Secretary to reduce the FTE
caps of the hospital if the hospital fails to
meet either of those requirements.
Because the statutorily directed criteria for
consideration in awarding slots under section
5503 included the requirement that hospitals
applying for slots demonstrate the likelihood
of filling the slots within the first three cost
reporting periods beginning on or after July
1, 2011, and we relied on that information in
awarding slots, we proposed that a hospital
that received section 5503 slots must fill at
least half of its section 5503 slots, IME and
direct GME respectively, in at least one of the
following timeframes: The first 12-month
cost reporting period of the 5-year period,
and/or in its second 12-month cost reporting
period and/or in its third 12-month cost
reporting period of the 5-year period, or lose
its section 5503 slots. We also proposed that
the hospital must fill all of the slots it
received by its final cost reporting period
beginning during the timeframe of July 1,
2011, through June 30, 2016, or lose all of its
section 5503 slots after June 30, 2016.
However, based on public comments
received, we are instead finalizing a policy
under which, regardless of whether slots are
used for new programs or expansions of
existing programs, the Medicare contractors
will remove the applicable unused section
5503 slots for portions of cost reporting
periods on or after July 1, 2016. The slots that
are removed will be distributed to other
hospitals. We also are finalizing an
additional policy regarding slots used
specifically for program expansions under
which in determining the applicable unused
slots for purposes of reductions for cost
reporting periods on or after July 1, 2016, the

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53735

slots used are equal to the lesser of the
number of slots used in the fourth 12-month
cost report or the final cost report.
We believe the impact of these policies
regarding the timing of the use of these
section 5503 slots is budget neutral. We
believe that hospitals will take the steps
necessary to comply with the section 5503
requirements to ensure, to the best of their
ability, that they will not lose their section
5503 slots. We also believe that section 5503
slots are valuable enough to hospitals that it
is worthwhile for hospitals to fill as many of
their section 5503 slots as possible in
accordance with the policy in this final rule,
because not doing so would mean the loss of
unused section 5503 slots after Year 5 ends.
Furthermore, section 1886(h)(8)(B)(iii) of the
Act instructs the Secretary to redistribute
positions that are removed from hospitals
that fail to meet the requirements at section
1886(h)(8)(B)(ii) of the Act; therefore, the
section 5503 slots would ultimately be filled
and paid for by Medicare regardless. Thus,
there will be neither an additional cost due
to these policies nor savings related to these
policies.
d. Preservation of Resident Cap Positions
From Closed Hospitals (Section 5506 of the
Affordable Care Act)
In section IV.I.4. of the preamble of this
final rule, we discuss our clarifications of
existing policy related to section 5506 of the
Affordable Care Act. Section 5506 amended
the Medicare statute to add a provision that
instructs the Secretary to establish a process
by regulation under which, in the event a
teaching hospital closes, the Secretary will
permanently increase the FTE resident caps
for hospitals that meet certain criteria up to
the number of the closed hospital’s FTE
resident caps. The Secretary is directed to
ensure that the total number of FTE resident
cap slots distributed is not to exceed the
amount of slots in the closed hospital’s direct
GME and IME FTE resident caps,
respectively. The regulations and application
process regarding section 5506 were
implemented in the November 24, 2010 final
rule with comment period (75 FR 72212).
The provisions included in the preamble of
this final rule are generally administrative in
nature, related to the rules regarding the
application of section 5506, minor changes or
clarifications to the ranking criteria on the
applications, changes or clarifications
regarding the effective dates of slots awarded
under section 5506, and reiteration that the
regulations at § 413.79(h) regarding
temporary FTE resident caps for displaced
residents, and the attending exemption from
the 3-year rolling average and resident-to-bed
ratio cap are being preserved. Therefore,
there is no financial impact for these section
5506 provisions.
7. Effects of Changes Relating to the
Reporting Requirements for Pension Costs for
Medicare Cost-Finding Purposes
In section IV.J. of the preamble of this final
rule, we discuss finalizing our proposal to
amend two existing regulations to conform
these regulations to the final policy we
adopted in the FY 2012 IPPS/LTCH PPS final
rule (76 FR 51693 through 51597) with regard
to pension costs for Medicare cost-finding

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purposes. Because we are making only
conforming changes to the regulations and
not further modifying the policy we
finalized, there is no impact on hospitals for
these changes for FY 2013.
8. Effects of Implementation of Rural
Community Hospital Demonstration Program
In section IV.K. of the preamble of this
final rule, we discuss our implementation of
section 410A of Public Law 108–173, as
amended, which requires the Secretary to
conduct a demonstration that would modify
reimbursement for inpatient services for up
to 30 rural community 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.K.
of the preamble of this final rule, in the IPPS
final rules for each of the previous 8 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 adjusting the national IPPS
rates by an amount sufficient to account for
the added costs of this demonstration. In
other words, we are applying budget
neutrality across the payment system as a
whole rather than merely across the
participants of this demonstration. 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.
We are adjusting the national IPPS rates
according to the methodology set forth
elsewhere in this final rule. The adjustment
to the national IPPS rates to account for
estimated demonstration cost for FY 2013 for
the 7 ‘‘pre-expansion’’ participating hospitals
that are currently participating in the
demonstration and the 16 additional
hospitals participating as a result of the
expansion of the demonstration under the
Affordable Care Act is $34,288,129. We note
that we proposed that if settled cost reports
for all of the demonstration hospitals that
participated in the applicable fiscal year
(2007, 2008, 2009, or 2010) were made
available prior to this FY 2013 IPPS/LTCH
PPS final rule, we would incorporate into the
FY 2013 budget neutrality offset amount the
difference between the final cost of the
demonstration in any of these years and the
budget neutrality offset amount applicable to
such year as finalized in the respective year’s
IPPS final rule. The estimated amount of
$34,288,129 does not account for any
differences between the cost of the
demonstration program for hospitals
participating in the demonstration for FYs
2007 through 2010 and the amounts that
were offset by the budget neutrality
adjustment for these years because the

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specific numeric value associated with this
component of the adjustment to the national
IPPS rates cannot be known at this time. This
is because the large majority of settled cost
reports beginning in FYs 2007 through 2010
for the hospitals participating in the
demonstration during those years also are not
available at this time.
9. Effects of Change in Effective Date for
Policies Relating to Hospital Services
Furnished Under Arrangements
In section IV.L. of the preamble of this final
rule, we discuss that, in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51711 through
51714), we limited the circumstances under
which a hospital may furnish services to
Medicare beneficiaries ‘‘under
arrangements.’’ Under the revised policy,
‘‘routine services’’ (that is, bed, board, and
nursing and other related services) must be
provided in the hospital in which the patient
is a registered inpatient in order for the
services to be considered as being provided
by the hospital. Routine services furnished to
Medicare beneficiaries as inpatients of the
hospital are considered services furnished by
the hospital. Only diagnostic and therapeutic
services (that is, ancillary services) may be
provided under arrangements outside the
hospital. We have become aware that a
number of affected hospitals need additional
time to restructure existing arrangements and
establish necessary operational protocols to
comply with this requirement. Therefore, as
we proposed, we are postponing the effective
date of the revised policy change from
services provided on or after October 1, 2011,
to cost reporting periods beginning in FY
2014. We have determined that the impact of
this effective date change is negligible.
I. Effects of Changes in the Capital IPPS
1. General Considerations
For the impact analysis presented below,
we used data from the March 2012 update of
the FY 2011 MedPAR file and the March
2012 update of the Provider-Specific File
(PSF) that is used for payment purposes.
Although the analyses of the changes to the
capital prospective payment system do not
incorporate cost data, we used the March
2012 update of the most recently available
hospital cost report data (FYs 2009 and 2010)
to categorize hospitals. Our analysis has
several qualifications. We use the best data
available and make assumptions about casemix and beneficiary enrollment as described
below. (As discussed in greater detail in
section V.E. of the preamble of this final rule,
at this time, we are not adopting our proposal
to make an additional ¥0.8 percent
adjustment to the national capital Federal
rate in FY 2013 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. However,
the cumulative documentation and coding
adjustment factor of 0.9479 applied in
determining the FY 2012 capital Federal rate
remains applied to that rate. We also note, as
we proposed, we are not making any further
adjustments to the Puerto Rico-specific
capital rate in FY 2013 to account for changes
in documentation and coding.)

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Due to the interdependent nature of the
IPPS, it is very difficult to precisely quantify
the impact associated with each change. In
addition, we draw upon various sources for
the data used to categorize hospitals in the
tables. In some cases (for instance, the
number of beds), there is a fair degree of
variation in the data from different sources.
We have attempted to construct these
variables with the best available sources
overall. However, it is possible that some
individual hospitals are placed in the wrong
category.
Using cases from the March 2012 update of
the FY 2011 MedPAR file, we simulated
payments under the capital IPPS for FY 2012
and FY 2013 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 capital
IPPS payments in FY 2013 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 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:
• We estimate that the Medicare case-mix
index will increase by 0.5 percent in both
FYs 2012 and 2013.
• We estimate that the Medicare
discharges will be approximately 12.5
million in FY 2012 and 12.9 million in FY
2013.
• 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
Addendum to this final rule, the update is
1.2 percent for FY 2013.
• In addition to the FY 2013 update factor,
the FY 2013 capital Federal rate was
calculated based on a GAF/DRG budget
neutrality adjustment factor of 0.9998, and an
outlier adjustment factor of 0.9362.
2. Results
We used the actuarial model described
above to estimate the potential impact of our
changes for FY 2013 on total capital
payments per case, using a universe of 3,423
hospitals. As described above, the individual
hospital payment parameters are taken from
the best available data, including the March
2012 update of the FY 2011 MedPAR file, the
March 2012 update to the PSF, and the most
recent cost report data from the March 2012

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
update of HCRIS. In Table III, we present a
comparison of estimated total payments per
case for FY 2012 and estimated total
payments per case for FY 2013 based on the
FY 2013 payment policies. Column 2 shows
estimates of payments per case under our
model for FY 2012. Column 3 shows
estimates of payments per case under our
model for FY 2013. Column 4 shows the total
percentage change in payments from FY 2012
to FY 2013. The change represented in
Column 4 includes the 1.2 percent update to
the capital Federal rate and other 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, capital payments per case in FY
2013 are expected to increase as compared to
capital payments per case in FY 2012.
However, the capital Federal rate for FY 2013
will increase approximately 1.0 percent as
compared to the FY 2012 capital Federal rate.
The changes to the GAFs are expected to
result, on average, in a slight decrease in
capital payments for most regions with
certain exceptions. The regional variations in
the estimated change in capital payments are
consistent with the changes in payments due
to changes in the wage index (and policies
affecting the wage index) shown in Table I
in section I. of this Appendix.
We also are estimating a slight increase in
outlier payments in FY 2013 as compared to
FY 2012. This is primarily because of the
decrease to the outlier fixed-loss amount
(discussed in section II.A.4.f. of the
Addendum to this final rule). In addition,
this estimated increase in outlier payments is
based on the FY 2011 claims from the March
2012 update of the MedPAR file, and we are
currently estimating that FY 2013 capital
outlier payments will be slightly more than
the projected 6.18 percent used to determine

the outlier offset that we applied in
determining the FY 2012 capital Federal rate.
The net impact of these changes, as
discussed above, is an estimated 1.8 percent
change in capital payments per discharge
from FY 2012 to FY 2013 for all hospitals (as
shown below in Table III).
The geographic comparison shows that, on
average, all hospitals are expected to
experience an increase in capital IPPS
payments per case in FY 2013 as compared
to FY 2012. These increases are primarily
due to the estimated increase in capital
outlier payments. Capital IPPS payments per
case for large urban hospitals are estimated
to increase 2.0 percent, while other urban
hospitals are expected to experience a 1.7
percent increase. Rural hospitals, on average,
are expected to experience a 1.5 percent
increase in capital payments per discharge
from FY 2012 to FY 2013.
The comparisons by region show that the
estimated increases in capital payments per
discharge from FY 2012 to FY 2013 in urban
areas ranges from a 0.8 percent increase for
the New England urban region to a 3.2
percent increase for the Pacific urban region.
For urban regions, the changes to the GAFs
are expected to have a slightly negative effect
on capital IPPS payments per discharge.
However, for the Pacific urban region, as well
as the Mountain urban region and the Puerto
Rico urban region, a large part of the
expected increase in capital IPPS payments
per discharge is due to the GAFs. This is
primarily due to changes in the wage index
for hospitals located in that area as discussed
in section I. of this Appendix.
Whereas the Pacific urban region is
estimated to experience the largest increase
in capital IPPS payment per discharge, the
estimated increase for the Pacific rural region
is the lowest at 0.4 percent. The largest
percentage increase in capital payments per
discharge from FY 2012 to FY 2013 for rural

53737

regions is estimated for the Mountain rural
region to be 2.9 percent. The Puerto Rico
rural region is estimated to experience a 2.5
percent increase in capital payments per
discharge in FY 2013 compared to FY 2012.
Hospitals of all type of ownership (that is,
voluntary hospitals, government hospitals,
and proprietary hospitals) are estimated to
experience an increase in capital payments
per case from FY 2012 to FY 2013. The
increase in capital payments for both
voluntary and proprietary hospitals is
estimated at 1.8 percent, and government
hospitals are estimated to experience a 2.0
percent increase in capital payments per case
from FY 2012 to FY 2013.
Section 1886(d)(10) of the Act established
the MGCRB. Hospitals may apply for
reclassification for purposes of the wage
index for FY 2013. 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 2013, we
show the average capital payments per case
for reclassified hospitals for FY 2013. As
with all other categories, reclassified
hospitals are expected to experience an
increase in capital payments. The estimated
percentage increase for urban reclassified
hospitals is 2.0 percent, and 1.9 percent for
urban nonreclassified hospitals. Rural
reclassified hospitals are estimated to
experience a 1.6 percent increase in capital
payments per discharge from FY 2012 to FY
2013, while rural nonreclassified hospitals
are estimated to experience a 1.3 percent
increase in capital payments per case. Other
reclassified hospitals (that is, hospitals
reclassified under section 1886(d)(8)(B) of the
Act) are expected to experience a 1.0 percent
increase in capital payments from FY 2012 to
FY 2013.

TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE
[FY 2012 payments compared to FY 2013 payments]

EMCDONALD on DSK67QTVN1PROD with RULES2

Number of
hospitals
By Geographic Location:
All hospitals ..............................................................................................................
Large urban areas (populations over 1 million) .......................................................
Other urban areas (populations of 1 million of fewer) .............................................
Rural areas ...............................................................................................................
Urban hospitals .........................................................................................................
0–99 beds ..........................................................................................................
100–199 beds ....................................................................................................
200–299 beds ....................................................................................................
300–499 beds ....................................................................................................
500 or more beds ..............................................................................................
Rural hospitals ..........................................................................................................
0–49 beds ..........................................................................................................
50–99 beds ........................................................................................................
100–149 beds ....................................................................................................
150–199 beds ....................................................................................................
200 or more beds ..............................................................................................
By Region:
Urban by Region ......................................................................................................
New England .....................................................................................................
Middle Atlantic ...................................................................................................
South Atlantic ....................................................................................................

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Average
FY 2012
payments/
case

Average
FY 2013
payments/
case

Percentage
change

3,423
1,373
1,124
926
2,497
633
780
448
430
206
926
321
347
153
58
47

794
876
777
550
832
678
717
769
846
1,002
550
439
505
545
613
669

809
894
790
558
847
692
730
783
863
1,020
558
445
513
551
622
681

1.8
2.0
1.7
1.5
1.9
1.9
1.8
1.8
1.9
1.8
1.5
1.2
1.6
1.1
1.6
1.7

2,497
120
318
380

832
901
884
772

847
908
895
784

1.9
0.8
1.3
1.5

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations
TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued
[FY 2012 payments compared to FY 2013 payments]

EMCDONALD on DSK67QTVN1PROD with RULES2

Number of
hospitals
East North Central .............................................................................................
East South Central ............................................................................................
West North Central ............................................................................................
West South Central ...........................................................................................
Mountain ............................................................................................................
Pacific ................................................................................................................
Puerto Rico ........................................................................................................
Rural by Region ........................................................................................................
New England .....................................................................................................
Middle Atlantic ...................................................................................................
South Atlantic ....................................................................................................
East North Central .............................................................................................
East South Central ............................................................................................
West North Central ............................................................................................
West South Central ...........................................................................................
Mountain ............................................................................................................
Pacific ................................................................................................................
Puerto Rico ........................................................................................................
By Payment Classification:
All hospitals ..............................................................................................................
Large urban areas (populations over 1 million) .......................................................
Other urban areas (populations of 1 million of fewer) .............................................
Rural areas ...............................................................................................................
Teaching Status:
Non-teaching .....................................................................................................
Fewer than 100 Residents ................................................................................
100 or more Residents ......................................................................................
Urban DSH:
100 or more beds .......................................................................................
Less than 100 beds ...................................................................................
Rural DSH:
Sole Community (SCH/EACH) ...................................................................
Referral Center (RRC/EACH) ....................................................................
Other Rural:
100 or more beds ...............................................................................
Less than 100 beds ............................................................................
Urban teaching and DSH:
Both teaching and DSH ....................................................................................
Teaching and no DSH .......................................................................................
No teaching and DSH .......................................................................................
No teaching and no DSH ..................................................................................
Rural Hospital Types:
Non special status hospitals .............................................................................
RRC/EACH ........................................................................................................
SCH/EACH ........................................................................................................
SCH, RRC and EACH .......................................................................................
Hospitals Reclassified by the Medicare Geographic Classification Review Board:
FY 2013 Reclassifications:
All Urban Reclassified .......................................................................................
All Urban Non-Reclassified ...............................................................................
All Rural Reclassified ........................................................................................
All Rural Non-Reclassified ................................................................................
Other Reclassified Hospitals (Section 1886(d)(8)(B)) .......................................
Type of Ownership:
Voluntary ...........................................................................................................
Proprietary .........................................................................................................
Government .......................................................................................................
Medicare Utilization as a Percent of Inpatient Days:
0–25 ...................................................................................................................
25–50 .................................................................................................................
50–65 .................................................................................................................
Over 65 ..............................................................................................................

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Average
FY 2012
payments/
case

Average
FY 2013
payments/
case

Percentage
change

399
151
165
372
159
382
51
926
23
69
166
120
173
98
181
65
30
1

797
726
822
784
856
1,008
377
550
743
573
537
570
503
581
490
575
711
153

813
734
842
797
877
1,040
386
558
759
582
544
581
509
588
496
592
714
157

2.1
1.1
2.4
1.7
2.5
3.2
2.4
1.5
2.1
1.5
1.3
2.0
1.2
1.2
1.2
2.9
0.4
2.5

3,423
1,383
1,129
911

794
875
776
560

809
893
789
568

1.8
2.0
1.7
1.3

2,392
789
242

677
786
1,125

690
801
1,147

1.8
1.8
1.9

1,558
345

853
596

870
609

1.9
2.1

258
232

503
624

511
632

1.6
1.2

34
296

521
449

526
454

0.8
1.2

825
139
1,078
470

924
824
718
737

942
836
732
750

1.9
1.5
2.0
1.7

2,395
64
38
17

836
732
736
784

851
749
746
800

1.9
2.3
1.4
2.1

320
2,137
334
531
55

816
836
592
484
548

832
852
602
490
553

2.0
1.9
1.6
1.3
1.0

1,971
868
563

808
714
819

822
727
835

1.8
1.8
2.0

376
1,834
974
166

1,036
833
664
606

1,064
848
674
614

2.8
1.8
1.5
1.3

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J. Effects of Payment Rate Changes and
Policy Changes Under the LTCH PPS

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1. Introduction and General Considerations
In section VII. of the preamble and section
V. of the Addendum to this final rule, we set
forth the annual update to the payment rates
for the LTCH PPS for FY 2013. In the
preamble, we specify the statutory authority
for the provisions that are presented, identify
those policies, and present rationales for our
decisions as well as alternatives that were
considered. In this section of Appendix A to
this final rule, we discuss the impact of the
changes to the payment rate, factors, and
other payment rate policies related to the
LTCH PPS that are presented in the preamble
of this final rule in terms of their estimated
fiscal impact on the Medicare budget and on
LTCHs.
Currently, there are 428 LTCHs included in
this impacts analysis which includes data for
82 nonprofit (voluntary ownership control)
LTCHs and 323 proprietary LTCHs. Of the
remaining 23 LTCHs, 14 LTCHs are
government-owned and operated and the
ownership type of the other 9 LTCHs is
unknown. In the impact analysis, we used
the payment rate, factors, and policies
presented in this final rule, including the 1.8
percent annual update, which is based on the
full increase of the LTCH PPS market basket
and the reductions required by sections
1886(m)(3) and (m)(4) of the Act, a one-time
prospective adjustment factor of 0.98734
(approximately ¥1.3 percent), which will
not apply to payments for discharges
occurring on or before December 28, 2012
(consistent with the statute), the update to
the MS–LTC–DRG classifications and relative
weights, the update to the wage index values
and labor-related share, the expiration of the
statutory delay in the application of very
short-stay outlier policy under
§ 412.529(c)(3), effective for discharges
occurring on or after December 29, 2012 (that
is, the option for certain short-stay outlier
cases to be paid under the ‘‘blended
payment’’ will be replaced with the ‘‘IPPS
comparable per diem amount’’ as discussed
in section VII.E.3. of the preamble of this
final rule), and the best available claims and
CCR data to estimate the change in payments
for FY 2013.
The standard Federal rate for FY 2012 was
$40,222.05. For FY 2013, we are establishing
a standard Federal rate of $40,397.96 that
reflects the 1.8 percent annual update to the
standard Federal rate, and the area wage
budget neutrality factor of 0.999265, which
ensures that the changes in the wage indexes
and labor-related share do not influence
aggregate payments. Furthermore, consistent
with section 114(c)(4) of the MMSEA, as
amended by sections 3106(a) and 10312 of
the Affordable Care Act, the one-time
prospective adjustment to the standard
Federal rate for FY 2013 of 0.98734
(approximately ¥1.3 percent) will not apply
to payments for discharges occurring before
December 29, 2012. Therefore, payment for
discharges occurring on or after October 1,
2012, and on or before December 28, 2012,
will not reflect that adjustment and, instead,
will be paid based on a standard Federal rate
of $40,915.95.

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Based on the best available data for the 428
LTCHs in our database, we estimate that the
annual update to the standard Federal rate
for FY 2013 (discussed in section V.A.2. of
the Addendum to this final rule) and the
changes to the area wage adjustment for FY
2013 (discussed in section V.B. of the
Addendum to this final rule), in addition to
an estimated increase in HCO payments and
an estimated decrease in SSO payments, will
result in an increase in estimated payments
from FY 2012 of approximately $92 million.
Based on the 428 LTCHs in our database, we
estimate that the FY 2013 LTCH PPS
payments will be approximately $5.52
billion, as compared to estimated FY 2012
LTCH PPS payments of approximately $5.43
billion. Because the combined distributional
effects and estimated changes to the
Medicare program payments are over
approximately $100 million, this final rule is
considered a major economic rule, as defined
in this section. We note that the
approximately $92 million for the projected
increase in estimated aggregate LTCH PPS
payments from FY 2012 to FY 2013 does not
reflect changes in LTCH admissions or casemix intensity in estimated LTCH PPS
payments, which also will affect overall
payment changes. It also does not include the
estimated effect of the 1-year extension of the
moratorium on the application of the ‘‘25percent threshold’’ payment adjustment
policy on LTCH PPS payments, which is
discussed below in section I.J.b.3. of this
Appendix.
The projected 1.7 percent increase in
estimated payments per discharge from FY
2012 to FY 2013 is attributable to several
factors, including the 1.8 percent annual
update to the standard Federal rate, the onetime prospective adjustment factor for FY
2013 of 0.98734 (approximately ¥1.3
percent) to the standard Federal rate, which
is not applicable to payments for discharges
occurring on or before December 28, 2012,
consistent with the statute, and projected
increases in estimated HCO payments and
decreases in SSO payments due to a change
in the SSO payment methodology effective
for discharges occurring on or after December
29, 2012 (as described in section VII.E.3. of
the preamble of this final rule). As Table IV
shows, the change attributable solely to the
annual update to the standard Federal rate
(1.8 percent), including the one-time
prospective adjustment factor for FY 2013
(approximately ¥1.3 percent), which is not
applicable to payments for discharges
occurring before December 29, 2012, is
projected to result in an increase of 0.7
percent in payments per discharge from FY
2012 to FY 2013, on average, for all LTCHs.
This estimated increase of 0.7 percent reflects
the 1.8 percent annual update for payments
in FY 2013, and the ¥1.3 percent one-time
prospective adjustment factor for FY 2013,
which will not apply in determining
payments for discharges occurring on or
before December 28, 2012, and also includes
estimated payments for SSO cases that are
paid using special methodologies that are not
affected by the annual update to the standard
Federal rate. Therefore, the projected
increase in payments based on the standard
Federal rate is less than the 1.8 percent

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annual update for FY 2013. Because we are
applying an area wage level budget neutrality
factor to the standard Federal rate, the annual
update to the wage data and labor-related
share does not impact the increase in
payments.
As discussed in section V.B. of the
Addendum to this final rule, we are updating
the wage index values for FY 2013 based on
the most recent available data. In addition,
we are decreasing the labor-related share
from 70.199 percent to 63.096 percent under
the LTCH PPS for FY 2013, based on the
most recent available data on the relative
importance of the labor-related share of
operating and capital costs based on the FY
2009-based LTCH-specific market basket. We
also are applying an area wage level budget
neutrality factor of 0.999265, which reduces
the standard Federal rate by less than 0.1
percent. Therefore, the changes to the wage
data and labor-related share do not result in
a change in estimated aggregate LTCH PPS
payments.
We project that LTCHs will experience a
decrease in aggregate payments of 0.5 percent
in FY 2013 as a result of the expiration of the
statutory delay in the application of the very
short-stay outlier policy under
§ 412.529(c)(3), effective for discharges
occurring on or after December 29, 2012.
Generally, very short-stay outliers are cases
that have a length of stay that is less than or
equal to one standard deviation from the
geometric mean average length of stay of the
same DRG under the IPPS. Under the
moratorium, very short-stay outliers are paid
the lowest of: (1) The LTC–DRG payment; (2)
100 percent of cost; (3) 120 percent of the
LTCH per diem payment; or (4) a blend of
120 percent of the LTCH per diem amount
and the ‘‘IPPS comparable per diem amount’’
(the ‘‘blended payment’’). With the
expiration of the moratorium, in the case of
very short-stay outliers, effective for
discharges on or after December 29, 2012, the
‘‘blended payment’’ will be replaced with
only the ‘‘IPPS comparable per diem
amount,’’ which results in a decrease in
payments for many of these cases.
Table IV below shows the impact of the
payment rate and the policy changes on
LTCH PPS payments for FY 2013 presented
in this final rule by comparing estimated FY
2012 payments to estimated FY 2013
payments. The projected increase in
payments per discharge from FY 2012 to FY
2013 is 1.7 percent (shown in Column 9).
This projected increase in payments is
attributable to the impacts of the change to
the standard Federal rate (0.7 percent in
Column 6), the end of the moratorium on
delaying the implementation of the very
short-stay outlier policy (¥0.5 percent in
Column 8), as well as the effect of the
estimated increase in payments for HCO
cases and SSO cases (1.1 percent and 0.2
percent, respectively). That is, estimated total
HCO payments are projected to increase from
FY 2012 to FY 2013 in order to ensure that
the estimated HCO payments would be 8
percent of the total estimated LTCH PPS
payments in FY 2013. An analysis of the
most recent available LTCH PPS claims data
(that is, FY 2011 claims data from the March
2012 update of the MedPAR file) indicates

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that the FY 2012 HCO threshold of $17,931
(as established in the FY 2012 IPPS/LTCH
PPS final rule) may-result in HCO payments
in FY 2012 that fall below the estimated 8
percent. Specifically, we currently estimate
that HCO payments will be approximately
6.9 percent of the estimated total LTCH PPS
payments in FY 2012. We estimate that the
impact of the increase in HCO payments will
result in approximately a 1.1 percent increase
in estimated payments from FY 2012 to FY
2013, on average, for all LTCHs. Furthermore,
in calculating the estimated increase in
payments from FY 2012 to FY 2013 for
HCOs, we increased estimated costs by the
applicable market basket percentage increase
as projected by our actuaries. This increase
in estimated costs also results in a projected
increase in SSO payments of 0.2 percent
relative to last year. However, the expiration
of the statutory moratorium on the
application of the very short-stay outlier
policy, effective December 29, 2012, which
replaces the ‘‘blended payment’’ option with
the ‘‘IPPS comparable per diem amount’’
option for certain SSO cases (as described in
section VII.E.3. of the preamble of this final
rule) is expected to result in a ¥0.5 percent
change in aggregate payments. The net result
of these projected changes in SSO payments
in FY 2013 is an estimated change in
aggregate payments of ¥0.3 percent. We note
that estimated payments for all SSO cases
comprise approximately 12 percent of the
estimated total LTCH PPS payments, and
estimated payments for HCO cases comprise
approximately 8 percent of the estimated
total FY 2013 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 (approximately 59 percent) are
based on the estimated cost of the case.
As we discuss in detail throughout this
final rule, based on the most recent available
data, we believe that the provisions of this
final rule relating to the LTCH PPS will result
in an increase in estimated aggregate LTCH
PPS payments and that the resulting LTCH
PPS payment amounts will result in
appropriate Medicare payments.
2. 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 3.3 percent increase
in estimated payments per discharge for FY
2013 as compared to FY 2012 for rural
LTCHs that will result from the changes
presented in this final rule, as well as the
effect of estimated changes to HCO and SSO
payments. This estimated impact is based on
the data for the 27 rural LTCHs in our
database (out of 428 LTCHs) for which
complete data were available.
The estimated increase in LTCH PPS
payments from FY 2012 to FY 2013 for rural
LTCHs is primarily due to the higher than
average impacts from the changes to the area
wage level adjustment, specifically, the
decrease in the labor-related share from
70.199 to 63.096. Although we applied an
area wage level budget neutrality factor for
changes to the wage indexes and laborrelated share to ensure that there is no

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change in aggregate LTCH PPS payments due
to those changes, we estimate rural hospitals
will experience a 1.1 percent increase in
payments due to the 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 decrease to
the labor-related share results in their wage
index reducing a smaller portion of the
standard Federal rate, resulting in an
estimated increase in payments in FY 2013
as compared to FY 2012.
3. Anticipated Effects of LTCH PPS Payment
Rate Changes and Policy Changes
a. Budgetary Impact
Section 123(a)(1) of the BBRA requires that
the PPS developed for LTCHs ‘‘maintain
budget neutrality.’’ We believe that the
statute’s mandate for budget neutrality
applies only to the first year of the
implementation of the LTCH PPS (that is, FY
2003). Therefore, in calculating the FY 2003
standard Federal rate under § 412.523(d)(2),
we set total estimated payments for FY 2003
under the LTCH PPS so that estimated
aggregate payments under the LTCH PPS
were estimated to equal the amount that
would have been paid if the LTCH PPS had
not been implemented.
As discussed above in section I.J.1. of this
Appendix, we project an increase in
aggregate LTCH PPS payments in FY 2013
relative to FY 2012 of approximately $92
million based on the 428 LTCHs in our
database.
b. Expiration of Statutory Delay on Full
Implementation of the ‘‘25 Percent
Threshold’’ Payment Adjustment and 1-Year
Extension
As discussed in section VII.E.2. of the
preamble of this final rule, the statutory
delay in the full application of the ‘‘25
percent threshold’’ payment adjustment for
LTCHs under § 412.534 and § 412.536 will
expire for cost reporting periods beginning
on or after July 1, 2012, or October 1, 2012,
as applicable. We are establishing a 1-year
extension of the moratorium on the
application of the ‘‘25 percent threshold’’
payment adjustment policy as provided by
section 114(c) of the MMSEA, as amended by
section 4302(a) of the ARRA and sections
3106(a) and 10312(a) of the Affordable Care
Act, for cost reporting periods beginning on
or after October 1, 2012, and before October
1, 2013 (and for discharges occurring on or
after October 1, 2012, through the end of the
cost reporting period of LTCHs with cost
reporting periods beginning on or after July
1, 2012, and before September 30, 2012, as
explained in section VII.E.2. of the preamble
of this final rule). We estimate that this
policy will result in a payment impact of
approximately $170 million to LTCHs.
c. Impact on Providers
The basic methodology for determining a
per discharge LTCH PPS payment is set forth
under § 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

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HCO payments for those cases that qualify
based on the threshold established each year.
To understand the impact of the changes
to the LTCH PPS payments presented in this
final rule on different categories of LTCHs for
FY 2013, it is necessary to estimate payments
per discharge for FY 2012 using the rates,
factors (including the FY 2012 GROUPER
(Version 29.0), and relative weights and the
policies established in the FY 2012 IPPS/
LTCH PPS final rule (76 FR 51733 through
51781 and 51838 through 51844). It is also
necessary to estimate the payments per
discharge that will be made under the LTCH
PPS rates, factors, policies, and GROUPER
(Version 30.0) for FY 2013 (as discussed in
section VII. of the preamble and section V.
of the Addendum to this final rule). These
estimates of FY 2012 and FY 2013 LTCH PPS
payments are based on the best available
LTCH claims data and other factors, such as
the application of inflation factors to estimate
costs for SSO and HCO cases in each year.
We also evaluated the change in estimated
FY 2012 payments to estimated FY 2013
payments (on a per discharge basis) for each
category of LTCHs. We are establishing a
standard Federal rate for FY 2013 of
$40,397.96 that includes the 1.8 percent
annual update, the area wage budget
neutrality factor, and the one-time
prospective adjustment to the standard
Federal rate for FY 2013 of 0.98734
(approximately ¥1.3 percent) that will not
apply to payments for discharges occurring
on or before December 29, 2012, consistent
with statute. Payment for discharges
occurring on or after October 1, 2012, and on
or before December 28, 2012, will not reflect
that one-time prospective adjustment and
instead will be paid based on a standard
Federal rate of $40,915.95.
Therefore, we modeled payments so that
claims with discharge dates prior to January
will be paid on the basis of a rate that does
not reflect the one-time prospective
adjustment, and claims with discharges in
January or after will reflect the standard
Federal rate for FY 2013 that reflects the onetime prospective adjustment. Furthermore,
because the statutory moratorium on the
application of the very short-stay outlier
policy will expire effective for discharges
occurring on or after December 29, 2012, we
modeled payments so that claims that will
qualify for a payment under the very shortstay outlier policy with discharge dates in
October, November, and December are paid
based on the ‘‘blended payment’’ option, if
applicable, and claims that will qualify for a
payment under the very short-stay outlier
policy with discharges in January through
September are paid based on the ‘‘IPPS
comparable per diem amount,’’ if applicable
(as described in section VII.E.3. of the
preamble of this final rule).
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
included the following:
• Location: Large urban/other urban/rural.
• Participation date.
• Ownership control.

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• Census region.
• Bed size.
To estimate the impacts of the payment
rates and policy changes among the various
categories of existing providers, we used
LTCH cases from the FY 2011 MedPAR file
to estimate payments for FY 2012 and to
estimate payments for FY 2013 for 428
LTCHs. We believe that the discharges based
on the FY 2011 MedPAR data for the 428
LTCHs in our database, which includes 323
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.
d. 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 2011 MedPAR files. For modeling
estimated LTCH PPS payments for FY 2012,
we used the FY 2012 standard Federal rate
(that is, $40,222.05 effective for LTCH
discharges occurring on or after October 1,
2011, through September 30, 2012).
For modeling estimated LTCH PPS
payments for FY 2013, we used the FY 2013
standard Federal rate of $40,397.96, which
includes the one-time prospective adjustment
of 0.98734 for FY 2013 for payments for
discharges occurring on or after December 29,
2012, and through September 30, 2013. As
noted above, consistent with section
114(c)(4) of the MMSEA, as amended by
sections 3106(a) and 10312 of the Affordable
Care Act, the one-time prospective
adjustment to the standard Federal rate for
FY 2013 of 0.98734 (approximately ¥1.3
percent) will not apply to payments for
discharges occurring before December 29,
2012. Therefore, payment for discharges
occurring on or after October 1, 2012, and on
or before December 28, 2012, will not reflect
that adjustment and instead will be paid
based on a standard Federal rate of
$40,915.95; therefore, for the purpose of
payment modeling, claims with discharges
occurring during October through December
were modeled using this payment rate.
The FY 2013 standard Federal rate of
$40,397.96 includes the application of an
area wage level budget neutrality factor of
0.999265 (as discussed in section V.B.5. of
the Addendum to this final rule). As noted
above, consistent with section 114(c)(4) of
the MMSEA, as amended by sections 3106(a)
and 10312 of the Affordable Care Act, this
payment rate will not apply to payments for
discharges occurring before December 29,

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2012. Therefore, payment for discharges
occurring on or after October 1, 2012, and on
or before December 28, 2012, will be paid
based on a standard Federal rate of
$40,915.95, which also includes the area
wage level budget neutrality factor of
0.999265.
Furthermore, in modeling estimated LTCH
PPS payments for both FY 2012 and FY 2013
in this impact analysis, we applied the FY
2012 and the FY 2013 adjustments for area
wage levels and the COLA for Alaska and
Hawaii. Specifically, we adjusted for
differences in area wage levels in
determining estimated FY 2012 payments
using the current LTCH PPS labor-related
share of 70.199 percent (76 FR 51766) and
the wage index values established in the
Tables 12A and 12B listed in the Addendum
to the FY 2012 IPPS/LTCH PPS final rule
(and available via the Internet (76 FR 51813)).
We also applied the FY 2012 COLA factors
shown in the table in section V.C. of the
Addendum to that final rule (76 FR 51810)
to the FY 2012 nonlabor-related share (29.801
percent) for LTCHs located in Alaska and
Hawaii. Similarly, we adjusted for
differences in area wage levels in
determining the estimated FY 2013 payments
using the FY 2013 LTCH PPS labor-related
share of 63.096 percent and the FY 2013
wage index values presented in Tables 12A
and 12B listed in section VI. of the
Addendum to this final rule (and available
via the Internet). We also applied the FY
2013 COLA factors shown in the table in
section V.C. of the Addendum to this final
rule to the FY 2013 nonlabor-related share
(36.904 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.D. of the Addendum to this final
rule). In modeling payments for SSO and
HCO cases in FY 2013, we applied an
inflation factor of 1.050 (determined by
OACT) to estimate the costs of each case
using the charges reported on the claims in
the FY 2011 MedPAR files and the best
available CCRs from the March 2012 update
of the PSF. Furthermore, in modeling
estimated LTCH PPS payments for FY 2013
in this impact analysis, we used the FY 2013
fixed-loss amount of $15,408 (as discussed in
section V.D. of the Addendum to this final
rule). Finally, in modeling payments for SSO
cases, we included the expiration of the
statutory moratorium on application of the
very short-stay outlier, effective for
discharges occurring on or after December 29,

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2012, under which the ‘‘blended payment’’
option of the SSO payment formula will be
replaced with the ‘‘IPPS comparable per
diem amount’’ for very short-stay outlier
cases as discussed in section VII.E.3. of the
preamble of this final rule.
These impacts reflect the estimated
‘‘losses’’ or ‘‘gains’’ among the various
classifications of LTCHs from FY 2012 to FY
2013 based on the payment rates and policy
changes presented in this final rule. Table IV
illustrates the estimated aggregate impact of
the LTCH PPS among various classifications
of LTCHs.
• The first column, LTCH Classification,
identifies the type of LTCH.
• 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 2012 (as
described above).
• The fifth column shows the estimated
payment per discharge for FY 2013 (as
described above).
• The sixth column shows the percentage
change in estimated payments per discharge
from FY 2012 to FY 2013 due to the annual
update to the standard Federal rate (as
discussed in section V.A.2. of the Addendum
to this final rule) and the one-time
prospective adjustment factor for FY 2013
(which is not applicable to payments for
discharges occurring before December 29,
2012, consistent with the statute).
• The seventh column shows the
percentage change in estimated payments per
discharge from FY 2012 to FY 2013 for
changes to the area wage level adjustment
(that is, the wage indexes and labor-related
share), including the application of an area
wage level budget neutrality factor (as
discussed in section V.B.5. of the Addendum
to this final rule).
• The eighth column shows the percentage
change in estimated payments per discharge
from FY 2012 to FY 2013 due to the
expiration of the delay in the application of
the ‘‘very short-stay’’ SSO policy that
allowed for certain SSO cases to be paid
under a ‘‘blended payment amount’’ based on
the LTCH per diem rate and IPPS comparable
per diem rate during the moratorium.
• The ninth column shows the percentage
change in estimated payments per discharge
from FY 2012 (Column 4) to FY 2013
(Column 5) for all changes (and includes the
effect of estimated changes to HCO and SSO
payments).

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(2)
140,159
6,396
133,763
77,764
55,999
5,929
16,804
65,360
50,870
1,196
20,035
117,083
1,773
1,268
7,408
8,034
16,835
20,888
8,563
6,076
51,703
7,002
13,650
3,335
46,342
38,300
21,448
16,534
14,200

428
27
401
202
199
17
44
185
173
9
82
323
14
9
15
31
60
70
30
26
139
32
25
29
200
116
46
23
14

(3)

Number of
LTCH PPS
cases

34,101
38,118
38,722
42,047
37,343
38,563

33,812
41,519
41,536
39,944
39,072
40,080
34,421
42,021
48,383

38,941
38,626
43,976
38,982

34,169
41,914
37,993
39,150
40,450

34,526
38,944
40,984
36,111

38,742

(4)

34,837
38,834
39,346
42,606
38,005
39,240

34,518
41,977
42,072
40,672
39,949
40,829
35,198
42,400
48,680

39,835
39,238
44,744
39,964

34,984
42,623
38,623
39,812
40,888

35,659
39,578
41,594
36,778

39,399

(5)

Average FY
2013 LTCH
PPS payment
per case 1

(6)

0.8
0.7
0.7
0.7
0.7
0.7

0.7
0.7
0.7
0.7
0.7
0.7
0.8
0.7
0.7

0.7
0.7
0.7
0.7

0.7
0.7
0.7
0.7
0.6

0.7
0.7
0.7
0.7

0.7

(7)

2.4
1.7
1.7
1.7
1.1
2.3
1.6
1.7
2.5
2.1
1.1
1.3
1.8
2.2
1.9
2.3
0.9
0.6
2.2
1.9
1.6
1.3
1.8
1.8

¥0.3
¥0.6
¥0.5
¥0.5
¥0.8
¥0.6
¥0.5
¥0.7
¥0.7
¥0.3
¥0.5
¥0.6
¥0.6
¥0.5
¥0.6
¥0.5
¥0.5
¥0.4
¥0.5
¥0.5
¥0.5
¥0.5
¥0.5
¥0.4

¥0.2
¥0.1
0
0
¥0.3
0.2
0
¥0.3
0.7
¥0.3
¥0.1
0
0.4
0.6
0.5
0.2
¥0.8
¥1.1
0.7
0.3
¥0.1
¥0.3
¥0.1
¥0.4

3.3
1.6
1.5
1.8

¥0.4
¥0.5
¥0.5
¥0.5
1.1
0
¥0.2
0.2

(9)

Percent
change in payments per discharge from
FY 2012 to FY
2013 for all
changes 5

1.7

(8)

Percent
change in estimated payments per discharges due to
expiration of
statutory moratorium on application of the
‘very’ shortstay SSO Payment methodology 4

¥0.5
0

Percent
change in estimated payments per discharge from
FY 2012 to FY
2013 for
changes to the
area wage
level adjustment with
budget
neutrality 3

2 Percent

FY 2013 LTCH PPS payments based on the payment rate and policy changes presented in the preamble and the Addendum to this final rule.
change in estimated payments per discharge from FY 2012 to FY 2013 for the annual update to the standard Federal rate and the one-time prospective adjustment factor for FY
2013 (which will not apply to payments for discharges occurring before December 29, 2012, consistent with the statute), as discussed in section V.A.2. of the Addendum to this final rule.
3 Percent change in estimated payments per discharge from FY 2012 to FY 2013 for changes to the area wage level adjustment under § 412.525(c) (as discussed in section V.B. of the
Addendum to this final rule).

1 Estimated

ALL PROVIDERS ....................................................
BY LOCATION:
RURAL .............................................................
URBAN .............................................................
LARGE ......................................................
OTHER ......................................................
BY PARTICIPATION DATE:
BEFORE OCT. 1983 ........................................
OCT. 1983–SEPT. 1993 ..................................
OCT. 1993–SEPT. 2002 ..................................
AFTER OCTOBER 2002 ..................................
UNKNOWN PARTICIPATION DATE ...............
BY OWNERSHIP TYPE:
VOLUNTARY ....................................................
PROPRIETARY ................................................
GOVERNMENT ................................................
UNKNOWN OWNERSHIP TYPE .....................
BY REGION:
NEW ENGLAND ...............................................
MIDDLE ATLANTIC .........................................
SOUTH ATLANTIC ..........................................
EAST NORTH CENTRAL ................................
EAST SOUTH CENTRAL ................................
WEST NORTH CENTRAL ...............................
WEST SOUTH CENTRAL ...............................
MOUNTAIN ......................................................
PACIFIC ...........................................................
BY BED SIZE:
BEDS: 0–24 ......................................................
BEDS: 25–49 ....................................................
BEDS: 50–74 ....................................................
BEDS: 75–124 ..................................................
BEDS: 125–199 ................................................
BEDS: 200+ .....................................................

(1)

Number of
LTCHs

Average FY
2012 LTCH
PPS payment
per case

Percent
change in estimated payments per discharge from
FY 2012 to FY
2013 for the
annual update
to the Federal
rate 2

[Estimated FY 2012 payments compared to estimated FY 2013 payments*]

TABLE IV—IMPACT OF PAYMENT RATE AND POLICY CHANGES TO LTCH PPS PAYMENTS FOR FY 2013

LTCH classification

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4 Percent change in estimated payments per discharges due to the expiration of the statutory moratorium on application of the ‘‘very short-stay’’ SSO payment option, effective for discharges occurring on or after December 29, 2012, under which the ‘‘blended payment’’ option of the SSO payment formula will be replaced with the ‘‘IPPS comparable per diem amount’’ for
very short-stay outlier cases as discussed in section VII.E.3. of the preamble of this final rule.
5 Percent change in estimated payments per discharge from FY 2012 LTCH PPS (shown in Column 4) to FY 2013 LTCH PPS (shown in Column 5), including all of the changes presented
in the preamble and the Addendum to this final rule. Note, this column, which shows the percent change in estimated payments per discharge for all changes, does not equal the sum of the
percent changes in estimated payments per discharge for the annual update to the standard Federal rate (column 6) and the changes to the area wage level adjustment with budget neutrality (Column 7) due to the effect of estimated changes in both estimated payments to SSO cases that are paid based on estimated costs and aggregate HCO payments (as discussed in
this impact analysis), as well as other interactive effects that cannot be isolated.

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e. Results
Based on the most recent available data for
428 LTCHs, we have prepared the following
summary of the impact (as shown above in
Table IV) of the LTCH PPS payment rate and
policy changes presented in this final rule.
The impact analysis in Table IV shows that
estimated payments per discharge are
expected to increase approximately 1.7
percent, on average, for all LTCHs from FY
2012 to FY 2013 as a result of the payment
rate and policy changes presented in this
final rule, including the expiration of the
statutory moratorium on application of the
‘‘very short-stay’’ SSO policy which utilizes
the ‘‘IPPS comparable per diem amount’’
payment option, effective for discharges
occurring on or after December 29, 2012
(discussed in section VII.E.3. of the preamble
of this final rule) and an estimated increase
in HCO payments. This estimated 1.7 percent
increase in LTCH PPS payments per
discharge from the FY 2012 to FY 2013 for
all LTCHs (as shown in Table IV) was
determined by comparing estimated FY 2013
LTCH PPS payments (using the payment rate
and policies discussed in this final rule) to
estimated FY 2012 LTCH PPS payments (as
described above in section I.J.1. of this
Appendix).
We are establishing a standard Federal rate
of $40,397.96 for FY 2013. Specifically, we
are updating the standard Federal rate for FY
2013 by 1.8 percent, which is based on the
latest estimate of the LTCH PPS market
basket increase (2.6 percent), the reduction of
0.7 percentage point for the MFP adjustment,
and the 0.1 percentage point reduction
consistent with sections 1886(m)(3) and
(m)(4) of the Act. In addition, we are
applying a one-time prospective adjustment
factor for FY 2013 of 0.98734 (approximately
¥1.3 percent) to the standard Federal rate.
However, this reduction will not apply to
payments for discharges occurring before
December 29, 2012, consistent with section
114(c)(4) of the MMSEA, as amended by
sections 3106(a) and 10312 of the Affordable
Care Act. Therefore, payments for discharges
occurring on or after October 1, 2012, and on
or before December 28, 2012, will not reflect
that adjustment and instead will be paid
based on a standard Federal rate of
$40,915.95. 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 1.8 percent in the annual update
to the standard Federal rate and the
application of the one-time prospective
adjustment for FY 2013 of approximately
¥1.3 percent, which will not apply to
payments for discharges occurring before
December 29, 2012, consistent with the
statute, is projected to result in
approximately a 0.7 percent increase in
estimated payments per discharge for all
LTCHs from FY 2012 to FY 2013. That is, for
approximately the first 3 months of FY 2013,
payments will not reflect the one-time
prospective adjustment factor for FY 2013
such that payments will be based on the
annual update to the standard Federal rate of
1.8 percent, and for the remaining 9 months
of FY 2013, payments will be based on a
standard Federal rate that reflects the FY
2013 annual update of 1.8 percent and the

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one-time prospective adjustment for FY 2013
of approximately ¥1.3 percent. In addition,
our estimate of the changes in payments due
to the update to the standard Federal rate
also reflects estimated payments for SSO
cases that are paid using special
methodologies that are not affected by the
update to the standard Federal rate. For these
reasons, we estimate that payments will
increase by 0.7 percent due to the annual
update to the standard Federal rate and the
application of the one-time prospective
adjustment for FY 2013 (which is not
applicable to payments for discharges
occurring before December 29, 201,
consistent with the statute).
(1) 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 5 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 2012 to FY 2013 for all hospitals is
1.7 percent for all changes. For rural LTCHs,
the percent change for all changes is
estimated to be 3.3 percent, while for urban
LTCHs, we estimate the increase will be 1.6
percent. Large urban LTCHs are projected to
experience an increase of 1.5 percent in
estimated payments per discharge from FY
2012 to FY 2013, while other urban LTCHs
are projected to experience an increase of 1.8
percent in estimated payments per discharge
from FY 2012 to FY 2013, as shown in Table
IV.
(2) 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
category of LTCHs with the largest
percentage of the LTCH cases (approximately
47 percent) 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 (1.7 percent) in estimated
payments per discharge from FY 2012 to FY
2013, 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 higher than average percent
increase (2.4 percent) in estimated payments
per discharge from FY 2012 to FY 2013, as
shown in Table IV. Approximately 4 percent
of LTCHs began participating in the Medicare
program before October 1983. Approximately
10 percent of LTCHs began participating in
the Medicare program between October 1983
and September 1993. These LTCHs are
projected to experience a 1.7 percent increase
in estimated payments from FY 2012 to FY
2013. LTCHs that began participating in the
Medicare program after October 2002
currently represent approximately 40 percent
of all LTCHs, and are projected to experience
an average increase (1.7 percent) in estimated
payments from FY 2012 to FY 2013.

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(3) 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 LTCHs in the voluntary
category will experience a higher than the
average increase (2.3 percent) in estimated
FY 2013 LTCH PPS payments per discharge
as compared to estimated payments in FY
2012 primarily because we project the
estimated increase in HCO payments to be
higher than the average increase for these
LTCHs. The majority (75 percent) of LTCHs
is identified as proprietary and these LTCHs
are projected to experience a nearly average
increase (1.6 percent) in estimated payments
per discharge from FY 2012 to FY 2013.
Finally, government-owned and operated
LTCHs are also expected to experience the
average increase in payments of 1.7 percent
in estimated payments per discharge from FY
2012 to FY 2013.
(4) Census Region
Estimated payments per discharge for FY
2013 are projected to increase for LTCHs
located in all regions in comparison to FY
2012. Of the 9 census regions, we project that
the increase in estimated payments per
discharge will have the largest positive
impact on LTCHs in the West South Central,
East South Central, and New England regions
(2.3 percent, 2.2 percent, and 2.1 percent
respectively as shown in Table IV). The
estimated percent increase in payments per
discharge from FY 2012 to FY 2013 for those
regions is largely attributable to the changes
in the area wage level adjustment or updates
to the MS–LTC–DRGs classifications and
relative weights.
In contrast, LTCHs located in the Pacific
region are projected to experience the
smallest increase in estimated payments per
discharge from FY 2012 to FY 2013. The
average estimated increase in payments of 0.6
percent for LTCHs in the Pacific region is
primarily due to estimated decreases in
payments associated with the changes to the
area wage level adjustment.
(5) Bed Size
LTCHs are 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 small LTCHs (0–24 beds)
will experience a 2.2 percent increase in
payments due to increases in the area wage
level adjustment while large LTCHs (200+
beds) will experience a 1.8 percent increase
in payments. LTCHs with between 75 and
124 beds are expected to experience a below
average increase in payments per discharge
from FY 2012 to FY 2013 (1.3 percent)
primarily due to an estimated decrease in
their payments from FY 2012 to FY 2013 due
to the area wage level adjustment.
4. Effect on the Medicare Program
As noted previously, we project that the
provisions of this final rule will result in an
increase in estimated aggregate LTCH PPS
payments in FY 2013 relative to FY 2012 of

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approximately $92 million (or approximately
1.7 percent) for the 428 LTCHs in our
database. In addition, the effects of the
extension of the moratorium on the
application of the ‘‘25 percent threshold’’
payment adjustment policy, as provided by
section 114(c) of the MMSEA, as amended by
section 4302(a) of the ARRA and sections
3106(a) and 10312(a) of the Affordable Care
Act, for cost reporting periods beginning or
after October 1, 2012, and before October 1,
2013 (and for discharges occurring on or after
October 1, 2012, through the end of the cost
reporting period of LTCHs with cost
reporting periods beginning on or after July
1, 2012, and before September 30, 2012, as
explained in section VII.E.2. of the preamble
of this final rule), will result in a payment
impact of approximately $170 million to
LTCHs.
5. 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 will enhance the efficiency
of the Medicare program.
K. Effects of Requirements for Hospital
Inpatient Quality Reporting (IQR) Program
In section VIII.A. of this final rule, we
discuss our requirements for hospitals to
report quality data under the Hospital IQR
Program in order to receive the full annual
percentage increase for FY 2015. We now
estimate that approximately 95 hospitals may
not receive the full annual percentage
increase in any fiscal year. At the time that
the analysis was prepared, 70 hospitals did
not receive the full annual percentage
increase in FY 2012.
For the FY 2015 payment determination,
we will remove one chart-abstracted
measure, and 16 claims based measures,
beginning with January 1, 2012 discharges.
We believe that these changes will not have
a significant effect on our estimate. We
believe that most of these hospitals will 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 2015.
In section VIII.A.6. of this final rule, we are
finalizing for the FY 2015 payment
determination, supplements to the chart
validation process for the Hospital IQR
Program. As a part of these supplements, we
are finalizing, for FY 2015 payment
determinations and subsequent years, to
separate validation for chart-abstracted and
HAI measures and to also validate two
additional HAI measures, CAUTI and SSI.
Starting with the FY 2015 payment
determination, we are finalizing a modest
increase to the current Hospital IQR Program
validation sample of 18 cases per quarter
(currently three each for SCIP, AMI, HF, PN,
ED/IMM, and candidate CLABSI) to 27 cases
per quarter (3 each for SCIP, AMI, HF, PN,
ED/IMM, and up to 12 records combined for
CLABSI, CAUTI, and SSI). However, in order

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not to increase the Hospital IQR validation
program’s overall burden to hospitals, while
expanding some of the requirements, and
targeting hospitals with higher levels of
concern for data quality, we are reducing the
total sample size of hospitals included in the
annual validation random sample from 800
eligible hospitals to up to 600 eligible
hospitals. This includes 400 hospitals in the
base random sample and up to 200 hospitals
in the target sample. The requirement of an
additional 9 charts per hospital submitted for
validation, combined with the decreased
sample size, will result in approximately
1,800 additional charts per quarter being
submitted to CMS by all selected hospitals.
We provide payment to 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 estimate
that we would expend approximately
$66,600 per quarter to collect the additional
charts we need to validate all measures.
The total requirement of 27 charts per
hospital would result in approximately
16,200 charts per quarter being submitted to
CMS. Using the assumptions discussed
above, for the FY 2015 Hospital IQR Program,
we estimate that we would have
expenditures of approximately $599,400 per
quarter related to the validation requirement.
Given that we pay for the data collection
effort, we believe that a requirement for 27
charts per hospital per quarter represents a
minimal burden to participating hospitals
selected for validation.
L. Effects of PPS-Exempt Cancer Hospital
Quality Reporting (PCHQR) Program
In section VIII.B. of the preamble of this
final rule, we discuss our proposed and final
policies to implement the quality data
reporting program for PPS-exempt hospitals
(PCHs), which we refer to as the PCHQR
Program. The PCHQR Program is established
under section 1866(k) of the Act, as added by
section 3005 of the Affordable Care Act.
These quality reporting requirements will
affect all PCHs participating in Medicare. In
this final rule, PCHs will be required to
register with the CDC, the CMS contractor,
and QualityNet Web sites and take the proper
training in order to be adequately prepared
to use the respective systems to submit the
data. The anticipated burden to these PCHs
consists of the following: (1) The initial
registration of the facility with CDC, the CMS
contractor, and CMS; (2) training of the
appropriate staff members on how to use the
CDC agency-based data collection
mechanism (CDC/NHSN), the CMS
contractor-based collection mechanism for
the cancer-specific quality measure data, and
CMS (QualityNet) program; (3) the time
required for collection and aggregation of
data; (4) the time required for entry of the
data into the CDC’s NHSN data warehouse,
CMS contractor’s quality measure data
warehouse, and QualityNet databases by the
PCH’s representative.
All PCHs that currently do not already
report data to the NHSN will be required to
register with the CDC, the CMS contractor,

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and the CMS/QualityNet and take the proper
training in order to be adequately prepared
to use the CDC’s NHSN data warehouse, the
CMS contractor’s collection mechanism for
data submission, and the CMS QualityNet
Web site.
Those PCHs that already report the HAI
measures to the NHSN will not be
significantly affected because we intend to
align our reporting infrastructure with that
used by the NHSN. However, for PCHs that
do not currently report the two HAI measures
to the NHSN, at this time, we have no way
to estimate how many PCHs will participate
in the PCHQR program. Therefore, we are
unable to estimate the burden for these PCHs.
Aside from the statutory requirements, it is
important to note that one of our priorities
is to help achieve better health and better
health care for individuals through collection
of valid, reliable, and relevant measures of
quality health care data. Such data can be
shared with appropriate health care related
organizations and used to further the
development of health care quality, which, in
turn, helps to further our objectives and
goals. Health care organizations can use their
health care quality data for many purposes
such as in their risk management programs,
health care acquired infection prevention
programs and research and development of
medical programs, among others.
Even more importantly, we intend to share
the information obtained from the PCHQR
Program with the public as is required under
the statute. These data will be displayed on
the Hospital Compare Web site. The goals of
making these data available to the public in
a public user-friendly and relevant format,
include, but are not limited to: (1) Keeping
the public informed of the quality of care that
is being provided in PCHs as a whole; (2)
keeping the public informed of the quality of
care being provided in specific PCHs; (3)
allowing the public to compare and contrast
the data about specific PCHs, thus enabling
the public to make informed health care
decisions regarding PCHs; and (4) providing
information about current trends in health
care. There are many other public uses for
these quality data concerning PCHs. Further,
keeping the public informed of quality of
care provided in health care has always been
of high priority to CMS.
We also seek to align the new PCHQR
Program reporting requirements with current
HHS high priority conditions and topics and
to ultimately provide a comprehensive
assessment of the quality of health care
delivered in a variety of settings.
We did not receive any public comments
on the anticipated effects of the PCHQR
Program.
M. Effects of 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
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)
of the Act. The applicable percentage for FY

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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.
We previously published a detailed
analysis of the FY 2013 Hospital VBP
Program’s impact, based on scoring for two
quality domains, in the Hospital Inpatient
VBP Program final rule (76 FR 26542 through
26545). As we indicated in the FY 2013 IPPS/
LTCH PPS proposed rule, because we are not
making any changes to the FY 2013 Hospital
VBP Program, we do not believe we must
provide an additional regulatory impact
analysis for the FY 2013 Hospital VBP
Program. In this final rule, we are setting
forth the operational details of the payment
adjustment. We believe that these operational
details do not have a regulatory impact or
financial impact beyond policies already
finalized. They specify how CMS intends to
ensure that the value-based incentive
payments made to all hospitals in a fiscal
year are equal, in total, to the reduced base
operating DRG payment amounts.
In section VIII.C. of the preamble of this
final rule, we discuss our proposal and final
policy to add requirements for the Hospital
VBP Program. In addition to certain
operational and payment details for the FY
2013 Hospital VBP Program, we are making
a number of additional changes related to the
FY 2015 and the FY 2016 Hospital VBP
Program, including measures, performance
periods, performance standards, domain
weighting, and other topics.
Specifically, with respect to the FY 2015
Hospital VBP Program, as we proposed, we
are adding two additional measures in the
Outcome domain, an AHRQ Patient Safety
Indicators composite measure and CLABSI:
Central Line-Associated Blood Stream
Infection. We also are adding a measure of
Medicare Spending per Beneficiary in the
Efficiency domain.
With respect to the FY 2016 Hospital VBP
Program, as we proposed, we are adopting
four measures: Three 30-day mortality
measures adopted for FY 2014 and proposed
for FY 2015—MORT–30–AMI, MORT–30–
HF, and MORT–30–PN—and the AHRQ PSI
composite measure in the Outcome domain.
All of these measures are required for the
Hospital IQR Program; therefore, their
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.
For future program years, we intend to
consider the impacts of Hospital VBP
Program policies in the applicable IPPS/
LTCH PPS rulemaking vehicle. Because we
are not altering the underlying scoring
methodology finalized for the FY 2013
Hospital VBP Program in this final rule, we
do not believe it appropriate to revise the
regulatory impact analysis published in the
Hospital Inpatient VBP Program final rule
referenced above. We intend to provide an
updated analysis of the Hospital VBP
Program’s impacts for the FY 2014 program
year in the FY 2014 IPPS/LTCH PPS
rulemaking.
N. Effects of New Measures Added to the
LTCH Quality Reporting (LTCHQR) Program
In section VIII.D. of the preamble of this
final rule, we discuss the implementation of

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section 3004(a) of the Affordable Care Act,
which added section 1886(m)(5) to the Act.
Section 1886(m)(5) of the Act, further
provides that in the case of an LTCH that
does not submit data to the Secretary in
accordance with section 1886(m)(5)(C) of the
Act with respect to such a rate year, any
annual update to the standard Federal rate
for discharges for the hospital during the rate
year, and after application of section
1886(m)(3) of the Act, shall be reduced by 2
percentage points. The initial requirements
for this LTCH Quality Reporting (LTCHQR)
Program were finalized in section VII.C. of
the FY 2012 IPPS/LTCH PPS final rule (76 FR
51743 through 51756).
In the FY 2012 IPPS/LTCH PPS final rule
(76 FR 51839 through 51840), we estimated
that only a few LTCHs would not receive the
full payment update in any fiscal year as a
result of not submitting data under the LTCH
quality reporting program. At this time, the
LTCHQR Program has not been fully
implemented, as data collection will not
begin until October 1, 2012. However, we
believe that statements we made in the FY
2012 IPPS/LTCH PPS final rule regarding the
number and types of LTCHs that may not
receive the full payment update as a result
of failing to submit data to the Secretary
under the LTCHQR Program remain valid.
We believe that a majority of LTCHs will
submit data because they will view the new
quality reporting program as an important
step in improving the quality of care patients
receive in these facilities. We believe that
most LTCHs will quickly and easily adapt to
this new quality reporting program and find
that the benefits of this program outweigh the
burdens.
In section VIII.D.3.d. of the preamble of
this final rule, for FY 2015, as we proposed,
we have retained the three quality measures
that were finalized for use in the LTCHQR
Program in the FY 2012 IPPS/LTCH PPS final
rule. These measures are: (1) CatheterAssociated Urinary Tract Infections (CAUTI);
(2) Central Line Catheter-Associated Blood
Stream Infection Event (CLABSI); and (3)
Pressure Ulcers that are New or Have
Worsened. In the FY 2012 IPPS/LTCH PPS
final rule (76 FR 51780 through 51781), we
estimated that the total yearly cost to all
LTCH that are paid under the LTCH PPS 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) will be approximately $756,326.
In section XI.B.9. of the preamble of this final
rule, we have adopted this same burden
estimate.
It is important to note that, as part of its
endorsement maintenance process under
NQF’s Patient Safety Measures Project
(http://www.qualityforum.org/projects/
patient_safety_measures.aspx), the NQF
reviewed the CAUTI and CLABSI measures
that we adopted in the FY 2012 IPPS/LTCH
final rule. As a result of this review, the NQF
expanded the scope of endorsement of these
measures to include additional care settings,
including LTCHs. As proposed, in this final
rule, we are specifying that the CAUTI and
CLABSI measures will be adopted in their
expanded form for the FY 2014 payment

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determination and all subsequent fiscal year
payment determinations.
We do not believe that the total burden
estimate, in the amount of $756,326, that was
made in the FY 2012 IPPS/LTCH PPS final
rule would be affected by the expansion of
the CAUTI and CLABSI measures. We made
this statement because these expanded
measures are essentially the same measures
we adopted in the FY 2012 IPPS/LTCH PPS
final rule, except that the measure names
have been changed and the scope of
endorsement expanded so as to be applicable
to the LTCH setting. The expanded CAUTI
and CLABSI measures make no changes to
the way that these data are to be collected
and reported by LTCHs. Thus, use of the
expanded CAUTI and CLABSI measures will
place no additional financial burden on
LTCHs. In addition, we believe that this
financial burden should remain relatively
stable over the first several years of this
quality reporting program, subject to normal
inflationary increases, such as increased
labor wage rates.
In section VIII.D.3.d. of the preamble of
this final rule, for the FY 2016 LTCHQR
Program, as proposed, we are adding two
additional quality measures to the LTCHQR
Program. These quality measures are: (1)
Percent of Nursing Home Residents Who
Were Assessed and Appropriately Given the
Seasonal Influenza Vaccine (Short-Stay)
(NQF #0680); and (2) Influenza Vaccination
Coverage Among Healthcare Personnel (NQF
#0431). Data for the staff immunization
measure will be reported by LTCHs to NHSN.
Data for the patient influenza vaccination
measure will be collected using the LTCH
CARE Data Set. While we are still in the
process of identifying and developing the
specific data items that will be necessary for
these measures, we believe that the number
of data items will be limited. Therefore, we
anticipate little, if any, change in burden
associated with these two measures.
As we noted previously, the LTCHQR
Program has not been fully implemented, as
data collection will not begin until October
1, 2012. At this time, we provide estimates
of the costs associated with the collection
and submission of data in section XI.B.9. of
the preamble of this final rule.
In the FY 2013 IPPS/LTCH PPS proposed
rule, we invited public comment on the
impact that the proposed measures would
have on LTCHs. The public comments that
we received addressed the burden estimates
associated with the proposed measures. We
are addressing these public comments in
section XI.B.9. of the preamble of this final
rule, where we discuss in detail the
information collection requirements and the
burden associated with those requirements.
O. Effects of Quality Reporting Requirements
for Ambulatory Surgical Centers (ASCs)
In section XIV.K. of the CY 2012 OPPS/
ASC final rule with comment period (76 FR
74492 through 74517), we finalized quality
reporting measures for the CYs 2014, 2015,
and 2016 payment determinations and other
requirements for the ASC Quality Reporting
(ASCQR) Program. In section VIII.E. of the
preamble of this final rule, we discuss
proposed and final policies for ASCs to

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report quality data under the ASCQR
Program in order to be eligible to receive the
full ASC annual payment update. We are
unable at this time to estimate the number of
ASCs that may not receive the full ASC
annual payment update in CYs 2014, 2015,
and 2016 because we do not have data that
will allow us to make a reasonable estimate.
ASCs have not yet submitted quality data to
CMS; therefore, there are no data from
previous program operations on which to
base an estimate. Further, data from other
quality programs do not allow us to make a
reasonable estimate. Although we might be
able to make a reasonable estimate based on
data from other programs with respect to the
structural and process of care measures, we
are unable to estimate the number of ASCs
that will not be eligible to receive the full
ASC annual payment update with respect to
the submission of QDCs for the claims-based
measures. There are two other quality data
reporting programs that utilize QDCs
reported on claims similar to what we
finalized in the ASCQR Program: the
Physician Quality Reporting System (PQRS)
and the E-Prescribing Incentive Program.
However, these programs do not have
comparable reporting incentives. The PQRS
currently has no penalty for not meeting
reporting requirements, and the E-Prescribing
Incentive Program until CY 2012 was solely
incentive-based, rather than penalty-based.
We did not receive any public comments
regarding the effects of the proposed
requirements for the ASCQR Program.
P. Effects of Requirements for the Inpatient
Psychiatric Facilities Quality Reporting
(IPFQR) Program
In section VIII.F. of the preamble of this
final rule, we discuss our proposed and final
policies to implement the Inpatient
Psychiatric Facilities Quality Reporting
(IPFQR) Program.
1. General Background and Intent for
Implementation of the IPFQR Program
We intend to achieve several goals as we
develop and implement the proposed IPFQR
Program. One goal of the IPFQR Program is
to implement the statutory requirements of
section 1886(s)(4) of the Act as added by
sections 3401(f)(4) and 10322(a) of the
Affordable Care Act. However, in addition, it
is important to note that one of our priorities
is to help achieve better health and better
health care for individuals through collection
of valid, reliable, and relevant measures of
quality health care data. Such data can be
shared with appropriate health care related
organizations and used to further the
development of health care quality, which, in
turn, helps to further CMS’ objectives and
goals. Health care organizations can use such
health care quality data for many purposes
such as in their risk management programs,
health care acquired infection prevention
programs and research and development of
medical programs, among others.
More importantly, as required by the Act,
we intend to share the information obtained
from the IPFQR Program with the public.
These data will be displayed on the CMS
Web site. The goals of making these data
available to the public in a properly riskadjusted, public user-friendly and relevant

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format, include, but are not limited to: (1)
Keeping the public informed of the quality of
care that is being provided in IPFs as a
whole; (2) keeping the public informed of the
quality of care being provided in specific
IPFs; (3) allowing the public to compare and
contrast the data about specific IPFs, thus
enabling the public to make informed health
care decisions regarding IPFs; and (4)
providing information about current trends
in health care. There are certainly many other
public uses for these quality data concerning
IPFs. However, giving the public access to
information about the quality of care in
specific facilities and keeping the public
informed of trends in health care has always
been of high priority to CMS.
We also seek to align the new IPFQR
Program reporting requirements with current
HHS high priority conditions and topics and
to ultimately provide a comprehensive
assessment of the quality of health care
delivered in a variety of settings.
2. Anticipated Effects
This final rule will affect all IPFs
participating in Medicare. The facilities will
have to register with QualityNet and take the
proper training in order to be adequately
prepared to use the QualityNet system to
submit the data. The anticipated burden to
these providers consists of the following: (1)
The initial registration of the facility with
QualityNet; (2) training of the appropriate
staff members on how to use the QualityNet
reporting program; (3) the time required for
collection and aggregation of data; and (4) the
time required for entry of the data into the
QualityNet database by the IPF’s
representative.
We have estimated the burdens associated
with IPFs reporting aggregated-level data on
QualityNet. In our burden calculation, we
have included the time used for chart
abstraction and for training personnel on
collection of chart-abstracted data,
aggregation of the data, as well as training for
submitting the aggregate-level data through
QualityNet. We estimate that the annual
hourly burden to each IPF for the collection,
submission, and training of personnel for
submitting all quality measures is
approximately 821 hours in a year for each
IPF. Thus, the average hourly burden to each
IPF is approximately 68 hours per month. At
this time, we have no way to estimate how
many IPFs will participate in the program.
Therefore, we cannot estimate the financial
impact.
As we proposed in the FY 2013 IPPS/LTCH
PPS proposed rule, we are adopting the
quality measures, abstraction methods,
population, sampling, and reporting
approaches used by TJC. One reason we
selected this approach was to minimize the
burden on IPFs. There were 1,741 existing
IPFs, of which 450 (approximately 26
percent) are currently reporting the proposed
measures to TJC. For these IPFs, we estimate
that the burden will be minimal.
We did not receive any public comments
on the anticipated effects of the proposals for
the IPFQR Program.

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53747

Q. Effects of Requirements for Provider and
Practitioner Medical Record Deadlines and
Claims Denials
In section X. of the preamble of this final
rule, we discuss our proposed and finalized
changes for practitioners to follow in
responding to requests for medical records
from Quality Improvement Organizations
(QIOs). These changes require practitioners
to adhere to the 21-day and 30-day
timeframes in the regulations, which are
currently only applicable to providers. In
addition, the changes will give QIOs the
authority to effectuate claim denials for
practitioners who fail to submit the medical
records within these timeframes. QIOs have
authority to carry out claim denials for
providers who fail to submit medical records,
but similar provisions do not exist for
practitioners. In fact, to this point, the QIOs’
only option for practitioners who fail to
submit medical records has been to refer the
matter to the HHS Inspector General, and it
seems appropriate to identify a step, short of
recommending sanctions, for the QIOs to
pursue.
On average, QIOs request approximately
2,000 medical records from practitioners
each year. In general, requests for medical
records from both practitioners and providers
are ultimately fulfilled, but the average
response time is considerably longer for
practitioners than for providers. Because we
are working to improve the QIOs’ response
time in completing various review activities,
the application of the timeframes to
practitioners is an important step in our
efforts. In addition, given that the QIOs have
the need for and the statutory authority to
request medical records within a reasonable
period of time, they have relied on the same
21-day and 30-day timeframes for
practitioners. We believe that having the
regulatory timeframe and authority to carry
out claims denials for providers have
generally resulted in providers complying
with medical record requests within the
required timeframes. In line with this, we
believe that having this same regulatory
authority for practitioners will result in
practitioners complying with medical record
requests within their required timeframes,
which should, in turn, greatly reduce the
potential for any claims denials. Moreover,
because vendors are increasingly being used
by providers and practitioners to respond to
requests for medical records, the increasing
effectiveness of this process could further
diminish any impact of the regulatory
changes. As we noted in the proposed rule,
we believe the impact will be insignificant.
However, at this time, we cannot determine
the precise number of claim denials that
could occur for practitioners as a result of
these changes.
We did not receive any public comments
on our proposed statement of impact.
R. Alternatives Considered
This final rule contains a range of policies.
It also provides descriptions of the statutory
provisions that are addressed, identifies the
finalized policies, and presents rationales for
our decisions and, where relevant,
alternatives that were considered.

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S. Overall Conclusion
1. Acute Care Hospitals
Table I of section I.G. of this Appendix
demonstrates the estimated distributional
impact of the IPPS budget neutrality
requirements for the MS–DRG and wage
index changes, and for the wage index
reclassifications under the MGCRB. Table I
also shows an overall increase of 2.3 percent
in operating payments. We estimate that
operating payments will increase by
approximately $2.45 billion in FY 2013
relative to FY 2012. In addition, we estimate
a savings of $24 million associated with the
HACs policies in FY 2013, which is an
additional $2 million in savings than in FY
2012. In FY 2012, pursuant to section 1109
of the Affordable Care Act, we distributed an
additional $250 million to qualifying
hospitals resulting in a decrease of $250
million in payments to hospitals in FY 2013
relative to FY 2012. Furthermore, we
estimate that the expiration of the expansion
of low-volume payments under sections 3125
and 10314 of the Affordable Care Act in FY
2013 will result in a decrease in payments of
approximately $318 million compared to
low-volume payments made in FY 2012. We
estimate that new technology add-on
payments will increase payments by
approximately $46.1 million. Finally, we
estimate that our finalized policies to count
labor and delivery bed days in the available
bed day count for IME and DSH payments
will reduce IME payments by approximately
$40 million for FY 2013. These estimates,
combined with our FY 2013 operating
estimate of $2.45 billion, will result in an
increase of approximately $1.87 billion for
FY 2013. We estimate that capital payments
will experience a 1.8 percent increase in
payments per case, as shown in Table III of
section I.I. of this Appendix. We project that
there will be a $154 million increase in
capital payments in FY 2013 compared to FY
2012. The cumulative operating and capital
payments should result in a net increase of
approximately $2.04 billion to IPPS
providers. The discussions presented in the
previous pages, in combination with the rest
of this final rule, constitute a regulatory
impact analysis.
2. LTCHs
Overall, LTCHs are projected to experience
an increase in estimated payments per
discharge in FY 2013. In the impact analysis,
we are using the rates, factors, and policies
presented in this final rule, including
updated wage index values and relative
weights, and the best available claims and
CCR data to estimate the change in payments
under the LTCH PPS for FY 2013.
Accordingly, based on the best available data
for the 428 LTCHs in our database, we
estimate that FY 2013 LTCH PPS payments
will increase approximately $92 million
relative to FY 2012. In addition, we estimate
that extension of the moratorium on the
application of the ‘‘25 percent threshold’’
payment adjustment policy, as provided by
section 114(c) of the MMSEA, as amended by
section 4302(a) of the ARRA and sections
3106(a) and 10312(a) of the Affordable Care
Act, for cost reporting periods beginning on
or after October 1, 2012, and before October

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1, 2013, will result in a payment impact of
approximately $170 million to LTCHs.

III. Regulatory Flexibility Act (RFA)
Analysis

II. Accounting Statements and Tables

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: http://www.sba.gov/
contractingopportunities/sizestandardtopics/
tableofsize/index.html.).
For purposes of the RFA, all hospitals and
other providers and suppliers are considered
to be small entities. Individuals and States
are not included in the definition of a small
entity. We believe that the provisions of this
final rule relating to acute care hospitals will
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 I.J. of this Appendix. Medicare
fiscal intermediaries and MACs are not
considered to be small entities. Because we
acknowledge that many of the affected
entities are small entities, the analysis
discussed throughout the preamble of this
final rule constitutes our regulatory
flexibility analysis. In the FY 2013 IPPS/
LTCH PPS proposed rule, we solicited public
comments on our estimates and analysis of
the impact of our proposals on those small
entities. Any public comments that we
received and our responses are presented
throughout this final rule.

A. Acute Care Hospitals
As required by OMB Circular A–4
(available at http://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 final rule as they relate to acute care
hospitals. This table provides our best
estimate of the change in Medicare payments
to providers as a result of the changes to the
IPPS presented in this final rule. All
expenditures are classified as transfers to
Medicare providers.

TABLE V—ACCOUNTING STATEMENT:
CLASSIFICATION OF ESTIMATED EXPENDITURES
UNDER THE IPPS
FROM FY 2012 TO FY 2013
Category
Annualized Monetized
Transfers.
From Whom to Whom

Total .......................

Transfers
$2.04 billion.
Federal Government
to IPPS Medicare
Providers.
$2.04 billion.

B. LTCHs
As discussed in section I.J. of this
Appendix, the impact analysis for the
changes we are making under the LTCH PPS
for this final rule projects an increase in
estimated aggregate payments in FY 2013
relative to FY 2012 of approximately $92
million for the 428 LTCHs in our database
that are subject to payment under the LTCH
PPS. Therefore, as required by OMB Circular
A–4 (available at http://www.whitehouse.gov/
omb/circulars/a004/a-4.pdf), in Table VI
below, we have prepared an accounting
statement showing the classification of the
expenditures associated with the provisions
of this final rule as they relate to changes to
the LTCH PPS. Table VI provides our best
estimate of the estimated increase in
Medicare payments under the LTCH PPS as
a result of the provisions presented in this
final rule based on the data for the 428
LTCHs in our database. All expenditures are
classified as transfers to Medicare providers
(that is, LTCHs).

TABLE VI—ACCOUNTING STATEMENT:
CLASSIFICATION OF ESTIMATED EXPENDITURES FROM THE FY 2012
LTCH PPS TO THE FY 2013 LTCH
PPS
Category

Transfers

Annualized Monetized
Transfers.

Positive transfer—Estimated increase in
expenditures: $92
million.

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IV. Impact on Small Rural Hospitals
Section 1102(b) of the Social Security Act
requires us to prepare a regulatory impact
analysis for any proposed or final rule that
may have a significant impact on the
operations of a substantial number of small
rural hospitals. This analysis must conform
to the provisions of section 603 of the RFA.
With the exception of hospitals located in
certain New England counties, for purposes
of section 1102(b) of the Act, we 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 in section I.G. of this
Appendix for the quantitative effects of the
final policy changes under the IPPS for
operating costs.)

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V. Unfunded Mandates Reform Act Analysis
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 2012, that threshold
level is approximately $136 million. This
final rule will not mandate any requirements
for State, local, or tribal governments, nor
will it affect private sector costs.
VI. Executive Order 12866
In accordance with the provisions of
Executive Order 12866, the Executive Office
of Management and Budget reviewed this
final rule.

Appendix B: Recommendation of
Update Factors for Operating Cost
Rates of Payment for Inpatient Hospital
Services
I. Background
Section 1886(e)(4)(A) of the Act requires
that the Secretary, taking into consideration
the recommendations of 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 rate for SCHs, and the
rate-of-increase limits for certain hospitals
excluded from the IPPS, as well as LTCHs.
In prior years, we have made a
recommendation in the IPPS proposed rule
and final rule for the update factors for the
payment rates for IRFs and IPFs. However,
for FY 2013, we plan to include the
Secretary’s recommendation for the update
factors for IRFs and IPFs in separate Federal
Register documents at the time that we
announce the annual updates for IRFs and
IPFs. We also discuss our response to
MedPAC’s recommended update factors for
inpatient hospital services.

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II. Inpatient Hospital Update for FY 2013
A. FY 2013 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
2013 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) second quarter 2012
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 data 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.

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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 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.
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.H.1 of the
preamble of the proposed rule, we proposed
a multifactor productivity (MFP) adjustment
(the 10-year moving average of MFP for the
period ending FY 2012) of 0.8 percent (77 FR
27975 and 27976). Also, in the FY 2013 IPPS/
LTCH PPS proposed rule (77 FR 27975 and
27976), based on IGI’s first quarter 2012
forecast of the FY 2013 market basket
increase, we proposed an applicable
percentage increase to the FY 2012 operating
standardized amount of 2.1 percent (that is,
the proposed FY 2013 estimate of the market
basket rate-of-increase of 3.0 percent less an
adjustment of 0.8 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)(viii) of
the Act and our rules. For hospitals that fail
to submit quality data, we proposed an
applicable percentage increase to the
operating standardized amount of 0.1 percent
(that is, the proposed FY 2013 estimate of the
market basket rate-of-increase of 3.0 percent
less 2.0 percentage points for failure to
submit quality data, less an adjustment of 0.8
percentage points for economy-wide
productivity, and less an additional
adjustment of 0.1 percentage point).
For this final rule, 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.H.1. of the preamble of this final
rule, we are making an MFP adjustment of
0.7 percent. Based on IGI’s second quarter
2012 forecast of the FY 2013 market basket
increase, we are providing for an applicable
percentage increase to the FY 2012 operating
standardized amount of 1.8 percent (that is,
the FY 2013 estimate of the market basket
rate-of-increase of 2.6 percent less an
adjustment of 0.7 percentage point 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)(viii) of
the Act and our rules. For hospitals that fail
to submit quality data, we are providing for
an applicable percentage increase to the
operating standardized amount of ¥0.2
percent (that is, the FY 2013 estimate of the
market basket rate-of-increase of 2.6 percent
less 2.0 percentage points for failure to
submit quality data, less an adjustment of 0.7
percentage point for economy-wide
productivity, and less an additional
adjustment of 0.1 percentage point).
B. Update for SCHs for FY 2013
Section 1886(b)(3)(B)(iv) of the Act
provides that the FY 2013 applicable
percentage increase in the hospital-specific
rate for SCHs equals the applicable
percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the same

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update factor as for all other hospitals subject
to the IPPS). Therefore, the update to the
hospital specific rate for SCHs 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
providing for an applicable percentage
increase to the hospital-specific rate
applicable to SCHs of 1.8 percent for
hospitals that submit quality data or ¥0.2
percent for hospitals that fail to submit
quality data.
C. FY 2013 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
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 providing
for an applicable percentage increase to the
Puerto Rico-specific standardized amount of
1.8 percent.
D. 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.
Currently, children’s hospitals, cancer
hospitals, and RNHCIs are the remaining
three types of hospitals still reimbursed
under the reasonable cost methodology. We
are providing that the FY 2013 rate-ofincrease percentage applicable to the target
amount for children’s hospitals, cancer
hospitals, and RNHCIs is the percentage
increase in the IPPS operating market basket.
For this final rule, the current estimate of the
FY 2013 IPPS operating market basket
percentage increase is 2.6 percent.
E. Update for LTCHs
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.
As discussed in section VII. of the
preamble of this final rule, we are

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Federal Register / Vol. 77, No. 170 / Friday, August 31, 2012 / Rules and Regulations

establishing an update to the LTCH PPS
standard Federal rate for FY 2013 based on
the full LTCH PPS market basket increase
estimate (for this final rule, estimated to be
2.6 percent), subject to an adjustment based
on changes in economy-wide productivity
and an additional reduction of 0.1 percentage
point. The productivity adjustment described
in section 1886(b)(3)(B)(xi)(ii) of the Act is
currently estimated to be 0.7 percent for FY
2013. In addition, section 1886(m)(3)(A)(ii) of
the Act requires that any annual update for
FY 2013 be reduced by the ‘‘other
adjustment’’ at section 1886(m)(4)(C) of the
Act, which is 0.1 percentage point. Therefore,
based on IGI’s second quarter 2012 forecast
of the FY 2013 market basket increase, we are
providing for an annual update to the LTCH
PPS standard Federal rate of 1.8 percent (that
is, the current FY 2013 estimate of the market
basket rate-of-increase of 2.6 percent less an
adjustment of 0.7 percentage point for
economy-wide productivity and less 0.1
percentage point). Accordingly, we are
applying an update factor of 1.018 in
determining the LTCH PPS standard Federal
rate for FY 2013. Furthermore, we are
phasing in a one-time prospective adjustment
to the standard Federal rate under
§ 412.523(d)(3) by applying a factor of
0.98734 (or approximately ¥1.3 percent) in
FY 2013, which will not be applicable to
payments for LTCH PPS discharges occurring
on or before December 28, 2012 (consistent
with current law).

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III. Secretary’s Recommendations
MedPAC is recommending an inpatient
hospital update equal to one percent for FY
2013. 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

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with current law, we are recommending an
applicable percentage increase to the
standardized amount of 1.8 percent (that is,
the FY 2013 estimate of the market basket
rate-of-increase of 2.6 percent less an
adjustment of 0.7 percentage point for MFP
and less 0.1 percentage point). We are
recommending that the same applicable
percentage increase apply to SCHs 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 certain
other types of hospitals excluded from the
IPPS. Consistent with our policies for these
facilities, we are recommending an update
for children’s hospitals, cancer hospitals, and
RNHCIs of 2.6 percent.
For FY 2013, consistent with policy set
forth in section VII. of the preamble of this
final rule, we are recommending an update
of 1.8 percent to the LTCH PPS standard
Federal rate.
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating Payments
in Traditional Medicare
In its March 2012 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,
MedPAC’s analysis finds that efficient
hospitals have been able to maintain positive
Medicare margins while maintaining a
relatively high quality of care. MedPAC also
recommended that Congress should require
the Secretary to use the difference between
the increase of the applicable percentage
increase under the IPPS for FY 2013 and
MedPAC’s recommendation of a 1.0 percent
update to gradually recover past
overpayments due to documentation and
coding changes.
Response: With regard to MedPAC’s
recommendation of an update to the hospital

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inpatient rates equal to one percent, for FY
2013, 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) of the Act, as amended
by these sections, sets the requirements for
the FY 2013 applicable percentage increase.
Therefore, we have provided for an
applicable percentage increase for FY 2013 of
1.8 percent, provided the hospital submits
quality data, consistent with these statutory
requirements.
With regard to MedPAC’s recommendation
that Congress should require the Secretary to
use the difference between the increase of the
applicable percentage increase under the
IPPS for FY 2013 and MedPAC’s
recommendation of a 1.0 percent update to
gradually recover past overpayments due to
documentation and coding changes, we refer
readers to section II.D. of the preamble of this
final rule for a complete discussion of the FY
2013 documentation and coding adjustments.
In section II.D. of the preamble of this final
rule, we are making a prospective adjustment
of 1.9 percent to the FY 2013 standardized
amount to remove the remaining effect of
documentation and coding that occurred in
FY 2008 and FY 2009. We note that section
7(b)(1)(B) of Public Law 110–90 authorized
recoupments of overpayments due to
documentation and coding changes for FY
2008 and FY 2009, and under this authority,
such recoupments had to be made no later
than FY 2012. Accordingly, any recoupments
of overpayments due to documentation and
coding changes beyond the authority of
section 7(b)(1)(B) of Public Law 110–90
would require changes to current law by
Congress.
We also note that, because the operating
and capital prospective payment systems
remain separate, we are continuing to use
separate updates for operating and capital
payments. The update to the capital rate is
discussed in section III. of the Addendum to
this final rule.
[FR Doc. 2012–19079 Filed 8–1–12; 4:15 pm]
BILLING CODE 4120–01–P

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