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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Parts 412, 413, and 476
[CMS–1518–F; CMS–1430–F]
RIN 0938–AQ24; RIN 0938–AQ92
Medicare Program; Hospital Inpatient
Prospective Payment Systems for
Acute Care Hospitals and the LongTerm Care Hospital Prospective
Payment System and FY 2012 Rates;
Hospitals’ FTE Resident Caps for
Graduate Medical Education Payment
Centers for Medicare and
Medicaid Services (CMS), HHS.
ACTION: Final rules.
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 and to implement certain
statutory provisions contained in the
Patient Protection and Affordable Care
Act and the Health Care and Education
Reconciliation Act of 2010 (collectively
known as the Affordable Care Act) and
other legislation. We also are setting
forth the update to the rate-of-increase
limits for certain hospitals excluded
from the IPPS that are paid on a
reasonable cost basis subject to these
limits.
We are updating the payment policy
and the annual payment rates for the
Medicare prospective payment system
(PPS) for inpatient hospital services
provided by long-term care hospitals
(LTCHs) and implementing certain
statutory changes made by the
Affordable Care Act. In addition, we are
finalizing an interim final rule with
comment period that implements
section 203 of the Medicare and
Medicaid Extenders Act of 2010 relating
to the treatment of teaching hospitals
that are members of the same Medicare
graduate medical education affiliated
groups for the purpose of determining
possible full-time equivalent (FTE)
resident cap reductions.
DATES: Effective dates: These final rules
are effective on October 1, 2011, except
for the provisions of § 412.230(d)(5),
which are effective September 1, 2011.
Effective July 29, 2011, the interim rule
published March 14, 2011, at 76 FR
13515, is confirmed as final without
change.
Applicability dates: The update to the
rate-of-increase limits for certain
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SUMMARY:
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hospitals excluded from the IPPS that
are paid on a reasonable cost basis
subject to these limits is applicable
beginning on or after October 1, 2011.
The payment policy and the annual
payment rates for inpatient hospital
services provided by IPPS hospitals and
by long-term care hospitals (LTCHs) and
for implementing certain statutory
changes made by the Affordable Care
Act and other legislation are applicable
to discharges occurring on or after
October 1, 2011 unless otherwise
specified in this final rule.
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,
Rebasing and Revising of the Market
Basket for LTCHs Issues.
Siddhartha Mazumdar, (410) 786–6673,
Rural Community Hospital
Demonstration Program Issues.
James Poyer, (410) 786–2261, Inpatient
Quality Reporting—Program
Administration, Validation, and
Reconsideration Issues.
Shaheen Halim, (410) 786–0641,
Inpatient Quality Reporting—
Measures Issues Except Hospital
Consumer Assessment of Healthcare
Providers and Systems Issues; and
Readmission Measures for Hospitals
Issues.
Elizabeth Goldstein, (410) 786–6665,
Inpatient Quality Reporting—Hospital
Consumer Assessment of Healthcare
Providers and Systems Measures
Issues.
Mary Pratt, (410) 786–6867, LTCH
Quality Data Reporting Issues.
Kim Spaulding Bush, (410) 786–3232,
Hospital Value-Based Purchasing
Efficiency Measures Issues.
SUPPLEMENTARY INFORMATION:
Electronic Access
This Federal Register document is
also available from the Federal Register
online database through GPO Access, a
service of the U.S. Government Printing
Office. Free public access is available on
a Wide Area Information Server (WAIS)
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through the Internet and via
asynchronous dial-in. Internet users can
access the database by using the World
Wide Web, (the Superintendent of
Documents’ home Web page address is
http://www.gpoaccess.gov/), by using
local WAIS client software, or by telnet
to swais.access.gpo.gov, then log in as
guest (no password required). Dial-in
users should use communications
software and modem to call (202) 512–
1661; type swais, then log in 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 will no longer be published as
part of the annual IPPS and LTCH PPS
proposed and final rules. 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/
AcuteInpatientPPS/01_overview.asp.
Click on the link on the left side of the
screen titled, ‘‘FY 2012 IPPS Final Rule
Home Page’’ or ‘‘Acute Inpatient—Files
for Download.’’ The LTCH PPS tables
for this FY 2012 final rule are available
only through the Internet on the CMS
Web site at: http://www.cms.gov/
LongTermCareHospitalPPS/
LTCHPPSRN/list.asp under the list item
for Regulation Number CMS–1518–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.
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
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AOA American Osteopathic Association
APR DRG All Patient Refined Diagnosis
Related Group System
ARRA American Recovery and
Reinvestment Act of 2009, Public Law
111–5
ASC Ambulatory surgical center
ASCA Administrative Simplification
Compliance Act of 2002, Public Law 107–
105
ASITN American Society of Interventional
and Therapeutic Neuroradiology
BBA Balanced Budget Act of 1997, Public
Law 105–33
BBRA Medicare, Medicaid, and SCHIP
[State Children’s Health Insurance
Program] Balanced Budget Refinement Act
of 1999, Public Law 106–113
BIPA Medicare, Medicaid, and SCHIP [State
Children’s Health Insurance Program]
Benefits Improvement and Protection Act
of 2000, Public Law 106–554
BLS Bureau of Labor Statistics
CAH Critical access hospital
CARE [Medicare] Continuity Assessment
Record & Evaluation [Instrument]
CART CMS Abstraction & Reporting Tool
CBSAs Core-based statistical areas
CC Complication or comorbidity
CCR Cost-to-charge ratio
CDAC [Medicare] Clinical Data Abstraction
Center
CDAD Clostridium difficile-associated
disease
CIPI Capital input price index
CMI Case-mix index
CMS Centers for Medicare & Medicaid
Services
CMSA Consolidated Metropolitan
Statistical Area
COBRA Consolidated Omnibus
Reconciliation Act of 1985, Public Law 99–
272
COLA Cost-of-living adjustment
CoP [Hospital] condition of participation
CPI Consumer price index
CRNA Certified Registered Nurse
Anesthetist
CY Calendar year
DPP Disproportionate patient percentage
DRA Deficit Reduction Act of 2005, Public
Law 109–171
DRG Diagnosis-related group
DSH Disproportionate share hospital
ECI Employment cost index
EDB [Medicare] Enrollment Database
EHR Electronic health record
EMR Electronic medical record
FAH Federation of Hospitals
FDA Food and Drug Administration
FFY Federal fiscal year
FQHC Federally qualified health center
FTE Full-time equivalent
FY Fiscal year
GAAP Generally Accepted Accounting
Principles
GAF Geographic Adjustment Factor
GME Graduate medical education
HACs Hospital-acquired conditions
HCAHPS Hospital Consumer Assessment of
Healthcare Providers and Systems
HCFA Health Care Financing
Administration
HCO High-cost outlier
HCRIS Hospital Cost Report Information
System
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HHA Home health agency
HHS Department of Health and Human
Services
HICAN Health Insurance Claims Account
Number
HIPAA Health Insurance Portability and
Accountability Act of 1996, Public Law
104–191
HIPC Health Information Policy Council
HIS Health information system
HIT Health information technology
HMO Health maintenance organization
HPMP Hospital Payment Monitoring
Program
HSA Health savings account
HSCRC [Maryland] Health Services Cost
Review Commission
HSRV Hospital-specific relative value
HSRVcc Hospital-specific relative value
cost center
HQA Hospital Quality Alliance
HQI Hospital Quality Initiative
ICD–9–CM International Classification of
Diseases, Ninth Revision, Clinical
Modification
ICD–10–CM International Classification of
Diseases, Tenth Revision, Clinical
Modification
ICD–10–PCS International Classification of
Diseases, Tenth Revision, Procedure
Coding System
ICR Information collection requirement
IGI IHS Global Insight, Inc.
IHS Indian Health Service
IME Indirect medical education
I–O Input-Output
IOM Institute of Medicine
IPF Inpatient psychiatric facility
IPPS [Acute care hospital] inpatient
prospective payment system
IRF Inpatient rehabilitation facility
IQR Inpatient Quality Reporting
LAMCs Large area metropolitan counties
LOS Length of stay
LTC–DRG Long-term care diagnosis-related
group
LTCH Long-term care hospital
MA Medicare Advantage
MAC Medicare Administrative Contractor
MCC Major complication or comorbidity
MCE Medicare Code Editor
MCO Managed care organization
MCV Major cardiovascular condition
MDC Major diagnostic category
MDH Medicare-dependent, small rural
hospital
MedPAC Medicare Payment Advisory
Commission
MedPAR Medicare Provider Analysis and
Review File
MEI Medicare Economic Index
MGCRB Medicare Geographic Classification
Review Board
MIEA–TRHCA Medicare Improvements and
Extension Act, Division B of the Tax Relief
and Health Care Act of 2006, Public Law
109–432
MIPPA Medicare Improvements for Patients
and Providers Act of 2008, Public Law
110–275
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
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MRHFP Medicare Rural Hospital Flexibility
Program
MRSA Methicillin-resistant Staphylococcus
aureus
MSA Metropolitan Statistical Area
MS–DRG Medicare severity diagnosisrelated group
MS–LTC–DRG Medicare severity long-term
care diagnosis-related group
NAICS North American Industrial
Classification System
NALTH National Association of Long Term
Hospitals
NCD National coverage determination
NCHS National Center for Health Statistics
NCQA National Committee for Quality
Assurance
NCVHS National Committee on Vital and
Health Statistics
NECMA New England County Metropolitan
Areas
NQF National Quality Forum
NTIS National Technical Information
Service
NTTAA National Technology Transfer and
Advancement Act of 1991 (Pub. L. 104–
113)
NVHRI National Voluntary Hospital
Reporting Initiative
OACT [CMS’] Office of the Actuary
OBRA 86 Omnibus Budget Reconciliation
Act of 1996, Public Law 99–509
OES Occupational employment statistics
OIG Office of the Inspector General
OMB Executive Office of Management and
Budget
OPM U.S. Office of Personnel Management
O.R. Operating room
OSCAR Online Survey Certification and
Reporting [System]
PMSAs Primary metropolitan statistical
areas
POA Present on admission
PPACA Patient Protection and Affordable
Care Act, Public Law 111–148
PPI Producer price index
PPS Prospective payment system
PRM Provider Reimbursement Manual
ProPAC Prospective Payment Assessment
Commission
PRRB Provider Reimbursement Review
Board
PRTFs Psychiatric residential treatment
facilities
PSF Provider-Specific File
PS&R Provider Statistical and
Reimbursement (System)
QIG Quality Improvement Group, CMS
QIO Quality Improvement Organization
RCE Reasonable compensation equivalent
RHC Rural health clinic
RHQDAPU Reporting hospital quality data
for annual payment update
RNHCI Religious nonmedical health care
institution
RPL Rehabilitation psychiatric long-term
care (hospital)
RRC Rural referral center
RTI Research Triangle Institute,
International
RUCAs Rural-urban commuting area codes
RY Rate year
SAF Standard Analytic File
SCH Sole community hospital
SFY State fiscal year
SIC Standard Industrial Classification
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SNF Skilled nursing facility
SOCs Standard occupational classifications
SOM State Operations Manual
SSO Short-stay outlier
TEFRA Tax Equity and Fiscal
Responsibility Act of 1982, Public Law 97–
248
TEP Technical expert panel
TMA TMA [Transitional Medical
Assistance], Abstinence Education, and QI
[Qualifying Individuals] Programs
Extension Act of 2007, Public Law 110–90
UHDDS Uniform hospital discharge data set
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Table of Contents
I. Background
A. Summary
1. Acute Care Hospital Inpatient
Prospective Payment System (IPPS)
2. Hospitals and Hospital Units Excluded
From the IPPS
3. Long-Term Care Hospital Prospective
Payment System (LTCH PPS)
4. Critical Access Hospitals (CAHs)
5. Payments for Graduate Medical
Education (GME)
B. Provisions of the Patient Protection and
Affordable Care Act (Pub. L. 111–148)
and the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111–
152) Applicable to FY 2012
C. Issuance of a Notice of Proposed
Rulemaking
1. Proposed Changes to MS–DRG
Classifications and Recalibrations of
Relative Weights
2. Proposed Changes to the Hospital Wage
Index for Acute Care Hospitals
3. Other Decisions and Proposed Changes
to the IPPS for Operating Costs and GME
Costs
4. Proposed FY 2012 Policy Governing the
IPPS for Capital-Related Costs
5. Proposed Changes to the Payment Rates
for Certain Excluded Hospitals: Rate-ofIncrease Percentages
6. Proposed Changes to the LTCH PPS
7. Determining Proposed Prospective
Payment Operating and Capital Rates
and Rate-of-Increase Limits for Acute
Care Hospitals
8. Determining Proposed Prospective
Payments Rates for LTCHs
9. Impact Analysis
10. Recommendation of Update Factors for
Operating Cost Rates of Payment for
Hospital Inpatient Services
11. Discussion of Medicare Payment
Advisory Commission Recommendations
D. Public Comments Received in Response
to the FY 2012 IPPS/LTCH PPS Proposed
Rule
E. Finalization of Interim Final Rule With
Comment Period on Revisions to the
Reductions and Increases to Hospitals’
FTE Resident Caps for Graduate Medical
Education Payment Purposes
II. Changes to Medicare Severity DiagnosisRelated Group (MS–DRG) Classifications
and Relative Weights
A. Background
B. MS–DRG Reclassifications
1. General
2. Yearly Review for Making MS–DRG
Changes
C. Adoption of the MS–DRGs in FY 2008
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D. FY 2012 MS–DRG Documentation and
Coding Adjustment, Including the
Applicability to the Hospital-Specific
Rates and the Puerto Rico-Specific
Standardized Amount
1. Background on the Prospective MS–DRG
Documentation and Coding Adjustments
for FY 2008 and FY 2009 Authorized by
Public Law 110–90
2. Prospective Adjustment to the Average
Standardized Amounts Required by
Section 7(b)(1)(A) of Public Law 110–90
3. Recoupment or Repayment Adjustments
in FYs 2010 through 2012 Required by
Public Law 110–90
4. Retrospective Evaluation of FY 2008 and
FY 2009 Claims Data
5. Prospective Adjustment for FY 2010 and
Subsequent Years Authorized by Section
7(b)(1)(A) of Public Law 110–90 and
Section 1886(d)(3)(vi) of the Act
6. Recoupment or Repayment Adjustment
for FY 2010 Authorized by Section
7(b)(1)(B) of Public Law 110–90
7. Background on the Application of the
Documentation and Coding Adjustment
to the Hospital-Specific Rates
8. Documentation and Coding Adjustment
to the Hospital-Specific Rates for FY
2011 and Subsequent Fiscal Years
9. Application of the Documentation and
Coding Adjustment to the Puerto RicoSpecific Standardized Amount
a. Background
b. Documentation and Coding Adjustment
to the Puerto Rico-Specific Standardized
Amount
E. Refinement of the MS–DRG Relative
Weight Calculation
1. Background
2. Summary of the RTI Study of Charge
Compression and CCR Refinement
3. Summary of Policy Changes Made in FY
2011
4. Discussion for FY 2012
F. Preventable Hospital-Acquired
Conditions (HACs), Including Infections
1. Background
a. Statutory Authority
b. HAC Selection
c. Collaborative Process
d. Application of HAC Payment Policy to
MS–DRG Classifications
e. Public Input Regarding Selected and
Potential Candidate HACs
f. POA Indicator Reporting
2. Additions and Revisions to the HAC
Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury
b. New Diagnosis Codes Added to Existing
HACs
c. Revision to HAC Subcategory Title
d. Conclusion
3. RTI Program Evaluation Summary
a. Background
b. FY 2009 Data Analysis
c. FY 2010 Data Analysis
d. FY 2010 RTI Analysis on POA Indicator
Reporting of Current HACs.
e. FY 2010 RTI Analysis of Frequency of
Discharges and POA Indicator Reporting
for Current HACs
f. RTI Analysis of Circumstances When
Application of HAC Provisions Would
Not Result in MS–DRG Reassignment for
Current HACs
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g. RTI Analysis of Coding Changes for
HAC-Associated Secondary Diagnoses
for Current HACs
h. RTI Analysis of Estimated Net Savings
for Current HACs
i. Previously Considered Candidate
HACs—RTI Analysis of Frequency of
Discharges and POA Indicator Reporting
j. Current and Previously Considered
Candidate HACs—RTI Report on
Evidence-Based Guidelines
k. Final Policy Regarding Current HACs
and Previously Considered Candidate
HACs
G. Changes to Specific MS–DRG
Classifications
1. Pre-Major Diagnostic Categories (PreMDCs)
a. Noninvasive Mechanical Ventilation
b. Debridement With Mechanical
Ventilation Greater Than 96 Hours With
Major Operating Room (O.R.) Procedure
c. Autologous Bone Marrow Transplant
2. MDC 1 (Diseases and Disorders of the
Nervous System): Rechargeable Dual
Array Deep Brain Stimulation System
3. MDC 3 (Diseases and Disorders of the
Ear, Nose, Mouth, and Throat): Skull
Based Surgeries
4. MDC 5 (Diseases and Disorders of the
Circulatory System)
a. Percutaneous Mitral Valve Repair With
Implant
b. Aneurysm Repair Procedure Codes
5. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue)
a. Artificial Discs
b. Major Joint Replacement or
Reattachment of Lower Extremities
c. Combined Anterior/Posterior Spinal
Fusion
6. MDC 9 (Diseases and Disorders of the
Skin, Subcutaneous Tissue, and Breast):
Excisional Debridement of Wound,
Infection, or Burn
7. MDC 10 (Endocrine, Nutritional, and
Metabolic Diseases and Disorders)
a. Nutritional and Metabolic Diseases:
Update of MS–DRG Titles
b. Sleeve Gastrectomy Procedure for
Morbid Obesity
8. MDC 15 (Newborns and Other Neonates
with Conditions Originating in the
Perinatal Period): Discharge Status Code
66 (Discharged/Transferred to Critical
Access Hospital (CAH))
9. Medicare Code Editor (MCE) Changes
10. Surgical Hierarchies
11. Complications or Comorbidity (CC)
Exclusions List
a. Background
b. CC Exclusions List for FY 2012
12. Review of Procedure Codes in MS–
DRGs 981 Through 983, 984 Through
986, and 987 Through 989
a. Moving Procedure Codes From MS–
DRGs 981 Through 983 or MS–DRGs 987
Through 989 Into MDCs
b. Reassignment of Procedures Among MS–
DRGs 981 Through 983, 984 Through
986, and 987 Through 989
c. Adding Diagnosis or Procedure Codes to
MDCs
13. Changes to the ICD–9–CM Coding
System, Including Discussion of the
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Replacement of the ICD–9–CM System
With the ICD–10–CM and ICD–10–PCS
Systems in FY 2014
a. ICD–9–CM Coding System
b. Code Freeze
c. Processing of 25 Diagnosis Codes and 25
Procedure Codes on Hospital Inpatient
Claims
d. ICD–10 MS–DRGs
14. Other Issues
a. O.R./Non-O.R. Status of Procedures
b. IPPS Recalled Device Policy
Clarification
15. Public Comments on Issues Not
Addressed in Proposed Rule
H. Recalibration of MS–DRG Weights
I. Add-On Payments for New Services and
Technologies
1. Background
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
3. FY 2012 Status of Technologies
Approved for FY 2011 Add-On Payments
a. Spiration® IBV Valve System
b. Cardio WestTM Temporary Artificial
Heart System (Cardio WestTM TAH-t)
c. Auto Laser Interstitial Thermal Therapy
(AutoLITTTM) System
4. FY 2012 Applications for New
Technology Add-On Payments
a. AxiaLIF® 2L+TM System
b. PerfectCLEAN with Micrillon®
III. Changes to the Hospital Wage Index for
Acute Care Hospitals
A. Background
B. Core-Based Statistical Areas for the
Hospital Wage Index
C. Occupational Mix Adjustment to the FY
2012 Wage Index
1. Development of Data for the FY 2012
Occupational Mix Adjustment Based on
the 2007–2008 Occupational Mix Survey
2. New 2010 Occupational Mix Survey for
the FY 2013 Wage Index
3. Calculation of the Occupational Mix
Adjustment for FY 2012
D. Worksheet S–3 Wage Data for the FY
2012 Wage Index
1. Included Categories of Costs
2. Changes to the Reporting Requirements
for Pension Costs for the Medicare Wage
Index
a. Background
b. Allowable Pension Cost for the Medicare
Wage Index
3. Excluded Categories of Costs
4. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals under
the IPPS
E. Verification of Worksheet S–3 Wage
Data
F. Method for Computing the FY 2012
Unadjusted Wage Index
1. Steps for Computation
2. Imputed Floor Policy
3. FY 2012 Puerto Rico Wage Index
G. Analysis and Implementation of the
Occupational Mix Adjustment and the
FY 2012 Occupational Mix Adjusted
Wage Index
H. Revisions to the Wage Index Based on
Hospital Redesignations and
Reclassifications
1. General
2. Effects of Reclassification/Redesignation
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3. FY 2012 MGCRB Reclassifications
a. FY 2012 Reclassification Requirements
and Approvals
b. Applications for Reclassifications for FY
2013
4. Redesignations of Hospitals Under
Section 1886(d)(8)(B) of the Act
5. Reclassifications Under Section
1886(d)(8)(B) of the Act
6. Reclassifications Under Section 508 of
Public Law 108–173
7. Waiving Lugar Redesignation for the
Out-Migration Adjustment
8. Other Geographic Reclassification Issues
a. Requested Reclassification for Single
Hospital MSAs
b. Requests for Exceptions to Geographic
Reclassification Rules
I. FY 2012 Wage Index Adjustment Based
on Commuting Patterns of Hospital
Employees
J. Process for Requests for Wage Index Data
Corrections
K. Labor-Related Share for the FY 2012
Wage Index
IV. Other Decisions and Changes to the IPPS
for Operating Costs and GME Costs
A. Hospital Inpatient Quality Reporting
Program
1. Background
a. Overview
b. Statutory History and History of
Measures Adopted for the Hospital IQR
Program
c. Maintenance of Technical Specifications
for Quality Measures
d. Public Display of Quality Measures
2. Retirement of Hospital IQR Program
Measures
a. Considerations in Retiring Quality
Measures from the Hospital IQR Program
b. Retirement of Hospital IQR Program
Measures for the FY 2014 Payment
Determination and Subsequent Years
3. Measures for the FY 2014 and FY 2015
Hospital IQR Payment Determinations
a. Considerations in Expanding and
Updating Quality Measures Under the
Hospital IQR Program
b. Hospital IQR Program Measures for the
FY 2014 Hospital IQR Payment
Determination
c. Hospital IQR Program Quality Measures
for the FY 2015 Payment Determination
4. Possible New Quality Measures and
Measure Topics for Future Years
5. Form, Manner, and Timing of Quality
Data Submission
a. Background
b. Procedural Requirements for the FY
2012 Payment Determinations and
Subsequent Years
c. Procedural Requirements for FY 2013
and Subsequent Years
d. Data Submission Requirements for
Chart-Abstracted Measures
e. Sampling and Case Thresholds
Beginning With the FY 2015 Payment
Determination
f. HCAHPS Requirements for the FY 2013,
FY 2014, and FY 2015 Payment
Determinations
g. Procedures for Claims-Based Measures
h. Data Submission Requirements for
Structural Measures
i. Data Submission and Reporting
Requirements for Healthcare-Associated
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Infection (HAI) Measures Reported via
NHSN
6. Chart Validation Requirements for ChartAbstracted Measures
a. Changes to the Chart Validation
Requirements and Methods for the FY
2012 Payment Determination and
Subsequent Years
b. Supplements to the Chart Validation
Process for the FY 2014 Payment
Determination and Subsequent Years
7. QIO Regulation Changes for Provider
Medical Record Deadlines Possibly
Including Serious Reportable Events
8. Data Accuracy and Completeness
Acknowledgement Requirements for the
FY 2012 Payment Determination and
Subsequent Years
9. Public Display Requirements for the FY
2014 Payment Determination and
Subsequent Years
10. Reconsideration and Appeal
Procedures for the FY 2012 Payment
Determination
11. Hospital IQR Program Disaster Waivers
12. Electronic Health Records (EHRs)
a. Background
b. HITECH Act EHR Provisions
B. Hospital Value-Based Purchasing (VBP)
Program
1. Background
2. Overview of the Hospital VBP Program
Proposed Rule
3. FY 2014 Hospital VBP Program
Measures
a. Background
b. Efficiency Measure—Medicare Spending
per Beneficiary Measure—for the FY
2014 Hospital VBP Program
4. Efficiency Domain (Medicare Spending
per Beneficiary Measure) Performance
Period and Baseline Period
5. Simultaneous Specification of
Additional Measures for the Hospital
VBP Program and the Hospital IQR
Program
6. Responses to Additional Hospital VBP
Program Comments
C. Hospital Readmissions Reduction
Program
1. Background
a. Overview
b. Statutory Basis for the Hospital
Readmissions Reduction Program
2. Implementation of the Hospital
Readmissions Reduction Program
a. Overview
b. Provisions in the FY 2012 IPPS/LTCH
PPS Rulemaking
c. Provisions to be Included in the FY 2013
IPPS/LTCH PPS Proposed Rule
d. Expansion of the Applicable Conditions
To Be Included in the Future
Rulemaking
3. Provisions of the Hospital Readmissions
Reduction Program
a. Applicable Conditions for FY 2013
Hospital Readmissions Reduction
Program
b. Definition of ‘‘Readmissions’’
c. Readmission Measures and Related
Methodology
D. Rural Referral Centers (RRCs) (§ 412.96)
1. Case-Mix Index (CMI)
2. Discharges
E. Payment Adjustment for Low-Volume
Hospitals (§ 412.101)
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1. Background
2. Temporary Changes for FYs 2011 and
2012
3. Discharge Data Source Used to Identify
Qualifying Low-Volume Hospitals and
Calculate the Payment Adjustment
(Percentage Increase) for FY 2012
F. Indirect Medical Education (IME)
Adjustment
1. Background
2. IME Adjustment Factor for FY 2012
G. Payment Adjustment for Medicare
Disproportionate Share Hospitals (DSHs)
and Indirect Medical Education (IME)
(§§ 412.105 and 412.106)
1. Background
2. Policy Change Relating to the Exclusion
of Hospice Beds and Patient Days From
the Calculation of the Medicare DSH
Payment Adjustment and the IME
Payment Adjustment
a. Background
b. Hospice Inpatient Services
H. Medicare-Dependent, Small Rural
Hospitals (MDHs) (§ 412.108)
1. Background
2. Extension of the MDH Program
I. Certified Register Nurse Anesthetists
(CRNA) Services Furnished in Rural
Hospitals and CAHs (§ 412.113)
J. Additional Payments for Qualifying
Hospitals With Lowest per Enrollee
Medicare Spending
1. Background
2. Method for Identifying Qualifying
Hospitals and Eligible Counties
3. Determination of Annual Payment
Amounts
4. Eligible Counties and Qualifying
Hospitals
5. Payment Determination and
Distributions for FY 2011 and FY 2012
K. Changes in the Inpatient Hospital
Update
1. FY 2012 Inpatient Hospital Update
2. FY 2012 Puerto Rico Hospital Update
3. Productivity Adjustment
L. Additional Payments to Hospitals With
High Percentage of End-Stage Renal
Disease (ESRD) Discharges (§ 412.104)
M. Changes to the Reporting Requirements
for Pension Costs for Medicare CostFinding Purposes
1. Background
2. Allowable Defined Benefit Pension Plan
Cost for Medicare Cost-Finding Purposes
N. Rural Community Hospital
Demonstration Program
1. Background
2. Changes to the Demonstration Program
Made by the Affordable Care Act
3. FY 2012 Budget Neutrality Adjustment
a. Component of the FY 2012 Budget
Neutrality Adjustment that Accounts for
Estimated Demonstration Program Costs
of the ‘‘Pre-Expansion’’ Participating
Hospitals
b. Portion of the FY 2012 Budget Neutrality
Adjustment That Accounts for Estimated
FY 2012 Demonstration Program Costs
for Hospitals Newly Selected to
Participate in the Demonstration
Program
c. Portion of the FY 2012 Budget Neutrality
Adjustment to Offset the Amount by
Which the Costs of the Demonstration
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Program in FYs 2007 and 2008 Exceeded
the Amount That Was Identified in the
FYs 2007 and 2008 IPPS Final Rules as
the Budget Neutrality Offset for FYs 2007
and 2008
O. Bundling of Payments for Services
Provided to Outpatients Who Later Are
Admitted as Inpatients: 3-Day Payment
Window
1. Background
2. Establishment of Condition Code 51
(Attestation of Unrelated Outpatient
Nondiagnostic Services)
3. Applicability of the Payment Window
Policy to Services Furnished at
Physicians’ Practices
P. Changes to MS–DRGs Subject to the
Postacute Care Transfer Policy
1. Background
2. Changes to the Postacute Care Transfer
MS–DRGs
Q. Hospital Services Furnished Under
Arrangements
R. Finalization of Interim Final Rule With
Comment Period on Revisions to the
Reductions and Increases to Hospitals’
FTE Resident Caps for Graduate Medical
Education Purposes
1. Background and Provisions of the
Interim Final Rule With Comment Period
a. Statutory Authority
b. Reductions and Increases to Hospitals’
FTE Resident Caps for GME Payment
Purposes Under Section 5503 of the
Affordable Care Act
c. Treatment of Affiliated Groups Under
Section 5503 of the Affordable Care Act
d. Section 203 of the Medicare and
Medicaid Extenders Act of 2010 (Pub. L.
111–309)
2. Summary of the Provisions of the
Interim Final Rule With Comment Period
3. Summary of Public Comments,
Departmental Responses, and Statements
of Final Policies
a. Summary of Public Comments and
Departmental Responses
b. Final Policies
4. Collection of Information Requirements
5. Regulatory Impact Statement
a. Statement of Need
b. Overall Impact
c. Anticipated Effects
d. Alternatives Considered
e. Conclusion
6. Comment on Issues Outside of the Scope
of the Interim Final Rule With Comment
Period
V. Changes to the IPPS for Capital-Related
Costs
A. Overview
B. Exception Payments
C. New Hospitals
D. Hospitals Located in Puerto Rico
E. Changes for FY 2012: MS–DRG
Documentation and Coding Adjustment
1. Background
2. Prospsective MS–DRG Documentation
and Coding Adjustment to the National
Capital Federal Rate for FY 2012 and
Subsequent Years
3. Documentation and Coding Adjustment
to the Puerto Rico-Specific Capital Rate
F. Other Proposed Changes for FY 2012
VI. Changes for Hospitals Excluded From the
IPPS
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A. Excluded Hospitals
B. Critical Access Hospital (CAH) Payment
for Ambulance Services
1. Background
2. Requirement for CAH Ambulance
Within a 35-Mile Location of a CAH or
Entity
C. Report of Adjustment (Exceptions)
Payments
VII. Changes to the Long-Term Care Hospital
Prospective Payment System (LTCH PPS)
for FY 2012
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
2. Criteria for Classification as a LTCH
a. Classification as a LTCH
b. Hospitals Excluded From the LTCH PPS
3. Limitation on Charges to Beneficiaries
4. Administrative Simplification
Compliance Act (ASCA) and Health
Insurance Portability and Accountability
Act (HIPAA) Compliance
B. Medicare Severity Long-Term Care
Diagnosis-Related Group (MS–LTC–
DRG) Classifications and Relative
Weights
1. Background
2. Patient Classifications Into MS–LTC–
DRGs
a. Background
b. Changes to the MS–LTC–DRGs for FY
2012
3. Development of the FY 2012 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 2012
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 Proposed FY
2012 MS–LTC–DRG Relative Weights
C. Quality Reporting Program for LTCHs
1. Background and Statutory Authority
2. Quality Measures for the LTCH Quality
Reporting Program for FY 2014
a. Considerations in the Selection of the
Quality Measures
b. LTCH Quality Measures for FY 2014
Payment Determination
3. Possible LTCH Quality Measures Under
Consideration for Future Years
4. Data Submission Methods and Timelines
a. Method of Data Submission for HAIs
b. Timeline for Data Reporting Related to
HAIs
c. Method of Data Collection and
Submission for the Pressure Ulcer
Measure Data
d. Timeline for Data Reporting Related to
Pressure Ulcers
5. Public Reporting and Availability of
Data Submitted
D. Rebasing and Revising of the Market
Basket Used Under the LTCH PPS
1. Background
2. Overview of the FY 2008-Based RPL
Market Basket
3. Rebasing and Revising of the RPL Market
Basket
a. Development of Cost Categories
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b. Final Cost Category Computation
c. Selection of Price Proxies
d. Methodology for Capital Portion of the
RPL Market Basket
e. FY 2012 Market Basket Update for
LTCHs
f. Labor-Related Share
E. Changes to the LTCH Payment Rates and
Other Changes to the FY 2012 LTCH PPS
1. Overview of Development of the LTCH
Payment Rates
2. FY 2012 LTCH PPS Annual Market
Basket Update
a. Overview
b. Revision of Certain Market Basket
Updates as Required by the Affordable
Care Act
c. Market Basket Under the LTCH PPS for
FY 2012
d. Productivity Adjustment
e. Annual Market Basket Update for LTCHs
for FY 2012
3. Budget Neutrality Adjustment for the
Changes to the Area Wage Level
Adjustment
4. Greater Than 25 Day Average Length of
Stay Requirement for LTCHs
a. Determining the Average Length of Stay
When There is a Change of Ownership
b. Inclusion of Medicare Advantage (MA)
Days in the Average Length of Stay
Calculation
F. Application of LTCH Moratorium on the
Increase in Beds at Section 114(d)(1)(B)
of Public Law 110–173 (MMSEA) to
LTCHs and LTCH Satellite Facilities
Established or Classified as Such Under
Section 114(d)(2) of Public Law 110–173
VIII. MedPAC Recommendations
IX. Other Required Information
A. Requests for Data From the Public
B. Collection of Information Requirements
1. Statutory Requirement for Solicitation of
Comments
2. ICRs for Add-On Payments for New
Services and Technologies
3. ICRs for the Hospital Inpatient Quality
Reporting (IQR) Program
4. ICRs for the Occupational Mix
Adjustment to the FY 2012 Index
(Hospital Wage Index Occupational Mix
Survey)
5. Hospital Applications for Geographic
Reclassifications by the MGCRB
6. ICRs for the Quality Reporting Program
for LTCHs
Regulation Text
Addendum—Schedule of Standardized
Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With Cost
Reporting Periods Beginning on or After
October 1, 2011
I. Summary and Background
II. Changes to the Prospective Payment Rates
for Hospital Inpatient Operating Costs for
Acute Care Hospitals for FY 2012
A. Calculation of the Adjusted
Standardized Amount
B. Adjustments for Area Wage Levels and
Cost-of-Living
C. MS–DRG Relative Weights
D. Calculation of the Prospective Payment
Rates
III. Changes to Payment Rates for Acute Care
Hospital Inpatient Capital-Related Costs
for FY 2012
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A. Determination of Federal Hospital
Inpatient Capital-Related Prospective
Payment Rate Update
B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY
2012
C. Capital Input Price Index
IV. Changes to Payment Rates for Certain
Excluded Hospitals: Rate-of-Increase
Percentages for FY 2012
V. Changes to the Payment Rates for the
LTCH PPS for FY 2012
A. LTCH PPS Standard Federal Rate for FY
2012
B. Adjustment for Area Wage Levels Under
the LTCH PPS for FY 2012
C. Adjustment for LTCH PPS High-Cost
Outlier (HCO) Cases
D. Computing the Adjusted LTCH PPS
Federal Prospective Payments for FY
2012
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 for the IPPS
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 Changes Relating to
New Medical Service and Technology
Add-On Payments
3. Effects of Requirements for Hospital
Inpatient Quality Reporting (IQR)
Program
4. Effects of Additional Hospital ValueBased Purchasing (VBP) Program
Requirements
5. Effects of Requirements for Hospital
Readmissions Reduction Program
6. Effects of Policy Changes Relating to
Payment Adjustments for Medicare
Disproportionate Share Hospitals (DSHs)
and Indirect Medical Education (IME)
7. Effects of the FY 2012 Low-Volume
Hospital Payment Adjustment
8. Effects of Changes Relating to MDHs
9. Effects of Policy Relating to CRNA
Services Furnished in Rural Hospitals
and CAHs
10. Effects of Changes Relating to ESRD
Add-On Payment
11. Effects of Changes Relating to the
Reporting Requirements for Pension
Costs for Medicare Cost-Finding and
Wage Reporting Purposes
12. Effects of Implementation of Rural
Community Hospital Demonstration
Program
13. Effects of Changes to List of MS–DRGs
Subject to the Postacute Care Transfer
and DRG Special Pay Policy
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14. Effects of Changes Relating to Hospital
Services Furnished Under Arrangements
15. Effects of Change Relating to CAH
Payment for Ambulance Services
16. Effects of Finalization of Revisions to
the Reductions and Increases to
Hospitals’ FTE Resident Caps for
Graduate Medical Education Payment
Purposes
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
3. Anticipated Effects of LTCH PPS
Payment Rate Change and Policy
Changes
4. Effect on the Medicare Program
5. Effect on Medicare Beneficiaries
K. Alternatives Considered
L. Overall Conclusion
1. Acute Care Hospitals
2. LTCHs
M. Accounting Statements and Tables
1. Acute Care Hospitals
2. LTCHs
II. Regulatory Flexibility Act (RFA) Analysis
III. Unfunded Mandate Reform Act (UMRA)
Analysis
IV. Executive Order 12866
Appendix B: Recommendation of Update
Factors for Operating Cost Rates of
Payment for Inpatient Hospital Services
I. Background
II. Inpatient Hospital Update for FY 2012
A. Final FY 2012 Inpatient Hospital
Update
B. Final Update for SCHs and MDHs for FY
2012
C. Final FY 2012 Puerto Rico Hospital
Update
D. Final Update for Hospitals Excluded
From the IPPS
III. Secretary’s Recommendation
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating
Payments in Traditional Medicare
I. Background
A. Summary
1. Acute Care Hospital Inpatient
Prospective Payment System (IPPS)
Section 1886(d) of the Social Security
Act (the Act) sets forth a system of
payment for the operating costs of acute
care hospital inpatient stays under
Medicare Part A (Hospital Insurance)
based on prospectively set rates. Section
1886(g) of the Act requires the Secretary
to pay for the capital-related costs of
hospital inpatient stays under a
prospective payment system (PPS).
Under these PPSs, Medicare payment
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
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into a labor-related share and a
nonlabor-related share. The laborrelated share is adjusted by the wage
index applicable to the area where the
hospital is located. If the hospital is
located in Alaska or Hawaii, the
nonlabor-related share is adjusted by a
cost-of-living adjustment factor. This
base payment rate is multiplied by the
DRG relative weight.
If the hospital treats a high percentage
of certain low-income patients, it
receives a percentage add-on payment
applied to the DRG-adjusted base
payment rate. This add-on payment,
known as the disproportionate share
hospital (DSH) adjustment, provides for
a percentage increase in Medicare
payments to hospitals that qualify under
either of two statutory formulas
designed to identify hospitals that serve
a disproportionate share of low-income
patients. For qualifying hospitals, the
amount of this adjustment varies based
on the outcome of the statutory
calculations.
If the hospital is an approved teaching
hospital, it receives a percentage add-on
payment for each case paid under the
IPPS, known as the indirect medical
education (IME) adjustment. This
percentage varies, depending on the
ratio of residents to beds.
Additional payments may be made for
cases that involve new technologies or
medical services that have been
approved for special add-on payments.
To qualify, a new technology or medical
service must demonstrate that it is a
substantial clinical improvement over
technologies or services otherwise
available, and that, absent an add-on
payment, it would be inadequately paid
under the regular DRG payment.
The costs incurred by the hospital for
a case are evaluated to determine
whether the hospital is eligible for an
additional payment as an outlier case.
This additional payment is designed to
protect the hospital from large financial
losses due to unusually expensive cases.
Any eligible outlier payment is added to
the DRG-adjusted base payment rate,
plus any DSH, IME, and new technology
or medical service add-on adjustments.
Although payments to most hospitals
under the IPPS are made on the basis of
the standardized amounts, some
categories of hospitals are paid in whole
or in part based on their hospitalspecific rate, which is determined from
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
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Medicare-dependent, small rural
hospital (MDH) received the higher of
the Federal rate or the Federal rate plus
50 percent of the amount by which the
Federal rate is exceeded by the higher
of its FY 1982 or FY 1987 hospitalspecific rate. As discussed below, for
discharges occurring on or after October
1, 2007, but before October 1, 2012, an
MDH will receive the higher of the
Federal rate or the Federal rate plus 75
percent of the amount by which the
Federal rate is exceeded by the highest
of its FY 1982, FY 1987, or FY 2002
hospital-specific rate. SCHs are the sole
source of care in their areas, and MDHs
are a major source of care for Medicare
beneficiaries in their areas. Specifically,
section 1886(d)(5)(D)(iii) of the Act
defines an SCH as a hospital that is
located more than 35 road miles from
another hospital or that, by reason of
factors such as isolated location,
weather conditions, travel conditions, or
absence of other like hospitals (as
determined by the Secretary), is the sole
source of hospital inpatient services
reasonably available to Medicare
beneficiaries. In addition, certain rural
hospitals previously designated by the
Secretary as essential access community
hospitals are considered SCHs. Section
1886(d)(5)(G)(iv) of the Act defines an
MDH as a hospital that is located in a
rural area, has not more than 100 beds,
is not an SCH, and has a high
percentage of Medicare discharges (not
less than 60 percent of its inpatient days
or discharges in its cost reporting year
beginning in FY 1987 or in two of its
three most recently settled Medicare
cost reporting years). Both of these
categories of hospitals are afforded this
special payment protection in order to
maintain access to services for
beneficiaries.
Section 1886(g) of the Act requires the
Secretary to pay for the capital-related
costs of inpatient hospital services ‘‘in
accordance with a prospective payment
system established by the Secretary.’’
The basic methodology for determining
capital prospective payments is set forth
in our regulations at 42 CFR 412.308
and 412.312. Under the capital IPPS,
payments are adjusted by the same DRG
for the case as they are under the
operating IPPS. Capital IPPS payments
are also adjusted for IME and DSH,
similar to the adjustments made under
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.
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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, Public Law
105–33), the Medicare, Medicaid and
SCHIP [State Children’s Health
Insurance Program] Balanced Budget
Refinement Act of 1999 (BBRA, Pub. L.
106–113), and the Medicare, Medicaid,
and SCHIP Benefits Improvement and
Protection Act of 2000 (BIPA, Pub. L.
106–554) provide for the
implementation of PPSs for
rehabilitation hospitals and units
(referred to as inpatient rehabilitation
facilities (IRFs)), LTCHs, and psychiatric
hospitals and units (referred to as
inpatient psychiatric facilities (IPFs)).
(We note that the annual updates to the
LTCH PPS are now included as part of
the IPPS annual update document.
Updates to the IRF PPS and IPF PPS are
issued as separate documents.)
Children’s hospitals, cancer hospitals,
and RNHCIs continue to be paid solely
under a reasonable cost-based system
subject to a rate-of-increase ceiling on
inpatient operating costs per discharge.
The existing regulations governing
payments to excluded hospitals and
hospital units are located in 42 CFR
Parts 412 and 413.
3. Long-Term Care Hospital Prospective
Payment System (LTCH PPS)
The Medicare prospective payment
system (PPS) for LTCHs applies to
hospitals described in section
1886(d)(1)(B)(iv) effective for cost
reporting periods beginning on or after
October 1, 2002. The LTCH PPS was
established under the authority of
sections 123(a) and (c) of Public Law
106–113 and section 307(b)(1) of Public
Law 106–554 (as codified under section
1886(m)(1) of the Act). During the 5-year
(optional) transition period, a LTCH’s
payment under the PPS was based on an
increasing proportion of the LTCH
Federal rate with a corresponding
decreasing proportion based on
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
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October 1, 2009, we issue the annual
updates to the LTCH PPS in the same
documents that update the IPPS (73 FR
26797 through 26798).
4. Critical Access Hospitals (CAHs)
Under sections 1814(l), 1820, and
1834(g) of the Act, payments are made
to critical access hospitals (CAHs) (that
is, rural hospitals or facilities that meet
certain statutory requirements) for
inpatient and outpatient services are
generally based on 101 percent of
reasonable cost. Reasonable cost is
determined under the provisions of
section 1861(v)(1)(A) of the Act and
existing regulations under 42 CFR Parts
413 and 415.
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5. Payments for Graduate Medical
Education (GME)
Under section 1886(a)(4) of the Act,
costs of approved educational activities
are excluded from the operating costs of
inpatient hospital services. Hospitals
with approved graduate medical
education (GME) programs are paid for
the direct costs of GME in accordance
with section 1886(h) of the Act. The
amount of payment for direct GME costs
for a cost reporting period is based on
the hospital’s number of residents in
that period and the hospital’s costs per
resident in a base year. The existing
regulations governing payments to the
various types of hospitals are located in
42 CFR Part 413.
B. Provisions of the Patient Protection
and Affordable Care Act (Pub. L. 111–
148) and the Health Care and Education
Reconciliation Act of 2010 (Pub. L. 111–
152) Applicable to FY 2012
The Patient Protection and Affordable
Care Act (Pub. L. 111–148), enacted on
March 23, 2010, and the Health Care
and Education Reconciliation Act of
2010 (Pub. L. 111–152), enacted on
March 30, 2010, made a number of
changes that affect the IPPS and the
LTCH PPS. (Pub. L. 111–148 and Pub.
L. 111–152 are collectively referred to as
the ‘‘Affordable Care Act.’’) A number of
the provisions of the Affordable Care
Act affect the updates to the IPPS and
the LTCH PPS and providers and
suppliers. The provisions of the
Affordable Care Act that were
applicable to the IPPS and the LTCH
PPS for FYs 2010 and 2011 were
implemented in the following
documents:
On June 2, 2010, we issued in the
Federal Register a notice (75 FR 31118)
that contained the final wage indices,
hospital reclassifications, payment rates,
impacts, and other related tables,
effective for the FY 2010 IPPS and the
RY 2010 LTCH PPS, which were
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required by or directly resulted from
implementation of provisions of the
Affordable Care Act.
On August 16, 2010, we issued in the
Federal Register a final rule (75 FR
50042) that implemented provisions of
the Affordable Care Act applicable to
the IPPS and LTCH/PPS for FY 2011.
In this final rule, we are
implementing the following provisions
(or portions of the following provisions)
of the Affordable Care Act that are
applicable to the IPPS and LTCH PPS
for FY 2012:
• Section 3001 of Public Law 111–
148, which provides for establishment
of a hospital value-based purchasing
program and applicable measures for
value-based incentive payments with
respect to discharges occurring during
FY 2013.
• Section 3004 of Public Law 111–
148, which provides for the submission
of quality data for LTCHs beginning in
FY 2013 in order to receive the full
annual update to the payment rates
beginning with FY 2014 and the
establishment of quality data measures
by FY 2012 for the FY 2014 payment
determination.
• Section 3025 of Public Law 111–
148, which provides for a hospital
readmissions reduction program and
related quality data reporting measures.
• Section 3124 of Public Law 111–
148, which provides for extension of the
Medicare-dependent, small rural
hospital (MDH) program through FY
2012.
• Section 3401 of Public Law 111–
148, which provides for the
incorporation of productivity
improvements into the market basket
updates for IPPS hospitals and LTCHs.
In addition, we are continuing in FY
2012 to implement the following
provisions, which were initiated in FY
2011:
• Section 10324 of Public Law 111–
148, which provided for a wage
adjustment for hospitals located in
frontier States.
• Sections 3401 and 10319 of Public
Law 111–148 and section 1105 of Public
Law 111–152, which revise certain
market basket update percentages for
IPPS and LTCH PPS payment rates for
FY 2012.
• Sections 3125 and 10314 of Public
Law 111–148, which provide for
temporary percentage increases in
payment adjustments to low-volume
hospitals for discharges occurring in FY
2012.
• Section 1109 of Public Law 111–
152, which provides for additional
payments in FY 2012 for qualifying
hospitals in the lowest quartile of per
capita Medicare spending.
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• 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 to
authorize 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.
C. Issuance of a Notice of Proposed
Rulemaking
The May 5, 2011 Federal Register (76
FR 25788) included the proposed rule
that set forth proposed changes to the
Medicare IPPS for operating costs and
for capital-related costs of acute care
hospitals in FY 2012. 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, we set forth
proposed changes to the payment rates,
factors, and other payment rate policies
under the LTCH PPS for FY 2012.
Below is a summary of the major
changes that we proposed to make:
1. Proposed Changes to MS–DRG
Classifications and Recalibrations of
Relative Weights
In section II. of the preamble of the
proposed rule, we included—
• Proposed changes to MS–DRG
classifications based on our yearly
review.
• Proposed application of the
documentation and coding adjustment
for FY 2012 resulting from
implementation of the MS–DRG system.
• A discussion of the Research
Triangle 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
quality adjustment in MS–DRG
payments for FY 2012.
We discussed the FY 2012 status of
new technologies approved for add-on
payments for FY 2011 and presented
our evaluation and analysis of the FY
2012 applicants for add-on payments for
high-cost new medical services and
technologies (including public input, as
directed by Public Law 108–173,
obtained in a town hall meeting).
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2. Proposed Changes to the Hospital
Wage Index for Acute Care Hospitals
In section III. of the preamble to the
proposed rule, we proposed revisions to
the wage index for acute care hospitals
and the annual update of the wage data.
Specific issues addressed included the
following:
• The proposed FY 2012 wage index
update using wage data from cost
reporting periods beginning in FY 2008.
• Analysis and implementation of the
proposed FY 2012 occupational mix
adjustment to the wage index for acute
care hospitals, including discussion of
the 2010 occupational mix survey.
• A proposal to change the reporting
requirements for pension costs for the
Medicare wage index.
• Proposed revisions to the wage
index for acute care hospitals based on
hospital redesignations and
reclassifications.
• The proposed adjustment to the
wage index for acute care hospitals for
FY 2012 based on commuting patterns
of hospital employees who reside in a
county and work in a different area with
a higher wage index.
• The timetable for reviewing and
verifying the wage data used to compute
the proposed FY 2012 hospital wage
index.
• Determination of the labor-related
share for the proposed FY 2012 wage
index.
3. Other Decisions and Proposed
Changes to the IPPS for Operating Costs
and GME Costs
In section IV. of the preamble of the
proposed rule, we discussed a number
of the provisions of the regulations in 42
CFR Parts 412, 413, and 476, including
the following:
• The reporting of hospital quality
data under the Hospital Inpatient
Quality Reporting (IQR) Program as a
condition for receiving the full annual
payment update increase.
• The proposed implementation of
the Hospital Value-Based Purchasing
Program measures.
• The proposed establishment of
hospital readmission measures for
reporting of hospital quality data.
• The proposed updated national and
regional case-mix values and discharges
for purposes of determining RRC status.
• The statutorily required IME
adjustment factor for FY 2012.
• Proposed payment adjustment for
low-volume hospitals.
• Proposal for counting hospice days
in the formula for determining the
payment adjustment for
disproportionate share hospitals.
• Proposal for making additional
payments for qualifying hospitals with
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lowest per enrollee Medicare spending
for FY 2012.
• Proposal to clarify ESRD add-on
payment requirements based on cost
report requirements.
• Proposal relating to changes to the
reporting requirements for pension costs
for Medicare cost-finding purposes.
• Proposal to implement statutory
change to the hospital payment update,
including incorporation of a
productivity adjustment.
• Discussion of the Rural Community
Hospital Demonstration Program and a
proposal for making a budget neutrality
adjustment for the demonstration
program.
• Discussion of August 2010 interim
final rule with comment period and
further proposed changes relating to the
3-day payment window for payments
for services provided to outpatients who
are later admitted as inpatients.
4. Proposed FY 2012 Policy Governing
the IPPS for Capital-Related Costs
In section V. of the preamble to the
proposed rule, we discussed the
proposed payment policy requirements
for capital-related costs and capital
payments to hospitals for FY 2012 and
the proposed MS–DRG documentation
and coding adjustment for FY 2012.
5. Proposed Changes to the Payment
Rates for Certain Excluded Hospitals:
Rate-of-Increase Percentages
In section VI. of the preamble of the
proposed rule, we discussed proposed
changes to payments to certain excluded
hospitals. In addition, we discussed
proposed changes relating to payment
for TEFRA services furnished under
arrangements and payment for
ambulance services furnished by CAHowned and operated entities.
6. Proposed Changes to the LTCH PPS
In section VII. of the preamble of the
proposed rule, we set forth proposed
changes to the payment rates, factors,
and other payment rate policies under
the LTCH PPS for FY 2012, including
the annual update of the MS–LTC–DRG
classifications and relative weights for
use under the LTCH PPS for FY 2012
and the proposed rebasing and revising
of the market basket for LTCHs. In
addition, we set forth proposals for
implementing the quality data reporting
program for LTCHs. We also proposed
to clarify two policies regarding the
calculation of the average length of stay
requirement for LTCHs, and proposed a
policy to address a LTCH moratorium
issue.
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7. Determining Proposed Prospective
Payment Operating and Capital Rates
and Rate-of-Increase Limits for Acute
Care Hospitals
In the Addendum to the proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2012 prospective
payment rates for operating costs and
capital-related costs for acute care
hospitals. We also 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 2012 for certain
hospitals excluded from the IPPS.
8. Determining Proposed Prospective
Payment Rates for LTCHs
In the Addendum to the proposed
rule, we set forth proposed changes to
the amounts and factors for determining
the proposed FY 2012 prospective
standard Federal rate. We also proposed
to establish the proposed adjustments
for wage levels, the labor-related share,
the cost-of-living adjustment, and highcost outliers, including the fixed-loss
amount, and the LTCH cost-to-charge
ratios (CCRs) under the LTCH PPS.
9. Impact Analysis
In Appendix A of the proposed rule,
we set forth an analysis of the impact
that the proposed changes would have
on affected acute care hospitals and
LTCHs.
10. 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 2012 for the
following:
• A single average standardized
amount for all areas for hospital
inpatient services paid under the IPPS
for operating costs of acute care
hospitals (and hospital-specific rates
applicable to SCHs and MDHs).
• Target rate-of-increase limits to the
allowable operating costs of hospital
inpatient services furnished by certain
hospitals excluded from the IPPS.
• The standard Federal rate for
hospital inpatient services furnished by
LTCHs.
11. Discussion of Medicare Payment
Advisory Commission
Recommendations
Under section 1805(b) of the Act,
MedPAC is required to submit a report
to Congress, no later than March 1 of
each year, in which MedPAC reviews
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and makes recommendations on
Medicare payment policies. MedPAC’s
March 2011 recommendations
concerning hospital inpatient payment
policies address the update factor for
hospital inpatient operating costs and
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 2011 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.
D. Public Comments Received in
Response to the FY 2012 IPPS/LTCH
PPS Proposed Rule
We received approximately 385
timely pieces of correspondence
containing multiple comments on the
FY 2012 IPPS/LTCH PPS proposed rule.
We note that some of these public
comments were outside of the scope of
the proposed rule. These out-of-scope
public comments are not addressed with
policy responses in this final rule.
Summaries of the public comments that
are within the scope of the proposed
rule and our responses to those
comments are set forth in the various
sections of this final rule under the
appropriate heading.
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E. Finalization of Interim Final Rule
With Comment Period on Revisions to
the Reductions and Increases to
Hospitals’ FTE Resident Caps for
Graduate Medical Education Payment
Purposes
On March 14, 2011, we issued in the
Federal Register (76 FR 13515) an
interim final rule with comment period
to implement section 203 of the
Medicare and Medicaid Extenders Act
of 2010 (MMEA), Public Law 111–309,
relating to the treatment of teaching
hospitals that are members of the same
Medicare graduate medical education
(GME) affiliated groups for the purpose
of determining possible full-time
equivalent (FTE) resident cap
reductions. We received nine timely
pieces of correspondence in response
this interim final rule with comment
period. In section IV.R. of this
document, we are summarizing and
responding to these public comments
and are finalizing the policies contained
in the interim final rule with comment
period without modification.
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II. Changes to Medicare Severity
Diagnosis-Related Group (MS–DRG)
Classifications and Relative Weights
A. Background
Section 1886(d) of the Act specifies
that the Secretary shall establish a
classification system (referred to as
DRGs) for inpatient discharges and
adjust payments under the IPPS based
on appropriate weighting factors
assigned to each DRG. Therefore, under
the IPPS, Medicare pays for inpatient
hospital services on a rate per discharge
basis that varies according to the DRG
to which a beneficiary’s stay is assigned.
The formula used to calculate payment
for a specific case multiplies an
individual hospital’s payment rate per
case by the weight of the DRG to which
the case is assigned. Each DRG weight
represents the average resources
required to care for cases in that
particular DRG, relative to the average
resources used to treat cases in all
DRGs.
Congress recognized that it would be
necessary to recalculate the DRG
relative weights periodically to account
for changes in resource consumption.
Accordingly, section 1886(d)(4)(C) of
the Act requires that the Secretary
adjust the DRG classifications and
relative weights at least annually. These
adjustments are made to reflect changes
in treatment patterns, technology, and
any other factors that may change the
relative use of hospital resources.
B. MS–DRG Reclassifications
1. General
As discussed in the preamble to the
FY 2008 IPPS final rule with comment
period (72 FR 47138), we focused our
efforts in FY 2008 on making significant
reforms to the IPPS consistent with the
recommendations made by MedPAC in
its ‘‘Report to the Congress, PhysicianOwned Specialty Hospitals’’ in March
2005. MedPAC recommended that the
Secretary refine the entire DRG system
by taking severity of illness into account
and applying hospital-specific relative
value (HSRV) weights to DRGs.1 We
began this reform process by adopting
cost-based weights over a 3-year
transition period beginning in FY 2007
and making interim changes to the DRG
system for FY 2007 by creating 20 new
CMS DRGs and modifying 32 other
DRGs across 13 different clinical areas
involving nearly 1.7 million cases. As
described in more detail below, these
refinements were intermediate steps
towards comprehensive reform of both
1 Medicare Payment Advisory Commission:
Report to the Congress, Physician-Owned Specialty
Hospitals, March 2005, page viii.
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51485
the relative weights and the DRG system
as we undertook further study. For FY
2008, we adopted 745 new Medicare
Severity DRGs (MS–DRGs) to replace
the CMS DRGs. We refer readers to
section II.D. of the FY 2008 IPPS final
rule with comment period for a full
detailed discussion of how the MS–DRG
system, based on severity levels of
illness, was established (72 FR 47141).
Currently, cases are classified into
MS–DRGs for payment under the IPPS
based on the following information
reported by the hospital: The principal
diagnosis, up to eight additional
diagnoses, and up to six procedures
performed during the stay. (We refer
readers to section II.G.11.c. of this final
rule for a discussion of our efforts to
increase our internal systems capacity to
process diagnosis and procedures on
hospital claims to 25 diagnosis codes
and 25 procedure codes prior to the use
of the International Classification of
Diseases, 10th Revision, Clinical
Modification (ICD–10–CM) for diagnosis
coding and the International
Classification of Diseases, 10th
Revision, Procedure Coding System
(ICD–10 PCS) for inpatient hospital
procedure coding, effective October 1,
2013.) In a small number of MS–DRGs,
classification is also based on the age,
sex, and discharge status of the patient.
The diagnosis and procedure
information is reported by the hospital
using codes from the International
Classification of Diseases, Ninth
Revision, Clinical Modification (ICD–9–
CM) prior to October 1, 2013. We refer
readers to section II.G.11.b. of this final
rule for a reference to the replacement
of ICD–9–CM, Volumes 1 and 2,
including the Official ICD–9–CM
Guidelines for Coding and Reporting,
Volume 3, with the ICD–10–CM and
ICD–10–PCS, including the Official
ICD–10–CM and ICD–10–PCS
Guidelines for Coding and Reporting,
effective October 1, 2013 (FY 2014).
The process of developing the MS–
DRGs was begun by dividing all
possible principal diagnoses into
mutually exclusive principal diagnosis
areas, referred to as Major Diagnostic
Categories (MDCs). The MDCs were
formulated by physician panels to
ensure that the DRGs would be
clinically coherent. The diagnoses in
each MDC correspond to a single organ
system or etiology and, in general, are
associated with a particular medical
specialty. Thus, in order to maintain the
requirement of clinical coherence, no
final MS–DRG could contain patients in
different MDCs. For example, MDC 6 is
Diseases and Disorders of the Digestive
System. This approach is used because
clinical care is generally organized in
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accordance with the organ system
affected. However, some MDCs are not
constructed on this basis because they
involve multiple organ systems (for
example, MDC 22 (Burns)). For FY 2012,
cases will be assigned to one of 751 MS–
DRGs in 25 MDCs. The table below lists
the 25 MDCs.
MAJOR DIAGNOSTIC CATEGORIES
[MDCs]
1 ....................................
2 ....................................
3 ....................................
4 ....................................
5 ....................................
6 ....................................
7 ....................................
8 ....................................
9 ....................................
10 ..................................
11 ..................................
12 ..................................
13 ..................................
14 ..................................
15 ..................................
16 ..................................
17 ..................................
18 ..................................
19 ..................................
20 ..................................
21 ..................................
22 ..................................
23 ..................................
24 ..................................
25 ..................................
Diseases and Disorders of the Nervous System.
Diseases and Disorders of the Eye.
Diseases and Disorders of the Ear, Nose, Mouth, and Throat.
Diseases and Disorders of the Respiratory System.
Diseases and Disorders of the Circulatory System.
Diseases and Disorders of the Digestive System.
Diseases and Disorders of the Hepatobiliary System and Pancreas.
Diseases and Disorders of the Musculoskeletal System and Connective Tissue.
Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast.
Endocrine, Nutritional and Metabolic Diseases and Disorders.
Diseases and Disorders of the Kidney and Urinary Tract.
Diseases and Disorders of the Male Reproductive System.
Diseases and Disorders of the Female Reproductive System.
Pregnancy, Childbirth, and the Puerperium.
Newborns and Other Neonates with Conditions Originating in the Perinatal Period.
Diseases and Disorders of the Blood and Blood Forming Organs and Immunological Disorders.
Myeloproliferative Diseases and Disorders and Poorly Differentiated Neoplasms.
Infectious and Parasitic Diseases (Systemic or Unspecified Sites).
Mental Diseases and Disorders.
Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders.
Injuries, Poisonings, and Toxic Effects of Drugs.
Burns.
Factors Influencing Health Status and Other Contacts with Health Services.
Multiple Significant Trauma.
Human Immunodeficiency Virus Infections.
In general, cases are assigned to an
MDC based on the patient’s principal
diagnosis before assignment to an MS–
DRG. However, under the most recent
version of the Medicare GROUPER
(Version 28.0), there are 13 MS–DRGs to
which cases are directly assigned on the
basis of ICD–9–CM procedure codes.
These MS–DRGs are for heart transplant
or implant of heart assist systems; liver
and/or intestinal transplants; bone
marrow transplants; lung transplants;
simultaneous pancreas/kidney
transplants; pancreas transplants; and
tracheostomies. Cases are assigned to
these MS–DRGs before they are
classified to an MDC. The table below
lists the 13 current pre-MDCs.
PRE-MAJOR DIAGNOSTIC CATEGORIES
[Pre-MDCs]
MS–DRG 001 ..................................
MS–DRG 002 ..................................
MS–DRG 003 ..................................
MS–DRG 004 ..................................
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MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
005
006
007
008
009
010
011
012
013
..................................
..................................
..................................
..................................
..................................
..................................
..................................
..................................
..................................
Heart Transplant or Implant of Heart Assist System with MCC.
Heart Transplant or Implant of Heart Assist System without MCC.
ECMO or Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face,
Mouth, and Neck Diagnosis with Major O.R.
Tracheostomy with Mechanical Ventilation 96+ Hours or Principal Diagnosis Except for Face, Mouth, and
Neck Diagnosis with Major O.R.
Liver Transplant with MCC or Intestinal Transplant.
Liver Transplant without MCC.
Lung Transplant.
Simultaneous Pancreas/Kidney Transplant.
Bone Marrow Transplant.
Pancreas Transplant.
Tracheostomy for Face, Mouth, and Neck Diagnoses with MCC.
Tracheostomy for Face, Mouth, and Neck Diagnoses with CC.
Tracheostomy for Face, Mouth, and Neck Diagnoses without CC/MCC.
Once the MDCs were defined, each
MDC was evaluated to identify those
additional patient characteristics that
would have a consistent effect on
hospital resource consumption. Because
the presence of a surgical procedure that
required the use of the operating room
would have a significant effect on the
type of hospital resources used by a
patient, most MDCs were initially
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divided into surgical DRGs and medical
DRGs. Surgical DRGs are based on a
hierarchy that orders operating room
(O.R.) procedures or groups of O.R.
procedures by resource intensity.
Medical DRGs generally are
differentiated on the basis of diagnosis
and age (0 to 17 years of age or greater
than 17 years of age). Some surgical and
medical DRGs are further differentiated
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based on the presence or absence of a
complication or comorbidity (CC) or a
major complication or comorbidity
(MCC).
Generally, nonsurgical procedures
and minor surgical procedures that are
not usually performed in an operating
room are not treated as O.R. procedures.
However, there are a few non-O.R.
procedures that do affect MS–DRG
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assignment for certain principal
diagnoses. An example is extracorporeal
shock wave lithotripsy for patients with
a principal diagnosis of urinary stones.
Lithotripsy procedures are not routinely
performed in an operating room.
Therefore, lithotripsy codes are not
classified as O.R. procedures. However,
our clinical advisors believe that
patients with urinary stones who
undergo extracorporeal shock wave
lithotripsy should be considered similar
to other patients who undergo O.R.
procedures. Therefore, we treat this
group of patients similar to patients
undergoing O.R. procedures.
Once the medical and surgical classes
for an MDC were formed, each diagnosis
class was evaluated to determine if
complications or comorbidities would
consistently affect hospital resource
consumption. Each diagnosis was
categorized into one of three severity
levels. These three levels include a
major complication or comorbidity
(MCC), a complication or comorbidity
(CC), or a non-CC. Physician panels
classified each diagnosis code based on
a highly iterative process involving a
combination of statistical results from
test data as well as clinical judgment. As
stated earlier, we refer readers to section
II.D. of the FY 2008 IPPS final rule with
comment period for a full detailed
discussion of how the MS–DRG system
was established based on severity levels
of illness (72 FR 47141).
A patient’s diagnosis, procedure,
discharge status, and demographic
information is entered into the Medicare
claims processing systems and subjected
to a series of automated screens called
the Medicare Code Editor (MCE). The
MCE screens are designed to identify
cases that require further review before
classification into an MS–DRG.
After patient information is screened
through the MCE and further
development of the claim is conducted,
the cases are classified into the
appropriate MS–DRG by the Medicare
GROUPER software program. The
GROUPER program was developed as a
means of classifying each case into an
MS–DRG on the basis of the diagnosis
and procedure codes and, for a limited
number of MS–DRGs, demographic
information (that is, sex, age, and
discharge status).
After cases are screened through the
MCE and assigned to an MS–DRG by the
GROUPER, the PRICER software
calculates a base MS–DRG payment.
The PRICER calculates the payment for
each case covered by the IPPS based on
the MS–DRG relative weight and
additional factors associated with each
hospital, such as IME and DSH payment
adjustments. These additional factors
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increase the payment amount to
hospitals above the base MS–DRG
payment.
The records for all Medicare hospital
inpatient discharges are maintained in
the Medicare Provider Analysis and
Review (MedPAR) file. The data in this
file are used to evaluate possible MS–
DRG classification changes and to
recalibrate the MS–DRG weights.
However, in the FY 2000 IPPS final rule
(64 FR 41499 and 41500), we discussed
a process for considering non-MedPAR
data in the recalibration process. We
stated that for use of non-MedPAR data
to be feasible for purposes of DRG
recalibration and reclassification, the
data must, among other things: (1) Be
independently verified; (2) reflect a
complete set of cases (or a
representative sample of cases); and (3)
enable us to calculate appropriate DRG
relative weights and ensure that cases
are classified to the ‘‘correct’’ DRG, and
to one DRG only, in the recalibration
process. Further, in order for us to
consider using particular non-MedPAR
data, we must have sufficient time to
evaluate and test the data. The time
necessary to do so depend upon the
nature and quality of the non-MedPAR
data submitted. Generally, however, a
significant sample of the non-MedPAR
data should be submitted by midOctober for consideration in
conjunction with the next year’s
proposed rule. This date allows us time
to test the data and make a preliminary
assessment as to the feasibility of using
the data. Subsequently, a complete nonMedPAR database should be submitted
by early December for consideration in
conjunction with the next year’s
proposed rule.
As we indicated above, for FY 2008,
we made significant improvements in
the DRG system to recognize severity of
illness and resource usage by adopting
MS–DRGs that were reflected in the FY
2008 GROUPER, Version 25.0, and were
effective for discharges occurring on or
after October 1, 2007. Our MS–DRG
analysis for the FY 2012 proposed rule
was based on data from the September
2010 update of the FY 2010 MedPAR
file, which contained hospital bills
received through September 30, 2010,
for discharges occurring through
September 30, 2010. For this FY 2012
final rule, our MS–DRG analysis is
based on data from the March 2011
update of the FY 2010 MedPAR file,
which contained hospital bills received
through March 31, 2011, for discharges
occurring through September 30, 2010.
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2. Yearly Review for Making MS–DRG
Changes
Many of the changes to the MS–DRG
classifications we make annually are the
result of specific issues brought to our
attention by interested parties. We
encourage individuals with comments
about MS–DRG classifications to submit
these comments no later than early
December of each year so they can be
carefully considered for possible
inclusion in the annual proposed rule
and, if included, may be subjected to
public review and comment. Therefore,
similar to the timetable for interested
parties to submit non-MedPAR data for
consideration in the MS–DRG
recalibration process, comments about
MS–DRG classification issues should be
submitted no later than early December
in order to be considered and possibly
included in the next annual proposed
rule updating the IPPS.
The actual process of forming the
MS–DRGs was, and will likely continue
to be, highly iterative, involving a
combination of statistical results from
test data combined with clinical
judgment. In the FY 2008 IPPS final rule
(72 FR 47140 through 47189), we
described in detail the process we used
to develop the MS–DRGs that we
adopted for FY 2008. In addition, in
deciding whether to make further
modification to the MS–DRGs for
particular circumstances brought to our
attention, we considered whether the
resource consumption and clinical
characteristics of the patients with a
given set of conditions are significantly
different than the remaining patients in
the MS–DRG. We evaluated patient care
costs using average charges and lengths
of stay as proxies for costs and relied on
the judgment of our medical advisors to
decide whether patients are clinically
distinct or similar to other patients in
the MS–DRG. In evaluating resource
costs, we considered both the absolute
and percentage differences in average
charges between the cases we selected
for review and the remainder of cases in
the MS–DRG. We also considered
variation in charges within these
groups; that is, whether observed
average differences were consistent
across patients or attributable to cases
that were extreme in terms of charges or
length of stay, or both. Further, we
considered the number of patients who
will have a given set of characteristics
and generally preferred not to create a
new MS–DRG unless it would include
a substantial number of cases.
C. Adoption of the MS–DRGs in FY 2008
In the FY 2006, FY 2007, and FY 2008
IPPS final rules, we discussed a number
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of recommendations made by MedPAC
regarding revisions to the DRG system
used under the IPPS (70 FR 47473
through 47482; 71 FR 47881 through
47939; and 72 FR 47140 through 47189).
As we noted in the FY 2006 IPPS final
rule, we had insufficient time to
complete a thorough evaluation of these
recommendations for full
implementation in FY 2006. However,
we did adopt severity-weighted cardiac
DRGs in FY 2006 to address public
comments on this issue and the specific
concerns of MedPAC regarding cardiac
surgery DRGs. We also indicated that we
planned to further consider all of
MedPAC’s recommendations and
thoroughly analyze options and their
impacts on the various types of
hospitals in the FY 2007 IPPS proposed
rule.
For FY 2007, we began this process.
In the FY 2007 IPPS proposed rule, we
proposed to adopt Consolidated
Severity DRGs (CS DRGs) for FY 2008 (if
not earlier). Based on public comments
received on the FY 2007 IPPS proposed
rule, we decided not to adopt the CS
DRGs. In the FY 2007 IPPS final rule (71
FR 47906 through 47912), we discussed
several concerns raised by public
commenters regarding the proposal to
adopt CS DRGs. We acknowledged the
many public comments suggesting the
logic of Medicare’s DRG system should
continue to remain in the public domain
as it has since the inception of the PPS.
We also acknowledged concerns about
the impact on hospitals and software
vendors of moving to a proprietary
system. Several commenters suggested
that CMS refine the existing DRG
classification system to preserve the
many policy decisions that were made
over the last 20 years and were already
incorporated into the DRG system, such
as complexity of services and new
device technologies. Consistent with the
concerns expressed in the public
comments, this option had the
advantage of using the existing DRGs as
a starting point (which was already
familiar to the public) and retained the
benefit of many DRG decisions that
were made in recent years. We stated
our belief that the suggested approach of
incorporating severity measures into the
existing DRG system was a viable option
that would be evaluated.
Therefore, we decided to make
interim changes to the existing DRGs for
FY 2007 by creating 20 new DRGs
involving 13 different clinical areas that
would significantly improve the CMS
DRG system’s recognition of severity of
illness. We also modified 32 DRGs to
better capture differences in severity.
The new and revised DRGs were
selected from 40 existing CMS DRGs
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that contained 1,666,476 cases and
represented a number of body systems.
In creating these 20 new DRGs, we
deleted 8 existing DRGs and modified
32 existing DRGs. We indicated that
these interim steps for FY 2007 were
being taken as a prelude to more
comprehensive changes to better
account for severity in the DRG system
by FY 2008.
In the FY 2007 IPPS final rule (71 FR
47898), we indicated our intent to
pursue further DRG reform through two
initiatives. First, we announced that we
were in the process of engaging a
contractor to assist us with evaluating
alternative DRG systems that were
raised as potential alternatives to the
CMS DRGs in the public comments.
Second, we indicated our intent to
review over 13,000 ICD–9–CM diagnosis
codes as part of making further
refinements to the current CMS DRGs to
better recognize severity of illness based
on the work that CMS (then HCFA) did
in the mid-1990’s in connection with
adopting severity DRGs. We describe
below the progress we have made on
these two initiatives and our actions for
FYs 2008, 2009, 2010, and 2011, and
our proposed and final actions for FY
2012 based on our continued analysis of
reform of the DRG system. We note that
the adoption of the MS–DRGs to better
recognize severity of illness has
implications for the outlier threshold,
the application of the postacute care
transfer policy, the measurement of real
case-mix versus apparent case-mix, and
the IME and DSH payment adjustments.
We discuss these implications for FY
2012 in other sections of this preamble
and in the Addendum to this final rule.
In the FY 2007 IPPS proposed rule,
we discussed MedPAC’s
recommendations to move to a costbased HSRV weighting methodology
using HSRVs beginning with the FY
2007 IPPS proposed rule for
determining the DRG relative weights.
Although we proposed to adopt the
HSRV weighting methodology for FY
2007, we decided not to adopt the
proposed methodology in the final rule
after considering the public comments
we received on the proposal. Instead, in
the FY 2007 IPPS final rule, we adopted
a cost-based weighting methodology
without the HSRV portion of the
proposed methodology. The cost-based
weights were adopted over a 3-year
transition period in 1⁄3 increments
between FY 2007 and FY 2009. In
addition, in the FY 2007 IPPS final rule,
we indicated our intent to further study
the HSRV-based methodology as well as
other issues brought to our attention
related to the cost-based weighting
methodology adopted in the FY 2007
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final rule. There was significant concern
in the public comments that our costbased weighting methodology does not
adequately account for charge
compression—the practice of applying a
higher percentage charge markup over
costs to lower cost items and services
and a lower percentage charge markup
over costs to higher cost items and
services. Further, public commenters
expressed concern about potential
inconsistencies between how costs and
charges are reported on the Medicare
cost reports and charges on the
Medicare claims. In the FY 2007 IPPS
final rule, we used costs and charges
from the cost reports to determine
departmental level cost-to-charge ratios
(CCRs) which we then applied to
charges on the Medicare claims to
determine the cost-based weights. The
commenters were concerned about
potential distortions to the cost-based
weights that would result from
inconsistent reporting between the cost
reports and the Medicare claims. After
publication of the FY 2007 IPPS final
rule, we entered into a contract with RTI
International (RTI) to study both charge
compression and the extent, if any, to
which our methodology for calculating
DRG relative weights is affected by
inconsistencies between how hospitals
report costs and charges on the cost
reports and how hospitals report
charges on individual claims. Further,
as part of its study of alternative DRG
systems, the RAND Corporation
analyzed the HSRV cost-weighting
methodology. We refer readers to
section II.E. of the preamble of this final
rule for a discussion of the issue of
charge compression and the costweighting methodology for FY 2012.
We believe that revisions to the DRG
system to better recognize severity of
illness and changes to the relative
weights based on costs rather than
charges are improving the accuracy of
the payment rates in the IPPS. We agree
with MedPAC that these refinements
should be pursued. Although we
continue to caution that any prospective
payment system based on grouping
cases will always present some
opportunities for providers to specialize
in cases they believe have higher
margins, we believe that the changes we
have adopted and the continuing
reforms we are proposing to make in
this proposed rule for FY 2012 will
improve payment accuracy and reduce
financial incentives to create specialty
hospitals.
We refer readers to section II.D. of the
FY 2008 IPPS final rule with comment
period for a full discussion of how the
MS–DRG system was established based
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D. FY 2012 MS–DRG Documentation
and Coding Adjustment, Including the
Applicability to the Hospital-Specific
Rates and the Puerto Rico-Specific
Standardized Amount
1. Background on the Prospective MS–
DRG Documentation and Coding
Adjustments for FY 2008 and FY 2009
Authorized by Public Law 110–90
As we discussed earlier in this
preamble, we adopted the MS–DRG
patient classification system for the
IPPS, effective October 1, 2007, to better
recognize severity of illness in Medicare
payment rates for acute care hospitals.
The adoption of the MS–DRG system
resulted in the expansion of the number
of DRGs from 538 in FY 2007 to 745 in
FY 2008. (Currently, there are 751 MS–
DRGs, which include 4 additional MS–
DRGs that we are adopting for FY 2012.)
By increasing the number of MS–DRGs
and more fully taking into account
patient severity of illness in Medicare
payment rates for acute care hospitals,
MS–DRGs encourage hospitals to
improve their documentation and
coding of patient diagnoses.
In the FY 2008 IPPS final rule with
comment period (72 FR 47175 through
47186), we indicated that the adoption
of the MS–DRGs had the potential to
lead to increases in aggregate payments
without a corresponding increase in
actual patient severity of illness due to
the incentives for additional
documentation and coding. In that final
rule with comment period, we exercised
our authority under section
1886(d)(3)(A)(vi) of the Act, which
authorizes us to maintain budget
neutrality by adjusting the national
standardized amount, to eliminate the
estimated effect of changes in coding or
classification that do not reflect real
changes in case-mix. Our actuaries
estimated that maintaining budget
neutrality required an adjustment of
¥4.8 percent to the national
standardized amount. We provided for
phasing in this ¥4.8 percent adjustment
over 3 years. Specifically, we
established prospective documentation
and coding adjustments of ¥1.2 percent
for FY 2008, ¥1.8 percent for FY 2009,
and ¥1.8 percent for FY 2010.
On September 29, 2007, Congress
enacted the TMA [Transitional Medical
Assistance], Abstinence Education, and
QI [Qualifying Individuals] Programs
Extension Act of 2007, Public Law 110–
90. Section 7(a) of Public Law 110–90
reduced the documentation and coding
adjustment made as a result of the MS–
DRG system that we adopted in the FY
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2008 IPPS final rule with comment
period to ¥0.6 percent for FY 2008 and
¥0.9 percent for FY 2009. Section 7(a)
of Public Law 110–90 did not adjust the
FY 2010 ¥1.8 percent documentation
and coding adjustment promulgated in
the FY 2008 IPPS final rule with
comment period. To comply with
section 7(a) of Public Law 110–90, we
promulgated a final rule on November
27, 2007 (72 FR 66886) that modified
the IPPS documentation and coding
adjustment for FY 2008 to ¥0.6 percent,
and revised the FY 2008 payment rates,
factors, and thresholds accordingly.
These revisions were effective on
October 1, 2007.
For FY 2009, section 7(a) of Public
Law 110–90 required a documentation
and coding adjustment of ¥0.9 percent
instead of the ¥1.8 percent adjustment
established in the FY 2008 IPPS final
rule with comment period. As discussed
in the FY 2009 IPPS final rule (73 FR
48447) and required by statute, we
applied a documentation and coding
adjustment of ¥0.9 percent to the FY
2009 IPPS national standardized
amount. The documentation and coding
adjustments established in the FY 2008
IPPS final rule with comment period, as
amended by Public Law 110–90, are
cumulative. As a result, the ¥0.9
percent documentation and coding
adjustment for FY 2009 was in addition
to the ¥0.6 percent adjustment for FY
2008, yielding a combined effect of
¥1.5 percent.
2. Prospective Adjustment to the
Average Standardized Amounts
Required by Section 7(b)(1)(A) of Public
Law 110–90
Section 7(b)(1)(A) of Public Law 110–
90 requires that, if the Secretary
determines that implementation of the
MS–DRG system resulted in changes in
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008 or
FY 2009 that are different than the
prospective documentation and coding
adjustments applied under section 7(a)
of Public Law 110–90, the Secretary
shall make an appropriate adjustment
under section 1886(d)(3)(A)(vi) of the
Act. Section 1886(d)(3)(A)(vi) of the Act
authorizes adjustments to the average
standardized amounts for subsequent
fiscal years in order to eliminate the
effect of such coding or classification
changes. These adjustments are
intended to ensure that future annual
aggregate IPPS payments are the same as
the payments that otherwise would have
been made had the prospective
adjustments for documentation and
coding applied in FY 2008 and FY 2009
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51489
reflected the change that occurred in
those years.
3. Recoupment or Repayment
Adjustments in FYs 2010 Through 2012
Required by Public Law 110–90
If, based on a retroactive evaluation of
claims data, the Secretary determines
that implementation of the MS–DRG
system resulted in changes in
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008 or
FY 2009 that are different from the
prospective documentation and coding
adjustments applied under section 7(a)
of Public Law 110–90, section 7(b)(1)(B)
of Public Law 110–90 requires the
Secretary to make an additional
adjustment to the standardized amounts
under section 1886(d) of the Act. This
adjustment must offset the estimated
increase or decrease in aggregate
payments for FYs 2008 and 2009
(including interest) resulting from the
difference between the estimated actual
documentation and coding effect and
the documentation and coding
adjustment applied under section 7(a) of
Public Law 110–90. This adjustment is
in addition to making an appropriate
adjustment to the standardized amounts
under section 1886(d)(3)(A)(vi) of the
Act as required by section 7(b)(1)(A) of
Public Law 110–90. That is, these
adjustments are intended to recoup (or
repay, in the case of underpayments)
spending in excess of (or less than)
spending that would have occurred had
the prospective adjustments for changes
in documentation and coding applied in
FY 2008 and FY 2009 precisely matched
the changes that occurred in those years.
Public Law 110–90 requires that the
Secretary make these recoupment or
repayment adjustments for discharges
occurring during FYs 2010, 2011, and
2012.
4. Retrospective Evaluation of FY 2008
and FY 2009 Claims Data
In order to implement the
requirements of section 7 of Public Law
110–90, we indicated in the FY 2009
IPPS final rule (73 FR 48450) that we
planned a thorough retrospective
evaluation of our claims data. We stated
that the results of this evaluation would
be used by our actuaries to determine
any necessary payment adjustments to
the standardized amounts under section
1886(d) of the Act to ensure the budget
neutrality of the MS–DRGs
implementation for FY 2008 and FY
2009, as required by law. In the FY 2009
IPPS proposed rule (73 FR 23541
through 23542), we described our
preliminary plan for a retrospective
analysis of inpatient hospital claims
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data and invited public input on our
proposed methodology.
In that proposed rule, we indicated
that we intended to measure and
corroborate the extent of the overall
national average changes in case-mix for
FY 2008 and FY 2009. We expected that
the two largest parts of this overall
national average change would be
attributable to underlying changes in
actual patient severity of illness and to
documentation and coding
improvements under the MS–DRG
system. In order to separate the two
effects, we planned to isolate the effect
of shifts in cases among base DRGs from
the effect of shifts in the types of cases
within base DRGs.
The MS–DRGs divide the base DRGs
into three severity levels (with MCC,
with CC, and without CC); the
previously used CMS DRGs had only
two severity levels (with CC and
without CC). Under the CMS DRG
system, the majority of hospital
discharges had a secondary diagnosis
which was on the CC list, which led to
the higher severity level. The MS–DRGs
significantly changed the code lists of
what was classified as an MCC or a CC.
Many codes that were previously
classified as a CC are no longer included
on the MS–DRG CC list because the data
and clinical review showed these
conditions did not lead to a significant
increase in resource use. The addition of
a new level of high severity conditions,
the MCC list, also provided a new
incentive to code more precisely in
order to increase the severity level. We
anticipated that hospitals would
examine the MS–DRG MCC and CC
code lists and then work with
physicians and coders on
documentation and coding practices so
that coders could appropriately assign
codes from the highest possible severity
level. We note that there have been
numerous seminars and training
sessions on this particular coding issue.
The topic of improving documentation
practices in order to code conditions on
the MCC list was also discussed
extensively by participants at the March
11–12, 2009 ICD–9–CM Coordination
and Maintenance Committee meeting.
Participants discussed their hospitals’
efforts to encourage physicians to
provide more precise documentation so
that coders could appropriately assign
codes that would lead to a higher
severity level. Because we expected
most of the documentation and coding
changes under the MS–DRG system
would occur in the secondary
diagnoses, we believed that the shifts
among base DRGs were less likely to be
the result of the MS–DRG system and
the shifts within base DRGs were more
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likely to be the result of the MS–DRG
system. We also anticipated evaluating
data to identify the specific MS–DRGs
and diagnoses that contributed
significantly to the documentation and
coding payment effect and to quantify
their impact. This step entailed analysis
of the secondary diagnoses driving the
shifts in severity within specific base
DRGs.
In the FY 2009 IPPS proposed rule,
we solicited public comments on the
analysis plans described above, as well
as suggestions on other possible
approaches for performing a
retrospective analysis to identify the
amount of case-mix changes that
occurred in FY 2008 and FY 2009 that
did not reflect real increases in patient
severity of illness.
A few commenters, including
MedPAC, expressed support for the
analytic approach described in the FY
2009 IPPS proposed rule. A number of
other commenters expressed concerns
about certain aspects of the approach
and/or suggested alternate analyses or
study designs. In addition, one
commenter recommended that any
determination or retrospective
evaluation by the actuaries of the impact
of the MS–DRGs on case-mix be open to
public scrutiny prior to the
implementation of the payment
adjustments beginning in FY 2010.
We took these comments into
consideration as we developed our
proposed analysis plan, and in the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule (74 FR 24092 through 24101), we
solicited public comment on our
methodology and analysis. For the FY
2010 IPPS/RY 2010 LTCH PPS proposed
rule, we performed a retrospective
evaluation of the FY 2008 data for
claims paid through December 2008.
Based on this evaluation, our actuaries
determined that implementation of the
MS–DRG system resulted in a 2.5
percent change due to documentation
and coding that did not reflect real
changes in case-mix for discharges
occurring during FY 2008. In the FY
2010 IPPS/RY 2010 LTCH PPS final
rule, we updated this analysis with FY
2008 data for claims paid through
March 2009, and we noted that the
estimates for all IPPS remained
essentially the same to those in the
proposed rule (42 FR 43770, 43775).
Also, in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43768
through 43772), we responded to
comments on our methodology for the
retrospective evaluation of FY 2008
claims data. We refer readers to that
final rule for a detailed description of
our analysis and prior responses to
comments.
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In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50057 through 50068), we
performed the same analysis for FY
2009 claims data using the same
methodology as we did for FY 2008
claims. We note that, in the FY 2011
IPPS/LTCH PPS proposed rule, we
performed this analysis using FY 2009
claims paid through December 2009. In
the FY 2011 IPPS/LTCH PPS final rule,
we updated the analysis with FY 2009
claims paid through March 2010, as we
discussed in the proposed rule. We note
that, for all IPPS hospitals, other than
those in Puerto Rico, the estimates were
unchanged from those in the proposed
rule. We refer readers to the FY 2011
IPPS/LTCH PPS final rule (75 FR 50057
through 50068) for a detailed
description of our analysis and prior
responses to comments. The results of
the analysis for the FY 2011 proposed
and final rules provided additional
support for our conclusion that the
proposed 5.4 percent estimate
accurately reflected the FY 2009
increases in documentation and coding
under the MS–DRG system.
As in prior years, the FY 2008 and FY
2009 MedPAR files are available to the
public to allow independent analysis of
the FY 2008 and FY 2009
documentation and coding effect.
Interested individuals may still order
these files through the Web site at:
http://www.cms.hhs.gov/LimitedData
Sets/ by clicking on MedPAR Limited
Data Set (LDS)-Hospital (National). This
Web page describes the file and
provides directions and further detailed
instructions for how to order.
Persons placing an order must send
the following: A Letter of Request, the
LDS Data Use Agreement and Research
Protocol (refer to the Web site for further
instructions), the LDS Form, and a
check for $3,655 to:
Mailing address if using the U.S.
Postal Service: Centers for Medicare &
Medicaid Services, RDDC Account,
Accounting Division, P.O. Box 7520,
Baltimore, MD 21207–0520.
Mailing address if using express mail:
Centers for Medicare & Medicaid
Services, OFM/Division of
Accounting—RDDC, 7500 Security
Boulevard, C3–07–11, Baltimore, MD
21244–1850.
5. Prospective Adjustment for FY 2010
and Subsequent Years Authorized by
Section 7(b)(1)(A) of Public Law 110–90
and Section 1886(d)(3)(vi) of the Act
Based on our evaluation of FY 2008
Medicare claims data that were most
current at the time of the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule, the
estimated 2.5 percent change in FY 2008
case-mix due to changes in
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documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008
exceeded the ¥0.6 percent prospective
documentation and coding adjustment
applied under section 7(a) of Public Law
110–90 by 1.9 percentage points. In the
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24096), we
solicited public comment on our
proposal to make a ¥1.9 percent
prospective adjustment to the
standardized amounts under section
1886(d) of the Act to address the effects
of documentation and coding changes
unrelated to changes in real case-mix in
FY 2008. In the FY 2010 IPPS/RY 2010
LTCH PPS final rule, in response to
public comments, we indicated that we
fully understood that our proposed
adjustment of ¥1.9 percent would
reduce the increase in payments that
affected hospitals would have received
in FY 2009 in the absence of the
adjustment, and we determined that it
would be appropriate to postpone
adopting documentation and coding
adjustments as authorized under section
7(a) of Public Law 110–90 and section
1886(d)(3)(A)(vi) of the Act until a full
analysis of case-mix changes could be
completed. We refer readers to the FY
2010 IPPS/LTCH PPS final rule (74 FR
43767 through 43777) for a detailed
description of our proposal, responses
to comments, and finalized policy.
After analysis of the FY 2009 claims
data for the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50057 through 50073),
we found a total prospective
documentation and coding effect of
1.054. After accounting for the ¥0.6
percent and the ¥0.9 percent
documentation and coding adjustments
in FYs 2008 and 2009, we found a
remaining documentation and coding
effect of 3.9 percent. As we have
discussed, an additional cumulative
adjustment of ¥3.9 percent would be
necessary to meet the requirements of
section 7(b)(1)(A) of Public Law 110–90
to make an adjustment to the average
standardized amounts in order to
eliminate the full effect of the
documentation and coding changes on
future payments. Unlike section
7(b)(1)(B) of Public Law 110–90, section
7(b)(1)(A) does not specify when we
must apply the prospective adjustment,
but merely requires us to make an
‘‘appropriate’’ adjustment. Therefore, as
we stated in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50061), we believe
we have some discretion as to the
manner in which we apply the
prospective adjustment of ¥3.9 percent.
We indicated that applying the full
prospective adjustment of ¥3.9 percent
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for FY 2011, in combination with the
proposed recoupment adjustment of
¥2.9 percent in FY 2011 (discussed
below) would require an aggregate
adjustment of ¥6.8 percent. As we
discuss elsewhere in this section II.D.,
and more extensively in the FY 2011
IPPS/LTCH PPS final rule, it has been
our practice to moderate payment
adjustments when necessary to mitigate
the effects of significant downward
adjustments on hospitals, to avoid what
could be widespread, disruptive effects
of such adjustments on hospitals. As we
also discuss below in this section II.D.,
we are required to implement the
remaining adjustment in section
7(b)(1)(B) of Public Law 110–90 no later
than the FY 2012 rulemaking period,
and accordingly, in the FY 2011 IPPS/
LTCH PPS proposed rule, we proposed
a recoupment adjustment under section
7(b)(1)(B) of ¥2.9 percent for FY 2011
(75 FR 23870 and 23871). Therefore, we
stated that we believed it was
appropriate to not implement any or all
of the ¥3.9 percent prospective
adjustment in FY 2011. Accordingly, we
did not propose a prospective
adjustment under section 7(b)(1)(A) of
Public Law 110–90 for FY 2011 (75 FR
23868 through 23870) for FY 2011. We
note that, as a result, payments in FY
2011 (and in each future year until we
implement the requisite adjustment)
would be 3.9 percent higher than they
would have been if we had
implemented an adjustment under
section 7(b)(1)(A) of Public Law 110–90.
Our actuaries estimate that this 3.9
percentage point increase will result in
an aggregate payment of approximately
$4 billion. We also noted that payments
in FY 2010 were also expected to be 3.9
percent higher than they would have
been if we had implemented an
adjustment under section 7(b)(1)(A) of
Public Law 110–90, which our actuaries
estimated increased aggregate payments
by approximately $4 billion in FY 2010.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25803 and 25804),
we indicated that because further delay
of this prospective adjustment will
result in a continued accrual of
unrecoverable overpayments, it was
imperative that we proposed a
prospective adjustment for FY 2012,
while recognizing CMS’ continued
desire to mitigate the effects of any
significant downward adjustments to
hospitals. Therefore, we proposed a
¥3.15 percent prospective adjustment
to the standardized amount to partially
eliminate the full effect of the
documentation and coding changes on
future payments. Due to the offsetting
nature of the remaining recoupment
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51491
adjustment under section 7(b)(1)(B) of
Public Law 110–90 (described below in
section II.D.6. of this preamble), and
after considering other payment
adjustments to FY 2012 rates proposed
elsewhere within the proposed rule, we
indicated that we believe the proposed
¥3.15 percent adjustment would allow
for a significant reduction in potential
unrecoverable overpayments, yet would
maintain a comparable adjustment level
between FY 2011 and FY 2012,
reflecting the applicable percentage
increase with a documentation and
coding adjustment. We stated that we
recognize that an additional adjustment
of ¥0.75 (3.9 minus 3.15) percent
would be required in future rule making
to complete the necessary ¥3.9
adjustment to meet CMS’ statutory
requirement under section 7(b)(1)(A) of
Public Law 110–90. In the proposed
rule, we indicated that we were not at
that time proposing a timeline to
implement the remainder of this
prospective adjustment.
6. Recoupment or Repayment
Adjustment for FY 2010 Authorized by
Section 7(b)(1)(B) of Public Law 110–90
As discussed in section II.D.1. of this
preamble, section 7(b)(1)(B) of Public
Law 110–90 requires the Secretary to
make an adjustment to the standardized
amounts under section 1886(d) of the
Act to offset the estimated increase or
decrease in aggregate payments for FY
2008 and FY 2009 (including interest)
resulting from the difference between
the estimated actual documentation and
coding effect and the documentation
and coding adjustments applied under
section 7(a) of Public Law 110–90. This
determination must be based on a
retrospective evaluation of claims data.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule with comment period (74
FR 43773), we estimated a 2.5 percent
change due to documentation and
coding that did not reflect real changes
in case-mix for discharges occurring
during FY 2008, exceeding the ¥0.6
percent prospective documentation and
coding adjustment applied under
section 7(a) of Public Law 110–90 by 1.9
percentage points. We stated that our
actuaries had estimated that this 1.9
percentage point increase resulted in an
increase in aggregate payments of
approximately $2.2 billion in FY 2008.
We did not propose to make an
adjustment to the FY 2010 average
standardized amounts to offset, in
whole or in part, the estimated increase
in aggregate payments for discharges
occurring in FY 2008, but stated in the
proposed rule that we intended to
address this issue in future rulemaking.
In the FY 2010 IPPS/RY 2010 LTCH PPS
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final rule (74 FR 43774), we stated that
because we would not receive all FY
2009 claims data prior to publication of
the final rule, we would address any
increase or decrease in FY 2009
payments in future rulemaking for FY
2011 and 2012 after we performed a
retrospective evaluation of the FY 2009
claims data. In response to public
comments in FY 2010, we indicated that
we recognized that any adjustment to
account for the documentation and
coding effect observed in the FY 2008
and FY 2009 claims data may result in
significant future payment reductions
for providers. However, we indicated
that we are required under section
7(b)(1)(B) of Public Law 110–90 to
recover the difference of actual
documentation and coding effect in FY
2008 and FY 2009 that is greater than
the prior adjustments. We agreed with
the commenters who requested that
CMS delay any adjustment and, for the
reasons stated above, indicated that we
expected to address this issue in the FY
2011 rulemaking. We refer readers to the
FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43767 through 43777) for a
detailed description of our proposal,
responses to comments, and finalized
policy.
As we indicated in the FY 2011 IPPS/
LTCH PPS final rule, the change due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008
and FY 2009 exceeded the ¥0.6 and
¥0.9 percent prospective
documentation and coding adjustments
applied under section 7(a) of Public Law
110–90 for those 2 years, respectively,
by 1.9 percentage points in FY 2008 and
3.9 percentage points in FY 2009. In
total, this change exceeded the
cumulative prospective adjustments by
5.8 (1.9 plus 3.9) percentage points. Our
actuaries estimated that this 5.8
percentage point increase resulted in an
increase in aggregate payments of
approximately $6.9 billion. In the FY
2011 IPPS/LTCH PPS final rule, we
noted that there may be a need to
actuarially adjust the recoupment
adjustment to accurately reflect
accumulated interest. Therefore, we
determined that an aggregate adjustment
of ¥5.8 percent in FYs 2011 and 2012,
subject to actuarial adjustment to reflect
accumulated interest, would be
necessary in order to meet the
requirements of section 7(b)(1)(B) of
Public Law 110–90 to adjust the
standardized amounts for discharges
occurring in FYs 2010, 2011, and/or
2012 to offset the estimated amount of
the increase in aggregate payments
(including interest) in FYs 2008 and
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2009. In the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 23871), we stated
that we intended to take into account
the need to reflect accumulated interest
in proposing a recoupment adjustment
under section 7(b)(1)(B) of Public Law
110–90 for FY 2012.
It is often our practice to phase in rate
adjustments over more than one year in
order to moderate the effect on rates in
any one year. Therefore, consistent with
the policies that we have adopted in
many similar cases, in the FY 2011
IPPS/LTCH PPS proposed rule, we
proposed to make an adjustment to the
standardized amount of ¥2.9 percent,
representing approximately half of the
aggregate adjustment required under
section 7(b)(1)(B) of Public Law 110–90,
for FY 2011. An adjustment of this
magnitude would allow us to moderate
the effects on hospitals in one year
while simultaneously making it possible
to implement the entire adjustment
within the timeframe required under
section 7(b)(1)(B) of Public Law 110–90
(that is, no later than FY 2012).
Unlike the permanent prospective
adjustment to the standardized amounts
under section 7(b)(1)(A) of Public Law
110–90 described earlier, the
recoupment adjustment to the
standardized amounts under section
7(b)(1)(B) of Public Law 110–90 is not
cumulative, and, therefore, would be
removed for subsequent fiscal years
once we have completely offset the
increase in aggregate payments for
discharges for FY 2008 and FY 2009
expenditures. In keeping with our
practice of moderating payment
adjustments when necessary, we stated
that we anticipated that the proposal of
phasing in the recoupment adjustment
will have an additional, and significant,
moderating effect on implementing the
requirements of section 7(b)(1)(B) of
Public Law 110–90 for FY 2012.
In the FY 2011 IPPS/LTCH PPS
proposed rule, we sought public
comment on our proposal to offset part
of the total 5.8 percent increase in
aggregate payments (including interest)
for discharges occurring in FY 2008 and
FY 2009 resulting from the adoption of
the MS–DRGs in FY 2011, noting that
this proposal would result in a ¥2.9
percent adjustment to the standardized
amount. We received numerous
comments on our proposal, especially
from national and regional hospital
associations, hospital systems, and
individual hospitals. MedPAC also
commented on our proposal. We refer
readers to the FY 2011 IPPS/LTCH PPS
final rule with comment period (75 FR
50055 through 50073) for a detailed
description of our analysis and prior
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responses to comments, and finalized
policy.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50062 through 50068), we
finalized the proposed adjustment to the
standardized amount of ¥2.9 percent,
which represented approximately half
of the aggregate recoupment adjustment
required under section 7(b)(1)(B) of
Public Law 110–90, for FY 2011. We
were persuaded by both the MedPAC’s
analysis, and our own review of the
methodologies recommended by various
commenters, that the methodology we
employed to determine the required
recoupment adjustment was sound.
Since the statute required that we
implement the entire recoupment
adjustment no later than FY 2012, we
have sought, as we commonly do, to
moderate the potential impact on
hospitals by phasing in the required
adjustment over more than one year. As
we stated in prior rulemaking, a major
advantage of making the ¥2.9 percent
adjustment to the standardized amount
in FY 2011 was that, because the
required recoupment adjustment is not
cumulative, we anticipated removing
the FY 2011 ¥2.9 percent adjustment
from the rates (in other words, making
a positive 2.9 percent adjustment to the
rates) in FY 2012, at the same time that
the law required us to apply the
remaining approximately ¥2.9 percent
adjustment required by section
7(b)(1)(B) of Public Law 110–90. These
two steps in FY 2012, restoring the FY
2011 ¥2.9 percent adjustment and then
applying the remaining adjustment of
approximately ¥2.9 percent, would
effectively cancel each other out. The
result of these two steps would be an
aggregate adjustment of approximately
0.0 percent. While we stated in the FY
2011 IPPS/LTCH PPS final rule the need
to potentially adjust the remaining ¥2.9
percent estimate to account for
accumulated interest, our actuaries have
determined that there has been no
significant interest accumulation and
that no additional adjustment will be
required. Therefore, for FY 2012,
pursuant to the timeframes set forth by
section 7(b)(1)(B) of Public Law 110–90,
and consistent with the discussion in
the FY 2011 IPPS/LTCH PPS final rule,
we proposed to complete the
recoupment adjustment by
implementing the remaining ¥2.9
percent adjustment, in addition to
removing the effect of the ¥2.9 percent
adjustment to the standardized amount
finalized for FY 2011. Because these
adjustments will, in effect, balance out,
there will be no year-to-year change in
the standardized amount due to this
recoupment adjustment. As this
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adjustment will complete the required
recoupment for overpayments due to
documentation and coding effects on
discharges occurring in FYs 2008 and
2009, we anticipate removing the effect
of this adjustment by adding 2.9 percent
to the standardized amount in FY 2013.
We continue to believe that this is a
reasonable and fair approach that
satisfies the requirements of the statute
while substantially moderating the
financial impact on hospitals.
Comment: One commenter, MedPAC,
reiterated its general support for the
methodology used by our actuaries to
estimate the magnitude of
documentation and coding effect on
IPPS payments due to the adoption of
the MS–DRG system. In its letter,
MedPAC explained that the
methodology used by our actuaries ‘‘is
akin to comparing two sets of payments:
What payments actually were in fiscal
year 2009 under the 2009 MS–DRGs and
relative weights; and what payments
would have been in 2009 if MS–DRGs
had not been adopted and CMS had
continued to use the prior (2007) CMS
DRGs and weights.’’ MedPAC noted that
by taking the difference between these
two sets of payments, the methodology
is designed to capture ‘‘the new
GROUPER’s interaction with how
hospitals changed their documentation
and coding. After the adoption of MS–
DRGs in 2008, hospitals switched from
recording general descriptions of
patients’ chronic conditions—which no
longer affect payments under MS–
DRGs—to recording the specific acute
manifestations of patients’ chronic
conditions, which trigger higher
payments under MS–DRGs. However,
the same changes in diagnosis
documentation and coding have little or
no effect on the CMI measured using the
2007 CMS–DRGs and weights. This is
because in that version of the
GROUPER, both acute manifestations of
chronic conditions and general
descriptions of chronic conditions
trigger higher payments. In contrast,
when hospitals had little incentive to
change documentation and coding—in
2007, for example—the two CMIs are
approximately equal.’’
Consistent with its comments in prior
years, MedPAC’s comment noted that its
analysis of Medicare hospital inpatient
claims for 2007–2009 yielded similar
estimates of the documentation and
coding effect. MedPAC concluded that
‘‘CMS would need to reduce IPPS
payments temporarily by 5.8 percent to
recover overpayments that occurred in
2008 and 2009. CMS also expected that
overpayments equal to 3.9 percent of
annual IPPS payments would continue
through 2010, 2011, and future years
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until CMS makes a prospective
offsetting adjustment (¥3.9 percent) to
the IPPS payments rates.’’
MedPAC’s comment described
potential circumstances in which the
methodology used both by our actuaries
and MedPAC could overestimate the
documentation and coding effect, noting
that these possible circumstances
‘‘could cause only a small change in the
estimated effect of documentation
changes.’’
MedPAC stated, ‘‘In response to the
new MS–DRGs, hospitals had an
incentive to report diagnoses that count
as CCs in the new system. MedPAC’s
argument is that hospitals may also have
stopped reporting diagnoses that
counted as CCs in the old system, but
do not count in the new one.’’ In short,
MedPAC argued that the disappearance
of the general chronic condition codes
could have caused the CMIs based on
the old FY 2007 GROUPER and weights
to be understated in FYs 2008 and 2009.
Thus, because CMIs based on the 2007
GROUPER and weights are the
denominators of the documentation
change estimates, understatement
would bias the estimates upward.
However, understatement would occur
only to the extent that hospitals, when
coding: (1) Did not replace such general
chronic condition codes with
corresponding acute manifestation
codes and (2) the patient had no other
secondary diagnosis code that qualified
as a CC in the old GROUPER and are
now CCs or MCCs under the MS–DRGs.
MedPAC’s analysis concluded that
the maximum possible effect of this
potential overestimation is 0.36 percent,
and ‘‘that total overpayments due to
documentation changes in 2008 and
2009 may have ranged from 5.1 to 5.8
percent of IPPS payments ($6.0 to $6.9
billion).’’
MedPAC recommended that CMS
slow the pace of the payment
adjustments so that hospitals would
receive a net 1 percent update in FY
2012, as it recommend in its March
2011 Report to Congress. Furthermore,
MedPAC stated that legislation should
be enacted to require the Secretary of
Health and Human Services to adjust
payments further to recover all
overpayments that have occurred or will
occur in FYs 2010, 2011, and 2012
because the prospective adjustment was
not completed. MedPAC asserted that:
‘‘To allow payments to increase due
to documentation and coding changes
would undermine Congressional policy
on updates. If Congress wants more
money to flow into the hospital sector,
a higher update is the appropriate
mechanism, not cumulative changes in
documentation and coding. Indeed,
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51493
allowing those changes to increase
hospital payments through the back
door could eventually discourage
needed refinements to the case-mix
system in a tight budget era. In other
words, if more money inevitably leaks
into the system every time case-mix is
refined, then there may be pressure to
stop refining. That would lead to
inequities for both providers and
patients.’’
Response: We appreciate MedPAC’s
analysis and continued support of the
methodology used to determine the
documentation and coding effect, and
we agree that this methodology
appropriately isolates the
documentation and coding effect from
real case-mix. With the exception of the
possible overstatement described above,
we note that MedPAC’s analysis yielded
results similar to CMS’ determination of
the documentation and coding effect.
Based on our evaluation of FY 2008 and
FY 2009 claims, we continue to believe
that $6.9 billion dollars in
overpayments were made during the
period of FY 2008 and 2009. We
estimate that a recoupment adjustment
totaling 5.8 percent is necessary to
recover these overpayments, and that
operating IPPS rates are currently
overstated by 3.9 percent. We also note
that section 7(b)(1)(B) of the TMA
requires the agency to recover these
overpayments by FY 2012 and that
section 7(b)(1)(A) of the TMA requires
the agency to adjust rates to ensure that
aggregate payments do not continue to
be overstated.
With regard to MedPAC’s analysis
regarding the possible overestimate of
the documentation and coding effect,
we note that MedPAC characterized the
potential effect as ‘‘small’’ and provided
no corroborating analysis or specific
examples of when this scenario may
have occurred. We consulted with our
medical coding experts and were unable
to identify specific examples to support
MedPAC’s hypothesis. We note that
MedPAC stated in its comment letter
that the potential for overestimation
exists only to the extent that ‘‘hospitals
(1) did not replace such general chronic
condition codes with corresponding
acute manifestation codes and (2) the
patient had no other secondary
diagnosis code that qualified as a CC in
the old grouper.’’ We reviewed coding
changes that occurred during the
transition to MS–DRGs and were able to
identify codes that would result in a CC
prior to MS–DRGs but would not result
in a CC in the MS–DRG system.
However, we were unable to identify an
instance where this would necessarily
result in a lower MS–DRG assignment
because more specific codes were
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developed to support the more refined
MS–DRG system and we would expect
hospitals to use the more specific codes.
For instance, congestive heart failure
was a CC under CMS DRGs, but is not
a CC under MS–DRGs. Under MS–
DRGs, we started requiring more
specific information on the type of heart
failure in order to count this as a CC or
MCC. Generally, under the MS–DRG
system, the ‘‘unspecified’’ codes in a
category no longer result in CCs.
We did not receive any other public
comments regarding MedPAC’s
statements that we may have
overestimated the effect of the
documentation and coding by
considering cases grouped under the
MS–DRG system as having a higher
severity due to being coded without
appropriate CCs under the pre-MS–DRG
system.
At this time, we believe it would not
be appropriate to revise our estimates
based solely on MedPAC’s analysis
without knowing of any specific
examples of the scenario described
above. Without this information, we
cannot determine whether there was a
sufficient volume of cases to cause a
potential documentation and coding
overestimate. However, we welcome
specific examples from the public to
possibly inform future rulemaking.
We acknowledge MedPAC’s
recommendation to provide hospitals
with a net 1 percent update. As noted
above, the comment restates MedPAC’s
recommendation from its March 2011
Report to Congress. We address this
issue below in our response to
comments by the provider community
that expressed concern regarding the
impact of various payment adjustments
on hospitals.
We also acknowledge MedPAC’s
request that additional statutory
authority be granted to the Secretary of
Health and Human Services to recover
overpayments made during subsequent
fiscal years.
Lastly, we agree with MedPAC that it
is important to continue refining the
methodology of how case mix is
measured to ensure payment accuracy.
We note that in this final rule we
discuss potential refinements to the
MS–DRG relative weight system, and
CMS’ active engagement in
implementing the ICD–10 system. These
discussions illustrate the efforts the
agency is undertaking to improve the
ability to measure case mix precisely
and to pay hospitals for inpatient
services more accurately.
Comment: Most commenters,
including national hospital associations,
continued to acknowledge that there
were documentation and coding
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increases in FY 2008 and FY 2009 that
were in excess of the statutory 0.6
percent and 0.9 percent adjustments
specified in section 7(a) of the TMA.
However, as in prior rulemakings on
this issue, most commenters again
questioned the methodology employed
by MedPAC and our actuaries to
determine the magnitude of the excess.
We also received Congressional
correspondence from numerous
members of Congress stating that
hospitals had expressed concerns
regarding the CMS Actuary’s
methodology and requesting that CMS
ensure that its methodology accurately
reflects changes in patient severity prior
to finalizing adjustments for
documentation and coding in response
to hospitals’ concerns. Specifically, the
correspondence suggested that CMS
could consider alternative
methodologies for estimating the effect
of documentation and coding, including
trend-based analysis and chart
abstraction.
Several commenters stated that
historical case mix trend is inconsistent
with our estimate of the effect of the FY
2008 and FY 2009 documentation and
coding changes due to the
implementation of the MS–DRGs. One
commenter stated ‘‘Our analysis, which
used multiple years of patient claims,
clearly shows that a significant portion
of the change CMS found is actually the
continuation of historical trends, rather
than the effect of documentation and
coding changes due to implementation
of MS–DRGs. This analysis found a
cumulative documentation and coding
effect of 3.6 percent for FYs 2008 and
2009, as opposed to the 5.4 percent that
CMS found.’’
Several commenters submitted an
historical case-mix trend analysis last
year, which showed a documentation
and coding effect of 2.3 percent. An
analysis submitted by the same
commenters this year showed a
cumulative documentation and coding
increase through FY 2009 of 3.6 percent.
The commenters revised their analysis
to respond to CMS comments made in
last year’s rule. Specifically, the
national hospital associations stated
that, ‘‘This year we make several
modifications to that trend-based
analysis to respond to CMS’ critiques as
enumerated in the FY 2011 inpatient
PPS final rule. Given that we have
addressed the agency’s concerns, we are
hopeful that it will give our
methodology fresh consideration.’’ One
hospital association also pointed out
that CMS included an assumption
regarding real case-mix growth in the
adjustment for ‘‘changes in case-mix’’ in
the capital update framework at
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§ 412.308(c)(1)(ii) and suggested that the
estimate made by our actuaries
regarding documentation and coding be
reduced by this assumption in order to
maintain consistency with the capital
update framework.
Commenters also examined the
methodology used by our actuaries and
MedPAC using index number theory. As
stated by these commenters, ‘‘the
relative case weights in a given grouper
are like relative prices in a price index
calculation (in fact they are relative
prices for the different MS–DRGs) and
the quantities of discharges in various
MS–DRGs are like the quantities of
goods in the price index calculation.’’
Commenters claimed that, based on
index number theory, the methodology
employed by MedPAC and our actuaries
can only provide upper and lower
bounds of the combined effect of
documentation and coding and real
case-mix change. MedPAC, however,
indicated that knowledge of the 2007
MS–DRG GROUPER, the new MS–DRG
GROUPER, historical documentation of
patients’ diagnoses, and the changes
CMS made when it created the MS–
DRGs can be used to narrow the range
of the potential documentation and
coding effect as described above,
although they noted that these ‘‘could
cause only a small change in the
estimated effect of documentation
changes.’’
As in past years, several commenters
indicated that CMS should use medical
records data to distinguish
documentation and coding changes
from real case-mix changes. MedPAC
disagreed with the commenters’
rationale that the use of medical records
data could determine the effect of both
documentation and coding, and stated
the following: ‘‘Gold-standard coders,
however, only see the diagnoses written
in the record and therefore are not able
to distinguish changes in
documentation from real changes in
patients’ diagnoses. This method of
recoding existing documentation only
works in situations where hospitals
have no incentive to change
documentation. That is clearly not the
case with the transition to MS–DRGs.’’
Response: We disagree that the new
analysis presented by the national
hospital associations has addressed our
concerns with the use of a trend
analysis to determine the
documentation and coding increase
when a more direct measurement of the
relevant increase can be obtained using
our proposed methodology. In last
year’s rule, we expressed several
concerns with regard to the use of a
trend analysis, stating, ‘‘We believe that
the determination of an appropriate
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historical trend is less straightforward
than our methodology, which, as
described above, simply removes real
case-mix growth from the calculation’’
(75 FR 50066). While we pointed out
certain analytical flaws in the trend
analysis used last year (for a full
discussion, we refer readers to the FY
2011 IPPS/LTCH PPS final rule (75 FR
50065 through 50066)), we did not state
the correction of those flaws would
yield a better documentation and coding
estimate than the direct estimate
obtained under our proposed
methodology. In fact, we noted that
‘‘changes in case-mix do not necessarily
follow a consistent pattern over time.’’
MedPAC provided analysis in its
comment letter which supported CMS’
position. MedPAC’s analysis
demonstrated that CMI growth was
modest at best, never exceeding plus or
minus 1 percent the decade prior to the
introduction of MS–DRGs, and in some
years was negative.
The national hospital associations’
most significant response to our critique
of their previous analysis in the FY 2011
IPPS/LTCH PPS final rule was to
expand the time period upon which its
trend analysis is based to include years
where there were sustained negative
changes in actual CMI. This raised their
estimate of documentation and coding
from 2.3 percent to 3.6 percent. We
believe that this increase demonstrates
the variability in the estimates that can
be obtained using trend analyses. We
also stated in last year’s final rule that
‘‘despite our position that our
methodology more directly measures
the relevant increase, we did examine
the alternative approach favored by
commenters for calculating the
documentation and classification
increase. As a general statement, the
approach of examining historical trends
to estimate what case-mix would have
been in the absence of the adoption of
the MS–DRGs should not necessarily
yield significantly different results from
the analysis done by our actuaries and
the MedPAC, if an appropriate historical
trend can be determined.’’
We reiterate our concerns with the
use of historical trends to determine
documentation and coding this year,
and we do not believe that the
modifications to the commenters’
analysis address all of these concerns. In
particular, we agree with MedPAC that
‘‘absent changes in documentation and
coding and the shift away from
inpatient surgeries, real changes in the
CMI in 2008 through 2010 would be
completely consistent with historical
CMI changes since 2001.’’ In performing
its analysis, MedPAC adjusted for
changes in the share of cases with
surgery, share of cases with CCs, and the
estimated effects of changes in
documentation and coding. MedPAC
summarized the results of its analysis in
the following graph.
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In summary, with respect to trend
analysis, we continue to believe that the
determination of an appropriate
historical trend is less straightforward
than our proposed methodology, which
simply removes real case-mix growth
from the calculation. In addition, the
estimates obtained using our proposed
methodology are consistent with the
historical case-mix growth, as
demonstrated by MedPAC.
We also disagree with commenters
who stated that the methodology
employed by MedPAC and our actuaries
can only provide upper and lower
bounds of the combined effect of
documentation and coding and real
case-mix change and cannot separate
documentation and coding effects from
real case-mix change. While MedPAC
recognized that the potential for a range
of estimates may exist, MedPAC
disagreed with the conclusion that
index number theory, as described
above, should be used to determine this
range. MedPAC stated that ‘‘in this
instance at least, the estimated range
between the lower and upper bounds
based on this approach is so wide that
the estimates are useless for policy
making.’’ We agree with MedPAC that
the wide range resulting from an index
number theory approach renders such
an approach useless in this context.
In response to commenters’ support
for using hospital records to distinguish
documentation and coding effect from
real case-mix changes, we agree with
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MedPAC’s rationale that such an
analysis would fail to capture changes
in documentation. MedPAC stated: ‘‘In
our view, this approach does not work.
The reason is that hospitals had an
incentive to persuade attending
physicians to be more specific in
describing patients’ acute
manifestations of chronic conditions in
their medical records. Some hospitals
hired documentation specialists with
the goal of changing physicians’ medical
record documentation, not simply to do
a better job of coding what they wrote
in the record (Hahey 2008). Goldstandard coders, however, only see the
diagnoses written in the record and
therefore are not able to distinguish
changes in documentation from real
changes in patients’ diagnoses. This
method of recoding existing
documentation only works in situations
where hospitals have no incentive to
change documentation. That is clearly
not the case with the transition to MS–
DRGs. Thus, a very important part of the
effect of changes in documentation and
coding cannot be detected by the
proposed method.’’
We also note that as one part of our
initial documentation and coding
analysis, we attempted to examine
coding changes based on hospital chart
data from the Medicare Clinical Data
Abstraction Center (CDAC). However, as
we described in the FY 2010 IPPS/LTCH
PPS final rule, it was not possible to
perform this analysis due to aberrant
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CDAC data. We stated, ‘‘While we
attempted to use the CDAC data to
distinguish real increase in case-mix
growth from documentation and coding
in the overall case-mix number, we
found aberrant data and significant
variation across the FY 1999–FY 2007
analysis period. It was not possible to
distinguish changes in documentation
and coding from changes in real casemix in the CDAC data. Therefore, we
concluded that the CDAC data would
not support analysis of real case-mix
growth that could be used in our
retrospective evaluation of the FY 2008
claims data.’’ (74 FR 43769)
Finally, we disagree with the
commenters’ suggestion that the
assumptions in the capital update
framework should be applied in our
actuaries’ estimate of documentation
and coding, because the capital update
framework is intended for projection
purposes and would be inappropriate to
use as a proxy for historical trends.
After careful consideration of all of
the public comments we received,
including alternatives suggested by
commenters, we remain confident in the
accuracy of our methodology and its
appropriateness in determining the
required adjustment amounts.
Comment: Numerous commenters
expressed concern regarding the
potentially severe negative fiscal impact
that would be experienced by providers
if the proposed documentation and
coding improvement adjustment were to
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be implemented. As noted above,
MedPAC recommended that CMS
reduce its proposed ¥3.15 percent
adjustment to be consistent with a net
update factor of +1.0 percent, as it
recommended in its March 2011 Report
to Congress.
As noted previously, we also received
Congressional correspondence from
numerous members of Congress that
requested CMS to reconsider what
would be an appropriate adjustment to
hospital payments and also requested
that CMS reexamine its methodology.
This correspondence noted that
hospitals would experience payment
reductions if the proposed rule were
finalized without modification and
further stated that hospitals needed
‘‘adequate Medicare reimbursement to
ensure that patients and communities
receive the care they need.’’
Response: We recognize the concerns
regarding possible financial disruption
that may be caused by the proposed
documentation and coding
improvement payment adjustment. We
note, however, that these payment
adjustments are necessary to correct
past overpayments due solely to
documentation and coding
improvements. We have already delayed
implementation of the required
prospective adjustment amount, and we
proposed only a portion of the
remaining required adjustment to allow
hospitals time to adjust to future
payment differences and to moderate
the effect of this adjustment in any
given year. We are required under
section 7(b)(1)(B) of the TMA to
complete the remaining one-time ¥2.9
percent recoupment adjustment for FY
2008 and FY 2009 overpayments in FY
2012, and we believe the impact of
completing this adjustment to be
reasonable considering it will be
completely offset by removing the FY
2011 recoupment adjustment by placing
a +2.9 percent adjustment back to the
standardized amount. In FY 2013, a
positive +2.9 percent adjustment will be
made, completing the recoupment
process.
In the proposed rule, we stated it was
imperative that CMS make a significant
prospective adjustment amount in FY
2012 to prevent the accumulation of
unrecoverable overpayments. As stated
in previous responses to comments, we
remain confident in the accuracy of the
overall methodology and its
appropriateness in determining the
required adjustment amount. However,
after consideration of the public
comments, and in keeping with our
longstanding policy to mitigate, when
possible, the effects of significant
downward adjustments on hospitals, we
are finalizing a prospective adjustment
of ¥2.0 percent, which is a reduction
from our proposed adjustment of ¥3.15
percent. We note that this adjustment
will result in a total update of +1.0
percent, in accordance with MedPAC’s
recommendation in its March 2011
Report to Congress for hospitals that
report quality data consistent with the
requirements of the Hospital IQR
Program. Specifically, as discussed
elsewhere in this final rule, the
applicable percentage increase for FY
51497
2012 is +1.9 percent (based on a market
basket of +3.0 percent, a multifactor
productivity adjustment of ¥1.0
percentage point, and a statutory
adjustment of ¥0.1 percentage point in
accordance with section 3401 of the
Affordable Care Act). When combined
with the +1.1 adjustment in light of
Cape Cod v. Sebelius, 630 F.3d 203
(D.C. Cir. 2011) discussed elsewhere in
this final rule, the applicable percentage
increase of +1.9 percent and this
proposed prospective adjustment of
¥2.0 percent results in a net total
update of +1.0 percent, prior to
additional adjustments for budget
neutrality and other policy adjustments.
We believe that this level of adjustment
will help to minimize year to year
volatility in payment rates due to the
required documentation and coding
adjustment. As we stated in the
proposed rule, our analysis found that a
prospective adjustment of ¥3.9 percent
continues to be necessary. Because we
are making a ¥2.0 percent prospective
adjustment for FY 2012, a remaining
prospective of adjustment of ¥1.9
percent will be necessary. While we are
not at this time stating when we will
make the remaining required ¥1.9
percent prospective adjustment, we
consider it feasible to make all or most
of the adjustment in FY 2013, when a
+2.9 percent adjustment will be factored
into rates to offset the one-time FY 2012
recoupment adjustment.
The table below summarizes the
adjustments for FY 2012 for
documentation and coding for IPPS
hospitals.
FY 2012 MS–DRG DOCUMENTATION AND CODING ADJUSTMENT
Required
prospective
adjustment for
FYs 2008–
2009
Remaining
required
recoupment
adjustment for
FYs 2008–
2009
Total remaining adjustment
Prospective
adjustment for
FY 2012
Recoupment
adjustment to
FY 2012
payments
Remaining
prospective
adjustment
¥3.9%
¥2.9%
¥6.8%
¥2.0%
¥2.9%
¥1.9%
Level of Adjustments ...............................
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7. Background on the Application of the
Documentation and Coding Adjustment
to the Hospital-Specific Rates
Under section 1886(d)(5)(D)(i) of the
Act, SCHs are paid based on whichever
of the following rates yields the greatest
aggregate payment: The Federal rate; the
updated hospital-specific rate based on
FY 1982 costs per discharge; the
updated hospital-specific rate based on
FY 1987 costs per discharge; the
updated hospital-specific rate based on
FY 1996 costs per discharge; or the
updated hospital-specific rate based on
FY 2006 costs per discharge. Under
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section 1886(d)(5)(G) of the Act, MDHs
are paid based on the Federal national
rate or, if higher, the Federal national
rate plus 75 percent of the difference
between the Federal national rate and
the updated hospital-specific rate based
on the greatest of the FY 1982, FY 1987,
or FY 2002 costs per discharge. In the
FY 2008 IPPS final rule with comment
period (72 FR 47152 through 47188), we
established a policy of applying the
documentation and coding adjustment
to the hospital-specific rates. In that
final rule with comment period, we
indicated that because SCHs and MDHs
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use the same DRG system as all other
hospitals, we believe they should be
equally subject to the budget neutrality
adjustment that we are applying for
adoption of the MS–DRGs to all other
hospitals. In establishing this policy, we
relied on section 1886(d)(3)(A)(vi) of the
Act, which provides us with the
authority to adjust ‘‘the standardized
amount’’ to eliminate the effect of
changes in coding or classification that
do not reflect real change in case-mix.
However, in the final rule that
appeared in the Federal Register on
November 27, 2007 (72 FR 66886), we
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rescinded the application of the
documentation and coding adjustment
to the hospital-specific rates retroactive
to October 1, 2007. In that final rule, we
indicated that, while we still believe it
would be appropriate to apply the
documentation and coding adjustment
to the hospital-specific rates, upon
further review, we decided that the
application of the documentation and
coding adjustment to the hospitalspecific rates is not consistent with the
plain meaning of section
1886(d)(3)(A)(vi) of the Act, which only
mentions adjusting ‘‘the standardized
amount’’ under section 1886(d) of the
Act and does not mention adjusting the
hospital-specific rates.
In the FY 2009 IPPS proposed rule (73
FR 23540), we indicated that we
continued to have concerns about this
issue. Because hospitals paid based on
the hospital-specific rate use the same
MS–DRG system as other hospitals, we
believe they have the potential to realize
increased payments from
documentation and coding changes that
do not reflect real increases in patient
severity of illness. In section
1886(d)(3)(A)(vi) of the Act, Congress
stipulated that hospitals paid based on
the standardized amount should not
receive additional payments based on
the effect of documentation and coding
changes that do not reflect real changes
in case-mix. Similarly, we believe that
hospitals paid based on the hospitalspecific rates should not have the
potential to realize increased payments
due to documentation and coding
changes that do not reflect real increases
in patient severity of illness. While we
continue to believe that section
1886(d)(3)(A)(vi) of the Act does not
provide explicit authority for
application of the documentation and
coding adjustment to the hospitalspecific rates, we believe that we have
the authority to apply the
documentation and coding adjustment
to the hospital-specific rates using our
special exceptions and adjustment
authority under section 1886(d)(5)(I)(i)
of the Act. The special exceptions and
adjustment provision authorizes us to
provide ‘‘for such other exceptions and
adjustments to [IPPS] payment amounts
* * * as the Secretary deems
appropriate.’’ In the FY 2009 IPPS final
rule (73 FR 48448 through 48449), we
indicated that, for the FY 2010
rulemaking, we planned to examine our
FY 2008 claims data for hospitals paid
based on the hospital-specific rate. We
further indicated that if we found
evidence of significant increases in casemix for patients treated in these
hospitals that do not reflect real changes
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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 (74 FR
24098 through 24100 and 74 FR 43775
through 43776, respectively), we
discussed our retrospective evaluation
of the FY 2008 claims data for SCHs and
MDHs using the same methodology
described earlier for other IPPS
hospitals. We found that, independently
for both SCHs and MDHs, the change
due to documentation and coding that
did not reflect real changes in case-mix
for discharges occurring during FY 2008
slightly exceeded the proposed 2.5
percent result discussed earlier for other
IPPS hospitals, but did not significantly
differ from that result. We refer readers
to those rules for a more complete
discussion.
Therefore, consistent with our
statements in prior IPPS rules, we
proposed to use our authority under
section 1886(d)(5)(I)(i) of the Act to
prospectively adjust the hospitalspecific rates by the proposed ¥2.5
percent in FY 2010 to account for our
estimated documentation and coding
effect in FY 2008 that does not reflect
real changes in case-mix. We proposed
to leave this adjustment in place for
subsequent fiscal years in order to
ensure that changes in documentation
and coding resulting from the adoption
of the MS–DRGs do not lead to an
increase in aggregate payments for SCHs
and MDHs not reflective of an increase
in real case-mix. The proposed ¥2.5
percent adjustment to the hospitalspecific rates exceeded the ¥1.9 percent
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adjustment to the national standardized
amount under section 7(b)(1)(A) of
Public Law 110–90 because, unlike the
national standardized rates, the FY 2008
hospital-specific rates were not
previously reduced in order to account
for anticipated changes in
documentation and coding that do not
reflect real changes in case-mix
resulting from the adoption of the MS–
DRGs.
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24100), we
solicited public comment on this
proposal. Consistent with our approach
for IPPS hospitals discussed earlier, in
the FY 2010 IPPS/RY 2010 LTCH PPS
final rule, we also delayed adoption of
a documentation and coding adjustment
to the hospital-specific rate until FY
2011. We refer readers to the FY 2010
IPPS/RY 2010 LTCH PPS final rule for
a more detailed discussion of our
proposal, responses to comments, and
finalized policy.
As we have noted previously, because
SCHs and MDHs use the same MS–DRG
system as all other IPPS hospitals, we
believe they have the potential to realize
increased payments from
documentation and coding changes that
do not reflect real increases in patient
severity of illness. Therefore, we believe
they should be equally subject to a
prospective budget neutrality
adjustment that we are applying for
adoption of the MS–DRGs to all other
hospitals. We believe the
documentation and coding estimates for
all subsection (d) hospitals should be
the same. While the findings for the
documentation and coding effect for all
IPPS hospitals are similar to the effect
for SCHs and slightly different to the
effect for MDHs, we continue to believe
that this is the appropriate policy so as
to neither advantage or disadvantage
different types of providers. As we
discuss in section II.D.4. of this
preamble, our best estimate, based on
the most recently available data, is that
a cumulative adjustment of ¥5.4
percent is required to eliminate the full
effect of the documentation and coding
changes on future payments to SCHs
and MDHs. Unlike the case of
standardized amounts paid to IPPS
hospitals, prior to FY 2011, we had not
made any previous adjustments to the
hospital-specific rates paid to SCHs and
MDHs to account for documentation
and coding changes. Therefore, the
entire ¥5.4 percent recoupment
adjustment needed to be made, as
opposed to a ¥3.9 percent remaining
adjustment for IPPS hospitals.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50068 through 50071), we
made an adjustment to the standardized
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amount for IPPS hospitals of ¥2.9
percent under section 7(b)(1)(B) of
Public Law 110–90, for FY 2011. As we
noted in the FY 2011 IPPS/LTCH PPS
final rule, in determining the level and
pace of adjustments to account for such
documentation and coding changes, we
believe that it is important to maintain,
as much as possible, both consistency
and equity among these classes of
hospitals. Therefore, we finalized a
prospective adjustment of ¥2.9 percent
to the hospital-specific rates paid to
SCHs and MDHs. We refer readers to the
FY 2011 IPPS/LTCH PPS final rule for
a more detailed discussion of our
proposal, responses to comments, and
finalized policy.
As discussed earlier in this section
II.D., in the FY 2012 IPPS/LTCH PPS
proposed rule, we proposed a net ¥3.15
percent documentation and coding
adjustment for IPPS hospitals in FY
2012 (¥3.15 percent prospective
adjustment plus a ¥2.9 percent
recoupment adjustment in FY 2012,
offset by the removal of the ¥2.9
percent recoupment adjustment for FY
2010). The proposed IPPS adjustment
exceeded the remaining ¥2.5 percent
documentation and coding adjustment
for hospitals receiving a hospitalspecific rate (that is, the entire ¥5.4
percent adjustment, minus the ¥2.9
percent adjustment finalized for FY
2011). As we indicated in the FY 2011
IPPS/LTCH PPS proposed rule and final
rule, we are continuing, as much as
possible, consistent with section 7(b)(1)
of Public Law 110–90 and section
1886(d)(5)(I)(i) of the Act, to take such
consistency and equity into account in
developing future proposals for
implementing documentation and
coding adjustments. We believe that any
adjustment to the hospital-specific rate
due to documentation and coding effect
should be as similar as possible to
adjustments to the IPPS rate.
Accordingly, we proposed a ¥2.5
percent payment adjustment to the
hospital-specific rate. We believe that
proposing the entire remaining
prospective adjustment of ¥2.5 percent
would allow CMS to maintain, to the
extent possible, similarity and
consistency in payment rates for
different IPPS hospitals paid using the
MS–DRG. As discussed below, we took
a similar approach in finalizing an
adjustment to the Puerto-Rico specific
rate in FY 2011.
Comment: Numerous commenters
requested that CMS rescind its proposed
documentation and coding adjustment
for SCHs and MDHs and questioned
CMS’ statutory authority to apply this
adjustment to providers receiving a
hospital-specific rate. The commenters
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argued that because section
1886(d)(3)(A)(vi) of the Act only
authorizes application of a
documentation and coding adjustment
to the standardized amount, Congress’
specific instruction as to the
applicability of this type of adjustment
makes it impermissible for CMS to
apply the adjustment to the hospitalspecific rates. Furthermore, commenters
contend that, due to their critical role in
isolated communities, any negative
documentation and coding adjustment
to SCHs and MDHs would endanger
their ability to provide the type of care
that Congress specifically sought to
protect by establishing their special
Medicare payment systems.
Response: We continue to disagree
with the commenters that the
Secretary’s broad authority to make
exceptions and adjustment to payment
amounts under section 1886(d)(3)(A)(vi)
of the Act cannot be applied in this
instance. We have discussed the basis
for applying such an adjustment in prior
rules (in the FY 2009 proposed rule (73
FR 23540), the FY 2009 IPPS final rule
(73 FR 48448), and the FY 2010 IPPS/
RY 2010 LTCH PPS proposed rule (74
FR 24098)) and do not agree that the
language in section 1886(d)(3)(A)(vi) of
the Act limits our authority under
section 1886(d)(5)(I)(i) of the Act to
make such an adjustment. We recognize
that SCHs and MDHs are entitled,
through legislation, to receive the
hospital-specific rate in order to
compensate for their unique service
requirements in the provider
community. Similar to our approach
with IPPS hospitals, we are
implementing a phase-in of the
documentation and coding adjustment
over an appropriate period, beginning in
FY 2011. We will continue to separately
analyze SCH and MDH claims data to
ensure than any future adjustment is
appropriate for these provider types.
Comment: MedPAC responded to our
request for comments regarding the
level of adjustment for special categories
of hospitals, such as hospitals paid
under the hospital-specific payment
rate, by pointing out hospitals have the
same financial incentives for
documentation and coding
improvements and the same ability to
benefit from the resulting change in
case-mix, and by recommending that
‘‘all IPPS hospitals should be treated the
same.’’ At the same time, MedPAC also
stated that ‘‘delaying prevention of
overpayments * * * creates a problem
because overpayments will continue to
accumulate in 2010 and later years until
the effect of documentation and coding
improvement is fully offset in the
payment rates.’’ In setting forward its
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51499
multi-year recommendation to CMS for
complying with the requirements of
section 7 of Public Law 110–90,
MedPAC emphasized ‘‘minimizing the
accumulation of overpayments.’’
Response: We appreciate MedPAC’s
comments and agree that it is
appropriate to conclude that hospitals
paid under the hospital-specific rate
have experienced a 5.4-percent increase
documentation and coding in FYs 2008
and 2009, insofar as these hospitals had
the same financial incentives to improve
documentation and coding in those
years as other IPPS hospitals. We further
agree with MedPAC that it is
appropriate to focus on minimizing the
accumulation of overpayments, and we
interpret this to mean that MedPAC
recommends that CMS move forward as
quickly as possible with prospective
adjustments at an appropriate level. We
appreciate MedPAC’s guidance that ‘‘all
hospitals be treated the same,’’ and
stress the importance of consistent
treatment of various classes of similarly
situated hospitals in our payment policy
determinations.
We continue to believe that any
adjustment to the hospital-specific rate
due to documentation and coding effect
should be as similar as possible to
adjustments to the standardized
amount. Accordingly, because we are
finalizing a prospective adjustment to
the standardized amount of ¥2.0
percent for FY 2012, we are also
finalizing a prospective adjustment to
the hospital-specific rate of ¥2.0
percent for FY 2012, instead of our
proposed adjustment of ¥2.5 percent.
Making this level of adjustment allows
CMS to maintain, for FY 2012,
consistency in payment rates for
different IPPS hospitals paid using the
MS–DRG. Because this ¥2.0 percent
adjustment no longer reflects the entire
remaining requirement adjustment
amount of ¥2.5 percent, an additional
¥0.5 percent adjustment to the
hospital-specific payment rates will be
required in future rulemaking.
9. Application of the Documentation
and Coding Adjustment to the Puerto
Rico-Specific Standardized Amount
a. Background
Puerto Rico hospitals are paid based
on 75 percent of the national
standardized amount and 25 percent of
the Puerto Rico-specific standardized
amount. As noted previously, the
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
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adjust ‘‘the standardized amounts
computed under this paragraph’’ to
eliminate the effect of changes in coding
or classification that do not reflect real
changes in case-mix. Section
1886(d)(3)(A)(vi) of the Act applies to
the national standardized amounts
computed under section 1886(d)(3) of
the Act, but does not apply to the Puerto
Rico-specific standardized amount
computed under section 1886(d)(9)(C) of
the Act. In calculating the FY 2008
payment rates, we made an inadvertent
error and applied the FY 2008 ¥0.6
percent documentation and coding
adjustment to the Puerto Rico-specific
standardized amount, relying on our
authority under section
1886(d)(3)(A)(vi) of the Act. However,
section 1886(d)(3)(A)(vi) of the Act
authorizes application of a
documentation and coding adjustment
to the national standardized amount and
does not apply to the Puerto Rico
specific standardized amount. In the FY
2009 IPPS final rule (73 FR 48449), we
corrected this inadvertent error by
removing the ¥0.6 percent
documentation and coding adjustment
from the FY 2008 Puerto Rico-specific
rates (that is, we made a positive 0.6
percent adjustment, increasing the
Puerto Rico-specific rates).
While section 1886(d)(3)(A)(vi) of the
Act is not applicable to the Puerto Ricospecific standardized amount, we
believe that we have the authority to
apply the documentation and coding
adjustment to the Puerto Rico-specific
standardized amount using our special
exceptions and adjustment authority
under section 1886(d)(5)(I)(i) of the Act.
Similar to SCHs and MDHs that are paid
based on the hospital-specific rate, we
believe that Puerto Rico hospitals that
are paid based on the Puerto Ricospecific standardized amount should
not have the potential to realize
increased payments due to
documentation and coding changes that
do not reflect real increases in patient
severity of illness. Consistent with the
approach described for SCHs and
MDHs, in the FY 2009 IPPS final rule
(73 FR 48449), we indicated that we
planned to examine our FY 2008 claims
data for hospitals in Puerto Rico. We
indicated in the FY 2009 IPPS proposed
rule (73 FR 23541) that if we found
evidence of significant increases in casemix for patients treated in these
hospitals, we would consider proposing
to apply documentation and coding
adjustments to the FY 2010 Puerto Ricospecific standardized amount under our
authority in section 1886(d)(5)(I)(i) of
the Act.
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b. Documentation and Coding
Adjustment to the Puerto Rico-Specific
Standardized Amount
For the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule, we performed a
retrospective evaluation of the FY 2008
claims data for Puerto Rico hospitals
using the same methodology described
earlier for IPPS hospitals paid under the
national standardized amounts under
section 1886(d) of the Act. We found
that, for Puerto Rico hospitals, the
increase in payments for discharges
occurring during FY 2008 due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008
was approximately 1.1 percent.
However, as we noted earlier for IPPS
hospitals and hospitals receiving
hospital-specific rates, if the estimated
documentation and coding effect
determined based on a full analysis of
FY 2009 claims data was more or less
than our then current estimates, it
would change, possibly lessen, the
anticipated cumulative adjustments that
we had estimated we would have to
make for the FY 2008 and FY 2009
combined adjustment. Therefore, we
believed that it would be more prudent
to delay implementation of the
documentation and coding adjustment
to allow for a more complete analysis of
FY 2009 claims data for Puerto Rico
hospitals.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43777), we
indicated that, given these
documentation and coding increases,
consistent with our statements in prior
IPPS rules, we would use our authority
under section 1886(d)(5)(I)(i) of the Act
to adjust the Puerto Rico-specific rate
and solicited public comment on the
proposed ¥1.1 percent prospective
adjustment. However, in parallel to our
decision to postpone adjustments to the
Federal standardized amount, we also
indicated that we were adopting a
similar policy for the Puerto Ricospecific rate for FY 2010 and would
consider the phase-in of this adjustment
over an appropriate time period through
future rulemaking. We noted that, as
with the hospital-specific rates, the
Puerto Rico-specific standardized
amount had not previously been
adjusted based on estimated changes in
documentation and coding associated
with the adoption of the MS–DRGs.
Consistent with our approach for IPPS
hospitals for FY 2010, we indicated that
we would address in the FY 2011
rulemaking cycle any change in FY 2009
case-mix due to documentation and
coding that did not reflect real changes
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in case-mix for discharges occurring
during FY 2009.
As we have noted above, similar to
SCHs and MDHs, hospitals in Puerto
Rico use the same MS–DRG system as
all other hospitals and we believe they
have the potential to realize increased
payments from documentation and
coding changes that do not reflect real
increases in patient severity of illness.
Therefore, we believe they should be
equally subject to the prospective
budget neutrality adjustment that we
intend to apply to prospective payment
rates for IPPS hospitals, including SCHs
and MDHs, in order to eliminate the full
effect of the documentation and coding
changes associated with implementation
of the MS–DRG system.
As discussed in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50071
through 50073), using the same
methodology we applied to estimate
documentation and coding changes
under IPPS for non-Puerto Rico
hospitals, our best estimate, based on
the then most recently available data
(FY 2009 claims paid through March
2010), was that, for documentation and
coding that occurred over FY 2008 and
FY 2009, a cumulative adjustment of
¥2.6 percent was required to eliminate
the full effect of the documentation and
coding changes on future payments
from the Puerto Rico-specific rate. As
we stated above, we believe it important
to maintain both consistency and equity
among all hospitals paid on the basis of
the same MS–DRG system. At the same
time, however, we recognize that the
estimated cumulative impact on
aggregate payment rates resulting from
implementation of the MS–DRG system
was smaller for Puerto Rico hospitals as
compared to IPPS hospitals and SCHs
and MDHs. Therefore, in the FY 2011
IPPS/LTCH PPS proposed rule (75 FR
23876), we proposed an adjustment to
eliminate the full effect of the
documentation and coding changes on
the portion of future payments to Puerto
Rico hospitals based on the Puerto Ricospecific rate. We stated that we believed
that a full prospective adjustment was
the most appropriate means to take into
full account the effect of documentation
and coding changes on payments, while
maintaining equity as much as possible
between hospitals paid on the basis of
different prospective rates. We noted
that our updated data analysis in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50072 through 50073) showed that this
adjustment would be ¥2.6 percent. The
previous estimate in the proposed rule
was a ¥2.4 percent adjustment.
One reason we proposed the full
prospective adjustment for the Puerto
Rico-specific rate in FY 2011 was to
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maintain equity as much as possible in
the documentation and coding
adjustments applied to various hospital
rates in FY 2011. Because our proposal
was to make an adjustment that
represents the full adjustment that is
warranted for the Puerto Rico-specific
rate, we indicated that we did not
anticipate proposing any additional
adjustments to this rate for
documentation and coding effects.
Therefore, because the Puerto Ricospecific rate received a full prospective
adjustment of ¥2.6 percent in FY 2011,
we proposed no further adjustment in
the proposed rule for FY 2012.
relative weight and 50 percent was
based on the MS–DRG relative weight.
In FY 2009, the third and final year
of the transition from charge-based
weights to cost-based weights, we
calculated the MS–DRG relative weights
based on 100 percent of hospital costs.
We refer readers to the FY 2007 IPPS
final rule (71 FR 47882) for a more
detailed discussion of our final policy
for calculating the cost-based DRG
relative weights and to the FY 2008
IPPS final rule with comment period (72
FR 47199) for information on how we
blended relative weights based on the
CMS DRGs and MS–DRGs.
E. Refinement of the MS–DRG Relative
Weight Calculation
2. Summary of the RTI Study of Charge
Compression and CCR Refinement
As we transitioned to cost-based
relative weights, some public
commenters raised concerns about
potential bias in the weights due to
‘‘charge compression,’’ which is the
practice of applying a higher percentage
charge markup over costs to lower cost
items and services, and a lower
percentage charge markup over costs to
higher cost items and services. As a
result, the cost-based weights would
undervalue high-cost items and
overvalue low-cost items if a single CCR
is applied to items of widely varying
costs in the same cost center. To address
this concern, in August 2006, we
awarded a contract to RTI to study the
effects of charge compression in
calculating the relative weights and to
consider methods to reduce the
variation in the CCRs across services
within cost centers. RTI issued an
interim draft report in January 2007
with its findings on charge compression
(which was posted on the CMS Web site
at: http://www.cms.hhs.gov/reports/
downloads/Dalton.pdf). In that report,
RTI found that a number of factors
contribute to charge compression and
affect the accuracy of the relative
weights. RTI’s findings demonstrated
that charge compression exists in
several CCRs, most notably in the
Medical Supplies and Equipment CCR.
In its interim draft report, RTI offered
a number of recommendations to
mitigate the effects of charge
compression, including estimating
regression-based CCRs to disaggregate
the Medical Supplies Charged to
Patients, Drugs Charged to Patients, and
Radiology cost centers, and adding new
cost centers to the Medicare cost report,
such as adding a ‘‘Devices, Implants and
Prosthetics’’ line under ‘‘Medical
Supplies Charged to Patients’’ and a
‘‘CT Scanning and MRI’’ subscripted
line under ‘‘Radiology-Diagnostics’’.
Despite receiving public comments in
support of the regression-based CCRs as
1. Background
In the FY 2009 IPPS final rule (73 FR
48450), we continued to implement
significant revisions to Medicare’s
inpatient hospital rates by completing
our 3-year transition from charge-based
relative weights to cost-based relative
weights. Beginning in FY 2007, we
implemented relative weights based on
cost report data instead of based on
charge information. We had initially
proposed to develop cost-based relative
weights using the hospital-specific
relative value cost center (HSRVcc)
methodology as recommended by
MedPAC. However, after considering
concerns expressed in the public
comments we received on the proposal,
we modified MedPAC’s methodology to
exclude the hospital-specific relative
weight feature. Instead, we developed
national CCRs based on distinct hospital
departments and engaged a contractor to
evaluate the HSRVcc methodology for
future consideration. To mitigate
payment instability due to the adoption
of cost-based relative weights, we
decided to transition cost-based weights
over 3 years by blending them with
charge-based weights beginning in FY
2007. (We refer readers to the FY 2007
IPPS final rule for details on the
HSRVcc methodology and the 3-year
transition blend from charge-based
relative weights to cost-based relative
weights (71 FR 47882 through 47898).)
In FY 2008, we adopted severitybased MS–DRGs, which increased the
number of DRGs from 538 to 745. Many
commenters raised concerns as to how
the transition from charge-based weights
to cost-based weights would continue
with the introduction of new MS–DRGs.
We decided to implement a 2-year
transition for the MS–DRGs to coincide
with the remainder of the transition to
cost-based relative weights. In FY 2008,
50 percent of the relative weight for
each DRG was based on the CMS DRG
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a means to immediately resolve the
problem of charge compression,
particularly within the Medical
Supplies and Equipment CCR, we did
not adopt RTI’s recommendation to
create additional regression-based CCRs.
(For more details on RTI’s findings and
recommendations, we refer readers to
the FY 2009 IPPS final rule (73 FR
48452).) RTI subsequently expanded its
analysis of charge compression beyond
inpatient services to include a
reassessment of the regression-based
CCR models using both outpatient and
inpatient charge data. This interim
report was made available in April 2008
during the public comment period on
the FY 2009 IPPS proposed rule and can
be found on RTI’s Web site at: http://
www.rti.org/reports/cms/HHSM-5002005-0029I/PDF/Refining_Cost_to_
Charge_Ratios_200804.pdf. The IPPSspecific chapters, which were separately
displayed in the April 2008 interim
report, as well as the more recent OPPS
chapters, were included in the July 3,
2008 RTI final report entitled, ‘‘Refining
Cost-to-Charge Ratios for Calculating
APC [Ambulatory Payment
Classification] and DRG Relative
Payment Weights,’’ that became
available at the time of the development
of the FY 2009 IPPS final rule. The RTI
final report can be found on RTI’s Web
site at: http://www.rti.org/reports/cms/
HHSM-500-2005-0029I/PDF/Refining_
Cost_to_Charge_Ratios_200807_
Final.pdf.
RTI’s final report found that, under
the IPPS and the OPPS, accounting
improvements to the cost reporting data
reduce some of the sources of
aggregation bias without having to use
regression-based adjustments. In
general, with respect to the regressionbased adjustments, RTI confirmed the
findings of its March 2007 report that
regression models are a valid approach
for diagnosing potential aggregation bias
within selected services for the IPPS
and found that regression models are
equally valid for setting payments under
the OPPS.
RTI also noted that cost-based weights
are only one component of a final
prospective payment rate. There are
other rate adjustments (wage index,
IME, and DSH) to payments derived
from the revised cost-based weights, and
the cumulative effect of these
components may not improve the ability
of final payment to reflect resource cost.
RTI endorsed short-term regressionbased adjustments, but also concluded
that more refined and accurate
accounting data are the preferred longterm solution to mitigate charge
compression and related bias in hospital
cost-based weights. For a more detailed
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summary of RTI’s findings,
recommendations, and public
comments we received on the report, we
refer readers to the FY 2009 IPPS final
rule (73 FR 48452 through 48453).
3. Summary of Policy Changes Made in
FY 2011
In the FY 2009 IPPS/LTCH PPS final
rule (73 FR 48458 through 48467), in
response to the RTI’s recommendations
concerning cost report refinements, and
because of RAND’s finding that
regression-based adjustments to the
CCRs do not significantly improve
payment accuracy, we discussed our
decision to pursue changes to the cost
report to split the cost center for
Medical Supplies Charged to Patients
into one line for ‘‘Medical Supplies
Charged to Patients’’ and another line
for ‘‘Implantable Devices Charged to
Patients.’’ (We refer readers to the Web
site: http://www.rand.org/pubs/
working_papers/WR560/, and the FY
2009 IPPS/LTCH PPS final rule for
details on the RAND report (73 FR
48453 through 48457).) We
acknowledged, as RTI had found, that
charge compression occurs in several
cost centers that exist on the Medicare
cost report. However, as we stated in the
FY 2009 IPPS/LTCH PPS final rule, we
focused on the CCR for Medical
Supplies and Equipment because RTI
found that the largest impact on the
MS–DRG relative weights could result
from correcting charge compression for
devices and implants. In determining
what should be reported in these
respective cost centers, we adopted the
commenters’ recommendation that
hospitals should use revenue codes
established by AHA’s National Uniform
Billing Committee to determine what
should be reported in the ‘‘Medical
Supplies Charged to Patients’’ and the
‘‘Implantable Devices Charged to
Patients’’ cost centers. Accordingly, a
new subscripted line 55.30 for
‘‘Implantable Devices Charged to
Patients’’ was created in July 2009 as
part of CMS’ Transmittal 20 update to
the existing cost report Form CMS–
2552–96. This new subscripted cost
center has been available for use for cost
reporting periods beginning on or after
May 1, 2009.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50075 through 50080), we
finalized our proposal to create standard
cost centers for CT scans, MRI, and
cardiac catheterization, and to require
that hospitals report the costs and
charges for these services under new
cost centers on the revised Medicare
cost report Form CMS 2552–10. As we
discussed in the FY 2009 IPPS/LTCH
PPS and CY 2009 OPPS/ASC proposed
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and final rules, RTI found that the costs
and charges of CT scans, MRI, and
cardiac catheterization differ
significantly from the costs and charges
of other services included in the
standard associated cost center. RTI also
concluded that both the IPPS and OPPS
relative weights would better estimate
the costs of those services if CMS were
to add standard costs centers for CT
scans, MRI, and cardiac catheterization
in order for hospitals to report
separately the costs and charges for
those services and in order for CMS to
calculate unique CCRs to estimate the
cost from charges on claims data. (We
refer readers to the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50075 through
50080) for a more detailed discussion on
the reasons for the creation of standard
cost centers for CT scans, MRI, and
cardiac catheterization.) The new
standard cost centers for MRI, CT scans,
and cardiac catheterization are effective
for cost report periods beginning on or
after May 1, 2010, on the revised cost
report Form CMS–2552–10. CMS issued
the new hospital cost report Form CMS–
2552–10 on December 30, 2010. The
new cost report form can be accessed at
the CMS Web site at: https://
www.cms.gov/Manuals/PBM/
itemdetail.asp?filterType=none&
filterByDID=-99&
sortByDID=1&sortOrder=ascending&
itemID=CMS021935&intNumPerPage
=10. Once at this Web site, users should
double click on ‘‘Chapter 40.’’
4. Discussion for FY 2012
In the FY 2009 IPPS/LTCH PPS final
rule (73 FR 48468), we stated that, due
to what is typically a 3-year lag between
the reporting of cost report data and the
availability for use in ratesetting, we
anticipated that we might be able to use
data from the new ‘‘Implantable Devices
Charged to Patients’’ cost center to
develop a CCR for Implantable Devices
Charged to Patients in the FY 2012 or
FY 2013 IPPS rulemaking cycle.
Specifically, we stated, ‘‘Because there
is approximately a 3-year lag between
the availability of cost report data for
IPPS and OPPS rate-setting purposes in
a given fiscal year, we may be able to
derive two distinct CCRs, one for
medical supplies and one for devices,
for use in calculating the FY 2012 or FY
2013 IPPS relative weights and the CY
2012 or CY 2013 OPPS relative weights’’
(73 FR 48468). However, as noted in the
FY 2010 IPPS/LTCH PPS final rule (74
FR 43782), due to delays in the issuance
of the revised cost report CMS 2552–10,
a new CCR for Implantable Devices
Charged to Patients may not be available
until FY 2013. Similarly, when we
finalized the decision in the FY 2011
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IPPS/LTCH PPS final rule to add new
cost centers for MRI, CT scans, and
cardiac catheterization, we explained
that data from any new cost centers that
may be created will not be available
until at least 3 years after they are first
used (75 FR 50077). That is, in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50077), we stated that the data from the
standard cost centers for MRI, CT scans,
and cardiac catheterization respectively,
would not even be available for possible
use in calculating the relative weights
earlier than 3 years after Form CMS–
2552–10 becomes available. We further
stated that, at that time, we would
analyze the data and determine if it is
appropriate to use those data to create
distinct CCRs from these cost centers for
use in the relative weights for the
respective payment systems. We also
reassured public commenters that there
was no need for immediate concern
regarding possible negative payment
impacts on MRI and CT scans under the
IPPS and the OPPS because the cost
report data that would be used for the
calculation of the relative weights were
at least 3 years from being available. We
stated that we will first thoroughly
analyze and run impacts on the data and
provide the public with the opportunity
to comment before distinct CCRs for
MRI and CT scans would be finalized
for use in the calculation of the relative
weights. We also urged all hospitals to
properly report their costs and charges
for MRI, CT scans, and all other services
so that, in several years’ time, we will
have reliable data from all hospitals on
which to base a decision as to whether
to incorporate additional CCRs into the
relative weight calculation (75 FR
50077).
Accordingly, in preparation for the FY
2012 IPPS/LTCH PPS proposed rule, 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. The cost center
for ‘‘Implantable Devices Charged to
Patients’’ is effective for cost reporting
periods beginning on or after May 1,
2009. While developing the FY 2012
IPPS/LTCH PPS proposed rule, we
checked the availability of FY 2009 cost
reports in the December 31, 2010
quarter ending update of HCRIS, which
was the latest upload of FY 2009 cost
report data that we could use for the
proposed rule. We determined that there
were only 437 hospitals (out of
approximately 3,500 IPPS hospitals)
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that completed the ‘‘Implantable
Devices Charged to Patients’’ cost
center. We did not believe that this 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 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, and the ‘‘MRI, CT Scans, and
Cardiac Catheterization’’ cost centers,
for the FY 2013 IPPS rulemaking cycle
and, if appropriate, we would propose
to create a distinct CCR at that time.
Comment: Commenters requested that
CMS reconsider its position to not use
the data from the implantable device
cost center to calculate the MS–DRG
relative weights for FY 2012. The
commenter noted that during the
development of the proposed rule, CMS
found that only 437 hospitals out of
approximately 3,500 IPPS hospitals
reported data in the ‘‘Implantable
Devices Charged to Patients’’ cost center
of the Medicare hospital cost report
based on the December 2010 update of
FY 2009 HCRIS. One commenter found,
while reviewing the March 2011 update
of FY 2009 HCRIS, that there are
approximately 800 hospitals that are
reporting cost information in the
implantable medical device cost center.
Another commenter stated that, based
on the December 2010 update of FY
2009 HCRIS, 804 hospitals reported data
on either line 55 (Medical Supplies
Charged to Patients) or line 55.30
(Implantable Devices Charged to
Patients), and in the March 2011 update
of FY 2009 HCRIS, approximately 1,600
hospitals were reporting data on either
of those lines. As such, the commenters
believed there is now a sufficient
amount of data to use the implantable
device CCR to calculate the relative
weights and improve accuracy of the
payment rates. Commenters also noted
that if we do not use the implantable
device cost center to calculate the FY
2012 relative weights, there will be
enough data to develop an implantable
device CCR for FY 2013.
One commenter suggested that CMS
adopt regression-based CCRs to
calculate the FY 2012 MS–DRG relative
weights because CMS does not yet have
sufficient cost report data to develop the
implantable device CCR. This would
allow CMS to address charge
compression immediately and improve
payment accuracy for medical devices
and implantables.
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Response: In the FY 2012 IPPS/LTCH
PPS proposed rule, we indicated that we
did not have sufficient cost report data
to develop the kind of robust analysis
that we assured the public we would
provide prior to implementing a new
CCR for implantable medical devices.
Therefore, we stated that we will
reassess the availability of data for FY
2013. We have reviewed the availability
of FY 2009 cost reports in the March 31,
2011 quarter ending update of HCRIS,
which is the latest upload of FY 2009
cost report data that we currently have
available. We have determined that, for
cost reporting periods beginning on or
after May 1, 2009, the effective date of
line 55.30 (Implantable Devices Charged
to Patients), there are 961 hospitals (out
of approximately 3,500 IPPS hospitals)
that have completed the ‘‘Implantable
Devices Charged to Patients’’ cost
center. This represents an increase of
524 compared to the 437 entries that we
found when developing the FY 2012
proposed rule. Regardless of the number
of hospitals currently reporting data in
the ‘‘Implantable Devices Charged to
Patients’’ cost center, the data that were
available at the time we were
developing our proposed policies for FY
2012 were insufficient, and we believe
it would be inappropriate to finalize a
specific CCR for implantable devices
charged to patients for FY 2012 without
an opportunity for the public to review
and comment on our analysis. Rather,
we believe that it is appropriate to wait
until FY 2013, 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. Therefore, we are
not implementing any new CCRs for use
in the relative weights calculation for
FY 2012.
Comment: Commenters urged CMS to
increase education efforts to encourage
faster hospital adoption of the use of the
implantable medical device cost center.
Commenters noted that, at the time of
the development of the FY 2012 IPPS/
LTCH PPS proposed rule, only 437
hospitals had completed the
implantable device cost center, and this
demonstrated that CMS needs to
undertake additional outreach to
hospitals to ensure that they
appropriately complete the Medicare
hospital cost report.
Response: We agree that it is
important that hospitals understand
how to accurately report data in the
‘‘Implantable Devices Charged to
Patients’’ cost center, and we have
worked to add more clarity to the cost
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report instructions. However, we do
believe that the December 31, 2010
update of HCRIS reflected relatively few
entries for this cost center because the
corresponding cost center line was only
available for use for cost reporting
periods beginning on or after May 1,
2009. This effective date was somewhat
awkward in terms of timing and would
not have applied to a large number of
hospitals whose data would not be
evident to CMS until the March 31,
2011 update to HCRIS.
Comment: Commenters suggested that
CMS monitor the accuracy of the data
reported in the implantable device cost
center on the Medicare hospital cost
report. Commenters urged CMS to
impress the importance upon the
Medicare Administrative Contractors
(MACs) of establishing a mechanism to
audit the implantable device cost center
to ensure that the costs and charges are
appropriately reported. One commenter
suggested that CMS require MACs to
require hospitals to explain why they
had not reported in the implantable
device cost center. In addition, the
commenters suggested that CMS reissue
instructions, similar to Transmittal 321,
dated February 28, 2009, to the MACs
with recommendations that MACs
develop an audit program for line 55
(Medical Supplies Charged to Patients)
and line 55.30 (Implantable Devices
Charged to Patients). Commenters noted
that potential audit mechanisms include
identifying the presence of revenue
codes 274, 275, 276 and 624 reported on
the PS&R used to settle the cost report,
and comparing the CCR based on line
55.30 to the CCR based on line 55. In
addition, one commenter suggested that
the cost reporting software be modified
to create a level 1 error in the case
where no data is reported on line 55.30
(Implantable Devices Charged to
Patients) to compel hospitals to report
that information.
Response: We agree with the
commenters that the cost reporting
lines, whether they are for Implantable
Devices Charged to Patients, MRI, CT
scans, cardiac catheterization, or any
others, should be subject to greater audit
scrutiny from the Medicare contractors.
The new Medicare cost report form
CMS–2552–10, on line 121 of
Worksheet S–2, Part I, asks ‘‘Did this
facility incur and report costs for
implantable devices charged to a
patient? Enter in column 1 ‘‘Y’’ for yes
or ‘‘N’’ for no.’’ All hospital types,
including non-IPPS hospitals, CAHs,
and Maryland inpatient short-term acute
hospitals, are required to properly
report their costs and charges, and if the
answer to this question is Y for any type
of hospital, then line 72, column 26, of
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Worksheet B, Part I must be greater than
0, with an accurate amount that reflects
the hospital’s costs for implantable
devices charged to patients. In addition,
we note that a Level 1 edit on the CMS–
2552–10 form already exists that
ensures that line 72, column 26, of
Worksheet B, Part I (Implantable
Devices Charged to Patients on
Worksheet A of the CMS–2552–10 form)
is greater than 0 if Worksheet S–2, Part
I, line 121 is ‘‘Y’’. The edit is also set
up for the reverse scenario; that is, if
there is an amount on Worksheet B, Part
I, line 72, column 26, then the response
on Worksheet S–2, Part I, line 121 must
be ‘‘Y.’’
Comment: Some commenters
supported not making major
refinements to the calculation of MS–
DRG relative weights. Commenters
valued the consistency, transparency,
and predictability of the calculation of
the MS–DRG relative weights.
Response: We appreciate the
commenters’ support for our proposal of
not making major refinements to the
MS–DRG relative weights in the absence
of sufficient data from which to create
new CCRs. We also value consistency,
transparency, and predictability in the
calculation of the MS–DRG relative
weights.
Comment: One commenter supported
our decision to create standard cost
centers for CT, MRI, and cardiac
catheterization for hospitals to report
their costs and charges on the Medicare
hospital cost report. In addition, the
commenter supported urgently adopting
the use of the CT, MRI, and cardiac
catheterization cost centers in
calculating the MS–DRG relative
weights.
Response: We appreciate the
commenter’s support. As we stated in
the proposed rule, we will reassess the
availability of data for the ‘‘Implantable
Devices Charged to Patients’’ cost
center, and the ‘‘MRI, CT Scans, and
Cardiac Catheterization’’ cost centers,
for the FY 2013 IPPS rulemaking cycle,
and, if appropriate, we will propose to
create distinct CCRs for these cost
centers at that time.
Comment: One commenter noted that
allogeneic stem cell acquisition charges
are reported using revenue code 0819
for ‘‘Other Organ Acquisition.’’
However, the commenter added, this
revenue code is not part of the 15
national cost center CCRs used in the
calculation of the MS–DRG relative
weights. In addition, the commenter
stated, the Medicare hospital cost report
does not specifically identify a cost
center for bone marrow acquisition
costs. The commenter requested
direction on capturing these acquisition
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costs and how those costs and charges
are accounted for in the MS–DRG
relative weight calculation.
Response: We appreciate this
comment, but note that it is not within
the scope of the issues discussed in the
FY 2012 IPPS/LTCH PPS proposed rule
regarding the calculation of the MS–
DRG relative weights. However, we also
note that allogeneic bone marrow
transplant charges are included in the
15 CCRs, specifically as part of the
Blood and Blood Products CCR and that
CCR’s associated cost centers on the cost
report.
Comment: One commenter stated that
CMS should specifically exclude sleeve
gastrectomy charges derived from the
Medicare claims data and sleeve
gastrectomy costs from the Medicare
hospital cost report data from the MS–
DRG weight recalibrations. The
commenter noted that CMS excludes
Medicare claims for services that are
non-covered for Medicare beneficiaries
from the MS–DRG relative weight
calculation and, therefore, sleeve
gastrectomy charges should be
excluded. In addition, the commenter
recommended that CMS remind
providers that Medicare cost reports
should exclude charges and costs
associated with the sleeve gastrectomy
procedure, as it is a noncovered service.
Response: We appreciate this
comment, but note that it is not within
the scope of the issues discussed in the
FY 2012 IPPS/LTCH PPS proposed rule
regarding the calculation of the MS–
DRG relative weights. We will take this
issue into consideration for future
rulemaking.
Comment: One commenter suggested
that CMS evaluate the MedPAR claims
database to ensure that it is not using
Medicare managed care claims data to
calculate the MS–DRG relative weights,
as CMS has proposed to only use feefor-service claims to calculate the MS–
DRG relative weights.
Response: We appreciate this
comment, but note that it is not within
the scope of the issues discussed in the
FY 2012 IPPS/LTCH PPS proposed rule
regarding the calculation of the MS–
DRG relative weights. However, we note
that it is already our policy to exclude
managed care claims from the MS–DRG
relative weights calculation.
After consideration of the public
comments received, we are not
implementing any new CCRs for use in
the relative weights calculation for FY
2012.
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F. Preventable Hospital-Acquired
Conditions (HACs), Including Infections
1. Background
a. Statutory Authority
Section 1886(d)(4)(D) of the Act
addresses certain hospital-acquired
conditions (HACs), including infections.
Section 1886(d)(4)(D) of the Act
specifies that, by October 1, 2007, the
Secretary was required to select, in
consultation with the Centers for
Disease Control and Prevention (CDC),
at least two conditions that: (a) are high
cost, high volume, or both; (b) are
assigned to a higher paying MS–DRG
when present as a secondary diagnosis
(that is, conditions under the MS–DRG
system that are CCs or MCCs); and (c)
could reasonably have been prevented
through the application of evidencebased guidelines. Section 1886(d)(4)(D)
of the Act also specifies that the list of
conditions may be revised, again in
consultation with CDC, from time to
time as long as the list contains at least
two conditions.
Section 1886(d)(4)(D)(iii) of the Act
requires that hospitals, effective with
discharges occurring on or after October
1, 2007, submit information on
Medicare claims specifying whether
diagnoses were present on admission
(POA). Section 1886(d)(4)(D)(i) of the
Act specifies that, effective for
discharges occurring on or after October
1, 2008, Medicare no longer assigns an
inpatient hospital discharge to a higher
paying MS–DRG if a selected condition
is not POA. Thus, if a selected condition
that was not POA manifests during the
hospital stay, it is considered a HAC
and the case is paid as though the
secondary diagnosis was not present.
However, even if a HAC manifests
during the hospital stay, if any
nonselected CC/MCC appears on the
claim, the claim will be paid at the
higher MS–DRG rate. Under the HAC
payment policy, all CCs/MCCs on the
claim must be HACs in order to generate
a lower MS–DRG payment. In addition,
Medicare continues to assign a
discharge to a higher paying MS–DRG if
a selected condition is POA.
The POA indicator reporting
requirement and the HAC payment
provision apply to IPPS hospitals only.
Non-IPPS hospitals, including CAHs,
LTCHs, IRFs, IPFs, cancer hospitals,
children’s hospitals, hospitals in
Maryland operating under waivers, rural
health clinics, federally qualified health
centers, RNHCIs, and Department of
Veterans Affairs/Department of Defense
hospitals, are exempt from POA
reporting and the HAC payment
provision. Throughout this section, the
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term ‘‘hospital’’ refers to an IPPS
hospital.
The HAC provision found in section
1886(d)(4)(D) of the Act is part of an
array of Medicare tools that we are using
to promote increased quality and
efficiency of care. Those tools include
measuring performance, using payment
incentives, publicly reporting
performance results, applying national
and local coverage policy decisions,
enforcing conditions of participation,
and providing direct support for
providers through Quality Improvement
Organization (QIO) activities. The
application of these tools, such as this
HAC provision, is transforming
Medicare from a passive payer to an
active purchaser of higher value health
care services. We are applying these
strategies for inpatient hospital care and
across the continuum of care for
Medicare beneficiaries.
This effort is highly compatible with
the underlying purposes as well as
existing structural features of Medicare’s
IPPS. Under the IPPS, hospitals are
encouraged to treat patients efficiently
because they receive the same DRG
payment for stays that vary in length
and in the services provided, which
gives hospitals an incentive to avoid
unnecessary costs in the delivery of
care. In some cases, conditions acquired
in the hospital do not generate higher
payments than the hospital would
otherwise receive for cases without
these conditions. To this extent, the
IPPS encourages hospitals to avoid
complications.
However, the treatment of certain
conditions can generate higher Medicare
payments in two ways. First, if a
hospital incurs exceptionally high costs
treating a patient, the hospital stay may
generate an outlier payment. Because
the outlier payment methodology
requires that hospitals experience large
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losses on outlier cases before outlier
payments are made, hospitals have an
incentive to prevent outliers. Second,
under the MS–DRG system that took
effect in FY 2008 and that has been
refined through rulemaking in
subsequent years, certain conditions can
generate higher payments even if the
outlier payment requirements are not
met. Under the MS–DRG system, there
are currently 259 sets of MS–DRGs that
are split into 2 or 3 subgroups based on
the presence or absence of a CC or an
MCC. The presence of a CC or an MCC
generally results in a higher payment.
However, since we implemented the
HAC provisions, if a secondary
diagnosis acquired during a hospital
stay is a HAC and no other CCs or MCCs
are present, the hospital receives a
payment under the MS–DRGs as if the
HACs were not present. (We refer
readers to section II.D. of the FY 2008
IPPS final rule with comment period for
a discussion of DRG reforms (72 FR
47141).)
b. 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, we direct
readers to the following publications:
The FY 2007 IPPS proposed rule (71 FR
24100) and final rule (71 FR 48051
through 48053); the FY 2008 IPPS
proposed rule (72 FR 24716 through
24726) and final rule with comment
period (72 FR 47200 through 47218); the
FY 2009 IPPS proposed rule (73 FR
23547) and final rule (73 FR 48471); the
FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule (74 FR 24106) and final
rule (74 FR 43782); and the FY 2011
IPPS/LTCH PPS proposed rule (75 FR
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23880) and final rule (75 FR 50080). A
complete list of the 10 current categories
of HACs is included in section II.F.2. of
this preamble.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50080 through 50101), we
did not add any categories of additional
HACs or make any changes to policies
already established under the authority
of section 1886(d)(4)(D) of the Act.
c. Collaborative Process
In establishing the HAC payment
policy under section 1886(d)(4)(D) of
the Act, our experts have worked
closely with public health and
infectious disease professionals from
across the Department of Health and
Human Services, including CDC, the
Agency for Healthcare Research and
Quality (AHRQ), and the Office of
Public Health and Science (OPHS), to
identify the candidate preventable
HACs, review comments, and select
HACs. CMS and CDC also have
collaborated on the process for hospitals
to submit a POA indicator for each
diagnosis listed on IPPS hospital
Medicare claims and on the payment
implications of the various POA
reporting options. In addition, as
discussed below, we have used
rulemaking and Listening Sessions to
obtain public input.
d. Application of HAC Payment Policy
to MS–DRG Classifications
As described above, in certain cases,
application of the HAC payment policy
provisions can result in MS–DRG
reassignment to a lower paying MS–
DRG. The following diagram portrays
the logic of the HAC payment policy
provision as adopted in the FY 2008
IPPS final rule with comment period (72
FR 47200) and in the FY 2009 IPPS final
rule (73 FR 48471):
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e. Public Input Regarding Selected and
Potential Candidate HACs
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50080 through 50101), we
did not add or remove categories of
HACs, nor did we make any changes to
previously established policies.
However, we continue to encourage
public dialogue about refinement of the
HAC list.
Given the timeliness of the HAC
discussion, particularly when
considered within the context of recent
legislative health care reform initiatives,
we remain eager to engage in an ongoing
public dialogue about the various
aspects of this policy. We plan to
continue to include updates and
findings from the Research Triangle
Institute, International (RTI) evaluation
on CMS’ Hospital-Acquired Conditions
and Present on Admission Indicator
Web site available at: http://www.cms.
hhs.gov/HospitalAcqCond/.
f. POA Indicator Reporting
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Collection of POA indicator data is
necessary to identify which conditions
were acquired during hospitalization for
the HAC payment provision as well as
for broader public health uses of
Medicare data. In the FY 2011 IPPS/
LTCH PPS proposed rule (75 FR 23381)
(and as noted in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50081)), we
listed the instructions and change
requests that were issued to IPPS
hospitals and also to non-IPPS hospitals
regarding the submission of POA
indicator data for all diagnosis codes on
Medicare claims and the processing of
non-PPS claims We also indicated that
specific instructions on how to select
the correct POA indicator for each
diagnosis code were included in the
ICD–9–CM Official Guidelines for
Coding and Reporting, available on the
CDC Web site at: http://www.cdc.gov/
nchs/data/icd9/icdguide10.pdf. We
reiterate that additional information
regarding POA indicator reporting and
application of the POA reporting
options is available on the CMS Web
site at: http://www.cms.gov/HospitalAcq
Cond/.
In preparation for the transition to the
ICD–10–CM/PCS code set effective
October 1, 2013, further information
regarding the use of the POA indictor
with the ICD–10–CM/PCS classification
as it pertains to the HAC policy will be
discussed in future rulemaking. In the
meantime, we encourage readers to
review the educational materials and
draft code sets currently available for
ICD–10–CM/PCS at the CMS Web site
at: http://www.cms.gov/ICD10/. In
addition, the draft ICD–10–CM/PCS
coding guidelines can be viewed at the
CDC Web site at: http://www.cdc.gov/
nchs/data/icd9/10cmguidelines2011.
Historically, we have not provided
coding advice. Rather, we collaborate
with the American Hospital Association
(AHA) through the Coding Clinic for
ICD–9–CM. We will continue to
collaborate with the AHA to promote
the Coding Clinic for ICD–9–CM as the
source for coding advice about the POA
indicator.
As discussed in previous IPPS
proposed and final rules, there are five
POA indicator reporting options, as
defined by the ICD–9–CM Official
Guidelines for Coding and Reporting:
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 .........................
In the FY 2009 IPPS final rule (73 FR
48486 through 48487), we adopted final
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payment policies to: (1) pay the CC/
MCC MS–DRGs for those HACs coded
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with ‘‘Y’’ and ‘‘W’’ indicators; and (2)
not pay the CC/MCC MS–DRGs for those
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HACs coded with ‘‘N’’ and ‘‘U’’
indicators.
Beginning on or after January 1, 2011,
hospitals are required to begin reporting
POA indicators using the 5010
electronic transmittal standards format.
The 5010 format removes the need to
report a POA indicator of ‘‘1’’ for codes
that are exempt from POA reporting.
However, for claims that continue to be
submitted using the 4010 electronic
transmittal standards format, the POA
indicator of ‘‘1’’ is still necessary
because of reporting restrictions from
the use of the 4010 electronic
transmittal standards format.
Hospitals that began reporting with
the 5010 format on and after January 1,
2011, can no longer report a POA
indicator of ‘‘1’’ for POA exempt codes.
The POA field should instead be left
blank for codes exempt from POA
reporting. We have issued CMS
instructions on this reporting change as
a One-Time Notification, Pub. No. 100–
20, Transmittal No. 756, Change Request
7024, effective on August 13, 2010.
These instructions, entitled ‘‘5010
Implementation-Changes to Present on
Admission (POA) Indicator ‘1’ and the
K3 Segment,’’ can be located at the
following link on the CMS Web site:
http://www.cms.gov/manuals/
downloads/Pub100_20.pdf.
We are continuing our efforts to
clarify instructions regarding use of the
POA indicator. As discussed in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50088), we received public comments in
response to the FY 2011 IPPS/LTCH
PPS proposed rule that expressed
concern about the accuracy of reporting
of POA indicators for HACs related to
intracranial injury with loss of
consciousness. The codes for loss of
consciousness are listed in the Falls and
Trauma HAC category, within the
‘‘Intracranial Injury’’ subcategory.
Because loss of consciousness is a
component of intracranial injuries
rather than a separate condition, we
agreed that the POA guidelines that
instructed coders to assign an ‘‘N’’
indicator if any part of the combination
code was not present on admission did
not apply to the loss of consciousness
codes. As a member of the Editorial
Advisory Board for the Coding Clinic for
ICD–9–CM, we worked with the
American Hospital Association (AHA),
American Health Information
Management Association (AHIMA), and
CDC to provide additional clarification
on how these conditions should be
reported. Additional guidance on how
these cases should be reported can be
found in AHA’s Coding Clinic for ICD–
9–CM, 2nd Quarter 2010, ‘‘Frequently
Asked POA Questions’’ section. That
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publication clarified the POA reporting
for patients in whom a single code
captures the fact that the patient was
admitted as a result of a head injury and
then subsequently lost consciousness
after the admission. For these cases, we
clarified that the POA indicator
assigned should be ‘‘Y,’’ indicating that
the head injury and resulting loss of
consciousness occurred prior to (and
was present on) admission.
We expect that this clarification will
lead to greater consistency and accuracy
in POA indicator reporting for these
conditions. We look forward to
continuing our efforts as part of the
AHA’s Editorial Advisory Board for
Coding Clinic for ICD–9–CM to provide
guidance on accuracy of coding and the
reporting of POA indicators. Hospitals
look to this publication to provide
detailed guidance on ICD–9–CM coding
and POA reporting. We encourage
hospitals to send any other questions
about ICD–9–CM codes or POA
indicator selection to the AHA so that
the Editorial Advisory Board can
continue its role of providing
instruction on the accurate selection
and reporting of both ICD–9–CM codes
and POA indicators.
2. Additions and Revisions to the HAC
Policy for FY 2012
a. Contrast-Induced Acute Kidney Injury
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25813 and 25814),
we discussed our analysis for a
proposed new condition as a possible
candidate for selection for FY 2012
under section 1886(d)(4)(D) of the Act.
As described in more detail in section
II.F.1.a. of this preamble, each HAC
must be: (1) High cost, high volume, or
both; (2) assigned to a higher paying
MS–DRG when present as a secondary
diagnosis (that is, conditions under the
MS–DRG system that are CCs or MCCs);
and (3) could reasonably have been
prevented through the application of
evidence-based guidelines. We also
discussed other considerations relating
to the selection of a HAC, including any
administrative or operational issues
associated with a proposed condition.
For example, the condition may only be
able to be identified by multiple codes,
thereby requiring the development of
special GROUPER logic to also exclude
similar or related ICD–9–CM codes from
being classified as a CC or an MCC.
Similarly, a condition acquired during a
hospital stay may arise from another
condition that the patient had prior to
admission, making it difficult to
determine whether the condition was
reasonably preventable. We invited
public comment on clinical, coding, and
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prevention issues on our proposal to
add contrast-induced acute kidney
injury as a condition subject to the HAC
payment provision for FY 2012 (for
discharges occurring on or after October
1, 2011).
Contrast-induced acute kidney injury
is a significant complication of the use
of iodinated contrast media and
accounts for a large number of cases of
hospital-acquired acute kidney injury
cases. A published study has shown that
renal failure associated with contrast
administration is correlated with up to
11 percent of cases of renal failure that
occur in hospitals (Nash, K., Hafeez, A.,
et al: ‘‘Hospital-Acquired Renal
Insufficiency,’’ American Journal on
Kidney Disease, 2002, Vol. 39, No. 5, pp.
930–936). Patients who experience
acute kidney injury have an increased
risk of inhospital mortality even after
adjustments for disease comorbidities
(McCullough, J.: ‘‘Contrast-Induced
Acute Kidney Injury,’’ Journal of the
American College of Cardiology, 2008,
Vol. 51, No. 15, pp. 1419–1428). Data
suggest that the risk for mortality
extends beyond the period of
hospitalization, resulting in 1-year and
5-year mortality rates significantly
higher than those patients who have not
developed acute kidney injury. In
addition, contrast-induced acute kidney
injury is associated with an increased
incidence of myocardial infarction,
bleeding requiring transfusion, and
prolonged hospital stays (McCullough,
J.: American Journal of Medicine, 1997,
Vol. 103, pp. 368–375). We note that
‘‘acute kidney injury’’ is a new
terminology endorsed by the National
Kidney Foundation to replace ‘‘acute
renal failure.’’
There is not a unique code that
identifies kidney injury. However,
kidney injury can be identified as a
subset of discharges with ICD–9–CM
diagnosis code 584.9 (Acute kidney
failure, unspecified). As we discussed in
the FY 2012 IPPS/LTCH PPS proposed
rule, our clinical advisors believe that
diagnosis code 584.9, in combination
with the associated procedure codes
listed below, can accurately identify
contrast-induced acute kidney injury:
• 88.40 (Arteriography using contrast
material, unspecified site)
• 88.41 (Arteriography of cerebral
arteries)
• 88.42 (Aortography)
• 88.43 (Arteriography of pulmonary
arteries)
• 88.44 (Arteriography of other
intrathoracic vessels)
• 88.45 (Arteriography of renal arteries)
• 88.46 (Arteriography of placenta)
• 88.47 (Arteriography of other intraabdominal arteries)
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• 88.48 (Arteriography of femoral and
other lower extremity arteries)
• 88.49 (Arteriography of other
specified sites)
• 88.50 (Angiocardiography, not
otherwise specified)
• 88.51 (Angiocardiography of venae
cavae)
• 88.52 (Angiocardiography of right
heart structures)
• 88.53 (Angiocardiography of left heart
structures)
• 88.54 (Combined right and left heart
angiocardiography)
• 88.55 (Coronary arteriography using a
single catheter)
• 88.56 (Coronary arteriography using
two catheters)
• 88.57 (Other and unspecified
coronary arteriography)
• 88.58 (Negative-contrast cardiac
roentgenography)
• 88.59 (Intra-operative coronary
fluorescence vascular angiography)
• 88.60 (Phlebography using contrast
material, unspecified site)
• 88.61 (Phlebography of veins of head
and neck using contrast material)
• 88.62 (Phlebography of pulmonary
veins using contrast materal)
• 88.63 (Phlebography of other
intrathoracic veins using contrast
material)
• 88.64 (Phlebography of the portal
venous system using contrast
material)
• 88.65 (Phlebography of other intraabdominal veins using contrast
material)
• 88.66 (Phlebography of femoral and
other lower extremity veins using
contrast material)
• 88.67 (Phlebography of other
specified sites using contrast material)
• 87.71 (C.A.T. of kidney)
• 87.72 (Other nephrotomogram)
• 87.73 (Intravenous pyelogram)
• 87.74 (Retrograde pyelogram)
• 87.75 (Percutaneous pyelogram)
We proposed to identify contrastinduced acute kidney injury with
diagnosis code 584.9 in combination
with one or more of the above
associated procedure codes.
We also considered identifying
contrast-induced acute kidney injury
through the use of external injury codes,
or E-codes. Code E947.8 (Other drugs
and medicinal substances) has an
inclusion term ‘‘Contrast media used for
diagnostic x-ray procedures’’ to identify
the use of contrast. However, as we
noted in the proposed rule, we do not
currently require the reporting of Ecodes for the HAC payment provisions
under the IPPS. Therefore, we were
unable to rely on the identification of
contrast-induced acute kidney injury
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through E-codes on Medicare IPPS
HACs claims.
Section 1886(d)(4)(D) of the Act
requires that a HAC be a condition that
is ‘‘high cost, high volume, or both.’’ In
FY 2009, there were 38,324 inpatient
discharges coded with acute renal
failure as specified by ICD–9–CM
diagnosis code 584.9 reported as not
present on admission (POA status = N)
when reported with one of the above
procedure codes submitted through
Medicare claims. The cases had an
average charge of $29,122 for the entire
hospital stay. Studies suggest the
additional average cost per day for a
patient who has acquired contrastinduced acute kidney injury is $2,654.
Other data report patients stays
increases by 3.75 days once they have
acquired the diagnosis (Subramanian,
S.: ‘‘Economic Burden of ContrastInduced Nephropathy: Implications for
Prevention Strategies,’’ Journal of
Medical Economics, 2007, Vol. 10, pp.
119–134).
There are widely recognized
guidelines for the prevention of acute
kidney injury that address the
prevention of contrast-induced acute
kidney injury, and we believe the
condition is reasonably preventable.
One of these guidelines can be found at:
http://www.renal.org/Clinical/
GuidelinesSection/AcuteKidneyInjury.
aspx.
The condition of contrast-induced
acute kidney injury as specified in our
proposal is a CC under the MS–DRGs.
We indicated in the proposed rule
that we had not identified any
additional administrative or operational
difficulties with proposing this
condition as a HAC. We invited public
comment on whether contrast-induced
acute kidney injury meets the
requirements set forth under section
1886(d)(4)(D) of the Act, as well as other
coding and prevention issues associated
with our proposal to add this injury as
a condition subject to the HAC payment
provision for FY 2012 (for discharges
occurring on or after October 1, 2011).
We also indicated that we were
particularly interested in receiving
comments on the degree to which
contrast-induced acute kidney injury is
reasonably preventable through the
application of evidence-based
guidelines.
Comment: One commenter supported
CMS’ proposal to add contrast-induced
acute kidney injury as a HAC under
section 1886(d)(4)(D) of the Act. The
commenter applauded the inclusion of
contrast-induced acute kidney injury to
the HAC policy for FY 2012, and
encouraged CMS to continue to expand
and refine the HACs and categories.
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Response: We appreciate the
commenter’s support.
Comment: Many commenters
discussed their concerns regarding the
specificity and sensitivity of the ICD–9–
CM codes proposed to identify the
proposed new contrast-induced acute
kidney injury HAC. The commenters
believed that these codes would not
solely capture contrast-induced acute
kidney injury and would capture other
conditions as well. The commenters
expressed concern about the specificity
of the current ICD–9–CM code 584.9 in
reliably identifying cases of acute
kidney injury that occurred due to a
specific diagnosis instead of acute
kidney injury that is believed to occur
secondary to being correlated with
exposure to contrast. The commenter
stated that, for example, a patient
admitted to a hospital could experience
drug-induced kidney injury that has
resolved; later during that hospital stay,
the patient has a subsequent
angiographic procedure. Under our
proposed methodology, the commenter
added, this patient would be
erroneously identified as having
contrast-induced acute kidney injury.
Some commenters suggested that
CMS use E-codes, which identify
injuries, while others did not support
the use of E-codes because they are not
consistently coded for Medicare billing
purposes. Commenters further noted
that the list of ICD–9–CM procedure
codes proposed to assist in identifying
the use of contrast as the reason for the
acute kidney injury occurring are often
not reported on hospital claims. The
commenters explained that most of the
codes do not represent procedures
affecting payment, are not required, and,
therefore, are not reported.
Other commenters recommended
waiting to finalize this proposed
candidate condition until the ICD–10
code set is implemented. The
commenters suggested that a unique
code to identify and describe contrastinduced acute kidney injury could be
proposed in ICD–10, and this would
eliminate the coding limitations that
currently exist for this condition in
ICD–9–CM.
Response: We acknowledge the
commenters’ concerns regarding the
current ICD–9–CM coding issues
surrounding contrast-induced acute
kidney injury, and that our proposal
could inadvertently include claims for
beneficiaries who experience acute
kidney injury that may not be contrastinduced. We note that, as discussed in
the FY 2008 IPPS final rule with
comment period (72 FR 47216), under
42 CFR 412.60(d), a hospital has 60 days
after the date of the notice of the initial
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assignment of a discharge to a DRG to
request a review of that assignment. The
hospital may submit additional
information as a part of its request. A
hospital that believes a discharge was
assigned to the incorrect DRG as a result
of application of the payment
adjustment for HACs may request
review of the DRG assignment by its
fiscal intermediary or MAC. However,
we also recognize that it is important to
be as precise as possible in specifying
which codes to use to identify a HAC,
and that a lack of precision could
increase hospitals’ administrative
burden in pursuing these appeals.
In addition, we recognize that E-codes
do capture injuries and could offer more
precision in identifying contrastinduced acute kidney injury than our
proposal. We also agree with the
commenters who pointed out that Ecodes are currently not required for
Medicare billing purposes and,
therefore, are inconsistently reported on
claims. We note further that because
these codes are not required for
Medicare IPPS payment purposes, MS–
DRG assignments do not currently take
E-codes into account.
We also appreciate the comments that
pointed out that the procedure codes
identified in our proposal are often not
reported. We note that commenters
asserted that these codes were not
reported because they did not affect
payment. We are concerned that the
potential for reduced payment would
create a further disincentive to include
these procedure codes on Medicare
claims. As we stated earlier, we
recognize that it is important to be as
precise as possible in the interest of
payment accuracy in specifying which
codes to use to identify a HAC.
We also agree that ICD–10 will offer
a greater degree of specificity. Currently,
no code exists within ICD–10 that
would exclusively capture contrastinduced acute kidney injury. We note
that, as discussed in the FY 2012 IPPS/
LTCH proposed rule (76 FR 25843), and
in section II.G.13.b. of this final rule, a
partial code freeze was discussed at
multiple meetings of the ICD–9–CM
Coordination and Maintenance
Committee, and public comment was
actively solicited. At the September 15–
16, 2010 meeting, an announcement was
made that the ICD–9–CM Coordination
and Maintenance Committee will
implement a partial freeze of the ICD–
9–CM and ICD–10 (ICD–10–CM and
ICD–10–PCS) codes prior to the
implementation of ICD–10 on October 1,
2013. There was considerable support
for this partial freeze. The partial freeze
will be implemented as follows:
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16:07 Aug 17, 2011
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• The last regular, annual updates to
both ICD–9–CM and ICD–10 code sets
will be made on October 1, 2011.
• On October 1, 2012, there will be
only limited code updates to both the
ICD–9–CM and ICD–10 code sets to
capture new technologies and diseases
as required by section 503(a) of Public
Law 108–173.
• On October 1, 2013, there will be
only limited code updates to ICD–10
code sets to capture new technologies
and diagnoses as required by section
503(a) of Public Law 108–173. There
will be no updates to ICD–9–CM, as it
will no longer be used for reporting.
• On October 1, 2014, regular updates
to ICD–10 will begin.
The ICD–9–CM Coordination and
Maintenance Committee will continue
to meet twice a year during the partial
freeze. At these meetings, the public
will be asked to comment on whether or
not requests for new diagnosis or
procedure codes should be created
based on the criteria of the need to
capture a new technology or disease.
Any code requests that do not meet the
criteria will be evaluated for
implementation within ICD–10 on and
after October 1, 2014, once the partial
freeze has ended.
In summary, we agree with the
commenters’ recommendations
regarding coding and are deferring
decision making regarding the inclusion
of contrast-induced acute kidney injury
as a HAC until such a time when
improved coding is available.
Comment: Several commenters
submitted comments pertaining to the
sufficiency or strength of the evidencebased guidelines in terms of providing
information or direction that would lead
to the prevention of contrast-induced
acute kidney injury 100 percent of the
time. The commenters stated that
evidence-based guidelines are based on
varying levels of evidence, from expert
consensus based on opinion (the
‘‘weakest’’ level) to expert consensus
based on data produced in randomized
controlled trials (the ‘‘strongest’’ level).
According to the commenters, in many
cases, the guidelines do not address all
patient populations. Commenters also
stated that current evidence-based
guidelines for decreasing the incidence
of contrast-induced acute kidney injury
are limited. The commenters also noted
that new guidelines addressing the topic
of contrast-induced acute kidney injury
are being published in late summer of
2011 by an international organization,
Kidney Disease Improving Global
Outcomes (KDIGO), after a multiyear
development process. They noted that
CMS should take these guidelines into
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51509
consideration when they become
available.
Response: We acknowledge that
different types of evidence-based
guidelines exist. However, we believe
that the inclusion of contrast-induced
acute kidney injury in the current
evidence-based guidelines for Acute
Kidney Injury supports the inclusion of
contrast-induced acute kidney injury as
a condition on the HAC list. We agree
that any new evidence-based guidelines
for contrast-induced acute kidney injury
should be considered when they
become available.
Comment: A few commenters
expressed concern about the proposal
potentially creating an incentive for
practitioners to avoid necessary contrast
use in patients with high risk of acute
kidney disease.
Response: We acknowledge and are
sensitive to the theoretical possibility of
patient access to care being restricted.
We are unaware of significant data
supporting this assertion, but we will
continue to monitor the situation for
potential unintended consequences
with regard to this concern.
Comment: Some commenters
recommended that CMS not reduce
payment for this condition, but to
instead develop a quality measure that
would track it. The commenters noted
that such a measure could track whether
the appropriate evidence-based steps to
prevent contrast-induced acute kidney
injury have been performed and
documented.
Response: We appreciate the
commenters’ recommendation. We note
that we did not propose to develop a
quality measure for contrast-induced
acute kidney injury in the proposed
rule. Thus, we consider this comment to
be outside of the scope of the provisions
discussed in the proposed rule.
However, this subject area represents an
area of continued interest and
opportunity for the agency, and we will
take this recommendation into
consideration during the development
of future rulemaking.
In conclusion, after consideration of
the public comments we received, we
are deferring the decision making on the
addition of contrast-induced acute
kidney injury as a HAC until future
rulemaking, and such a time when
improved coding is available for the
reasons described above. We note that
the reduction of contrast-induced acute
kidney injury represents an area of
continued interest for the agency, and
we believe that substantial opportunity
exists for hospitals to improve quality in
this area.
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b. Additional New Diagnosis Codes for
Existing HACs
As we discussed in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25814),
as changes to diagnosis codes and new
diagnosis codes are proposed and
finalized for the list of CCs and MCCs,
we modify the list of selected HACs to
reflect these changes. We included in
Table 6A of the proposed rule (which
was made available via the Internet) the
five new ICD–9–CM diagnosis codes
that we proposed to add to three of the
current HAC categories. We proposed to
add two new codes for the Falls and
Trauma HAC category, two new codes
for the Surgical Site Infection (SSI)
Following Certain Bariatric Procedures
HAC category, and one new code for the
Deep Vein Thrombosis and Pulmonary
Embolism (DVT/PE) Following Certain
Orthopedic Procedures HAC category.
The two new diagnosis codes that we
proposed to add to the Falls and Trauma
HAC category were code 808.44
(Multiple closed pelvic fractures
without disruption of pelvic circle) and
code 808.54 (Multiple open pelvic
fractures without disruption of pelvic
circle). These codes fall within the range
of the fracture code subcategory (800
through 829). The two new diagnosis
codes that we proposed to add to the
Surgical Site Infection (SSI) Following
Certain Bariatric Procedures HAC
category were code 539.01 (Infection
due to gastric band procedure) and code
539.81 (Infection due to other bariatric
procedure). We stated our belief that
these diagnosis codes are appropriate
for inclusion in the existing category
ICD–9–CM code
mstockstill on DSK4VPTVN1PROD with RULES2
539.01
539.81
415.13
808.44
808.54
Infection due to gastric band procedure .......................................................................
Infection due to other bariatric procedure .....................................................................
Saddle embolus of pulmonary artery ............................................................................
Multiple closed pelvic fractures without disruption of pelvic circle ...............................
Multiple open pelvic fractures without disruption of pelvic circle ..................................
We invited public comments on the
proposed adoption of these five new
ICD–9–CM diagnosis codes as CC/MCCs
that are listed above, which, if finalized,
would be added to the current Falls and
Trauma HAC category, Surgical Site
Infection (SSI) Following Certain
Bariatric Procedures HAC category and
Deep Vein Thrombosis and Pulmonary
Embolism (DVT/PE) Following Certain
Orthopedic Procedures HAC category
and would be subject to the HAC
payment provision for FY 2012.
Comment: Several commenters
supported CMS’ proposal to adopt the
five new ICD–9–CM diagnosis codes
with their proposed CC/MCC
designations for addition to the current
Falls and Trauma HAC category,
Surgical Site Infection (SSI) Following
Certain Bariatric Procedures HAC
category, and Deep Vein Thrombosis
and Pulmonary Embolism (DVT/PE)
Following Certain Orthopedic
Procedures HAC category and to subject
them to the HAC payment provision for
FY 2012.
Response: We appreciate the
commenters’ support.
Comment: One commenter expressed
concern regarding the appropriateness
of adding ICD–9–CM diagnosis code
415.13 as a condition that, when
reported along with the designated
procedure codes describing certain
orthopedic procedures (00.85 through
16:07 Aug 17, 2011
Proposed
CC/MCC
designation
Code descriptor
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
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when reported as a secondary diagnosis
with the specified principal diagnosis
code of morbid obesity (code 278.01)
and one of the designated bariatric
procedure codes (code 44.38, 44.39, or
44.95). Lastly, the one new diagnosis
code that we proposed to add to the
Deep Vein Thrombosis and Pulmonary
Embolism (DVT/PE) Following Certain
Orthopedic Procedures HAC category
was code 415.13 (Saddle embolus of
pulmonary artery). Diagnosis code
415.13 would be applicable when
reported along with one of the following
procedures codes describing certain
orthopedic procedures: 00.85 through
00.87, 81.51, 81.52, or 81.54. Shown in
the table below are these five new
diagnosis codes with their
corresponding descriptions and their
proposed CC/MCC designations.
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00.87, 81.51, 81.52, or 81.54) in the
Deep Vein Thrombosis and Pulmonary
Embolism (DVT/PE) Following Certain
Orthopedic Procedures HAC category,
be subject to the HAC payment
provision. The commenter stated that
HAC selection should be based on
conditions considered to be reasonably
preventable with adherence to evidencebased practice guidelines. The
commenter further believed that a
saddle embolus of the pulmonary artery,
when reported with the cited orthopedic
procedure codes, is not a condition that
is ‘‘reasonably preventable’’ and that
patients undergoing total knee
replacement and total hip replacement
in the Medicare population are at the
highest risk for developing a DVT/PE.
The commenter also stated that the
current structure of the MS–DRG system
does not specifically risk-adjust for
these conditions in the MS–DRGs
related to primary total hip replacement
(code 81.51) or primary total knee
replacement (code 81.54). The
commenter believed that risk
adjustment is an indispensible
component of an equitable HAC policy.
The commenter suggested that CMS
account for the patient-specific risk
factors that affect preventability and
reported that many hospitalized patients
have comorbidities and other patient
characteristics that put them at an
increased risk of complications. The
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Fmt 4701
Sfmt 4700
CC
CC
MCC
CC
MCC
commenter suggested that CMS take
these factors into account in creating a
policy that is reasonable and equitable,
in order to minimize incentives for
limiting access for patients who are at
higher risk for complications.
This same commenter also expressed
support of CMS’ efforts to encourage the
adoption of evidence-based treatment
guidelines that could improve the
quality of care for patients. However,
while the commenter noted that
evidence-based guidelines can reduce
events, the commenter asserted that
CMS selected one of the patient
populations at highest risk for DVT/PE,
diverging from the concept of
‘‘reasonably preventable.’’
Response: We appreciate the
commenter’s detailed comments on the
proposal to add diagnosis code 415.13
as a condition that, when reported along
with the designated procedure codes
described above, is subject to the HAC
payment provision. In the FY 2008 IPPS
final rule with comment period (72 FR
47200 through 47218), we discussed the
evidence based guidelines regarding
DVT/PE and agreed with commenters
that this is reasonably preventable. In
the FY 2009 IPPS final rule (73 FR
48481), we addressed commenters’
concerns regarding the preventability of
DVT/PE and noted that the statute does
not require that a condition be ‘‘always
preventable’’’ in order to qualify as an
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
HAC, but rather that it be ‘‘reasonably
preventable,’’ which necessarily implies
something less than 100 percent.
With regard to the commenter’s
assertion that risk adjustment is an
indispensible component of an
equitable HAC policy, we refer readers
to the FY 2009 IPPS final rule and the
FY 2010 IPPS/RY 2010 LTCH PPS final
rule. In the FY 2009 IPPS final rule (73
FR 48487 through 48488), we discussed
risk adjustment of payments related to
HACs. We addressed this issue again in
the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43785), where we
noted that a risk adjustment
methodology may lead to greater
precision of HAC payment
determinations. As part of the RTI
evaluation of the HAC–POA program,
the concept of risk adjustment continues
to be an important area of interest and
study for the agency. We will consider
the results of RTI’s evaluation when it
is complete and, if appropriate, make a
proposal and solicit public comment in
future rulemaking.
After consideration of the public
comments we received, we are
finalizing the adoption of the five new
ICD–9–CM diagnosis codes described
above as CC/MCCs to be added to their
respective HAC categories as proposed.
Therefore, effective October 1, 2011 (FY
2012), procedure codes 808.44 and
808.54 describing multiple pelvic
fractures will be added to the Falls and
Trauma HAC category, procedure codes
539.01 and 539.81 describing infections
related to gastric procedures will be
added to the Surgical Site Infection
(SSI) Following Certain Bariatric
Procedures HAC category, and
procedure code 415.13 describing a type
of pulmonary embolus will be added to
the Deep Vein Thrombosis and
Pulmonary Embolism (DVT/PE)
Following Certain Orthopedic
Procedures HAC category. All of these
conditions will be subject to the HAC
payment provision for FY 2012.
c. Revision to HAC Subcategory Title
After publication of the FY 2011
IPPS/LTCH PPS final rule, we received
a comment stating that the subcategory
title ‘‘Electric Shock’’ that is included in
the Falls and Trauma HAC category was
misleading. The commenter stated that
this subcategory title did not accurately
describe the CC/MCC ICD–9–CM
diagnoses codes (991 through 994)
contained within this subcategory. The
commenter requested that CMS develop
a new title that would more accurately
describe this group of codes.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25814), we stated
that we agreed with the commenter that
the HAC subcategory title ‘‘Electric
Shock’’ is potentially misleading
because the codes included within these
ranges contain a variety of injuries,
including the following:
• Category 991 (Effects of Reduced
Temperature)
• Category 992 (Effects of Heat and
Light)
• Category 993 (Effects of Air Pressure)
• Category 994 (Effects of Other
External Causes)
We proposed to change the title of
this HAC subcategory from ‘‘Electric
Shock’’ to ‘‘Other Injuries’’ because it
includes a variety of injury codes. The
subcategory will continue to include the
codes within the 991 through 994 code
ranges appearing on the CC/MCC list.
We did not propose any changes to the
list of codes in this subcategory; we
simply proposed to rename the
subcategory title. We invited public
comments on the proposed title change
to the HAC subcategory from ‘‘Electric
Shock’’ to ‘‘Other Injuries’’ for FY 2012.
Comment: Several commenters
supported CMS’ proposal to change the
title of this HAC subcategory from
‘‘Electric Shock’’ to ‘‘Other Injuries’’
because it includes a variety of injury
codes. The commenters stated that this
title change would better describe the
conditions included in the range of
codes.
Foreign Object Retained After Surgery ....................................................
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Air Embolism ............................................................................................
Blood Incompatibility .................................................................................
Pressure Ulcer Stages III & IV .................................................................
Falls and Trauma:
—Fracture ..........................................................................................
—Dislocation .....................................................................................
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Response: We appreciate the
commenters’ support.
After consideration of the public
comments we received, we are
finalizing our proposal to change the
title of the HAC subcategory from
‘‘Electric Shock’’ to ‘‘Other Injuries.’’
The subcategory will continue to
include the codes within the 991
through 994 code ranges appearing on
the CC/MCC list. In addition, we are not
making any changes to the list of codes
in this subcategory; the subcategory title
will simply be renamed effective FY
2012.
d. Conclusion
In the FY 2012 IPPS/LTCH PPS
proposed rule, we listed the current
HAC categories and the ICD–9–CM
codes that identify the conditions and
have been finalized through FY 2011.
For FY 2012, we proposed that these
conditions continue to be subject to the
HAC payment provision, along with the
creation of a new HAC category for
contrast-induced acute kidney injury.
(We note that, as discussed in section
II.F.2.a. of the preamble of the proposed
rule and this final rule, we are not
adopting our proposal to add a new
HAC category for contrast-induced acute
kidney injury for FY 2012.) In addition,
we proposed to add five new ICD–9–CM
diagnosis codes and to revise the title of
the ‘‘Electric Shock’’ subcategory in the
Falls and Trauma HAC category.
Comment: Several commenters
supported maintaining the current HAC
categories and the ICD–9–CM codes that
identify those conditions. These
commenters agreed that the conditions
should continue to be subject to the
HAC payment provision for FY 2012.
Response: We appreciate the
commenters’ support.
After consideration of the public
comments we received, we are adopting
the following list of HAC categories and
the ICD–9–CM codes that identify the
conditions that have been finalized
through FY 2011 and that we are
finalizing in this final rule for FY 2012.
CC/MCC
(ICD–9–CM Code)
HAC
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998.4 (CC)
998.7 (CC)
999.1 (MCC)
999.60 (CC)
999.61 (CC)
999.62 (CC)
999.63 (CC)
999.69 (CC)
707.23 (MCC)
707.24 (MCC)
Codes within these ranges on the CC/MCC list:
800–829
830–839
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
CC/MCC
(ICD–9–CM Code)
HAC
—Intracranial Injury ...........................................................................
—Crushing Injury ...............................................................................
—Burn ...............................................................................................
—Other Injuries .................................................................................
Catheter-Associated Urinary Tract Infection (UTI) ...................................
Vascular Catheter-Associated Infection ...................................................
Manifestations of Poor Glycemic Control .................................................
850–854
925–929
940–949
991–994
996.64 (CC)
Also excludes the following from acting as a CC/MCC:
112.2 (CC)
590.10 (CC)
590.11 (MCC)
590.2 (MCC)
590.3 (CC)
590.80 (CC)
590.81 (CC)
595.0 (CC)
597.0 (CC)
599.0 (CC)
999.31 (CC)
250.10–250.13 (MCC)
250.20–250.23 (MCC)
251.0 (CC)
249.10–249.11 (MCC)
249.20–249.21 (MCC)
Surgical Site Infections
Surgical Site Infection, Mediastinitis, Following Coronary Artery Bypass
Graft (CABG).
Surgical Site Infection Following Certain Orthopedic Procedures ...........
Surgical Site Infection Following Bariatric Surgery for Obesity ...............
Deep Vein Thrombosis and Pulmonary Embolism Following Certain Orthopedic Procedures.
We refer readers to section II.F.6. of
the FY 2008 IPPS final rule with
comment period (72 FR 47202 through
47218) and to section II.F.7. of the FY
2009 IPPS final rule (73 FR 48474
through 48486) for detailed analyses
supporting the selection of each of the
HACs selected through FY 2012.
3. RTI Program Evaluation Summary
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a. Background
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
rates. This is an intra-agency project
with funding and technical support
coming from CMS, OPHS, AHRQ, and
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16:07 Aug 17, 2011
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519.2 (MCC)
And one of the following procedure codes:
36.10–36.19
996.67 (CC)
998.59 (CC)
And one of the following procedure codes: 81.01–81.08, 81.23–81.24,
81.31–81.38, 81.83, 81.85
Principal Diagnosis—278.01
539.01 (CC)
539.81 (CC)
998.59 (CC)
And one of the following procedure codes: 44.38, 44.39, or 44.95
415.11 (MCC)
415.13 (MCC)
415.19 (MCC)
453.40–453.42 (CC)
And one of the following procedure codes: 00.85–00.87, 81.51–81.52,
or 81.54
CDC. The evaluation will also examine
the implementation of the program and
evaluate additional conditions for future
selection.
RTI’s evaluation of the HAC–POA
provisions is divided into several parts.
In the FY 2011 IPPS/LTCH PPS final
rule (50085 through 50101), we
summarized the analyses by RTI that
had been completed at that time. These
RTI analyses of POA indicator reporting,
frequencies and net savings associated
with current HACs, and frequencies of
previously considered candidate HACs
reflected MedPAR claims from October
2008 through September 2009.
b. FY 2009 Data Analysis
As we describe in section II.F.1.f. of
this preamble, we have provided
instructions to IPPS hospitals and nonIPPS hospitals regarding the submission
of POA indicator data for all diagnosis
codes on Medicare claims and the
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Fmt 4701
Sfmt 4700
processing of non-PPS claims (75 FR
23381) and note that specific
instructions on how to select the correct
POA indicator for each diagnosis code
were included in the ICD–9–CM Official
Guidelines for Coding and Reporting,
available on the CDC Web site at:
http://www.cdc.gov/nchs/data/icd9/
icdguide10.pdf. After publication of the
FY 2011 IPPS/LTCH PPS final rule, we
identified a discrepancy between the
claims data that hospitals submitted and
the CMS data file used to calculate the
HAC measures. Specifically, this error
led to incorrect HAC assignments in
cases where a hospital reported an
external cause of injury (E-code). Since
then, we have corrected this error in the
data file.
As a result, the RTI analysis of the
HAC–POA program that was conducted
using FY 2009 claims data was updated
using the corrected data file. The
corrected data do not appear to have a
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material impact on our previous
findings for FY 2009. Revised data
tables 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/ after
publication of the FY 2012 IPPS/LTCH
PPS proposed rule.
c. FY 2010 Data Analysis
RTI’s analysis of the FY 2010
MedPAR data file for the HAC–POA
program evaluation was prepared for
publication in the FY 2012 IPPS/LTCH
PPS proposed rule. We indicated in the
proposed rule that we would provide
the results from the study on the CMS
Web site at http://www.cms.gov/
HospitalAcqCond/01_Overview.asp and
on the RTI Web site at http://
www.rti.org/reports/cms/ when it
became available. We also stated that we
anticipated that the examination of FY
2010 MedPAR data would be completed
soon after publication of the proposed
rule. We invited public comment on
RTI’s analysis of the FY 2010 MedPAR
data for the HAC–POA program.
Since publication of the FY 2012
IPPS/LTCH proposed rule, we
determined that it would be beneficial
to the public if we provided a summary
of the results of RTI’s HAC–POA
program evaluation of the FY 2010
MedPAR data in this FY 2012 IPPS/
LTCH final rule, in addition to making
these results available on both the CMS
and RTI Web sites mentioned above.
Below we present a summary of these
results.
d. FY 2010 RTI Analysis on POA
Indicator Reporting of Current HACs.
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 2009 through September 2010,
RTI found a total of approximately 74.38
million secondary diagnoses across
approximately 10.2 million discharges.
As shown in Chart A below, the
majority of all secondary diagnoses
(80.94 percent) were reported with a
POA indicator of ‘‘Y,’’ meaning the
condition was POA.
CHART A—POA CODE DISTRIBUTION ACROSS ALL SECONDARY DIAGNOSES
Number
Percentage
Total Discharges in Final File
10,189,168
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 ..................................................................................................................
74,382,681
100.00
60,206,593
13,145
5,001,138
2,223,318
6,938,487
80.94
0.02
6.72
2.99
9.33
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.
Following the initial analysis of POA
indicator reporting for all secondary
diagnoses, RTI then evaluated POA
indicator reporting for specific HACassociated secondary diagnoses. The
term ‘‘HAC-associated 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
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. 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 approximately 10.2
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 189,231 HAC-associated diagnosis
codes being reported for that HAC
category. Of these 189,231 diagnoses,
5,762 reported a POA indicator of ‘‘N’’
and 326 reported a POA indicator of
‘‘U’’ for not POA. Similarly, 183,048
diagnoses reported a POA indicator of
‘‘Y’’ for POA and 95 diagnoses reported
a POA indicator of ‘‘W.’’ The lowest
frequency appears in the Surgical Site
Infection (SSI) Following Bariatric
Surgery for Obesity HAC category with
only 18 HAC-associated secondary
diagnosis codes (and procedure codes)
reported, where 17 diagnoses were
reported with a POA indicator of ‘‘N’’
and 1 diagnosis was reported with a
POA indicator of ‘‘Y.’’
CHART B—POA STATUS OF CURRENT HACS: OCTOBER 2009 THROUGH SEPTEMBER 2010
mstockstill on DSK4VPTVN1PROD with RULES2
Treated as hospital acquired conditions
Frequency as a
secondary
diagnosis
Selected HAC
1.
2.
3.
4.
Foreign Object Retained After Surgery (CC) .............
Air Embolism (MCC) ...................................................
Blood Incompatibility (CC) ..........................................
Pressure Ulcer Stages III & IV (MCC) ........................
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PO 00000
565
42
35
120,582
Frm 00039
POA = N
Not treated as Hospital acquired
conditions
POA = U
POA = Y
POA = W
Number
Percent
Number
Percent
Number
Percent
Number
Percent
278
29
12
1,407
49.2
69.0
34.3
1.2
1
0
0
81
0.2
0.0
0.0
0.1
286
13
23
119,065
50.6
31.0
65.7
98.7
0
0
0
29
0.0
0.0
0.0
0.0
Fmt 4701
Sfmt 4700
E:\FR\FM\18AUR2.SGM
18AUR2
51514
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
CHART B—POA STATUS OF CURRENT HACS: OCTOBER 2009 THROUGH SEPTEMBER 2010—Continued
Treated as hospital acquired conditions
Frequency as a
secondary diagnosis
mstockstill on DSK4VPTVN1PROD with RULES2
Selected HAC
POA = N
Not treated as Hospital acquired
conditions
POA = U
POA = Y
POA = W
Number
Percent
Number
Percent
Number
Percent
Number
Percent
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) .....
189,231
18,247
10,066
16,468
40
5,762
3,877
4,346
565
36
3.0
21.2
43.2
3.4
90.0
326
24
25
14
0
0.2
0.1
0.2
0.1
0.0
183,048
14,319
5,673
15,888
4
96.7
78.5
56.4
96.5
10.0
95
27
22
1
0
0.1
0.1
0.2
0.0
0.0
365
220
60.3
1
0.3
144
39.5
0
0.0
18
3,820
17
3,132
94.4
82.0
0
16
0.0
0.4
1
648
5.6
17.0
0
24
0.0
0.6
Total* ........................................................................
359,479
19,681
5.5
488
0.1
339,112
94.3
198
0.1
As described in section II.F.1.f. of this
preamble, in the FY 2009 IPPS final rule
(73 FR 48486 through 48487), we
adopted final payment policies to: (1)
Pay the CC/MCC MS–DRGs for those
HACs coded with ‘‘Y’’ and ‘‘W’’
indicators; and (2) not pay the CC/MCC
MS–DRGs for those HACs coded with
‘‘N’’ and ‘‘U’’ indicators. We also
discussed the comments we received
urging CMS to 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 (74
FR 43784 and 43785), we also discussed
and responded to comments regarding
HACs coded with the ‘‘U’’ indicator. As
shown in Chart B above, RTI’s analysis
provides data on a total of 488 HACassociated secondary diagnoses reported
with a POA indicator of ‘‘U.’’ These 488
diagnoses represented 2.4 percent of the
20,169 diagnoses that were considered
not POA (that is, POA indicator of ‘‘N’’
or ‘‘U’’). Approximately 3 of the 10
conditions reported no diagnoses with
POA indicators of ‘‘U’’: Air embolism,
Blood Incompatibility, and two of the
three surgical site infections
(Mediastinitis after CABG and SSI after
bariatric surgery for obesity). For the
two most frequently occurring
conditions, the Falls and Trauma HAC
category and Stage III and/or IV Pressure
Ulcers, diagnoses with a POA indicator
of ‘‘U’’ represented a small proportion of
diagnoses that were considered not POA
(that is, POA indicator of ‘‘N’’ or ‘‘U’’).
For the Falls and Trauma HAC category,
5.7 percent of diagnoses (326 cases)
considered not POA were reported with
a POA indicator of ‘‘U.’’ For Stage III
and/or IV Pressure Ulcers, 5.4 percent of
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diagnoses (81 cases) considered not
POA were reported with a POA
indicator of ‘‘U.’’ These two categories
also represented the conditions where
diagnoses with a POA indicator of ‘‘U’’
were the highest proportion of
diagnoses considered not POA. We
consider the range of 0 to 5.7 percent to
indicate that ‘‘U’’ is not used with great
frequency for these 10 conditions. In the
proposed rule, we stated that we did not
contemplate a proposal 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.’’ The data
analysis described above continues to
support our policy.
We encourage readers to further
review the RTI detailed report which
demonstrates the frequency of each
individual HAC-associated diagnosis
code within the HAC categories. As an
example, we note that in the Foreign
Object Retained After Surgery HAC
category, there are two unique ICD–9–
CM diagnosis codes used to identify that
condition: diagnosis code 998.4 (Foreign
body accidentally left during a
procedure) and diagnosis code 998.7
(Acute reaction to foreign substance
accidentally left during a procedure). In
the detailed RTI report, readers can
view that diagnosis code 998.4 was
reported 547 times and diagnosis code
998.7 was reported 18 times, across all
MS–DRGs, for a total of 565 times. The
RTI detailed report is available at the
following Web site: http://www.rti.org/
reports/cms/.
e. FY 2010 RTI Analysis of Frequency
of Discharges and POA Indicator
Reporting for Current HACs
RTI further analyzed the effect of the
HAC provision by studying the
frequency with 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
PO 00000
Frm 00040
Fmt 4701
Sfmt 4700
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. Column B shows the percent
of discharges reporting a HACassociated diagnosis code relative to the
total discharges ‘‘at risk’’ in each HAC
category. For HAC categories 1 through
8, both medical and surgical MS–DRGs
are included in the total discharges ‘‘at
risk’’ so this equates to 10,189,168
discharges. The remaining HAC
categories are defined by the
combination of diagnosis and procedure
codes; therefore, only the surgical MS–
DRGs that include the designated
procedure codes are included in the
total discharges ‘‘at risk.’’ For HAC 9a,
the total discharges ‘‘at risk’’ equates to
97,341. For HAC 9b, the total discharges
‘‘at risk’’ equates to 118,815 and for
HAC 9c, the total discharges ‘‘at risk’’
equates to 15,698. Lastly, for HAC 10,
the total discharges ‘‘at risk’’ equates to
440,571.
Column C shows the number of
discharges for each HAC reported with
a POA indicator of ‘‘N’’ or ‘‘U.’’ For
example, there were 42 discharges that
reported Air Embolism as a secondary
diagnosis. The chart shows that, of these
42 reported discharges, 29 discharges
(69.05 percent) had a POA indicator of
‘‘N’’ or ‘‘U’’ and was identified as a HAC
discharge. The HAC policy applied to
these 29 discharges, and they could,
therefore, have had an MS–DRG
reassignment. Column E shows the
number of discharges where an actual
MS–DRG reassignment occurred. For
the Air Embolism HAC, Column E
shows that the number of discharges
that resulted in actual MS–DRG
reassignments is 15 (51.72 percent of the
29 discharges with a POA indicator of
‘‘N’’ or ‘‘U’’). Thus, while there were 29
discharges (69.05 percent of the original
E:\FR\FM\18AUR2.SGM
18AUR2
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
42 that had air embolism reported as a
secondary diagnosis) 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, 15 discharges
(51.72 percent) experienced 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.c. of this
preamble and will be discussed in
further detail in section II.F.3.e. of this
preamble.
Chart C below also shows that, of the
317,644 discharges with a HACassociated diagnosis as a secondary
diagnosis, 3,587 discharges ultimately
resulted in MS–DRG reassignment. As
we discuss below, there were 15 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 (UTI).
Codes falling under the Falls and
Trauma HAC category were the most
frequently reported secondary diagnoses
with 154,371 discharges. Of these
154,371 discharges, 5,454 (3.53 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 5,454 discharges
within this HAC category that were not
POA, 1,672 (30.66 percent) resulted in
an MS–DRG reassignment.
Of the 317,644 total discharges
reporting HAC-associated diagnoses as a
secondary diagnosis, 3,494 discharges
were coded with a secondary diagnosis
of PE/DVT Orthopedic. Of these 3,494
discharges, 2,876 (82.31 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 2,876 discharges in
this HAC category that were not POA,
1,206 discharges (41.93 percent)
resulted in an MS–DRG reassignment.
The Pressure Ulcer Stages III & IV
category had the second most frequently
coded secondary diagnoses, with
114,138 discharges. Of these discharges,
1,444 (1.27 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
1,444 discharges in this HAC category
that were not POA, 292 discharges
(20.22 percent) resulted in an MS–DRG
reassignment.
The Catheter-Associated UTI category
had the third most frequently coded
secondary diagnoses, with 18,247
discharges. Of these discharges, 3,885
(21.29 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 3,885
discharges in this HAC category that
were not POA, 223 discharges (5.74
percent) resulted in a MS–DRG
reassignment.
The remaining 6 HAC categories only
had 194 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 22 of the 4,366 Vascular
Catheter-Associated Infection secondary
diagnoses that were coded as not POA
and identified as HAC discharges
resulted in a MS–DRG reassignment.
There were a total of 364 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
51515
identifies secondary diagnosis codes
designated as a CC or MCC that are
disregarded by the GROUPER logic
when reported with certain principal
diagnoses. For example, a claim with
the principal diagnosis code of 250.83
(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 6
HAC categories: Pressure Ulcer Stages
III and IV (29 cases); Falls and Trauma
(263 cases); Catheter-Associated UTI (16
cases); Vascular Catheter-Associated
Infection (5 cases); Manifestations of
Poor Glycemic Control (50 cases); and
Surgical Site Infection Following
Certain Orthopedic Procedures (1 case).
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 in the RTI detailed report,
which can be found at: http://
www.rti.org/reports/cms/.
In summary, Chart C below
demonstrates that there were a total of
317,644 discharges with a reported
HAC-associated secondary diagnosis. Of
the total 317,644 discharges, 6.0
percent, or 19,143 discharges, were
HACs reported with a POA indicator of
‘‘N’’ or ‘‘U’’ that were identified as a
HAC discharge. Approximately 18.7
percent, or 3,587 discharges, of these
19,143 discharges resulted in MS–DRG
reassignments.
CHART C—DISCHARGE FREQUENCIES OF CURRENT CMS HACS OCTOBER 2009 THROUGH SEPTEMBER 2010
Discharges with this
condition as secondary
diagnosis
mstockstill on DSK4VPTVN1PROD with RULES2
Selected HAC category
1.
2.
3.
4.
5.
a.
Foreign Object Retained After Surgery .......................
Air Embolism ................................................................
Blood Incompatibility ....................................................
Pressure Ulcer Stages III & IV ....................................
Falls and Trauma .........................................................
Fracture ........................................................................
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PO 00000
Discharges identified as a
HAC
Discharges that change
MS–DRG due to HAC
Number
(column a)
Percent 2
(column b)
Number
(column c)
Percent 3
(column d)
Number
(column e)
Percent 4
(column f)
563
42
35
114,138
....................
137,888
0.01
0.00
0.00
1.12
....................
1.35
278
29
12
1,444
....................
4,700
49.38
69.05
34.29
1.27
....................
3.41
44
15
0
292
....................
1,439
15.83
51.72
0.00
20.22
....................
30.62
Frm 00041
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E:\FR\FM\18AUR2.SGM
18AUR2
51516
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
CHART C—DISCHARGE FREQUENCIES OF CURRENT CMS HACS OCTOBER 2009 THROUGH SEPTEMBER 2010—
Continued
Discharges with this
condition as secondary
diagnosis
Selected HAC category
Discharges identified as a
HAC
Percent 2
(column b)
Number
(column a)
Number
(column c)
Percent 3
(column d)
Discharges that change
MS–DRG due to HAC
Percent 4
(column f)
Number
(column e)
b. Dislocation ...................................................................
c. Intracranial Injury .........................................................
d. Crushing Injury .............................................................
e. Burn .............................................................................
f. Electric Shock ...............................................................
Less: Discharges with multiple Falls & Trauma ..............
5. Falls and 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 ..................
1,105
15,844
41
2,297
818
¥3,622
154,371
18,247
10,066
16,267
40
363
18
3,494
0.01
0.16
0.00
0.02
0.01
¥0.04
1.52
0.18
0.10
0.16
0.04
0.31
0.11
0.79
35
706
2
39
9
¥37
5,454
3,885
4,366
526
36
220
17
2,876
3.17
4.46
4.88
1.70
1.10
¥1.02
3.53
21.29
43.37
3.23
90.00
60.61
94.44
82.31
4
234
1
6
0
¥12
1,672
223
22
107
4
2
0
1,206
11.43
33.14
50.00
15.38
0.00
¥32.43
30.66
5.74
0.50
20.34
11.11
0.91
0.00
41.93
Total 1 ........................................................................
317,644
....................
19,143
....................
3,587
....................
1 Discharges
can appear in more than one row. The total figure is not adjusted for the 94 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 10,189,168. For HAC 9a, this is 97,341. For HAC
9b, this is 118,815. For HAC 9c, this is 15,698. For HAC 10, this is 440,571.
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 2009 through September 2010.
An extremely small number of
discharges had multiple HACs reported
during the same stay. In reviewing the
approximately 10.2 million claims, RTI
found approximately 94 cases in which
2 HACs were reported on the same
discharge. Chart D below summarizes
these cases. Thirty-two of the cases with
2 HACs involved Pressure Ulcer Stages
III & IV, and 31 cases involved Falls or
Trauma. Other multiple HAC cases
included 27 Catheter-Associated UTI
cases, 3 Vascular Catheter-Associated
Infection cases and 1 Foreign Object
Retained After Surgery case. There were
eight cases in which a Falls and Trauma
HAC was reported together with a
Pressure Ulcer Stages III & IV HAC.
Some of these cases with multiple
HACs reported had both HAC codes
ignored in the MS–DRG assignment. Of
these 66 claims, 49 did not receive
higher payments based on the presence
of these reported HACs, and we describe
these claims 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.
mstockstill on DSK4VPTVN1PROD with RULES2
CHART D—CLAIMS WITH MORE THAN ONE HAC SECONDARY DIAGNOSIS OCTOBER 2009 THROUGH SEPTEMBER 2010
4. Pressure
ulcer stages III
& IV—MCC
5. Falls and
trauma—MCC
& CC
6. Catheterassociated
UTI—CC
7. Vascular
catheterassociated
infection—CC
........................
........................
........................
........................
8
8
12
1
........................
12
6
2
........................
........................
21
........................
........................
........................
........................
1
1
........................
........................
3
........................
11
........................
6
2
........................
1
32
31
27
3
HAC
1. Foreign
object—CC
5. Falls and trauma—MCC & CC ........................................
6. Catheter-Associated UTI—CC .........................................
7. Vascular Catheter-Associated Infection—CC ..................
8. Poor Glycemic Control—MCC .........................................
9B. Surgical Site Infection Following Certain Orthopedic
Procedures—CC ..............................................................
10. Pulmonary Embolism & DVT Orthopedic—MCC ..........
Total ..............................................................................
f. 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.c. of this preamble, there are
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19:46 Aug 17, 2011
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instances when the MS–DRG
assignment does not change even when
there is a HAC as a secondary diagnosis
(meaning a HAC-associated secondary
diagnosis has a POA indicator of either
‘‘N’’ or ‘‘U.’’) In analyzing our claims
data, RTI identified four main reasons
PO 00000
Frm 00042
Fmt 4701
Sfmt 4700
why a 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 HACassociated secondary diagnosis. Column
E:\FR\FM\18AUR2.SGM
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
B shows the frequency of discharges
where the HAC-associated secondary
diagnosis was coded as not POA and,
therefore, 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.
mstockstill on DSK4VPTVN1PROD with RULES2
(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 (cases with HAC-associated
diagnosis codes with a POA of ‘‘N’’ or
‘‘U’’) that did not have a 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 diagnoses
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 156 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 11,818 cases with HACs did not
have a change in the MS–DRG
assignment because of the presence of
other reported MCCs and CCs. This
represents approximately 76 percent of
the 15,556 cases with HACs that did not
have a change in MS–DRG assignment.
(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 (cases with
HAC-associated diagnosis codes with a
POA of ‘‘N’’ or ‘‘U’’) 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
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16:07 Aug 17, 2011
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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)
• 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 a 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 were the only secondary diagnosis
reported, then the case would be
assigned to MS–DRG 101 (Seizure
without MCC). 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 2,282 cases where the
HAC code was reported with an ‘‘N’’ or
‘‘U’’ and the MS–DRG assignment did
not change because the case was already
assigned to the lowest severity level.
This represents approximately 15
percent of the 15,556 cases with HACs
that did not have a change in MS–DRG
assignment.
(3) No Severity Levels
Column F (Number of MS–DRGs with
No Severity Levels) shows the frequency
with which discharges with an HAC
(cases with HAC-associated diagnosis
codes with a POA of ‘‘N’’ or ‘‘U’’) did
not result in an MS–DRG change
because the MS–DRG that the case was
assigned to is not subdivided by 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
such as a Stage III pressure ulcer after
admission, the condition would be
considered 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
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51517
assignment would not change. The case
would still be assigned to MS–DRG 311.
Chart E below shows that 1,449 cases
reporting a HAC (cases with HACassociated diagnosis codes with a POA
of ‘‘N’’ or ‘‘U’’) did not undergo a
change in the MS–DRG assignment
based on the fact that the case was
assigned to a 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). This
represents approximately 9 percent of
the 15,556 cases with HACs that did not
have a change in MS–DRG assignment.
(4) MS–DRG Logic
Column G (MS–DRG Logic Issues)
shows the frequency with which a HAC
(cases with HAC-associated diagnosis
codes with a POA of ‘‘N’’ or ‘‘U’’) did
not result in an MS–DRG change
because of MS–DRG assignment logic.
There were seven 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
a 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 the
principal diagnosis code of 441.1
(Thoracic aneurysm, ruptured) with
HAC-associated secondary diagnosis
code of 996.64 (Infection and
inflammatory reaction due to indwelling
urinary catheter) and non-HAC
secondary diagnosis code 599.0 (Urinary
tract infection, site not specified),
having POA indicators of ‘‘Y,’’ ‘‘N,’’ and
‘‘N,’’ respectively, and procedure code
39.73 (Endovascular implantation of
graft in thoracic aorta) currently results
in an assignment to MS–DRG 237 (Major
Cardiovascular Procedures with MCC or
Thoracic Aortic Aneurysm Repair). In
this case, the thoracic aortic aneurysm
repair 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
assignment. Other examples of MS–
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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)
• 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 seven cases that did not
result in MS–DRG reassignment due to
the MS–DRG logic were in the Falls and
Trauma HAC category, two cases were
in the Catheter Associated UTI HAC
category and two cases were in the
Vascular Catheter-Associated Infection
HAC Category.
In conclusion, a total of 15,556 cases
(11,818 + 2,282 +1,449 + 7) did not have
a change in MS–DRG assignment,
regardless of the presence of a HAC. The
reasons described above explain why
only 3,587 cases had a change in MS–
DRG assignment despite the fact that
there were 19,143 HACs (cases with
HAC-associated diagnosis codes with a
POA of ‘‘N’’ or ‘‘U’’).
CHART E—REASONS HAC DID NOT CHANGE MS–DRG ASSIGNMENT OCTOBER 2009 THROUGH SEPTEMBER 2010
HAC discharges that do not change MS–DRG
Selected HAC category
Number of
other MCCs/
CCs that prevent reassignment
(Column D)
Number of
MS–DRGs
with two severity levels
where HAC
does not affect
MS–DRG assignment *
(Column E)
Number of
MS–DRGs
with no severity levels
(Column F)
44
15
156
14
67
0
11
0
0
0
12
0
9
0
3
0
114,138
1,444
292
895
0
257
0
154,371
5,454
1,672
2,858
570
351
3
18,247
3,885
223
2,930
490
240
2
10,066
4,366
22
3,656
189
497
2
16,267
526
107
364
3
52
0
40
36
4
24
0
8
0
363
220
2
136
79
3
0
18
17
0
17
0
0
0
3,494
2,876
1,206
759
884
27
0
317,644
19,143
3,587
11,818
2,282
1,449
7
Number of discharges with
this condition
as secondary
diagnosis
(Column A)
Number of discharges identified as a HAC
(Column B)
563
42
278
29
35
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 ...
Total 1 ....................
Number of
HAC discharges that
change MS–
DRG due to
HAC
(Column C)
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1 Discharges
Other MS–
DRG logic
issues **
(Column G)
can appear in more than one row. The total figure is not adjusted for the approximately 94 discharges with more than one HAC
that appear as secondary diagnoses (15 of these discharges resulted in MS–DRG reassignment).
* Examples where an HAC classified as a CC would not affect 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).
** Examples 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 120 (Major Head & Neck Procedures with CC/MCC or Major Device).
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.
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g. RTI Analysis of Coding Changes for
HAC-Associated Secondary Diagnoses
for Current HACs
In addition to studying claims from
October 2009 through September 2010,
RTI evaluated claims data from 3 years
prior to determine if there were
significant changes in the number of
discharges with a HAC-associated code
being reported as a secondary diagnosis.
To provide consistency with the FY
2010 data studied, RTI examined claims
using discharge dates from October 2006
through September 2007 (for FY 2007),
October 2007 through September 2008
(for FY 2008), October 2008 through
September 2009 (FY 2009) and
compared these data to the FY 2010
data.
We refer readers to the RTI detailed
report for further information regarding
all the conditions in each fiscal year (FY
2007 through FY 2010) as described
above at the Web site: http://
www.rti.org/reports/cms/.
h. 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 for FY
2010, from October 2009 through
September 2010.
mstockstill on DSK4VPTVN1PROD with RULES2
(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 calculate this
payment impact, 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 27 of the Medicare Severity
GROUPER software (applicable to
discharges between October 1, 2009 and
September 30, 2010). IPPS MedPAR
claims were run through this file to
obtain needed HAC–POA output
variables.
• The FY 2010 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.hhs.gov/
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AcuteInpatientPPS/IPPS2010, include
the full update and reduced update
amounts, as well as the information
needed to compute the blended amount
for providers located in Puerto Rico.
• The IPPS impact file for FY 2010,
as downloaded from the Web site at:
http://www.cms.hhs.gov/
AcuteInpatientPPS/IPPS2010/. This file
includes the wage index and geographic
adjustment factors plus the provider
type variable to identify providers
qualifying for alternative hospitalspecific amounts and their respective
hospital-specific payment rates.
• The IPPS impact file for FY 2011,
as downloaded from the Web site at:
http://www.cms.hhs.gov/
AcuteInpatientPPS/11FR/. This file
includes indirect medical education
(IME) and disproportionate share (DSH)
percent adjustments as well as the
operating and capital CCRs that were in
effect as of March 2010.
• CMS historical provider-specific
files (PSFs). These files include 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 50
providers with discharges in the final
HAC analysis file that did not appear in
the FY 2010 impact file, of which 11
also did not appear in the FY 2011
impact file. 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/IPPS2010/. For
providers in the FY 2011 file but not the
FY 2010 file, we used IME and DSH
rates from FY 2011. The 11 providers in
neither impact file were identified as
non-IME and non-DSH providers in the
historical PSF file.
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 if the HAC were
excluded 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/AcuteInpatientPPS/
04_outlier.asp#TopOfPage, and
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51519
modified to accommodate FY 2010
factors. RTI’s first round of
computations treated all claims as
though paid under standard IPPS rules
without adjusting for short-stay transfers
or hospital-specific payment amounts.
Step 3: Model the base payment and
outlier amounts associated with the
final MS–DRG where the HAC was
excluded 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/AcuteInpatientPPS/
04_outlier.asp#TopOfPage and modified
to accommodate FY 2010 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
payment 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 payments amounts that
are modeled for the final assigned MS–
DRG do not always match the MS–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 60 covered days in a spell of
illness. Five percent of all HAC
discharges showed at least some Part A
coinsurance amount due from the
beneficiary, although less than 2 percent
of reassigned discharges (55 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
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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
2009 through 2010, based on the
methodology described above. Column
A shows the number of discharges
where a MS–DRG reassignment for each
HAC category occurred. For example,
there were 15 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 15
discharges with an MS–DRG
reassignment resulted in a total net
savings of $118,785. Column C shows
the net savings per discharge for each
HAC category. For the Air Embolism
HAC category, the net savings per
discharge is $7,919. Because a single
discharge can have more than one HAC,
discharges can appear in more than one
row. The total net savings shown in the
last line of Column B is adjusted to
avoid duplicate counting and is
therefore less than the sum of the net
savings from the lines above.
CHART F—ESTIMATED NET SAVINGS OF CURRENT HACS OCTOBER 2009 THROUGH SEPTEMBER 2010
Number of
discharges that
change MS–
DRG
due to HAC
Selected HAC
Net savings
(in dollars)
(Column A)
Net savings
per discharge
(in dollars)
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. Shock .....................................................................................................................
Less: Discharges with Multiple Falls & Trauma 1 .....................................................
44
15
0
292
(Column B)
$159,841
118,785
0
1,795,456
(Column C)
$3,633
7,919
0
6,149
1,439
4
234
1
6
0
¥12
8,119,308
13,244
1,127,066
7,826
15,594
0
¥82,330
5,642
3,311
4,817
7,826
2,599
0
¥6,861
5. Falls and 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 ..................................................................
1,672
223
22
107
4
2
0
1,206
9,200,708
696,662
77,690
604,308
32,392
15,044
0
8,826,912
5,503
3,124
3,531
5,648
8,098
7,522
0
7,319
Total ..........................................................................................................................
3,587
21,527,798
6,002
Less: Discharges with Multiple HACs 2 ....................................................................
¥15
¥77,703
¥5,180
Unduplicated Total ............................................................................................
3,572
21,450,095
6,005
1.
2.
3.
4.
5.
1 Discharges
mstockstill on DSK4VPTVN1PROD with RULES2
can have more than one Falls and Trauma HAC and therefore appear in more than one row.
2 Discharges can have more than one HAC and therefore appear in more than one row.
Source: RTI Analysis of MedPAR IPPS Claims, October 2009 through September 2010.
As shown in Chart F above, the
unduplicated total net savings
calculated for the 12-month period from
October 2009 through September 2010
was approximately $21.5 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 approximately
$19.83 million of net savings for the 12month period. Estimated net savings for
the 12-month period associated with the
Falls and Trauma category were
approximately $9.20 million. Estimated
net savings associated with Orthopedic
PE/DVT for the 12-month period were
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approximately $8.83 million. Estimated
net savings for the 12-month period
associated with Pressure Ulcer Stages III
& IV were approximately $1.80 million.
The mean net savings per discharge
calculated for the 12-month period from
October 2009 through September 2010
was approximately $6,005. The HAC
categories of Air Embolism; SSI,
Mediastinitis, Following Coronary
Artery Bypass Graft (CABG); and SSI
Following Certain Orthopedic
Procedures 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 these
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HACs was low. With the exception of
Blood Incompatibility and SSI
Following Bariatric Surgery for Obesity,
where no savings occurred because no
discharges resulted in MS–DRG
reassignment, Catheter-Associated UTI
had the lowest net savings per
discharge.
We refer readers to the RTI detailed
report available at the Web site: http://
www.rti.org/reports/cms/.
As mentioned previously, an
extremely small number of cases in the
12-month period of FY 2010 analyzed
by RTI had multiple HACs during the
same stay. In reviewing approximately
10.2 million claims, RTI found
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
approximately 94 cases where 2 HACs
were reported on the same admission as
noted in section II.F.3.g.(2) of this
preamble. Of these approximately 94
claims, 15 resulted in MS–DRG
reassignment. Chart G below
summarizes these cases. There were 15
cases that had 2 HACs not POA that
resulted in an MS–DRG reassignment.
Of these, four discharges involved
Pressure Ulcer Stages III & IV, four
discharges involved Falls and Trauma,
and seven discharges involved Vascular
Catheter-Associated Infection.
CHART G—CLAIMS WITH MORE THAN ONE HAC SECONDARY DIAGNOSIS WHERE MS–DRG REASSIGNMENT OCCURRED
OCTOBER 2009 THROUGH SEPTEMBER 2010
Selected HAC
4. Pressure Ulcer
Stages III & IV–
MCC
5. Falls and
Trauma—MCC &
CC
7. Vascular Catheter-Associated
Infection—CC
5. Falls and Trauma—MCC & CC ...................................................................................
6. Catheter-Associated Urinary Tract Infection (UTI)—CC .............................................
7. Vascular Catheter-Associated Infection—CC .............................................................
9B. Surgical Site Infection Following Certain Orthopedic Procedures—CC ...................
2
1
1
............................
............................
2
2
............................
............................
6
............................
1
Total ..........................................................................................................................
4
4
7
As we discuss in section II.F.1.b. of
this preamble, implementation of this
policy is the part of an array of Medicare
VBP tools that we are using to promote
increased quality and efficiency of care.
We point 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. (We refer readers to section
IV.A. of this preamble for a discussion
of the inclusion of the incidence of
these conditions in the Hospital IQR
Program.) It is our intention to continue
to monitor trends associated with the
frequency of these HACs and the
estimated net payment impact through
RTI’s program evaluation and possibly
beyond.
i. 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
approximately 10.2 million discharges),
as well as the POA indicator
assignments for these conditions. Chart
H below indicates that the four
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 90,243
secondary diagnoses codes being
reported for that condition, of which
29,306 reported a POA indicator of ‘‘N’’;
(2) Methicillin-Resistant Staphylococcus
aureus, with a total of 72,313 secondary
diagnoses codes being reported for that
condition, with 2,165 of those reporting
a POA indicator of ‘‘N’’; and (3)
Staphylococcus aureus Septicemia, with
a total of 24,327 secondary diagnoses
codes being reported for that condition,
with 5,490 of those reporting a POA
indicator of ‘‘N’’; and (4) Iatrogenic
Pneumothorax, with a total of 22,506
secondary diagnoses codes being
reported for that condition, with 19,581
of those reporting a POA indicator of
‘‘N.’’ As these four conditions had the
most significant impact for reporting a
POA indicator of ‘‘N,’’ it is reasonable
to believe that these same three
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) that 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 2009 THROUGH
SEPTEMBER 2010
Not Present on Admission
Frequency as a
secondary
diagnosis
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Previously considered HAC condition
1.
2.
3.
4.
5.
6.
7.
Clostridium Difficile-Associated Disease (CDAD) .......
Delirium .......................................................................
Legionnaire’s Disease .................................................
Staphylococcus aureus Septicemia ............................
Methicillin-Resistant Staphylococcus aureus ..............
Iatrogenic Pneumothorax ............................................
Ventilator-Associated Pneumonia ...............................
In Chart I below, Column A shows the
number of discharges for each
previously considered candidate HAC
category when the condition was
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90,243
757
426
24,327
72,313
22,506
4,278
POA = N
Frm 00047
POA = Y
POA = W
Number
Percent
Number
Percent
Number
Percent
Number
Percent
29,306
190
27
5,490
2,165
19,581
3,159
32.47
25.10
6.34
22.57
2.99
87.00
73.84
416
..............
2
65
124
15
5
0.46
..............
0.47
0.27
0.17
0.07
0.12
60,397
567
397
18,738
70,008
2,907
1,110
66.93
74.90
93.19
77.03
96.81
12.92
25.95
124
0
0
34
16
3
4
0.14
0.00
0.00
0.14
0.02
0.01
0.09
reported as a secondary diagnosis. For
example, there were 90,243 discharges
that reported CDAD as a secondary
diagnosis. Previously considered
PO 00000
Present on Admission
POA = U
Fmt 4701
Sfmt 4700
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).
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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 90,243
discharges, 29,722 discharges (32.94
percent) had a POA indicator of ‘‘N’’ or
‘‘U.’’ Therefore, there were a total of
29,722 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 830 (2.79 percent).
Thus, while there were 29,722
discharges with CDAD reported with a
POA indicator of ‘‘N’’ or ‘‘U’’ that could
potentially have had an MS–DRG
reassignment, the result was 830 (2.79
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 a
MS–DRG reassignment.
In summary, Chart I below
demonstrates there were a total of
214,785 discharges with a previously
considered candidate HACs reported as
a secondary diagnosis. Of those 60,538
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
3,768.
CHART I—PREVIOUSLY CONSIDERED ‘‘CANDIDATE’’ HAC DISCHARGE FREQUENCIES—OCTOBER 2009 THROUGH
SEPTEMBER 2010
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 ..............
Iatrogenic Pneumothorax .............................................
Ventilator-Associated Pneumonia ................................
90,243
757
426
24,288
72,287
22,506
4,278
0.89
0.01
0.00
0.24
0.71
0.22
0.04
29,722
190
29
5,549
2,288
19,596
3,164
32.94
25.10
6.81
22.85
3.17
87.07
73.96
830
14
3
97
0
2,821
3
2.79
7.37
10.34
0.02
0.00
14.40
0.09
Total 1 ........................................................................
214,785
....................
60,538
....................
3,768
....................
1 Discharges
can appear in more than one row.
computed relative to total cases ‘‘at risk,’’ which is 10,189,168 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 2009 through September 2010.
2 Percent
3 Percent
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j. Current and Previously Considered
Candidate HACs—RTI Report on
Evidence-Based Guidelines
The RTI program evaluation includes
an annual 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 the annual report to
summarize its findings regarding
evidence-based guidelines, which can
be found on the Web site at: http://
www.rti.org/reports/cms.
k. Final Policy 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 either current
HACs (as described in section II.F.2. of
this preamble) or 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),
and the FY 2010 IPPS/RY 2010 LTCH
final rule (74 FR 43782 through 43785).
We note that we are finalizing revisions
to the Falls and Trauma HAC category,
Surgical Site Infection Following
Certain Bariatric procedures and DVT/
PE Following Certain Orthopedic
Procedures HAC categories as discussed
in section II.F.2. of this preamble. (We
also note that, as discussed in section
PO 00000
Frm 00048
Fmt 4701
Sfmt 4700
II.F.3.b. of this preamble, we are not
contemplating changing our current
policy regarding the treatment of the
‘‘U’’ POA indicator.) However, we
continue to encourage public dialogue
about refinements to the HAC list.
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.
G. Changes to Specific MS–DRG
Classifications
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25816), 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
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claims data. Below, we summarize the
public comments that we received, if
any, on our proposals, present our
responses, and state our final policies.
1. Pre-Major Diagnostic Categories (PreMDCs)
a. Noninvasive Mechanical Ventilation
We received a request from the
National Association for Medical
Direction of Respiratory Care
(NAMDRC) which suggested that we
create a new MS–DRG for patients with
certain respiratory conditions who
receive noninvasive mechanical
ventilation (NIV). The requestor stated
that patients who receive NIV are almost
always placed within an intensive care
unit (ICU) or an emergency department
and use the resources available in those
areas. The requestor recommended that
this new MS–DRG recognize current
practice and allow for appropriate
reimbursement for the technical
complexity and monitoring required for
NIV as a form of acute life support.
According to the requestor, NIV has
evolved to become first-line supportive
therapy for several forms of acute
respiratory failure. Lastly, the requestor
recommended that the new MS–DRG
identify NIV usage of approximately 6 to
12 hours to account for the ‘‘legitimate
but very short term use of this therapy.’’
Historically, the concept of
mechanical ventilation for critically ill
patients included establishment of an
artificial airway, invasively, through
endotracheal intubation or a
tracheostomy. According to the
requestor, a significant portion of these
patients can now be treated through
noninvasive mechanical ventilation
with the use of a face or nasal mask. In
the ICD–9–CM classification system,
NIV is described by procedure code
93.90 (Noninvasive mechanical
ventilation), while invasive mechanical
ventilation is described by procedure
codes 96.70 (Continuous invasive
mechanical ventilation of unspecified
duration), 96.71 (Continuous invasive
mechanical ventilation for less than 96
consecutive hours), and 96.72
(Continuous invasive mechanical
ventilation for 96 consecutive hours or
more). The requestor submitted external
data to illustrate trends in NIV use over
the past decade. These data were
derived from a survey conducted during
2002–2003 of several hospitals located
in Massachusetts and Rhode Island. The
requestor believed that these data
indicate patients with exacerbation of
chronic obstructive pulmonary disease
(COPD), acute pulmonary edema, or
worsening congestive heart failure are
successfully managed with NIV.
For the FY 2012 IPPS/LTCH PPS
proposed rule, we analyzed FY 2010
MedPAR claims data that are
representative of the respiratory
conditions the requestor identified
when reported with NIV. We found 14
MS–DRGs reporting procedure code
93.90 using the above specifications.
The MS–DRGs are as follows:
Pre-MDC MS–DRGs:
• MS–DRG 003 (ECMO or
Tracheostomy with Mechanical
Ventilation 96+ Hrs or PDX Except
Face, Mouth & Neck with Major O.R.)
• MS–DRG 004 (Tracheostomy with
Mechanical Ventilation 96+ Hrs or
PDX Except Face, Mouth & Neck
without Major O.R.)
• MS–DRGs:
• MS–DRG 189 (Pulmonary Edema &
Respiratory Failure)
• MS–DRG 190 (Chronic Obstructive
Pulmonary Disease with MCC)
• MS–DRG 191 (Chronic Obstructive
Pulmonary Disease with CC)
• MS–DRG 192 (Chronic Obstructive
Pulmonary Disease without CC/MCC)
• MS–DRG 204 (Respiratory Signs &
Symptoms)
• MS–DRG 207 (Respiratory System
Diagnosis with Ventilator Support
96+ Hours)
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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
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PO 00000
• MS–DRG 208 (Respiratory System
Diagnosis with Ventilator Support
<96 Hours)
• MS–DRG 222 (Cardiac Defibrillator
Implant with Cardiac Catheterization
with AMI/HF/Shock with MCC)
• MS–DRG 223 (Cardiac Defibrillator
Implant with Cardiac Catheterization
with AMI/HF/Shock without MCC)
• MS–DRG 291 (Heart Failure & Shock
with MCC)
• MS–DRG 292 (Heart Failure & Shock
with CC)
• MS–DRG 293 (Heart Failure & Shock
without CC/MCC)
As shown in the list above and in the
chart below, the MS–DRGs identified
also include those that describe invasive
mechanical ventilation. The ICD–9–CM
coding convention instructs the
reporting of both types of mechanical
ventilation when patients are admitted
on noninvasive mechanical ventilation
that subsequently requires invasive
mechanical ventilation therapy.
The data demonstrate that, in certain
MS–DRGs, for example, MS–DRGs 003,
004, and 222 that the cases with NIV
primarily have shorter lengths of stay
and lower average costs compared to all
the cases in those MS–DRGs.
Alternatively, the data for MS–DRGs
189, 190, 191, and 192 demonstrate that
the cases with NIV have an increased
length of stay and higher average costs,
but a relatively low volume compared to
all the cases in those MS–DRGs.
Combining the current surgical and
medical MS–DRGs into a single, new
MS–DRG would include noninvasive
mechanical ventilation cases with a
wide range of costs for several
indications with varying levels of
severity. The average costs for these
cases range from a low of $5,794 in MS–
DRG 293 to a high of $95,940 in MS–
DRG 003. In the proposed rule, we
indicated that we believe the cases are
more appropriately assigned and
reimbursed in the MS–DRGs to which
they are currently assigned.
Number of cases
003—All cases ................................................................................................
003—Cases with code 93.90 without code 96.70, 96.71, or 96.72 ...............
004—All cases ................................................................................................
004—Cases with code 93.90 without code 96.70, 96.71, or 96.72 ...............
189—All cases ................................................................................................
189—Cases with code 93.90 without code 96.70, 96.71, or 96.72 ...............
190—All cases ................................................................................................
190—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
191—All cases ................................................................................................
191—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
192—All cases ................................................................................................
192—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
204—All cases ................................................................................................
204—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
207—All cases ................................................................................................
Frm 00049
Fmt 4701
Sfmt 4700
51523
Average length
of stay
18,223
58
19,599
170
87,668
22,023
130,731
8,450
135,851
4,563
115,153
2,334
21,049
265
32,752
E:\FR\FM\18AUR2.SGM
34.7
33.3
25.79
25.43
5.36
6.07
5.30
6.78
4.49
5.41
3.52
4.25
2.61
4.17
14.61
18AUR2
Average costs
$103,492
95,940
63,022
58,500
8,317
10,383
7,140
11,207
6,236
8,819
4,621
6,803
4,310
7,591
32,897
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MS–DRG
mstockstill on DSK4VPTVN1PROD 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
Number of cases
207—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
208—All cases ................................................................................................
208—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
222—All cases ................................................................................................
222—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
223—All cases ................................................................................................
223—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
291—All cases ................................................................................................
291—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
292—All cases ................................................................................................
292—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
293—All cases ................................................................................................
293—Cases with code 93.90 without code 96.70, 96.71 or 96.72 ................
As mentioned in the requestor’s
comments, and our clinical advisors
agree, NIV encompasses a broad range of
interventions and utilizes periods of
time that range from a few hours to a
few days of continuous chronic use.
Resource requirements are vastly
different for the various intended
indications. For example, as also noted
by the requestor, respiratory failure can
have many forms. Our clinical advisors
provided three subsets of patients as an
example: Those that are given oxygen
support, those that are given pressure
(rate) support, and those that are
intubated. There is overlap between the
three subsets in that a patient may
require one, two, or all three types of
therapy and there are multiple options
for any given patient. Our clinical
advisors stated that these various
subsets of patients can require
significantly different resources. Lastly,
respiratory failure reflects the severity of
the diagnosis (it is a complication)
while NIV is a therapeutic option.
Unlike a major surgical intervention
where the intervention creates
morbidity, NIV merely reflects the
severity of the underlying respiratory
failure.
The requestor further noted in its
comments that a significant number of
patients who receive NIV fail this
therapy and must be intubated and
subsequently placed on a ventilator.
However, those patients who require
both noninvasive and invasive
mechanical ventilation are already
accounted for in the invasive
mechanical ventilation MS–DRGs.
Similar to patients with respiratory
failure, patients with heart failure and
shock have a comparable severity of
illness where each condition reflects the
severity of the diagnosis (it is a
complication). Therefore, the cost is
already reflected in the high resource
expenditure estimates for MS–DRGs
222, 223, 291, 292, and 293, as are all
other severity-correlated resource costs.
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In conclusion, we indicated in the
proposed rule that we believe that the
data do not support the creation of a
single MS–DRG to identify NIV cases.
As stated previously, the average costs
for the NIV cases range from a low of
$5,794 in MS–DRG 293 to a high of
$95,940 in MS–DRG 003. If created, this
single MS–DRG would include patients
with a wide range in average costs. We
believe the cases are more appropriately
captured in their current MS–DRGs. In
addition to the clinical points raised by
our clinical advisors and outlined
above, the volume and length of stay
data for cases where NIV was reported
with the specified respiratory
conditions further support their present
MS–DRG assignments. Therefore, we
did not propose to create a new MS–
DRG for patients receiving NIV. We
invited public comment on our proposal
not to create a new MS–DRG for patients
receiving NIV for FY 2012.
Comment: Several commenters agreed
with CMS’ proposal to not create a new
MS–DRG for patients receiving NIV for
FY 2012. One commenter did not have
a position on whether or not a new MS–
DRG should be created for patients
receiving noninvasive mechanical
ventilation. However, the commenter
was concerned that reported hospital
data may be incomplete. The
commenter indicated that procedure
code 93.90 (Noninvasive mechanical
ventilation) is most likely underreported
or not reported consistently because it is
not required for reporting purposes.
Another commenter stated that the data
analysis performed on patients receiving
NIV appeared to be supported by the
current MS–DRG assignment. Therefore,
the commenter agreed with the proposal
not to create a new MS–DRG. This
commenter also urged CMS to consider
the Uniform Hospital Discharge Data Set
(UHDDS) definition of a ‘‘reportable
condition’’ in future analyses. This
commenter noted that the UHDDS
requires all significant procedures to be
PO 00000
Frm 00050
Fmt 4701
Sfmt 4700
Average length
of stay
0
67,724
0
2,279
52
3,230
19
170,399
14,274
220,031
5,171
98,134
1,381
0
6.98
0
11.98
11.79
6.17
11.05
6.05
6.95
4.72
5.58
3.20
3.43
Average costs
0
14,742
0
57,478
55,011
41,754
47,064
9,585
12,320
6,584
9,180
4,410
5,794
reported and that Medicare requires the
reporting of any procedure that affects
payment, whether or not it meets the
definition of significant procedure. This
commenter further noted that procedure
code 93.90 is not considered significant
by the UHDDS definition nor does it
affect payment.
Response: We appreciate the
commenters’ support of our proposal to
not create a new MS–DRG for patients
receiving NIV for FY 2012. We agree
with the commenters that procedure
code 93.90 is likely not reported
consistently and, therefore, the data
included in evaluating the request may
be incomplete. We encourage complete
and accurate reporting of ICD–9–CM
codes on each admission. As discussed
in section II.G.13.b. of this final rule, we
have expanded our ability to accept and
process up to 25 diagnosis codes and 25
procedure codes with the
implementation of 5010. We agree with
the commenters who state that the
current data do not support a new MS–
DRG for patients receiving NIV.
We also agree with the commenter
that NIV (procedure code 93.90) is not
considered to be a significant procedure
under UHDDS definitions and does not
affect payment under Medicare policy.
UHDDS definitions are used by
hospitals to report inpatient data
elements in a standardized manner. For
further information regarding UHDDS
data elements and their definitions, we
refer readers to the July 31, 1985
Federal Register (50 FR 31038 through
31040) and the Internet Web site at:
http://www.ncvhs.hhs.gov/ncvhsr1.htm.
Comment: The organization that
submitted the original request to create
a new MS–DRG for NIV expressed
appreciation to CMS for considering
their request and for providing data that
was unavailable to them at the time they
submitted their original request. The
commenter also acknowledged the
potential for underreporting of NIV
(procedure code 93.90). However, the
commenter specifically asked to further
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
refine their original request based on the
data that were displayed in the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25818). The commenter suggested that
CMS now limit consideration of a new
MS–DRG for NIV to only the data that
were displayed for 4 of the 14 MS–
DRGS analyzed in response to their
original request. The commenter asked
CMS to now only focus on the data that
was provided for the following MS–
DRGs:
• MS–DRG 189 (Pulmonary Edema &
Respiratory Failure)
• MS–DRG 190 (Chronic Obstructive
Pulmonary Disease with MCC)
• MS–DRG 191 (Chronic Obstructive
Pulmonary Disease with CC)
• MS–DRG 192 (Chronic Obstructive
Pulmonary Disease without CC/MCC)
The commenter recommended that
CMS utilize respiratory failure,
pulmonary edema, and chronic
obstructive pulmonary disease as
diagnoses that, when present with NIV,
define the structure of a new NIV MS–
DRG.
Response: We acknowledge the
commenter’s request that we now
consider a refined request that focuses
on only 4 of the 14 MS–DRGs originally
analyzed. However, due to time
constraints, we were unable to conduct
the necessary analysis for evaluation.
We would need to perform a new and
separate analysis with exact
specifications that were not provided by
the commenter in their modified request
before we could make a final
determination. For example, there are
numerous ICD–9–CM codes that
describe respiratory failure, pulmonary
edema, and chronic obstructive
pulmonary disease. The commenter did
not specify the exact codes they believe
would warrant this modified MS–DRG
when reported with procedure code
93.90 (NIV) for us to conduct a thorough
analysis in time to include our
evaluation in this final rule.
Therefore, after consideration of
public comments we received, we are
finalizing our proposal to not create a
new MS–DRG for NIV for FY 2012.
mstockstill on DSK4VPTVN1PROD with RULES2
b. Debridement With Mechanical
Ventilation Greater Than 96 Hours With
Major Operating Room (O.R.) Procedure
We received a comment concerning
the use of excisional debridement in
cases with complications that lead to
the need for extended mechanical
ventilation. The commenter stated that
patients undergoing procedures such as
excisional debridement may also
develop extensive complications such
as respiratory failure and sepsis. The
commenter indicated that these patients
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tend to use significant resources. The
commenter stated that these cases are
currently assigned to MS–DRG 207
(Respiratory System Diagnosis with
Ventilator Support 96+ Hours) or MS–
DRG 870 (Septicemia with or Severe
Sepsis with Mechanical Ventilation 96+
Hours). The commenter expressed a
concern that the operating room (OR)
procedure of the excisional debridement
was not fully recognized through either
of these two medical MS–DRGs. The
commenter requested that a new MS–
DRG be created that would include
mechanical ventilation of greater than
96 hours with the presence of an
additional major OR procedure.
We agree that patients with long-term
mechanical ventilation greater than 96
hours and a major OR procedure utilize
extensive resources. However, we point
out that these patient cases are not
currently assigned to MS–DRG 207 or
MS–DRG 870 as the commenter stated.
Many of these long-term mechanical
ventilation patient cases are instead
assigned to MS–DRG 003 (ECMO or
Tracheostomy with Mechanical
Ventilation 96+ Hours or PDX,
Excluding Face, Mouth & Neck with
Major Operating Room Procedure).
Cases that require mechanical
ventilation for greater than 96 hours,
that have a tracheostomy performed,
and that have a procedure on the major
O.R. list (including excisional
debridement) are assigned to MS–DRG
003. We specifically created MS–DRG
003 to capture these complicated
patients on long-term mechanical
ventilation who also have a major O.R.
procedure. Therefore, in the FY 2012
IPPS/LTCH PPS proposed rule, we did
not propose to create a second MS–DRG
to capture these patients. We welcomed
public comments on our proposal not to
create a new MS–DRG for these patients
for FY 2012.
Comment: Several commenters
supported our proposal not to create a
second MS–DRG to capture patients
with mechanical ventilation of greater
than 96 hours with the presence of an
additional major OR procedure. One
commenter stated that the limited data
and documentation from the requestor
for the creation of a second MS–DRG
prohibited them from evaluating the
need for this new MS–DRG.
Response: We agree with the
commenters that CMS should not create
a second MS–DRG to capture patients
with mechanical ventilation of greater
than 96 hours with the presence of an
additional major OR procedure. MS–
DRG 003 (ECMO or Tracheostomy with
Mechanical Ventilation 96+ Hours or
PDX, Excluding Face, Mouth & Neck
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Fmt 4701
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51525
with major Operating Room Procedure)
appropriately captures these patients.
After consideration of the public
comments we received, we are not
creating a new MS–DRG to capture
patients on mechanical ventilation of
greater than 96 hours who also have an
additional major OR procedure for FY
2012.
c. Autologous Bone Marrow Transplant
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50101), effective October 1,
2011, we deleted MS–DRG 009 (Bone
Marrow Transplant) and created two
new MS–DRGs: MS–DRG 014
(Allogeneic Bone Marrow Transplant)
and MS–DRG 015 (Autologous Bone
Marrow Transplant). We created new
MS–DRGs 014 and 015 because of
differences in costs associated with
these procedures. During the comment
period for the FY 2011 IPPS/LTCH PPS
proposed rule, two commenters who
supported the proposed reclassification
of the bone marrow transplant MS–
DRGs requested further refinement to
account for severity of illness. At that
time, we did not subdivide MS–DRG
014 and MS–DRG 015 based on severity
of illness because they did not meet our
criteria for subdivision (75 FR 50102).
As we outlined in our FY 2008 IPPS/
LTCH PPS final rule with comment
period (72 FR 47169), in designating an
MS–DRG as one that would be
subdivided into subgroups based on the
presence of a CC or an MCC, we
developed a set of criteria to facilitate
our decision-making process. The
original criteria were based on average
charges; we now use average costs (FY
2007 IPPS final rule, 71 FR 47882). In
order to warrant creation of a CC or an
MCC subgroup within a base MS–DRG,
the subgroup must meet all of the
following five criteria:
• A reduction in variance of cost of at
least 3 percent.
• At least 5 percent of the patients in
the MS–DRG fall within the CC or MCC
subgroup.
• At least 500 cases are in the CC or
MCC subgroup.
• There is at least a 20-percent
difference in average cost between
subgroups.
• There is a $2,000 difference in
average cost between subgroups.
For the FY 2012 IPPS/LTCH PPS
proposed rule, we examined FY 2010
MedPAR claims data for these newly
created MS–DRGs, and based on these
criteria, we identified MS–DRG 015 as
a possible MS–DRG that would require
further subdivision. MS–DRG 014 was
not identified, as this MS–DRG did not
meet the criteria stated above for
possible subdivision. Autologous bone
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marrow transplantation utilizes the
patient’s own bone marrow or stem cells
in the treatment of certain cancers and
bone marrow diseases. These
procedures restore stem cells that have
been destroyed either by chemotherapy
and/or radiation treatment.
In our analysis, we found 1,338 total
cases assigned to MS–DRG 015 with
average costs of approximately $38,608
and an average length of stay of
approximately 18.8 days. There were
1,092 cases that had a secondary
diagnosis code reported on the claim
that was designated as a CC or an MCC
with average costs of approximately
$40,974 and an average length of stay of
approximately 19.7 days. There were
246 cases without a secondary diagnosis
code reported on the claim that had a
CC or an MCC designation with average
cost of approximately $28,105 and an
average length of stay of approximately
14.6 days. The following table illustrates
our findings:
Number of
cases
MS–DRG
mstockstill on DSK4VPTVN1PROD with RULES2
MS–DRG 015—All cases ........................................................................................................................
MS–DRG 015—Cases with MCC/CC .....................................................................................................
MS–DRG 015—Cases without MCC/CC ................................................................................................
We found that the cases reported with
a secondary diagnosis code of a CC or
an MCC were more costly and had a
longer average length of stay than both
the overall cases assigned to MS–DRG
015 and the cases without a CC or an
MCC. The cases without a CC or an
MCC were less costly and had a shorter
average length of stay than both the
cases with a CC or an MCC and the
overall cases assigned to that MS–DRG.
Based on our analysis, all five criteria
for a subgroup division were met,
thereby supporting a 2-level severity
split for MS–DRG 015. Therefore, for FY
2012, we proposed to delete MS–DRG
015 and create two new MS–DRGs:
• Proposed MS–DRG 016 (Autologous
Bone Marrow Transplant with MCC/
CC); and
• Proposed MS–DRG 017 (Autologous
Bone Marrow Transplant without MCC/
CC).
We invited public comment on our
proposal to delete MS–DRG 015 and
create two new MS–DRGs 016 and 017
for autologous bone marrow transplant
for FY 2012.
Comment: Several commenters
supported our proposed changes for a 2level severity split for autologous bone
marrow transplant cases. One
commenter stated that it appreciated
CMS’ further refinement to account for
severity of illness as it reflects current
experience with transplant eligible
patients who present with a range of
comorbidities and other complicating
factors.
Response: We appreciate the support
of the commenters.
Comment: One commenter disagrees
with our proposed refinement of MS–
DRG 014 to account for severity of
illness. The commenter contended that
the recipient patient population for both
autologous and allogeneic transplants is
similar and that recognition of the
variation in the patient population for
both is warranted. The commenter
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requested a re-review of the cost
variances for MS–DRG 014 because
allogeneic transplant patients are often
treated for similar comorbidities as
autologous transplant patients prior to
transplant and during post transplant
care.
Response: As we outlined in the
proposed rule (76 FR 25819), to warrant
creation of a CC or MCC subgroup
within a base MS–DRG, the subgroup
must meet all of the five criteria. MS–
DRG 014 did not meet the criteria for
possible subdivision because at least
500 cases were not in the CC or MCC
subgroup.
After consideration of the public
comments we received, we are
finalizing our proposal to delete MS–
DRG 015 and to create two new MS–
DRGs: MS–DRG 016 (Autologous Bone
Marrow Transplant with CC/MCC); and
MS–DRG 017 (Autologous Bone Marrow
Transplant without CC/MCC). We note
that we have amended the final titles of
new MS–DRGs 015 and 016 to place
‘‘CC’’ before ‘‘MCC.’’
2. MDC 1 (Diseases and Disorders of the
Nervous System): Rechargeable Dual
Array Deep Brain Stimulation System
We received a public comment in
response to the FY 2011 IPPS/LTCH
PPS proposed rule regarding the MS–
DRG assignment for rechargeable dual
array deep brain neurostimulators. In
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50128), we indicated that we
considered this comment outside of the
scope of the proposed rule as we did not
propose any changes for these
procedures for FY 2011. However, we
addressed this issue in the FY 2012
IPPS/LTCH PPS proposed rule.
Deep brain stimulation is a surgical
treatment that involves the implantation
of a neurostimulator, used in the
treatment of essential tremor,
Parkinson’s disease, dystonia, and
chronic pain. The commenter
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1,338
1,092
246
Average
length of
stay
18.8
19.7
14.6
Average
costs
$38,608
40,974
28,105
recommended that CMS assign the
combination of procedure codes
representing rechargeable systems for
deep brain stimulation therapy,
procedure code 02.93 (Implantation or
replacement of intracranial
neurostimulator lead(s)) and procedure
code 86.98 (Insertion or replacement of
dual array rechargeable neurostimulator
pulse generator) to MS–DRG 023
(Craniotomy with Major Device
Implant/Acute Complex CNS PDX with
MCC or Chemo Implant) and MS–DRG
024 (Craniotomy with Major Device
Implant/Acute Complex CNS PDX
without MCC).
The commenter stated that this
recommendation would allow all full
system dual array deep brain
stimulation cases to be appropriately
grouped to the same MS–DRGs.
Currently, procedure codes 02.93 and
86.98 are assigned to MS–DRG 025
(Craniotomy and Endovascular
Intracranial Procedures with MCC), MS–
DRG 026 (Craniotomy and Endovascular
Intracranial Procedures with CC), and
MS–DRG 027 (Craniotomy and
Endovascular Intracranial Procedures
without CC/MCC), while the procedure
codes for the nonrechargeable dual array
systems, procedure codes 02.93 and
86.95 (Insertion or replacement of dual
array neurostimulator pulse generator,
not specified as rechargeable), are
already assigned to MS–DRGs 023 and
024. The commenter stated that the
procedures to implant the rechargeable
and nonrechargeable dual array systems
are similar clinically as well as
comparable in resource utilization.
For the FY 2012 IPPS/LTCH PPS
proposed rule, we analyzed FY 2010
MedPAR data and found a total of 16
full system rechargeable dual array deep
brain stimulation systems reported with
procedure codes 02.93 and 86.98
assigned to MS–DRGs 025 through 027.
We found one case assigned to MS–DRG
025 and one case assigned to MS–DRG
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026. The majority of the cases, 14, were
assigned to MS–DRG 027, with average
costs of approximately $23,870 and an
average length of stay of approximately
2.2 days. We found that the deep brain
stimulation cases assigned to MS–DRG
027 had higher average costs than the
overall cases assigned to MS–DRG 027
of approximately $14,200. However, the
average length of stay was shorter for
these cases than the overall length of
stay for MS–DRG 027 cases of
approximately 3.7 days.
We also examined the data for the
nonrechargeable dual array systems to
assess the commenter’s assumption that
both the rechargeable and
nonrechargeable dual array systems are
similar in resource use. We found 155
total nonrechargeable dual array
systems (procedure codes 02.93 and
86.95) assigned to MS–DRGs 023 and
024. There were 5 cases assigned to MS–
DRG 023, with average costs of
approximately $36,159 and an average
length of stay of approximately 10 days.
We found that the majority of the cases,
150, were assigned to MS–DRG 024,
with average costs of approximately
$25,855 and an average length of stay of
approximately 2.2 days. We believe that
these data support the commenter’s
statement that, for the majority of these
cases, the resource use is similar for
both systems.
For comparison purposes, if we
proposed the changes that the
commenter suggested, those deep brain
stimulation cases currently assigned to
MS–DRG 027 and the one case assigned
to MS–DRG 026 (with average costs of
approximately $27, 836) would be
reassigned to MS–DRG 024. The average
costs of approximately $23,870 of these
deep brain stimulation cases assigned to
MS–DRG 027 are similar to the overall
average costs of approximately $23,249
for MS–DRG 024. The one case assigned
to MS–DRG 025 (with average costs of
approximately $29,361) would be
reassigned to MS–DRG 023 (with
average costs of approximately $34,168).
The following table illustrates our
findings:
Number of
cases
MS–DRG
mstockstill on DSK4VPTVN1PROD with RULES2
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
023—All cases ........................................................................................................................
023—Cases with codes 02.93 and 86.95 ...............................................................................
024—All cases ........................................................................................................................
024—Cases with codes 02.93 and 86.95 ...............................................................................
025—All cases ........................................................................................................................
025—Cases with codes 02.93 and 86.98 ...............................................................................
026—All cases ........................................................................................................................
026—Cases with codes 02.93 and 86.98 ...............................................................................
027—All cases ........................................................................................................................
027—Cases with codes 02.93 and 86.98 ...............................................................................
Based on our findings, in the
proposed rule, we indicated that we
believe that the data support reassigning
the combination of procedure codes
representing rechargeable systems for
deep brain stimulation therapy, code
02.93 and code 86.98, to MS–DRGs 023
and 024. Our clinical advisors support
this reassignment. Therefore, we
proposed to assign rechargeable dual
array systems for deep brain stimulation
cases identified by reporting both
procedure codes 02.93 and 86.98 to MS–
DRGs 023 and 024 for FY 2012. We
invited public comment on our proposal
to assign these cases to MS–DRG 023
and 024 for FY 2012.
Comment: Several commenters
supported our proposal to reassign
rechargeable dual array deep brain
stimulation cases.
Response: We appreciate the support
of the commenters. As stated above, we
believe that the assignment of these
cases to MS–DRG 023 and 024 is
appropriate.
After consideration of public
comments we received, we are adopting
as final our proposal to assign
rechargeable dual array systems for deep
brain stimulation cases identified by
reporting both procedure codes 02.93
and 86.98 to MS–DRGs 023 and 024 for
FY 2012.
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3. MDC 3 (Diseases and Disorders of the
Ear, Nose, Mouth, and Throat): Skull
Based Surgeries
We received a request from a
commenter recommending that CMS
reclassify skull-based surgical
procedures that are currently assigned
to MS–DRGs 135 and 136 (Sinus and
Mastoid Procedures with CC/MCC and
without CC/MCC, respectively) and
reassign them to MS–DRGs 025, 026,
and 027 (Craniotomy and Endovascular
Intracranial Procedures with MCC, with
CC, and without CC/MCC, respectively).
The commenter stated that the current
MS–DRG assignment does not reflect
the resource utilization and technical
complexity of these difficult procedures
when performed for anterior skull base
tumors.
Skull (or cranial) based surgery is
performed for a variety of serious
medical conditions including
esthesioneuroblastomas, which are rare,
malignant tumors that arise from the
epithelium overlying the olfactory bulb;
sinonasal melanomas, which are
malignant melanomas that may develop
in the mucosa of the nose and sinuses;
and sinonasal undifferentiated
carcinomas, which are rapidly growing
malignant tumors arising in the nasal
cavity and/or sinuses. These types of
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51527
4,238
5
1,592
150
11,505
1
9,782
1
10,936
14
Average
length of
stay
11.8
10.0
7.6
2.2
11.0
2.0
7.0
3.0
3.7
2.2
Average
costs
$34,168
36,159
23, 249
25,855
29,524
29, 361
19,125
27,836
14,200
23,870
conditions are generally identified by
the following ICD–9–CM diagnosis
codes:
• 160.0 (Malignant neoplasm of nasal
cavities)
• 160.1 (Malignant neoplasm of
auditory tube, middle ear, and
mastoid air cells)
• 160.2 (Malignant neoplasm of
maxillary sinus)
• 160.3 (Malignant neoplasm of
ethmoidal sinus)
• 160.4 (Malignant neoplasm of frontal
sinus)
• 160.5 (Malignant neoplasm of
sphenoidal sinus)
• 160.8 (Malignant neoplasm of other
accessory sinuses)
• 160.9 (Malignant neoplasm of
accessory sinus, unspecified)
• 210.7 (Benign neoplasm of
nasopharynx)
• 212.0 (Benign neoplasm of nasal
cavities, middle ear, and accessory
sinuses)
According to the commenter,
procedure code 22.63 (Ethmoidectomy)
describes the type of surgery being
performed for these patients and is
currently assigned to MS–DRGs 135 and
136.
For the FY 2012 IPPS/LTCH PPS
proposed rule, using the FY 2010
MedPAR file, we examined data on
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cases identified by procedure code
22.63 when reported with one of the
above listed diagnosis codes in MS–
DRGs 135 and 136. We found a total of
402 cases in MS–DRG 135 with an
average length of stay of 6.30 days and
average costs of $12,869. We found only
23 cases in MS–DRG 135 identified by
procedure code 22.63 with one of the
diagnosis codes listed above with an
average length of stay of 3.96 days and
average costs of $10,510. In MS–DRG
136, there were a total of 320 cases with
an average length of stay of 2.36 days
and average costs of $6,683. We found
only 27 cases in MS–DRG 136 identified
by procedure code 22.63 with one of the
diagnosis codes listed above with an
average length of stay of 2.04 days and
average costs of $6,844. As shown in the
table below, the cases reporting
procedure code 22.63 in MS–DRGs 135
and 136 have a lower volume, a shorter
length of stay, and primarily lower
average costs compared to all cases in
MS–DRGs 135 and 136. As we indicated
in the proposed rule, the data
demonstrated that these cases are
appropriately assigned to their current
MS–DRG classifications.
Number of
cases
MS–DRG
MS–DRG 135—All cases ........................................................................................................................
MS— DRG 135—Cases with procedure code 22.63 and diagnosis code 160.0 through 160.9 or
210.7 or 212.0 ......................................................................................................................................
MS–DRG 136—All cases ........................................................................................................................
MS–DRG 136—Cases with procedure code 22.63 and diagnosis code 160.0 through 160.9 or 210.7
or 212.0 ................................................................................................................................................
We also analyzed claims data for MS–
DRGs 25 through 27. We determined
that if the cases identified by procedure
code 22.63 were to be reassigned to MS–
DRGs 25–27, they would be
significantly overpaid. As shown in the
MS–DRG 025—All cases ........................................................................................................................
MS–DRG 026—All cases ........................................................................................................................
MS–DRG 027—All cases ........................................................................................................................
mstockstill on DSK4VPTVN1PROD with RULES2
4. MDC 5 (Diseases and Disorders of the
Circulatory System)
a. Percutaneous Mitral Valve Repair
With Implant
Procedure code 35.97 (Percutaneous
mitral valve repair with implant) was
created for use beginning October 1,
2010 (FY 2011) after the concept of a
percutaneous valve repair was
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Frm 00054
402
6.30
$12,869
23
320
3.96
2.36
10,510
6,683
27
2.04
6,844
Number of
cases
presented and approved at the February
2010 ICD–9–CM Coordination and
Maintenance Committee Meeting.
Procedure code 35.97 was created at
that time to describe the MitraClipTM
device and any other percutaneous
mitral valve repair devices currently on
the market. This procedure code is
assigned to the following MS–DRGs: 231
and 232 (Coronary Bypass with PTCA
with MCC and without MCC,
respectively); 246 (Percutaneous
Cardiovascular Procedure with DrugEluting Stent with MCC or 4+ Vessels/
Stents); 247 (Percutaneous
Cardiovascular Procedure with 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
Fmt 4701
Sfmt 4700
Average
costs
table below, we found that the average
costs for these MS–DRGs range from
$14,200 to $29,524.
MS–DRG
In summary, we indicated in the
proposed rule that the data did not
support moving cases with procedure
code 22.63 when reported with one of
the previously listed diagnosis codes
from MS–DRGs 135 and 136 to MS–
DRGs 25, 26 and 27. We invited public
comment on our proposal not to make
any MS–DRG modifications for these
codes for FY 2012.
Comment: Several commenters
supported our proposal to not make any
revisions to reclassify skull-based
surgical procedures that are currently
assigned to MS–DRGs 135 and 136 and
reassign them to MS–DRGs 025, 026,
and 027.
Response: We appreciate the
commenters’ support.
After consideration of the public
comment we received, we are finalizing
our proposal to not make any
modifications for skull-based surgeries
for FY 2012.
Average
length of
stay
11,505
9,782
10,936
Average
length of
stay
10.95
7.00
3.71
Average
costs
$29,524
19,125
14,200
believe that the most likely MS–DRG
assignments would be MS–DRGs 250
and 251, as described above. However,
because procedure code 35.97 has only
been in use since October 1, 2010, there
are no claims data in the most recent
MedPAR update file with which to
evaluate any alternative MS–DRG
assignments. Therefore, we did not
propose to make any MS–DRG changes
for procedure code 35.97 for FY 2012.
We proposed to keep procedure code
35.97 in its current MS–DRG
assignments. We invited public
comment on this proposal.
Comment: Several commenters
addressed our proposal. One commenter
supported our proposal not to make any
MS–DRG changes in the current
assignment of procedure code 35.97, but
also recommended that CMS review the
MS–DRG assignment for FY 2013 when
more claims data become available. In
addition, one commenter indicated that
it ‘‘* * * has no objections to CMS’
proposed changes to the MS–DRG
classifications and the Medicare Code
Editor, which seem reasonable, given
the data and information provided.’’
Response: We appreciate the
commenters’ support and suggestion.
After consideration of the public
comments we received, we are adopting
as final without modification our
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proposal to keep procedure code 35.97
(Percutaneous mitral valve repair with
implant) in its current MS–DRG
assignments of 231 and 232 (Coronary
Bypass with PTCA with MCC and
without MCC, respectively); 246
(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).
In addition, we plan to conduct a
review of the MedPAR data for code
35.97 in our next annual IPPS update
cycle (that is, for FY 2013) to determine
if the MS–DRG assignments as listed
above are the most appropriate MS–
DRGs for this procedure.
b. Aneurysm Repair Procedure Codes
Thoracic aorta defects, such as
aneurysm, dissection, or injury, are
uncommon but serious conditions that
may arise from a disease or an accident.
Some patients can be medically
managed but most are treated with
surgery. Often these defects result in
death if they are not diagnosed and
treated promptly. Currently, there are
two techniques used for repair of aortic
defects; both are O.R. procedures
performed in an inpatient hospital
setting. These two procedures are
described by ICD–9–CM procedure
codes 38.45 (Resection of vessel with
replacement, thoracic vessel) and 39.73
(Endovascular implantation of graft in
thoracic aorta). Both procedure codes
38.45 and 39.73 are currently assigned
to MS–DRGs 237 (Major Cardiovascular
Procedures with MCC or Thoracic
Aortic Aneurysm Repair) and 238
(Major Cardiovascular Procedures
without MCC).
We received a request that we
consider the reassignment of procedure
codes 38.45 and 39.73 within the MS–
DRG structure by removing the
procedure codes from MS–DRGs 237
and 238 and adding them to a more
clinically coherent set of MS–DRGs
reflecting higher resource consumption.
The requestors believed that, based on
their analysis of MedPAR claims data of
MS–DRGs 237 and 238, the resource
utilization of both the endovascular and
open repairs of the abdominal and
thoracic aortas are higher than the
overall average resource utilization for
the MS–DRGs to which these
procedures are currently assigned. The
requestors also believed that an
unusually high number of cases
probably fall into cost outlier status.
For the FY 2012 IPPS/LTCH PPS
proposed rule, we reviewed the
MedPAR claims data for these two
procedure codes. Our findings are
shown in the following two tables.
Number of
cases
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
237—All cases ........................................................................................................................
237—Cases with procedure code 39.73 ................................................................................
237—Cases without procedure code 39.73 ...........................................................................
238—All cases ........................................................................................................................
238—Cases with procedure code 39.73 ................................................................................
238—Cases without procedure code 39.73 ...........................................................................
237—All cases ........................................................................................................................
237—Cases with procedure code 38.45 ................................................................................
237—Cases without procedure code 38.45 ...........................................................................
238—All cases ........................................................................................................................
238—Cases with procedure code 38.45 ................................................................................
238—Cases without procedure code 38.45 ...........................................................................
mstockstill on DSK4VPTVN1PROD with RULES2
Our findings of the analysis of the
cases with procedure code 39.73
showed that the average costs are
substantially higher than those costs for
the cases overall in both MS–DRGs 237
and 238. We found that the average
length of stay for the 1,851 cases
identified in MS–DRG 237 is somewhat
lower at 7.73 days than the average
length of stay of 10.26 days in cases not
containing procedure code 39.73.
Our findings of the analysis of the
cases with procedure code 38.45
showed that both the average costs and
the average length of stay are
considerably higher than the average
costs and the average length of stay for
those cases without procedure code
38.45.
In addition, we reviewed the cases in
which both procedure codes 38.45 and
39.73 were documented during the same
Number of
cases
237—All cases ........................................................................................................................
237—Cases with procedure code 39.73 and without procedure code 38.45 ........................
237—Cases with procedure code 38.45 and without procedure code 39.73 ........................
238—All cases ........................................................................................................................
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20,680
448
20,234
35,705
466
35,239
Fmt 4701
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Average
length of
stay
10.03
7.73
10.26
4.08
0
4.08
Average
length of
stay
10.03
13.29
9.96
4.08
7.29
4.03
Average
costs
$34,268
41,033
33,603
20,597
0
20,597
Average
costs
$34,268
51,953
33,878
20,597
30,219
20,465
admission. As can be seen in the charts
below, we found 22 cases in which both
procedure codes 38.45 and 39.73 were
reported. Therefore, the sum of the
values in the next two charts below will
differ from the charts above because the
cases containing both procedure codes
have been removed and the data have
been reworked.
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
20,680
1,851
18,829
35,705
0
35,705
Number of
cases
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
51529
E:\FR\FM\18AUR2.SGM
20,680
1,829
424
35,705
18AUR2
Average
length of
stay
10.03
7.68
13.36
4.08
Average
costs
$34,268
40,862
51,783
20,597
51530
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
Number of
cases
MS–DRG
MS–DRG 238—Cases with procedure code 39.73 and without procedure code 38.45 ........................
MS–DRG 238—Cases with procedure code 38.45 and without procedure code 39.73 ........................
Number of
cases
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
237—All cases ........................................................................................................................
237—Cases with procedure code 38.45 and with procedure code 39.73 .............................
237—Cases without procedure code 38.45 or procedure code 39.73 ..................................
238—All cases ........................................................................................................................
238—Cases with procedure code 38.45 and with procedure code 39.73 .............................
238—Cases without procedure code 38.45 or procedure code 39.73 ..................................
We found in our analysis of the
claims data for cases with both
procedure codes 38.45 and 39.73 that
the average costs are substantially
higher than those costs for the cases
overall in MS–DRG 237. In addition, we
found that the average length of stay for
the 22 cases with both procedure codes
38.45 and 39.73 is higher at 11.86 days
than the average length of stay of 10.03
days for all cases in MS–DRG 237.
Our analysis of the claims data for the
procedure codes in MDC 5 showed that
procedure code 38.45 is also assigned to
MS–DRGs 228 (Other Cardiothoracic
Procedures with MCC), 229 (Other
Cardiothoracic Procedures with CC),
and 230 (Other Cardiothoracic
Procedures without CC/MCC) when it
occurs in combination with procedure
code 38.44 (Resection of vessel with
replacement, aorta, abdominal).
Procedure code 39.73 is not assigned to
MS–DRGs 228 through 230, and review
of the data showed that there were no
Number of
cases
MS–DRG 228—All cases ........................................................................................................................
MS–DRG 228—Cases with procedure code 38.45 and procedure code 38.44 .....................................
MS–DRG 228—Cases without procedure code 38.45 and without procedure code 38.44 ...................
MS–DRG 229—All cases ........................................................................................................................
MS–DRG 229—Cases with procedure code 38.45 and procedure code 38.44 .....................................
MS–DRG 229—Cases without procedure code 38.45 and without procedure code 38.44 ...................
MS–DRG 230—All cases ........................................................................................................................
MS–DRG–230—Cases with procedure code 38.45 and procedure code 38.44 ....................................
MS–DRG 230—Cases without procedure code 38.45 and without procedure code 38.44 ...................
DRGs 237 and 238 and the 912 cases
containing procedure code 38.45 in MS–
DRGs 237 and 238 to determine if they
would meet the established criteria for
a 3-way severity of illness split. This
criterion is described in section III.G.1.c.
of this preamble. The chart below shows
our findings, with MS–DRG 237 acting
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2,084
276
1,808
2,354
157
2,197
628
34
594
Number of
cases
237–1—All cases ....................................................................................................................
237–1—Cases with procedure code 39.73 ............................................................................
237–1—Cases with procedure code 38.45 ............................................................................
237–2—All cases ....................................................................................................................
237–2—Cases with procedure code 39.73 ............................................................................
237–2—Cases with procedure code 38.45 ............................................................................
237–3—All cases ....................................................................................................................
237–3—Cases with procedure code 39.73 ............................................................................
237–3—Cases with procedure code 38.45 ............................................................................
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Average
length of
stay
10.03
11.86
10.19
4.08
0
4.03
0
30,219
Average
costs
$34,268
55,243
33,184
20,597
0
20,465
Average
length of
stay
13.79
15.18
13.58
8.31
10.68
8.14
5.45
7.18
5.35
Average
costs
$49,488
56,246
48,456
31,148
37,723
30,678
24,236
27,054
24,075
as a severity of illness proxy for all
cases, as there were no cases in MS–
DRG 238. In the chart, the extensions
‘‘–1,’’ ‘‘–2,’’ and ‘‘–3’’ correspond to
severity levels, with ‘‘–1’’ representing
cases with MCC, ‘‘–2’’ representing
cases with CC, and ‘‘–3’’ representing
cases without CC/MCC.
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
20,680
22
18,405
35,705
0
35,239
0
7.29
Average
costs
cases that had been reported in these
MS–DRGs.
The table below shows our findings of
the average costs and the average length
of stay for procedure code 38.45
reported in combination with procedure
code 38.44 in MS–DRGs 228 through
230 and the average costs and the
average length of stay in all cases in
MS–DRGs 228 through 230 when both
procedure codes 38.45 and 38.44 are not
assigned.
MS–DRG
Our findings show that both the
average length of stay and average costs
are higher in those cases containing
procedure code 38.45 than those cases
without this procedure code in MS–
DRGs 228 through 230.
We then analyzed the 1,851 cases
containing procedure code 39.73 in MS–
0
466
Average
length of
stay
E:\FR\FM\18AUR2.SGM
20,680
637
446
17,356
659
353
18,349
555
113
18AUR2
Average
length of
stay
10.03
12.14
13.29
5.73
6.89
8.14
2.52
3.65
6.30
Average
costs
$34,268
57,834
51,954
22,083
38,673
31,480
19,183
27,993
26,280
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Our next step was to analyze the
claims data for the cases in the
clinically coherent MS–DRGs to which
we proposed to move these cases. These
six MS–DRGs are: 216 (Cardiac Valve &
Other Major Cardiothoracic Procedures
with Cardiac Catheterization with
MCC); 217 (Cardiac Valve & Other Major
Cardiothoracic Procedures with Cardiac
Catheterization with CC); 218 (Cardiac
Valve & Other Major Cardiothoracic
Procedures with Cardiac Catheterization
without CC/MCC); 219 (Cardiac Valve &
Other Major Cardiothoracic Procedures
without Cardiac Catheterization with
MCC), 220 (Cardiac Valve & Other Major
Cardiothoracic Procedures without
Cardiac Catheterization with CC); and
221 (Cardiac Valve & Other Major
Cardiothoracic Procedures without
Cardiac Catheterization without CC/
MCC). For the sake of the grouping
algorithm, procedure codes 39.73 and
38.45 must also be added to MS–DRGs
216 through 219. However, if these
codes are documented in cases in which
a cardiac catheterization occurs, they
will be ‘‘trumped’’ by those
catheterizations. Therefore, when we
reviewed the data in order to make
length of stay and cost comparisons, we
only used the three MS–DRGs to which
procedure codes 39.73 and 38.45 would
appear without cardiac catheterization;
that is MS–DRGs 219, 220, and 221. Our
findings describing these three MS–
DRGs are displayed in the following
chart:
Number of
cases
MS–DRG
mstockstill on DSK4VPTVN1PROD with RULES2
MS–DRG 219 ..........................................................................................................................................
MS–DRG 220 ..........................................................................................................................................
MS–DRG 221 ..........................................................................................................................................
Our evaluation of the severity levels
in the cases containing procedure codes
39.73 and 38.45 using the proxy MS–
DRGs 237–1, 237–2, and 237–3
compared to the claims data in the table
above with MS–DRGs 219 through 221
demonstrates that the cases are similar
in resource consumption. In addition,
the cases are clinically coherent.
We indicated in the proposed rule
that, by moving procedure code 38.45 to
MS–DRGs 216 through 221, we did not
believe that there is a need for
combination codes 38.45 plus 38.44 to
be specifically assigned to MS–DRGs
228, 229, and 230. Because MS–DRGs
216 through 221 are higher in the
surgical hierarchy for MDC 5 than MS–
DRGs 228 through 230, the result of the
proposal would be that either procedure
code 38.45 by itself or in combination
with procedure code 38.44 will always
be assigned to MS–DRGs 216 through
221. We indicated that when reported
alone, under this policy, procedure code
38.44 would continue to be assigned to
MS–DRGs 237 and 238, as it has been
in the past.
Therefore, for FY 2012, we proposed
to remove procedure codes 38.45 and
39.73 from MS–DRGs 237 and 238 and
to add these codes to MS–DRGs 216,
217, 218, 219, 220, and 221 based on
our findings of similar resource
consumption and clinical coherence. To
conform to this proposed change, we
also proposed to revise the title of MS–
DRG 237 (Major Cardiovascular
Procedures with MCC or Thoracic
Aortic Aneurysm Repair) by removing
the terms ‘‘or Thoracic Aortic Aneurysm
Repair.’’ Therefore, the new proposed
title of MS–DRG 237 was ‘‘Major
Cardiovascular Procedures with MCC.’’
We invited public comment on these
proposals.
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Comment: Several commenters
supported the proposed changes.
Response: We appreciate the
commenters’ support.
Therefore, as we proposed, we are
adopting our proposed changes as final.
In summary, we are removing procedure
codes 38.45 and 39.73 from MS–DRGs
237 and 238 and adding these two codes
to the following six MS–DRGs: 216; 217;
218; 219; 220; and 221. In addition, we
are revising the title of MS–DRG 237 to
read ‘‘Major Cardiovascular Procedures
with MCC.’’ The title of MS–DRG 238
(Major Cardiovascular Procedures
without MCC) will remain the same.
5. MDC 8 (Diseases and Disorders of the
Musculoskeletal System and Connective
Tissue)
a. Artificial Discs
In response to the FY 2011 IPPS/
LTCH PPS proposed rule, we received a
public comment that was outside of the
scope of any proposal in that proposed
rule. The commenter urged CMS to
reassign procedure code 84.62 (Insertion
of total spinal disc prosthesis, cervical)
from MS–DRG 490 (Back and Neck
Procedures Except Spinal Fusion with
CC/MCC or Disc Device/
Neurostimulator) into MS–DRGs 471
through 473 (Cervical Spinal Fusion
with MCC, with CC, and without CC/
MCC, respectively). In addition, the
commenter requested that CMS reassign
procedure code 84.65 (Insertion of total
spinal disc prosthesis, lumbosacral)
from MS–DRG 490 (Back and Neck
Procedures Except Spinal Fusion with
CC/MCC or Disc Device/
Neurostimulator) to MS–DRGs 459 and
460 (Spinal Fusion Except Cervical with
MCC and without MCC, respectively).
However, the commenter also provided
an alternative option to reassigning the
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51531
12,805
15,988
4,043
Average
length of
stay
12.76
7.65
5.90
Average
costs
$51,399
34,270
28,974
procedure codes to different MS–DRGs.
The commenter suggested the creation
of a new, separate MS–DRG for the two
artificial disc procedures if
reassignment to the fusion MS–DRGs
was not feasible.
We refer the reader to the FY 2008
IPPS proposed rule and final rule with
comment period (72 FR 24731 through
24735 and 47226 through 47232) for
discussion on the comprehensive
evaluation of all the spinal DRGs in the
development of the MS–DRG
classification system. The modifications
made to the spinal DRGs for FY 2008
recognized the similar utilization of
resources, differences in levels of
severity, and the complexity of the
services being performed on patients
undergoing the various types of spinal
procedures.
For the FY 2012 IPPS/LTCH PPS
proposed rule, we analyzed FY 2010
MedPAR claims data for procedure
codes 84.62 and 84.65 in MS–DRG 490
and compared those results to the
claims data for MS–DRGs 459, 460, 471,
472, and 473. We found a total of 19,840
cases in MS–DRG 490 with an average
length of stay of 4.24 days and average
costs of $11,940. As displayed in the
chart below, we found 97 cases
reporting procedure code 84.62, with an
average length of stay of 1.80 days and
average costs of $13,194 in MS–DRG
490. We also found 35 cases reporting
procedure code 84.65, with an average
length of stay of 2.91 days and average
costs of $20,753. While average costs for
the artificial disc cases were slightly
higher ($1,254 for procedure code 84.62
and $8,813 for procedure code 84.65)
compared to the average cost for all
cases in MS–DRG 490, the artificial disc
cases were of extremely low volume and
reflected shorter lengths of stay
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compared to all the cases in MS–DRG
490.
Number of
cases
MS–DRG
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MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
459—All cases ........................................................................................................................
460—All cases ........................................................................................................................
471—All cases ........................................................................................................................
472—All cases ........................................................................................................................
473—All cases ........................................................................................................................
490—All cases ........................................................................................................................
490—Cases with code 84.62 ..................................................................................................
490—Cases with code 84.65 ..................................................................................................
We recognized the disparity in
average costs for cases reporting the
insertion of a cervical or lumbar
artificial disc in MS–DRG 490 compared
to all the cases in that MS–DRG.
However, we did not believe this
supports reassignment of procedure
codes 84.62 and 84.65 to the MS–DRGs
for spinal fusion as the commenter
requested. Even with the disparity in
costs, clinically, the insertion of an
artificial disc is not a spinal fusion.
Therefore, reassignment of the artificial
disc cases to the fusion MS–DRGs
would be clinically inappropriate. In
addition, for certain Medicare
populations, the insertion of an artificial
disc is considered a noncovered
procedure.
As stated earlier, the commenter also
provided an alternative option to
reassigning procedure codes 84.62 and
84.65. The commenter suggested the
creation of a new, separate MS–DRG for
the two artificial disc procedures if
reassignment to the fusion MS–DRGs
was not feasible. In our evaluation of the
claims data and as shown above in the
data chart, the artificial disc cases are of
extremely low volume; therefore, we do
not believe the findings warrant the
creation of a separate MS–DRG.
We invited public comment on our
proposal not to reassign procedure code
84.62 from MS–DRG 490 to MS–DRGs
471 through 473 and procedure code
84.65 from MS–DRG 490 to MS–DRGs
459 and 460. We also invited public
comment on our proposal not to create
a new, separate MS–DRG for artificial
disc procedures (codes 84.62 and 84.65)
for FY 2012.
Comment: Several commenters
supported our proposal not to create a
new MS–DRG for artificial disc
procedures, as well as not to reassign
the procedure codes for insertion of a
cervical or lumbar artificial disc (codes
84.62 and 84.65) to the fusion MS–DRGs
(459 and 460 and 471 through 473). One
commenter agreed with our statement
that the insertion of an artificial disc is
not the same as a fusion and should not
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16:07 Aug 17, 2011
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be included in the fusion MS–DRGs.
Another commenter agreed that
reassignment of the artificial discs to the
fusion MS–DRGs does not appear to be
a clinically appropriate classification
despite comparative costs. This
commenter believed that limitations in
the data, such as the low volume of
cases, may be due to artificial discs
being a noncovered procedure for
certain Medicare populations and
recommended revisiting our analysis for
a new separate MS–DRG if the coverage
policy is revised in the future.
Response: We appreciate the
commenters’ support for our proposals.
We also acknowledge the commenters
recommendation to conduct further
analysis for total disc replacement
procedures should the coverage policy
pertaining to certain Medicare
populations be modified in the future.
Comment: One commenter expressed
appreciation to CMS for reviewing the
current MS–DRG assignment for total
disc replacement (TDR) procedures
involving the cervical and lumbar areas.
However, the commenter disagreed with
the proposed rule analysis, stating it
was limited to only the MedPAR
database. The commenter believed that
information from two publicly available
databases, the Healthcare Cost and
Utilization Project (HCUP) database and
the California Patient Discharge
database, support modifications to the
TDR procedures. According to the
commenter, ‘‘CMS’ current MS–DRG
assignment and resulting
reimbursement at thirty to fifty percent
(30–50%) of fusion procedures is well
below the average eighty-eight percent
(88%) ratio of TDR to fusion charges
observed in the two additional
databases analyzed.’’
The commenter acknowledged that
procedure code 84.62 and procedure
code 84.65 are currently assigned to
MS–DRG 490, regardless of whether or
not the patient has a CC or MCC. The
commenter also acknowledged the
evaluation of the spinal procedure MS–
DRGs in the FY 2008 IPPS proposed and
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3,650
60,865
2,686
8,586
24,323
19,840
97
35
Average
length of
stay
8.92
3.75
8.92
3.78
1.80
4.24
1.80
2.91
Average
costs
$40,218
25,268
29,837
18,494
13,775
11,940
13,194
20,753
final rules (72 FR 24731 through 24735
and 47226 through 47232), respectively.
However, according to the commenter,
the MS–DRG assignment for TDR
procedures requires a more recent and
thorough evaluation.
The commenter provided a
comparison of how TDR procedures
differ from other procedures assigned to
MS–DRG 490. The commenter also
stated that TDR procedures are more
complex than other procedures in the
MS–DRG. For example, the commenter
noted that MS–DRG 490 includes
procedure codes 84.58 and 84.59,
representing spinal disc devices such as
the X–Stop, Coflex, Dynesys, and M–
Brace which do not involve removal of
a disc. The commenter also noted that
procedure code 80.51 (Excision of
intervertebral disc), which comprises
only one aspect of the total surgery
required for TDR, is assigned to the
same MS–DRG. The commenter further
noted that because the two procedures
are in the same MS–DRG, the hospital
payment is the same for both
procedures.
In addition, the commenter included
a comparison of TDR cases and fusion
cases, noting that there appeared to be
greater similarity in resource use
between fusion and TDR procedures
than between TDR and other procedures
in MS–DRG 490. The commenter
reported that TDR is an alternative
treatment option to spinal fusion and
that patients receiving TDR have the
same diagnosis as those receiving spinal
fusion. In terms of similarity, the
commenter stated that during both a
TDR and spinal fusion surgery, the
affected disc is removed, allowing
normal disc height to be restored by the
use of an implant. In spinal fusion,
stability of the spinal segment is
accomplished by the use of an implant
and instrumentation such as plates, rods
or screws and use of bone graft
promotes osseous fusion of the
vertebrae. For TDR procedures, an
implant that allows motion is inserted
into the disc space. According to the
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commenter, these factors demonstrate
clinical homogeneity and resource
utilization for both TDR and spinal
fusion.
The commenter did not dispute our
findings that TDR procedures have
shorter lengths of stay and are higher in
costs compared to other procedures
within MS–DRG 490. The commenter
also acknowledged that TDR procedures
are low volume and represent a fraction
of all the procedures assigned to the
MS–DRG.
Response: We appreciate and
acknowledge the commenter’s provision
of data related to the HCUP database
and the California Patient Discharge
database. However, we point out that
the commenter failed to identify the
data related to each specified type of
artificial disc replacement procedure in
its analysis. We do not consider the data
to be reliable for purposes of
determining MS–DRG reclassifications
in the form provided, as the data do not
identify the number of cases, average
length of stay, or average costs
associated with a cervical versus a
lumbar disc replacement. Further, in its
own submitted comments, the
commenter notes that the data provided
were based on charges, not costs. In
addition, as stated in the FY 2012 IPPS
proposed rule (76 FR 25800), in order
for us to consider using particular nonMedPAR data, we must have sufficient
time to evaluate and test the data. This
allows us time to test the data and make
a preliminary assessment as to the
feasibility of using the data. We evaluate
patient care costs using average charges
and lengths of stay as proxies for costs
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. We also
consider variations and whether
observed average differences are
consistent across patients or attributable
to cases that were extreme in terms of
charges, length of stay, or both. Lastly,
we consider the number of patients who
will 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.
In response to the commenter’s
comparison of how TDR procedures
differ from other procedures in MS–
DRG 490, we point out that procedure
code 84.58 (Implantation of
interspinous process decompression
device), which previously identified the
X–Stop device, was deleted effective
October 1, 2007 (FY 2008). In addition,
the other spinal disc devices that were
noted by the commenter (Coflex,
Dynesys, and M–Brace) were reassigned
from procedure code 84.59 (Insertion of
other spinal devices) to unique codes
that were created in response to
industry requests to describe a newer
category of devices identified as motion
preserving technologies. This new
procedure code category, 84.8
(Insertion, replacement and revision of
posterior spinal motion preservation
device(s)), also became effective as of
October 1, 2007 (FY 2008). As discussed
above, the commenter recommended
that CMS conduct a more recent and
thorough evaluation of the spinal
procedures in MS–DRG 490. However,
in its own submitted comments, the
commenter referred to outdated, deleted
codes for its comparison to TDR.
With regard to clinical homogeneity
and resource utilization, spinal fusion,
TDR and a subset of the motion
preserving technologies utilizing
implant devices that allow motion in
the spinal column were discussed
extensively as noted above in the FY
2008 IPPS proposed rule and final rule
with comment period (72 FR 24731
through 24735 and 47226 through
47232), respectively.
We will continue to evaluate the MS–
DRGs on an annual basis and to respond
to requests for code reassignments and
MS–DRG reclassifications. We
performed an analysis of the cervical
and lumbar artificial disc replacement
procedures in comparison to the fusion
MS–DRGs in response to the
commenter’s request, as described
above. Our data did not support
reassignment of the artificial disc
replacement codes, nor did our clinical
advisors agree that these procedures are
clinically coherent to be grouped in the
same MS–DRGs. In addition, the data
did not support the creation of a new,
separate MS–DRG for total disc
replacement procedures.
As mentioned previously, we
performed a comprehensive analysis of
all the spinal DRGs in our FY 2008
rulemaking process and we recognized
the costs of procedures involving
insertion of a disc device. As a result,
we modified MS–DRG 490 (the higher
severity level) to include those
procedures with disc devices. The data
analysis conducted at that time
supported that modification.
We will continue to monitor the
resource utilization of procedure codes
84.62 and 84.65 to determine if future
MS–DRG reassignments are warranted.
After consideration of the public
comments we received, we are
finalizing our proposal to not create a
new, separate MS–DRG for cervical or
lumbar total disc replacement
procedures and to not reassign
procedure code 84.62 from MS–DRG
490 to MS–DRGs 471 through 473 and
procedure code 84.65 from MS–DRG
490 to MS–DRGs 459 and 460 for FY
2012.
b. Major Joint Replacement or
Reattachment of Lower Extremities
We received a request to add an
additional severity level for MS–DRG
469 (Major Joint Replacement or
Reattachment of Lower Extremity with
MCC) and MS–DRG 470 Major Joint
Replacement or Reattachment of Lower
Extremity without MCC). For the FY
2012 IPPS/LTCH PPS proposed rule, we
examined FY 2010 MedPAR claims data
to determine if we could subdivide the
base MS–DRG into three severity levels:
with MCC, with CC, and without CC/
MCC. We applied the criteria used in
the development of the MS–DRGs
included in the FY 2008 IPPS final rule
with comment period (72 FR 47169). We
refer readers to this final rule with
comment period for a complete
description of these criteria. As
discussed earlier, the original criteria
were based on average charges.
However, subsequent to the FY 2007
IPPS final rule (71 FR 47882), we now
use average costs. The five criteria using
costs are listed below. In order to
warrant creation of a CC or an MCC
subgroup within a base MS–DRG, the
subgroup must meet all of the following
five criteria:
• A reduction in variance of costs of
at least 3 percent.
• At least 5 percent of the patients in
the MS–DRG fall within the CC or MCC
subgroup.
• At least 500 cases are in the CC or
MCC subgroup.
• There is at least a 20-percent
difference in average costs between
subgroups.
• There is a $2,000 difference in
average costs between subgroups
The following table shows our
determination of the number of cases
and average costs by MCC, CC, and nonCC levels.
Number of
cases
MS–DRGs 469 and 470
Cases with MCC ......................................................................................................................................
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51533
E:\FR\FM\18AUR2.SGM
25,717
18AUR2
Average
length of
stay
7.72
Average
costs
$21,016
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
Number of
cases
mstockstill on DSK4VPTVN1PROD with RULES2
MS–DRGs 469 and 470
Average
length of
stay
Average
costs
Cases with CC .........................................................................................................................................
Cases without CC/MCC ...........................................................................................................................
179,116
220,739
3.99
3.21
14,233
13,250
Total ..................................................................................................................................................
425,572
3.8
14,133
We determined that these cases do not
meet our five criteria for adding a new
severity level. The cases failed to meet
criterion four (requiring at least a 20percent difference in average costs
between subgroups) and criterion five
(requiring a $2,000 difference in average
costs between subgroups). Therefore, we
did not propose the addition of a new
severity level for the base MS–DRG.
Instead, we proposed to maintain the
two existing severity levels for MS–
DRGs 469 and 470. We welcomed
public comments on our proposal not to
add an additional severity level to MS–
DRGs 469 and 470.
Comment: Several commenters
supported our proposal to maintain the
two existing severity levels for MS–
DRGs 469 and 470 and not to add a
third severity level. The commenters
stated that the proposal seemed
reasonable, given the data and
information provided.
One commenter opposed our
proposal. The commenter acknowledged
the five criteria used to evaluate the
establishment of a new severity level
and the fact that this set of MS–DRGs
did not meet the criterion requiring at
least a 20-percent difference in average
costs between subgroups or the criterion
requiring a $2,000 difference in average
costs between subgroups. However, the
commenter stated that the large number
of ‘‘with CC’’ cases that are currently
classified in the ‘‘without CC/MCC’’
group places an unfair burden on
providers who treat these patients and
presents a distorted picture of the actual
severity level of cases assigned to those
providers. The commenter believed that
adding an additional severity level to
MS–DRGs 469 and 470 would better
identify those conditions that lead to
higher severity of illness and resource
use relative to the average Medicare
patient.
Another commenter opposed our
proposal of maintaining the current two
severity levels. The commenter stated
that while the data appear to show that
there is not a significant average cost
difference between cases without CC/
MCC compared to cases with CC, the
commenter believed the data are biased.
The commenter believed that diagnoses
that do not affect DRG assignment are
less likely to be reported on claims. The
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16:07 Aug 17, 2011
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commenter speculated that it was
reasonable to assume that, for cases
assigned to these MS–DRGs,
complications and comorbidities are
underreported, as hospitals know that
coding complications and comorbidities
do not result in higher reimbursement.
The commenter stated that a more
reasonable approach would be to
establish a third severity level for major
joint replacement, with the intent of
analyzing the data over the next 2 years
to determine whether this was an
appropriate MS–DRG modification. The
commenter stated that the fact that
‘‘Revision of a Hip or Knee
Replacement’’ has three levels strongly
suggests that three levels would be
appropriate for major joint replacement
also.
Response: We agree with the
commenters’ statements that the data
analysis shows that two of the five
established criteria for creating a new
severity level were not met. The cases
failed to meet criterion two requiring at
least a 20-percent difference in average
costs between subgroups and criterion
five requiring a $2,000 difference in
average costs between subgroups. The
criteria were developed to evaluate the
need for severity levels across all MS–
DRGs. We applied the criteria used in
the development of the MS–DRGs
included in the FY 2008 IPPS final rule
with comment period (72 FR 47169). We
refer readers to that final rule with
comment period for a complete
description of these criteria. As
discussed earlier, the original criteria
were based on average charges.
However, subsequent to the FY 2007
IPPS final rule (71 FR 47882), we now
use average costs. We believe it is
important to apply these criteria
consistently as requests are evaluated to
create new severity levels. The cases in
MS–DRGs 469 and 470 failed to meet
the five criteria for adding a new
severity level. We agree with the
commenters who supported our
proposal to maintain the two existing
severity levels for MS–DRGs 469 and
470 and not creating a third severity
level.
We disagree with the commenters
who stated that CMS should ignore the
criteria and add the additional severity
level. One commenter suggested that we
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could retroactively review this new
severity level by examining claims data
2 years after the update is made. We
believe it is inappropriate to make an
exception to the severity level criteria
based on an assumption that hospitals
may be under reporting secondary
diagnoses that are on the CC list for
certain types of cases. We encourage
hospitals to code and report accurately.
We will continue to review data to
determine if additional severity levels
are needed for specific MS–DRGs based
on our published criteria. We do not
believe it is appropriate to make
exceptions for certain MS–DRGs.
After consideration of the public
comments we received, as we proposed,
we are maintaining MS–DRGs 469 and
470 with the current two severity levels
for FY 2012.
c. Combined Anterior/Posterior Spinal
Fusion
A manufacturer requested that CMS
reassign spinal fusion cases utilizing the
AxiaLIF technology from MS–DRGs 459
and 460 (Spinal Fusion Except Cervical
with MCC and without MCC,
respectively) to MS–DRGs 453, 454, and
455 (Combined Anterior/Posterior
Spinal Fusion with MCC, with CC, and
without CC/MCC, respectively). The
commenter stated that an anterior
lumbar interbody spinal fusion
performed with a lateral approach, the
extreme lateral interbody fusion
(XLIF®), with posterior spinal fixation,
can report two codes resulting in
assignment to the combined fusion MS–
DRGs. The commenter also stated that
the AxiaLIF technology, which is also
utilized in an anterior lumbar interbody
spinal fusion and uses a pre-sacral
approach, can only report one code,
resulting in assignment to the single
fusion MS–DRGs. The commenter
expressed concern that the payment
incentives are not properly aligned for
the recently available minimally
invasive spinal fusion technologies. The
commenter compared the XLIF® to the
AxiaLIF and urged CMS to consider the
AxiaLIF technology similar to the XLIF®
for purposes of MS–DRG assignment.
Spinal fusion is a surgical procedure
that joins two or more vertebrae by the
use of bone graft (or bone graft
substitute), with the goal of maintaining
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18AUR2
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
alignment, providing stability,
decreasing pain, and restoring the
function of the spinal nerves. Routinely,
a spinal fusion also utilizes internal
fixation devices (instrumentation) to
assist in stabilizing the spine. These
fixation devices may include pedicle
screws, cages, rods, or plates. Effective
October 1, 2010, ICD–9–CM procedure
code 81.06 (Lumbar and lumbosacral
fusion of the anterior column, anterior
technique) describes the XLIF®
procedure, and code 81.08 (Lumbar and
lumbosacral fusion of the anterior
column, posterior technique) describes
the AxiaLIF technology.
The spinal fusion codes and their
corresponding MS–DRG assignment
include the use of bone graft and
internal fixation. The requestor’s
comment regarding the assignment of
one procedure code for one technology
versus assigning two procedure codes
for another technology indicates that the
commenter may not fully understand
the MS–DRG GROUPER logic for spinal
fusions. For example, if an anterior
lumbar interbody fusion is performed
and posterior spinal fixation (or
instrumentation) is also utilized, this
requires one code and results in a single
fusion MS–DRG assignment. However,
if a posterior spinal fusion (procedure
code 81.07 (Lumbar and lumbosacral
fusion of the posterior column, posterior
technique) was performed in addition to
an anterior fusion, for example, the
XLIF® procedure (procedure code
81.06), that scenario would necessitate
the assignment of both codes, resulting
in assignment to the combined spinal
fusion MS–DRGs (453, 454, or 455).
MS–DRGs 453, 454, and 455 were
created to capture patients who have
both an anterior and posterior fusion.
We believe the requestor may have
confused the terms ‘‘fixation’’ and
‘‘fusion’’ for MS–DRG assignment in its
request.
For the FY 2012 IPPS/LTCH PPS
proposed rule, we analyzed the FY 2010
MedPAR data to evaluate claims
reporting procedure codes 81.06, 81.07,
and 81.08 in MS–DRGs 456 through 458
(Spinal Fusion Except Cervical with
Spinal Curvature/Malignancy/Infection
or 9+ Fusions with MCC, with CC and
without CC/MCC, respectively) and
MS–DRGs 459 and 460. We found a
total of 1,115 cases in MS–DRG 456,
with an average length of stay of 13.14
days and average costs of $63,856. We
found 278 cases reporting procedure
code 81.08, with an average length of
stay of 12.04 days and average costs of
$56,585. Similar results can be seen for
procedure code 81.08 in the remaining
MS–DRGs as shown in the chart below
in terms of volume, length of stay, and
average cost. Clearly, the data
demonstrate that the AxiaLIF
technology (procedure code 81.08) is
appropriately assigned to its current
MS–DRG assignments, as is the XLIF®
procedure (procedure code 81.06).
Number of
cases
MS–DRG
mstockstill on DSK4VPTVN1PROD 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
456—All cases ........................................................................................................................
456—Cases with code 81.06 ..................................................................................................
456—Cases with code 81.07 ..................................................................................................
456—Cases with code 81.08 ..................................................................................................
457—All cases ........................................................................................................................
457—Cases with code 81.06 ..................................................................................................
457—Cases with code 81.07 ..................................................................................................
457—Cases with code 81.08 ..................................................................................................
458—All cases ........................................................................................................................
458—Cases with code 81.06 ..................................................................................................
458—Cases with code 81.07 ..................................................................................................
458—Cases with code 81.08 ..................................................................................................
459—All cases ........................................................................................................................
459—Cases with code 81.06 ..................................................................................................
459—Cases with code 81.07 ..................................................................................................
459—Cases with code 81.08 ..................................................................................................
460—All cases ........................................................................................................................
460—Cases with code 81.06 ..................................................................................................
460—Cases with code 81.07 ..................................................................................................
460—Cases with code 81.08 ..................................................................................................
We also analyzed data for
combinations of the spinal fusion codes
that result in assignment to MS–DRGs
453, 454, and 455. We evaluated the
following combinations:
• 81.06 (Lumbar and lumbosacral
fusion of the anterior column, anterior
technique) and 81.07 (Lumbar and
lumbosacral fusion of the posterior
column, posterior technique).
• 81.06 (Lumbar and lumbosacral
fusion of the anterior column, anterior
technique) and 81.08 (Lumbar and
lumbosacral fusion of the anterior
column, posterior technique).
We further analyzed data with the
following combination of spinal fusion
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16:07 Aug 17, 2011
Jkt 223001
codes in MS–DRGs 456, 457, and 458
and MS–DRGs 459 and 460:
• 81.07 (Lumbar and lumbosacral
fusion of the posterior column, posterior
technique) and 81.08 (Lumbar and
lumbosacral fusion of the anterior
column, posterior technique).
The chart below shows the results of
the data analysis for the combination of
procedure codes listed above where an
anterior and posterior spinal fusion was
performed in the same episode of care.
There were a total of 1,190 cases in MS–
DRG 453, with an average length of stay
of 13.08 days and average costs of
$71,693. The cases reporting the
combination of procedure codes 81.06
and 81.08 in this same MS–DRG totaled
PO 00000
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51535
1,115
54
22
278
3,079
119
98
1,194
1,389
115
76
827
3,650
164
165
2,468
60,865
2,681
3,709
46,565
Average
length of
stay
13.14
14.37
12.32
12.04
6.74
6.42
6.49
5.73
3.91
3.49
3.16
3.60
8.92
9.12
8.65
8.25
3.75
3.27
3.67
3.66
Average
costs
$63,856
52,392
46,828
56,585
41,500
36,468
36,532
35,272
32,946
29,089
30,551
30,570
40,218
40,150
37,970
38,010
25,268
26,464
23,334
24,571
431, with an average length of stay of
11.59 days and average costs of $69,859.
Results for the procedure code
combination (81.06 and 81.08) in MS–
DRGs 454 and 455 with regard to
volume of cases, length of stay, and
average costs data also support that
these spinal fusion procedure code
combinations are appropriately placed
in their current MS–DRG assignments.
Likewise, for MS–DRGs 456, 457, and
458, the data support that the spinal
fusion procedure code combinations of
81.07 and 81.08 are appropriately
placed in their current MS–DRG
assignments. There were a total of 1,115
cases in MS–DRG 456 with an average
length of stay of 13.14 days and average
E:\FR\FM\18AUR2.SGM
18AUR2
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
costs of $68,856. The cases reporting the
combination of procedure codes 81.07
and 81.08 in this same MS–DRG totaled
54, with an average length of stay of
14.37 days and average costs of $52,392.
Results for the procedure code
combination (81.07 and 81.08) in MS–
DRGs 457 and 458 with regard to
volume of cases and average length of
stay were lower compared to all the
cases in those two MS–DRGs. While the
data show higher average costs for the
procedure code combination of 81.07
and 81.08 in MS–DRGs 457 and 458, as
stated previously, the volume was
extremely low.
Number of
cases
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
453—All cases ........................................................................................................................
453—Cases with codes 81.06 and 81.07 ...............................................................................
453—Cases with codes 81.06 and 81.08 ...............................................................................
454—All cases ........................................................................................................................
454—Cases with codes 81.06 and 81.07 ...............................................................................
454—Cases with codes 81.06 and 81.08 ...............................................................................
455—All cases ........................................................................................................................
455—Cases with codes 81.06 and 81.07 ...............................................................................
455—Cases with codes 81.06 and 81.08 ...............................................................................
456—All cases ........................................................................................................................
456—Cases with codes 81.07 and 81.08 ...............................................................................
457—All cases ........................................................................................................................
457—Cases with codes 81.07 and 81.08 ...............................................................................
458—All cases ........................................................................................................................
458—Cases with code 81.07 and 81.08 ................................................................................
mstockstill on DSK4VPTVN1PROD with RULES2
As the focus of the analysis was to
evaluate procedure code 81.08 in
comparison to procedure code 81.06, we
believe the AxiaLIF technology
(procedure code 81.08) is grouped
appropriately in its current MS–DRG
assignments, as is the XLIF® procedure
(procedure code 81.06). The volume,
length of stay, and cost data analyzed
demonstrate that the complexity of
services and resources utilized for each
of these technologies are properly
accounted for in their respective MS–
DRG assignments. Therefore, the data
did not support making changes for
procedure code 81.08. As a result, we
did not propose to reassign cases
reporting this procedure code to the
combined fusion MS–DRGs. We invited
public comment on our proposal to not
reassign procedure code 81.08 from
MS–DRGs 456 through 460 to MS–DRGs
453 through 455 for FY 2012.
Comment: Several commenters
supported our proposal to not reassign
procedure code 81.08 to MS–DRGs 453
through 455.
Response: We appreciate the
commenters’ support.
After consideration of the public
comments we received, we are
finalizing our proposal to not reassign
procedure code 81.08 to MS–DRGs 453
through 455.
6. MDC 9 (Diseases and Disorders of the
Skin, Subcutaneous Tissue, and Breast):
Excisional Debridement of Wound,
Infection, or Burn
We received a request that we remove
procedure code 86.22 (Excisional
debridement of wound, infection, or
burn) from the list of codes considered
to be O.R. procedures. The commenter
stated that many inpatient excisional
debridements are performed in a
patient’s room instead of in an operating
room. The commenter believed that the
original assignment of procedure code
86.22 to the O.R. list served to help
reflect the resource intensity required by
a patient with wounds and ulcers that
required an excisional debridement. The
commenter stated that, by doing so, the
code served as a proxy for severity of
illness in the original CMS DRGs prior
to the implementation of MS–DRGs in
FY 2008. The commenter stated that the
creation of the most serious pressure
ulcer codes for stage 3 and stage 4
pressure ulcers (codes 707.23 and
707.24) allows these conditions to be
classified as MCCs. Therefore, the
commenter stated that the need to use
procedure code 86.22 to capture severity
Average
length of
stay
1,190
8
431
3,052
47
1,825
2,747
40
2,053
1,115
54
3,079
29
1,389
23
13.08
14.00
11.59
6.38
6.83
5.71
3.63
4.28
3.43
13.14
14.37
6.74
5.97
3.91
3.22
Procedure code
All cases with
no other OR
procedure
Average cost
(A)
86.22 ................................................................................................................
32,152
$12,427
$17,332
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$71,693
109,089
69,859
48,311
60,743
47,144
37,378
47,794
37,793
63,856
52,392
41,500
60,820
32,946
51,942
of illness was no longer needed. The
commenter also stated that procedure
code 86.22 is a non-O.R. code under the
APR–DRGs and does not affect the DRG
assignment. The commenter requested
that procedure code 86.22 be changed
from an O.R. procedure code to a nonO.R. procedure code.
As the commenter stated, excisional
debridements are currently captured in
procedure code 86.22. Procedure code
88.22 is classified as an O.R. procedure
in the current MS–DRGs and, therefore,
leads to a surgical MS–DRG assignment.
We examined MedPAR claims data on
all excisional debridement cases and
found that these debridement cases use
appreciably fewer resources than other
cases in their current surgical DRGs.
However, for the proposed rule, we
determined that if we were to classify
debridement cases as non-O.R. cases
and assign them to medical DRGs, we
would significantly underpay these
cases. The following chart shows
differences in average costs for all
excisional debridement cases compared
to other cases within their current MS–
DRG and compared to medical DRGs to
which the patients would be assigned if
the procedure were reclassified as a
non-O.R. procedure.
Average costs
in surgical
DRGs to
which the
patients are
assigned
(B)
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Average
costs
E:\FR\FM\18AUR2.SGM
18AUR2
Average costs
in medical
DRGs to
which the
patients would
be assigned
(C)
$8,070
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
The chart illustrates that when
debridement is the only O.R. procedure,
it is assigned to MS–DRGs that have an
average cost that is approximately
$5,000 more than the actual cost of the
debridement ($12,427 versus $17,332).
Conversely, if the debridement is made
a non-O.R. code, it would, on average,
be assigned to MS–DRGs that have an
average cost that is approximately
$4,000 less than the actual cost of the
debridement ($8,070 versus $12,427).
Therefore, we believe it would be
inappropriate to propose to classify
these procedures as a non-O.R.
procedure.
For the proposed rule, we explored
alternative approaches to classifying
procedure code 86.22 as a non-O.R.
procedure. We evaluated the possibility
of removing excisional debridements
from their current MS–DRG assignments
within the following skin-related MS–
DRGs, where they are combined with
skin grafts, and creating a new set of
debridement MS–DRGs. The current
MS–DRGs that combine skin grafts and
debridements into the same MS–DRGs
are as follows:
51537
• MS–DRGs 573 through 575 (Skin
Graft &/or Debridement for Skin Ulcer
or Cellulitis with MCC, with CC, and
without CC/MCC, respectively).
• MS–DRGs 576 through 578 (Skin
Graft &/or Debridement Except for Skin
Ulcer or Cellulitis with MCC, with CC,
and without CC/MCC, respectively).
We analyzed MedPAR claims data on
the severity level of graft cases without
any debridements in these six MS–
DRGs. Our findings are shown in the
chart below.
SKIN GRAFTS WITHOUT DEBRIDEMENTS
Number of
cases
MS–DRG
MS–DRGs
MS–DRGs
MS–DRGs
MS–DRGs
MS–DRGs
MS–DRGs
573–575—Cases
573–575—Cases
573–575—Cases
576–578—Cases
576–578—Cases
576–578—Cases
with
with
with
with
with
with
severity
severity
severity
severity
severity
severity
level
level
level
level
level
level
of
of
of
of
of
of
We compared these data to a
proposed new set of skin-related MS–
DRGs that would include only
MCC .......................................................................
CC ..........................................................................
without CC/MCC .....................................................
MCC .......................................................................
CC ..........................................................................
without CC/MCC .....................................................
debridements. The results of the
findings of the severity levels of
debridements without skin grafts in
751
1,720
540
335
1,482
1,849
Average
length of
stay
14.56
10.16
5.36
10.28
5.28
3.01
Average
costs
$23,975
14.869
8,469
22,996
11,299
6,986
these six MS–DRGs are shown in the
chart below.
DEBRIDEMENTS WITHOUT SKIN GRAFTS
Number of
cases
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
MS–DRG
573–575—Cases
573–575—Cases
573–575—Cases
576–578—Cases
576–578—Cases
576–578—Cases
with
with
with
with
with
with
severity
severity
severity
severity
severity
severity
level
level
level
level
level
level
Our findings indicate that the graft
procedure cases have higher average
costs than the excisional debridement
cases. The average costs for the
excisional debridement cases in MS–
of
of
of
of
of
of
MCC .........................................................................
CC ............................................................................
without CC/MCC ......................................................
MCC .........................................................................
CC ............................................................................
without CC/MCC ......................................................
DRGs 573 through 575 compared to the
debridement cases in MS–DRGs 576
through 578 are very similar. We believe
that the data support creating a single
set of skin-related excisional
3,177
6,649
2,555
271
638
285
Average
length of
stay
11.73
7.67
4.94
11.59
7.61
4.45
Average
costs
$18,381
10,730
6,372
19,429
11,913
6,928
debridement MS–DRGs composed of
cases previously captured in MS–DRGs
573 through 575 as well as MS–DRGs
576 through 578. The following chart
illustrates those combined average costs.
EXCISIONAL DEBRIDEMENTS FROM MS–DRGS 573 THROUGH 578 SPLIT ON SEVERITY LEVEL
Number of
cases
MS–DRGs 573—578
mstockstill on DSK4VPTVN1PROD with RULES2
Combined Excisional Debridement Cases with Severity Level of MCC .................................................
Combined Excisional Debridement Cases with Severity Level of CC ....................................................
Combined Excisional Debridement Cases with Severity Level of without CC/MCC ..............................
As we stated in the proposed rule, we
believe that the data support separating
skin graft procedures from excisional
debridements by creating a new set of
MS–DRGs. This would result in more
accurate payment for both skin grafts
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and debridement. Therefore, we
proposed to remove excisional
debridements (procedure code 86.22)
from their current MS–DRG assignments
within MS–DRGs 573 through 578 for
skin grafts and assign them to new
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3,448
7,287
2,840
Average
length of
stay
11.71
7.76
4.89
Average
costs
$18,463
10,833
6,428
excisional debridement MS–DRGs. We
proposed to maintain MS–DRGs 573
through 578 for skin grafts. The
following list describes the proposed
new and revised MS–DRG titles:
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Proposed new MS–DRGs based on
procedure code 86.22:
• Proposed MS–DRG 570 (Skin
Debridement with MCC)
• Proposed MS–DRG 571 (Skin
debridement with CC)
• Proposed MS–DRG 572 (Skin
Debridement without CC/MCC)
Proposed Revised MS–DRGs based on
codes currently assigned to MS–DRGs
573 through 578, excluding procedure
code 86.22:
• Proposed revised MS–DRG 573 (Skin
Graft for Skin Ulcer or Cellulitis with
MCC)
• Proposed revised MS–DRG 574 (Skin
Graft for Skin Ulcer or Cellulitis with
CC)
• Proposed revised MS–DRG 575 (Skin
Graft for Skin Ulcer or Cellulitis
without CC/MCC)
• Proposed revised MS–DRG 576 (Skin
Graft Except for Skin Ulcer or
Cellulitis with MCC)
• Proposed revised MS–DRG 577 (Skin
Graft except for Skin Ulcer or
Cellulitis with CC)
• Proposed revised MS–DRG 578 (Skin
Graft Except for Skin Ulcer or
Cellulitis without CC/MCC)
In the proposed rule, we invited
public comments on our proposal for FY
2012 to create three new debridement
MS–DRGs 570, 571, and 572 for skin
debridement and to revise MS–DRGs
573 through 578 to include skin grafts
only, as indicated above.
Comment: Several commenters
supported our proposal to create three
new debridement MS–DRGs, MS–DRGs
570, 571, and 572 for skin debridement
and to revise MS–DRGs 573 through 578
to include skin grafts only, as described
above. One commenter stated that the
proposal seemed reasonable, given the
data and the information provided.
Another commenter who supported this
MS–DRG modification expressed
appreciation for the change because the
relative weights better reflect resource
intensive cases with the proposed new
and revised MS–DRGs 570 through 578.
One commenter supported our
recommendation not to remove the code
for excisional debridement from the
O.R. list. However, the commenter
opposed removing excisional
debridements (procedure code 86.22)
from their current MS–DRG assignments
within MS–DRGs 573 through 578 for
skin grafts and assigning them to new
excisional debridement MS–DRGs and
maintaining MS–DRGs 573 through 578
for skin grafts. The commenter stated
that excisional debridement is not
exclusively a bedside procedure. Rather,
the commenter noted, it can be
performed in or out of the operation
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room, based on the judgment of the
surgeon. The commenter stated that, in
many instances, this procedure cannot
be performed at the bedside due to
variables such as patient anxiety, the
size of the wound, bleeding risk, among
others. The commenter stated that
removing excisional debridements from
their current MS–DRG assignments
could harm many hospitals that perform
procedures such as split thickness skin
grafts for extensive wound or burns. The
commenter recommended that, instead
of removing excisional debridements
from the current MS–DRG assignments,
CMS create a separate ICD–9–CM code
for debridement that is performed in the
operating room due to anesthesia,
equipment, or monitoring requirements.
Another commenter opposed the
creation of separate debridement and
skin graft MS–DRGs out of concern that
this would create significant confusion
among hospital coders. The commenter
stated that skin grafts and skin
debridements are often performed on
the same patient. The commenter stated
that the current descriptions of MS–
DRGs 573 through 575 (Skin Graft and/
or Debridement for Skin Ulcer or
Cellulitis with MCC, with CC, and
without CC/MCC, respectively) and
MS–DRGs 576 through 578 (Skin Graft
and/or Debridement Except for Skin
Ulcer or Cellulitis with MCC, with CC,
and without CC/MCC, respectively)
appropriately describe the
interrelationship between skin grafts
and debridement. The commenter
expressed concern that de-linking this
relationship would lead to confusion for
coders.
Response: We agree with the
commenters that data support the
creation of three new debridement MS–
DRGs 570, 571, and 572 for skin
debridement and the revision of MS–
DRGs 573 through 578 to include skin
grafts only.
We disagree with the commenter who
recommends that, instead of creating
separate MS–DRGs for skin
debridements and skin grafts, CMS
pursue the creation of a new skin
debridement code that would be limited
to those procedures performed in an
operating room setting. ICD–9–CM
codes are not currently subdivided
based on the location of the procedure
such as in an operating room,
endoscopy room, catheterization room,
treatment room, or patient room. ICD–9–
CM codes are assigned based on the
procedure performed, not the location
in which the procedure was performed.
Furthermore, we have just begun a
period of a partial freeze of both ICD–
9–CM and ICD–10 codes. This partial
freeze is discussed in section II.G.13.b.
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of this preamble. We do not believe it
is appropriate to postpone refinements
to the MS–DRGs until a code update
could be made and data on cases
reported with the new code could be
evaluated. We believe the current data
support this proposed modification.
However, as stated earlier, ICD–9–CM
codes do not indicate the setting in
which a procedure is performed.
Therefore, it is unlikely that such a code
would be created even if we were not in
a period of a code freeze.
We also disagree with the commenter
who stated that creating separate MS–
DRGs for skin debridements and skin
grafts will create confusion for coders.
We believe that coders clearly
understand the difference between skin
debridements and skin grafts. If both are
performed, then coders code and report
both procedures. The fact that the MS–
DRGs would be modified would not
affect the way in which coders assign
codes for skin debridements and skin
grafts. We also note that organizations
representing coders, including the
American Health Information
Management Association, supported
this proposed MS–DRG modification.
These organizations did not express
concerns about any possible confusion
for coders.
After consideration of the public
comments we received, we are
finalizing our proposal to create the
following new and revised MS–DRGs:
New MS–DRGs based on procedure
code 86.22:
• MS–DRG 570 (Skin Debridement with
MCC)
• MS–DRG 571 (Skin debridement with
CC)
• MS–DRG 572 (Skin Debridement
without CC/MCC)
Revised MS–DRGs based on codes
currently assigned to MS–DRGs 573
through 578, excluding procedure code
86.22:
• Revised MS–DRG 573 (Skin Graft for
Skin Ulcer or Cellulitis with MCC)
• Revised MS–DRG 574 (Skin Graft for
Skin Ulcer or Cellulitis with CC)
• Revised MS–DRG 575 (Skin Graft for
Skin Ulcer or Cellulitis without CC/
MCC)
• Revised MS–DRG 576 (Skin Graft
Except for Skin Ulcer or Cellulitis
with MCC)
• Revised MS–DRG 577 (Skin Graft
except for Skin Ulcer or Cellulitis
with CC)
• Revised MS–DRG 578 (Skin Graft
Except for Skin Ulcer or Cellulitis
without CC/MCC)
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7. MDC 10 (Endocrine, Nutritional, and
Metabolic Diseases and Disorders)
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a. Nutritional and Metabolic Diseases:
Update of MS–DRG Titles
We received a request to revise the
MS–DRG titles for MS–DRGs 640
through 642 to more clearly capture the
cases that are currently assigned to these
MS–DRGs. The current titles for these
MS–DRGs are: MS–DRGs 640
(Nutritional & Miscellaneous Metabolic
Disorders with MCC); MS–DRG 641
(Nutritional & Miscellaneous Metabolic
Disorders without MCC); and MS–DRG
642 (Inborn Errors of Metabolism). The
requestor suggested that we change the
titles to: MS–DRG 640 (Miscellaneous
Disorders of Nutrition, Metabolism, and
Fluids and Electrolytes with MCC); MS–
DRG 641 (Miscellaneous Disorders of
Nutrition, Metabolism, and Fluids and
Electrolytes without MCC); and MS–
DRG 642 (Inborn and Other Disorders of
Metabolism).
Our clinical advisors supported these
suggested changes to the titles, as the
suggested changes would provide a
better description of the diagnoses
assigned to MS–DRGs 640, 641, and
642. Therefore, in the FY 2012 IPPS/
LTCH PPS proposed rule, we proposed
to revise the MS–DRG titles for MS–
DRGs 640, 641, and 642 as the requestor
suggested. We invited public comment
on our proposal to change the MS–DRG
titles for MS–DRGs 640, 641, and 642
for FY 2012.
Comment: Several commenters
supported our proposed changes to the
titles of MS–DRGs 640 through 642 to
better reflect the cases that are assigned
to these MS–DRGs.
Response: We appreciate the
commenters’ support.
After consideration of the public
comments we received, we are
finalizing our proposal to change the
titles for MS–DRGs 640 through 642.
The final tiles are as follows:
• MS–DRG 640 (Miscellaneous
Disorders of Nutrition, Metabolism,
and Fluids and Electrolytes with
MCC)
• MS–DRG 641 (Miscellaneous
Disorders of Nutrition, Metabolism,
and Fluids and Electrolytes without
MCC)
• MS–DRG 642 (Inborn and Other
Disorders of Metabolism).
b. Sleeve Gastrectomy Procedure for
Morbid Obesity
Sleeve gastrectomy is a 70 percent to
80 percent greater curvature gastrectomy
(sleeve resection of the stomach) with
continuity of the gastric lesser curve
being maintained while simultaneously
reducing stomach volume. It may be the
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first step in a two-stage procedure when
performing Roux-en-Y Gastric Bypass
(RYGBP). Sleeve gastrectomy, whether
open or laparoscopic, is currently coded
using ICD–9–CM procedure code 43.89
(Other total gastrectomy). Procedure
code 43.89 is currently assigned to
several MS–DRGs. However, the code is
not assigned to MS–DRG 619, 620, or
621 (O.R. Procedures for Obesity with
MCC, with CC, and without CC/MCC,
respectively).
We received a request for CMS to
review MDC 10 (Endocrine, Nutritional,
and Metabolic Diseases and Disorders)
for consistency. Specifically, the
requestor questioned why diagnosis
code 278.01 (Morbid obesity), when
paired on a claim with procedure code
43.89, would be assigned to MS–DRG
981, 982, or 983 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis with MCC, with CC, or
without CC/MCC, respectively) instead
of MS–DRG 619, 620, or 621.
Upon review for the FY 2012 IPPS/
LTCH PPS proposed rule, we
determined that diagnosis code 278.01
is assigned to MDC 10. However,
procedure code 43.89 is not assigned to
any MS–DRG set in this MDC.
Therefore, the cases are assigned to MS–
DRGs 981 through 983, reflecting
procedures not related to the principal
diagnosis. This was an inadvertent
oversight on CMS’ part when the MS–
DRGs were created. Therefore, we
proposed to add a procedure code or
codes identifying sleeve gastrectomy to
MS–DRGs 619 through 621 for FY 2012.
Currently, sleeve gastrectomy is
identified in the ICD–9–CM procedure
code Index as follows: Gastrectomy
(partial) (subtotal) NEC 43.89. At
procedure code 43.89 in the ICD–9–CM
procedure code Tabular, an inclusion
note identifies this code as including
sleeve resection of the stomach.
In our proposal to add a procedure
code or codes to MS–DRGs 619 through
621, we pointed out that there is an
NCD that has precluded coverage of
sleeve gastrectomy when performed
either open or laparoscopically. This
decision may be found in the Medicare
National Coverage Determination
Manual, Section 100.1, Nationally
Noncovered Indications for Bariatric
Surgery for Treatment of Morbid
Obesity, effective on February 12, 2009.
This manual is available on the CMS
Web site through a link at: http://
www.cms.gov/manuals/downloads/
mcd103c1_Part2.pdf. This manual entry
affirms that treatment for obesity via use
of the open or laparoscopic sleeve
gastrectomy is determined to be
noncovered for Medicare beneficiaries.
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51539
Noncoverage of these cases is
determined by our Medicare
contractors, the fiscal intermediary or
A–B/MAC, because of the nature of
procedure code 43.89, which is a code
that identifies several gastrectomy
procedures. To identify a code in the
MCE that describes many procedures
would inappropriately restrict other
procedures which are also described by
that code, but which are covered. We
received a request to create specific
codes uniquely identifying both
laparoscopic sleeve gastrectomy and the
open procedure, vertical sleeve
gastrectomy. We addressed this request
at the ICD–9–CM Coordination and
Maintenance Committee meeting held
on March 9, 2011.
We had stated that should a code or
codes be created as a result of this
request, we would then be able to add
this code or codes to the MCE as a
conforming noncoverage edit when
combined with diagnosis code 278.01.
The background information discussing
sleeve gastrectomy coding can be
accessed on the CMS Web site at: http:
//www.cms.gov/
ICD9ProviderDiagnosticcodes/
03_meetings.asp#TopOfPage. A
summary of the meeting can be found
on CMS’ Web site for the ICD–9–CM
Coordination and Maintenance
Committee at: http://www.cms.gov/
ICD9ProviderDiagnosticCodes/
03_meetings.asp#TopOfPage by
scrolling down to the .pdf zip files
containing the meeting agenda and
handouts.
Therefore, for FY 2012, we proposed
to add a procedure code or codes
identifying sleeve gastrectomy to MS–
DRGs 619 through 621. However, we
also indicated that we intended to add
any code or codes created at the ICD–
9–CM Coordination and Maintenance
Committee on March 9, 2011, to the
MCE because sleeve gastrectomy,
whether open or laparoscopic, is not
covered for Medicare beneficiaries. The
code or codes would appear in the
‘‘Noncovered Procedures’’ edit of the
MCE. As the timing of the development
of the proposed rule and the date of the
March 2011 meeting of the ICD–9–CM
Coordination and Maintenance
Committee overlapped, we could not
determine if additional sleeve
gastrectomy codes would be created, to
what code number or numbers they
would be assigned, or how the narrative
describing them would read. However,
we indicated that should a code or
codes be created, we proposed that they
would simultaneously be placed in both
MS–DRGs 619 through 621 and the
MCE. This decision may seem to be
counterintuitive, but CMS realizes that
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our MS–DRGs and the Medicare
GROUPER program are used for other
beneficiaries and by other insurance
plans rather than strictly for Medicare
beneficiaries. Any new code or codes
created as a result of the ICD–9–CM
Coordination and Maintenance
Committee meeting are included in
Table 6B (which is listed in section VI.
of the Addendum to this final rule and
available via the Internet at http://
www.cms.gov/
ICD9ProviderDiagnosticCodes/
04_addendum.asp#TopOfPage); we
indicated that we did not have a
mechanism to make the codes from the
March 9, 2011 meeting available in the
proposed rule prior to the final rule’s
publication.
As a result of the March 9, 2011 ICD–
9–CM Coordination and Maintenance
Committee Meeting, one code was
created: Procedure code 43.82
(Laparoscopic vertical (sleeve)
gastrectomy). To address open
gastrectomies, the title of existing code
43.89 was revised to read ‘‘Open and
other partial gastrectomy’’. Both codes
can be found in Table 6B (New
Procedure Codes) and Table 6F (Revised
Procedure Code Titles), which are listed
in the Addendum to this final rule and
available via the Internet on the CMS
Web site.
Comment: Several commenters
addressed both the creation of a code or
codes for laparoscopic or open sleeve
gastrectomy discussed above and the
proposed changes to the MCE. Several
commenters indicated that they had no
objections to the proposed changes to
the MS–DRG classifications and the
MCE, stating that the proposed changes
seemed reasonable, given the data and
information provided. One commenter
specifically requested that CMS finalize
its proposal to add new procedure code
43.82 to the MCE as a noncovered
procedure.
Response: We appreciate the
commenters’ support of our proposal.
Comment: One commenter stated that
they understood that procedure code
43.89 was inadvertently omitted from
MS–DRGs 619, 620, and 621 when the
MS–DRGs were created and supported
the addition of this code to these MS–
DRGs. In addition, this commenter
stated that because procedure code
43.89 is not specific to open sleeve
gastrectomy, it cannot be incorporated
as a ‘‘noncovered procedure’’ in the
MCE.
Response: We appreciate the
commenter’s support for this proposal
and agree that procedure code 43.89
includes several gastrectomy
procedures. Therefore, to identify a code
describing many procedures in an MCE
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edit would inappropriately restrict other
procedures included in that code that
are covered.
After consideration of the public
comments we received, we are adopting
as final our proposal to assign both the
new procedure code 43.82
(Laparoscopic vertical (sleeve)
gastrectomy) and the existing procedure
code 43.89 (Other total gastrectomy) to
MS–DRGs 619, 620, and 621 (O.R.
Procedures for Obesity with MCC, with
CC, and without CC/MCC, respectively).
In addition, we are adding procedure
code 43.82 to the ‘‘Noncovered
Procedures’’ edit of the MCE because
laparoscopic sleeve gastrectomy is not
covered for Medicare beneficiaries.
Because procedure code 43.89 includes
several gastrectomy procedures, its
inclusion in the MCE would be
inappropriate. Therefore, it will not be
placed on the MCE.
8. MDC 15 (Newborns and Other
Neonates With Conditions Originating
in the Perinatal Period): Discharge
Status Code 66 (Discharged/Transferred
to Critical Assess Hospital (CAH))
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50236), we finalized our
transfer policy regarding transfer of
patients from an acute care hospital to
a CAH. In that final rule, we stated that
hospitals are required to use patient
discharge status code 66 on the IPPS
claims to identify transfers to CAHs.
With this new requirement, a
discharge from an IPPS hospital to a
CAH equates to a transfer status.
However, discharge status code 66 is
currently not included in the MS–DRG
GROUPER logic for MS–DRG 789
(Neonate, Died or Transferred to
Another Acute Care Facility). Therefore,
in the FY 2012 IPPS/LTCH PPS
proposed rule, we proposed to add
discharge status code 66 to the MS–DRG
GROUPER logic for MS–DRG 789. We
invited public comment on our proposal
to add discharge status code 66 to the
MS–DRG GROUPER logic for MS–DRG
789 for FY 2012.
Comment: Several commenters
supported our proposal to add discharge
status code 66 to the MS–DRG
GROUPER logic for MS–DRG 789.
Response: We appreciate the support
of the commenters.
After consideration of the public
comments we received, we are
finalizing our proposal to add discharge
status code 66 (Discharged/Transferred
to Critical Assess Hospital (CAH)) to the
MS–DRG GROUPER logic for MS–DRG
789.
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9. Medicare Code Editor (MCE) Changes
As explained under section II.B.1. of
the preamble of this final rule, the
Medicare Code Editor (MCE) is a
software program that detects and
reports errors in the coding of Medicare
claims data. Patient diagnoses,
procedure(s), and demographic
information are entered into the
Medicare claims processing systems and
are subjected to a series of automated
screens. The MCE screens are designed
to identify cases that require further
review before classification into an MS–
DRG. In this final rule, we discuss our
intention to make the following change
to the MCE edits.
In section II.G.7.b. of this preamble,
we discuss that the current ICD–9–CM
procedure code for sleeve gastrectomy
(43.89 (Other partial gastrectomy,
other)) is a noncovered code when
performed for resection of the stomach
in patients with morbid obesity. We also
discuss that noncoverage for Medicare
beneficiaries of cases containing
procedure code 43.89 is determined by
the fiscal intermediaries or A–B/MACs
because of the nature of procedure code
43.89. This code is imprecise and
identifies several other gastrectomy
procedures in addition to sleeve
resection. Therefore, to limit coverage
by identifying a code that describes
many procedures through the use of the
MCE would inappropriately restrict
other procedures that are covered by
Medicare. In that section, we also state
that we received a request to create
specific procedure codes identifying
both laparoscopic sleeve gastrectomy
and open vertical sleeve gastrectomy. As
we stated above, we addressed this
request at the ICD–9–CM Coordination
and Maintenance Committee meeting
held on March 9, 2011. In the FY 2012
IPPS/LTCH PPS proposed rule (FR 76
25833 and 25834), we indicated that if
a code or codes should be created as a
result of this request, we would then be
able to add these codes to the MCE as
a conforming noncoverage edit when
combined with diagnosis code 278.01
(Morbid obesity).
As the timing of development of the
proposed rule and the scheduling of the
ICD–9–CM Coordination and
Maintenance Committee meeting on
March 9, 2011 overlapped, it was not
possible to determine what those codes
might be, or even if they would be
created for FY 2012. However, we
indicated in the proposed rule that
should a code or codes be created, we
proposed that any code or codes for
laparoscopic or open sleeve resection of
the stomach would be added to the MCE
as a noncovered procedure or
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procedures, in combination with
diagnosis code 278.01. The background
information discussing sleeve
gastrectomy coding can be accessed on
the CMS Web site at: http://
www.cms.gov/
ICD9ProviderDiagnosticcodes/
03_meetings.asp#TopOfPage. New
codes describing sleeve gastrectomy are
included in Table 6B (which is listed in
section VI. of the Addendum to this
final rule and are also available via the
Internet at http://www.cms.gov/
ICD9ProviderDiagnosticCodes/
04_addendum.asp#TopOfPage). In the
proposed rule, we indicated that we did
not have a mechanism to make the
codes available prior to the final rule’s
publication, and invited public
comments on this proposal.
As a result of the March 9, 2011 ICD–
9–CM Coordination and Maintenance
Committee Meeting, one code was
created: procedure code 43.82
(Laparoscopic vertical (sleeve)
gastrectomy). To address open
gastrectomies, the title of existing
procedure code 43.89 was revised to
read ‘‘Open and other partial
gastrectomy’’. Both codes can be found
in Tables 6B and 6F, which are listed in
the Addendum to this final rule and
available via the Internet.
Comment: Several commenters
indicated that they had no objections to
the proposed changes to the MS–DRG
classifications and the MCE, stating that
the proposed changes seemed
reasonable, given the data and
information provided. One commenter
specifically requested that CMS finalize
its proposal to add new procedure code
43.82 to the MCE as a noncovered
procedure.
Response: We appreciate the
commenters’ support of our proposals.
Comment: Several commenters stated
that because procedure code 43.89 is not
specific to open sleeve gastrectomy it
cannot be incorporated as a
‘‘noncovered procedure’’ in the MCE.
Response: We agree that procedure
code 43.89 includes several gastrectomy
procedures, and to identify this code
describing many procedures in an MCE
edit would be inappropriately
restricting other procedures that are
covered.
Comment: One commenter recognized
that procedure codes discussed at the
ICD–9–CM Coordination and
Maintenance Committee Meeting of
March 9, 2011 could not logistically be
included in the IPPS proposed rule. The
commenter urged CMS to apply current
logic to code revisions that were
discussed at the March 2011 ICD–9–CM
Coordination and Maintenance
Committee meeting, but which could
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not be finalized in time to include them
in the proposed rule.
Response: We appreciate that the
public understands some of the timing
constraints under which we must
operate. We assure the public that the
same logic considerations regarding
code assignment to predecessor MS–
DRGs as well as O.R. determinations are
applied to newly created codes from the
March 2011 ICD–9–CM Coordination
and Maintenance Committee Meeting as
were applied to the codes created as a
result of the September 15, 2010 ICD–
9–CM Coordination and Maintenance
Committee Meeting.
After consideration of the public
comments we received, we are adopting
as final our proposal to add procedure
code 43.82 to the ‘‘Noncovered
Procedures’’ edit of the MCE, given that
laparoscopic sleeve gastrectomy is not
covered for Medicare beneficiaries.
Because procedure code 43.89 includes
several gastrectomy procedures, its
inclusion in the MCE would be
inappropriate. Therefore, we are not
placing it on the MCE.
10. Surgical Hierarchies
Some inpatient stays entail multiple
surgical procedures, each one of which,
occurring by itself, could result in
assignment of the case to a different
MS–DRG within the MDC to which the
principal diagnosis is assigned.
Therefore, it is necessary to have a
decision rule within the GROUPER by
which these cases are assigned to a
single MS–DRG. The surgical hierarchy,
an ordering of surgical classes from
most resource-intensive to least
resource-intensive, performs that
function. Application of this hierarchy
ensures that cases involving multiple
surgical procedures are assigned to the
MS–DRG associated with the most
resource-intensive surgical class.
Because the relative resource intensity
of surgical classes can shift as a function
of MS–DRG reclassification and
recalibrations, we reviewed the surgical
hierarchy of each MDC, as we have for
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
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51541
involves weighting the average
resources for each MS–DRG by
frequency to determine the weighted
average resources for each surgical class.
For example, assume surgical class A
includes MS–DRGs 1 and 2 and surgical
class B includes MS–DRGs 3, 4, and 5.
Assume also that the average costs of
MS–DRG 1 is higher than that of MS–
DRG 3, but the average costs of MS–
DRGs 4 and 5 are higher than the
average costs of MS–DRG 2. To
determine whether surgical class A
should be higher or lower than surgical
class B in the surgical hierarchy, we
would weigh the average costs of each
MS–DRG in the class by frequency (that
is, by the number of cases in the MS–
DRG) to determine average resource
consumption for the surgical class. The
surgical classes would then be ordered
from the class with the highest average
resource utilization to that with the
lowest, with the exception of ‘‘other
O.R. procedures’’ as discussed below.
This methodology may occasionally
result in assignment of a case involving
multiple procedures to the lowerweighted MS–DRG (in the highest, most
resource-intensive surgical class) of the
available alternatives. However, given
that the logic underlying the surgical
hierarchy provides that the GROUPER
search for the procedure in the most
resource-intensive surgical class, in
cases involving multiple procedures,
this result is sometimes unavoidable.
We note that, notwithstanding the
foregoing discussion, there are a few
instances when a surgical class with a
lower average cost is ordered above a
surgical class with a higher average cost.
For example, the ‘‘other O.R.
procedures’’ surgical class is uniformly
ordered last in the surgical hierarchy of
each MDC in which it occurs, regardless
of the fact that the average costs for the
MS–DRG or MS–DRGs in that surgical
class may be higher than those for other
surgical classes in the MDC. The ‘‘other
O.R. procedures’’ class is a group of
procedures that are only infrequently
related to the diagnoses in the MDC, but
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 higher-
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ordered surgical class has a lower
average costs than the class ordered
below it.
As we proposed, based on the changes
that we are make for FY 2012, as
discussed in sections II.G.1. and 6. of
this preamble, we are revising the
surgical hierarchy for Pre-MDCs and
MDC 9 (Diseases and Disorders of the
Skin, Subcutaneous Tissue, and Breast)
as follows:
In Pre-MDCs, we are reordering new
MS–DRG 016 (Autologous Bone Marrow
Transplant with CC/MCC) and new MS–
DRG 017 (Autologous Bone Marrow
Transplant without CC/MCC) above
MS–DRG 010 (Pancreas Transplant).
In MDC 9, we are reordering—
• MS–DRG 578 (Skin Graft Except for
Skin Ulcer or Cellulitis without CC/
MCC) above new MS–DRG 570 (Skin
Debridement with MCC);
• New MS–DRG 570 above new MS–
DRG 571 (Skin Debridement with CC);
• New MS–DRG 571 above new MS–
DRG 572 (Skin Debridement without
CC/MCC; and
• New MS–DRG 572 above MS–DRG
579 (Other Skin, Subcutaneous Tissue,
and Breast Procedures with MCC).
Comment: Commenters generally
supported our proposals.
Response: Based on these public
comments and our review of the
proposed revisions using the March
2011 update of the FY 2010 MedPAR
file and the revised GROUPER software,
we found that the revisions are still
supported by the data. Therefore, we
have incorporated the proposed
revisions to the surgical hierarchy as
final for FY 2012.
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11. Complications or Comorbidity (CC)
Exclusions List
a. Background
As indicated earlier in the preamble
of this final rule, under the IPPS MS–
DRG classification system, we have
developed a standard list of diagnoses
that are considered CCs. Historically, we
developed this list using physician
panels that classified each diagnosis
code based on whether the diagnosis,
when present as a secondary condition,
would be considered a substantial
complication or comorbidity. A
substantial complication or comorbidity
was defined as a condition that, because
of its presence with a specific principal
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).
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b. CC Exclusions List for FY 2012
In the September 1, 1987 final notice
(52 FR 33143) concerning changes to the
DRG classification system, we modified
the GROUPER logic so that certain
diagnoses included on the standard list
of CCs would not be considered valid
CCs in combination with a particular
principal diagnosis. We created the CC
Exclusions List for the following
reasons: (1) To preclude coding of CCs
for closely related conditions; (2) to
preclude duplicative or inconsistent
coding from being treated as CCs; and
(3) to ensure that cases are appropriately
classified between the complicated and
uncomplicated DRGs in a pair. As we
indicated above, we developed a list of
diagnoses, using physician panels, to
include those diagnoses that, when
present as a secondary condition, would
be considered a substantial
complication or comorbidity. In
previous years, we have made changes
to the list of CCs, either by adding new
CCs or deleting CCs already on the list.
In the May 19, 1987 proposed notice
(52 FR 18877) and the September 1,
1987 final notice (52 FR 33154), we
explained that the excluded secondary
diagnoses were established using the
following five principles:
• Chronic and acute manifestations of
the same condition should not be
considered CCs for one another.
• Specific and nonspecific (that is,
not otherwise specified (NOS))
diagnosis codes for the same condition
should not be considered CCs for one
another.
• Codes for the same condition that
cannot coexist, such as partial/total,
unilateral/bilateral, obstructed/
unobstructed, and benign/malignant,
should not be considered CCs for one
another.
• Codes for the same condition in
anatomically proximal sites should not
be considered CCs for one another.
• Closely related conditions should
not be considered CCs for one another.
The creation of the CC Exclusions List
was a major project involving hundreds
of codes. We have continued to review
the remaining CCs to identify additional
exclusions and to remove diagnoses
from the master list that have been
shown not to meet the definition of a
CC.2
2 See the FY 1989 final rule (53 FR 38485,
September 30, 1988), for the revision made for the
discharges occurring in FY 1989; the FY 1990 final
rule (54 FR 36552, September 1, 1989), for the FY
1990 revision; the FY 1991 final rule (55 FR 36126,
September 4, 1990), for the FY 1991 revision; the
FY 1992 final rule (56 FR 43209, August 30, 1991)
for the FY 1992 revision; the FY 1993 final rule (57
FR 39753, September 1, 1992), for the FY 1993
revision; the FY 1994 final rule (58 FR 46278,
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(1) Limited Revisions Based on Changes
to the ICD–9–CM Diagnosis Codes
For FY 2012, we proposed to make
limited revisions to the CC Exclusions
List to take into account the changes
made in the ICD–9–CM diagnosis
coding system effective October 1, 2011.
(We refer readers to section II.G.13. of
the preamble of this final rule for a
discussion of ICD–9–CM changes.) We
proposed to make these changes in
accordance with the principles
established when we created the CC
Exclusions List in 1987. In addition, we
indicated on the CC Exclusions List
some changes as a result of updates to
the ICD–9–CM codes to reflect the
exclusion of codes from being MCCs
under the MS–DRG system that we
adopted in FY 2008.
CMS encourages input from our
stakeholders concerning the annual
IPPS updates when that input is made
available to us by December of the year
prior to the next annual proposed rule
update. For example, to be considered
for any updates or changes in FY 2012,
comments and suggestions should have
been submitted by early December 2010.
The following comments were
submitted in a timely manner and,
therefore, are being discussed in this
section.
(A) Pressure Ulcer Diagnosis Codes
We received a comment
recommending that CMS remove
diagnosis codes 707.23 (Pressure ulcer,
stage III) and 707.24 (Pressure ulcer,
stage IV) from the CC Exclusion List
when reported as a secondary diagnosis
code with a principal diagnosis code for
the pressure ulcer site: Diagnosis code
707.00 (Pressure ulcer, unspecified);
diagnosis code 707.01 (Pressure ulcer,
September 1, 1993), for the FY 1994 revisions; the
FY 1995 final rule (59 FR 45334, September 1,
1994), for the FY 1995 revisions; the FY 1996 final
rule (60 FR 45782, September 1, 1995), for the FY
1996 revisions; the FY 1997 final rule (61 FR 46171,
August 30, 1996), for the FY 1997 revisions; the FY
1998 final rule (62 FR 45966, August 29, 1997) for
the FY 1998 revisions; the FY 1999 final rule (63
FR 40954, July 31, 1998), for the FY 1999 revisions;
the FY 2001 final rule (65 FR 47064, August 1,
2000), for the FY 2001 revisions; the FY 2002 final
rule (66 FR 39851, August 1, 2001), for the FY 2002
revisions; the FY 2003 final rule (67 FR 49998,
August 1, 2002), for the FY 2003 revisions; the FY
2004 final rule (68 FR 45364, August 1, 2003), for
the FY 2004 revisions; the FY 2005 final rule (69
FR 49848, August 11, 2004), for the FY 2005
revisions; the FY 2006 final rule (70 FR 47640,
August 12, 2005), for the FY 2006 revisions; the FY
2007 final rule (71 FR 47870) for the FY 2007
revisions; the FY 2008 final rule (72 FR 47130) for
the FY 2008 revisions, the FY 2009 final rule (73
FR 48510), the FY 2010 final rule (74 FR 43799);
and the FY 2011 final rule (75 FR 50114). In the
FY 2000 final rule (64 FR 41490, July 30, 1999, we
did not modify the CC Exclusions List because we
did not make any changes to the ICD–9–CM codes
for FY 2000.
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elbow); diagnosis code 707.02 (Pressure
ulcer, upper back); diagnosis code
707.03 (Pressure ulcer, lower back);
diagnosis code 707.04 (Pressure ulcer,
hip); diagnosis code 707.05 (Pressure
ulcer, buttock); diagnosis code 707.06
(Pressure ulcer, ankle); diagnosis code
707.07 (Pressure ulcer, heel); or
diagnosis code 707.09 (Pressure ulcer,
other site). Currently, when a patient is
admitted with a pressure ulcer, the CC
Exclusion List prevents a pressure ulcer
stage diagnosis code from being
designated as an MCC when reported as
a secondary diagnosis. The commenter
disagreed with this approach and
contended that a patient admitted for
treatment of a stage III or stage IV
pressure ulcer likely requires resources
that would qualify the case as a
diagnosis with an MCC or, at a
minimum, as a CC.
Our clinical advisors agreed with the
commenter. Therefore, in the FY 2012
IPPS/LTCH PPS proposed rule, we
proposed to remove diagnosis codes
707.23 and 707.24 from the CC
Exclusion List when a principal
diagnosis code of one of codes 707.00
through 707.09 is reported. Under this
proposal, diagnosis code 707.23 or
diagnosis code 707.24 would be an MCC
when reported as a secondary diagnosis
code with a principal diagnosis code of
one of codes 707.00 through 707.09.
Comment: Several commenters
supported the proposed removal of
diagnosis codes 707.23 and 707.24 from
the CC Exclusion list when a principal
diagnosis code of one of the codes
707.00 through 707.09 is reported.
Response: We appreciate the support
of the commenters. As stated above, we
believe this proposed change has merit.
After consideration of the public
comments we received, we are adopting
as final our proposal to remove
diagnosis codes 707.23 (Pressure ulcer
stage III) and 707.24 (Pressure ulcer
stage IV) from the CC Exclusion List
when reported as a secondary diagnosis
code with a principal diagnosis code for
the pressure ulcer site: diagnosis code
707.00 (Pressure ulcer, unspecified);
diagnosis code 707.01 (Pressure ulcer,
elbow); diagnosis code 707.02 (Pressure
ulcer, upper back); diagnosis code
707.03 (Pressure ulcer, lower back);
diagnosis code 707.04 (Pressure ulcer,
hip); diagnosis code 707.05 (Pressure
ulcer, buttock); diagnosis code 707.06
(Pressure ulcer, ankle); diagnosis code
707.07 (Pressure ulcer, heel); or
diagnosis code 707.09 (Pressure ulcer,
other site).
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(B) End-Stage Renal Disease Diagnosis
Code
We received a suggestion from a
commenter that diagnosis code 585.6
(End-stage renal disease) be added to the
CC Exclusion List when reported with a
principal diagnosis code of 403.90
(Hypertensive chronic kidney disease,
unspecified, with chronic kidney
disease stage I through stage IV, or
unspecified) or diagnosis code 403.91
(Hypertensive chronic kidney disease,
unspecified, with chronic kidney
disease stage V or end-stage renal
disease). Currently, diagnosis code
585.6 is designated as an MCC.
According to the commenter,
diagnosis codes 585.6 and 403.91 are
essentially the same diagnosis but
coding guidelines require the reporting
of two codes to identify the stage of
chronic kidney disease when associated
with hypertensive chronic kidney
disease. The commenter suggested that
there is no need for diagnosis code
585.6 to be designated as an MCC when
reported with a principal diagnosis of
hypertensive chronic kidney disease,
stage V or end-stage renal disease. The
commenter also pointed out that, while
coding guidelines would preclude
diagnosis codes 403.90 and 585.6 from
being reported together, the MS–DRG
GROUPER allows diagnosis code 585.6
to act as an MCC when reported as a
secondary diagnosis with principal
diagnosis code 403.90.
As discussed in the proposed rule, in
response to the first issue, our clinical
advisors disagree with the commenter.
Diagnosis code 403.91 includes chronic
kidney disease stage V or end-stage
renal disease. These are two separate
conditions (or stages) that are identified
by two unique codes. Diagnosis code
585.5 identifies stage V chronic kidney
disease and is classified as a CC.
Diagnosis code 585.6 identifies endstage renal disease, is classified as an
MCC, and describes patients who
require chronic dialysis. The patients
diagnosed with stage V chronic kidney
disease are a different population who
require different resources than those
patients who are diagnosed with endstage renal disease. Therefore, in the FY
2012 IPPS/LTCH PPS proposed rule, we
did not propose to add diagnosis code
585.6 to the CC Exclusion List when
reported with a principal diagnosis of
code 403.91.
On the second issue raised by the
commenter, our clinical advisors agreed.
Diagnosis code 403.90 identifies
patients with chronic kidney disease,
stages I through IV or unspecified, and
diagnosis code 585.6 identifies endstage renal disease. Our clinical advisors
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51543
indicate that the reporting of diagnosis
code 585.6 should not be designated as
an MCC in this case. We agreed with the
commenter that diagnosis codes 403.90
and 585.6 should not be reported
together as instructed by the Coding
Guidelines. Only a code from the 585.1
through 585.4 range (stages I through IV,
or unspecified) should be reported with
diagnosis code 403.90. Diagnosis code
585.6 is the exclusive code that
uniquely identifies end-stage renal
disease and should only be reported
with diagnosis code 403.91. Therefore,
in the FY 2012 IPPS/LTCH PPS
proposed rule, we proposed to add
diagnosis code 585.6 to the CC
Exclusion List when reported with a
principal diagnosis code of 403.90.
Comment: Several commenters
supported our proposal to add diagnosis
code 585.6 to the CC Exclusion List
when reported with a principal
diagnosis code of 403.90.
Response: We appreciate the
commenters’ support.
After consideration of the public
comments we received, we are adopting
as final our proposal to add diagnosis
code 585.6 (End stage renal disease) to
the CC Exclusion List when reported
with a principal diagnosis code of
403.90 (Hypertensive chronic kidney
disease, unspecified, with chronic
kidney disease stage I through stage IV,
or unspecified).
(C) Hypertensive Chronic Kidney
Disease With Chronic Kidney Disease
Stage V or End-Stage Renal Disease
Code
We received a comment
recommending the addition of diagnosis
code 403.91 (Hypertensive chronic
kidney disease, unspecified, with
chronic kidney disease stage V or endstage renal disease) to the CC Exclusion
List when reported as a secondary
diagnosis code with principal diagnosis
code 585.6 (End stage renal disease).
The commenter stated that it would be
unlikely that diagnosis code 403.91
would be reported as a secondary
diagnosis code with diagnosis code
585.6 as the principal diagnosis code
due to sequencing rules for end-stage
renal disease with hypertension.
Currently, diagnosis code 403.91 is
designated as a CC.
Our clinical advisors agreed with the
commenter. Therefore, in the FY 2012
IPPS/LTCH PPS proposed rule, we
proposed to add diagnosis code 403.91
to the CC Exclusion List when reported
as a secondary diagnosis code with
principal diagnosis code 585.6.
Comment: Several commenters
supported our proposal to add diagnosis
code 403.91 to the CC Exclusion List
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when reported as a secondary diagnosis
code with principal diagnosis code
585.6.
Response: We appreciate the
commenters’ support.
After consideration of the public
comments we received, we are adopting
as final our proposal to add diagnosis
code 403.91 (Hypertensive chronic
kidney disease, unspecified, with
chronic kidney disease stage V or end
stage renal disease) to the CC Exclusion
List when reported as a secondary
diagnosis code with principal diagnosis
code 585.6 (End stage renal disease).
Code
Diagnosis
We received a request that we
consider changing the following
diagnosis codes from an MCC to a CC:
• 348.30 (Encephalopathy NOS)
• 348.31 (Metabolic encephalopathy)
• 348.39 (Encephalopathy NEC)
• 349.82 (Toxic encephalopathy)
• 572.2 (Hepatic encephalopathy)
For the FY 2012 IPPS/LTCH PPS
proposed rule, we analyzed the claims
data for the diagnosis codes mentioned
above related to encephalopathy. We
used the same approach we used in
initially creating the MS–DRGs and
classifying secondary diagnosis codes as
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.
mstockstill on DSK4VPTVN1PROD with RULES2
(2) Suggested Changes to Severity Levels
for Encephalopathy
C1
Diagnosis description
34830 .......
34831 .......
34839 .......
34982 .......
5722 .........
Encephalopathy NOS ....................................
Metabolic encephalopathy ............................
Encephalopathy NEC ....................................
Toxic encephalopathy ...................................
Hepatic encephalopathy ................................
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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 a MCC. The C3
value reflects a patient with at least one
other secondary diagnosis that is a MCC.
A value close to 1.0 in the C1 field
would suggest that the diagnosis code
produces the same expected value as a
non-CC. A value close to 2.0 suggests
the condition is more like a CC than a
non-CC but not as significant in
Code
We ran the following data as
described in FY 2008 IPPS final rule (72
FR 47158 through 47161). The C1 value
reflects a patient with no other
secondary diagnosis or with all other
secondary diagnoses that are non-CCs.
The C2 value reflects a patient with at
least one other secondary diagnosis that
is a CC but none that is a MCC. The C3
value reflects a patient with at least one
other secondary diagnosis that is a MCC.
The chart above shows that the C1
findings ranged from a low of 1.5448 to
a high of 2.3158. As stated earlier, a C1
value close to 2.0 suggests the condition
is more like a CC than a non-CC but not
as significant in resource usage as an
MCC. The C1 findings suggest that these
codes are more like a CC than a MCC.
However, the C2 findings ranged from a
low of 2.5054 to a high of 3.0023. Values
close to 3.0 suggests the condition is
more similar to an MCC than a CC or
non-CC. The C2 findings support
Cnt2
CC level
MCC
MCC
MCC
MCC
MCC
Cnt 1
10,082
6,389
4,004
4,333
1,375
Cnt 1
impact
2.1206
2.0580
2.1118
2.3158
1.5448
maintaining the encephalopathy codes
as an MCC level. The data are clearly
mixed between the C1 and C2 findings,
and does not consistently support a
change in the severity level. Our clinical
advisers recommended that these
encephalopathy codes remain at an
MCC level because these patients with
encephalopathy typically utilize
significant resources and are at a higher
severity level. Based on the clinical
analysis and the lack of consistent
claims data support for the severity
level change, we indicated in the
proposed rule that we believe that the
encephalopathy codes should remain on
the MCC list. Therefore, we proposed to
retain the following encephalopathy
codes on the MCC list:
• 348.30 (Encephalopathy NOS)
• 348.31 (Metabolic encephalopathy)
• 348.39 (Encephalopathy NEC)
• 349.82 (Toxic encephalopathy)
• 572.2 (Hepatic encephalopathy)
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non-CCs, CCs, or MCCs. A detailed
discussion of the process and criteria we
used in this process is described in the
FY 2008 IPPS final rule (72 FR 47158
through 47161). We refer the readers to
this discussion for complete information
on our approach to developing the nonCC, CC, and MCC lists. Each diagnosis
for which Medicare data were available
was evaluated to determine its impact
on resource use and to determine the
most appropriate CC subclass (non-CC,
CC, or MCC) assignment. In order to
make this determination, the average
cost for each subset of cases was
compared to the expected cost for cases
in that subset. The following format was
used to evaluate each diagnosis:
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 (72 FR 47158 through 47161).
The following chart shows the
analysis for each of the encephalopathy
diagnosis codes that are currently
classified as MCCs.
Cnt 2
impact
Cnt 2
39,042
29,651
15,003
18,126
9,885
2.7774
2.6952
2.7355
3.0023
2.5054
Cnt 3
60,381
49,343
19,732
26,009
12,421
Cnt 3
impact
3.3702
3.4011
3.3708
3.5714
3.4435
We invited public comment on our
proposal not to change the severity level
classification for these codes.
Comment: Several commenters
supported our proposal not to change
the MCC severity level classification for
the encephalopathy codes listed above.
The commenters agreed with our
findings that the data were mixed
between the C1 and C2 findings for
these codes, which are currently on the
MCC list, and that clinical evaluation of
these conditions supports maintaining
them on the MCC list.
Response: We appreciate the
commenters’ support. As stated above,
our data showed mixed findings for C1
and C2 with C1 findings supporting a
change to CC, but C2 findings
supporting maintaining the codes on the
MCC list. Our clinical advisors’
evaluation of encephalopathy patients
supports our proposal to maintain these
encephalopathy codes on the MCC list.
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After consideration of the public
comments we received, as we proposed,
we are keeping the following
encephalopathy codes on the MCC list.
• 348.30 (Encephalopathy NOS) MCC
• 348.31 (Metabolic encephalopathy)
MCC
• 348.39 (Encephalopathy NEC) MCC
• 349.82 (Toxic encephalopathy) MCC
• 572.2 (Hepatic encephalopathy) MCC
(3) Suggested Changes to Severity
Levels for Mechanical Complication and
Infection Due to Device-Related Codes
We received a request to change the
severity classification from CCs to MCCs
for the following diagnosis codes:
• 996.01 (Mechanical of cardiac
device, implant and graft due to cardiac
pacemaker (electrode)).
• 996.04 (Mechanical complication of
cardiac device, implant, and graft due to
automatic implantable cardiac
defibrillator).
Code
Diagnosis description
CC
Level
99601 ................
99604 ................
99661 ................
Malfunc cardiac pacemaker ..................
Mch cmp autm mplnt dfbrl ....................
React-cardiac dev/graft .........................
CC
CC
CC
We reviewed the findings from these
data. The C1 findings ranged from a low
of 1.6723 to a high of 1.9922. As stated
earlier, a value close to 2.0 in the C1
field suggests that the condition is more
like a CC than a non-CC but not as
significant in resource usage as an MCC.
The C1 findings clearly support the
current classification of these three
codes on the CC list and the C2 findings
supports this classification. Our clinical
advisors agree that the data findings and
their own clinical evaluation of the
severity level of these conditions
support the classification of these three
codes on the CC list. Therefore, we
proposed that these codes remain on the
CC list. We invited public comment on
this proposal.
Cnt 1
Impact
Cnt 1
1,296
419
149
1.6723
1.7041
1.9922
Comment: Several commenters
supported our proposal to maintain the
mechanical complication and infection
due to device-related codes mentioned
above on the CC list. The commenters
agreed that the data as well as our
clinical advisors’ evaluation support the
current classification.
Several commenters opposed our
proposal to keep the mechanical
complication and infection due to
device-related codes on the CC list. In
support of their position, the
commenters cited our decision to keep
the encephalopathy codes on the MCC
list. They pointed out that the
encephalopathy codes had C1 findings
of a low of 1.5448 to a high of 2.3158
and C2 findings of a low of 2.5054 to a
51545
• 996.61 (Infection and inflammatory
reaction due to internal prosthetic
device, implant, and graft due to cardiac
device, implant, and graft).
Currently, all three diagnosis codes
are classified as a CC. For the FY 2012
IPPS/LTCH PPS proposed rule, we
analyzed claims data using the
methodology described previously in
this section for these diagnosis codes.
The following chart shows our findings:
Cnt 2
Impact
Cnt 2
1,920
1,032
633
Cnt 3
2.4332
2.5190
2.8134
1,333
660
1,253
Cnt 3
Impact
3.1134
3.1508
3.5036
high of 3.0023, yet they were
maintained on the MCC list. The
commenters believed that the same logic
should be applied to the mechanical
complication and infection due to
device-related codes which had C1
findings of a low of 1.6723 to a high of
1.9922 and C2 findings of a low of
2.4332 to a high of 2.8134. One
commenter also offered data from the
Healthcare Utilization Project (HCUP)
database which showed 2008 national
statistics of average costs for patients
admitted with one of these codes as a
principal diagnosis. This commenter
stated that these data showed average
costs as follows:
2008 NATIONAL STATISTICS—PRINCIPAL DIAGNOSIS ONLY RANKED BY COSTS, DESCENDING ORDER: MEDICARE ONLY
ICD–9–CM
Principal diagnosis code
Total number of
discharges
mstockstill on DSK4VPTVN1PROD with RULES2
996.61—React-Cardiac Dev/Graft ...................................................
996.04—Mch Comp Aut, Mplnt Dfbri ..............................................
996.01—Malfunc Cardiac Pacemake ..............................................
427.5—Cardiac Arrest .....................................................................
349.82—Toxic Encephalopathy .......................................................
428.23—Ac On Chr Syst Hrt Fail ....................................................
428.1—Left Heart Failure ................................................................
348.39—Encephalopathy Nec .........................................................
428.31—Ac Diastolic Hrt Failure .....................................................
348.30—Encephalopathy Nos .........................................................
572.2—Hepatic encephalopathy ......................................................
The commenter stated that these data
support changing these codes to the
MCC list since the costs associated with
these admissions were higher than
admissions for encephalopathy.
Response: We agree with the
commenters who supported maintaining
the current CC severity level for the
mechanical complication and infection
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Length of stay
(LOS) (mean)
8,944
8,095
8,664
4,781
6,835
75,511
2,261
4,880
37,216
11,057
20,154
due to device related codes. As
discussed above the C1 and C2 findings
as well as the advice of our clinical
advisors supports this recommendation.
We disagree with the commenters
who made comparisons to our proposals
for the encephalopathy codes. The
encephalopathy codes had C1 findings
of a low of 1.5448 to a high of 2.3158
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Charges
$
(mean)
10.7
3.2
2.8
3.6
6.5
5.8
5.1
6.3
5.5
5.9
5.4
95,251
59,924
37,056
35,499
37,913
33,732
26,777
32,124
30,167
31,933
28,056
Costs
$
(mean)
26,893
16,891
11,044
10,908
10,765
10,689
10,252
9,609
9,298
9,232
8,580
and C2 findings of a low of 2.5054 to a
high of 3.0023. The encephalopathy
codes C1 findings supported a change to
a CC level. The C2 findings of a high of
3.0023 support the current MCC
assignment for those codes.
The mechanical complication and
infection due to device-related codes
had C1 findings of a low of 1.6723 and
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a high of 1.9922, which are more like a
CC than a non-CC but not as significant
in resource usage as an MCC. The C2
findings of a low of 2.4332 and a high
of 2.8134 are also supportive of a CC
classification because, while one was a
high of 2.8134, the other was only
2.4332. Only one of the codes had a
finding that approached 3.0 and neither
exceeded 3.0. Furthermore, our clinical
advisors’ evaluation of data on patients
with encephalopathy as a secondary
diagnosis indicates that these patients
are at a higher severity level. Our
clinical advisors did not believe that
patients who have one of the
mechanical complication and infection
due to device-related codes as a
secondary diagnoses would require
resources justifying the MCC severity
level.
We point out that the data that the
commenter shared focused on patients
admitted for either a mechanical
complication or infection due to devicerelated code or for encephalopathy. In
other words, these conditions were the
principal diagnosis in this data. These
cases did not report the codes as
secondary diagnoses. Our clinical
criteria are based on these conditions
being reported as a secondary diagnosis
and the effect that has on all types of
admissions. 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). It may well
make a difference in the overall costs of
the admission if a patient were admitted
for these types of complications and
required a pacemaker insertion during
the stay. Clearly, the encephalopathy
cases would not have had a device
inserted. Therefore, it is not possible to
determine the effect of the impact of
these conditions as a secondary
diagnosis based on these data because
the additional costs of a device is
included. Our approach isolates the
effect of the individual code on all types
of admissions when it is reported as a
secondary diagnosis. It also looks at
whether this code is the only CC or
MCC reported (C1 cases), reported with
another CC diagnosis (C2 cases), or
reported with another MCC diagnosis
(C3). We cannot determine what, if any,
secondary diagnoses were present for
the cases shown in the HCUP data
shown above.
We believe our consistent approach to
evaluating the effect of a secondary
diagnosis is more appropriate than
looking at average costs when the
condition is reported as a principal
diagnosis in establishing the severity
level of these codes. Modifying the
approach by also looking at the
principal diagnosis would significantly
modify our current approach that
focuses solely on evaluating the impact
of secondary diagnoses on increasing
the severity of the overall admission.
We also note that our clinical advisors’
evaluation of these cases, who advised
that the codes should remain on the CC
lists, supports the findings of the data
and maintaining the codes on the CC
list.
After consideration of the public
comments we received, as we proposed,
we are maintain the mechanical
complication and infection due to
device-related codes listed below on the
CC list for FY 2012.
• 996.01 (Mechanical of cardiac
device, implant and graft due to cardiac
pacemaker (electrode))—CC
• 996.04 (Mechanical complication of
cardiac device, implant, and graft due to
automatic implantable cardiac
defibrillator)—CC
• 996.61 (Infection and inflammatory
reaction due to internal prosthetic
device, implant, and graft due to cardiac
device, implant, and graft)—CC
Tables 6G and 6H, Additions to and
Deletions from the CC Exclusion List,
respectively, which are effective for
discharges occurring on or after October
1, 2011, 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/AcuteInpatientPPS.
Each of these principal diagnoses for
which there is a CC exclusion is shown
in Tables 6G and 6H, which are listed
in section VI. of the Addendum to this
final rule (and available via the Internet)
with an asterisk, and the conditions that
will not count as a CC, are provided in
an indented column immediately
following the affected principal
diagnosis.
A complete updated MCC, CC, and
Non-CC Exclusions List is also available
through the Internet on the CMS Web
site at: http://www.cms.hhs.gov/AcuteIn
patientPPS. Beginning with discharges
on or after October 1, 2011, the indented
diagnoses will not be recognized by the
GROUPER as valid CCs for the
asterisked principal diagnosis.
To assist readers in identifying the
changes to the MCC and CC lists that
occurred as a result of updates to the
ICD–9–CM codes, as described in Tables
6A, 6C, and 6E, which are listed in
section VI. of the Addendum to this
final rule and available via the Internet,
we are providing the following
summaries of those MCC and CC
changes for FY 2012.
SUMMARY OF ADDITIONS TO THE MS–DRG MCC LIST—TABLE 6I.1
mstockstill on DSK4VPTVN1PROD with RULES2
Code
Description
284.11 ........................
284.12 ........................
348.82 ........................
415.13 ........................
444.01 ........................
488.81 ........................
516.4 ..........................
516.61 ........................
516.62 ........................
516.63 ........................
516.64 ........................
516.69 ........................
518.51 ........................
518.52 ........................
518.53 ........................
747.31 ........................
747.32 ........................
747.39 ........................
808.54 ........................
998.01 ........................
VerDate Mar<15>2010
Antineoplastic chemotherapy induced pancytopenia.
Other drug-induced pancytopenia.
Brain death.
Saddle embolus of pulmonary artery.
Saddle embolus of abdominal aorta.
Influenza due to identified novel influenza A virus with pneumonia.
Lymphangioleiomyomatosis.
Neuroendocrine cell hyperplasia of infancy.
Pulmonary interstitial glycogenosis.
Surfactant mutations of the lung.
Alveolar capillary dysplasia with vein misalignment.
Other interstitial lung diseases of childhood.
Acute respiratory failure following trauma and surgery.
Other pulmonary insufficiency, not elsewhere classified, following trauma and surgery.
Acute and chronic respiratory failure following trauma and surgery.
Pulmonary artery coarctation and atresia.
Pulmonary arteriovenous malformation.
Other anomalies of pulmonary artery and pulmonary circulation.
Multiple open pelvic fractures without disruption of pelvic circle.
Postoperative shock, cardiogenic.
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SUMMARY OF ADDITIONS TO THE MS–DRG MCC LIST—TABLE 6I.1—Continued
Code
Description
998.02 ........................
998.09 ........................
Postoperative shock, septic.
Postoperative shock, other.
SUMMARY OF DELETIONS FROM THE MS–DRG MCC LIST—TABLE 6I.2
Code
Description
518.5 ..........................
747.3 ..........................
Pulmonary insufficiency following trauma and surgery.
Anomalies of pulmonary artery.
SUMMARY OF ADDITIONS TO THE MS–DRG CC LIST—TABLE 6J.1
Code
Description
284.19 ........................
286.52 ........................
286.53 ........................
286.59 ........................
294.21 ........................
358.30 ........................
358.31 ........................
358.39 ........................
425.11 ........................
425.18 ........................
444.09 ........................
512.2 ..........................
512.81 ........................
512.82 ........................
512.83 ........................
512.84 ........................
512.89 ........................
516.33 ........................
516.35 ........................
516.36 ........................
516.37 ........................
516.5 ..........................
539.01 ........................
539.09 ........................
539.81 ........................
539.89 ........................
596.81 ........................
596.82 ........................
596.83 ........................
808.44 ........................
996.88 ........................
997.32 ........................
997.41 ........................
997.49 ........................
998.00 ........................
999.32 ........................
999.33 ........................
999.34 ........................
999.41 ........................
999.42 ........................
999.49 ........................
999.51 ........................
999.52 ........................
999.59 ........................
Other pancytopenia.
Acquired hemophilia.
Antiphospholipid antibody with hemorrhagic disorder.
Other hemorrhagic disorder due to intrinsic circulating anticoagulants, antibodies, or inhibitors.
Dementia, unspecified, with behavioral disturbance.
Lambert-Eaton syndrome, unspecified.
Lambert-Eaton syndrome in neoplastic disease.
Lambert-Eaton syndrome in other diseases classified elsewhere.
Hypertrophic obstructive cardiomyopathy.
Other hypertrophic cardiomyopathy.
Other arterial embolism and thrombosis of abdominal aorta.
Postoperative air leak.
Primary spontaneous pneumothorax.
Secondary spontaneous pneumothorax.
Chronic pneumothorax.
Other air leak.
Other pneumothorax.
Acute interstitial pneumonitis.
Idiopathic lymphoid interstitial pneumonia.
Cryptogenic organizing pneumonia.
Desquamative interstitial pneumonia.
Adult pulmonary Langerhans cell histiocytosis.
Infection due to gastric band procedure.
Other complications of gastric band procedure.
Infection due to other bariatric procedure.
Other complications of other bariatric procedure.
Infection of cystostomy.
Mechanical complication of cystostomy.
Other complication of cystostomy.
Multiple closed pelvic fractures without disruption of pelvic circle.
Complications of transplanted organ, stem cell.
Postprocedural aspiration pneumonia.
Retained cholelithiasis following cholecystectomy.
Other digestive system complications.
Postoperative shock, unspecified.
Bloodstream infection due to central venous catheter.
Local infection due to central venous catheter.
Acute infection following transfusion, infusion, or injection of blood and blood products.
Anaphylactic reaction due to administration of blood and blood products.
Anaphylactic reaction due to vaccination.
Anaphylactic reaction due to other serum.
Other serum reaction due to administration of blood and blood products.
Other serum reaction due to vaccination.
Other serum reaction.
mstockstill on DSK4VPTVN1PROD with RULES2
SUMMARY OF DELETIONS FROM THE MS–DRG CC LIST—TABLE 6J.2
Code
284.1
286.5
425.1
444.0
512.8
516.3
Description
..........................
..........................
..........................
..........................
..........................
..........................
VerDate Mar<15>2010
Pancytopenia.
Hemorrhagic disorder due to intrinsic circulating anticoagulants.
Hypertrophic obstructive cardiomyopathy.
Embolism and thrombosis of abdominal aorta.
Other spontaneous pneumothorax.
Idiopathic fibrosing alveolitis.
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SUMMARY OF DELETIONS FROM THE MS–DRG CC LIST—TABLE 6J.2—Continued
Code
997.4
998.0
999.4
999.5
Description
..........................
..........................
..........................
..........................
Digestive system complications.
Postoperative shock.
Anaphylactic shock due to serum.
Other serum reaction.
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Alternatively, the complete
documentation of the GROUPER logic,
including the current CC Exclusions
List, is available from 3M/Health
Information Systems (HIS), which,
under contract with CMS, is responsible
for updating and maintaining the
GROUPER program. The current MS–
DRG Definitions Manual, Version 28.0,
is available on a CD for $225.00. Version
29.0 of this manual, which will include
the final FY 2012 MS–DRG changes,
will be available on a CD for $225.00.
These manuals may be obtained by
writing 3M/HIS at the following
address: 100 Barnes Road, Wallingford,
CT 06492; or by calling (203) 949–0303,
or by obtaining an order form at the Web
site: http://www.3MHIS.com. Please
specify the revision or revisions
requested.
12. Review of Procedure Codes in MS
DRGs 981 Through 983; 984 Through
986; and 987 Through 989
Each year, we review cases assigned
to former CMS DRG 468 (Extensive O.R.
Procedure Unrelated to Principal
Diagnosis), CMS DRG 476 (Prostatic
O.R. Procedure Unrelated to Principal
Diagnosis), and CMS DRG 477
(Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis) to determine
whether it would be appropriate to
change the procedures assigned among
these CMS DRGs. Under the MS–DRGs
that we adopted for FY 2008, CMS DRG
468 was split three ways and became
MS–DRGs 981, 982, and 983 (Extensive
O.R. Procedure Unrelated to Principal
Diagnosis with MCC, with CC, and
without CC/MCC, respectively). CMS
DRG 476 became MS–DRGs 984, 985,
and 986 (Prostatic O.R. Procedure
Unrelated to Principal Diagnosis with
MCC, with CC, and without CC/MCC,
respectively). CMS DRG 477 became
MS–DRGs 987, 988, and 989
(Nonextensive O.R. Procedure Unrelated
to Principal Diagnosis with MCC, with
CC, and without CC/MCC, respectively).
MS–DRGs 981 through 983, 984
through 986, and 987 through 989
(formerly CMS DRGs 468, 476, and 477,
respectively) are reserved for those cases
in which none of the O.R. procedures
performed are related to the principal
diagnosis. These MS–DRGs are intended
to capture atypical cases, that is, those
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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.3
3 The original list of the ICD–9–CM procedure
codes for the procedures we consider nonextensive
procedures, if performed with an unrelated
principal diagnosis, was published in Table 6C in
section IV. of the Addendum to the FY 1989 final
rule (53 FR 38591). As part of the FY 1991 final rule
(55 FR 36135), the FY 1992 final rule (56 FR 43212),
the FY 1993 final rule (57 FR 23625), the FY 1994
final rule (58 FR 46279), the FY 1995 final rule (59
FR 45336), the FY 1996 final rule (60 FR 45783),
the FY 1997 final rule (61 FR 46173), and the FY
1998 final rule (62 FR 45981), we moved several
other procedures from DRG 468 to DRG 477, and
some procedures from DRG 477 to DRG 468. No
procedures were moved in FY 1999, as noted in the
final rule (63 FR 40962); in FY 2000 (64 FR 41496);
in FY 2001 (65 FR 47064); or in FY 2002 (66 FR
39852). In the FY 2003 final rule (67 FR 49999) we
did not move any procedures from DRG 477.
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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 2012, we did not
propose to change the procedures
assigned among these MS–DRGs.
We did not receive any public
comments on this proposal. Therefore,
as we proposed, we are not making any
changes to the procedures assigned to
MS–DRGs 981 through 983, 984 through
986, and 987 through 989 for FY 2012.
a. Moving Procedure Codes From MS–
DRGs 981 Through 983 or MS–DRGs
987 Through 989 Into MDCs
We annually conduct a review of
procedures producing assignment to
MS–DRGs 981 through 983 (Extensive
O.R. procedure unrelated to principal
diagnosis with MCC, with CC, and
without CC.MCC, respectively) or MS–
DRGs 987 through 989 (Nonextensive
O.R. procedure unrelated to principal
diagnosis with MCC, with CC, and
without CC/MCC, respectively) on the
basis of volume, by procedure, to see if
it would be appropriate to move
procedure codes out of these MS–DRGs
into one of the surgical MS–DRGs for
the MDC into which the principal
diagnosis falls. The data are arrayed in
two ways for comparison purposes. We
look at a frequency count of each major
operative procedure code. We also
compare procedures across MDCs by
volume of procedure codes within each
MDC.
We identify those procedures
occurring in conjunction with certain
principal diagnoses with sufficient
frequency to justify adding them to one
of the surgical MS–DRGs for the MDC in
However, we did move procedure codes from DRG
468 and placed them in more clinically coherent
DRGs. In the FY 2004 final rule (68 FR 45365), we
moved several procedures from DRG 468 to DRGs
476 and 477 because the procedures are
nonextensive. In the FY 2005 final rule (69 FR
48950), we moved one procedure from DRG 468 to
477. In addition, we added several existing
procedures to DRGs 476 and 477. In the FY 2006
(70 FR 47317), we moved one procedure from DRG
468 and assigned it to DRG 477. In FY 2007, we
moved one procedure from DRG 468 and assigned
it to DRGs 479, 553, and 554. In FYs 2008, 2009,
FY 2010, and FY 2011, no procedures were moved,
as noted in the FY 2008 final rule with comment
period (72 FR 46241), the FY 2009 final rule (73 FR
48513), the FY 2010 final rule (74 FR 43796); and
the FY 2011 final rule (75 FR 50122).
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which the diagnosis falls. As noted
above, there were no cases that merited
movement or that should logically be
assigned to any of the other MDCs.
Therefore, for FY 2012, we 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 987
through 989 for FY 2012.
b. Reassignment of Procedures Among
MS–DRGs 981 Through 983, 984
Through 986, and 987 Through 989
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We also annually review the list of
ICD–9–CM procedures that, when in
combination with their principal
diagnosis code, result in assignment to
MS–DRGs 981 through 983, 984 through
986 (Prostatic O.R. procedure unrelated
to principal diagnosis with MCC, with
CC, or without CC/MCC, respectively),
and 987 through 989, to ascertain
whether any of those procedures should
be reassigned from one of these three
MS–DRGs to another of the three MS–
DRGs based on average charges and the
length of stay. We look at the data for
trends such as shifts in treatment
practice or reporting practice that would
make the resulting MS–DRG assignment
illogical. If we find these shifts, we
would propose to move cases to keep
the MS–DRGs clinically similar or to
provide payment for the cases in a
similar manner. Generally, we move
only those procedures for which we
have an adequate number of discharges
to analyze the data.
There were no cases representing
shifts in treatment practice or reporting
practice that would make the resulting
MS–DRG assignment illogical, or that
merited movement so that cases should
logically be assigned to any of the other
MDCs. Therefore, for FY 2012, we 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, 984 through 986, and 987
through 989 for FY 2012.
c. Adding Diagnosis or Procedure Codes
to MDCs
Based on the review of cases in the
MDCs as described above in sections
III.G.12.a. and b., we did not propose to
add any diagnosis or procedure codes to
MDCs for FY 2012.
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16:07 Aug 17, 2011
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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 2012.
13. Changes to the ICD–9–CM Coding
System, Including Discussion of the
Replacement of the ICD–9–CM Coding
System With the ICD–10–CM and ICD–
10–PCS Systems in FY 2014
a. ICD–9–CM Coding System
As described in section II.B.1. of the
preamble of this final rule, the ICD–9–
CM is a coding system currently used
for the reporting of diagnoses and
procedures performed on a patient. In
September 1985, the ICD–9–CM
Coordination and Maintenance
Committee was formed. This is a
Federal interdepartmental committee,
co-chaired by the National Center for
Health Statistics (NCHS), the Centers for
Disease Control and Prevention, and
CMS, charged with maintaining and
updating the ICD–9–CM system. The
Committee is jointly responsible for
approving coding changes, and
developing errata, addenda, and other
modifications to the ICD–9–CM to
reflect newly developed procedures and
technologies and newly identified
diseases. The Committee is also
responsible for promoting the use of
Federal and non-Federal educational
programs and other communication
techniques with a view toward
standardizing coding applications and
upgrading the quality of the
classification system.
The Official Version of the ICD–9–CM
contains the list of valid diagnosis and
procedure codes. (The Official Version
of the ICD–9–CM is available from the
Government Printing Office on CD–
ROM for $19.00 by calling (202) 512–
1800.) Complete information on
ordering the CD–ROM is also available
at: http://www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes/
05_CDROM.asp#TopOfPage. The
Official Version of the ICD–9–CM is no
longer available in printed manual form
from the Federal Government; it is only
available on CD–ROM. Users who need
a paper version are referred to one of the
many products available from
publishing houses.
The NCHS has lead responsibility for
the ICD–9–CM diagnosis codes included
in the Tabular List and Alphabetic
Index for Diseases, while CMS has lead
responsibility for the ICD–9–CM
procedure codes included in the
Tabular List and Alphabetic Index for
Procedures.
The Committee encourages
participation in the above process by
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51549
health-related organizations. In this
regard, the Committee holds public
meetings for discussion of educational
issues and proposed coding changes.
These meetings provide an opportunity
for representatives of recognized
organizations in the coding field, such
as the American Health Information
Management Association (AHIMA), the
American Hospital Association (AHA),
and various physician specialty groups,
as well as individual physicians, health
information management professionals,
and other members of the public, to
contribute ideas on coding matters.
After considering the opinions
expressed at the public meetings and in
writing, the Committee formulates
recommendations, which then must be
approved by the agencies.
The Committee presented proposals
for coding changes for implementation
in FY 2012 at a public meeting held on
September 15–16, 2010 and finalized
the coding changes after consideration
of comments received at the meetings
and in writing by November 19, 2010.
Those coding changes were announced
in Tables 6A through 6F, which were
listed in section VI. of the Addendum to
the proposed rule and available via the
Internet.
The Committee held its 2011 meeting
on March 9–10, 2011. New codes for
which there was a consensus of public
support and for which complete tabular
and indexing changes were made by
May 2011 are included in the October
1, 2011 update to ICD–9–CM. Code
revisions that were discussed at the
March 9–10, 2011 Committee meeting
but that could not be finalized in time
to include them in the tables listed in
section VI. of the Addendum to the
proposed rule are included in Tables 6A
through 6F, which are listed in section
VI. of the Addendum to this final rule
and available via the Internet, and are
marked with an asterisk (*).
Copies of the minutes of the
procedure codes discussions at the
Committee’s September 15–16, 2010
meeting and March 9–10, 2011 meeting
can be obtained from the CMS Web site
at: http://cms.hhs.gov/
ICD9ProviderDiagnosticCodes/
03_meetings.asp. The minutes of the
diagnosis codes discussions at the
September 15–16, 2010 meeting and
March 9–10, 2011 meeting are found at:
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
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diagnosis codes to: Donna Pickett, CoChairperson, ICD–9–CM Coordination
and Maintenance Committee, NCHS,
Room 2402, 3311 Toledo Road,
Hyattsville, MD 20782. Comments may
be sent by E-mail to: [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
E-mail to:
[email protected].
The ICD–9–CM code changes that
have been approved will become
effective October 1, 2011. The new ICD–
9–CM codes are listed, along with their
MS–DRG classifications, in Tables 6A
and 6B (New Diagnosis Codes and New
Procedure Codes, respectively), which
are listed in section VI. of the
Addendum to this final rule and
available via the Internet. As we stated
above, the code numbers and their titles
were presented for public comment at
the ICD–9–CM Coordination and
Maintenance Committee meetings. Both
oral and written comments were
considered before the codes were
approved.
In the FY 2012 IPPS/LTCH PPS
proposed rule, we solicited comments
on the proposed classification of these
new codes, which were shown in Tables
6A and 6B listed in section VI. of the
Addendum to the proposed rule and
available via the Internet.
Comment: Several commenters
generally supported the proposed
changes to the MS–DRG classifications.
One commenter supported the non-CC
designation for the following new
diagnosis codes: 282.40 (Thalassemia,
unspecified); 282.43 (Alpha
thalassemia); code 282.44 (Beta
thalassemia); 282.45 (Delta-beta
thalassemia); 282.46 (Thalassemia
minor); 282.47 (Hemoglobin E-beta
Thalassemia); 516.31 (Idiopathic
pulmonary fibrosis); 516.32 (Idiopathic
non-specific interstitial pneumonitis);
and 516.34 (Respiratory bronchiolitis
interstitial lung disease). The
commenter also supported the non-CC
designation for and the assignment of
code 573.5 (Hepatopulmonary
syndrome) in MDC 4, MS–DRGs 205
and 206 (Other Respiratory System
Diagnoses with and without MCC,
respectively).
However, the commenter did not
support the non-CC designation of code
294.21 (Dementia, unspecified, with
behavioral disturbance). The commenter
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noted that a similar diagnosis with
behavioral disturbance such as code
294.11 (Dementia in conditions
classified elsewhere with behavioral
disturbance) is designated as a CC and
questioned why the same logic had not
been considered for code 294.21.
Response: Our medical advisors agree
with the commenter’s assessment that
diagnosis code 294.21 should qualify as
a CC, similar to code 294.11. Both codes
identify dementia with behavioral
disturbance and use similar resource
use. Therefore, in this final rule, we are
changing the proposed non-CC
designation for code 294.21 and
classifying it as a CC in Table 6A. This
change is reflected in Table 6A of this
final rule which is available via the
Internet on the CMS Web site.
Comment: One commenter did not
support the non-CC designation for
diagnosis code 414.4 (Coronary
atherosclerosis due to calcified coronary
lesion). The commenter stated that this
code should be designated as a CC, the
same designation assigned to diagnosis
code 414.02 (Coronary atherosclerosis of
autologous vein bypass graft) and
diagnosis code 414.03 (Coronary
atherosclerosis of nonautologous
biological bypass graft).
Response: Our medical advisors do
not agree with the commenter.
According to our medical advisors,
diagnosis code 414.4 is similar to code
414.01 (Coronary atherosclerosis of
native coronary artery) which is not
designated as a CC. Both codes indicate
general atherosclerosis and are not
similar to codes 414.02 and 414.03,
which indicate atherosclerosis of an
artery that has been replaced by graft.
Therefore, we are not making any
modifications to the proposed non-CC
designation for code 414.4.
Comment: One commenter supported
the CC designation for the following
diagnosis codes: 425.11(Hypertrophic
obstructive cardiomyopathy); 425.18
(Other hypertrophic cardiomyopathy);
512.2 (Postoperative air leak); 512.81
(Primary spontaneous pneumothorax);
512.82 (Secondary spontaneous
pneumothorax); 512.83 (Chronic
pneumothorax); 512.84 (Other air leak);
512.89 (Other pneumothorax); 516.35
(Idiopathic lymphoid interstitial
pneumonia); 516.36 (Cryptogenic
organizing pneumonia); and 516.37
(Desquamative interstitial pneumonia).
Some commenters supported the CC
designations for code 998.00
(Postoperative shock, unspecified).
One commenter representing a
national medical specialty society for
neurology supported our proposed CC
designations for codes 358.30 (LambertEaton syndrome, unspecified); 358.31
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(Lambert-Eaton syndrome in neoplastic
disease); and 358.39 (Lambert-Eaton
syndrome in other diseases classified
elsewhere). The commenter stated that
Lambert-Eaton syndrome is increasingly
diagnosed and not always a
paraneoplastic syndrome.
One commenter supported the CC
designation for code 348.82 (Brain
death), while another commenter did
not support this proposed designation.
The commenter that did not support the
proposal stated that this code should be
designated as an MCC.
Response: Our medical advisors agree
with the commenter that code 348.82
should be designated as a MCC because
this diagnosis requires extensive
intensive care resources. Therefore, in
this final rule, we are amending the
proposed CC designation of code 348.82
(Brain death) to MCC for FY 2012 in
Table 6A. This change is reflected in
Table 6A in this final rule which is
available via the Internet on the CMS
Web site.
Comment: One commenter did not
support the CC designation for code
516.30 (Idiopathic interstitial
pneumonia, not other specified). The
commenter did not see the differences
among codes 516.30, 516.31 (Idiopathis
pulmonary fibrosis), and 516.32
(Idiopathic nonspecific interstitial
pneumonitis), recognizing that the
nonspecific code is designated as a CC
while the more specific codes are not
designated as CCs.
Response: We agree with the
commenter that code 516.30 should not
be designated as a CC because this code
identifies an unspecified pneumonia
which is more reflective of a non-CC.
Therefore, in this final rule, we are
amending the proposed CC designation
for of code 516.30 (Idiopathic interstitial
pneumonia, not other specified) to nonCC for FY 2012 in Table 6A. This
change is reflected in Table 6A, which,
for this final rule, is available via the
Internet on the CMS Web site.
Comment: Several commenters
supported the MCC designation for the
following diagnosis codes: 284.11
(Antineoplastic chemotherapy induced
pancytopenia); 284.12 (Other drug
induced pancytopenia);
488.81(Influenza due to identified novel
influenza A virus with pneumonia);
998.01 (Postoperative shock,
cardiogenic); 998.02 (Postoperative
shock, septic); and 998.09
(Postoperative shock, other). In
addition, one commenter supported the
MCC designation for the following
diagnosis codes: 518.51 (Acute
respiratory failure following trauma and
surgery); 518.52 (Other pulmonary
insufficiency, not elsewhere classified);
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and 518.53 (Acute and chronic
respiratory failure following trauma and
surgery).
Response: We appreciate the
commenters’ support.
Comment: One commenter
representing a national organization for
orthopedic surgeons did not support the
proposed MCC designation for diagnosis
code 415.13 (Saddle embolus of
pulmonary artery). The commenter
stated that this designation is clinically
inaccurate as a saddle embolus is a
subcategory of deep vein thrombosis/
pulmonary embolism.
Response: Our medical advisors do
not agree with the commenter’s
assessment that this diagnosis code does
not warrant an MCC designation. The
diagnosis of saddle embolus is lifethreatening, requiring intensive care
resources. Therefore, we are not making
any modifications to the proposed MCC
designation for code 415.13. We point
out that diagnosis codes 415.11
(Iatrogenic pulmonary embolism and
infarction), 415.12 (Septic pulmonary
embolism) and 415.19 (Other
Pulmonary embolism and infarction) are
designated as MCCs.
Comment: One commenter suggested
that, as new codes are added to the MS–
DRG classification, the new codes be
assigned to the same MS–DRG
classification as its predecessor code.
Response: CMS’ longstanding practice
has been, where possible, to assign new
ICD–9–CM codes to the same MS–
DRGs(s) as their predecessor code.
Comment: One commenter supported
the proposed MS–DRG assignment to
MS–DRG 264 (Other Circulatory System
O.R. Procedures) for procedure code
38.26 (Insertion of implantable pressure
sensor without lead for intracardiac or
great vessel hemodynamic monitoring).
Another commenter supported the
surgical classification of procedure code
68.24 (Uterine artery embolization
[UAE] with coils) and code 68.25
(Uterine artery embolization [UAE]
without coils).
Response: We appreciate the support
of the commenters.
For codes that have been replaced by
new or expanded codes, the
corresponding new or expanded
diagnosis codes are included in Table
6A, which is listed in section VI. of the
Addendum to this final rule and
available via the Internet. New
procedure codes are shown in Table 6B,
which is listed in section VI. of the
Addendum to this final rule and
available via the Internet. Diagnosis
codes that have been replaced by
expanded codes or other codes or have
been deleted are in Table 6C (Invalid
Diagnosis Codes), which is listed in
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section VI. of the Addendum to this
final rule and available via the Internet.
These invalid diagnosis codes will not
be recognized by the GROUPER
beginning with discharges occurring on
or after October 1, 2011. Table 6D,
which is listed in section VI. of the
Addendum to this final rule and
available via the Internet, contains
invalid procedure codes. These invalid
procedure codes will not be recognized
by the GROUPER beginning with
discharges occurring on or after October
1, 2011. Revisions to diagnosis code
titles are in Table 6E (Revised Diagnosis
Code Titles), which is listed in section
VI. of the Addendum to this final rule
and available via the Internet, and also
includes the MS–DRG assignments for
these revised codes. Table 6F, which is
listed in section VI. of the Addendum to
this final rule and available via the
Internet includes revised procedure
code titles for FY 2012.
In the September 7, 2001 final rule
implementing the IPPS new technology
add-on payments (66 FR 46906), we
indicated we would attempt to include
proposals for procedure codes that
would describe new technology
discussed and approved at the Spring
meeting as part of the code revisions
effective the following October. As
stated previously, ICD–9–CM codes
discussed at the March 9–10, 2011
Committee meeting that received
consensus and that were finalized by
May 2011 are included in Tables 6A
through 6F, which are listed in section
VI. of the Addendum to this final rule
and available via the Internet.
Section 503(a) of Public Law 108–173
included a requirement for updating
ICD–9–CM codes twice a year instead of
a single update on October 1 of each
year. This requirement was included as
part of the amendments to the Act
relating to recognition of new
technology under the IPPS. Section
503(a) amended section 1886(d)(5)(K) of
the Act by adding a clause (vii) which
states that the ‘‘Secretary shall provide
for the addition of new diagnosis and
procedure codes on April 1 of each year,
but the addition of such codes shall not
require the Secretary to adjust the
payment (or diagnosis-related group
classification) * * * until the fiscal year
that begins after such date.’’ This
requirement improves the recognition of
new technologies under the IPPS system
by providing information on these new
technologies at an earlier date. Data will
be available 6 months earlier than
would be possible with updates
occurring only once a year on October
1.
While section 1886(d)(5)(K)(vii) of the
Act states that the addition of new
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51551
diagnosis and procedure codes on April
1 of each year shall not require the
Secretary to adjust the payment, or DRG
classification, under section 1886(d) of
the Act until the fiscal year that begins
after such date, we have to update the
DRG software and other systems in
order to recognize and accept the new
codes. We also publicize the code
changes and the need for a mid-year
systems update by providers to identify
the new codes. Hospitals also have to
obtain the new code books and encoder
updates, and make other system changes
in order to identify and report the new
codes.
The ICD–9–CM Coordination and
Maintenance Committee holds its
meetings in the spring and fall in order
to update the codes and the applicable
payment and reporting systems by
October 1 of each year. Items are placed
on the agenda for the ICD–9–CM
Coordination and Maintenance
Committee meeting if the request is
received at least 2 months prior to the
meeting. This requirement allows time
for staff to review and research the
coding issues and prepare material for
discussion at the meeting. It also allows
time for the topic to be publicized in
meeting announcements in the Federal
Register as well as on the CMS Web site.
The public decides whether or not to
attend the meeting based on the topics
listed on the agenda. Final decisions on
code title revisions are currently made
by March 1 so that these titles can be
included in the IPPS proposed rule. A
complete addendum describing details
of all changes to ICD–9–CM, both
tabular and index, is published on the
CMS and NCHS Web sites in May of
each year. Publishers of coding books
and software use this information to
modify their products that are used by
health care providers. This 5-month
time period has proved to be necessary
for hospitals and other providers to
update their systems.
A discussion of this timeline and the
need for changes are included in the
December 4–5, 2005 ICD–9–CM
Coordination and Maintenance
Committee minutes. The public agreed
that there was a need to hold the fall
meetings earlier, in September or
October, in order to meet the new
implementation dates. The public
provided comment that additional time
would be needed to update hospital
systems and obtain new code books and
coding software. There was considerable
concern expressed about the impact this
new April update would have on
providers.
In the FY 2005 IPPS final rule, we
implemented section 1886(d)(5)(K)(vii)
of the Act, as added by section 503(a)
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of Public Law 108–173, by developing a
mechanism for approving, in time for
the April update, diagnosis and
procedure code revisions needed to
describe new technologies and medical
services for purposes of the new
technology add-on payment process. We
also established the following process
for making these determinations. Topics
considered during the Fall ICD–9–CM
Coordination and Maintenance
Committee meeting are considered for
an April 1 update if a strong and
convincing case is made by the
requester at the Committee’s public
meeting. The request must identify the
reason why a new code is needed in
April for purposes of the new
technology process. The participants at
the meeting and those reviewing the
Committee meeting summary report are
provided the opportunity to comment
on this expedited request. All other
topics are considered for the October 1
update. Participants at the Committee
meeting are encouraged to comment on
all such requests. There were no
requests approved for an expedited
April l, 2011 implementation of an ICD–
9–CM code at the September 15–16,
2010 Committee meeting. Therefore,
there were no new ICD–9–CM codes
implemented on April 1, 2011.
Current addendum and code title
information is published on the CMS
Web site at: http://www.cms.hhs.gov/
icd9ProviderDiagnosticCodes/
01_overview.asp#TopofPage.
Information on ICD–9–CM diagnosis
codes, along with the Official ICD–9–
CM Coding Guidelines, can be found on
the Web site at: 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.
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
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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 will be implemented on
October 1, 2013, as described in the
Health Insurance Portability and
Accountability Act (HIPAA)
Administrative Simplification:
Modifications to Medical Data code Set
Standards to Adopt ICD–10–CM and
ICD–10–PCS final rule (74 FR 3328
through 3362, January 16, 2009). The
ICD–10 coding system includes the
International Classification of Diseases,
10th Revision, Clinical Modification
(ICD–10–CM) for diagnosis coding and
the International Classification of
Diseases, 10th Revision, Procedure
Coding System (ICD–10–PCS) for
inpatient hospital procedure coding, as
well as the Official ICD–10–CM and
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.
We responded to comments in the
ICD–10 final rule that the ICD–9–CM
Coordination and Maintenance
Committee has jurisdiction over any
action impacting the ICD–9–CM and
ICD–10 code sets. Therefore, we
indicated that the issue of consideration
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of a moratorium on updates to the ICD–
9–CM, ICD–10–CM, and ICD–10–PCS
code sets in anticipation of the adoption
of ICD–10–CM and ICD–10–PCS would
be addressed through the Committee at
a future public meeting.
The code freeze was discussed at
multiple meetings of the ICD–9–CM
Coordination and Maintenance
Committee and public comment was
actively solicited. The Committee
evaluated all comments from
participants attending the Committee
meetings as well as written comments
that were received. There was an
announcement at the September 15–16,
2010 ICD–9–CM Coordination and
Maintenance Committee meeting that a
partial freeze of both ICD–9–CM and
ICD–10 codes would be implemented as
follows:
• The last regular annual update to
both ICD–9–CM and ICD–10 code sets
will be made on October 1, 2011.
• On October 1, 2012, there will be
only limited code updates to both ICD–
9–CM and ICD–10 code sets to capture
new technology and new diseases.
• There will be no updates to ICD–9–
CM on October 1, 2013, as the system
will no longer be a HIPAA standard.
There will be only limited code updates
to ICD–10 code sets on October 1, 2013,
to capture new technology and new
diseases.
• On October 1, 2014, regular updates
to ICD–10 will begin.
The ICD–9–CM Coordination and
Maintenance Committee announced that
it would continue to meet twice a year
during the freeze. At these meetings, the
public will be encouraged to comment
on whether or not requests for new
diagnosis and procedure codes should
be created based on the need to capture
new technology and new diseases. Any
code requests that do not meet the
criteria will be evaluated for
implementation within ICD–10 on or
after October 1, 2014, once the partial
freeze is ended.
Complete information on the partial
code freeze and discussions of the
issues at the Committee meetings can be
found on the ICD–9–CM Coordination
and Maintenance Committee Web site
at: http://www.cms.gov/
ICD9ProviderDiagnosticCodes/03. A
summary of the September 15–16, 2010
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
supported the partial code freeze. The
commenters stated that the partial freeze
was needed to allow providers time to
prepare for the implementation of ICD–
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10 and the accompanying system and
product updates.
Response: We appreciate the
commenters’ support. We agree with the
commenters that the partial code freeze
will be useful in providing a greater
opportunity to focus on ICD–10
implementation issues.
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c. Processing of 25 Diagnosis Codes and
25 Procedure Codes on Hospital
Inpatient Claims
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50127), we discussed that
we had received repeated requests from
the hospital community to process all
25 diagnosis codes and 25 procedure
codes submitted on electronic hospital
inpatient claims. Prior to January 1,
2011, hospitals could submit up to 25
diagnoses and 25 procedures; however,
CMS’ system limitations allowed for the
processing of only the first 9 diagnoses
and 6 procedures. We indicated in that
final rule that, as part of our efforts to
update Medicare systems prior to the
implementation of ICD–10 on October 1,
2013, we were undergoing extensive
system updates as part of the move to
5010, which includes the ability to
accept ICD–10 codes. This complicated
transition involved converting many
internal systems prior to October 1,
2013, when ICD–10 will be
implemented. We stated that, as one
important step in this planned
conversion process, we were planning
to complete the expansion of our
internal system capability so that we are
able to process up to 25 diagnoses and
25 procedures on hospital inpatient
claims as part of the HIPAA ASC X12
Technical Reports Type 3, Version
005010 (Version 5010) standards system
update. We have completed this
expansion, and, as a result, we were
able to process up to 25 diagnosis codes
and 25 procedure codes when received
on the 5010 format starting on January
1, 2011. (We note that we made a
typographical error in the proposed rule
(76 FR 25843) and indicated that ‘‘we
have not completed this expansion.’’
This error was pointed out to us by
several commenters. We corrected this
typographical error in a correction
notice issued in the Federal Register on
June 14, 2011 (76 FR 24633).) We
continue to recognize the value of the
additional information provided by this
coded data for multiple uses such as for
payment, quality measures, outcome
analysis, and other important uses. We
will continue to process up to 25
diagnosis codes and 25 procedure codes
when received on the 5010 format.
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d. ICD–10 MS–DRGs
In response to the FY 2011 IPPS/
LTCH PPS proposed rule, we received
comments on the creation of the ICD–10
version of the MS–DRGs, which will be
implemented on October 1, 2013 (FY
2014) when we implement the reporting
of ICD–10 codes (75 FR 50127 and
50128). While we did not propose an
ICD–10 version of the MS–DRGs in the
FY 2011 IPPS/LTCH PPS proposed rule,
we noted that we have been actively
involved in converting our current MS–
DRGs from ICD–9–CM codes to ICD–10
codes and sharing this information
through the ICD–9–CM Coordination
and Maintenance Committee. We
undertook this early conversion project
to assist other payers and providers in
understanding how to go about their
own conversion projects. We posted
ICD–10 MS–DRGs based on V26.0 (FY
2009) of the MS–DRGs. We also posted
a paper that describes how CMS went
about completing this project and
suggestions for others to follow. All of
this information can be found on the
CMS Web site at: 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/
ICD9ProviderDiagnosticCodes/
03_meetings.asp.
During FY 2011, we developed and
posted Version 28.0 of the ICD–10 MS–
DRGs based on the FY 2011 MS–DRGs
(Version 28.0) that we finalized in the
FY 2011 IPPS/LTCH PPS final rule on
the CMS Web site. This ICD–10 MS–
DRG Version 28.0 also includes the CC
Exclusion List and the ICD–10 version
of the hospital acquired conditions
(HACs), which was not posted with
Version 26.0. We also discussed this
update at the September 15–16, 2010
and the March 9–10, 2011 meetings of
the ICD–9–CM Coordination and
Maintenance Committee. The minutes
of these two meetings are posted on the
CMS Web site at: http://www.cms.gov/
ICD9ProviderDiagnosticCodes/03_
meetings.asp. We will continue to work
with the public to explain how we are
approaching the conversion of MS–
DRGs to ICD–10 and will post drafts of
updates as they are developed for public
review. The final version of the ICD–10
MS–DRGs to be implemented in FY
2014 will be subject to notice and
comment rulemaking. In the meantime,
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51553
we will provide extensive and detailed
information on this activity through the
ICD–9–CM Coordination and
Maintenance Committee.
14. Other Issues
a. O.R./Non-O.R. Status of Procedures
(1) Brachytherapy Code
We received a request that we add
ICD–9–CM procedure code 92.27
(Implantation or Insertion of
Radioactive Elements) [Brachytherapy]
into 41 MS–DRGs that are listed below:
• 129 (Major Head and Neck Procedures
with CC/MCC or Major Device)
• 130 (Major Head and Neck Procedures
without CC/MCC)
• 163 (Major Chest Procedures with
MCC)
• 164 (Major Chest Procedures with CC)
• 165 (Major Chest Procedures without
CC/MCC)
• 180 (Respiratory Neoplasms with
MCC)
• 181 (Respiratory Neoplasms with CC)
• 182 (Respiratory Neoplasms without
CC/MCC)
• 326 (Stomach, Esophageal and
Duodenal Procedures with MCC)
• 327 (Stomach, Esophageal and
Duodenal Procedures with CC)
• 328 (Stomach, Esophageal and
Duodenal Procedures without CC/
MCC)
• 329 (Major Small and Large Bowel
Procedures with MCC)
• 330 (Major Small and Large Bowel
Procedures with CC)
• 331 (Major Small and Large Bowel
Procedures without CC/MCC)
• 332 (Rectal Resection with MCC)
• 333 (Rectal Resection with CC)
• 334 (Rectal Resection without CC/
MCC)
• 344 (Minor Small and Large Bowel
Procedures with MCC)
• 345 (Minor Small and Large Bowel
Procedures with CC)
• 346 (Minor Small and Large Bowel
Procedures without CC/MCC)
• 347 (Anal and Stomal Procedures
with MCC)
• 348 (Anal and Stomal Procedures
with CC)
• 349 (Anal and Stomal Procedures
without CC/MCC)
• 405 (Pancreas, Liver and Shunt
Procedures with MCC)
• 406 (Pancreas, Liver and Shunt
Procedures with CC)
• 407 (Pancreas, Liver and Shunt
Procedures without CC/MCC)
• 490 (Back and Neck Procedures
Except Spinal Fusion with CC/MCC
or Disc Device/Neurostimulator)
• 491 (Back and Neck Procedures
Except Spinal Fusion without CC/
MCC)
E:\FR\FM\18AUR2.SGM
18AUR2
51554
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
• 500 (Soft Tissue procedures with
MCC)
• 501 (Soft Tissue procedures with CC)
• 502 (Soft Tissue procedures without
CC/MCC)
• 584 (Breast Biopsy, Local Excision
and Other Breast Procedures with CC/
MCC)
• 585 (Breast Biopsy, Local Excision
and Other Breast Procedures without
CC/MCC)
• 597 (Malignant Breast Disorders with
MCC)
• 598 (Malignant Breast Disorders with
CC)
• 599 (Malignant Breast Disorders
without CC/MCC)
• 653 (Major Bladder Procedures with
MCC)
• 654 (Major Bladder Procedures with
CC)
• 655 (Major Bladder Procedures
without CC/MCC)
• 656 (Kidney and Ureter Procedures
for Neoplasm with MCC)
• 657 (Kidney and Ureter Procedures
for Neoplasm with CC)
• 658 (Kidney and Ureter Procedures
for Neoplasm without CC/MCC)
• 662 (Minor Bladder Procedures with
MCC)
• 663 (Minor Bladder Procedures with
CC)
• 664 (Minor Bladder Procedures
without CC/MCC)
• 668 (Transurethral Procedures with
MCC)
• 669 (Transurethral Procedures with
CC)
• 670 (Transurethral Procedures
without CC/MCC)
• 671 (Urethral Procedures with CC/
MCC)
• 672 (Urethral Procedures without CC/
MCC)
• 707 (Major Male Pelvic Procedures
with CC/MCC)
• 708 (Major Male Pelvic Procedures
without CC/MCC)
• 736 (Uterine and Adnexa Procedures
for Ovarian or Adnexal Malignancy
with MCC)
• 737 (Uterine and Adnexa Procedures
for Ovarian or Adnexal Malignancy
with CC)
• 738 (Uterine and Adnexa Procedures
for Ovarian or Adnexal Malignancy
without CC/MCC)
• 739 (Uterine and Adnexa Procedures
for Nonovarian or Adnexal
Malignancy with MCC)
• 740 (Uterine and Adnexa Procedures
for Nonovarian or Adnexal
Malignancy with CC)
• 741 (Uterine and Adnexa Procedures
for Nonovarian or Adnexal
Malignancy without CC/MCC)
• 746 (Vagina, Cervix and Vulva
Procedures with CC/MCC)
• 747 (Vagina Cervix and Vulva
Procedures without CC/MCC)
• 748 (Female Reproductive System
Reconstructive Procedures)
• 749 (Other Female Reproductive
System O.R. Procedures with CC/
MCC)
• 750 (Other Female Reproductive
System O.R. Procedures without CC/
MCC)
For the FY 2012 IPPS/LTCH PPS
proposed rule, we examined MedPAR
claims data on this request and only
found 150 cases throughout these MS–
DRGs. Our findings are presented in the
table below.
MS–DRG with Code 92.27
mstockstill on DSK4VPTVN1PROD with RULES2
DRG
129
130
163
164
165
180
181
182
326
327
328
329
330
331
332
333
334
344
345
346
347
348
349
405
406
407
490
491
500
501
502
584
585
597
598
599
653
654
655
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
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Jkt 223001
MS–DRG without Code 92.27
Number of
cases
Average length
of stay
Average costs
6
2
17
52
41
0
0
0
0
1
0
1
2
0
1
1
1
0
0
0
0
0
0
1
2
0
0
0
0
5
5
0
0
0
0
0
........................
........................
0
6.67
1.00
8.18
5.94
2.95
0
0
0
0
4.00
0
24.00
9.00
0
48.00
10.00
16.00
0
0
0
0
0
0
8.00
10.50
0
0
0
0
7.00
7.40
0
0
0
0
0
..........................
..........................
0
$15,793
7,587
24,166
17,505
10,638
0
0
0
0
9,302
0
37,654
20,043
0
61,169
11,446
27,312
0
0
0
0
0
0
8,444
23,231
0
0
0
0
12,896
13,876
0
0
0
0
0
........................
........................
0
PO 00000
Frm 00080
Fmt 4701
Sfmt 4700
Number of
cases
1,326
904
11,871
16,487
9,260
19,304
22,205
2,365
10,321
9,671
8,461
41,107
53,584
22,105
1,439
4,494
2,855
756
2,906
2,331
1,430
3,975
3,512
3,940
4,749
1,799
19,840
38,574
1,935
4,961
5,009
790
1,318
532
1,369
165
1,589
3,502
1,121
E:\FR\FM\18AUR2.SGM
18AUR2
Average
length of stay
5.35
2.78
13.90
7.13
4.27
7.37
5.30
3.59
15.48
8.67
3.49
15.10
8.91
5.13
13.40
7.86
4.76
11.30
6.67
4.52
8.80
5.40
2.75
15.45
7.83
8.04
4.24
2.05
10.86
5.77
2.78
5.32
2.12
7.41
5.32
3.26
16.34
9.13
5.53
Average costs
$14,400
7,860
31,860
16,865
11,754
11,396
8,014
5,580
35,437
17,889
9,161
33,003
16,736
10,654
29,727
16,008
10,518
21,590
11,190
7,757
16,644
9,326
5,311
35,970
17,333
12,148
11,940
6,794
20,600
10,256
6,844
11,126
7,283
10,990
7,624
4,368
35,856
19,367
413,162
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MS–DRG with Code 92.27
Number of
cases
DRG
656
657
658
662
663
664
668
669
670
671
672
707
708
736
737
738
739
740
741
746
747
748
749
750
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
.........................................................
mstockstill on DSK4VPTVN1PROD with RULES2
(2) Intraoperative Electron Radiation
Therapy (IOERT)
We received a public comment that
was outside of the scope of the FY 2011
IPPS/LTCH PPS proposed rule regarding
the MS–DRG assignment for
intraoperative electron radiation therapy
16:07 Aug 17, 2011
Jkt 223001
Average length
of stay
Average costs
20.00
0
0
0
0
0
3.50
6.50
1.50
0
0
0
3.00
0
6.00
0
0
0
1.00
0
0
0
0
0
77,737
0
0
0
0
0
3,972
7,832
5,639
0
0
0
11,252
0
13,045
0
0
0
3,225
0
0
0
0
0
1
0
0
0
0
0
2
4
2
0
0
0
1
0
1
0
0
0
1
0
0
0
0
0
The numbers of cases in any of the
MS–DRGs listed were minimal. Many of
the MS–DRGs listed had no occurrences
of procedure code 92.27. The highest
number of cases found was 52, in MS–
DRG 164 (Major Chest Procedures with
CC). Based on these findings, we do not
believe that making a MS–DRG change
based on such a minimal number of
cases can be justified. Therefore, for FY
2012, we did not propose to add
procedure code 92.27 to any of the 41
MS–DRGs listed above. Further, we did
not propose any MS–DRG changes for
procedure code 92.27. We welcomed
public comment on our proposal not to
make changes to procedure code 92.27.
Comment: Several commenters
supported our proposal to not add
procedure code 92.27 to any of the 41
MS–DRGs listed above and to not
propose any MS–DRG changes for
procedure code 92.27.
Response: We appreciate the
commenters’ support.
After consideration of the public
comments we received, as we proposed,
we are not adding procedure code 92.27
to any of the 41 MS–DRGs listed above
and are not making any MS–DRG
changes for procedure code 92.27 for FY
2012.
VerDate Mar<15>2010
MS–DRG without Code 92.27
(IOERT). This issue was discussed
briefly in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50128). However, we
addressed this issue in the FY 2012
IPPS/LTCH PPS rulemaking. IOERT is
the direct application of radiation to a
tumor and/or tumor bed while the
patient is undergoing surgery for cancer.
This technology may be used for cancers
of the rectum, head/neck, pancreas,
lung, genitourinary, soft tissue, and
breast. IOERT is a secondary procedure
performed during the primary tumor
removal surgery.
The commenter requested that CMS
update the MS–DRG assignments for
procedure code 92.41 (Intraoperative
electron radiation therapy) to ensure
that the cost of this technology is
captured in each MS–DRG involving
tumor removal in the rectum, head/
neck, pancreas, lung, genitourinary, soft
tissue, and breast. Currently, this code
is not assigned to a specific MS–DRG as
the primary procedure performed, the
tumor removal, would determine the
appropriate MS–DRG assignment.
The commenter provided a
recommended list of MS–DRGs to
which IOERT should be assigned:
MS–
DRG
Description
129 .......
Major Head and Neck Procedures
with CC/MCC or Major Device.
Major Head and Neck Procedures
without CC/MCC.
Other Ear, Nose, Mouth and
Throat O,R, Procedures with
CC/MCC.
130 .......
133 .......
PO 00000
Number of
cases
3,110
7,885
6,150
763
1,818
2,705
2,908
13,776
7,321
746
613
4,719
14,329
775
2,844
642
790
3,914
4,917
2,282
6,243
14,682
920
285
Fmt 4701
Sfmt 4700
Average costs
10.00
5.63
3.25
10.21
2.18
1.86
8.99
4.25
2.24
5.45
2.31
4.26
1.80
13.18
6.49
3.47
10.18
4.34
2.31
3.97
1.72
1.67
8.58
2.88
24,022
13,345
9,718
19,455
9,729
7,457
16,852
8,398
5,158
9,778
5,575
12,080
8,572
29,827
13,348
7,966
23,070
10,214
7,438
8,504
5,995
6,285
16,781
7,116
MS–
DRG
Description
134 .......
Other Ear, Nose, Mouth and
Throat O.R. Procedures without
CC/MCC.
Major Chest Procedures with
MCC.
Major Chest Procedures with CC.
Major Chest Procedures without
CC/MCC.
Other Respiratory System O.R.
Procedures with MCC.
Other Respiratory System O.R.
Procedures with CC.
Other Respiratory System O.R.
Procedures without CC/MCC.
Stomach, Esophageal and Duodenal Procedures with MCC.
Stomach, Esophageal and Duodenal Procedures with CC.
Stomach, Esophageal and Duodenal Procedures without CC/
MCC.
Major Small and Large Bowel Procedures with MCC.
Major Small and Large Bowel Procedures with CC.
Major Small and Large Bowel Procedures without CC/MCC.
Rectal Resection with MCC.
Rectal Resection with CC.
Rectal Resection without CC/MCC.
Minor Small and Large Bowel Procedures with MCC.
Minor Small and Large Bowel Procedures with CC.
Minor Small and Large Bowel Procedures without CC/MCC.
Anal and Stomal Procedures with
MCC.
Anal and Stomal Procedures with
CC.
163 .......
164 .......
165 .......
166 .......
167 .......
168 .......
326 .......
327 .......
328 .......
329 .......
330 .......
331 .......
332
333
334
344
.......
.......
.......
.......
345 .......
Frm 00081
Average
length of stay
346 .......
347 .......
348 .......
E:\FR\FM\18AUR2.SGM
18AUR2
51556
MS–
DRG
Description
MS–
DRG
Description
349 .......
Anal and Stomal Procedures without CC/MCC.
Other Digestive System O.R. Procedures with MCC.
Other Digestive System O.R. Procedures with CC.
Other Digestive System O.R. Procedures without CC/MCC.
Pancreas, Liver and Shunt Procedures with MCC.
Pancreas, Liver and Shunt Procedures with CC.
Pancreas, Liver and Shunt Procedures without CC/MCC.
Back and Neck Procedures Except
Spinal Fusion with CC/MCC.
Back and Neck Procedures Except
Spinal Fusion without CC/MCC.
Soft Tissue Procedures with MCC.
Soft Tissue Procedures with CC.
Soft Tissue Procedures without
CC/MCC.
Other Skin, Subcutaneous Tissue
and Breast Procedures with
MCC.
Other Skin, Subcutaneous Tissue
and Breast Procedures with CC.
Other Skin, Subcutaneous Tissue
and Breast Procedures without
CC/MCC.
Breast Biopsy, Local Excision and
Other Breast Procedures with
CC/MCC.
Breast Biopsy, Local Excision and
Other Breast Procedures without
CC/MCC.
Major Bladder Procedures with
MCC.
Major Bladder Procedures with
CC.
Major Bladder Procedures without
CC/MCC.
Kidney and Ureter Procedures For
Neoplasm with MCC.
Kidney and Ureter Procedures For
Neoplasm with CC.
Kidney and Ureter Procedures for
Neoplasm without MCC/CC.
Minor Bladder Procedures with
MCC.
Minor Bladder Procedures with
CC.
Minor Bladder Procedures without
CC/MCC.
Transurethral Procedures with
MCC.
Transurethral Procedures with CC.
Transurethral Procedures without
CC/MCC.
Urethral Procedures with CC/MCC.
Urethral Procedures without CC/
MCC.
Major Male Pelvic Procedures with
CC/MCC.
Major Male Pelvic Procedures
without CC/MCC.
Other Male Reproductive System
O.R. Procedures For Malignancy
with CC/MCC.
Other Male Reproductive System
O.R. Procedures For Malignancy
without CC/MCC.
736 .......
Uterine and Adnexa Procedures
for Ovarian or Adnexal Malignancy with MCC.
Uterine and Adnexa Procedures
for Ovarian or Adnexal Malignancy with CC.
Uterine and Adnexa Procedures
for Ovarian or Adnexal Malignancy without CC/MCC.
Uterine and Adnexa Procedures
for Nonovarian or Adnexal Malignancy with MCC.
Uterine and Adnexa Procedures
for Nonovarian or Adnexal Malignancy with CC.
Uterine and Adnexa Procedures
for Nonovarian or Adnexal Malignancy without CC/MCC.
Vagina, Cervix and Vulva Procedures with CC/MCC.
Vagina Cervix and Vulva Procedures without CC/MCC.
Female Reproductive System Reconstructive Procedures.
Other Female Reproductive System O.R. Procedures with CC/
MCC.
Other Female Reproductive System O.R. Procedures without
CC/MCC.
356 .......
357 .......
358 .......
405 .......
406 .......
407 .......
490 .......
491 .......
500 .......
501 .......
502 .......
579 .......
580 .......
581 .......
584 .......
585 .......
653 .......
654 .......
655 .......
656 .......
657 .......
658 .......
662 .......
663 .......
664 .......
668 .......
669 .......
670 .......
671 .......
672 .......
707 .......
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708 .......
715 .......
716 .......
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737 .......
738 .......
739 .......
740 .......
741 .......
746 .......
747 .......
748 .......
749 .......
750 .......
For the FY 2012 IPPS/LTCH PPS
proposed rule, based on our review of
the FY 2010 MedPAR claims data, we
found a total of 12 cases with procedure
code 92.41 reported. There were three
cases assigned to MS–DRG 502; two
cases each assigned to two different
MS–DRGs: MS–DRG 333 and MS–DRG
501; and one case assigned each to five
MS–DRGs: MS–DRGs 130, 168, 327,
329, and 330.
The IOERT cases were assigned to an
MS–DRG that included the tumor
removal of that particular site, which
was listed on the table above. Therefore,
the cost of this technology is
appropriately identified in the MS–DRG
assignment for the removal of the tumor
by specific site, and no change is
warranted at this time. Therefore, we
did not propose any changes to the
assignment for IOERT cases for FY 2012.
We invited public comment on our
proposal to not change the assignment
for IOERT cases for FY 2012.
Comment: Several commenters
supported our proposal to not make any
MS–DRG modifications for FY 2012 for
IOERT cases reported with procedure
code 92.41.
Response: We appreciate the
commenters’ support. Based on our
findings, these cases are appropriately
assigned to the MS–DRG for the removal
of the tumor by specific site and warrant
no further modification.
After consideration of the public
comments we received, we are
PO 00000
Frm 00082
Fmt 4701
Sfmt 4700
finalizing our proposal to not make any
MS–DRG modifications for FY 2012 for
intraoperative electron radiation therapy
cases.
b. IPPS Recalled Device Policy
Clarification
In the FY 2008 IPPS final rule with
comment period (72 FR 47246 through
47251), we discussed the topic of
Medicare payment for devices that are
replaced without cost or where credit
for a replaced device is furnished to the
hospital. We implemented a policy to
reduce a hospital’s IPPS payment for
certain MS–DRGs where the
implantation of a device that has been
recalled determined the base MS–DRG
assignment. At that time, we specified
that we would reduce a hospital’s IPPS
payment for those MS–DRGs where the
hospital received a credit equal to 50
percent or more of the cost of the device
when a manufacturer provided a credit
for a recalled device.
A similar policy was adopted under
the Hospital Outpatient Prospective
Payment System (OPPS) in CY 2008 (the
‘‘partial credit’’ policy). This policy can
be viewed in its entirety at 72 FR 66743
though 66748. In general terms, under
the partial credit policy, CMS reduces
the amount of payment for an implanted
device made under the OPPS for which
CMS determines that a significant
portion of the payment is attributable to
the cost of an implanted device when
the provider receives partial credit for
the cost of a replaced device, but only
where the amount of the device credit
is greater than or equal to 50 percent of
the cost of the new replacement device
being implanted.
It came to our attention that there is
a discrepancy between the IPPS policy
and the OPPS partial credit policy for
replacement devices. In particular, the
OPPS partial credit policy specifies that
the credit must be 50 percent or greater
of the cost of the replacement device.
However, the IPPS policy does not
specify whether the credit should be 50
percent or greater of the replacement
device or the original device. We believe
that the OPPS partial credit policy and
the IPPS policy should be consistent
with each other on the issue of whether
the 50 percent or more credit is with
respect to the replacement device or the
original device. Therefore, in the FY
2012 IPPS/LTCH PPS proposed rule, we
proposed to clarify the IPPS policy to
state that the policy applies where ‘‘the
hospital received a credit equal to 50
percent or more of the cost of the
replacement device.’’ We invited public
comment on this proposal.
Comment: Several commenters
approved of parallel policies for recalled
E:\FR\FM\18AUR2.SGM
18AUR2
mstockstill on DSK4VPTVN1PROD with RULES2
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
device credit for both the inpatient
setting and the outpatient hospital
setting.
Response: We appreciate the
commenters’ support.
Comment: One commenter suggested
additional clarifications. The
commenter recommended that CMS
reconcile condition codes 49 and 50
with the ‘‘FB’’ and ‘‘FC’’ modifiers from
OPPS to include devices obtained at
reduced or no cost for reasons other
than those currently specified in
condition codes 49 and 50. Condition
code 49 addresses ‘‘product replacement
within product lifecycle’’ while
condition code 50 covers ‘‘product
replacement for known recall of a
product.’’ The commenter stated that, as
currently defined, these two condition
codes do not represent all of the reasons
that devices are obtained at reduced or
no cost and, therefore, create confusion
as to when the device credit policy
applies. The commenter added that, by
comparison, in OPPS, modifier ‘‘FB’’
covers ‘‘devices that are obtained at no
cost to the provider’’ and modifier ‘‘FC’’
covers ‘‘partial credit received for
replaced device.’’ Further, the
commenter stated, the definitions of the
‘‘FB’’ and ‘‘FC’’ modifiers denote
whether the replacement device was
obtained at no cost or reduced cost, and
generally reflect all situations when the
device credit policy would apply. As
part of the clarification, the commenter
suggested that CMS further explain
whether value code ‘‘FD’’ as well as
modifiers ‘‘FB’’ and ‘‘FC’’ are for
‘‘replacement’’ devices only.
Response: We are not clear about the
clarifications suggested by the
commenter. The OPPS modifier ‘‘-FB’’
(Item Provided without Cost to Provider,
Supplier or Practitioner) can be used to
describe an item provided under
warranty, replaced due to defect, or
provided as a free sample. OPPS
modifier ‘‘-FC’’ (Partial Credit Received
for Replaced Device) describes cases in
which the hospital receives a partial
credit of 50 percent or more of the cost
of a new replacement device under
warranty, recall, or field action.
Value code ‘‘FD’’ is used for Medicare
Part A reporting of replacement devices.
Hospitals must use the combination of
condition code 49 or 50, described
above, along with value code ‘‘FD’’ to
correctly bill for a replacement device
that was provided with a credit or no
cost. Condition code 49 or 50 identifies
a replacement device while value code
‘‘FD’’ communicates to Medicare the
amount of the credit, or cost reduction,
received by the hospital for the replaced
device. We do not believe that hospitals
find these reporting requirements
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16:07 Aug 17, 2011
Jkt 223001
confusing. Regardless of the actual
reason that a device is provided at no
cost to a hospital or an ambulatory
surgical center (ASC), the end result is
that neither the hospital nor the ASC is
incurring the full cost of the device,
although the Medicare payment is
calculated based on the full cost of the
device.
Comment: One commenter pointed
out that the FY 2009 IPPS/LTCH PPS
final rule (73 FR 48496) finalized an
MS–DRG change by removing several
procedure codes for AICD leads from
MS–DRG 245 as well as revising the title
of that MS–DRG to read ‘‘AICD
Generator Procedures’’. New MS–DRG
265 (AICD Lead Procedures) was also
created and included the AICD lead
procedure codes that were transferred
from MS–DRG 245. The commenter
pointed out that CMS has not issued a
new table through its transmittal
process indicating that MS–DRG 265
should also be included in the list of
MS–DRGs that are subject to the device
recall policy.
Response: We are aware of this
oversight and have begun the process to
create an updated Change Request to
address this issue. We expect to issue
the Change Request shortly.
Comment: One commenter suggested
that no-charge devices should be
removed from the calculation of MS–
DRG relative weights.
Response: We appreciate this
comment, but we point out that nocharge devices are not reported on
claims. Therefore, charges for the device
have not been included in the
computation of the MS–DRG relative
weights.
After consideration of the public
comments we received, we are
finalizing our proposed clarification of
the IPPS recalled device policy to state
that the policy applies where ‘‘the
hospital received a credit equal to 50
percent or more of the cost of the
replacement device,’’ and we will issue
instructions to hospitals accordingly.
15. Public Comments on Issues Not
Addressed in the Proposed Rule
We received a number of public
comments regarding MS–DRG issues
that were outside the scope of the
proposals included in the FY 2012
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.B.2. of this preamble, we
encourage individuals with comments
about MS–DRG classifications to submit
these comments no later than December
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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.
Commenters requested that CMS
create new MS–DRGs for (1) disorders of
porphyrin metabolism and (2) related
and unrelated allogeneic bone marrow
transplants. The commenters also
requested that CMS create a new MS–
DRG that would distinguish between
ventricular assist device (VAD)
implantation and heart transplants.
Commenters requested that CMS
evaluate the non-CC, CC, or MCC
designation of the following codes:
• 263.0 (Malnutrition of moderate
degree)
• 263.1 (Malnutrition of mild degree)
• 263.9 (Unspecified protein-calorie
malnutrition)
• 285.3 (Antineoplastic chemotherapy
induced anemia)
• 425.4–425.9 (Cardiomyopathy)
• 428.0 (Heart failure, unspecified)
• 707.25 (Pressure ulcer, unstageable)
One commenter recommended that
CMS consider the reassignment of cases
of patients diagnosed with influenza
with pneumonia and who also have
secondary diagnoses that would
otherwise qualify the assignment of the
cases to MS–DRGs 177 (Respiratory
Infections and Inflammations with
MCC), 178 (Respiratory Infections and
Inflammations with CC), and 179
(Respiratory Infections and
Inflammations without MCC/CC). The
commenter recommended these cases be
reassigned from 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) to MS–
DRGs 177, 178, and 179.
H. Recalibration of MS–DRG Weights
In developing the FY 2012 system of
weights, we used two data sources:
claims data and cost report data. As in
previous years, the claims data source is
the MedPAR file. This file is based on
fully coded diagnostic and procedure
data for all Medicare inpatient hospital
bills. The FY 2010 MedPAR data used
in this final rule include discharges
occurring on October 1, 2009, through
September 30, 2010, based on bills
received by CMS through March 31,
2011, from all hospitals subject to the
IPPS and short-term, acute care
hospitals in Maryland (which are under
a waiver from the IPPS under section
1814(b)(3) of the Act). The FY 2010
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MedPAR file used in calculating the
relative weights includes data for
approximately 10,836,723 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, 2011 update of the FY 2010
MedPAR was updated to comply with
version 5010 of the X12 HIPAA
Transaction and Code Set Standards.
The expansion of the MedPAR to the
5010 format includes a new variable
called ‘‘claim type.’’ Claim type ‘‘60’’
indicates that the claim was an inpatient
claim paid as fee-for-service. Claim
types of ‘‘61,’’ ‘‘62,’’ ‘‘63,’’ and ‘‘64’’
relate to encounter claims, Medicare
Advantage IME claims, and HMO nopay claims. Therefore, beginning with
the calculation of the relative weights
for FY 2012, we are also excluding
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 cost-based
relative weighting methodology is the
FY 2009 Medicare cost report data files
from HCRIS (that is, cost reports
beginning on or after October 1, 2008,
and before October 1, 2009), which
represents the most recent full set of
cost report data available. We used the
March 31, 2011 update of the HCRIS
cost report files for FY 2009 in setting
the relative cost-based weights.
The methodology we used to calculate
the DRG cost-based relative weights
from the FY 2010 MedPAR claims data
and FY 2009 Medicare cost report data
is as follows:
• To the extent possible, all the
claims were regrouped using the FY
2012 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.
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(Medicare coverage for heart, heart-lung,
liver and/or intestinal, and lung
transplants is limited to those facilities
that have received approval from CMS
as transplant centers.)
• Organ acquisition costs for kidney,
heart, heart-lung, liver, lung, pancreas,
and intestinal (or multivisceral organs)
transplants continue to be paid on a
reasonable cost basis. Because these
acquisition costs are paid separately
from the prospective payment rate, it is
necessary to subtract the acquisition
charges from the total charges on each
transplant bill that showed acquisition
charges before computing the average
cost for each MS–DRG and before
eliminating statistical outliers.
• Claims with total charges or total
lengths of stay less than or equal to zero
were deleted. Claims that had an
amount in the total charge field that
differed by more than $10.00 from the
sum of the routine day charges,
intensive care charges, pharmacy
charges, special equipment charges,
therapy services charges, operating
room charges, cardiology charges,
laboratory charges, radiology charges,
other service charges, labor and delivery
charges, inhalation therapy charges,
emergency room charges, blood charges,
and anesthesia charges were also
deleted.
• At least 96.2 percent of the
providers in the MedPAR file had
charges for 10 of the 15 cost centers.
Claims for providers that did not have
charges greater than zero for at least 10
of the 15 cost centers were deleted.
• Statistical outliers were eliminated
by removing all cases that were beyond
3.0 standard deviations from the mean
of the log distribution of both the total
charges per case and the total charges
per day for each MS–DRG.
• Effective October 1, 2008, because
hospital inpatient claims include a POA
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
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(that is, an ‘‘N’’ indicator is associated
with the diagnosis on the claim) and
there are no other complicating
conditions, the DRG GROUPER assigns
the claim to a lower severity (and,
therefore, the lower weighted MS–DRG)
as a penalty for allowing a Medicare
inpatient to contract a HAC. While the
POA reporting meets policy goals of
encouraging quality care and generates
program savings, it presents an issue for
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
assignments. If this would occur, the
anticipated cost savings from the HAC
policy would be lost.
To avoid these problems, we reset the
POA indicator field to ‘‘Y’’ only for
relative weight-setting purposes for all
claims that otherwise have a ‘‘N’’ or an
‘‘U’’ in the POA field. This resetting
‘‘forced’’ the more costly HAC claims
into the higher severity MS–DRGs as
appropriate, and the relative weights
calculated for each MS–DRG more
closely reflect the true costs of those
cases.
Once the MedPAR data were trimmed
and the statistical outliers were
removed, the charges for each of the 15
cost groups for each claim were
standardized to remove the effects of
differences in area wage levels, IME and
DSH payments, and for hospitals in
Alaska and Hawaii, the applicable costof-living adjustment. Because hospital
charges include charges for both
operating and capital costs, we
standardized total charges to remove the
effects of differences in geographic
adjustment factors, cost-of-living
adjustments, and DSH payments under
the capital IPPS as well. Charges were
then summed by MS–DRG for each of
the 15 cost groups so that each MS–DRG
had 15 standardized charge totals. These
charges were then adjusted to cost by
applying the national average CCRs
developed from the FY 2009 cost report
data.
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the relative weight calculation are
shown in the following table. The table
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the corresponding revenue codes that
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We developed the national average
CCRs as follows:
Taking the FY 2009 cost report data,
we removed CAHs, Indian Health
Service hospitals, all-inclusive rate
hospitals, and cost reports that
represented time periods of less than 1
year (365 days). We included hospitals
located in Maryland 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
average standardized cost for each MS–
DRG was then computed as the total
standardized cost for the MS–DRG
divided by the transfer-adjusted case
count for the MS–DRG. The average cost
for each MS–DRG was then divided by
the national average standardized cost
per case to determine the relative
weight.
The new cost-based relative weights
were then normalized by an adjustment
factor of 1.5808272736 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
2012 are as follows:
FY 2012. Using the FY 2010 MedPAR
data set, 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
Group
CCR
non-Medicare payers to develop weights
Routine Days ................................
0.525 applicable to their own patient
Intensive Days ..............................
0.453 populations, we have heard frequent
Drugs ............................................
0.199 complaints from providers about the use
Supplies & Equipment ..................
0.329 of the Medicare relative weights in the
Therapy Services ..........................
0.380
pediatric population. We believe that
Laboratory .....................................
0.146
Operating Room ...........................
0.251 eliminating this age split in the MS–
Cardiology .....................................
0.155 DRGs will provide more stable payment
Radiology ......................................
0.140 for pediatric cases by determining their
Emergency Room .........................
0.236 payment using adult cases that are
Blood and Blood Products ............
0.402 much higher in total volume. Newborns
Other Services ..............................
0.402 are unique and require separate MS–
Labor & Delivery ...........................
0.454
Inhalation Therapy ........................
0.191 DRGs that are not mirrored in the adult
Anesthesia ....................................
0.116 population. Therefore, it remains
necessary to retain separate MS–DRGs
for newborns. All of the low-volume
Since FY 2009, the relative weights
MS–DRGs listed below are for
have been based on 100 percent cost
weights based on our MS–DRG grouping newborns. In FY 2012, because we do
not have sufficient MedPAR data to set
system.
When we recalibrated the DRG
accurate and stable cost weights for
weights for previous years, we set a
these low-volume MS–DRGs, we
threshold of 10 cases as the minimum
proposed to compute weights for the
number of cases required to compute a
low-volume MS–DRGs by adjusting
reasonable weight. In the FY 2012 IPPS/ their FY 2011 weights by the percentage
LTCH PPS proposed rule, we proposed
change in the average weight of the
to use that same case threshold in
cases in other MS–DRGs. The crosswalk
recalibrating the MS–DRG weights for
table is shown below:
Low-volume
MS–DRG
MS–DRG title
768 ...................
789 ...................
Vaginal Delivery with O.R. Procedure Except Sterilization and/or
D&C.
Neonates, Died or Transferred to Another Acute Care Facility .........
790 ...................
Extreme Immaturity or Respiratory Distress Syndrome, Neonate .....
791 ...................
Prematurity with Major Problems .......................................................
792 ...................
Prematurity without Major Problems ..................................................
793 ...................
Full-Term Neonate with Major Problems ...........................................
794 ...................
Neonate with Other Significant Problems ..........................................
795 ...................
Normal Newborn ................................................................................
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FY 2011 FR weight (adjusted by percent change
erage weight of the cases in other MS–DRGs).
FY 2011 FR weight (adjusted by percent change
erage weight of the cases in other MS–DRGs).
FY 2011 FR weight (adjusted by percent change
erage weight of the cases in other MS–DRGs).
FY 2011 FR weight (adjusted by percent change
erage weight of the cases in other MS–DRGs).
FY 2011 FR weight (adjusted by percent change
erage weight of the cases in other MS–DRGs).
FY 2011 FR weight (adjusted by percent change
erage weight of the cases in other MS–DRGs).
FY 2011 FR weight (adjusted by percent change
erage weight of the cases in other MS–DRGs).
FY 2011 FR weight (adjusted by percent change
erage weight of the cases in other MS–DRGs).
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We did not receive any public
comments on this section. Therefore, we
are adopting the national average CCRs
as proposed, with the MS–DRG weights
recalibrated based on these CCRs.
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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
subsection is inadequate.’’ We note that
beginning with discharges occurring in
FY 2008, CMS transitioned from CMS–
DRGs to MS–DRGs.
The regulations implementing these
provisions specify three criteria for a
new medical service or technology to
receive the additional payment: (1) The
medical service or technology must be
new; (2) the medical service or
technology must be costly such that the
DRG rate otherwise applicable to
discharges involving the medical service
or technology is determined to be
inadequate; and (3) the service or
technology must demonstrate a
substantial clinical improvement over
existing services or technologies. These
three criteria are explained below in the
ensuing paragraphs in further detail.
Under the first criterion, as reflected
in 42 CFR 412.87(b)(2), a specific
medical service or technology will be
considered ‘‘new’’ for purposes of new
medical service or technology add-on
payments until such time as Medicare
data are available to fully reflect the cost
of the technology in the MS–DRG
weights through recalibration.
Typically, there is a lag of 2 to 3 years
from the point a new medical service or
technology is first introduced on the
market (generally on the date that the
technology receives FDA approval/
clearance) and when data reflecting the
use of the medical service or technology
are used to calculate the MS–DRG
weights. For example, data from
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discharges occurring during FY 2010
were used to calculate the FY 2012 MS–
DRG weights in this final rule. Section
412.87(b)(2) of the regulations therefore
provides that ‘‘a medical service or
technology may be considered new
within 2 or 3 years after the point at
which data begin to become available
reflecting the ICD–9–CM code assigned
to the new medical service or
technology (depending on when a new
code is assigned and data on the new
medical service or technology become
available for DRG recalibration). After
CMS has recalibrated the MS–DRGs,
based on available data to reflect the
costs of an otherwise new medical
service or technology, the medical
service or technology will no longer be
considered ‘new’ under the criterion for
this section.’’
The 2-year to 3-year period during
which a medical service or technology
can be considered new would ordinarily
begin on the date on which the medical
service or technology received FDA
approval or clearance. (We note that, for
purposes of this section of this final
rule, we generally refer to both FDA
approval and FDA clearance as FDA
‘‘approval.’’) However, in some cases,
there may be few to no Medicare data
available for the new service or
technology following FDA approval. For
example, the newness period could
extend beyond the 2-year to 3-year
period after FDA approval is received in
cases where the product initially was
generally unavailable to Medicare
patients following FDA approval, such
as in cases of a national noncoverage
determination or a documented delay in
bringing the product onto the market
after that approval (for instance,
component production or drug
production has been postponed
following FDA approval due to shelf life
concerns or manufacturing issues). After
the MS–DRGs have been recalibrated to
reflect the costs of an otherwise new
medical service or technology, the
medical service or technology is no
longer eligible for special add-on
payment for new medical services or
technologies (as specified under
§ 412.87(b)(2)). For example, an
approved new technology that received
FDA approval in October 2009 and
entered the market at that time may be
eligible to receive add-on payments as a
new technology for discharges occurring
before October 1, 2012 (the start of FY
2013). Because the FY 2013 MS–DRG
weights would be calculated using FY
2011 MedPAR data, the costs of such a
new technology would be fully reflected
in the FY 2013 MS–DRG weights.
Therefore, the new technology would no
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longer be eligible to receive add-on
payments as a new technology for
discharges occurring in FY 2013 and
thereafter.
We do not consider a service or
technology to be new if it is
substantially similar to one or more
existing technologies. That is, even if a
technology receives a new FDA
approval, it may not necessarily be
considered ‘‘new’’ for purposes of new
technology add-on payments if it is
‘‘substantially similar’’ to a technology
that was approved by FDA and has been
on the market for more than 2 to 3 years.
In the FY 2006 IPPS final rule (70 FR
47351), we explained our policy
regarding substantial similarity in detail
and its relevance for assessing if the
hospital charge data used in the
development of the relative weights for
the relevant DRGs reflect the costs of the
technology. In that final rule, we stated
that, for determining substantial
similarity, we consider (1) whether a
product uses the same or a similar
mechanism of action to achieve a
therapeutic outcome, and (2) whether a
product is assigned to the same or a
different DRG. We indicated that both of
the above criteria should be met in order
for a technology to be considered
‘‘substantially similar’’ to an existing
technology. However, in that same final
rule, we also noted that, due to the
complexity of issues regarding the
substantial similarity component of the
newness criterion, it may be necessary
to exercise flexibility when considering
whether technologies are substantially
similar to one another. Specifically, we
stated that we may consider additional
factors, depending on the circumstances
specific to each application.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43813 and 43814),
we noted that the discussion of
substantial similarity in the FY 2006
IPPS final rule related to comparing two
separate technologies made by different
manufacturers. Nevertheless, we stated
that the criteria discussed in the FY
2006 IPPS final rule also are relevant
when comparing the similarity between
a new use and existing uses of the same
technology (or a very similar technology
manufactured by the same
manufacturer). In other words, we stated
that it is necessary to establish that the
new indication for which the
technology has received FDA approval
is not substantially similar to that of the
prior indication. We explained that such
a distinction is necessary to determine
the appropriate start date of the newness
period in evaluating whether the
technology would qualify for add-on
payments (that is, the date of the ‘‘new’’
FDA approval or that of the prior
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approval), or whether the technology
could qualify for separate new
technology add-on payments under each
indication.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43814), we added
a third factor of consideration to our
analysis of whether a new technology is
substantially similar to one or more
existing technologies. Specifically, in
making a determination of whether a
technology is substantially similar to an
existing technology, we adopted a
policy to consider whether the new use
of the technology involves the treatment
of the same or similar type of disease
and the same or similar patient
population (74 FR 24130), in addition to
considering the already established
factors described in the FY 2006 IPPS
final rule (that is, (1) whether a product
uses the same or a similar mechanism
of action to achieve a therapeutic
outcome; and (2) whether a product is
assigned to the same or a different DRG).
As we noted in the FY 2010 IPPS/RY
2010 LTCH PPS final rule, if all three
components are present and the new
use is deemed substantially similar to
one or more of the existing uses of the
technology (that is, beyond the newness
period), we would conclude that the
technology is not new and, therefore, is
ineligible for the new technology add-on
payment.
Under the second criterion,
§ 412.87(b)(3) further provides that, to
be eligible for the add-on payment for
new medical services or technologies,
the MS–DRG prospective payment rate
otherwise applicable to the discharge
involving the new medical services or
technologies must be assessed for
adequacy. Under the cost criterion, to
assess the adequacy of payment for a
new technology paid under the
applicable MS–DRG prospective
payment rate, we evaluate whether the
charges for cases involving the new
technology exceed certain threshold
amounts. In the FY 2004 IPPS final rule
(68 FR 45385), we established the
threshold at the geometric mean
standardized charge for all cases in the
MS–DRG plus 75 percent of 1 standard
deviation above the geometric mean
standardized charge (based on the
logarithmic values of the charges and
converted back to charges) for all cases
in the MS–DRG to which the new
medical service or technology is
assigned (or the case-weighted average
of all relevant MS–DRGs, if the new
medical service or technology occurs in
more than one MS–DRG).
However, section 503(b)(1) of Public
Law 108–173 amended section
1886(d)(5)(K)(ii)(I) of the Act to provide
that, beginning in FY 2005, CMS will
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apply ‘‘a threshold * * * that is the
lesser of 75 percent of the standardized
amount (increased to reflect the
difference between cost and charges) or
75 percent of one standard deviation for
the diagnosis-related group involved.’’
(We refer readers to section IV.D. of the
preamble to the FY 2005 IPPS final rule
(69 FR 49084) for a discussion of the
revision of the regulations to
incorporate the change made by section
503(b)(1) of Public Law 108–173.) Table
10 that was included in the IPPS/LTCH
PPS final rule published in the Federal
Register on August 16, 2010, contained
the final thresholds that were used to
evaluate applications for new
technology add-on payments for this
final rule for FY 2012 (75 FR 50605
through 50613).
In the September 7, 2001 final rule
that established the new technology
add-on payment regulations (66 FR
46917), we discussed the issue of
whether the Health Insurance
Portability and Accountability Act
(HIPAA) Privacy Rule at 45 CFR Parts
160 and 164 applies to claims
information that providers submit with
applications for new technology add-on
payments. Specifically, we explained
that health plans, including Medicare,
and providers that conduct certain
transactions electronically, including
hospitals that would receive new
technology add-on payments, are
required to comply with the HIPAA
Privacy Rule. We further explained how
such entities could meet the applicable
HIPAA requirements by discussing how
the HIPAA Privacy Rule permitted
providers to share with health plans
information needed to ensure correct
payment, if they had obtained consent
from the patient to use that patient’s
data for treatment, payment, or health
care operations. We also explained that,
because the information to be provided
within applications for new technology
add-on payment would be needed to
ensure correct payment, no additional
consent would be required. The HHS
Office for Civil Rights has since
amended the HIPAA Privacy Rule, but
the results remain. The HIPAA Privacy
Rule does not require a covered entity
to obtain consent from patients to use or
disclose protected health information
for the covered entity’s treatment,
payment, or health care operations
purposes, and expressly permits such
entities to use or to disclose protected
health information for these purposes
and for the treatment purposes of
another health care provider and the
payment purposes of another covered
entity or health care provider. (We refer
readers to 45 CFR 164.502(a)(1)(ii) and
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51573
164.506(c)(1) and (c)(3) and the
Standards for Privacy of Individually
Identifiable Health Information
published in the Federal Register (67 FR
53208 through 53214) on August 14,
2002, for a full discussion of consent in
the context of the HIPAA Privacy Rule.)
Under the third criterion,
§ 412.87(b)(1) of our existing regulations
provides that a new technology is an
appropriate candidate for an additional
payment when it represents ‘‘an
advance that substantially improves,
relative to technologies previously
available, the diagnosis or treatment of
Medicare beneficiaries.’’ For example, a
new technology represents a substantial
clinical improvement when it reduces
mortality, decreases the number of
hospitalizations or physician visits, or
reduces recovery time compared to the
technologies previously available. (We
refer readers to the September 7, 2001
final rule for a complete discussion of
this criterion (66 FR 46902).)
The new medical service or
technology add-on payment policy
under the IPPS provides additional
payments for cases with relatively high
costs involving eligible new medical
services or technologies while
preserving some of the incentives
inherent under an average-based
prospective payment system. The
payment mechanism is based on the
cost to hospitals for the new medical
service or technology. Under § 412.88, if
the costs of the discharge (determined
by applying cost to charge ratios
(‘‘CCRs’’) as described in § 412.84(h))
exceed the full DRG payment (including
payments for IME and DSH, but
excluding outlier payments), Medicare
will make an add-on payment equal to
the lesser of: (1) 50 percent of the
estimated costs of the new technology
(if the estimated costs for the case
including the new technology exceed
Medicare’s payment); or (2) 50 percent
of the difference between the full DRG
payment and the hospital’s estimated
cost for the case. Unless the discharge
qualifies for an outlier payment,
Medicare payment is limited to the full
MS–DRG payment plus 50 percent of
the estimated costs of the new
technology.
Section 1886(d)(4)(C)(iii) of the Act
requires that the adjustments to annual
MS–DRG classifications and relative
weights be made in a manner that
ensures that aggregate payments to
hospitals are not more or less than they
were in the prior fiscal year (that is, they
are ‘‘budget neutral’’). Therefore, in the
past, we accounted for projected
payments under the new medical
service and technology provision during
the upcoming fiscal year, while at the
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same time estimating the payment effect
of changes to the MS–DRG
classifications and recalibration. The
impact of additional payments under
this provision was then included in the
budget neutrality factor, which was
applied to the standardized amounts
and the hospital-specific amounts.
However, section 503(d)(2) of Public
Law 108–173 provides that there shall
be no reduction or adjustment in
aggregate payments under the IPPS due
to add-on payments for new medical
services and technologies. Therefore, in
accordance with section 503(d)(2) of
Public Law 108–173, add-on payments
for new medical services or technologies
for FY 2005 and later years have not
been subjected to budget neutrality.
In the FY 2009 IPPS final rule (73 FR
48561 through 48563), we modified our
regulations at § 412.87 to codify our
longstanding practice of how CMS
evaluates the eligibility criteria for new
medical service or technology add-on
payment applications. That is, we first
determine whether a medical service or
technology meets the newness criteria,
and only if so, do we then make a
determination as to whether the
technology meets the cost threshold and
represents a substantial clinical
improvement over existing medical
services or technologies. We also
amended § 412.87(c) to specify that all
applicants for new technology add-on
payments must have FDA approval or
clearance for their new medical service
or technology by July 1 of each year
prior to the beginning of the fiscal year
that the application is being considered.
The Council on Technology and
Innovation (CTI) at CMS oversees the
agency’s cross-cutting priority on
coordinating coverage, coding and
payment processes for Medicare with
respect to new technologies and
procedures, including new drug
therapies, as well as promoting the
exchange of information on new
technologies between CMS and other
entities. The CTI, composed of senior
CMS staff and clinicians, was
established under section 942(a) of
Public Law 108–173. The Council is cochaired by the Director of the Office of
Clinical Standards and Quality (OCSQ)
and the Director of the Center for
Medicare (CM), who is also designated
as the CTI’s Executive Coordinator.
The specific processes for coverage,
coding, and payment are implemented
by CM, OCSQ, and the local claimspayment contractors (in the case of local
coverage and payment decisions). The
CTI supplements, rather than replaces,
these processes by working to assure
that all of these activities reflect the
agency-wide priority to promote high-
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quality, innovative care. At the same
time, the CTI also works to streamline,
accelerate, and improve coordination of
these processes to ensure that they
remain up to date as new issues arise.
To achieve its goals, the CTI works to
streamline and create a more
transparent coding and payment
process, improve the quality of medical
decisions, and speed patient access to
effective new treatments. It is also
dedicated to supporting better decisions
by patients and doctors in using
Medicare-covered services through the
promotion of better evidence
development, which is critical for
improving the quality of care for
Medicare beneficiaries.
CMS plans to continue its Open Door
forums with stakeholders who are
interested in CTI’s initiatives. In
addition, to improve the understanding
of CMS’ processes for coverage, coding,
and payment and how to access them,
the CTI has developed an ‘‘Innovator’s
Guide’’ to these processes. The intent is
to consolidate this information, much of
which is already available in a variety
of CMS documents and in various
places on the CMS Web site, in a userfriendly format. This guide was
published in August 2008 and is
available on the CMS Web site at:
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
product developers or manufacturers of
new medical technologies to contact the
agency early in the process of product
development if they have questions or
concerns about the evidence that would
be needed later in the development
process for the agency’s coverage
decisions for Medicare.
The CTI aims to provide useful
information on its activities and
initiatives to stakeholders, including
Medicare beneficiaries, advocates,
medical product manufacturers,
providers, and health policy experts.
Stakeholders with further questions
about Medicare’s coverage, coding, and
payment processes, or who want further
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 2013 must submit a
formal request, including a full
description of the clinical applications
of the medical service or technology and
the results of any clinical evaluations
demonstrating that the new medical
service or technology represents a
substantial clinical improvement, along
with a significant sample of data to
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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.hhs.gov/AcuteInpatientPPS/
08_newtech.asp. To allow interested
parties to identify the new medical
services or technologies under review
before the publication of the proposed
rule for FY 2013, the Web site also will
post the tracking forms completed by
each applicant.
Comment: A number of commenters
submitted public comments that
addressed topics relating to the
substantial similarity criteria, marginal
cost factor for the new technology addon payment, the use of external data in
determining the cost threshold, paying
new technology add-on payments for 2
to 3 years, mapping new technologies to
the appropriate MS–DRG, and the use of
the date that a ICD–9–CM code is
assigned to a technology or the FDA
approval date (whichever is later) as the
start of the newness period.
Response: We did not invite public
comments nor propose to make any
changes to any of the issues summarized
above. Because these public comments
are outside of the scope of the
provisions included in the proposed
rule, we are not providing a complete
summary of the comments or
responding to them in this final rule.
2. Public Input Before Publication of a
Notice of Proposed Rulemaking on AddOn Payments
Section 1886(d)(5)(K)(viii) of the Act,
as amended by section 503(b)(2) of
Public Law 108–173, provides for a
mechanism for public input before
publication of a notice of proposed
rulemaking regarding whether a medical
service or technology represents a
substantial clinical improvement or
advancement. The process for
evaluating new medical service and
technology applications requires the
Secretary to—
• Provide, before publication of a
proposed rule, for public input
regarding whether a new service or
technology represents an advance in
medical technology that substantially
improves the diagnosis or treatment of
Medicare beneficiaries;
• Make public and periodically
update a list of the services and
technologies for which applications for
add-on payments are pending;
• Accept comments,
recommendations, and data from the
public regarding whether a service or
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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 2012 prior to
publication of the FY 2012 IPPS/LTCH
PPS proposed rule, we published a
notice in the Federal Register on
November 29, 2010 (75 FR 73091
through 73094), and held a town hall
meeting at the CMS Headquarters Office
in Baltimore, MD, on February 2, 2011.
In the announcement notice for the
meeting, we stated that the opinions and
alternatives provided during the
meeting would assist us in our
evaluations of applications by allowing
public discussion of the substantial
clinical improvement criterion for each
of the FY 2012 new medical service and
technology add-on payment
applications before the publication of
the FY 2012 proposed rule.
Approximately 50 individuals
registered to attend the town hall
meeting in person, while additional
individuals listened over an open
telephone line. Each of the three FY
2012 applicants presented information
on its technology, including a
discussion of data reflecting the
substantial clinical improvement aspect
of the technology. We considered each
applicant’s presentation made at the
town hall meeting, as well as written
comments submitted on the
applications, in our evaluation of the
new technology add-on applications for
FY 2012 in the FY 2012 proposed rule
and in this final rule.
In response to the published notice
and the new technology town hall
meeting, we received three written
comments regarding applications for FY
2012 new technology add-on payments.
We summarized these comments or, if
applicable, indicated that there were no
comments received, at the end of each
discussion of the individual
applications in the proposed rule. We
refer readers to the FY 2012 IPPS/LTCH
PPS proposed rule for a complete
iteration of the comments received in
response to the published notice and the
new technology town hall meeting and
CMS’ responses (76 FR 25861 through
25863).
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3. FY 2012 Status of Technologies
Approved for FY 2011 Add-On
Payments
a. Spiration® IBV® Valve System
Spiration, Inc. submitted an
application for new technology add-on
payments for the Spiration® IBV® Valve
System (Spiration® IBV®). The
Spiration® IBV® is a device that is used
to place, via bronchoscopy, small, oneway valves into selected small airways
in the lung in order to limit airflow into
selected portions of lung tissue that
have prolonged air leaks following
surgery while still allowing mucus,
fluids, and air to exit, thereby reducing
the amount of air that enters the pleural
space. The device is intended to control
prolonged air leaks following three
specific surgical procedures: lobectomy;
segmentectomy; or lung volume
reduction surgery (LVRS). According to
the applicant, an air leak that is present
on postoperative day 7 is considered
‘‘prolonged’’ unless present only during
forced exhalation or cough. In order to
help prevent valve migration, there are
five anchors with tips that secure the
valve to the airway. The implanted
valves are intended to be removed no
later than 6 weeks after implantation.
With regard to the newness criterion,
the Spiration® IBV® received a HDE
approval from the FDA on October 24,
2008. We were unaware of any
previously FDA-approved predicate
devices, or otherwise similar devices,
that could be considered substantially
similar to the Spiration® IBV®.
However, the applicant asserted that the
FDA had precluded the device from
being used in the treatment of any
patients until the Institutional Review
Board (IRB) granted approvals regarding
its study sites. Therefore, the Spiration®
IBV® met the newness criterion once it
obtained at least one IRB approval
because the device would then be
available on the market to treat
Medicare beneficiaries. In the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74
FR 43819), the applicant stated that the
first IRB approval for the Spiration®
IBV® was March 12, 2009. In that final
rule, based on the information above
from the applicant, we determined that
the Spiration® IBV® meets the newness
criterion and the newness period for the
Spiration® IBV® begins on March 12,
2009.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
the Spiration® IBV® and consideration
of the public comments we received in
response to the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, including the
additional analysis of clinical data and
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51575
supporting information submitted by
the applicant, we approved the
Spiration® IBV® for new technology
add-on payments for FY 2010 with a
maximum add-on payment of $3,437.50.
In the FY 2011 IPPS/LTCH PPS
proposed rule, we did not propose any
changes to the new technology add-on
payments for the Spiration® IBV®. We
did not receive any public comments on
whether to continue or discontinue the
new technology add-on payment for the
Spiration® IBV® for FY 2011. Therefore,
for FY 2011, we continued new
technology add-on payments for cases
involving the Spiration® IBV® in FY
2011, with a maximum add-on payment
of $3,437.50.
The new technology add-on payment
regulations provide that ‘‘a medical
service or technology may be considered
new within 2 or 3 years after the point
at which data begin to become available
reflecting the ICD–9–CM code assigned
to the new medical service or
technology’’ (42 CFR 412.87(b)(2)). Our
practice has been to begin and end new
technology add-on payments on the
basis of a fiscal year, and we have
generally followed a guideline that uses
a 6-month window before and after the
start of the fiscal year to determine
whether to extend the new technology
add-on payment for an additional fiscal
year. In general, we extend add-on
payments for an additional year only if
the 3-year anniversary date of the
product’s entry on the market occurs in
the latter half of the fiscal year (70 FR
47362). With regard to the newness
criterion for the Spiration® IBV®, as
stated above, we consider the beginning
of the newness period for the device to
have commenced on the date of the first
IRB approval for the Spiration® IBV®,
which was March 12, 2009. For FY
2012, as of March 12, 2012, the
Spiration® IBV® will have been on the
market for 3 years, and is therefore no
longer considered ‘‘new’’ as of March
12, 2012. Because the 3-year anniversary
date of the Spiration® IBV®’s entry onto
the market will occur in the first half of
the fiscal year, we proposed to
discontinue its new technology add-on
payment for FY 2012.
Comment: One commenter requested
that the new technology add-on
payments for the Spiration® IBV® be
extended for a third year. The
commenter reasoned that, although two
hospital IRBs approved the use of the
Spiration® IBV®, those two hospitals
did not implant the valve until June
2010 and September 2010, respectively.
The commenter explained that there
was a delay in the hospitals’
implantation of the device from the time
of IRB approval due to the following
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reasons: (1) Infrequent number of cases;
and (2) the clinical, administrative, and
operation processes that needed to be
completed in order to make the
technology available under HDE
approval at each institution. Therefore,
the commenter stated that even though
a hospital would have received IRB
approval, it would not expect the first
case to be performed immediately. The
commenter believed that for these
reasons, the newness period should
begin with the first implantation of the
Spiration® IBV®, which occurred in
June 2009. Using this date, the
commenter determined that the
newness period for the Spiration® IBV®
would end June 2012, during the latter
half of FY 2012, thus making the
Spiration® IBV® eligible for a third year
of new technology add-on payments.
Response: CMS’ policy is that the
newness period begins with the
product’s or device’s FDA approval
date, except in limited circumstances
that could limit the availability of the
product (69 FR 49002). In this case, the
product was approved as an HDE,
which included IRB approval as a
requirement. Therefore, we determined
that the date of IRB approval was the
appropriate start date of the newness
period (74 FR 43819). We do not agree
that the start date for the newness
period should be further adjusted if a
hospital then decided not to
immediately utilize the technology. In
this case, the hospital’s IRB approved
the product for use on March 12, 2009,
and the product was available, but no
patients had the product implanted
until June 2010. We believe this is
similar to a situation in which a
technology is FDA approved (without
any additional qualifications for use,
such as IRB approval), but no hospital
uses the technology for a period of time
after FDA approval. In such a case, the
newness period would still begin with
FDA approval, and we would not delay
the beginning of the newness period
until a hospital uses the drug or device
for the first time. Therefore, we disagree
with the commenter, and we continue to
believe it is appropriate to start the
newness period for the Spiration® IBV®
with the first IRB approval, which was
March 12, 2009. As mentioned above,
for FY 2012, as of March 12, 2012, the
Spiration® IBV® will have been
available for hospitals’ utilization for 3
years, and it is therefore no longer
considered ‘‘new’’ as of March 12, 2012.
Because this date occurs in the first half
of the fiscal year, we are finalizing our
proposal to discontinue its new
technology add-on payment for FY
2012.
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b. CardioWestTM Temporary Total
Artificial Heart System (CardioWestTM
TAH-t)
SynCardia Systems, Inc. submitted an
application for approval of the
CardioWestTM Temporary Total
Artificial Heart System (TAH-t) in FY
2009. The TAH-t is a technology that is
used as a bridge to heart transplant
device for heart transplant-eligible
patients with end-stage biventricular
failure. The TAH-t pumps up to 9.5
liters of blood per minute. This high
level of perfusion helps improve
hemodynamic function in patients, thus
making them better heart transplant
candidates.
The TAH-t was approved by the FDA
on October 15, 2004, for use as a bridge
to transplant device in cardiac
transplant-eligible candidates at risk of
imminent death from biventricular
failure. The TAH-t is intended to be
used in hospital inpatients. One of the
FDA’s post-approval requirements is
that the manufacturer agrees to provide
a post-approval study demonstrating
that success of the device at one center
can be reproduced at other centers. The
study was to include at least 50 patients
who would be followed up to 1 year,
including (but not limited to) the
following endpoints: Survival to
transplant; adverse events; and device
malfunction.
In the past, Medicare did not cover
artificial heart devices, including the
TAH-t. However, on May 1, 2008, CMS
issued a final national coverage
determination (NCD) expanding
Medicare coverage of artificial hearts
when they are implanted as part of a
study that is approved by the FDA and
is determined by CMS to meet CMS’
Coverage with Evidence Development
(CED) clinical research criteria. (The
final NCD is available on the CMS Web
site at: http://www.cms.hhs.gov/mcd/
viewdecisionmemo.asp?id=211.)
We indicated in the FY 2009 IPPS
final rule (73 FR 48555) that, because
Medicare’s previous coverage policy
with respect to this device had
precluded payment from Medicare, we
did not expect the costs associated with
this technology to be currently reflected
in the data used to determine the
relative weights of MS–DRGs. As we
have indicated in the past, and as we
discussed in the FY 2009 IPPS final
rule, although we generally believe that
the newness period would begin on the
date that FDA approval was granted, in
cases where the applicant can
demonstrate a documented delay in
market availability subsequent to FDA
approval, we would consider delaying
the start of the newness period. This
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technology’s situation represented such
a case. We also noted that section
1886(d)(5)(K)(ii)(II) of the Act requires
that we provide for the collection of cost
data for a new medical service or
technology for a period of at least 2
years and no more than 3 years
‘‘beginning on the date on which an
inpatient hospital code is issued with
respect to the service or technology.’’
Furthermore, the statute specifies that
the term ‘‘inpatient hospital code’’
means any code that is used with
respect to inpatient hospital services for
which payment may be made under the
IPPS and includes ICD–9–CM codes and
any subsequent revisions. Although the
TAH-t has been described by the ICD–
9–CM code(s) since the time of its FDA
approval, because the TAH-t had not
been covered under the Medicare
program (and, therefore, no Medicare
payment had been made for this
technology), this code could not be
‘‘used with respect to inpatient hospital
services for which payment’’ is made
under the IPPS, and thus we assumed
that none of the costs associated with
this technology would be reflected in
the Medicare claims data used to
recalibrate the MS–DRG relative weights
for FY 2009. For this reason, as
discussed in the FY 2009 IPPS final
rule, despite the FDA approval date of
the technology, we determined that
TAH-t would still be eligible to be
considered ‘‘new’’ for purposes of the
new technology add-on payment
because the TAH-t met the newness
criterion on the date that Medicare
coverage began, consistent with
issuance of the final NCD, effective on
May 1, 2008.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology add-on
payments for the TAH-t and
consideration of the public comments
we received in response to the FY 2009
IPPS proposed rule, we approved the
TAH-t for new technology add-on
payments for FY 2009 (73 FR 48557).
We also continued to make new
technology add-on payments for the
TAH-t in FY 2010 and FY 2011.
We describe the new technology addon payment requirements with regard to
newness above. With regard to the
newness criterion for the TAH-t, as
stated above, we consider the beginning
of the newness period for the device to
have commenced from the Medicare
NCD date of May 1, 2008; it is no longer
considered new as of May 11, 2011.
Because the 3-year anniversary date of
the TAH-t will occur prior to the start
of FY 2012, we proposed to discontinue
the new technology add-on payment for
the TAH-t in FY 2012.
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We did not receive any public
comments on this proposal. Therefore,
we are finalizing our proposal to
discontinue new technology add-on
payments for the TAH-t in FY 2012.
c. Auto Laser Interstitial Thermal
Therapy (AutoLITTTM) System
Monteris Medical submitted an
application for new technology add-on
payments for FY 2011 for the
AutoLITTTM. AutoLITTTM is a
minimally invasive, MRI-guided laser
tipped catheter designed to destroy
malignant brain tumors with interstitial
thermal energy causing immediate
coagulation and necrosis of diseased
tissue. The technology can be identified
by ICD–9–CM procedure codes 17.61
(Laser interstitial thermal therapy [LITT]
of lesion or tissue of brain under
guidance), and 17.62 (Laser interstitial
thermal therapy [LITT] of lesion or
tissue of head and neck under
guidance), which became effective on
October 1, 2009.
The AutoLITTTM received a 510K
FDA clearance in May 2009. The
AutoLITTTM is indicated for use to
necrotize or coagulate soft tissue
through interstitial irradiation or
thermal therapy in medicine and
surgery in the discipline of
neurosurgery with 1064 nm lasers. The
AutoLITTTM may be used in patients
with glioblastoma multiforme brain
(GBM) tumors. The applicant stated in
its application and through
supplemental information that, due to
required updates, the technology was
actually introduced to the market in
December 2009. The applicant
explained that it was necessary to
reduce the thermal damage lines from
three to one and complete International
Electrotechnical Commission/
Underwriter Laboratory testing, which
led to the introduction of the technology
to the market in December 2009,
although the technology was approved
by FDA in May 2009. The applicant also
stated through supplementary
information to its application that the
first sale of the product took place on
March 19, 2010. However, because the
product was already available for use in
December 2009, it appears that the
newness date would begin in December
2009. In the FY 2011 IPPS/LTCH PPS
proposed rule, we welcomed public
comments on this issue.
After evaluation of the newness, costs,
and substantial clinical improvement
criteria for new technology payments for
the AutoLITTTM and consideration of
the public comments we received in
response to the FY 2011 IPPS/RY 2011
LTCH PPS proposed rule, including the
additional analysis of clinical data and
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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
of 17.61 (Laser interstitial
thermotherapy of lesion or tissue of
brain under guidance) in combination
with a primary diagnosis codes that
begins with a prefix of 191 (Malignant
neoplasm of brain). We note that using
the procedure and diagnosis codes
above and restricting the add-on
payment to cases that map to MS–DRGs
025, 026, and 027 is consistent with
information provided by the applicant,
which demonstrated that cases of the
AutoLITTTM would only map to MS–
DRGs 025, 026, and 027. Procedure code
17.62 (Laser interstitial thermotherapy
of lesion or tissue of head and neck
under guidance) does not map to MS–
DRGs 025, 026, or 027 under the
GROUPER software and, therefore, is
ineligible for new technology add-on
payment.
The average cost of the AutoLITTTM is
reported as $10,600 per case. Under
§ 412.88(a)(2) of the regulations, new
technology add-on payments are limited
to the lesser of 50 percent of the average
cost of the device or 50 percent of the
costs in excess of the MS–DRG payment
for the case. As a result, the maximum
add-on payment for a case involving the
AutoLITTTM is $5,300.
We describe the new technology addon payment requirements with regard to
newness above. With regard to the
newness criterion for the AutoLITTTM,
as stated above, we consider the
beginning of the newness period for the
device to commence from the market
release date of December 2009.
Therefore, the device will be considered
‘‘new’’ until December 2012. Because
the 3-year anniversary date for the
AutoLITTTM will occur after FY 2012,
we proposed to continue to make new
technology add-on payments for the
AutoLITTTM in FY 2012.
We did not receive any public
comments on this proposal. Therefore,
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51577
we are finalizing our proposal to
continue to make new technology addon payments for the AutoLITTTM in FY
2012. The maximum add-on payment
for a case involving the AutoLITTTM
will continue to be $5,300 for FY 2012.
4. FY 2012 Applications for New
Technology Add-On Payments
We received three applications for
new technology add-on payments for FY
2012. However, one applicant, the
ChampionTM HF Monitoring System by
CardioMems, Inc., withdrew its
application after publication of the
proposed rule because the applicant
believed it would not receive FDA
approval for its technology prior to the
July 1 deadline, as required under
§ 412.87(c) of our regulations. Because
the applicant withdrew its application,
and we did not receive any public
comments on this application, we are
not discussing this application in this
final rule. A discussion of the remaining
two applications is presented below.
a. AxiaLIF® 2L+TM System
TranS1 submitted an application for
new technology add-on payments for
the AxiaLIF® 2L+TM System for FY
2012. The AxiaLIF® 2L+TM System is an
implantable spinal fixation system,
delivered through a pre-sacral approach,
facilitating spinal fusion through axial
stabilization of the anterior lumbar
spine at Lumbar vertebrae 4 through
Sacral vertebrae 1 (L4–S1).
The AxiaLIF® 2L+TM System received
510K FDA clearance (K092124) on
January 21, 2010, and the applicant
asserts that the device was available on
the market immediately afterward
through a limited market release
program. The AxiaLIF® 2L+TM System
is indicated for use to provide anterior
stabilization of the L4–S1 spinal
segments as an adjunct to spinal fusion.
It is also indicated for minimally
invasive access to the anterior portion of
the lower spine for assisting in the
treatment of degeneration of the lumbar
disc, performing lumbar discectomy, or
for assistance in the performance of L4–
S1 interbody fusion. The AxiaLIF®
2L+TM System may be used in patients
requiring fusion to treat
pseudoarthrosis, unsuccessful previous
fusion, spinal stenosis,
spondylolisthesis (Grade 1), or
degenerative disc disease as defined as
back pain of discogenic origin with
degeneration of the disc confirmed by
history and radiographic studies. The
AxiaLIF® 2L+TM System is coded using
ICD–9–CM procedure code 81.08
(Lumbar and lumbosacral fusion of the
anterior column, posterior technique).
In the FY 2012 IPPS/LTCH PPS
proposed rule, we expressed numerous
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concerns regarding the application for
new technology add-on payments for
the AxiaLIF® 2L+TM System. With
regard to the newness criterion, we were
concerned that the AxiaLIF® 2L+TM
System may be substantially similar to
the other devices manufactured by the
applicant, AxiaLIF® System and
AxiaLIF® IITM System, the latter of
which is listed as the predicate device
on the AxiaLIF® 2L+TM System’s
application for FDA approval.
Specifically, in making a determination
of substantial similarity, we consider
the following: (1) Whether a product
uses the same or similar mechanism of
action to achieve a therapeutic outcome;
(2) whether a product is assigned to the
same or different DRG; and (3) whether
the new use of a technology involves the
treatment of the same or similar type of
disease and the same or similar patient
population.
We were particularly concerned that
the AxiaLIF® 2L+TMSystem uses the
same or similar mechanism of action as
the AxiaLIF® IITM System to achieve a
therapeutic outcome. According to the
applicant’s 510K summary submitted to
the FDA (K073514), the AxiaLIF®
System is a multicomponent system
including titanium alloy implantable
devices and instrumentation for creating
a pre-sacral axial track to the L5–S1 disk
space. Similarly, the AxiaLIF® IITM
System is described in the applicant’s
510K summary submitted to the FDA
(K073643) as a system of medical grade
titanium alloy for the anterior
stabilization of the L4–S1 spinal
segments as an adjunct to spinal fusion.
As we stated in the proposed rule, the
applicant states that the AxiaLIF®
2L+TM System was created from the
AxiaLIF® IITM System platform. The
applicant submitted the following to
distinguish the AxiaLIF® 2L+TM System
from the AxiaLIF® IITM System:
• There have been internal thread
changes for the 2L+ implant to
accompany the Spanning Distraction
Rod, which is designed to create and
hold distraction in the L5–S1 disc space
and allow for a higher degree of control
over the Rod advancement and
distraction;
• The design enhancements in the
2L+ System remove the dependence of
distraction on size and placement of the
S1 Rod, thus allowing precise implant
placement in the vertebral bodies;
• In the 2L+ Implant, the L4 section
of the L4–L5 Rod incorporates a conical
design to increase fixation. The outer
diameter (O.D.) of the L5 section is
increased to be identical to the O.D. of
the S1 implant to provide more surface
area bone contact;
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• The 2L+ Instrumentation
incorporates Dilator Trials as an
opportunity to enhance and simplify the
intraoperative measuring technique by
providing a direct visual means of
measurement; and
• The 2L+ Fixation Rod fills the
cannulation to prevent graft from
moving into the rod from the disc space.
The Fixation Rod also fixates the S1
Anchor and L4–L5 Rod together such
that these components cannot passively
separate.
Based on indications for use listed by
the FDA for the AxiaLIF® System
(K073514), the AxiaLIF® IITM System
(K073643), and the AxiaLIF® 2L+TM
System (as described above), we also
were concerned that all of these devices
involve the treatment of the same or
similar type of disease and the same or
similar patient population. With respect
to whether a product is assigned to the
same or different DRG, we noted in the
proposed rule that currently the
AxiaLIF® System and the AxiaLIF®
2L+TM System both generally map to
MS–DRGs 459 (Spinal Fusion Except
Cervical with MCC) and 460 (Spinal
Fusion Except Cervical without MCC).
Though the AxiaLIF® IITM System is no
longer on the market, it would also map
to the same DRGs.
If the AxiaLIF® 2L+TM System is
found to be substantially similar to the
AxiaLIF® System or the AxiaLIF® IITM
System, the AxiaLIF® 2L+TM System
would no longer qualify for the new
technology add-on payment.
Specifically, the appropriate start date
for the AxiaLIF® 2L+TM System would
be the start date of the device that is
found to be substantially similar to the
AxiaLIF® 2L+TM System. As noted
above, the AxiaLIF® IITM System
received FDA approval on April 28,
2008. The 3-year newness period for the
AxiaLIF® IITM System ends prior to the
start of FY 2012 (July 28, 2011). Given
the length of time since the AxiaLIF®
IITM System’s entry into the market,
cost-related data for the AxiaLIF® IITM
System is already reflected in the most
recent MS–DRG relative weights.
Additionally, the AxiaLIF® System
received multiple FDA approvals, the
most recent of which was on January 11,
2008. The 3-year newness period for the
AxiaLIF® System also ends prior to the
start of FY 2012 (January 11, 2011).
Given the length of time since the
AxiaLIF® System’s entry into the
market, cost-related data for the
AxiaLIF® System is already reflected in
the most recent MS–DRG relative
weights. However, if the AxiaLIF®
2L+TM System is not substantially
similar to any of the predicate devices
mentioned above, then the newness
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period for the AxiaLIF® 2L+TM System
would begin on January 21, 2010 (the
AxiaLIF® 2L+TM System’s FDA approval
date) and would be within the year
newness period for FY 2012.
We invited public comment regarding
whether or not the AxiaLIF® 2L+TM
System meets the newness criteria, and,
in particular, whether it is substantially
similar to the AxiaLIF® System or the
AxiaLIF® IITM System. We did not
receive any public comments regarding
the newness criteria or the substantial
similarity of the AxiaLIF® 2L+TM
System to the AxiaLIF® System or the
AxiaLIF® IITM System.
In the proposed rule, we also
expressed concerns with the applicant’s
methodology for demonstrating that it
met the cost criterion. Specifically, in
determining the projected standardized
charge for the AxiaLIF® 2L+TM System,
the applicant relied on a charge markup
for defibrillators because it is also a
high-cost implantable device for which
a hospital purchase price is known. We
were concerned about whether more
direct data or different proxies are
available, including a charge markup for
the AxiaLIF® System or AxiaLIF® IITM
System. In reviewing the applicant’s
charge markup, we also were concerned
about the source data for determining
the 2.77 charge markup ratio for
defibrillators. We invited public
comment on whether the AxiaLIF®
2L+TM System meets the cost criterion
for a new technology add-on payment
for FY 2012.
We did not receive any public
comments that addressed our concerns
regarding the cost criterion for new
technology add-on payment.
With respect to the substantial
clinical improvement criterion, the
applicant asserted that it meets this
criterion in its application. The
applicant stated that substantial clinical
improvement is demonstrated by the
AxiaLIF® 2L+TM System’s facilitation of
spinal fusion surgery without a
laparotomy. By avoiding a laparotomy,
the AxiaLIF® 2L+TM System reduces
blood loss, postoperative pain, narcotic
use, denervation, morbidity, the
probability of complications, and the
risk of trauma to the tissue area
surrounding the lumbar. The applicant
further stated that the AxiaLIF® 2L+TM
System reduces morbidity and has
reduced risk of injuring vital organs and
important intrinsic stabilizing
structures, with a lower complication
profile than traditional open fusion
techniques. The applicant noted that
long-term results can include better
support of lordosis and prevention of
adjacent level disease. In the proposed
rule, we also expressed concern that this
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does not demonstrate a substantial
clinical improvement from the AxiaLIF®
IITM System, which also facilitated
spinal fusion surgery without a
laparotomy.
The applicant has not conducted
clinical trials, but the 300 cases of
AxiaLIF® 2L+TM System’s use (through
the Limited Market Release) yielded a
complication rate of 0.7 percent. The
applicant also asserts that the pre-sacral
approach results in a lower average
length of stay than a non-sacral
approach.
The applicant referred us to several
sources of literature presenting data
related to the pre-sacral approach for the
applicant’s AxiaLIF® device. Again, we
expressed concern that the applicant
generally repeated the statements made
regarding the clinical improvement of
its AxiaLIF® device and had not
provided information that indicates that
the AxiaLIF® 2L+TM System offers a
substantial clinical benefit over the
earlier AxiaLIF® or AxiaLIF® IITM
devices. Moreover, the applicant failed
to provide any clinical outcomes data
for the AxiaLIF® 2L+TM System to
substantiate its assertions regarding
substantial clinical improvement for the
AxiaLIF® 2L+TM System. While the
applicant maintains that data from the
AxiaLIF® device are relevant and can be
used to substantiate its assertions for the
AxiaLIF® 2L+TM System, we were
concerned that data directly associated
with the use of the AxiaLIF® 2L+TM
System are not available. For example,
we stated in the proposed rule that it
was not clear the degree to which the
population that required treatment with
the AxiaLIF® 2L+TM System differed
from the population that required
treatment with the AxiaLIF® device or
the AxiaLIF® IITM System, and that it
was also not clear the degree to which
the differences amongst the devices
discussed above may affect clinical
outcomes. We invited public comments
on whether the AxiaLIF® 2L+TM System
meets the substantial clinical
improvement criterion for the new
technology add-on payment for FY
2012. We did not receive any public
comments regarding the substantial
clinical improvement criterion.
We did not receive any public
comments with regard to this
application. In the absence of comments
with information addressing our various
concerns with this application, we are
not approving the AxiaLIF® 2L+TM
System for new technology add-on
payments for FY 2012.
b. PerfectCLEAN With Micrillon®
UMF Corporation (the manufacturer)
submitted an application for a
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technology called the PerfectCLEAN
with Micrillon® (PerfectCLEAN).
PerfectCLEAN is a cleaning textile
product (or cleaning mat/wipe) with
chlorine embedded or bound to the
extruded fiber. The manufacturer asserts
that PerfectCLEAN is intended to be
used to trap and eliminate pathogens
such as Methicillin-resistant
Staphylococcus aureus (MRSA),
Clostridium difficile (C diff.) and the
H1N1 flu virus from surfaces within the
hospital (as well as other health care
facilities and locations). The applicant
asserts that it can trap and remove more
than 99.99 percent of bacteria on hard
surfaces.
The manufacturer stated that the
PerfectCLEAN is an Environmental
Protection Agency (EPA) approved
antimicrobial/disinfectant that will be
available on the market in the first
quarter of 2011. The applicant
maintains that PerfectCLEAN is subject
to review and approval by the EPA per
the EPA’s Federal Insecticide,
Fungicide, Rodenticide Act (FIFRA)
Treated Article Exemption and,
therefore, is not subject to review by the
FDA. The applicant states that it was
determined in a pre-registry meeting
with the EPA that the underlying
chemistries used to create the chlorine
binding effects of Micrillon® chemistry
are EPA and FDA approved even though
no FDA claims are being sought.
With respect to whether the
PerfectCLEAN is eligible for new
technology add-on payments, in the
proposed rule we noted that our
regulations at § 412.87(c) state, ‘‘CMS
will only consider, for add-on payments
for a particular fiscal year, an
application for which the new medical
service or technology has received FDA
approval or clearance by July 1 prior to
the particular fiscal year.’’ FDA
‘‘approval,’’ refers to the premarket
approval application (PMA) process for
most Class III devices, and FDA
‘‘clearance’’ refers to the 510(k)
premarket notification submission
process for most Class II devices and
some Class I and Class III devices
(section 515 of the Food, Drug and
Cosmetic Act (FDCA) for PMA) and
sections 510(k) and 513(i) of the FDCA
(for premarket notification submission
process)). Therefore, we believe our
regulations, by requiring applicants to
receive an FDA approval or clearance in
order to be eligible for new technology
add-on payments, limit the universe of
items and services eligible to receive
these payments to those that require
FDA approval or clearance. The
applicant has informed CMS that it is in
the process of registering and listing its
product with the FDA under section
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51579
510(b) through (d) and (j) and
anticipates this process to be completed
prior to the July 1 regulatory deadline.
The registration process that the
applicant is currently pursing will result
in neither FDA approval nor clearance.
In the proposed rule, we stated that we
were therefore concerned that the
PerfectCLEAN is not eligible for new
technology add-on payments under our
existing regulations, which require
‘‘FDA approval or clearance by July 1
prior to the particular fiscal year’’ (42
CFR § 412.87(c)). We welcomed public
comments on whether the
PerfectCLEAN is eligible for new
technology add-on payments under the
current regulations.
We did not receive any public
comments in response to our concern
that the PerfectCLEAN does not meet
the newness criteria. Therefore, we
conclude that the PerfectCLEAN does
not meet the requirement specified
under § 412.87(c) of our regulations that
we requires applicants to receive an
FDA approval or clearance by July 1
prior to the particular fiscal year, rather
than registering and listing its product
with the FDA, in order to be eligible for
new technology add-on payments. As a
result, we are not approving new
technology add-on payments for the
PerfectCLEAN for FY 2012. However,
we will consider whether it would be
appropriate for a product that is
registered and listed with the FDA to be
eligible for new technology add-on
payments. If we conclude that such
products should be eligible for new
technology add-on payments in the
future, we will propose changes to our
regulations in a future rulemaking.
With regard to the cost criterion, the
applicant used data from the FY 2011
After Outliers Removed (AOR) file
(posted on the CMS Web site) for its cost
analysis, which is based on the FY 2009
MedPAR file. The applicant considered
MS–DRGs that relate to surgeries, skin
abrasions, open sores, wounds, and
similar inflamed tissue conditions
where infection sites are thought to be
more likely to occur for inpatient care
situations. This resulted in the applicant
determining that the technology would
be most frequently used in 622 different
MS–DRGs. The applicant noted that the
charges from the FY 2011 AOR file were
not inflated from FY 2009 to FY 2011;
therefore the applicant applied a 2-year
inflation factor of 12 percent (to update
the charges from FY 2009 to FY 2011).
The applicant based the 2-year inflation
factor of 12 percent on a 3-year average
of the 2 year rate-of-change in charges
(the 2-year rate-of-change for FY 2009 of
11.841 percent (73 FR 48764); the 2-year
rate-of-change for FY 2010 of 14.184
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percent (74 FR 44010); and the 2-year
rate-of-change for FY 2011 of 9.8843
percent (75 FR 50429)) that CMS uses in
its outlier threshold calculation as
published in section II. of the
Addendum to the annual IPPS final
rule. The applicant computed a caseweighted standardized charge per case
of $40,442 for all 622 MS–DRGs, which
did not include any charges related to
the PerfectCLEAN. Therefore, it added
the charges related to the technology to
the case-weighted average standardized
charge per case in evaluating the cost
threshold criterion. The manufacturer
estimates a charge per patient of $100
per day for the PerfectCLEAN. The
applicant includes in this amount
charges for payroll, treated textiles,
packaging and protective gloves,
laundering, storage, and distribution.
The applicant multiplied the average
length of stay for each MS–DRG (as
found in Table 5 of the Addendum to
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50547 through 50566)) by the
charge per patient per day to determine
the total charges per stay by MS–DRG
related to the PerfectCLEAN. The
applicant added additional charges per
stay for the PerfectCLEAN to the caseweighted standardized charge per case
and determined a total case-weighted
average standardized charge per case of
$41,105. Based on the 622 MS–DRGs to
which the technology mapped, the
applicant computed a case-weighted
threshold of $40,834. Because the total
case-weighted average standardized
charge per case of $41,105 exceeds the
case weighted threshold of $40,834, the
applicant maintains that it meets the
cost criteria.
In the proposed rule, we discussed
several concerns regarding the
applicant’s cost analysis. First, although
the technology can potentially be used
in every single Medicare case, the
application targets specific MS–DRGs.
The applicant did not provide a detailed
clinical justification regarding their
selection of MS–DRGs, or a detailed
justification for why the technology
could not be used in other MS–DRGs.
We believe it would be more
appropriate to target all cases in every
MS–DRG when conducting the cost
analysis for this type of non-procedure
or condition specific item. Using the FY
2011 AOR file, we conducted our own
analysis with the same methodology
above (and inflated the charges and
included the total charges per stay
related to the PerfectCLEAN) across all
MS–DRGs. Based on our analysis, we
determined a total case-weighted
average standardized charge per case of
$29,535. Using the applicant’s
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methodology, we also determined a
case-weighted threshold of $37,384
across all MS–DRGs. Because the total
case-weighted average standardized
charge per case of $29,535 is less than
the case-weighted threshold of $37,384,
we believe the PerfectCLEAN may not
meet the cost criteria.
Second, the applicant included in the
average charge per day more general
charges unrelated to the specific new
technology, such as payroll, packaging
and protective gloves, laundering,
storage and distribution. We do not
believe it is appropriate to include
charges for expenses already accounted
for in MS–DRG based payments, such as
laundering, storage, and distribution,
and supplies already used by hospital
staff such as packaging and protective
gloves. We also note that the applicant
states in its substantial clinical
improvement discussion that the
PerfectCLEAN represents the first
comprehensive process for the removal
and elimination of harmful microorganisms responsible for HAIs from
patient environments, the elimination of
cross-contamination, and significant
savings across many cost centers. If the
PerfectCLEAN is a substitute for other
cleaning mechanisms such as wiping
down a hospital room with a spray and
can produce significant savings across
many cost centers, then it would be
appropriate to deduct some charges
from the average charge per day in order
to accurately reflect the cost to hospitals
of this technology. For these reasons, we
remain concerned about the accuracy of
the computation of a charge per patient
of $100 per day and whether the
PerfectCLEAN meets the cost criterion.
Thirdly, the applicant based the 12percent, 2-year rate-of-change in charges
on a 3-year average (FY 2009 through
FY 2011) of the 2-year rate-of-change in
charges as published in section II. of the
Addendum to the annual IPPS final
rule. We do not believe it is appropriate
to use a 3-year average of the 2-year rateof-change in charges as the 2-year rateof-change in charges already uses the
most recent data available to measure
this change and, therefore, does not
need to be averaged with prior years.
Specifically, as described in section II.
of the Addendum to this final rule, to
calculate the proposed FY 2012 2-year
rate-of-change in charges, we compared
the 1-year average annualized rate-ofchange in charges per case from the last
quarter of FY 2009 in combination with
the first quarter of FY 2010 (July 1, 2009
through December 31, 2009) to the last
quarter of FY 2010 in combination with
the first quarter of FY 2011 (July 1, 2010
through December 31, 2010). This rateof-change was 4.43 percent (1.044394)
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or 9.07 percent (1.090759) over 2 years.
If we substitute the FY 2012 proposed
2-year rate-of-change in charges of 9.07
percent for the 12-percent 3-year
average of the 2-year rate-of-change in
charges that the applicant used in its
cost analysis, the total case-weighted
average standardized charge per case
would be $40,047 across the 622 MS–
DRGs to which the applicant believes
the technology would map. As
mentioned above, the applicant
computed a case-weighted threshold of
$40,834. Because the total caseweighted average standardized charge
per case of $40,047 is less than the caseweighted threshold of $40,834, it
appears the applicant would not meet
the cost criteria. We invited public
comment on whether the PerfectCLEAN
meets the cost criterion.
Comment: Several commenters
expressed concerns that the cost
estimates assume that this product
would replace other items currently
used in the hospital.
Response: As mentioned above,
because PerfectCLEAN does not meet
the requirements specified under
§ 412.87(c) of our regualtions it was not
approved for FY 2012 new technology
add-on payments. Once an applicant
does not meet one of our criteria
(newness, cost and substantial clinical
improvement; in that order), we
typically do not respond to public
comments on the rest of the new
technology add-on payment criteria.
However, we are responding to the
public comment above to ensure our
cost criteria policy is clear.
The applicant substituted and added
charges related to their product as part
of its efforts to demonstrate that the
product’s costs exceed the cost
threshold. While we have concerns
regarding certain aspects of the
applicant’s methodology, it is common
practice for new technology add-on
payment applicants to substitute and/or
add charges related to their technology
in order to develop an average
standardized charge per case to
demonstrate that a technology exceeds
the cost threshold.
The applicant maintained that it met
the substantial clinical improvement
criteria for the following reasons: The
applicant believes the PerfectCLEAN
significantly improves clinical outcomes
for a patient population as compared to
currently available treatments, decreases
rate of subsequent diagnostic or
therapeutic interventions, and decreases
the number of future hospitalizations or
physician visits. The applicant cited
independent laboratory studies that set
forth the level of removal and
elimination of pathogens achieved by
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the PerfectCLEAN. The applicant stated
that the PerfectCLEAN includes ‘‘more
precise and focused patient room
procedures that when properly applied
utilize the textile and micro-denier
efficacies’’ listed in the product’s
independent test reports. The applicant
stated that this results ‘‘in a safer patient
environment where the likelihood of
cross contamination is reasonable.’’ The
applicant included test report data for
the product, which demonstrated a
99.99 percent effectiveness of removing
pathogens such as MRSA and C diff.
The applicant cited industry and
clinical support to demonstrate that
improved patient environment can save
lives. The applicant also stated that
PerfectCLEAN represents the first
comprehensive process for the removal
and elimination of harmful microorganisms responsible for hospital
acquired infections from patient
environments, the elimination of crosscontamination, and significant savings
across many cost centers. The applicant
stated that this new innovative system
delivers reliable and repeatable results
not currently achieved using currently
available protocols and products. The
applicant provided the following
example: a traditional method of
disinfection is to apply liquid
disinfectants, which the applicant stated
typically requires a 10-minute dwell
time (which in most cases is not
completed by the hospital) and then
wiping or mopping up the
nonevaporated liquids. Compared to
this method, the applicant asserts that
the PerfectCLEAN first removes the
micro-organisms from those surfaces
using specially designed microscopic
fibers. The applicant asserted that these
pathogens are trapped in a formulation
of a chlorine binding technology which
eliminates the pathogens.
The applicant further asserted that the
PerfectCLEAN maintains its disinfecting
capability longer than other methods
because the chlorine-binding technology
is introduced at the pellet stage of fiber
extrusion so that it is present
throughout the fiber, as opposed to a
finish or coating process that wears off
as textiles are used and laundered.
Additionally, the applicant asserted that
the technology’s non-leaching
chlorination system recharges in the
wash process by attracting and binding
free molecules of chlorine. The
applicant further asserted that in this
way the PerfectCLEAN recharges back to
its original strength and efficacy which
allows it to work more rapidly than
other techniques. The applicant asserted
that this reduces cross-contamination by
those persons handling soiled textiles
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after the people contact surfaces which
have been cleaned of harmful microorganisms. The applicant added that the
training in use of color coated textiles
(different color mats) affords superior
monitoring and compliance supervision
of the hygiene specialists charged with
responsibility to reduce cross
contamination. We invited public
comment on whether the PerfectCLEAN
meets the substantial clinical
improvement criterion.
Comment: Several commenters
opposed consideration of this product
for new technology add-on payments.
The commenters stated that neither
CMS nor the applicant provided
sufficient supporting data to approve
this technology for add-on payments.
The commenters also stated that a
cursory review of information sources
on this product, including the
company’s own Web site, did not
identify any scientific, peer-reviewed
studies demonstrating efficacy against
cross transmission, or prevention or
mitigation of Healthcare-Acquired
Infections (HAIs). The commenters
urged CMS not to approve the
application for new technology add-on
payments for this or any product that
lacks scientific evidence of its efficacy
and urged CMS to use objective rigor to
evaluate the methodological quality and
strength of evidence submitted in
support of new technology add-on
payment applications.
Response: Because PerfectCLEAN
does not meet the requirements
specified under § 412.87(c) of our
regulations (and was not approved for
FY 2012 new technology add-on
payments), we are not responding to
these public comments in this final rule.
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 2012 hospital wage index based on
the statistical areas, including OMB’s
revised definitions of Metropolitan
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51581
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 2012 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 2012 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, 2011
(the FY 2012 wage index) appears under
section III.C. of this preamble.
B. Core-Based Statistical Areas for the
Hospital Wage Index
The wage index is calculated and
assigned to hospitals on the basis of the
labor market area in which the hospital
is located. In accordance with the broad
discretion under section 1886(d)(3)(E) of
the Act, beginning with FY 2005, we
define hospital labor market areas based
on the Core-Based Statistical Areas
(CBSAs) established by OMB and
announced in December 2003 (69 FR
49027). For a discussion of OMB’s
revised delineations of CBSAs and our
implementation of the CBSA
definitions, we refer readers to the
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preamble of the FY 2005 IPPS final rule
(69 FR 49026 through 49032).
As with the FY 2011 final rule, and
as we proposed, in this FY 2012 final
rule, we are providing that hospitals
receive 100 percent of their wage index
based upon the CBSA configurations.
Specifically, for each hospital, we
determined a wage index for FY 2012
employing wage index data from
hospital cost reports for cost reporting
periods beginning during FY 2008 and
using the CBSA labor market
definitions. We consider CBSAs that are
Metropolitan Statistical Areas (MSAs) to
be urban, and CBSAs that are
Micropolitan Statistical Areas as well as
areas outside of CBSAs to be rural. In
addition, it has been our longstanding
policy that where an MSA has been
divided into Metropolitan Divisions, we
consider the Metropolitan Division to
comprise the labor market areas for
purposes of calculating the wage index
(69 FR 49029) (regulations at
§ 412.64(b)(1)(ii)(A)).
In OMB Bulletin No. 10–2, issued on
December 1, 2009, OMB announced that
the CBSA changes in that bulletin
would be the final update prior to the
2010 Census of Population and Housing.
CMS adopted those changes in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50162), beginning October 1, 2010, and
they are reflected in this FY 2012 final
rule. In 2013, OMB plans to announce
new area delineations based on its 2010
standards (75 FR 37246) and the 2010
Census data.
The OMB bulletin is available on the
OMB Web site at http://
www.whitehouse.gov/OMB—go to
‘‘Agency Information’’ and click on
‘‘Bulletins’’.
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C. Occupational Mix Adjustment to the
FY 2012 Wage Index
As stated earlier, section 1886(d)(3)(E)
of the Act provides for the collection of
data every 3 years on the occupational
mix of employees for each short-term,
acute care hospital participating in the
Medicare program, in order to construct
an occupational mix adjustment to the
wage index, for application beginning
October 1, 2004 (the FY 2005 wage
index). The purpose of the occupational
mix adjustment is to control for the
effect of hospitals’ employment choices
on the wage index. For example,
hospitals may choose to employ
different combinations of registered
nurses, licensed practical nurses,
nursing aides, and medical assistants for
the purpose of providing nursing care to
their patients. The varying labor costs
associated with these choices reflect
hospital management decisions rather
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than geographic differences in the costs
of labor.
1. Development of Data for the FY 2012
Occupational Mix Adjustment Based on
the 2007–2008 Occupational Mix
Survey
As provided for under section
1886(d)(3)(E) of the Act, we collect data
every 3 years on the occupational mix
of employees for each short-term, acute
care hospital participating in the
Medicare program.
For the FY 2010 hospital wage index,
we used occupational mix data
collected on a revised 2007–2008
Medicare Wage Index Occupational Mix
Survey (the 2007–2008 survey) to
compute the occupational mix
adjustment for FY 2010. (We refer
readers to the FY 2010 IPPS final rule
(74 FR 43827) for a detailed discussion
of the 2007–2008 survey.) Again, for the
FY 2011 hospital wage index, we used
data from the 2007–2008 survey
(including revised data for 45 hospitals)
to compute the FY 2011 adjustment.
As we proposed, for the FY 2012
hospital wage index, we again used
occupational mix data collected on the
2007–2008 Medicare Wage Index
Occupational Mix Survey to compute
the occupational mix adjustment for FY
2012. We included data for 3,168
hospitals that also have wage data
included in the FY 2012 wage index.
2. New 2010 Occupational Mix Survey
for the FY 2013 Wage Index
As stated earlier, section 304(c) of
Public Law 106–554 amended section
1886(d)(3)(E) of the Act to require CMS
to collect data every 3 years on the
occupational mix of employees for each
short-term, acute care hospital
participating in the Medicare program.
We used occupational mix data
collected on the 2007–2008 survey to
compute the occupational mix
adjustment for FY 2010 and the FY 2011
wage index and are using the 2007–2008
occupational mix survey data in this
final rule for the FY 2012 wage index.
Therefore, a new measurement of
occupational mix will be required for
FY 2013.
The new 2010 survey (Form CMS–
10079 (2010)) provides for the collection
of hospital-specific wages and hours
data for calendar year 2010 (that is,
payroll periods ending between January
1, 2010 and December 31, 2010) and
will be applied beginning with the FY
2013 wage index. The 2010 survey was
adopted in the Federal Register on
January 15, 2010 (75 FR 2548) and
approved by OMB on February 26, 2010
(OMB control number 0938–0907). The
survey is available on the CMS Web site
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at: http://www.cms.hhs.gov/
AcuteInpatientPPS/WIFN/
list.asp#TopOfPage 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
2011, along with the FY 2009 Worksheet
S–3 wage data, for the FY 2013 wage
index review and correction process.
3. Calculation of the Occupational Mix
Adjustment for FY 2012
For FY 2012 (as we did for FY 2011),
we calculated the occupational mix
adjustment factor using the following
steps:
Step 1—For each hospital, determine
the percentage of the total nursing
category attributable to a nursing
subcategory by dividing the nursing
subcategory hours by the total nursing
category’s hours. Repeat this
computation for each of the four nursing
subcategories: (1) Registered nurses; (2)
licensed practical nurses; (3) nursing
aides, orderlies, and attendants; and (4)
medical assistants.
Step 2—Determine a national average
hourly rate for each nursing subcategory
by dividing a subcategory’s total salaries
for all hospitals in the occupational mix
survey database by the subcategory’s
total hours for all hospitals in the
occupational mix survey database.
Step 3—For each hospital, determine
an adjusted average hourly rate for each
nursing subcategory by multiplying the
percentage of the total nursing category
(from Step 1) by the national average
hourly rate for that nursing subcategory
(from Step 2). Repeat this calculation for
each of the four nursing subcategories.
Step 4—For each hospital, determine
the adjusted average hourly rate for the
total nursing category by summing the
adjusted average hourly rate (from Step
3) for each of the nursing subcategories.
Step 5—Determine the national
average hourly rate for the total nursing
category by dividing total nursing
category salaries for all hospitals in the
occupational mix survey database by
total nursing category hours for all
hospitals in the occupational mix
survey database.
Step 6—For each hospital, compute
the occupational mix adjustment factor
for the total nursing category by
dividing the national average hourly
rate for the total nursing category (from
Step 5) by the hospital’s adjusted
average hourly rate for the total nursing
category (from Step 4).
If the hospital’s adjusted average
hourly rate is less than the national
average hourly rate (indicating the
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hospital employs a less costly mix of
nursing employees), the occupational
mix adjustment factor is greater than
1.0000. If the hospital’s adjusted average
hourly rate is greater than the national
average hourly rate, the occupational
mix adjustment factor is less than
1.0000.
Step 7—For each hospital, calculate
the occupational mix adjusted salaries
and wage-related costs for the total
nursing category by multiplying the
hospital’s total salaries and wage-related
costs (from Step 5 of the unadjusted
wage index calculation in section III.F.
of this preamble) by the percentage of
the hospital’s total workers attributable
to the total nursing category (using the
occupational mix survey data, this
percentage is determined by dividing
the hospital’s total nursing category
salaries by the hospital’s total salaries
for ‘‘nursing and all other’’) and by the
total nursing category’s occupational
mix adjustment factor (from Step 6
above).
The remaining portion of the
hospital’s total salaries and wage-related
costs that is attributable to all other
employees of the hospital is not
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adjusted by the occupational mix. A
hospital’s all other portion is
determined by subtracting the hospital’s
nursing category percentage from 100
percent.
Step 8—For each hospital, calculate
the total occupational mix adjusted
salaries and wage-related costs for a
hospital by summing the occupational
mix adjusted salaries and wage-related
costs for the total nursing category (from
Step 7) and the portion of the hospital’s
salaries and wage-related costs for all
other employees (from Step 7).
To compute a hospital’s occupational
mix adjusted average hourly wage,
divide the hospital’s total occupational
mix adjusted salaries and wage-related
costs by the hospital’s total hours (from
Step 4 of the unadjusted wage index
calculation in section III.F. of this
preamble).
Step 9—To compute the occupational
mix adjusted average hourly wage for an
urban or rural area, sum the total
occupational mix adjusted salaries and
wage-related costs for all hospitals in
the area, then sum the total hours for all
hospitals in the area. Next, divide the
area’s occupational mix adjusted
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51583
salaries and wage-related costs by the
area’s hours.
Step 10—To compute the national
occupational mix adjusted average
hourly wage, sum the total occupational
mix adjusted salaries and wage-related
costs for all hospitals in the Nation, then
sum the total hours for all hospitals in
the Nation. Next, divide the national
occupational mix adjusted salaries and
wage-related costs by the national
hours. The FY 2012 occupational mix
adjusted national average hourly wage is
$36.2481.
Step 11—To compute the
occupational mix adjusted wage index,
divide each area’s occupational mix
adjusted average hourly wage (Step 9)
by the national occupational mix
adjusted average hourly wage (Step 10).
Step 12—To compute the Puerto Rico
specific occupational mix adjusted wage
index, follow Steps 1 through 11 above.
The FY 2012 occupational mix adjusted
Puerto Rico-specific average hourly
wage is $15.4142.
The table below is an illustrative
example of the occupational mix
adjustment.
BILLING CODE 4120–01–P
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Because the occupational mix
adjustment is required by statute, all
hospitals that are subject to payments
under the IPPS, or any hospital that
would be subject to the IPPS if not
granted a waiver, must complete the
occupational mix survey, unless the
hospital has no associated cost report
wage data that are included in the FY
2012 wage index. For the FY 2007–2008
survey, the response rate was 90.8
percent.
In computing the FY 2012 wage
index, if a hospital did not respond to
the occupational mix survey, or if we
determined that a hospital’s submitted
data were too erroneous to include in
the wage index, we assigned the
hospital the average occupational mix
adjustment for its labor market area.
This method has the least impact on the
wage index for other hospitals in the
area. For areas where no hospital
submitted data for purposes of
calculating the occupational mix
adjustment, we applied the national
occupational mix factor of 1.0000 in
calculating the area’s FY 2012
occupational mix adjusted wage index.
In addition, if a hospital submitted a
survey, but that survey data could not
be used because we determined the
survey data to be aberrant, we also
assigned the hospital the average
occupational mix adjustment for its
labor market area. For example, if a
hospital’s individual nurse category
average hourly wages were out of range
(that is, unusually high or low), and the
hospital did not provide sufficient
documentation to explain the aberrancy,
or the hospital did not submit any
registered nurse salaries or hours data,
we assigned the hospital the average
occupational mix adjustment for the
labor market area in which it is located.
In calculating the average
occupational mix adjustment factor for
a labor market area, we replicated Steps
1 through 6 of the calculation for the
occupational mix adjustment. However,
instead of performing these steps at the
hospital level, we aggregated the data at
the labor market area level. In following
these steps, for example, for CBSAs that
contain hospitals that did not submit
occupational mix survey data, the
occupational mix adjustment factor
ranged from a low of 0.9246 (CBSA
17780, College Station-Bryan, TX), to a
high of 1.0761 (CBSA 19, Rural
Louisiana). Also, in computing a
hospital’s occupational mix adjusted
salaries and wage-related costs for
nursing employees (Step 7 of the
calculation), in the absence of
occupational mix survey data, we
multiplied the hospital’s total salaries
and wage-related costs by the
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percentage of the area’s total workers
attributable to the area’s total nursing
category. For FY 2012, there are five
CBSAs (that include six hospitals) for
which we did not have occupational
mix data for any of its hospitals. The
CBSAs are:
• CBSA 36140, Ocean City, NJ (1
hospital)
• CBSA 22140, Farmington, NM (1
hospital)
• CBSA 41900, San German-Cabo Rojo,
PR (2 hospitals)
• CBSA 49500, Yauco, PR (1 hospital)
• CBSA 21940, Fajardo, PR (1 hospital)
Since the FY 2007 IPPS final rule, we
have periodically discussed applying a
hospital-specific penalty to hospitals
that fail to submit occupational mix
survey data (71 FR 48013 through
48014; 72 FR 47314 through 47315; 73
FR 48580; 74 FR 43832, and 75 FR
50167). During the FY 2008 rulemaking
cycle, some commenters suggested a
penalty equal to a 1- to 2-percent
reduction in the hospital’s wage index
value or a set percentage of the
standardized amount. During the FY
2009 and FY 2010 rulemaking cycles,
several commenters reiterated their
view that full participation in the
occupational mix survey is critical, and
that CMS should develop a
methodology that encourages hospitals
to report occupational mix survey data
but does not unfairly penalize
neighboring hospitals. We indicated in
the FY 2010 IPPS/RY 2010 LTCH PPS
proposed rule that, while we were not
proposing a penalty at that time, we
would consider the public comments
we previously received, as well as any
public comments on the proposed rule,
as we developed the FY 2011 wage
index.
In the FY 2011 IPPS/LTCH PPS
proposed and final rules (75 FR 23943
and 50167, respectively), we stated that,
in order to gain a better understanding
of why some hospitals are not
submitting the occupational mix data,
we will require hospitals that do not
submit occupational mix data to provide
an explanation for not complying. This
requirement will be effective beginning
with the new 2010 occupational mix
survey (the 2010 survey is discussed in
section III.C.2. of this preamble). We
will instruct fiscal intermediaries/MACs
to begin gathering this information as
part of the FY 2013 wage index desk
review process. We note that we reserve
the right to apply a different approach
in future years, including potentially
penalizing nonresponsive hospitals.
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D. Worksheet S–3 Wage Data for the FY
2012 Wage Index
The FY 2012 wage index values are
based on the data collected from the
Medicare cost reports submitted by
hospitals for cost reporting periods
beginning in FY 2008 (the FY 2011 wage
index was based on data from cost
reporting periods beginning during FY
2007).
1. Included Categories of Costs
The FY 2012 wage index includes the
following categories of data associated
with costs paid under the IPPS (as well
as outpatient costs):
• Salaries and hours from short-term,
acute care hospitals (including paid
lunch hours and hours associated with
military leave and jury duty)
• Home office costs and hours
• Certain contract labor costs and
hours (which includes direct patient
care, certain top management,
pharmacy, laboratory, and nonteaching
physician Part A services, and certain
contract indirect patient care services
(as discussed in the FY 2008 final rule
with comment period (72 FR 47315))
• Wage-related costs, including
pensions and other deferred
compensation costs.
2. Changes to the Reporting
Requirements for Pension Costs for the
Medicare Wage Index
a. Background
The instructions for determining and
reporting costs of qualified defined
benefit pension on the cost report for
Medicare cost-finding purposes are
located in section 2142 of the Provider
Reimbursement Manual, Part I (PRM–I).
For Medicare wage index purposes, the
instructions in section 3605.2 of the
Provider Reimbursement Manual, Part II
(PRM–II) for Worksheet S–3, Part II,
Lines 13 through 20, require hospitals to
comply with the requirements in section
2142 of the PRM–I.
Specifically, section 2142.5 of the
PRM–I defines the current period
liability for pension cost (that is, the
maximum allowable pension cost) based
on the actuarial accrued liability,
normal cost, and unfunded actuarial
liability. Under section 2142.4(A) of the
PRM–I, these liability measurements are
to be computed in accordance with the
Employee Retirement Income Security
Act of 1974 (ERISA), regardless of
whether or not the pension plan is
subject to ERISA. Also, section
2142.6(A) of the PRM–I requires the
current period liability for pension costs
to be funded in order to be allowable.
In addition, section 2142.6(C) of the
PRM–I allows for funding in excess of
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the current period liability to be carried
forward and recognized in future
periods. We note that, on March 28,
2008, CMS published Revision 436, a
technical clarification to section 2142 of
the PRM–I.
Under ERISA, the actuarial accrued
liability and normal cost are typically
determined on an ongoing plan basis
using long-term, best-estimate
assumptions. The interest assumption
reflects the average rates of return
expected over the period during which
benefits were payable, taking into
account the investment mix of plan
assets. Pension costs for plans not
subject to ERISA (such as church plans
and plans sponsored by public sector
employers) are also typically based on
the actuarial accrued liability and
normal cost using long-term, best
estimate assumptions.
The Pension Protection Act (PPA) of
2006 (Pub. L. 109–280) amended ERISA.
Under the PPA amendments to ERISA,
the actuarial accrued liability and
normal cost are no longer used as a basis
for determining ERISA minimum
required or maximum tax deductible
contributions. ERISA contribution limits
are now based on a ‘‘funding target’’ and
‘‘target normal cost’’ measured on a
settlement basis using the current
market interest rates for investment
grade corporate bonds that match the
duration of the benefit payouts. The
Internal Revenue Service (IRS)
publishes the applicable interest rate
tables on a monthly basis. Because
pension liabilities are very sensitive to
changes in the interest rate used to
discount future benefit payouts, pension
costs based on the PPA ‘‘funding target’’
and ‘‘target normal cost’’ values are
expected to be less stable than those
based on the pre-PPA traditional longterm, best-estimate assumptions, which
change infrequently. Furthermore, plans
not subject to the ERISA requirements,
as amended by the PPA, are not likely
to use the new ‘‘funding target’’ and
‘‘target normal cost’’ basis for
determining pension costs, and ERISA
plans are not likely to continue to report
costs developed using the actuarial
accrued liability and normal cost based
on long-term, best estimate
assumptions. Accordingly, there is no
longer a standard actuarial basis used by
all plans.
In response to the PPA amendments
to ERISA, we began a review of the rules
for determining pension costs for
Medicare cost finding and wage index
purposes. As an interim measure, we
issued a Joint Signature Memorandum
(JSM) in November 2009 that contained
instructions and a spreadsheet to assist
hospitals and Medicare contractors in
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determining the annual allowable
defined benefit pension cost for the FY
2011 wage index (JSM/TDL–10061, 11–
20–09, December 3, 2009). Although
these instructions were released for
purposes of the wage index, they also
serve as interim guidance for Medicare
cost-finding purposes.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25874 through
25876), we proposed to revise our
policy for determining pension cost for
Medicare purposes. As mentioned
above, due to the ERISA rules, as
amended by the PPA, there is no longer
a standard actuarial cost basis used by
all types of plans. Therefore, we
proposed to no longer rely on actuarial
computations to determine the
maximum annual cost limitation for
Medicare. Instead, the general
parameters of our policy would
maintain the current requirement that
pension costs must be funded to be
reportable, and would require all
hospitals to report the actual pension
contributions funded during the
reporting period, on a cash basis.
In addition, under this cash basis
approach, we proposed separate
methodologies for measuring pension
costs for Medicare cost-finding purposes
(discussed in section IV.M. of this
preamble) and for purposes of updating
the wage index (discussed below in
section III.D.2.b. of this preamble). It is
necessary to have two distinct policies
in order to address the different goals of
determining a hospital’s payments and
updating the average hourly wage to
establish the geographic area wage
index. The function of the wage index
is to measure relative hospital labor
costs across areas. This function is
distinct from Medicare payment
determinations, where the goal is to
measure the actual costs incurred by
individual hospitals. These two distinct
policies would require separate updated
instructions to section 2142 of the PRM–
I for Medicare cost-finding purposes and
section 3605.2 of the PRM–II for
purposes of the wage index. Below is a
detailed discussion of our proposal for
reporting pension costs under the wage
index, as well as our final policy. A full
discussion of our new methodology for
Medicare cost-finding purposes is
discussed in section IV.M. of this
preamble, along with a summary of the
public comments we received, our
responses, and statements of our final
policy.
The final policy below reflects our
commitment to the general principles of
the President’s Executive Order released
January 18, 2011, entitled ‘‘Improving
Regulation and Regulatory Review.’’
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51587
b. Proposed and Final Policy for
Allowable Pension Cost for the
Medicare Wage Index
As mentioned above, the function of
the Medicare wage index is to measure
relative hospital labor costs across all
areas. Therefore, while we believe
pension costs must be funded in order
to be reportable (we refer readers to the
August 12, 2010 Federal Register (74 FR
47369) for an explanation of this
longstanding policy), it also is important
for pension costs to be relatively stable
from year to year so that there is less
volatility in the wage index. Thus, in
the FY 2012 IPPS/LTCH PPS proposed
rule, we proposed to include, in the
wage index, pension costs equal to a
hospital’s average actual cash
contributions deposited to its defined
benefit pension plan over a 3-year
period. The use of cash contributions as
a measure of the costs incurred is
necessary to ensure uniformity among
all hospitals, regardless of their tax
status or ERISA coverage. The 3-year
average is intended to reduce the
volatility that often occurs due to timing
of contributions. Most pension plan
sponsors have flexibility to determine
the pension funding for a particular
period and their decisions may be based
on cash-flow considerations or other
factors unrelated to the normal
operation of the plan. Furthermore, the
funding of current period pension costs
may be delayed by almost a full year
after the close of the period to which it
applies. By using a 3-year average, we
hope to enhance the stability of the
wage index.
To ensure that the average annual
pension cost reflected in the wage index
is consistent with the reporting period
applicable to all other costs included in
the index, we proposed that the 3-year
average be centered on the current cost
reporting period for the wage index. For
example, the 2013 wage index is based
on cost reporting periods beginning
during Federal Fiscal Year (FFY) 2009
and would therefore reflect the average
pension contributions made in
hospitals’ cost reporting periods
beginning during FFYs 2008, 2009, and
2010. Thus, this policy would require
pension plan contribution data for the
cost reporting periods immediately
preceding and immediately following
the current cost reporting period for the
wage index.
In the proposed rule, we indicated
that we do not anticipate that the use of
contributions made in the period
immediately following the current cost
reporting period will create an
administrative burden because, even
under the existing rule, contributions to
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fund current period costs are often
deferred until the following period. In
addition, trust account statements and
general ledger reports to support the
contributions should be readily
available.
We proposed to apply the above
methodology for reporting pension costs
for the wage index beginning with the
FY 2013 IPPS update. We solicited
public comment on this policy proposal
and indicated that we were especially
interested in receiving comments
related to the proposed 3-year averaging
period.
Comment: A number of commenters
suggested that CMS convene a Medicare
Technical Advisory Group (MTAG)
before establishing a policy on pension
costs.
Response: An MTAG is not required
by statute. Engaging in notice and
comment rulemaking provides sufficient
process for developing a policy on this
issue. In addition, timeliness of an
updated rule is needed because the
actuarial terminology used in section
2142 of the PRM–I is no longer used
under ERISA as amended by the PPA.
Also, as many commenters noted, there
have been numerous appeals related to
pension cost adjustments in recent
years, and we believe our policy will
alleviate the confusion demonstrated by
such appeals. Proposing the issue
through the notice and comment
rulemaking process will allow CMS to
address the issue by finalizing the
policy effective October 1, 2011.
Comment: Many commenters
supporting an MTAG also stated that an
MTAG might recommend adoption of
Generally Accepted Accounting
Principles (GAAP) (with no funding
limit) for the wage index. These
commenters generally called for CMS to
propose a methodology that accurately
reflects the total resources hospitals
expend over the life of their defined
benefit plans and recognizes those costs
fully in the wage index. They implied
that GAAP could be the most
appropriate method to satisfy this goal.
One commenter noted that a proposal to
base pension expense for both the wage
index and cost-finding purposes on a 3year average of actual funding is
inconsistent with the other principles of
the cost report relying on GAAP and
accrual versus cash-basis accounting.
Response: There is no consistently
applied, standardized pension cost
accounting methodology that produces a
stable measure of the actual cost
incurred over the life of a pension plan.
Moreover, not all providers are subject
to the same GAAP standards, and the
rules applicable to pension costs under
the various standards are not consistent.
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Uniformity of costs for the wage index
would require all providers to compute
pension costs under a particular GAAP
standard. This would create an
administrative burden for some and
would limit transparency.
Even under GAAP as promulgated by
the Financial Accounting Standards
Board (FASB), significant
inconsistencies may exist because the
rules allow gains and losses to either be
recognized immediately (as a current
period cost), or spread over future
periods. Until recently, immediate
recognition of gains and losses was
seldom used because it can cause
pension costs to be extremely volatile.
For example, those who have adopted
immediate recognition of gains and
losses are likely to see their GAAP
pension costs shift to pension income
(negative costs) when interest rates
begin to rise.
Finally, the GAAP standards are
currently in a state of flux. The
Government Accounting Standards
Board (GASB) and the International
Accounting Standards Board (IASB) are
both in the process of reviewing their
rules for pension accounting. The FASB
and IASB are discussing how U.S.
accounting can be reconciled with
international accounting. We anticipate
changes in GAAP pension rules will
reflect the trend towards mark-to-market
financial reporting (immediate
recognition of gains and losses) and
thereby further increase the potential
volatility of those cost measurements.
Comment: Most commenters
expressed concern that hospitals with
prefunded pension plans would be
disadvantaged, while those with
underfunded plans would be rewarded.
A number of these commenters called
for a ‘‘true-up’’ of costs to ensure
absolute equity between past and future
periods, similar to the carry forward
provision in the current PRM.
Response: We continue to believe that
absolute equity between past and future
periods is not necessary since the wage
index is a relative rather than an
absolute measure of costs. However, in
response to public comments, we agree
that it would be appropriate to allow
certain prefunded amounts to be
reported as pension costs in future
periods. Although most plan sponsors
follow a relatively stable pattern of
funding over time, accelerated funding
may have been required due to stock
market losses and declining interest
rates in recent years. We are particularly
sensitive to the fact that many hospitals
were required to make contributions in
excess of the amount reportable for
Medicare purposes to satisfy ERISA
requirements based on the ‘‘current
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liability.’’ We are also aware that some
hospitals accelerated their pension plan
funding in order to avoid benefit
restrictions or other penalties under the
PPA amendments to ERISA. As a result,
we are finalizing a transition policy
based on funding that may have
exceeded the amounts reportable for the
FY 2007 through FY 2012 wage indexes
(cost reports with begin dates during the
period of (on or after) October 1, 2002
through (on or before) September 30,
2008). We believe this period is
representative of the period when
contributions may have exceeded the
amounts reportable for Medicare
purposes.
Our transition policy will allow
providers to establish a prefunding
balance equal to (A) minus (B), where
(A) is the sum of cash contributions
made during a period of consecutive
provider cost reporting periods
commencing no earlier than October 1,
2002 (the cost reporting period
applicable for the FY 2007 wage index),
and ending with the cost reporting
period applicable for the FY 2012 wage
index, and (B) is the sum of pension
costs actually reflected in the wage
index for the same cost reporting
periods. It should be noted that the
prefunding balance is not the same as
the carry forward amount described in
section 2142.6C of the PRM–I since the
carry forward amount may include
different periods and may include
contributions made after the end of the
cost reporting period ending
immediately prior to the effective date
of this new policy.
The transition policy permits a
hospital to include 1/10th of the
prefunding balance in the wage index
pension cost each year commencing
with the FY 2013 wage index and
ending with the FY 2022 wage index,
that is, in 10 equal prefunding
installments. Any prefunding
installment that is not included in the
wage index pension cost for the current
cost reporting period cannot be
reassigned and added to the wage index
pension cost of any subsequent period.
To take advantage of all 10 prefunding
installments, hospitals must determine
and begin claiming the prefunding
installment in the pension cost for the
FY 2013 wage index. Distributing excess
funding over a period of 10 years will
ensure that when hospitals have
substantial prefunding balances, the
amount assigned to any one year will
not unduly influence the wage index in
that year. An example of how the
pension cost (including the prefunding
balance) is to be calculated is included
in our response to another comment.
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For each cost reporting period that a
prefunding installment is included in
the reported pension cost, the provider
must have documentation to support the
calculation of the prefunding balance,
including the contributions made to the
pension plan and pension costs reported
in the wage index for each applicable
cost reporting period reflected in the
calculation. In order to notify the public
of this transition policy, we will issue
a memorandum to Medicare contractors
after the publication of this final policy,
requiring them to notify hospitals in
writing of these changes. In addition, we
plan to post this letter on our Web site
and will announce these changes
through our regular open door forums.
Comment: A number of commenters
expressed support for our proposed
rule. One viewed it as a compromise
between methods required for private,
public, and non-profit entities and
thought its simplicity will help to
maintain consistency. Another felt it
would fairly reflect the actual costs,
mitigate year-to-year volatility, and
encourage adequate funding. One
commenter agreed with our decision to
eliminate actuarial based measurements
because they were too complex and lead
to inconsistency. A number of
commenters noted that the Medicare
wage index methodology ‘‘should be
transparent so that it can be easily
reviewed and replicated by providers
and other constituents, which allows
providers and others to have confidence
in the resulting indices.’’
Response: We appreciate the
commenters’ support of our proposal.
Our final policy is intended to be one
of simplicity that will help maintain
consistency. We believe that this final
policy will satisfy the objectives of a
transparent methodology for including
pension costs in the wage index.
Comment: One commenter expressed
concern that our proposal would hurt
financially strapped hospitals that
cannot afford to fund their plans.
Another commenter believed that the
proposal in the proposed rule would
understate wage related costs in periods
when a provider was not able to fund,
and overstate wage costs in other
periods. One commenter was concerned
that the proposal in the proposed rule
would ‘‘incent a hospital to ‘over fund’
their plan in a particular year to
increase its hourly rate.’’ One
commenter stated that our policy will
penalize good management of
investments while rewarding bad
management.
Response: Our policy is that costs
must be funded to be reportable for
Medicare purposes. Some providers
have no legal obligation to fund their
pension liabilities. There may be
organizations that cannot afford to
maintain their plan and will ultimately
terminate the plan with unfunded
liabilities. Moreover, some liabilities
reflected in current period costs may
never materialize due to future gains or
benefit cutbacks.
We understand that the level of
funding will vary from one period to the
next due to financial constraints or
other factors, but believe that the 3-year
average will help to limit volatility
caused by short-term fluctuations.
We do not believe that Medicare wage
index policy will have a material effect
on the ultimate level of pension plan
funding. Because pension contributions
made to a qualified trust are generally
irrevocable and most providers have
limited financial resources, significant
overfunding is not likely to occur solely
because of Medicare wage index policy.
Over the long term, pension costs may
increase or decrease due to changes in
plan coverage, benefit levels, or gains
and losses from investment performance
or other sources. However, these
changes would ultimately affect the
level of future pension costs regardless
of how those costs have been reported
in the past. Thus, we do not expect that
providers will choose investments with
poor returns or elevate their
contribution levels for the sole purpose
of increasing their wage index.
Comment: Several commenters
requested clarification on technical
aspects of the proposed rule on timing
or procedural issues. There was
confusion regarding the treatment of
payments made after the end of a fiscal
year but within the 1-year period (or 3
years with extension) permitted under
the liquidation of liabilities provision in
section 2305 of PRM–I.
Response: The pension cost to be
reflected in the wage index will be
reported on Worksheet S–3, Part II and
will equal the average contributions
paid, on a cash basis, over the
applicable 3-year period (plus any
prefunding installment discussed
above). The applicable period for the 3year average includes the current cost
reporting period applicable to the wage
index (4 year lag), and the periods
immediately preceding and immediately
following the applicable wage index
reporting period. The 3-year average is
reportable even if it exceeds the current
period contribution. There is no
requirement to demonstrate that the 3year average, prefunding installment or
the amount funded in any particular
period are necessary to satisfy a liability
under ERISA or any other actuarial
basis. Since actuarial measurements are
not used to compute pension costs
under the final policy, there is no longer
a need for a crosswalk between the
different terminology used by IRS and
GAAP.
For a new plan, the averaging period
will be limited to the number of years
the plan was in effect. If there is a
merger (plan or corporate),
contributions should include a
provider’s pension plan payments made
either to a predecessor plan or the
current plan during the applicable 3year period. Increased costs attributable
to benefit improvements will be
recognized when funded. This is
consistent with the amortization of costs
associated with plan changes under
GAAP and ERISA.
The actual funded amounts for each
cost reporting period to be included in
the average will not necessarily appear
on the cost report for the period in
which they were made. We are
considering modifications to the cost
report to allow for reporting of current
period contributions. Instead, provider
will be required to obtain contribution
data from the pension trustee, insurance
carrier, Schedule B or SB of IRS Form
5500, and, if applicable, from
accounting records showing the
allocation of total plan contributions to
each participating provider. These
records should be maintained as needed
for subsequent periods.
The following is an example of the
calculation of pension cost to be
included in the FY 2013 wage index
calculation for a hospital with a June 30
fiscal year end and a June 30 cost
reporting period:
Provider fiscal year
Wage index year
Beginning
2007
2008
2009
2010
.........................................................................................
.........................................................................................
.........................................................................................
.........................................................................................
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7/1/2004
7/1/2005
7/1/2006
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Ending
6/30/2004
6/30/2005
6/30/2006
6/30/2007
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Total pension contributions
Reported wage
index pension cost
$3,200,000
not available
1,300,000
2,700,000
$2,500,000
2,800,000
800,000
3,000,000
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Provider fiscal year
Wage index year
Beginning
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2011 .........................................................................................
2012 .........................................................................................
2013 .........................................................................................
Since this hospital can only produce
supporting documentation of
contributions for the continuous fiscal
years beginning 2005 through 2008, the
determination of the prefunding balance
must exclude contributions from fiscal
years beginning (FYB) in 2003 and 2004.
The sum of contributions made during
FYB in 2005 through 2008 is
$11,100,000. The sum of pension costs
reflected in the wage index for FYB in
2005 through 2008 is $7,600,000. The
prefunding balance is $3,500,000
($11,100,000—$7,600,000) and the
prefunding installment is $350,000
($3,500,000/10). The $350,000
prefunding installment can be added to
the pension costs reported each year for
the FY 2013 through FY 2022 wage
index.
In this illustration, the hospital
determines the 3-year average pension
contribution for the FY 2013 wage index
is $2,000,000 based on cash
contributions made during FYB in 2008,
2009, and 2010. It should report pension
costs of $2,350,000 (the sum of the
current 3-year average contribution of
$2,000,000 [($1,000,000 + $3,000,000 +
$2,000,000) 3] plus the prefunding
installment of $350,000) on Worksheet
S–3, Part II for the FY 2013 wage index.
For audit purposes, the hospital must
retain and make available its supporting
documentation for the 3-year average,
the prefunding balance and prefunding
installment.
We note that contributions are to be
determined on a cash basis rather than
an accrual basis. Since there is no
recognition of funding which occurs
after June 30, 2011, all of the data
needed to determine the pension cost
for the FY 2013 wage index will be
readily available when the reporting
process begins in October 2011. Under
this final policy, neither section 2142
nor 2305 will be applicable for wage
index purposes.
Comment: One commenter believed
that we may be ‘‘attempting retroactive
rulemaking.’’ Another commenter stated
that ‘‘if it goes forward with the
proposal or a revised version of the
proposal, CMS should do so in a
prospective manner * * * CMS should
apply it only as of the FY 2016 wage
index (which would, if using a 3-year
rolling average, include pension costs
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7/1/2007
7/1/2008
7/1/2009
7/1/2010
Ending
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Reported wage
index pension cost
4,100,000
3,000,000
1,000,000
2,000,000
3,600,000
200,000
..............................
..............................
6/30/2008
6/30/2009
6/30/2010
6/30/2011
from cost reporting periods beginning
during Federal fiscal years 2011, 2012
and 2013).’’
Response: We disagree with the
commenter that our policy represents
retroactive rulemaking. We proposed
this change through notice and
comment rulemaking and have given
the public sufficient time to provide
input through public comments before
making any policy change concerning
the reporting of pension costs under the
wage index. The use of data from prior
periods to implement prospective policy
changes does not constitute retroactive
rulemaking. Therefore, we believe we
have applied this policy change
prospectively.
Comment: One commenter
recommended that there should be
specific statements in the cost report
that pension costs for cost-finding will
be treated differently from pension costs
for the wage index. The commenter also
suggested separate PRM cost reporting
instructions for the Medicare cost report
versus the Medicare wage index, given
that there will be separate
methodologies for determining pension
costs.
Response: CMS is implementing
different pension cost policies for wage
index and cost finding purposes.
Accordingly, the PRM will be revised to
include separate and distinct pension
cost provisions for wage index and costfinding purposes.
We would like to thank the provider
community for their public comments
on the proposed rule for reporting
pension costs for Medicare wage index
purposes. After considering their
concerns and suggestions, we are
finalizing our policy with modifications
for reporting pension costs for Medicare
wage index purposes. The final policy is
effective for the FY 2013 wage index for
which the wage index process begins in
October 2011.
Under the final policy, the pension
cost to be included in the wage index
equals a hospital’s average cash
contributions deposited to its defined
benefit pension plan over a 3-year
period, or number of years that the
hospital has sponsored a defined benefit
plan if less than 3 years. Any reversion
or other withdrawal of assets from the
pension fund or trust is treated as a
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Total pension contributions
negative contribution for purposes of
measuring the 3-year average. The 3year average is centered on the base cost
reporting period for the wage index. For
example, the FY 2013 wage index will
be based on Medicare cost reporting
periods beginning during FFY 2009 and
will reflect the average pension
contributions made in hospitals’ cost
reporting periods beginning during
FFYs 2008, 2009, and 2010.
In response to the public comments as
discussed above, we are finalizing a
transition policy that permits a hospital
to determine a ‘‘prefunding balance’’
based on pension contributions made
but not reflected in the wage index
during certain prior periods. Our
transition policy will allow providers to
establish a prefunding balance equal to
(A) minus (B), where (A) is the sum of
cash contributions made during a period
of consecutive provider cost reporting
periods commencing no earlier than
October 1, 2002 (the cost reporting
period applicable for the FY 2007 wage
index), and ending with the cost
reporting period applicable for the FY
2012 wage index, and (B) is the sum of
pension costs actually reflected in the
wage index for the same cost reporting
periods.
The transition policy permits a
hospital to include 1/10th of the
prefunding balance in the wage index
pension cost each year commencing
with the FY 2013 wage index and
ending with the FY 2022 wage index,
that is, in 10 equal prefunding
installments. Any prefunding
installment that is not included in the
wage index pension cost for the current
year cannot be reassigned and added to
the wage index pension cost of any
subsequent year.
3. Excluded Categories of Costs
Consistent with the wage index
methodology for FY 2011, the wage
index for FY 2012 also excludes the
direct and overhead salaries and hours
for services not subject to IPPS payment,
such as SNF services, home health
services, costs related to GME (teaching
physicians and residents) and certified
registered nurse anesthetists (CRNAs),
and other subprovider components that
are not paid under the IPPS. The FY
2012 wage index also excludes the
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salaries, hours, and wage-related costs
of hospital-based rural health clinics
(RHCs), and Federally qualified health
centers (FQHCs) because Medicare pays
for these costs outside of the IPPS (68
FR 45395). In addition, salaries, hours,
and wage-related costs of CAHs are
excluded from the wage index, for the
reasons explained in the FY 2004 IPPS
final rule (68 FR 45397).
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4. Use of Wage Index Data by Providers
Other Than Acute Care Hospitals under
the IPPS
Data collected for the IPPS wage
index are also currently used to
calculate wage indices applicable to
other providers, such as SNFs, home
health agencies (HHAs), and hospices.
In addition, they are used for
prospective payments to IRFs, IPFs, and
LTCHs, and for hospital outpatient
services. We note that, in the IPPS rules,
we do not address comments pertaining
to the wage indices for non-IPPS
providers, other than for LTCHs. Such
comments should be made in response
to separate proposed rules for those
providers.
E. Verification of Worksheet S–3 Wage
Data
The wage data for the FY 2012 wage
index were obtained from Worksheet S–
3, Parts II and III of the Medicare cost
report for cost reporting periods
beginning on or after October 1, 2007,
and before October 1, 2008. For wage
index purposes, we refer to cost reports
during this period as the ‘‘FY 2008 cost
report,’’ the ‘‘FY 2008 wage data,’’ or the
‘‘FY 2008 data.’’ Instructions for
completing Worksheet S–3, Parts II and
III are in the Provider Reimbursement
Manual (PRM), Part II, sections 3605.2
and 3605.3. The data file used to
construct the wage index includes FY
2008 data submitted to us as of June 27,
2011. As in past years, we performed an
intensive review of the wage data,
mostly through the use of edits designed
to identify aberrant data.
We asked our fiscal intermediaries/
MACs to revise or verify data elements
that result in specific edit failures. For
the proposed FY 2012 wage index, we
identified and excluded 23 providers
with data that was too aberrant to
include in the proposed wage index,
although we stated that if data elements
for some of these providers are
corrected, we intended to include some
of these providers in the FY 2012 final
wage index. We have received corrected
data for seven providers, and therefore,
we are including the data for these
seven providers in the FY 2012 final
wage index. However, we have also
determined that the data for three
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additional providers are too aberrant to
include in the FY 2012 final wage
index. Thus, in total, we are excluding
the data of 27 (23 + 7—3) providers from
the FY 2012 final wage index.
In constructing the FY 2012 wage
index, we included the wage data for
facilities that were IPPS hospitals in FY
2008, inclusive of those facilities that
have since terminated their
participation in the program as
hospitals, as long as those data did not
fail any of our edits for reasonableness.
We believe that including the wage data
for these hospitals is, in general,
appropriate to reflect the economic
conditions in the various labor market
areas during the relevant past period
and to ensure that the current wage
index represents the labor market area’s
current wages as compared to the
national average of wages. However, we
excluded the wage data for CAHs as
discussed in the FY 2004 IPPS final rule
(68 FR 45397). In the proposed rule, we
removed 19 hospitals that converted to
CAH status between February 16, 2010,
the cut-off date for CAH exclusion from
the FY 2011 wage index, and February
15, 2011, the cut-off date for CAH
exclusion from the FY 2012 wage index.
However, since the issuance of the
proposed rule, we have learned of four
additional hospitals that have converted
to CAH status between February 16,
2010, and February 15, 2011. We have
excluded the wage data of these four
hospitals as well. After removing
hospitals with aberrant data and
hospitals that converted to CAH status,
the FY 2012 final wage index is
calculated based on 3,489 hospitals.
In the FY 2008 final rule with
comment period (72 FR 47317) and the
FY 2009 IPPS final rule (73 FR 48582),
we discussed our policy for allocating a
multicampus hospital’s wages and
hours data, by full-time equivalent
(FTE) staff, among the different labor
market areas where its campuses are
located. During the FY 2011 wage index
desk review process, we requested fiscal
intermediaries/MACs to contact
multicampus hospitals that had
campuses in different labor market areas
to collect the data for the allocation. The
FY 2011 wage index included separate
wage data for campuses of three
multicampus hospitals.
For FY 2012, as we discussed in the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50168), and as we proposed, we are
no longer allowing hospitals to use
discharge data for the allocation of a
multicampus hospital’s wage data
among the different labor market areas
where its campuses are located. The
Medicare cost report was updated in
May 2008 to provide for the reporting of
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Sfmt 4700
51591
FTE data by campus for multicampus
hospitals (Form CMS–2552–96,
Worksheet S–2, lines 61 and 62). The
data from cost reporting periods that
begin in FY 2008 are now available for
calculating the wage index for FY 2012.
Therefore, a multicampus hospital will
not have the option to use either FTE or
discharge data for allocating wage data
among its campuses by providing the
information from the applicable cost
reporting period to CMS through its
fiscal intermediary/MAC. Table 2 for the
FY 2012 wage index, which is listed in
section VI. of the Addendum to this
proposed rule and available via the
Internet, includes separate wage data for
campuses of three multicampus
hospitals.
F. Method for Computing the FY 2012
Unadjusted Wage Index
1. Steps for Computation
The method used to compute the FY
2012 wage index without an
occupational mix adjustment follows:
Step 1—As noted above, we based the
proposed FY 2012 wage index on wage
data reported on the FY 2008 Medicare
cost reports. We gathered data from each
of the non-Federal, short-term, acute
care hospitals for which data were
reported on the Worksheet S–3, Parts II
and III of the Medicare cost report for
the hospital’s cost reporting period
beginning on or after October 1, 2007,
and before October 1, 2008. In addition,
we included data from some hospitals
that had cost reporting periods
beginning before October 2007 and
reported a cost reporting period
covering all of FY 2008. These data are
included because no other data from
these hospitals would be available for
the cost reporting period described
above, and because particular labor
market areas might be affected due to
the omission of these hospitals.
However, we generally describe these
wage data as FY 2008 data. We note
that, if a hospital had more than one
cost reporting period beginning during
FY 2008 (for example, a hospital had
two short cost reporting periods
beginning on or after October 1, 2007,
and before October 1, 2008), we
included wage data from only one of the
cost reporting periods, the longer, in the
wage index calculation. If there was
more than one cost reporting period and
the periods were equal in length, we
included the wage data from the later
period in the wage index calculation.
Step 2—Salaries—The method used to
compute a hospital’s average hourly
wage excludes certain costs that are not
paid under the IPPS. (We note that,
beginning with FY 2008 (72 FR 47315),
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we include Lines 22.01, 26.01, and
27.01 of Worksheet S–3, Part II for
overhead services in the wage index.
However, we note that the wages and
hours on these lines are not
incorporated into Line 101, Column 1 of
Worksheet A, which, through the
electronic cost reporting software, flows
directly to Line 1 of Worksheet S–3, Part
II. Therefore, the first step in the wage
index calculation for FY 2011 is to
compute a ‘‘revised’’ Line 1, by adding
to the Line 1 on Worksheet S–3, Part II
(for wages and hours respectively) the
amounts on Lines 22.01, 26.01, and
27.01.) In calculating a hospital’s
average salaries plus wage-related costs,
we subtract from Line 1 (total salaries)
the GME and CRNA costs reported on
Lines 2, 4.01, 6, and 6.01, the Part B
salaries reported on Lines 3, 5 and 5.01,
home office salaries reported on Line 7,
and exclude salaries reported on Lines
8 and 8.01 (that is, direct salaries
attributable to SNF services, home
health services, and other subprovider
components not subject to the IPPS). We
also subtract from Line 1 the salaries for
which no hours were reported. To
determine total salaries plus wagerelated costs, we add to the net hospital
salaries the costs of contract labor for
direct patient care, certain top
management, pharmacy, laboratory, and
nonteaching physician Part A services
(Lines 9 and 10), home office salaries
and wage-related costs reported by the
hospital on Lines 11 and 12, and
nonexcluded area wage-related costs
(Lines 13, 14, and 18).
We note that contract labor and home
office salaries for which no
corresponding hours are reported are
not included. In addition, wage-related
costs for nonteaching physician Part A
employees (Line 18) are excluded if no
corresponding salaries are reported for
those employees on Line 4.
Step 3—Hours—With the exception of
wage-related costs, for which there are
no associated hours, we compute total
hours using the same methods as
described for salaries in Step 2.
Step 4—For each hospital reporting
both total overhead salaries and total
overhead hours greater than zero, we
then allocate overhead costs to areas of
the hospital excluded from the wage
index calculation. First, we determine
the ratio of excluded area hours (sum of
Lines 8 and 8.01 of Worksheet S–3, Part
II) to revised total hours (Line 1 minus
the sum of Part II, Lines 2, 3, 4.01, 5,
5.01, 6, 6.01, 7, and Part III, Line 13 of
Worksheet S–3). We then compute the
amounts of overhead salaries and hours
to be allocated to excluded areas by
multiplying the above ratio by the total
overhead salaries and hours reported on
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Line 13 of Worksheet S–3, Part III. Next,
we compute the amounts of overhead
wage-related costs to be allocated to
excluded areas using three steps: (1) we
determine the ratio of overhead hours
(Part III, Line 13 minus the sum of lines
22.01, 26.01, and 27.01) to revised hours
excluding the sum of lines 22.01, 26.01,
and 27.01 (Line 1 minus the sum of
Lines 2, 3, 4.01, 5, 5.01, 6, 6.01, 7, 8,
8.01, 22.01, 26.01, and 27.01). (We note
that for the FY 2008 and subsequent
wage index calculations, we are
excluding the sum of lines 22.01, 26.01,
and 27.01 from the determination of the
ratio of overhead hours to revised hours
because hospitals typically do not
provide fringe benefits (wage-related
costs) to contract personnel. Therefore,
it is not necessary for the wage index
calculation to exclude overhead wagerelated costs for contract personnel.
Further, if a hospital does contribute to
wage-related costs for contracted
personnel, the instructions for Lines
22.01, 26.01, and 27.01 require that
associated wage-related costs be
combined with wages on the respective
contract labor lines.); (2) we compute
overhead wage-related costs by
multiplying the overhead hours ratio by
wage-related costs reported on Part II,
Lines 13, 14, and 18; and (3) we
multiply the computed overhead wagerelated costs by the above excluded area
hours ratio. Finally, we subtract the
computed overhead salaries, wagerelated costs, and hours associated with
excluded areas from the total salaries
(plus wage-related costs) and hours
derived in Steps 2 and 3.
Step 5—For each hospital, we adjust
the total salaries plus wage-related costs
to a common period to determine total
adjusted salaries plus wage-related
costs. To make the wage adjustment, we
estimate the percentage change in the
employment cost index (ECI) for
compensation for each 30-day
increment from October 14, 2005,
through April 15, 2007, for private
industry hospital workers from the BLS’
Compensation and Working Conditions.
We use the ECI because it reflects the
price increase associated with total
compensation (salaries plus fringes)
rather than just the increase in salaries.
In addition, the ECI includes managers
as well as other hospital workers. This
methodology to compute the monthly
update factors uses actual quarterly ECI
data and assures that the update factors
match the actual quarterly and annual
percent changes. We also note that,
since April 2006 with the publication of
March 2006 data, the BLS’ ECI uses a
different classification system, the North
American Industrial Classification
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Fmt 4701
Sfmt 4700
System (NAICS), instead of the Standard
Industrial Codes (SICs), which no longer
exist. We have consistently used the ECI
as the data source for our wages and
salaries and other price proxies in the
IPPS market basket, and we are not
making any changes to the usage for FY
2012. The factors used to adjust the
hospital’s data were based on the
midpoint of the cost reporting period, as
indicated below.
MIDPOINT OF COST REPORTING
PERIOD
After
10/14/2007
11/14/2007
12/14/2007
01/14/2008
02/14/2008
03/14/2008
04/14/2008
05/14/2008
06/14/2008
07/14/2008
08/14/2008
09/14/2008
10/14/2008
11/14/2008
12/14/2008
01/14/2009
02/14/2009
03/14/2009
Adjustment
factor
Before
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
11/15/2007
12/15/2007
01/15/2008
02/15/2008
03/15/2008
04/15/2008
05/15/2008
06/15/2008
07/15/2008
08/15/2008
09/15/2008
10/15/2008
11/15/2008
12/15/2008
01/15/2009
02/15/2009
03/15/2009
04/15/2009
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
....
1.03990
1.03699
1.03402
1.03113
1.02831
1.02555
1.02286
1.02024
1.01766
1.01511
1.01258
1.01015
1.00787
1.00575
1.00375
1.00183
1.00000
0.99820
For example, the midpoint of a cost
reporting period beginning January 1,
2008, and ending December 31, 2008, is
June 30, 2008. An adjustment factor of
1.01766 would be applied to the wages
of a hospital with such a cost reporting
period. In addition, for the data for any
cost reporting period that began in FY
2008 and covered a period of less than
360 days or more than 370 days, we
annualize the data to reflect a 1-year
cost report. Dividing the data by the
number of days in the cost report and
then multiplying the results by 365
accomplishes annualization.
Step 6—Each hospital is assigned to
its appropriate urban or rural labor
market area before any reclassifications
under section 1886(d)(8)(B), section
1886(d)(8)(E), or section 1886(d)(10) of
the Act. Within each urban or rural
labor market area, we add the total
adjusted salaries plus wage-related costs
obtained in Step 5 for all hospitals in
that area to determine the total adjusted
salaries plus wage-related costs for the
labor market area.
Step 7—We divide the total adjusted
salaries plus wage-related costs obtained
under both methods in Step 6 by the
sum of the corresponding total hours
(from Step 4) for all hospitals in each
labor market area to determine an
average hourly wage for the area.
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Step 8—We add the total adjusted
salaries plus wage-related costs obtained
in Step 5 for all hospitals in the Nation
and then divide the sum by the national
sum of total hours from Step 4 to arrive
at a national average hourly wage. Using
the data as described above, the national
average hourly wage (unadjusted for
occupational mix) is $36.2784.
Step 9—For each urban or rural labor
market area, we calculate the hospital
wage index value, unadjusted for
occupational mix, by dividing the area
average hourly wage obtained in Step 7
by the national average hourly wage
computed in Step 8.
Step 10—Following the process set
forth above, we develop a separate
Puerto Rico-specific wage index for
purposes of adjusting the Puerto Rico
standardized amounts. (The national
Puerto Rico standardized amount is
adjusted by a wage index calculated for
all Puerto Rico labor market areas based
on the national average hourly wage as
described above.) We add the total
adjusted salaries plus wage-related costs
(as calculated in Step 5) for all hospitals
in Puerto Rico and divide the sum by
the total hours for Puerto Rico (as
calculated in Step 4) to arrive at an
overall average hourly wage (unadjusted
for occupational mix) of $15.3899 for
Puerto Rico. For each labor market area
in Puerto Rico, we calculate the Puerto
Rico-specific wage index value by
dividing the area average hourly wage
(as calculated in Step 7) by the overall
Puerto Rico average hourly wage.
Step 11—Section 4410 of Public Law
105–33 provides that, for discharges on
or after October 1, 1997, the area wage
index applicable to any hospital that is
located in an urban area of a State may
not be less than the area wage index
applicable to hospitals located in rural
areas in that State. The areas affected by
this provision are identified in Table 4D
which is listed in section VI. of the
Addendum to this final rule and
available via the Internet.
In the FY 2012 IPPS/LTCH PPS
proposed rule, we made no proposals
for changing our policies pertaining to
the rural floor provision. However, we
received several public comments,
particularly regarding the FY 2012 rural
floor wage index for Massachusetts,
which was discussed in section VI.B.7.
of Appendix A (76 FR 26059 and 26060)
as part of the regulatory impact analysis
for the proposed rule.
Comment: Some commenters stated
that CMS had correctly calculated the
Massachusetts rural floor wage index in
accordance with existing law and
regulations. One commenter agreed with
the basic policy and premise of the rural
floor limit but opined that all hospitals
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in Massachusetts receiving a significant
increase in Medicare revenues as a
result of a small hospital converting to
an acute care provider is inconsistent
with the intent and spirit of the law.
The commenter suggested that CMS
revisit its regulatory and policy options
as it relates to section 4410 of the BBA.
The MedPAC stated that the
Massachusetts rural floor situation is
suggestive of why a new wage index
system is needed, adding that the
current system is not equitable because
extra payments made to hospitals
receiving such exceptions are budget
neutral; therefore, all hospitals must
absorb the cost. A national hospital
association requested that CMS provide
a table indicating the state-by-state
impact of the rural floor provision for
providers in each state, including a
schedule of what the area wage indexes
would be if the rural floor was not
applied. The commenter also suggested
that CMS publish this information
annually.
Response: Beginning with this FY
2012 IPPS–LTCH final rule, we are
including in the impact section of
Appendix A of both the proposed and
final rules a table indicating State level
impacts of the rural floor provision. For
FY 2012, this table includes the impacts
of both the rural and imputed floors, as
discussed under section III.F.2. of this
preamble. In addition, we are revising
Table 4D of the Addendum, which
specifies the wage index for States or
urban areas receiving the frontier, rural,
or imputed floor, to include a column
indicating the pre-floor area wage index.
We will consider the commenters’ other
suggestions as part of our development
of the Report to Congress on reforming
the wage index, required by section
3137(b) of the Affordable Care Act and
due to the Congress by December 31,
2011.
2. Imputed Floor Policy
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25878 and 25879),
we discussed the expiration of the
imputed floor policy. (We refer readers
to FY 2005 IPPS final rule (69 FR 49109
through 49111) for an explanation of
CMS’ adoption of the ‘‘imputed’’ floor
as a temporary 3-year regulatory
measure to address concerns that
hospitals in all-urban States were
disadvantaged by the absence of rural
hospitals to set a wage index floor in
those States; the FY 2008 IPPS final rule
with comment period (72 FR 47321) for
a discussion of the extension of the
imputed floor through FY 2008; and the
FY 2009 IPPS final rule (73 FR 48570
through 48574 and 48584) for a
discussion of the extension of the
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51593
imputed floor for an additional 3 years,
through FY 2011, due to applying
statewide budget neutrality for the rural
and imputed floors.) As noted in the FY
2012 IPPS/LTCH PPS proposed rule and
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50160), section 3141 of the
Affordable Care Act replaced the
statewide budget neutrality policy and
required that budget neutrality for the
rural and imputed floor be applied
‘‘through a uniform, national adjustment
to the area wage index’’ instead of
within each State beginning in FY 2011.
However, the Affordable Care Act did
not include a provision to extend the
imputed floor or to make the imputed
floor permanent.
As discussed in the FY 2008 IPPS
proposed rule and final rule with
comment period (72 FR 24786 and 72
FR 47322, respectively), the application
of the national budget neutrality
requirement for the rural and imputed
floors requires a transfer of payments
from hospitals in States with rural
hospitals but where the rural floor is not
applied to hospitals in States where the
rural or imputed floor is applied. In the
final FY 2012 wage index, the rural floor
will apply to 297 hospitals in 29 States.
Continuing the imputed floor policy
into FY 2012 results in an imputed floor
applied for 39 hospitals in New Jersey.
In the FY 2012 IPPS/LTCH PPS
proposed rule, we did not propose to
extend the imputed floor but sought
public comments regarding the
expiration of the imputed floor.
Comment: Although a few
commenters, including a national
hospital association, supported CMS
making no proposal to extend the
imputed floor policy and agreed that
this type of floor benefits only one State
at the expense of all others, applies even
though there are no rural areas in the
State, and should apply only when
required by statute, several commenters
requested that CMS extend the current
imputed floor policy. These
commenters, including a national
hospital association and a few State
hospital associations, noted that, absent
any new wage index policies that
address the original need for the
imputed floor, an imputed floor should
be continued. Some of the commenters
suggested that CMS make the imputed
floor policy permanent. They asserted
that hospitals in all-urban States suffer
financial and competitive
disadvantages, and they believed that
CMS’ permanent adoption of an
imputed floor policy would remedy
these disadvantages. The commenters
stated that other States could potentially
benefit from the imputed floor in the
future should their circumstances
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change, and the fact that only one State
currently benefits from the policy
should not serve as CMS’ rationale for
eliminating it. One commenter also
suggested that if the imputed floor is to
expire, it should be phased out over
several years to avoid dramatic cost
cutting and elimination of vital services.
Response: In response to commenters’
concerns regarding the proposed
September 30, 2011 expiration of the
imputed floor, we have decided to
extend the policy for 2 additional years,
for FYs 2012 and 2013 (that is, through
September 30, 2013), after which time
we will reevaluate the policy. We
believe that continuing the current
imputed floor policy through FY 2013 is
a reasonable accommodation for the
hospitals that have benefited from the
imputed floor. Also, a 2-year extension
period coincides with the requirement
under section 3137(c) of Public Law
111–148 that CMS must apply the
reclassification average hourly wage
comparison standards that were in place
during FY 2008 ‘‘until the first fiscal
year beginning on or after the date that
is one year after the Secretary of Health
and Human Services submits a report to
Congress on reforming the wage index
under 3137(b) of Public Law 111–148.’’
(We refer readers to a complete
discussion of this requirement in the FY
2011 IPPS/LTCH PPS supplemental
proposed rule (75 FR 30919).) The
report to Congress is due by December
31, 2011. Therefore, because the first
fiscal year beginning after December 31,
2012 (a year after the report to Congress
is due) starts on October 1, 2013, CMS
cannot make any changes to the
reclassification average hourly wage
comparison standards before FY 2014.
Given our current study of the entire
wage index system, including
geographic reclassification and the rural
and imputed floor policies, we believe
it is reasonable to continue the current
imputed floor policy through the same
evaluation period specified under
section 3137(c) of Public Law 111–148.
Therefore, in this FY 2012 final rule,
we are providing an extension of the
current imputed floor policy, including
a national budget neutrality adjustment,
through FY 2013 (that is, through
September 30, 2013). Accordingly, we
also have revised the Medicare
regulations in § 412.64(h)(4) to reflect
this extension. We note that, although
the extension of the imputed floor
policy in this final rule is partially
based on the due date of the report to
Congress under section 3137(b) of
Public Law 111–148 and the time period
for which CMS is prohibited from
making any changes to the FY 2008
reclassification average hourly wage
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comparison standards, under 3137(c) of
Public Law 111–148, this extension of
the imputed floor policy is effective
through the end of FY 2013, regardless
of any changes that may be
subsequently made pursuant to these
statutory provisions.
Thus, the final FY 2012 wage index
and impact tables associated with this
final rule and published on CMS’ Web
site include the application of the
imputed floor policy and a national
budget neutrality adjustment for the
imputed floor. As mentioned above, 39
providers in New Jersey will receive an
increase in their FY 2012 wage index
due to the imputed floor policy.
3. FY 2012 Puerto Rico Wage Index
We note that, for the FY 2012 wage
index, there is one new hospital in rural
Puerto Rico when previously there were
none. However, this hospital has no cost
reporting period beginning during FY
2008 and, therefore, has no wage data
for inclusion in the FY 2012 wage index
calculation for rural Puerto Rico. We
discussed in the FY 2005 IPPS final rule
that the imputed floor policy in
§ 412.64(h)(4) of the regulations does
not apply to Puerto Rico hospitals (69
FR 49111). (We note that in this
discussion in the FY 2012 IPPS/LTCH
PPS proposed rule, we incorrectly stated
that the imputed floor policy would
apply to Puerto Rico. We have revised
the discussion in the preamble of this
final rule to accurately reflect our
policies.) However, we adopted the
policy in the FY 2008 IPPS final rule
with comment period (72 FR 47323) that
if there are no hospitals’ cost report
wage data available to calculate a State’s
rural floor, and the imputed floor policy
has expired (or, in the case of Puerto
Rico, the imputed floor is not
applicable), ‘‘we will use the
unweighted average of the wage indices
from all CBSAs (urban areas) that are
contiguous to the rural counties of the
State to compute the State’s rural floor.
(We define contiguous as sharing a
border.)’’ Except for Fajardo, Puerto
Rico (CBSA 21940), all other Puerto
Rico urban areas are contiguous to a
rural area. Therefore, based on our
existing policy, the FY 2012 rural Puerto
Rico wage index is calculated based on
the average of the FY 2012 wage indices
for the following urban areas: AguadillaIsabela-San Sebastia´n, PR (CBSA
10380); Guayama, PR (CBSA 25020);
Mayagu¨ez, PR (CBSA 32420); Ponce, PR
(CBSA 38660), San Germa´n-Cabo Rojo,
PR (CBSA 41900), San Juan-CaguasGuaynabo, PR (CBSA 41980), and
Yauco, PR (CBSA 49500).
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G. Analysis and Implementation of the
Occupational Mix Adjustment and the
FY 2012 Occupational Mix Adjusted
Wage Index
As discussed in section III.C. of this
preamble, for FY 2012, we apply the
occupational mix adjustment to 100
percent of the FY 2012 wage index. We
calculated the occupational mix
adjustment using data from the 2007–
2008 occupational mix survey data,
using the methodology described in
section III.C.3. of this preamble.
Using the occupational mix survey
data and applying the occupational mix
adjustment to 100 percent of the FY
2012 wage index results in a national
average hourly wage of $36.2481 and a
Puerto-Rico specific average hourly
wage of $15.4142. After excluding data
of hospitals that either submitted
aberrant data that failed critical edits, or
that do not have FY 2008 Worksheet S–
3 cost report data for use in calculating
the FY 2012 wage index, we calculated
the FY 2012 wage index using the
occupational mix survey data from
3,168 hospitals. Using the Worksheet S–
3 cost report data of 3,489 hospitals and
occupational mix survey data from
3,168 hospitals represents a 90.8 percent
survey response rate. The FY 2012
national average hourly wages for each
occupational mix nursing subcategory
as calculated in Step 2 of the
occupational mix calculation are as
follows:
Occupational mix nursing
subcategory
Average hourly
wage
National RN ........................
National LPN and Surgical
Technician .......................
National Nurse Aide, Orderly, and Attendant ........
National Medical Assistant
National Nurse Category ....
$36.075785685
20.860811964
14.619464256
16.443954736
30.463606009
The national average hourly wage for
the entire nurse category as computed in
Step 5 of the occupational mix
calculation is $30.463606009. Hospitals
with a nurse category average hourly
wage (as calculated in Step 4) of greater
than the national nurse category average
hourly wage receive an occupational
mix adjustment factor (as calculated in
Step 6) of less than 1.0. Hospitals with
a nurse category average hourly wage (as
calculated in Step 4) of less than the
national nurse category average hourly
wage receive an occupational mix
adjustment factor (as calculated in Step
6) of greater than 1.0.
Based on the 2007–2008 occupational
mix survey data, we determined (in Step
7 of the occupational mix calculation)
that the national percentage of hospital
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employees in the nurse category is 44.31
percent, and the national percentage of
hospital employees in the all other
occupations category is 55.69 percent.
At the CBSA level, the percentage of
hospital employees in the nurse
category ranged from a low of 29.08
percent in one CBSA, to a high of 70.76
percent in another CBSA.
We compared the FY 2012
occupational mix adjusted wage indices
for each CBSA to the unadjusted wage
indices for each CBSA. As a result of
applying the occupational mix
adjustment to the wage data, the wage
index values for 209 (53.5 percent)
urban areas and 32 (66.7 percent) rural
areas would increase. One hundred nine
(27.9 percent) urban areas would
increase by 1 percent or more, and 5 (1.3
percent) urban areas would increase by
5 percent or more. Seventeen (35.4
percent) rural areas would increase by 1
percent or more, and no rural areas
would increase by 5 percent or more.
However, the wage index values for 182
(46.5 percent) urban areas and 16 (33.3
percent) rural areas would decrease.
Eighty-nine (22.8 percent) urban areas
would decrease by 1 percent or more,
and no urban area would decrease by 5
percent or more. Seven (14.6 percent)
rural areas would decrease by 1 percent
or more, and no rural areas would
decrease by 5 percent or more. The
largest positive impacts are 7.83 percent
for an urban area and 2.91 percent for
a rural area. The largest negative
impacts are 4.45 percent for an urban
area and 2.78 percent for a rural area.
No urban or rural areas are unaffected.
These results indicate that a larger
percentage of rural areas (66.7 percent)
would benefit from the occupational
mix adjustment than do urban areas
(53.5 percent). While these results are
more positive overall for rural areas
than under the previous occupational
mix adjustment that used survey data
from 2006, approximately one-third
(33.3 percent) of rural CBSAs would
still experience a decrease in their wage
indices as a result of the occupational
mix adjustment.
The wage index values for FY 2012
(except those for hospitals receiving
wage index adjustments under section
1886(d)(13) of the Act) included in
Tables 4A, 4B, 4C, and 4F, which are
listed in section VI. of the Addendum to
this final rule and available via the
Internet, include the occupational mix
adjustment.
Tables 3A and 3B, which are listed in
section VI. of the Addendum to this
final rule and available via the Internet,
list the 3-year average hourly wage for
each labor market area before the
redesignation or reclassification of
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hospitals based on FYs 2010, 2011, and
2012 cost reporting periods. Table 3A
lists these data for urban areas, and
Table 3B lists these data for rural areas.
In addition, Table 2, which is listed in
section VI. of the Addendum to this
final rule and available via the Internet,
includes the adjusted average hourly
wage for each hospital from the FY 2006
and FY 2007 cost reporting periods, as
well as the FY 2008 period used to
calculate the FY 2012 wage index. The
3-year averages are calculated by
dividing the sum of the dollars (adjusted
to a common reporting period using the
method described previously) across all
3 years, by the sum of the hours. If a
hospital is missing data for any of the
previous years, its average hourly wage
for the 3-year period is calculated based
on the data available during that period.
The average hourly wages in Tables 2,
3A, and 3B, which are listed in section
VI. of the Addendum to this final rule
and available via the Internet, 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.
H. Revisions to the Wage Index Based
on Hospital Redesignations and
Reclassifications
1. General
Under section 1886(d)(10) of the Act,
the MGCRB considers applications by
hospitals for geographic reclassification
for purposes of payment under the IPPS.
Hospitals must apply to the MGCRB to
reclassify 13 months prior to the start of
the fiscal year for which reclassification
is sought (generally by September 1).
Generally, hospitals must be proximate
to the labor market area to which they
are seeking reclassification and must
demonstrate characteristics similar to
hospitals located in that area. The
MGCRB issues its decisions by the end
of February for reclassifications that
become effective for the following fiscal
year (beginning October 1). The
regulations applicable to
reclassifications by the MGCRB are
located in 42 CFR 412.230 through
412.280. (We refer readers to a
discussion of the proximity
requirements in the FY 2002 IPPS final
rule (66 FR 39874 and 39875).)
Section 1886(d)(10)(D)(v) of the Act
provides that, beginning with FY 2001,
a MGCRB decision on a hospital
reclassification for purposes of the wage
index is effective for 3 fiscal years,
unless the hospital elects to terminate
the reclassification. Section
1886(d)(10)(D)(vi) of the Act provides
that the MGCRB must use average
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51595
hourly wage data from the 3 most
recently published hospital wage
surveys in evaluating a hospital’s
reclassification application for FY 2003
and any succeeding fiscal year.
Section 304(b) of Public Law 106–554
provides that the Secretary must
establish a mechanism under which a
statewide entity may apply to have all
of the geographic areas in the State
treated as a single geographic area for
purposes of computing and applying a
single wage index, for reclassifications
beginning in FY 2003. The
implementing regulations for this
provision are located at 42 CFR 412.235.
Section 1886(d)(8)(B) of the Act
requires the Secretary to treat a hospital
located in a rural county adjacent to one
or more urban areas as being located in
the labor market area to which the
greatest number of workers in the
county commute, if the rural county
would otherwise be considered part of
an urban area under the standards for
designating MSAs and if the commuting
rates used in determining outlying
counties were determined on the basis
of the aggregate number of resident
workers who commute to (and, if
applicable under the standards, from)
the central county or counties of all
contiguous MSAs. In light of the CBSA
definitions and the Census 2000 data
that we implemented for FY 2005 (69
FR 49027), we undertook to identify
those counties meeting these criteria.
Eligible counties are discussed and
identified under section III.H.5. of this
preamble.
2. Effects of Reclassification/
Redesignation
Section 1886(d)(8)(C) of the Act
provides that the application of the
wage index to redesignated hospitals is
dependent on the hypothetical impact
that the wage data from these hospitals
would have on the wage index value for
the area to which they have been
redesignated. These requirements for
determining the wage index values for
redesignated hospitals are applicable
both to the hospitals deemed urban
under section 1886(d)(8)(B) of the Act
and hospitals that were reclassified as a
result of the MGCRB decisions under
section 1886(d)(10) of the Act.
Therefore, as provided in section
1886(d)(8)(C) of the Act, the wage index
values were determined by considering
the following:
• If including the wage data for the
redesignated hospitals would reduce the
wage index value for the area to which
the hospitals are redesignated by 1
percentage point or less, the area wage
index value determined exclusive of the
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
wage data for the redesignated hospitals
applies to the redesignated hospitals.
• If including the wage data for the
redesignated hospitals reduces the wage
index value for the area to which the
hospitals are redesignated by more than
1 percentage point, the area wage index
determined inclusive of the wage data
for the redesignated hospitals (the
combined wage index value) applies to
the redesignated hospitals.
• If including the wage data for the
redesignated hospitals increases the
wage index value for the urban area to
which the hospitals are redesignated,
both the area and the redesignated
hospitals receive the combined wage
index value. Otherwise, the hospitals
located in the urban area receive a wage
index excluding the wage data of
hospitals redesignated into the area.
• Rural areas whose wage index
values would be reduced by excluding
the wage data for hospitals that have
been redesignated to another area
continue to have their wage index
values calculated as if no redesignation
had occurred (otherwise, redesignated
rural hospitals are excluded from the
calculation of the rural wage index). The
wage index value for a redesignated
rural hospital cannot be reduced below
the wage index value for the rural areas
of the State in which the hospital is
located.
CMS also has adopted the following
policies:
• The wage data for a reclassified
urban hospital is included in both the
wage index calculation of the urban area
to which the hospital is reclassified
(subject to the rules described above)
and the wage index calculation of the
urban area where the hospital is
physically located.
• In cases where hospitals have
reclassified to rural areas, such as urban
hospitals reclassifying to rural areas
under 42 CFR 412.103, the hospital’s
wage data are: (a) included in the rural
wage index calculation, unless doing so
would reduce the rural wage index; and
(b) included in the urban area where the
hospital is physically located. The effect
of this policy, in combination with the
statutory requirement at section
1886(d)(8)(C)(ii) of the Act, is that rural
areas may receive a wage index based
upon the highest of: (1) Wage data from
hospitals geographically located in the
rural area; (2) wage data from hospitals
geographically located in the rural area,
but excluding all data associated with
hospitals reclassifying out of the rural
area under section 1886(d)(8)(B) or
section 1886(d)(10) of the Act; or (3)
wage data associated with hospitals
geographically located in the area plus
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all hospitals reclassified into the rural
area.
In addition, in accordance with the
statutory language referring to
‘‘hospitals’’ in the plural under sections
1886(d)(8)(C)(i) and 1886(d)(8)(C)(ii) of
the Act, our longstanding policy is to
consider reclassified hospitals as a
group when deciding whether to
include or exclude them from both
urban and rural wage index
calculations.
3. FY 2012 MGCRB Reclassifications
a. FY 2012 Reclassification
Requirements and Approvals
Under section 1886(d)(10) of the Act,
the MGCRB considers applications by
hospitals for geographic reclassification
for purposes of payment under the IPPS.
The specific procedures and rules that
apply to the geographic reclassification
process are outlined in 42 CFR 412.230
through 412.280.
At the time this final rule was
constructed, the MGCRB had completed
its review of FY 2012 reclassification
requests. Based on such reviews, there
were 280 hospitals approved for wage
index reclassifications by the MGCRB
for FY 2012. Because MGCRB wage
index reclassifications are effective for 3
years, for FY 2012, hospitals reclassified
during FY 2010 or FY 2011 are eligible
to continue to be reclassified to a
particular labor market area based on
such prior reclassifications. There were
283 hospitals approved for wage index
reclassifications in FY 2010 and 294
hospitals approved for wage index
reclassifications in FY 2011. Of all of
the hospitals approved for
reclassification for FY 2010, FY 2011,
and FY 2012, based upon the review at
the time of this final rule, 659 hospitals
are in a reclassification status for FY
2012.
Under 42 CFR 412.273, hospitals that
have been reclassified by the MGCRB
are permitted to withdraw their
applications within 45 days of the
publication of a proposed rule. CMS
became aware that an error was made in
the calculation of the proposed wage
index out-migration adjustment in Table
4J of the FY 2012 IPPS/LTCH PPS
proposed rule. This error in the
calculation affected 104 providers that
became eligible to receive the outmigration adjustment. We published a
correction notice in the Federal Register
on July 13, 2011 (76 FR 41178), which
had a display date of July 11, 2011,
announcing the corrections to the tables.
Additionally, we issued a letter to
hospitals on July 1, 2011, through their
fiscal intermediaries/MACs advising
that we extended the 45-day deadline
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and allowed hospitals a 7-day period
from the date of display of the
correction notice (that is, by July 18,
2011) for hospitals that wished to
request a revision to an already
submitted withdrawal/termination
request under 42 CFR 412.73, or that
wished to request a withdrawal of a
reclassification or termination of an
existing 3-year section 1886(d)(10)
reclassification that would be effective
in FY 2012. Hospitals also may cancel
prior reclassification withdrawals or
terminations in certain circumstances.
For further information about
withdrawing, terminating, or canceling
a previous withdrawal or termination of
a 3-year reclassification for wage index
purposes, we refer the reader to 42 CFR
412.273, as well as the FY 2002 IPPS
final rule (66 FR 39887) and the FY
2003 IPPS final rule (67 FR 50065).
Additional discussion on withdrawals
and terminations, and clarifications
regarding reinstating reclassifications
and ‘‘fallback’’ reclassifications, were
included in the FY 2008 IPPS final rule
(72 FR 47333).
Changes to the wage index that result
from withdrawals of requests for
reclassification, terminations, wage
index corrections, appeals, and the
Administrator’s review process for FY
2012 are incorporated into the wage
index values published in the FY 2012
IPPS/LTCH PPS final rule. These
changes affect not only the wage index
value for specific geographic areas, but
also the wage index value redesignated/
reclassified hospitals receive; that is,
whether they receive the wage index
that includes the data for both the
hospitals already in the area and the
redesignated/reclassified hospitals.
Further, the wage index value for the
area from which the hospitals are
redesignated/reclassified may be
affected.
b. Applications for Reclassifications for
FY 2013
Applications for FY 2013
reclassifications are due to the MGCRB
by September 1, 2011. We note that this
is also the deadline for canceling a
previous wage index reclassification
withdrawal or termination under 42
CFR 412.273(d). Applications and other
information about MGCRB
reclassifications may be obtained,
beginning in mid-July 2011, via the
CMS Internet Web site at: http://
cms.hhs.gov/MGCRB/
02_instructions_and_applications.asp,
or by calling the MGCRB at (410) 786–
1174. The mailing address of the
MGCRB is: 2520 Lord Baltimore Drive,
Suite L, Baltimore, MD 21244–2670.
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4. Redesignations of Hospitals Under
Section 1886(d)(8)(B) of the Act
Section 1886(d)(8)(B) of the Act
requires us to treat a hospital located in
a rural county adjacent to one or more
urban areas as being located in the MSA
if certain criteria are met. Effective
beginning FY 2005, we use OMB’s 2000
CBSA standards and the Census 2000
data to identify counties in which
hospitals qualify under section
1886(d)(8)(B) of the Act to receive the
wage index of the urban area. Hospitals
located in these counties have been
known as ‘‘Lugar’’ hospitals and the
counties themselves are often referred to
as ‘‘Lugar’’ counties. We provide the FY
2011 chart below with the listing of the
51597
rural counties containing the hospitals
designated as urban under section
1886(d)(8)(B) of the Act. For discharges
occurring on or after October 1, 2011,
hospitals located in the rural county in
the first column of this chart will be
redesignated for purposes of using the
wage index of the urban area listed in
the second column.
RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT
[Based on CBSAs and Census 2000 Data]
mstockstill on DSK4VPTVN1PROD with RULES2
Rural county
CBSA
Cherokee, AL ............................................................................................
Macon, AL ................................................................................................
Talladega, AL ...........................................................................................
Hot Springs, AR ........................................................................................
Windham, CT ............................................................................................
Bradford, FL ..............................................................................................
Hendry, FL ................................................................................................
Levy, FL ....................................................................................................
Walton, FL ................................................................................................
Banks, GA ................................................................................................
Chattooga, GA ..........................................................................................
Jackson, GA. ............................................................................................
Lumpkin, GA. ............................................................................................
Morgan, GA ..............................................................................................
Peach, GA ................................................................................................
Polk, GA ...................................................................................................
Talbot, GA ................................................................................................
Bingham, ID ..............................................................................................
Christian, IL ..............................................................................................
DeWitt, IL ..................................................................................................
Iroquois, IL ................................................................................................
Logan, IL ...................................................................................................
Mason, IL ..................................................................................................
Ogle, IL .....................................................................................................
Clinton, IN .................................................................................................
Henry, IN ..................................................................................................
Spencer, IN ...............................................................................................
Starke, IN ..................................................................................................
Warren, IN ................................................................................................
Boone, IA ..................................................................................................
Buchanan, IA ............................................................................................
Cedar, IA ..................................................................................................
Allen, KY ...................................................................................................
Assumption Parish, LA .............................................................................
St. James Parish, LA ................................................................................
Allegan, MI ................................................................................................
Montcalm, MI ............................................................................................
Oceana, MI ...............................................................................................
Shiawassee, MI ........................................................................................
Tuscola, MI ...............................................................................................
Fillmore, MN .............................................................................................
Dade, MO .................................................................................................
Pearl River, MS ........................................................................................
Caswell, NC ..............................................................................................
Davidson, NC ...........................................................................................
Granville, NC ............................................................................................
Harnett, NC ...............................................................................................
Lincoln, NC ...............................................................................................
Polk, NC ...................................................................................................
Los Alamos, NM .......................................................................................
Lyon, NV ...................................................................................................
Cayuga, NY ..............................................................................................
Columbia, NY ...........................................................................................
Genesee, NY ............................................................................................
Greene, NY ...............................................................................................
Schuyler, NY .............................................................................................
Sullivan, NY ..............................................................................................
Wyoming, NY ............................................................................................
Ashtabula, OH ..........................................................................................
Champaign, OH ........................................................................................
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Rome, GA.
Auburn-Opelika, AL.
Anniston-Oxford, AL.
Hot Springs, AR.
Hartford-West Hartford-East Hartford, CT.
Gainesville, FL.
West Palm Beach-Boca Raton-Boynton, FL.
Gainesville, FL.
Fort Walton Beach-Crestview-Destin, FL.
Gainesville, GA.
Chattanooga, TN-GA.
Atlanta-Sandy Springs-Marietta, GA.
Atlanta-Sandy Springs-Marietta, GA.
Atlanta-Sandy Springs-Marietta, GA.
Macon, GA.
Atlanta-Sandy Springs-Marietta, GA.
Columbus, GA-AL.
Idaho Falls, ID.
Springfield, IL.
Bloomington-Normal, IL.
Kankakee-Bradley, IL.
Springfield, IL.
Peoria, IL.
Rockford, IL.
Lafayette, IN.
Indianapolis-Carmel, IN.
Evansville, IN-KY.
Gary, IN.
Lafayette, IN.
Ames, IA.
Waterloo-Cedar Falls, IA.
Iowa City, IA.
Bowling Green, KY.
Baton Rouge, LA.
Baton Rouge, LA.
Holland-Grand Haven, MI.
Grand Rapids-Wyoming, MI.
Muskegon-Norton Shores, MI.
Lansing-East Lansing, MI.
Saginaw-Saginaw Township North, MI.
Rochester, MN.
Springfield, MO.
Gulfport-Biloxi, MS.
Burlington, NC.
Greensboro-High Point, NC.
Durham, NC.
Raleigh-Cary, NC.
Charlotte-Gastonia-Concord, NC-SC.
Spartanburg, SC.
Santa Fe, NM.
Carson City, NV.
Syracuse, NY.
Albany-Schenectady-Troy, NY.
Rochester, NY.
Albany-Schenectady-Troy, NY.
Ithaca, NY.
Poughkeepsie-Newburgh-Middletown, NY.
Buffalo-Niagara Falls, NY.
Cleveland-Elyria-Mentor, OH.
Springfield, OH.
Sfmt 4700
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RURAL COUNTIES CONTAINING HOSPITALS REDESIGNATED AS URBAN UNDER SECTION 1886(d)(8)(B) OF THE ACT—
Continued
[Based on CBSAs and Census 2000 Data]
Rural county
CBSA
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Columbiana, OH .......................................................................................
Cotton, OK ................................................................................................
Linn, OR ...................................................................................................
Adams, PA ................................................................................................
Clinton, PA ................................................................................................
Greene, PA ...............................................................................................
Monroe, PA ...............................................................................................
Schuylkill, PA ............................................................................................
Susquehanna, PA .....................................................................................
Clarendon, SC ..........................................................................................
Lee, SC .....................................................................................................
Oconee, SC ..............................................................................................
Union, SC .................................................................................................
Meigs, TN .................................................................................................
Bosque, TX ...............................................................................................
Falls, TX ...................................................................................................
Fannin, TX ................................................................................................
Grimes, TX ...............................................................................................
Harrison, TX .............................................................................................
Henderson, TX .........................................................................................
Milam, TX .................................................................................................
Van Zandt, TX ..........................................................................................
Willacy, TX ................................................................................................
Buckingham, VA .......................................................................................
Floyd, VA ..................................................................................................
Middlesex, VA ...........................................................................................
Page, VA ..................................................................................................
Shenandoah, VA ......................................................................................
Island, WA ................................................................................................
Mason, WA ...............................................................................................
Wahkiakum, WA .......................................................................................
Jackson, WV .............................................................................................
Roane, WV ...............................................................................................
Green, WI .................................................................................................
Green Lake, WI ........................................................................................
Jefferson, WI ............................................................................................
Walworth, WI ............................................................................................
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 (which was
listed in section VI. of the Addendum to
the proposed rule and available via the
Internet) into which they would be
reclassified by the MGCRB to the wage
index for the area to which they are
redesignated under section
1886(d)(8)(B) of the Act. Hospitals could
have withdrawn from an MGCRB
reclassification within 45 days of the
publication of the FY 2012 proposed
rule. As discussed in section III.H.3.a. of
this preamble, we published a
correction notice in the Federal Register
on July 13, 2011 (76 FR 41178), which
had a display date of July 11, 2011,
announcing corrections to the FY 2012
proposed out-migration adjustment in
Table 4J. Additionally, we issued a
letter to hospitals on July 1, 2011,
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Youngstown-Warren-Boardman, OH-PA.
Lawton, OK.
Corvallis, OR.
York-Hanover, PA.
Williamsport, PA.
Pittsburgh, PA.
Allentown-Bethlehem-Easton, PA-NJ.
Reading, PA.
Binghamton, NY.
Sumter, SC.
Sumter, SC.
Greenville, SC.
Spartanburg, SC.
Cleveland, TN.
Waco, TX.
Waco, TX.
Dallas-Plano-Irving, TX.
College Station-Bryan, TX.
Longview, TX.
Dallas-Plano-Irving, TX.
Austin-Round Rock, TX.
Dallas-Plano-Irving, TX.
Brownsville-Harlingen, TX.
Charlottesville, VA.
Blacksburg-Christiansburg-Radford, VA.
Virginia Beach-Norfolk-Newport News, VA.
Harrisonburg, VA.
Winchester, VA-WV.
Seattle-Bellevue-Everett, WA.
Olympia, WA.
Longview, WA.
Charleston, WV.
Charleston, WV.
Madison, WI.
Fond du Lac, WI.
Milwaukee-Waukesha-West Allis, WI.
Milwaukee-Waukesha-West Allis, WI.
through their fiscal intermediaries/
MACs advising that we extended the 45day deadline and allowed hospitals a 7day period from the date of display of
the correction notice (that is, by July 18,
2011) for hospitals redesignated under
section 1886(d)(8)(B) of the Act that also
were eligible for an out-migration
adjustment to notify CMS that they
wished to receive the out-migration
adjustment instead of their
redesignation under section
1886(d)(8)(B) of the Act. Section
1886(d)(8)(B) hospitals that had already
notified CMS that they wished to
receive the out-migration adjustment
instead of the section 1886(d)(8)(B)
redesignation could withdraw such
notifications.
5. Reclassifications Under Section
1886(d)(8)(B) of the Act
As discussed in the FY 2009 IPPS
final rule (73 FR 48588), Lugar hospitals
are treated like reclassified hospitals for
purposes of determining their
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applicable wage index and receive the
reclassified wage index for the urban
area to which they have been
redesignated. Because Lugar hospitals
are treated like reclassified hospitals,
when they are seeking reclassification
by the MGCRB, they are subject to the
rural reclassification rules set forth at 42
CFR 412.230. The procedural rules set
forth at § 412.230 list the criteria that a
hospital must meet in order to reclassify
as a rural hospital. Lugar hospitals are
subject to the proximity criteria and
payment thresholds that apply to rural
hospitals. Specifically, the hospital
must be no more than 35 miles from the
area to which it seeks reclassification
(§ 412.230(b)(1)); and the hospital must
show that its average hourly wage is at
least 106 percent of the average hourly
wage of all other hospitals in the area in
which the hospital is located
(§ 412.230(d)(1)(iii)(C)). In accordance
with the requirements of section 3137(c)
of the Affordable Care Act, beginning
with reclassifications for the FY 2011
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wage index, a Lugar hospital must also
demonstrate that its average hourly
wage is equal to at least 82 percent of
the average hourly wage of hospitals in
the area to which it seeks redesignation
(§ 412.230(d)(1)(iv)(C)).
Hospitals not located in a Lugar
county seeking reclassification to the
urban area where the Lugar hospitals
have been redesignated are not
permitted to measure to the Lugar
county to demonstrate proximity (no
more than 15 miles for an urban
hospital, and no more than 35 miles for
a rural hospital or the closest urban or
rural area for RRCs or SCHs) in order to
be reclassified to such urban area. These
hospitals must measure to the urban
area exclusive of the Lugar County to
meet the proximity or nearest urban or
rural area requirement. We treat New
England deemed counties in a manner
consistent with how we treat Lugar
counties. (We refer readers to FY 2008
IPPS final rule with comment period (72
FR 47337) for a discussion of this
policy.)
6. Reclassifications Under Section 508
of Public Law 108–173
Section 508 of Public Law 108–173
allowed certain qualifying hospitals to
receive wage index reclassifications and
assignments that they otherwise would
not have been eligible to receive under
the law. Although section 508 originally
was scheduled to expire after a 3-year
period, Congress extended the provision
several times, as well as certain special
exceptions that would have otherwise
expired. For a discussion of the original
section 508 provision and its various
extensions, we refer readers to the FY
2010 notice issued in the Federal
Register on June 2, 2010 (75 FR 31118).
Prior to the enactment of the Medicare
and Medicaid Extenders Act of 2010
(Pub. L. 111–309) on December 15,
2010, the extension of the 508 provision
was included in sections 3137(a) and
10317 of the Affordable Care Act (Pub.
L. 111–148). Section 3137 of the
Affordable Care Act extended, through
FY 2010, section 508 reclassifications as
well as certain special exceptions. The
most recent extension of the provision
was included in section 102 of the
Medicare and Medicaid Extender Act,
which extends, through FY 2011,
section 508 reclassifications as well as
certain special exceptions. The latest
extension of these provisions expires on
September 30, 2011, and will no longer
be applicable effective with FY 2012.
7. Waiving Lugar Redesignation for the
Out-Migration Adjustment
We have received several inquiries
regarding the effect on a hospital’s
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deemed urban status when a hospital
waives its reclassification under section
1886(d)(8) of the Act in order to accept
an out-migration adjustment to the wage
index under section 1886(d)(13) of the
Act. (We refer readers to a discussion of
the out-migration adjustment under
section III.I. of the preamble of this final
rule.) In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25885 and 25886),
we clarified that Lugar hospitals will be
required to waive their Lugar urban
status in its entirety in order to receive
the out-migration adjustment. We stated
our belief that this represents one
permissible reading of the statute, given
that section 1886(d)(13)(G) of the Act
states that a hospital with an outmigration adjustment is not ‘‘eligible’’
for a reclassification under subsection
(8). Therefore, beginning with FY 2012,
we proposed that an eligible hospital
that waives its Lugar status in order to
receive the out-migration adjustment
has effectively waived its deemed urban
status and, thus, is rural for all purposes
under the IPPS, including being
considered rural for the DSH payment
adjustment, effective for the fiscal year
in which the hospital receives the outmigration adjustment. (We refer readers
to a discussion of DSH payment
adjustment under section IV.G. of this
preamble.)
In addition, we proposed to make a
minor procedural change that would
allow a Lugar hospital that qualifies for
and accepts the out-migration
adjustment (through written notification
to CMS within the requisite number of
days from the publication of the
proposed rule 4) 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 out-migration adjustment to advise
us annually that it prefers to continue
being treated as rural and receive the
adjustment. We made this proposal in
response to public comments we
received on the FY 2011 IPPS/LTCH
PPS proposed rule that discussed the
burden of this annual request (74 FR
43840). Thus, under the proposed
procedural change, a Lugar hospital that
requests to waive its urban status in
order to receive the rural wage index in
4 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. As noted in
sections III.H.3. and III.H.4. of this preamble, due
to the correction of the FY 2012 proposed outmigration adjustment, we extended the 45 day
deadline and allowed hospitals a 7-day period from
the date of display of the July 13, 2011 correction
notice (that is, by July 18, 2011) (76 FR 41178).
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51599
addition to the out-migration
adjustment would be deemed to have
accepted the out-migration adjustment
and agrees to be treated as rural for the
duration of its 3-year eligibility period,
unless prior to its second or third year
of eligibility the hospital explicitly
notifies CMS in writing, within 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.
Comment: Commenters supported
CMS’ proposed policy clarification that
an eligible hospital that waives its Lugar
status in order to receive the outmigration adjustment has effectively
waived its deemed urban status and,
thus, is rural for all IPPS purposes.
Some of the commenters stated that this
policy provides the flexibility necessary
to allow hospitals to revert to their true
rural status if they wish. Commenters
also supported the proposed minor
procedural change that would allow a
Lugar hospital that qualifies for and
accepts the out-migration adjustment to
automatically waive its urban status for
the 3-year period for which its outmigration adjustment is effective. Some
commenters asked CMS to clarify
whether the procedural change will
apply to letters already filed for the FY
2012 update, in which a request was
made to waive Lugar redesignation and
to instead receive the out-migration
adjustment.
Response: Beginning with FY 2012,
we are adopting as final the policy that
an eligible hospital that waives its Lugar
status in order to receive the outmigration adjustment has waived its
deemed urban status and, thus, is rural
for all IPPS purposes. In addition, we
are adopting as final the procedural
change that would allow a Lugar
hospital that qualifies for and accepts
the out-migration adjustment to
automatically waive its urban status for
the 3-year period for which the outmigration adjustment is effective. This
clarified policy and procedural change
will be effective beginning with the FY
2013 wage index. Therefore, hospitals
that sent requests to waive Lugar status
for the out-migration adjustment for FY
2012, and still have 2 or 3 years of
eligibility available for the out-migration
adjustment, must request again next
year for the waiver to apply to the FY
2013 wage index. That request would be
effective for the remaining years of its
eligibility.
At the time hospitals made their
decisions with respect to waiving Lugar
status for the out-migration adjustment
for FY 2012, the procedural change
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allowing a 3-year waiver was not yet in
effect. Therefore, those decisions were
based on the existing policy in place for
the proposed rule, which required
annual waivers. As discussed in section
III.H.4. of this preamble, counties
remain eligible for a consistent outmigration adjustment for a period of 3
years. Each year, we revise the list of
counties to (1) add new counties eligible
for an adjustment for 3 years; (2) remove
counties where 3 years have elapsed
and the counties no longer qualify for an
adjustment; or (3) revise the adjustment
value for counties in cases where 3
years have elapsed and the counties,
once again, qualify for an adjustment.
Some hospitals may not know whether
they are in the first, second, or third
year of the out-migration adjustment;
and therefore, whether they are able to
waive deemed urban Lugar status for 1,
2, or 3 years. For these reasons,
beginning with FY 2013, we intend to
make available, shortly after we publish
the proposed rule, a public use file
which will list Lugar/out-migration
hospitals (that is, hospitals that have
Lugar status and are located in a county
that qualifies for an out-migration
adjustment), and which will identify
whether the hospital is in its first,
second, or third year of eligibility for the
out-migration adjustment. We will
update this file annually and release it
to the public after each fiscal year’s
proposed rule.
Comment: Some commenters
expressed concerns with respect to
hospitals reclassified from urban to
rural under section 1886(d)(8)(E) of the
Act (§ 412.103 of the regulations). The
commenters expressed concern that a
hospital reclassified from urban to rural
status under § 412.103 has to cancel this
reclassification to return to Lugar status,
so that it can then waive its Lugar status
to become rural and retain a special
rural status (such as SCH or MDH), and
also receive the out-migration
adjustment. However, a § 412.103
cancellation takes effect only at the
beginning of the next cost reporting
period, whereas waiving Lugar status is
effective on October 1. The commenters
indicated that this presents a problem
for hospitals that do not have a
September 30 cost reporting period end
date. The commenters urged CMS to
create a process by which hospitals can
simultaneously cancel a § 412.103
reclassification and waive Lugar status.
Response: In circumstances where a
Lugar hospital has acquired rural status
through § 412.103 in order to be
classified by Medicare as an SCH or a
MDH, we will allow the act of waiving
Lugar status for the out-migration
adjustment to simultaneously waives
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the hospital’s deemed urban status and
cancel the hospital’s acquired rural
status, thus treating the hospital as a
rural provider effective on October 1.
(We note that there are special rules that
apply to rural referral centers under
§ 412.103(g)(1) requiring that urban-torural status be maintained for a certain
period of time, in order to avoid gaming
situations. We are not revising these
rules for rural referral centers due to
these considerations.)
Comment: Some commenters asked
for a policy that would allow waivers of
Lugar redesignation in all instances—
not just when a hospital is eligible for
the out-migration adjustment.
Response: The statute provides two
methods for a Lugar hospital to be
treated as rural for Medicare payment
purposes: (1) If the hospital is eligible
for an out-migration adjustment under
section 1886(d)(13) of the Act; or (2) if
the hospital applies for an urban to rural
reclassification under section
1886(d)(8)(E) of the Act. There are no
other provisions under the Medicare
statute that would allow a Lugar
hospital to be treated as a rural provider,
given that Lugar status is a deemed
status.
8. Other Geographic Reclassification
Issues
a. Requested Reclassification for Single
Hospital MSAs
Section 412.230 of the regulations sets
forth criteria for an individual hospital
to apply for geographic reclassification
to a higher rural or urban wage index
area. Specifically, under
§ 412.230(a)(3)(ii), an individual
hospital may be redesignated from an
urban area to another urban area, from
a rural area to another rural area, or
from a rural area to an urban area for the
purpose of using the other area’s wage
index value. Such a hospital must also
meet other criteria. One required
criterion (under § 412.230(d)(1)(iii)(C) of
the regulations) is that the hospital must
demonstrate that its own average hourly
wage is higher than the average hourly
wage of hospitals in the area in which
the hospital is located (108 percent for
urban hospitals and 106 percent for
rural hospitals). In cases in which a
hospital wishing to reclassify is the only
hospital in its MSA, that hospital is
unable to satisfy this criterion because
it cannot demonstrate that its average
hourly wage is higher than that of the
other hospitals in the area in which the
hospital is located (because there are no
other hospitals in the area). For
hospitals in the category described
above, our current policy provides an
alternative that allows hospitals to seek
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reclassification using the group
reclassification rules under § 412.232 or
§ 412.234. Specifically, if a hospital is
the single hospital in its area for the 3year period over which the average
hourly wage is calculated for the
purpose of the comparison under
§ 412.230(d)(1)(iii)(C), the hospital may
apply for geographic reclassification as
a single hospital county group in
accordance with the procedures set
forth at § 412.232 or § 412.234. In
addition to specifying the average
hourly wage criteria, these regulations
state that the county in which the
hospital is located must be adjacent to
the urban area to which it seeks
redesignation. In addition, a certain
level of economic integration needs to
exist between the two areas. For
example, for urban county group
reclassifications (for FY 2008 and
subsequent periods), § 412.234(a)(3)(iv)
states that ‘‘hospitals located in counties
that are in the same Combined
Statistical Area (CSA) or Core-Based
Statistical Area (CBSA) * * * as the
urban area to which they seek
redesignation qualify as meeting the
proximity requirements for
reclassification to the urban area to
which they seek redesignation.’’
Recently, we have been advised of a
single hospital MSA scenario of concern
to a particular hospital. In this scenario,
an urban hospital located in an area in
which there was only one other hospital
had previously applied for and was
granted a reclassification by the MGCRB
to an adjacent urban area with a higher
wage index. During the 3-year
reclassification timeframe, the other
hospital in its labor market area closed.
After the expiration of its
reclassification, the hospital became
ineligible for reclassification to that
same adjacent urban area with a higher
wage index because it was no longer
able to satisfy the wage data comparison
criteria to reclassify individually under
§ 412.230(d)(1)(iii)(C). In addition, the
hospital could not apply for
redesignation under the urban county
group regulation at § 412.234 because
the hospital was not located in the same
CSA or CBSA as the urban area to which
it sought reclassification. In this
example, the concern that was shared
with CMS was that the hospital was
competitively disadvantaged in
competing for labor with neighboring
hospitals where the hospital had a
comparable average hourly wage,
compared to the other hospitals in its
surrounding area, because it receives a
lower wage index.
We stated in the proposed rule that
we believe that the geographic
reclassification regulations should not
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be revised to accommodate this
situation. We discussed the fact that we
have repeatedly rejected special rules to
accommodate single hospital MSAs (69
FR 48915, 49109; 71 FR 47869, 48071
and 48072). In these explanations, we
have highlighted the fact that hospitals
in single hospital MSAs not only may be
eligible for out-commuting adjustments,
but that they also may apply to an
adjacent MSA within the same CSA
using the group reclassification rules
without meeting the 108-percent test.
We explained that each year we propose
to adopt the OMB’s statistical area
definitions (75 FR 50162), so if a
hospital in a single hospital MSA
cannot meet group reclassification
criteria because of the CSA standard, it
means that OMB has determined that
there is not a sufficient degree of
employment interchange to suggest that
the areas compete for the same labor. In
addition, we explained that when we
originally adopted the 108-percent test,
we noted that ‘‘with respect to single
hospital MSAs, a hospital in such an
MSA receives a wage index value that
is based entirely on its own wage data
and, therefore, its actual wage levels.
Because such a hospital is clearly not
disadvantaged by its inclusion in a labor
market area where its wage index is
determined based on its own wage
levels, it is appropriate under this
guideline that a hospital should not be
reclassified if it is the only one in its
area’’ (57 FR 39746). In the proposed
rule, we expressed concern that
allowing a hospital representing 100
percent of its area’s wages to be exempt
from the wage data comparison test
could undermine the 108-percent test
for hospitals in other circumstances
where the standard cannot be met.
Finally, we referred to section 3137(c) of
the Affordable Care Act, which
prohibits us from altering average
hourly wage comparison criteria for FY
2012. That provision states that
‘‘notwithstanding any other provision of
law,’’ the MGCRB is required to use the
‘‘average hourly wage comparison
criteria used in making such decisions
as of September 30, 2008,’’ until the first
fiscal year beginning on the date that is
one year after the Secretary submits a
report to Congress.
In the proposed rule, we solicited
public comments on this issue. In
particular, we invited comments on the
types of regulatory solutions that could
be made available to a hospital in this
type of situation.
Comment: Commenters suggested
that, among other solutions to this issue,
the 108 percent test should be waived
for hospitals that are the single hospital
in the MSA, as it is mathematically
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impossible to be 108 percent of your
own average hourly wage. In addition,
commenters suggested that establishing
one’s own wage index or being eligible
for an out-migration adjustment may not
result in adequate compensation for a
hospital’s services. Commenters also
noted that, despite the existing remedies
of the out-migration adjustment and
county group reclassification, a hospital
may still be at a disadvantage and
unable to compete for labor with a
neighboring labor market area that
receives a higher wage index.
Commenters believed that Congress did
not intend to exclude a hospital in a
single hospital MSA from the ability to
reclassify to another labor market area.
Commenters further stated that
recognizing county boundaries does not
always accurately reflect labor markets,
which is why in 1989 Congress
established the reclassification process.
Therefore, commenters believed the
very purpose of Congress creating the
reclassification process, that is, to give
hospitals an opportunity to be included
in a labor market area in which they
compete for labor, is not being fulfilled
by excluding a hospital in a single
hospital MSA the ability to seek
reclassification.
Response: While we continue to be
concerned regarding the precedent that
might be set by exempting a category of
hospitals from the 108 percent test, we
agree that the current policies for
geographic reclassification are disparate
for hospitals located in single hospital
MSAs compared to hospitals located in
multiple hospital MSAs. We
acknowledge the commenters’ views
that this disparity is sometimes a
disadvantage because hospitals in single
hospital MSAs have fewer options for
qualifying for geographic
reclassification than hospitals in
multiple hospital MSAs. To address the
concerns of the commenters, in this
final rule, we are making a change in
our policy in order to waive a hospital
in a single hospital MSA from the
average hourly wage comparison
criterion under § 412.230(d)(1)(iii)(C)
beginning with applications for
geographic reclassification for the FY
2013 wage index. That is, a hospital in
a single hospital MSA will be exempt
from meeting the 108 percent average
hourly wage criterion. Accordingly, we
are amending our regulation at
§ 412.230 by adding a new paragraph
(d)(5) to reflect this exception for single
hospital MSAs. We note that section
3137(b) of Public Law 111–148 requires
CMS to submit a report on reforming the
wage index to Congress by December 31,
2011. As a result of this statutory
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51601
requirement, we are currently studying
of the entire wage index system,
including geographic reclassification.
Although we are adopting this new
policy for hospitals in single hospital
MSAs for reclassification applications
starting with FY 2013, we may
reevaluate this policy as we formulate a
plan to reform the wage index system
under the requirements of section
3137(b).
b. Requests for Exceptions to
Geographic Reclassification Rules
Over the last several years, CMS has
received numerous requests for
exceptions to current Medicare law and
regulation regarding geographic
reclassification or requests to revise the
existing regulations in order to allow a
hospital or group of hospitals the ability
to reclassify to a labor market area with
a higher wage index. Section 3137(b) of
the Affordable Care Act requires the
Secretary to submit a report to Congress
that includes a ‘‘plan to reform the
hospital wage index.’’ This report to
Congress is due by December 31, 2011.
As part of our efforts in this regard, in
the FY 2012 IPPS/LTCH PPS proposed
rule, we solicited public comments, to
be considered only as part of our report
to Congress and not to be addressed in
the FY 2012 IPPS/LTCH PPS final rule,
on ways to redefine the geographic
reclassification requirements to more
accurately define labor markets.
I. FY 2012 Wage Index Adjustment
Based on Commuting Patterns of
Hospital Employees
In accordance with the broad
discretion granted to the Secretary
under section 1886(d)(13) of the Act, as
added by section 505 of Public Law
108–173, beginning with FY 2005, we
established a process to make
adjustments to the hospital wage index
based on commuting patterns of
hospital employees (the ‘‘out-migration’’
adjustment). The process, outlined in
the FY 2005 IPPS final rule (69 FR
49061), provides for an increase in the
wage index for hospitals located in
certain counties that have a relatively
high percentage of hospital employees
who reside in the county but work in a
different county (or counties) with a
higher wage index. Such adjustments to
the wage index are effective for 3 years,
unless a hospital requests to waive the
application of the adjustment. A county
will not lose its status as a qualifying
county due to hospital wage index
changes during the 3-year period, and
counties will receive the same wage
index increase for those 3 years.
However, a county that qualifies in any
given year may not necessarily qualify
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after the 3-year period, or it may qualify
but receive a different adjustment to the
wage index level. Hospitals that receive
this adjustment to their wage index are
not eligible for reclassification under
section 1886(d)(8) or section 1886(d)(10)
of the Act. Adjustments under this
provision are not subject to the budget
neutrality requirements under section
1886(d)(3)(E) of the Act.
Hospitals located in counties that
qualify for the wage index adjustment
are to receive an increase in the wage
index that is equal to the average of the
differences between the wage indices of
the labor market area(s) with higher
wage indices and the wage index of the
resident county, weighted by the overall
percentage of hospital workers residing
in the qualifying county who are
employed in any labor market area with
a higher wage index. Beginning with the
FY 2008 wage index, we use postreclassified wage indices when
determining the out-migration
adjustment (72 FR 47339).
For the FY 2012 wage index, we
calculated the out-migration adjustment
using the same formula described in the
FY 2005 IPPS final rule (69 FR 49064),
with the addition of using the postreclassified wage indices, to calculate
the out-migration adjustment. This
adjustment is calculated as follows:
Step 1—Subtract the wage index for
the qualifying county from the wage
index of each of the higher wage area(s)
to which hospital workers commute.
Step 2—Divide the number of hospital
employees residing in the qualifying
county who are employed in such
higher wage index area by the total
number of hospital employees residing
in the qualifying county who are
employed in any higher wage index
area. For each of the higher wage index
areas, multiply this result by the result
obtained in Step 1.
Step 3—Sum the products resulting
from Step 2 (if the qualifying county has
workers commuting to more than one
higher wage index area).
Step 4—Multiply the result from Step
3 by the percentage of hospital
employees who are residing in the
qualifying county and who are
employed in any higher wage index
area.
These adjustments will be effective
for each county for a period of 3 fiscal
years. For example, hospitals that
received the adjustment for the first
time in FY 2011 will be eligible to retain
the adjustment for FY 2012. For
hospitals in newly qualified counties,
adjustments to the wage index are
effective for 3 years, beginning with
discharges occurring on or after October
1, 2011.
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Hospitals receiving the wage index
adjustment under section 1886(d)(13)(F)
of the Act are not eligible for
reclassification under sections
1886(d)(8) or (d)(10) of the Act unless
they waive the out-migration
adjustment. Consistent with our FYs
2005 through 2011 IPPS final rules, we
are specifying that hospitals
redesignated under section 1886(d)(8) of
the Act or reclassified under section
1886(d)(10) of the Act are deemed to
have chosen to retain their
redesignation or reclassification.
Hospitals that reclassified under section
1886(d)(10) of the Act that wished to
receive the out-migration adjustment,
rather than their reclassification
adjustment, had to follow the
termination/withdrawal procedures
specified in 42 CFR 412.273 and section
III.H.3. of the preamble of the FY 2012
proposed rule. Otherwise, they were
deemed to have waived the outmigration adjustment. Hospitals
redesignated under section
1886(d)(8)(B) of the Act were deemed to
have waived the out-migration
adjustment unless they explicitly
notified CMS within 45 days from the
publication of the FY 2012 proposed
rule that they elected to receive the outmigration adjustment instead. As noted
in sections III.H.3.a. and III.H.4. of this
preamble, due to the correction of the
FY 2012 proposed outmigration
adjustment, we extended the 45-day
deadline and allowed hospitals a 7-day
period from the date of display of the
July 13, 2011 correction notice (that is,
by July 18, 2011) (76 FR 41178).
Table 4J, which is listed in section VI.
of the Addendum to this final rule and
available via the Internet, lists the outmigration wage index adjustments for
FY 2012. Hospitals that are not
otherwise reclassified or redesignated
under section 1886(d)(8) or section
1886(d)(10) of the Act will
automatically receive the listed
adjustment. In accordance with the
procedures discussed above,
redesignated/reclassified hospitals will
be deemed to have waived the outmigration adjustment unless CMS was
otherwise notified within the timeframe
stated above. In addition, hospitals
eligible to receive the out-migration
wage index adjustment and that
withdrew their application for
reclassification will automatically
receive the wage index adjustment
listed in Table 4J, which is listed in
section VI. of the Addendum to this
final rule and available via the Internet.
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J. Process for Requests for Wage Index
Data Corrections
The preliminary, unaudited
Worksheet S–3 wage data and
occupational mix survey data files for
the proposed FY 2012 wage index were
made available on October 4, 2010,
through the Internet on the CMS Web
site at: http://www.cms.hhs.gov/
AcuteInpatientPPS/WIFN/
list.asp#TopOfPage.
In the interest of meeting the data
needs of the public, beginning with the
proposed FY 2009 wage index, we post
an additional public use file on our Web
site that reflects the actual data that are
used in computing the proposed wage
index. The release of this new file does
not alter the current wage index process
or schedule. We notified the hospital
community of the availability of these
data as we do with the current public
use wage data files through our Hospital
Open Door forum. We encouraged
hospitals to sign up for automatic
notifications of information about
hospital issues and the scheduling of
the Hospital Open Door forums at:
http://www.cms.hhs.gov/
OpenDoorForums/.
In a memorandum dated October 13,
2010, we instructed all fiscal
intermediaries/MACs to inform the IPPS
hospitals they service of the availability
of the wage index data files and the
process and timeframe for requesting
revisions (including the specific
deadlines listed below). We also
instructed the fiscal intermediaries/
MACs to advise hospitals that these data
were also made available directly
through their representative hospital
organizations.
If a hospital wished to request a
change to its data as shown in the
October 4, 2010 wage and occupational
mix data files, the hospital had to
submit corrections along with complete,
detailed supporting documentation to
its fiscal intermediary/MAC by
December 6, 2010. Hospitals were
notified of this deadline and of all other
deadlines and requirements, including
the requirement to review and verify
their data as posted on the preliminary
wage index data files on the Internet,
through the October 13, 2010
memorandum referenced above.
In the October 13, 2010
memorandum, we also specified that a
hospital requesting revisions to its
occupational mix survey data was to
copy its record(s) from the CY 2007–
2008 occupational mix preliminary files
posted to our Web site in October,
highlight the revised cells on its
spreadsheet, and submit its
spreadsheet(s) and complete
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documentation to its fiscal
intermediary/MAC no later than
December 6, 2010.
The fiscal intermediaries/MACs
notified the hospitals by mid-February
2011 of any changes to the wage index
data as a result of the desk reviews and
the resolution of the hospitals’ earlyDecember revision requests. The fiscal
intermediaries/MACs also submitted the
revised data to CMS by mid-February
2011. CMS published the proposed
wage index public use files that
included hospitals’ revised wage index
data on February 22, 2011. Hospitals
had until March 7, 2011, to submit
requests to the fiscal intermediaries/
MACs for reconsideration of
adjustments made by the fiscal
intermediaries/MACs as a result of the
desk review, and to correct errors due to
CMS’ 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 13,
2011. The deadline for a hospital to
request CMS intervention in cases
where the hospital disagrees with the
fiscal intermediary’s (or, if applicable,
the MAC’s) policy interpretations was
April 20, 2011.
Hospitals were given the opportunity
to examine Table 2, which is listed in
section VI. of the Addendum to the
proposed rule and available via the
Internet. 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
2008 data used to construct the
proposed FY 2012 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
2011.
We released the final wage index data
public use files in early May 2011 on
the Internet at: http://www.cms.hhs.gov/
AcuteInpatientPPS/WIFN/list.asp. The
May 2011 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 13, 2011). If, after reviewing
the May 2011 final public use files, a
hospital believed that its wage or
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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 6,
2011.
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 2011
wage index data files, changes to the
wage and occupational mix data were
only made in those very limited
situations involving an error by the
fiscal intermediary/MAC or CMS that
the hospital could not have known
about before its review of the final wage
index data files. Specifically, neither the
fiscal intermediary/MAC nor CMS
approved the following types of
requests:
• Requests for wage index data
corrections that were submitted too late
to be included in the data transmitted to
CMS by fiscal intermediaries or the
MACs on or before April 13, 2011.
• Requests for correction of errors
that were not, but could have been,
identified during the hospital’s review
of the February 22, 2011 wage index
public use files.
• Requests to revisit factual
determinations or policy interpretations
made by the fiscal intermediary or the
MAC or CMS during the wage index
data correction process.
Verified corrections to the wage index
data received timely by CMS and the
fiscal intermediaries or the MACs (that
is, by June 6, 2011) were incorporated
into the final wage index in the FY 2012
IPPS/LTCH PPS final rule, which will
be effective October 1, 2011.
We created the processes described
above to resolve all substantive wage
index data correction disputes before we
finalize the wage and occupational mix
data for the FY 2012 payment rates.
Accordingly, hospitals that 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
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51603
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 had access to the final wage
index data by early May 2011, they had
the opportunity to detect any data entry
or tabulation errors made by the fiscal
intermediary or the MAC or CMS before
the development and publication of the
final FY 2012 wage index by August
2011, and the implementation of the FY
2012 wage index on October 1, 2011. If
hospitals availed themselves of the
opportunities afforded to provide and
make corrections to the wage and
occupational mix data, the wage index
implemented on October 1 should be
accurate. Nevertheless, in the event that
errors are identified by hospitals and
brought to our attention after June 6,
2011, we retain the right to make
midyear changes to the wage index
under very limited circumstances.
Specifically, in accordance with 42
CFR 412.64(k)(1) of our existing
regulations, we make midyear
corrections to the wage index for an area
only if a hospital can show that: (1) The
fiscal intermediary or the MAC or CMS
made an error in tabulating its data; and
(2) the requesting hospital could not
have known about the error or did not
have an opportunity to correct the error,
before the beginning of the fiscal year.
For purposes of this provision, ‘‘before
the beginning of the fiscal year’’ means
by the June 6 deadline for making
corrections to the wage data for the
following fiscal year’s wage index. This
provision is not available to a hospital
seeking to revise another hospital’s data
that may be affecting the requesting
hospital’s wage index for the labor
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,
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under our current policy, if the
correction of a data error changes the
wage index value for an area, the
revised wage index value will be
effective prospectively from the date the
correction is made.
In the FY 2006 IPPS final rule (70 FR
47385), we revised 42 CFR 412.64(k)(2)
to specify that, effective on October 1,
2005, that is, beginning with the FY
2006 wage index, a change to the wage
index can be made retroactive to the
beginning of the Federal fiscal year only
when: (1) The fiscal intermediary (or, if
applicable, the MAC) or CMS made an
error in tabulating data used for the
wage index calculation; (2) the hospital
knew about the error and requested that
the fiscal intermediary (or, if applicable,
the MAC) and CMS correct the error
using the established process and
within the established schedule for
requesting corrections to the wage index
data, before the beginning of the fiscal
year for the applicable IPPS update (that
is, by the June 6, 2011 deadline for the
FY 2012 wage index); and (3) CMS
agreed that the fiscal intermediary (or, if
applicable, the MAC) or CMS made an
error in tabulating the hospital’s wage
index data and the wage index should
be corrected.
In those circumstances where a
hospital requested a correction to its
wage index data before CMS calculated
the final wage index (that is, by the June
6, 2011 deadline), and CMS
acknowledges that the error in the
hospital’s wage index data was caused
by CMS’ or the fiscal intermediary’s (or,
if applicable, the MAC’s) mishandling of
the data, we believe that the hospital
should not be penalized by our delay in
publishing or implementing the
correction. As with our current policy,
we indicated that the provision is not
available to a hospital seeking to revise
another hospital’s data. In addition, the
provision cannot be used to correct
prior years’ wage index data; and it can
only be used for the current Federal
fiscal year. In other situations where our
policies would allow midyear
corrections, we continue to believe that
it is appropriate to make prospectiveonly corrections to the wage index.
We note that, as with prospective
changes to the wage index, the final
retroactive correction will be made
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.
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K. Labor-Related Share for the FY 2012
Wage Index
Section 1886(d)(3)(E) of the Act
directs the Secretary to adjust the
proportion of the national prospective
payment system base payment rates that
are attributable to wages and wagerelated costs by a factor that reflects the
relative differences in labor costs among
geographic areas. It also directs the
Secretary to estimate from time to time
the proportion of hospital costs that are
labor-related: ‘‘The Secretary shall
adjust the proportion (as estimated by
the Secretary from time to time) of
hospitals’ costs which are attributable to
wages and wage-related costs of the
DRG prospective payment rates * * *’’
We refer to the portion of hospital costs
attributable to wages and wage-related
costs as the labor-related share. The
labor-related share of the prospective
payment rate is adjusted by an index of
relative labor costs, which is referred to
as the wage index.
Section 403 of Public Law 108–173
amended section 1886(d)(3)(E) of the
Act to provide that the Secretary must
employ 62 percent as the labor-related
share unless this ‘‘would result in lower
payments to a hospital than would
otherwise be made.’’ However, this
provision of Public Law 108–173 did
not change the legal requirement that
the Secretary estimate ‘‘from time to
time’’ the proportion of hospitals’ costs
that are ‘‘attributable to wages and
wage-related costs.’’ We believe that this
reflected Congressional intent that
hospitals receive payment based on
either a 62-percent labor-related share,
or the labor-related share estimated from
time to time by the Secretary, depending
on which labor-related share resulted in
a higher payment.
In the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 43850 through
43856), we rebased and revised the
hospital market basket for operating
costs. We established a FY–2006-based
IPPS hospital market basket to replace
the FY 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
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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 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).
Therefore, for FY 2012, we are
continuing to use a labor-related share
of 68.8 percent for discharges occurring
on or after October 1, 2011. Tables 1A
and 1B, which are published in section
VI. of the Addendum to this 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
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 applied 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
applied 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 will always be 62
percent because the national wage index
for all Puerto Rico hospitals is less than
1.0. As we proposed, in this final 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, 2011. This Puerto Rico laborrelated share of 62.1 percent was also
adopted in the FY 2010 IPPS/LTCH PPS
final rule (74 FR 43857) at the time the
FY 2006-based hospital market basket
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
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basket as labor-intensive) to determine
the labor-related share. Puerto Rico
hospitals are paid based on 75 percent
of the national standardized amounts
and 25 percent of the Puerto Ricospecific standardized amounts. The
labor-related share of a hospital’s Puerto
Rico-specific rate will be either the
Puerto Rico-specific labor-related share
of 62.1 percent or 62 percent, depending
on which results in higher payments to
the hospital. If the hospital has a Puerto
Rico-specific wage index of greater than
1.0, we will set the hospital’s rates using
a labor-related share of 62.1 percent for
the 25 percent portion of the hospital’s
payment determined by the Puerto Rico
standardized amounts because this
amount will result in higher payments.
Conversely, a hospital with a Puerto
Rico-specific wage index of less than 1.0
will be paid using the Puerto Ricospecific labor-related share of 62 percent
of the Puerto Rico-specific rates because
the lower labor-related share will result
in higher payments. The Puerto Rico
labor-related share of 62.1 percent for
FY 2012 is reflected in the Table 1C,
which is published in section VI. of the
Addendum to this final rule and
available via the Internet.
IV. Other Decisions and Changes to the
IPPS for Operating Costs and GME
Costs
A. Hospital Inpatient Quality Reporting
(IQR) Program
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1. Background
a. Overview
CMS is seeking to promote higher
quality and more efficient healthcare for
Medicare beneficiaries. This effort is
supported by the adoption of an
increasing number of widely-agreed
upon quality measures. CMS has
worked with relevant stakeholders to
define measures of quality in almost
every setting and measures various
aspects of care for almost all Medicare
beneficiaries. These measures assess
structural aspects of care, clinical
processes, patient experiences with
care, and, increasingly, outcomes.
CMS has implemented quality
measure reporting programs for multiple
settings of care. To measure the quality
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
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Hospital Outpatient Quality Data
Reporting Program (HOP QDRP)), and
for physicians and other eligible
professionals, the Physician Quality
Reporting System (formerly referred to
as the Physician Quality Reporting
Program Initiative (PQRI)). CMS has also
implemented quality reporting programs
for home health agencies and skilled
nursing facilities that are based on
conditions of participation, and an endstage renal disease quality incentive
program (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 programs,
including those authorized by the
Health Information Technology for
Economic and Clinical Health (HITECH)
Act so that the burden for reporting will
be reduced.
We also are implementing a Hospital
Value-Based Purchasing (VBP) Program
under section 1886(o) of the Act. Earlier
this year, we issued a final rule (76 FR
26490 through 26547) (the Hospital
Inpatient VBP Program final rule) that
implemented the Hospital VBP Program.
We proposed additional policies for the
Hospital VBP Program in section IV.B.
of the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25926 through
25928) and in section XVI. of the CY
2012 OPPS/ASC proposed rule (76 FR
42354 through 42365). In the Hospital
Inpatient VBP Program proposed rule
(76 FR 2454 through 2491), we proposed
that hospitals would receive valuebased incentive payments if they meet
performance standards with respect to
measures for a performance period for
the fiscal year involved. The measures
under the Hospital VBP Program must
be selected from the measures specified
under the Hospital IQR Program. The
Hospital VBP Program will apply to
payments for discharges occurring on or
after October 1, 2012, in accordance
with section 1886(o) of the Act.
The Hospital IQR Program is
intertwined with the Hospital VBP
Program because the measures and
reporting infrastructure for both
programs will overlap. We view the
Hospital VBP Program as the next step
in promoting higher quality care for
Medicare beneficiaries by transforming
Medicare into an active purchaser of
quality health care for its beneficiaries.
As we stated in the Hospital Inpatient
VBP Program proposed rule (76 FR
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2455), in developing that proposed rule
as well as other value-based payment
initiatives, we applied the following
principles for the development and use
of measures and scoring methodologies:
Purpose:
• We view value-based purchasing as
an important step to revamping how
care and services are paid for, moving
increasingly toward rewarding better
value, outcomes, and innovations
instead of merely volume.
Use of Measures:
• Public reporting and value-based
payment systems should rely on a mix
of standards, process, outcomes, and
patient experience of care measures,
including measures of care transitions
and changes in patient functional status.
Across all programs, we seek to move as
quickly as possible to the use of
primarily outcome and patient
experience measures. To the extent
practicable and appropriate, outcome
and patient experience measures should
be adjusted for risk or other appropriate
patient population or provider
characteristics.
• To the extent possible and
recognizing differences in payment
system maturity and statutory
authorities, measures should be aligned
across public reporting and payment
systems under Medicare and Medicaid.
The measure sets should evolve so that
they include a focused core set of
measures appropriate to the specific
provider category that reflects the level
of care and the most important areas of
service and measures for that provider.
• The collection of information
should minimize the burden on
providers to the extent possible. As part
of that effort, we will continuously seek
to align our measures with the adoption
of meaningful use standards for health
information technology (HIT), so the
collection of performance information is
part of care delivery.
• To the extent practicable, measures
used by CMS should be nationally
endorsed by a multi-stakeholder
organization. Measures should be
aligned with best practices among other
payers and the needs of the end users
of the measures.
We invited public comment on these
principles.
Comment: Many commenters
supported CMS’ measure selection
principles for the Hospital IQR Program
and the Hospital VBP Program. The
commenters believed that these
principles reflect the efficacy of quality
measure reporting, reduce data
collection burdens and facilitate
alignment of measures across Medicare
programs. Furthermore, the commenters
applauded CMS’ overarching goal of
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improving the quality and costeffectiveness of care provided in health
care institutions.
Response: We appreciate the
commenters’ support. We will continue
implementing these principles to reach
our goal to foster quality improvement,
establish strong and effective quality
standards, and systematically link
quality to payment in various healthcare
settings.
Comment: Many commenters
overwhelmingly supported our efforts to
enhance healthcare quality transparency
through the public reporting of quality
measures.
Response: We appreciate the
commenters’ support of public reporting
of quality measures.
Comment: Many commenters stated
that with the increasing number of
measures across the Medicare and
Medicaid programs, CMS should align
the measures adopted for various
Medicare programs whenever possible
to reduce the hospital reporting burden.
One commenter further suggested that
future measure reporting alignment
across payers would reduce the burden
of quality reporting and also allow for
the meaningful comparison of
healthcare quality.
Response: We recognize that the
addition of manually chart-abstracted
measures to the Hospital IQR Program
over time has increased the reporting
burden on hospitals. Aligning and
harmonizing measures across Medicare
programs and implementing electronic
measure reporting are high priority
goals for us, and we seek to further these
goals as we select measures for our
programs. We agree with the
commenters regarding the importance of
measure alignment across our programs
in order to provide meaningful
comparative information for
beneficiaries, and we have sought to
collect and utilize all-patient data for
the measures used in our programs
wherever possible. Currently, we collect
all-patient data for all of the chartabstracted and survey-based measures
for the Hospital IQR, and Hospital OQR
Programs. We also agree that alignment
of measure reporting requirments across
payers would also reduce burden among
providers responding to multiple
reporting requirements. CMS has
adopted many measures that are in
widespread use in the industry and by
other payers, and will continue to do so
when feasible and practicable.
Comment: One commenter
encouraged CMS to articulate the
relationship between the measures
selected for the Hospital IQR Program
and the framework laid out in the
National Quality Strategy.
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Response: In March 2011, HHS issued
a Report to Congress entitled ‘‘National
Strategy for Quality Improvement in
Health Care [National Quality
Strategy].’’ The National Quality
Strategy was developed with input from
stakeholders across the health care
system, including Federal and State
agencies, local communities, provider
organizations, clinicians, patients,
businesses, employers, and payers. The
National Quality Strategy is located at:
http://www.healthcare.gov/center/
reports/nationalqualitystrategy032011.
pdf.
The purpose of the National Quality
Strategy is to provide a strategic plan for
improving health care, of which
measurement is an integral component.
The National Quality Strategy promotes
three overarching aims—Better Care
(improving overall quality by making
health care more patient-centered
reliable, accessible and safe), Healthy
People/Healthy Communities
(improving the health of the U.S.
population by supporting proven
interventions to address behavioral,
social and, environmental determinants
of health in addition to delivering
higher-quality care), and Affordable
Care (reducing the cost of quality health
care for individuals, families,
employers, and government). The NQS
also lists six priorities to target in
furthering these goals: (1) Making care
safer by reducing harm caused in the
delivery of care; (2) ensuring that each
person and family are engaged as a
partner in their care; (3) promoting
effective communication and
coordination of care; (4) promoting the
most effective prevention and treatment
practices for the leading causes of
mortality, starting with cardiovascular
disease; (5) working with communities
to promote wide use of best practices to
enable healthy living; and (6) making
quality care more affordable for
individuals, families, employers, and
governments by developing and
spreading new health care delivery
models.
Our measure selection activity for the
Hospital IQR Program directly addresses
the first five of these six priorities. For
example, the selection of Hospital
Acquired Condition (HAC) measures,
Healthcare-Associated Infection (HAI)
measures, and AHRQ Patient Safety
Indicators (PSIs) and Inpatient Quality
Indicators (IQIs) addresses the first
priority of safer healthcare, and
reduction of harm. The selection of the
HCAHPS survey addresses the second
priority of patient/family engagement.
The risk-adjusted 30-day readmission
and 30-day mortality measures address
effective coordination of care. The
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current process of care measures for
AMI, HF, PN, and Surgical Care address
effective prevention and treatment
practices. Lastly, the structural
measures adopted for the Hospital IQR
Program address encouragement of best
practices. To the extent that the
measures we have adopted for Hospital
IQR are used in CMS value-based
purchasing programs, alternative
payment demonstrations, and the
evaluation of new delivery system
models, the measures also address the
sixth priority area of the National
Quality Strategy.
Comment: One commenter expressed
concern about the overlap in the use of
the same HACs in the Hospital IQR and
Hospital VBP Programs. The commenter
suggested that CMS adopt mutually
exclusive HAC measures so that
hospitals are not penalized for the same
HAC measures adopted for various
Medicare programs.
Response: We do not agree with the
commenter’s view that the
implementation of the same HAC
measures in both the Hospital VBP and
Hospital IQR Programs would penalize
hospitals twice with respect to these
measures. Under section
1886(o)(1)(C)(ii)(I) of the Act, a hospital
that is subject to the payment reduction
under the Hospital IQR Program with
respect to a fiscal year is excluded from
the Hospital VBP Program for that year.
Also, as we stated in the Hospital
Inpatient VBP Program final rule (76 FR
26504), we view the program authorized
by section 3008 of the Affordable Care
Act and the Hospital VBP Program as
being related but separate efforts to
reduce HACs. Although the Hospital
VBP Program is an incentive program
that provides incentive-based payments
to hospitals based on quality
performance, the program established
by section 3008 of the Affordable Care
Act creates a payment adjustment
resulting in payment reductions for the
lowest performing hospitals.
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, although we intend
to monitor the various interactions of
programs authorized by the Affordable
Care Act and their overall impact on
providers and suppliers.
Comment: A few commenters
suggested that CMS should adopt NQFendorsed measures whenever possible.
A commenter further noted that if CMS
adopts non-NQF-endorsed measures,
these measures should be formally
tested prior to their inclusion in the
Hospital IQR Program. Another
commenter stated that if CMS considers
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adopting measures that are endorsed by
organizations other than the NQF, CMS
should ensure that such organizations
demonstrate strong consensus activities
from consumers, healthcare
organizations, physicians and other
relevant professionals, purchasers and
payers, and the organizations should
have demonstrated expertise in
healthcare quality measurement. A
commenter suggested that CMS seek
expedited NQF review of non-NQFendorsed measures under consideration.
Response: We thank the commenters
for all their suggestions for measure
endorsement. We have generally
adopted NQF-endorsed measures
whenever possible. For non-NQF
endorsed measures developed by CMS,
we use a consensus-based measure
development process that includes
broad stakeholder input, and as part of
this development process, we test
feasibility, validity, and reliability
whenever feasible and practicable.
Section 3001(a)(2) of the Affordable
Care Act amended section
1886(b)(3)(B)(viii) of the Act to provide
a different standard for quality measures
included in the Hospital IQR Program
for payments beginning with FY 2013.
Under the amended provision of the
Act, for payments beginning with FY
2013, each measure specified by the
Secretary must be endorsed by a
consensus entity that has a contract
with the Secretary under section 1890(a)
of the Act (currently the NQF), except
in certain circumstances. Specifically,
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 consensus entity, the Secretary
may specify a measure that is not
endorsed by the consensus entity if due
consideration is given to measures that
have been endorsed or adopted by a
consensus organization identified by the
Secretary.
We thank the commenters for
suggesting that we attempt to expedite
NQF review of non-NQF-endorsed
measures under consideration for the
Hospital IQR Program, and we will
consider doing so for measures for
which CMS is the steward.
Comment: One commenter expressed
concerns about the sufficiency of the
risk-adjustment methods for the
proposed process of care and outcome
measures. The commenter
recommended that CMS and AHRQ
convene an expert panel to develop riskadjustment for the measures used in the
Hospital IQR, Hospital Readmissions
Reduction and Hospital VBP Programs.
Commenters stated that riskadjustments should include patient
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demographic factors (for example, age,
sex, race, and socioeconomic status),
severity of illness, and types of services
being provided.
Response: The current 30-day
outcome measures and AHRQ PSIs and
IQIs in the Hospital IQR Program are
NQF-endorsed, and are risk adjusted
using NQF-endorsed risk adjustment
methodologies that include clinical risk
factors. The current NQF policy for risk
adjustment does not encourage risk
adjustment for non-clinical patient
demographic factors, because doing so
may obscure disparities in care
provided by hospitals to disadvantaged
groups. The risk adjustment
methodology employed in the NQFendorsed outcome measures adopted for
the Hospital IQR Program, therefore,
would follow these principles.
Most of the outcome measures used in
these programs are restricted to a
specific condition or procedure, and
therefore do not need to be adjusted for
the type of service being provided as
suggested by one of the commenters.
Other outcome measures, such as the
HACs, assess ‘‘never events’’ or serious
reportable events that would not be
appropriate to risk adjust for either
clinical or demographic factors. CMS
and AHRQ both participate in Measure
Application Partnership workgroups
convened by the NQF. These
workgroups are tasked with issuing
recommendations to HHS on various
aspects of measurement (such as
appropriate risk adjustment) for
consideration in HHS’ programs.
Comment: Some commenters urged
CMS to focus heavily on outcome
measures.
Response: We agree with the
commenters. The adoption of outcome
measures has always been and will
remain as a priority goal for the Hospital
IQR and Hospital VBP Programs.
We thank the commenters for their
comments on our measure development
principles, and we will consider these
comments as we develop and select
measures in the future.
b. Statutory History and History of
Measures Adopted for the Hospital IQR
Program
We refer readers to the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR
43860) and the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50180) for detailed
discussions of the history of the
Hospital IQR Program, including the
statutory history and the measures we
have adopted for the Hospital IQR
measure set through FY 2014.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25891), we sought
comments on an option that would
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51607
allow us from time to time to consider
a range of consensus endorsement
entities or bodies that can assist us with
our measure development process. We
believe that this approach would
provide for a diverse endorsement
process and the best body of evidence
to support measures used in our quality
programs.
Comment: Several commenters
recommended that CMS use the NQF as
the sole consensus entity. These
commenters stated that the NQF, which
is composed of healthcare stakeholders,
has developed a robust measurement
evaluation system for the measure’s
importance, scientific acceptability,
feasibility and usability, and their
endorsed measures are gold standards.
Other commenters recommended the
NQF, Hospital Quality Alliance (HQA),
and Measure Application Partnership
(MAP) as consensus endorsement
entities for assisting CMS in the
measure development process. These
commenters considered these
organizations as the primary consensus
groups for hospital quality reporting.
These commenters believed that the
HQA, composed of public and private
partners, can appropriately select NQFendorsed measures that best assess
quality in high priority areas. These
commenters also pointed out that the
MAP was created under the Affordable
Care Act, and aimed to recommend a
coordinated set of measures for acute
hospital, physician and long-term care
hospital quality reporting. One
commenter requested clarification as to
which other entities are being
considered by CMS for inclusion in its
list(s) of consensus endorsement
entities.
Response: We thank the commenters
for their suggestions. Under section
1886(b)(3)(B)(viii)(IX) of the Act, for
payments beginning with FY 2013, each
measure specified by the Secretary
under the Hospital IQR Program must be
endorsed by the entity with a contract
under section 1890(a) of the Act, except
in certain circumstances. This contract
is currently held by the NQF, and for
this reason, we generally look to the
NQF for endorsement of the measures
we are considering for the Hospital IQR
Program. However, 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
consensus entity, the Secretary may
specify a measure that is not endorsed
by the consensus entity if due
consideration is given to measures that
have been endorsed or adopted by a
consensus organization identified by the
Secretary.
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We also note that we give
consideration to suggestions from other
organizations such as the HQA, and the
newly convened MAP, as well as from
public comment received through
rulemaking. As stated in the proposed
rule, we strive to align measures where
possible and appropriate across
programs.
practice guidelines, and best practices.
We will take this suggestion under
consideration during our measure
maintenance process, which informs
changes to the Specification Manual.
d. Public Display of Quality Measures
Section 1886(b)(3)(B)(viii)(VII) of the
Act, as amended by section 3001(a)(2) of
the Affordable Care Act, requires that
c. Maintenance of Technical
the Secretary establish procedures for
Specifications for Quality Measures
making information regarding measures
submitted available to the public after
The technical specifications for the
Hospital IQR Program measures, or links ensuring that a hospital has the
opportunity to review its data before
to Web sites hosting technical
they are made public. In the FY 2012
specifications, are contained in the
IPPS/LTCH PPS proposed rule (76 FR
CMS/The Joint Commission
25891 through 25892), we proposed to
Specifications Manual for National
display information regarding the
Hospital Inpatient Quality Measures
measures (such as names of measures
(Specifications Manual). This
for which data will be displayed in the
Specifications Manual is posted on the
future) on the Hospital Compare Web
CMS QualityNet Web site at https://
site under this provision, and invited
www.QualityNet.org. We maintain the
technical specifications by updating this public comment on this proposal. We
Specifications Manual semiannually, or will continue our current practice of
reporting data from the Hospital IQR
more frequently in unusual cases, and
Program as soon as it is feasible on CMS
include detailed instructions and
Web sites such as the Hospital Compare
calculation algorithms for hospitals to
use when collecting and submitting data Web site, http://
www.hospitalcompare.hhs.gov, after a
on required measures. These
semiannual updates are accompanied by 30-day preview period.
The Hospital Compare Web site is an
notifications to users, providing
interactive Web tool that assists
sufficient time between the change and
the effective date in order to allow users beneficiaries by providing information
on hospital quality of care to those who
to incorporate changes and updates to
need to select a hospital. It further
the specifications into data collection
serves to encourage beneficiaries to
systems.
work with their doctors and hospitals to
The technical specifications for the
discuss the quality of care hospitals
HCAHPS patient experience of care
provide to patients, thereby providing
survey are contained in the current
HCAHPS Quality Assurance Guidelines an additional incentive to hospitals to
improve the quality of care that they
manual, which is available at the
furnish. The Hospital IQR Program
HCAHPS On-Line Web site, http://
www.hcahpsonline.org. We maintain the currently includes process of care
measures, risk-adjusted outcome
HCAHPS technical specifications by
measures, the HCAHPS patient
updating the HCAHPS Quality
Assurance Guidelines manual annually, experience-of-care survey, and
structural measures, all of which are
and include detailed instructions on
survey implementation, data collection, featured on the Hospital Compare Web
site.
data submission and other relevant
However, information that may not be
topics. As necessary, HCAHPS Bulletins
relevant to or easily understood by
are issued to provide notice of changes
beneficiaries and information for which
and updates to technical specifications
there are unresolved display issues or
in HCAHPS data collection systems.
design considerations for inclusion on
Comment: One commenter requested
Hospital Compare may be made
that CMS exercise its administrative
authority to add the new FDA-approved available on other CMS Web sites that
are not intended to be used as an
Fidaxomicin off-cycle via Release Note
interactive Web tool, such as http://
to the current Specification Manual for
www.cms.hhs.gov/HospitalQualityInits/.
National Hospital Inpatient Quality
Publicly reporting the information in
Measures (3.3a), Medication List—
this manner, though not on the Hospital
Appendix C—Table 2.1 ‘‘Antimicrobial
Medications—for hospital discharges as Compare Web site, allows CMS to meet
the requirement under section
of April 1, 2011.’’
1886(b)(3)(B)(viii)(VII) of the Act for
Response: We convene Technical
establishing procedures to make
Expert Panels (TEPs) for measure
information regarding measures
development and maintenance in order
submitted under the Hospital IQR
to ensure that our measures reflect
current science, evidence-based clinical Program available to the public
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following a preview period. In such
circumstances, affected parties are
notified via CMS listservs, CMS e-mail
blasts, national provider calls, and
QualityNet announcements regarding
the release of preview reports followed
by the posting of data on a Web site
other than Hospital Compare.
Comment: Many commenters
overwhelmingly supported the
increasing transparency in public
reporting and appreciated CMS’s
principles for selecting measures. The
commenters believed that these
principles reflect practical aspects of
quality data reporting such as reducing
the burden of data collection on
providers as well as aligning measures
across programs. The commenters stated
that CMS should ensure that this
performance measure information is
meaningful in improving patient care
outcomes. Some commenters stated that
more consumer education on
performance measure data displayed on
Hospital Compare is needed for
meaningful interpretation of the data
and identification of opportunities to
improve patient outcomes.
Response: We greatly appreciate the
commenters’ support of public quality
reporting and agree that consumer
education is an ongoing process. We
continuously strive to improve the userfriendliness of Hospital Compare Web
site design and educate Medicare
beneficiaries in understanding
healthcare quality and healthcare
trends. For example, we conduct
periodic consumer testing to find out
consumer preference for measure
domains, understanding of measures
and associated explanatory text. We
believe that the reporting of various
hospital quality metrics incentivizes
hospitals to assess their patient care
performance and identify opportunities
to improve patient outcomes. In
addition, the healthcare information
released on Hospital Compare has
become a popular resource for
beneficiaries when they need to make
decisions regarding their healthcare.
Comment: A few commenters
opposed our intention to display
measure names for which data will be
displayed in the future on the Hospital
Compare Web site. The commenters
believed that the display of more
descriptive information on future
measures would help consumers better
understand what the future measures
are. The commenters believed that
displaying only the measure names
would not be helpful to consumers who
need to choose a hospital for medical
care.
Response: We use the Hospital
Compare ‘‘spotlight’’ section to
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highlight upcoming changes to the site,
including the addition of new measures,
topics, and future potential Hospital
VBP Program measures. The measure
names alone are not intended to drive
consumer choice regarding which
hospital to select, but we believe that
highlighting names of measures to be
added to Hospital Compare introduces
possible new topic areas that consumers
can discuss with their physicians in
choosing a hospital. We also provide
information about why the new measure
topic may be important to know about.
Comment: Some commenters stated
that data display on Hospital Compare
should cater to consumers who visit
Hospital Compare for information
related to short-term healthcare
decisions.
Response: We interpret the
commenters’ statements to mean that
the information displayed on the
Hospital Compare should provide
information to help consumers to make
informed decisions regarding inpatient
acute care services (for example,
treatments, tests, procedures or
surgeries) that may be provided by a
hospital. Hospital Compare is designed
to be a consumer-oriented Web site
where consumers can obtain
information on how well hospitals
provide care to their patients. The Web
site displays quality data on process of
care and outcome measures for heart
attack, heart failure, pneumonia and
surgical care as measured by the
Surgical Care Improvement Project
(SCIP). In the future, we will display
data on other topics, such as HospitalAssociated Infections (HAIs) and
complications of care. We will continue
to post data to the Web site in a manner
that is easy for consumers of the data to
understand.
Comment: A few commenters
opposed CMS’ current practice of
publishing performance measure
information on Web sites other than
Hospital Compare for information that
may not be relevant to or easily
understood by beneficiaries and
information for which there are
unresolved display issues or design
considerations for inclusion on Hospital
Compare. The commenters were
concerned that it would be difficult for
providers and consumers to navigate
and track information on multiple sites
and supported Hospital Compare as the
sole source for public display of quality
reporting. The commenters
recommended Hospital Compare be the
sole Web site for display of quality data
and supported continued improvement
in the Hospital Compare Web site to
make its data comprehensive and
meaningful to consumers.
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Response: We believe that Hospital
Compare should be the primary vehicle
for displaying hospital quality data
reported for the Hospital IQR Program.
As we stated in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50185), the data
we display on Web sites other than
Hospital Compare is displayed on a
temporary basis because of pending
display design and other unresolved
issues so as to not confuse beneficiaries
who intend to use data in making
healthcare decisions. Once an
appropriate display mechanism has
been determined, the information is
added to the Hospital Compare Web
site.
Comment: One commenter noted that
results displayed on Hospital Compare
should always exclude results based on
a small number of cases or those results
that may be misinterpreted by
consumers.
Response: Currently, hospital-level
process of care measures based on fewer
than 25 cases are displayed with a
footnote indicating that the number of
cases may be too few for meaningful
comparisons to be made. Hospital-level
risk-adjusted outcome measure rates
based on fewer than 25 cases are not
displayed at all. This minimum case
threshold may be subject to change in
the future to match the minimum case
threshold for the various measures
established for the Hospital VBP
Program. We thank the commenter for
this suggestion.
Comment: One commenter suggested
the standalone display of the PSI–12
Post-operative PE and DVT measure due
to its significance as an indicator of
hospital quality for Medicare
beneficiaries undergoing surgeries that
may put them at risk for
thromboembolism.
Response: We appreciate this
comment. We have not finalized the
display options for the AHRQ PSI and
IQI composite measures, in which PSI–
12 is included. We will take this
suggestion into consideration for the
display of the AHRQ measures.
Comment: One commenter suggested
that public reporting should be
presented in different formats to meet
the needs of consumers, healthcare
providers and researchers.
Response: We are exploring options as
to how best meet the needs of our
multiple stakeholders, including
beneficiaries and researchers. A new
Web site, http://
www.data.medicare.gov, allows
researchers and other interested parties
to view and manipulate multiple data
sources, including downloadable
databases from hospitals, nursing homes
and dialysis facilities.
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Comment: One commenter asked
whether the data displayed on Hospital
Compare included data from Medicare
Advantage affiliated hospitals.
Response: Section
1886(b)(3)(B)(viii)(VII) of the Act
requires that the Secretary establish
procedures for making information
regarding measures submitted under the
Hospital IQR Program available to the
public. The Hospital IQR Program
applies to subsection (d) hospitals,
many of which treat beneficiaries
enrolled in Medicare Advantage (MA)
plans. With respect to the process of
care measures, the data are collected,
and subsequently displayed, on all
patients, including these MA
beneficiaries. However, the claimsbased measures are currently calculated
using only Medicare Part A fee for
service claims and do not, for that
reason, capture MA beneficiary data. In
the future, we hope to collect outcome
measure data on all patients.
After consideration of the public
comments we received, we are
finalizing our proposal to display
information regarding the measures
(such as names of measures for which
data will be displayed in the future) on
the Hospital Compare Web site.
2. Retirement of Hospital IQR Program
Measures
a. Considerations in Retiring Quality
Measures From the Hospital IQR
Program
We generally retain measures from the
previous year’s Hospital IQR Program
measure set for subsequent years’
measure sets. We previously retired one
‘‘topped out’’ measure, PN–1:
Oxygenation Assessment for
Pneumonia, from the Hospital IQR
Program on the basis of high unvarying
performance among hospitals, because
measures with very high performance
among hospitals present little
opportunity for improvement, and do
not provide meaningful distinctions in
performance for consumers.
We also have retired one measure
from the Hospital IQR Program because
it no longer ‘‘represent[ed] the best
clinical practice,’’ as required under
section 1886(b)(3)(B)(viii)(VI) of the Act.
We stated that when there is reason to
believe that the continued collection of
a measure as it is currently specified
raises potential patient safety concerns,
it is appropriate for CMS to take
immediate action to remove a measure
from the Hospital IQR Program and not
wait for the annual rulemaking cycle.
Therefore, we adopted the policy (74 FR
43864 and 43865) that we would
promptly retire such a measure, confirm
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the retirement in the next IPPS
rulemaking cycle, and notify hospitals
and the public of the decision to
promptly retire measures through the
usual hospital and QIO communication
channels used for the Hospital IQR
Program. These channels include
memos, e-mail notification, and
QualityNet Web site postings.
As we stated in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50185),
among the criteria that we consider
when determining whether to retire
Hospital IQR Program measures are the
following: (1) Measure performance
among hospitals is so high and
unvarying that meaningful distinctions
and improvements in performance can
no longer be made; (2) performance or
improvement on a measure does not
result in better patient outcomes; (3) a
measure does not align with current
clinical guidelines or practice; (4) the
availability of a more broadly applicable
(across settings, populations, or
conditions) measure for the topic; (5)
the availability of a measure that is more
proximal in time to desired patient
outcomes for the particular topic; (6) the
availability of a measure that is more
strongly associated with desired patient
outcomes for the particular topic; (7)
collection or public reporting of a
measure leads to negative unintended
consequences other than patient harm.
These criteria were suggested by
commenters during rulemaking, and we
agreed that these criteria should be
among those considered in evaluating
Hospital IQR Program measures for
retirement.
b. Retirement of Hospital IQR Program
Measures for the FY 2014 Payment
Determination and Subsequent Years
In order to reduce the reporting
burden on hospitals, and in particular,
the burden associated with reporting
chart-abstracted measures, we have
considered options to accommodate the
expansion of the measure set through
the retirement of additional Hospital
IQR measures. Specifically, we have
considered retiring one or more of the
measures suggested by various
commenters that were listed in the FY
2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43865). We noted in that final
rule that commenters recommended for
retirement 11 Hospital IQR Program
chart-abstracted measures. Seven of
these 11 measures were recommended
by commenters for retirement based on
their performance being uniformly high
nationwide, with little variability among
hospitals (topped-out measures). Based
on our own analysis, we concluded that
these measures are topped out and for
this reason, we proposed not to include
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them in the FY 2013 Hospital VBP
Program measure set (76 FR 2460).
These measures are listed below:
• AMI–1 Aspirin at arrival
• AMI–3 ACEI/ARB for left ventricular
systolic dysfunction
• AMI–4 Adult smoking cessation
advice/counseling
• AMI–5 Beta-blocker prescribed at
discharge
• HF–4 Adult smoking cessation
advice/counseling
• PN–4 Adult smoking cessation
advice/counseling
• SCIP INF–6 Appropriate Hair
Removal
The methodology we used to
determine that these measures are
topped out is detailed in the Hospital
VBP Program proposed rule (76 FR
2460). In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25892), we
proposed to retire these topped out
measures from the Hospital IQR
measure set. In addition, we proposed to
not include an eighth measure in the FY
2013 Hospital VBP Program measure set
because we believe that inclusion of this
measure would result in the unintended
consequence of inappropriate antibiotic
use (76 FR 2462). This measure is PN–
5c Timing of receipt of initial antibiotic
following hospital arrival. In the FY
2012 IPPS/LTCH PPS proposed rule (76
FR 25892), we also proposed to retire
this measure from the Hospital IQR
Program because of the potential for this
negative unintended consequence.
For these reasons, we proposed to
retire these eight measures from the
Hospital IQR measure set for FY 2014
and subsequent years, and that hospitals
would no longer be required to submit
data on these measures starting with
January 1, 2012 discharges. We invited
public comment on this proposal.
Comment: Several commenters
supported the CMS measure retirement
criteria and the proposed retirement of
the 8 proposed topped out measures to
reduce burden. The commenters
encouraged CMS to replace process
measures with comparable outcome
measures whenever possible.
Response: We thank the commenters
for their support and agree with the
suggestion that, when possible, process
measures should be replaced by suitable
outcome measures.
Comment: A few commenters
suggested that CMS should proceed
cautiously in its decisions whether to
retire topped-out measures or measures
no long supported by scientific
evidence. Some commenters
recommended the continuation of data
collection for topped out measures
because they were concerned that there
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may be unintended consequences, such
as a deterioration of the standard of
care, if data collection and monitoring
are discontinued.
Response: We believe it is appropriate
to retire measures based on our measure
retirement criteria. Retirement using
these criteria also meets our goals of
minimizing the reporting burden, and
staying current with the latest scientific
evidence. Furthermore, we believe that
in many cases, the proposed topped out
measures have been integrated into
standard hospital clinical practices and
for this reason, we believe it is unlikely
that the types of beneficiary care
addressed by these measures would
deteriorate as a result of their retirement
from the Hospital IQR Program measure
set. However, as explained below, we
have decided not to retire four of the
eight measures we proposed to retire.
Instead, we will retain these measures
in the Hospital IQR Program but
suspend data collection on them. We
believe this will address the
commenters’ concern that we proceed
cautiously when deciding whether to
retire measures.
Comment: A few commenters
opposed the retirement of the quality
measures that have been deemed
clinically meaningful or that were part
of long-standing measure sets. A
commenter suggested that CMS consider
including topped out measures in
composite measures. Commenters were
concerned that the retirement of these
measures may disrupt quality
improvement efforts in hospitals. A
commenter noted that quality
measurement in general has the optimal
impact on quality of care and patient
outcomes when multiple related metrics
are used. Another commenter believed
that topped out measures that are NQFendorsed should stay in the Hospital
IQR Program until the NQF has retired
them.
Response: While we are dedicated to
the care and safety of our beneficiaries,
we are also concerned with the burden
placed on hospitals in order to collect
data for the Hospital IQR Program. We
do not believe we should continue
collecting measures simply because they
are part of a long standing measure set
or that it would be generally meaningful
to combine topped out measures into a
composite topped out measure. Our
decision to retire a measure from the
Hospital IQR Program would not
preclude a hospital from continuing to
improve its own performance on the
measure. Moreover, as discussed below,
we are keeping four of the measures we
proposed for retirement in the Hospital
IQR Program, but are suspending the
data submission requirements for these
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measures. This approach will reduce
data collection burdens on hospitals,
but will enable us to resume data
collection should we observe abrupt
declines in adherence to these
measures.
Comment: A few commenters
supported the retirement of AMI–4, HF–
4, and PN–4 because they are topped
out. A few commenters stated that these
3 measures and the PN–5c measure do
not meet the The Joint Commission
accountability measure criteria and
should be retired. Another commenter
requested clarification on the reason for
retiring PN–5c since this measure has
been a high priority in hospitals which
have geared up training efforts for this
measure.
Response: We thank the commenters
for supporting our proposal to retire
these four measures, and we are
finalizing our proposal to retire these
measures beginning with January 1,
2012 discharges. The three adult
smoking cessation counseling measures
(AMI–4, HF–4, and PN–4) are no longer
NQF-endorsed. They are also topped
out, which provides us with some
assurance that these processes have
been incorporated into routine hospital
care. With respect to the PN–5c
measure, we believe that the continued
collection of this measure might lead to
the unintended consequence of
antibiotic overuse, which is a practice
that could negatively affect beneficiary
health and one that should not be
incentivized through the Hospital IQR
Program. Should we decide in the future
that the clinical evidence supports the
re-adoption of one or more of these
measures into the Hospital IQR Program
measure set, we will propose to re-adopt
the measure(s) in rulemaking.
Comment: One commenter suggested
that CMS establish policies to retire a
quality measure midyear if the measure
is found to have unintended serious
consequences.
Response: We appreciate this
suggestion. Our current policy is to
immediately suspend collection of a
measure when there is reason to believe
that continued collection of the measure
raises patient safety concerns. In these
circumstances, we will take action
outside of the rulemaking cycle, and
then confirm the retirement in the next
IPPS rulemaking cycle. We will also
disseminate this information to
hospitals and the public through the
usual hospital and QIO communication
channels used for the Hospital IQR
Program, including the QualityNet Web
site, e-mail blasts, memos and other
information postings as needed.
Comment: One commenter
recommended that the following four
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measures also be considered for
retirement: HF–1 (because it is a ‘‘check
the box’’ measure and is not related to
the quality of the discharge process),
SCIP–Inf–2 (because it is a process
measure which can be replaced by its
outcome measure which is the Surgical
Site Infection measure scheduled for
implementation for FY 2014), SCIP–
INF–VTE–1 and SCIP–VTE–2 (because
these 2 proposed VTE measures are
already included in the VTE measure set
for FY 2015) and PN–3b (because of the
incompatible EHR integration with the
clinical workflow).
Response: We thank the commenter
for these recommendations and will
evaluate them in our measure review for
future rulemaking.
Comment: Many commenters agreed
that the retirement of all eight measures
would result in a reduction in chart
abstraction burden for hospitals.
However, a few commenters were
particularly concerned about retiring
AMI–1, AMI–3, AMI–5, and SCIP
Infection–6 because they have been
designated as accountability measures
by The Joint Commission.5 The
commenters agreed that these measures
should not be used in the Hospital VBP
Program but urged CMS to keep these
measures in the Hospital IQR Program
and continue their display on Hospital
Compare in order to prevent a decline
in adherence to the important care
processes assessed by these measures
that are clinically associated with better
outcomes. Commenters supported the
cessation of data collection for these
measures that we proposed for
retirement (AMI–1, AMI–3, AMI–5, and
SCIP INF–6) in order to ease the data
collection burden.
Response: We have been persuaded
by these commenters that it might be
premature to retire these measures
(AMI–1, AMI–3, AMI–5 and SCIP INF–
6) from the Hospital IQR Program. As
the commenters pointed out, these
measures, unlike the other four
measures we proposed to retire, have
been defined by The Joint Commission
as measures of accountability. In
addition, these measures, unlike three of
the other four measures, are currently
still endorsed by the NQF.
We are sensitive, however, to
comments noting how the continued
adoption of chart-abstraction measures
over time has increased the burden to
hospitals. Therefore, in an effort to
balance our goal to incentivize high
5 Accountability measures are defined by the Joint
Commission as measures that: (1) Support a strong
link between the measure and improved outcomes;
(2) accurately assess the relevant clinical process;
and (3) have minimal unintended adverse
consequences if implemented.
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51611
quality care with the goal to work where
possible to minimize the data collection
burden for hospitals, we have decided
to retain these measures in the Hospital
IQR Program but to suspend data
collection on them until such time that
the evidence shows that hospital
adherence to these practices has
unacceptably declined. In these
circumstances, we would resume data
collection using the same form and
manner and on the same quarterly
schedule that we finalized for these and
other chart abstracted measures for the
applicable period of collection,
providing at least 3 months of notice
prior to resuming data collection.
Hospitals would be notified of this via
CMS listservs, CMS e-mail 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 4
measures.
In summary, based upon the public
comments we received, we are retiring
the following four measures beginning
with January 1, 2012 discharges:
• AMI–4 Adult smoking cessation
advice/counseling
• HF–4 Adult smoking cessation
advice/counseling
• PN–4 Adult smoking cessation
advice/counseling
• PN–5c Timing of receipt of initial
antibiotic following hospital arrival
We are suspending data collection for
the following four measures beginning
with January 1, 2012 discharges:
• 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
3. Measures for the FY 2014 and FY
2015 Hospital IQR Payment
Determinations
a. Considerations in Expanding and
Updating Quality Measures Under the
Hospital IQR Program
In general, we seek to adopt measures
for the Hospital IQR Program that
promote better, safer, more efficient
care. Our measure development and
selection activities for the Hospital IQR
Program take into account national
priorities, such as those established by
the National Priorities Partnership, HHS
Strategic Plan, the National Strategy for
Quality Improvement in Healthcare, as
well as other widely accepted criteria
established in medical literature. (We
refer readers to the following Web sites
regarding these priorities: http://
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www.nationalprioritiespartnership.org/
(National Priorities Partnership); http://
www.hhs.gov/secretary/about/priorities/
priorities.html (HHS Strategic Plan); and
http://www.healthcare.gov/center/
reports/quality03212011a.html
(National Strategy for Quality
Improvement in Healthcare)). To the
extent practicable, we have sought to
adopt measures which have been
endorsed by a national consensus
organization, recommended by multistakeholder organizations, and
developed with the input of providers,
purchasers/payers and other
stakeholders. Because measures for the
Hospital VBP Program must be selected
from the measures specified for the
Hospital IQR Program, the measures to
be selected for inclusion in the Hospital
VBP Program also reflect these
priorities. In addition, we believe it is
important to expand the pool of
measures to include measures that are
directed toward improving patient
safety. This goal is supported by at least
two Federal reports documenting that
tens of thousands of patients do not
receive safe care in the nation’s
hospitals.6 7
Section 3001(a)(2) of the Affordable
Care Act amended the Act by adding a
new section 1886(b)(3)(B)(viii)(VIII) of
the Act. This section states that,
‘‘[e]ffective for payments beginning with
fiscal year 2013, with respect to quality
measures for outcomes of care, the
Secretary shall provide for such risk
adjustment as the Secretary determines
to be appropriate to maintain incentives
for hospitals to treat patients with
severe illnesses or conditions.’’ Section
3001(a)(2) of the Affordable Care Act
also added new sections
1886(b)(3)(B)(viii)(IX)(aa) and (bb) of the
Act. These sections state that ‘‘* * *
effective for payments beginning with
fiscal year 2013, each measure specified
by the Secretary under this clause shall
be endorsed by the entity with a
contract under section 1890(a) [of the
Act],’’ and ‘‘[i]n the case of a specified
area or medical topic determined
appropriate by the Secretary for which
a feasible and practical has not been
endorsed by the entity with a contract
under section 1890(a) [of the Act], the
6 OEI–06–09–00090, ‘‘Adverse Events in
Hospitals: National Incidence Among Medicare
Beneficiaries.’’ Department of Health and Human
Services, Office of Inspector General, November
2010.
7 2009 National Healthcare Quality Report, pp.
107–122. ‘‘Patient Safety,’’ Agency for Healthcare
Research and Quality.
8 McKibben L, Horan T, Guidance on public
reporting of healthcare-associated infections:
Recommendations of the Healthcare Infection
Control Practices Advisory Committee. AJIC 2005;
33:217–26
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Secretary may specify a measure that is
not so endorsed as long as due
consideration is given to measures that
have been endorsed or adopted by a
consensus organization identified by the
Secretary.’’ In the FY 2011 IPPS/LTCH
PPS final rule, we established that all of
the measures adopted in that rule for the
FY 2013 and FY 2014 payment
determinations meet these standards (75
FR 50200).
We have previously acknowledged
the data collection burden for hospitals
participating in the Hospital IQR
Program, and reiterated our desire to
expand the Hospital IQR Program
measure set while minimizing burden
and seeking to provide alternative
mechanisms for data submission (75 FR
50189). We also stated that in future
expansions and updates to the Hospital
IQR Program measure set, we would be
taking into consideration several
important goals. These goals include: (a)
Expanding the types of measures
beyond process of care measures to
include an increased number of
outcome measures, efficiency measures,
and patients’ experience of care
measures; (b) expanding the scope of
hospital services to which the measures
apply; (c) considering the burden on
hospitals in collecting chart-abstracted
data; (d) harmonizing the measures used
in the Hospital IQR Program with other
CMS quality programs to align
incentives and promote coordinated
efforts to improve quality; (e) seeking to
use measures based on alternative
sources of data that do not require chart
abstraction or that utilize data already
being reported by many hospitals, such
as data that hospitals report to clinical
data registries, or all-payer claims
databases; and, (f) weighing the
relevance and utility of the measures
compared to the burden on hospitals in
submitting data under the Hospital IQR
Program.
Specifically, we give priority to
measures that assess performance on: (a)
Conditions that result in the greatest
mortality and morbidity in the Medicare
population; (b) conditions that are high
volume and high cost for the Medicare
program; and, (c) conditions for which
wide cost and treatment variations have
been reported, despite established
clinical guidelines. We have used and
continue to use these criteria to guide
our decisions regarding what measures
to add to the Hospital IQR Program
measure set. In addition, in selecting
measures, we seek to address the six
quality aims of effective, safe, timely,
efficient, patient-centered, and equitable
healthcare. Current and long term
priority topics include: prevention and
population health; safety; chronic
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conditions; high cost and high volume
conditions; elimination of health
disparities; HAIs and other adverse
healthcare outcomes; improved care
coordination; improved efficiency;
improved patient and family experience
of care; effective management of acute
and chronic episodes of care; reduced
unwarranted geographic variation in
quality and efficiency; and adoption and
use of interoperable HIT.
Hospital IQR Program measures were
initially based solely on a hospital’s
submission of chart-abstracted quality
measure data. However, in recent years
we have adopted measures that do not
require chart abstraction, including
structural measures and claims-based
measures that we can calculate using
other data sources. This approach
supports our goal of expanding the
measures for the Hospital IQR Program
while minimizing the burden on
hospitals and, in particular, without
significantly increasing the chart
abstraction burden.
In addition to structural measures and
claims-based measures, we previously
noted that registries are potential
alternative sources of hospital data for
the Hospital IQR Program. (A registry is
a collection of clinical data for purposes
of assessing clinical performance,
quality of care, and opportunities for
quality improvement.) We envisioned
that instead of requiring hospitals to
submit the same data to CMS that many
hospitals are already submitting to
registries, we would collect the data
directly from the registries. This could
enable the expansion of the Hospital
IQR Program measure set without
increasing the burden of data collection
for those hospitals participating in the
registries. We have previously adopted
structural measures of registry
participation, and we continue to
evaluate the feasibility of leveraging
registry-based data collection
mechanisms for the Hospital IQR
Program.
We also stated our intention to
explore mechanisms for data
submission using electronic health
records (EHRs) (73 FR 48614; 74 FR
43866, 43892; and 75 FR 50189).
Establishing such a system will require
interoperability between EHRs and CMS
data collection systems, additional
infrastructure development on the part
of hospitals and CMS, and the adoption
of standards for capturing, formatting,
and transmitting the data elements that
make up the measures. However, once
these activities are accomplished, the
adoption of measures that rely on data
obtained directly from EHRs will enable
us to expand the Hospital IQR Program
measure set with less cost and burden
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to hospitals. We believe that automatic
collection and reporting of data through
EHRs will greatly simplify and
streamline reporting for various CMS
quality reporting programs and that at a
future date, currently targeted to be FY
2015, hospitals will be able to switch
solely to EHR-based reporting of data
that are currently manually chartabstracted and submitted to CMS for the
Hospital IQR Program.
We reiterate our commitment to
pursue our goals to expand and update
quality measures under the Hospital
IQR Program and also to minimize
burden. We note that in addition to the
input we described above, we take into
consideration the measures adopted by
the Hospital Quality Alliance (HQA) as
well as an array of input from the
public. The HQA is a national publicprivate collaboration that is committed
to making meaningful, relevant, and
easily understood information about
hospital performance accessible to the
public and to informing and
encouraging efforts to improve quality.
We appreciate HQA’s integral efforts to
improve hospital quality of care and its
support of our public quality reporting
programs.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50191 through 502192), we
finalized our proposal to adopt
measures for the Hospital IQR Program
for three consecutive payment
determinations. The intent of this policy
was to provide greater certainty for
hospitals to plan to meet future
reporting requirements and implement
related quality improvement efforts. In
addition to giving hospitals more
advance notice in planning quality
reporting, this 3-year approach also
provides more time for us to prepare,
organize and implement the
infrastructure needed to collect data on
the measures and make payment
determinations. We indicated, however,
that these preliminary measure sets
could still be updated through the
rulemaking process should we need to
respond to agency and/or legislative
changes.
Finally, in section IV.A.5.a.(2) of the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50219 through 50220), we adopted a
proposal to make Hospital IQR Program
payment determinations beginning with
FY 2013 using one calendar year of data
for chart-abstracted measures. We will
use this approach, which synchronizes
the quarters for which data on these
measures must be submitted during
each year with the quarters used to
make payment determinations with
respect to a fiscal year beginning with
January 1, 2011 discharges. However, it
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will not affect our payment
determinations until FY 2013.
Section 1886(o)(2)(A) of the Act
requires the Secretary to select
measures, other than readmission
measures, for the Hospital VBP Program
from the measures specified under the
Hospital IQR Program. Section
1886(o)(2)(B)(i)(I) of the Act states that,
for FY 2013, the selected measures must
cover at least the following five
specified conditions or procedures:
Acute myocardial infarction (AMI),
Heart failure (HF), Pneumonia (PN),
Surgeries, as measured by the Surgical
Care Improvement Project (SCIP), and
HAIs, as measured by the prevention
metrics and targets established in the
HHS Action Plan to Prevent HealthcareAssociated Infections [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).
In selecting measures for the Hospital
IQR Program, we are mindful of the
conceptual framework of the Hospital
VBP Program. We will focus on
selecting measures that we believe will
also meet the Hospital VBP Program
measure inclusion criteria and advance
the goals of the Hospital VBP Program
by targeting hospitals’ ability to improve
patient care and patient outcomes.
In addition, in order to support HHS
priorities such as patient safety,
reduction of HAIs, and readmissions,
and to meet more of the widespread
goals of the Affordable Care Act in terms
of improving the quality of care
provided to Medicare beneficiaries, in
the FY 2012 IPPS/LTCH PPS proposed
rule we proposed to adopt measures for
the FY 2014 and FY 2015 Hospital IQR
payment determinations. However, we
noted that the final measure sets to be
used for these years’ payment
determinations could be changed via
future rulemaking. This allows us the
flexibility to accommodate changes in
program needs and legislative changes.
We invited public comment on these
proposals.
Comment: Some commenters were
pleased to see CMS’s move to align
measures used for various Medicare
programs in order to reduce the
reporting burden. Some commenters
supported the alignment of all new
measures with the objectives of the
National Priorities Partnership, the HHS
Strategic Plan, and the National Strategy
for Quality Improvement in Healthcare,
while other commenters recommended
aligning reporting approaches across
payers to reduce the burden of quality
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51613
reporting and to also allow for
meaningful comparisons across payers.
Response: We appreciate the
commenters’ support of our ongoing
alignment strategy. We may consider an
approach to align measures across
payers in the future.
Comment: Many commenters strongly
opposed the adoption of additional
chart-abstracted measures because they
believed these measures would increase
hospital burden. One commenter urged
CMS to limit its adoption of new chartabstracted measures to a maximum of
three per payment determination. Some
commenters recommended that CMS
either: stop adopting additional new
chart-abstracted measures altogether;
propose to adopt new chart-abstracted
measures only if it simultaneously
proposes to retire the same number of
measures; or retire chart-abstracted
measures when related outcome
measures could instead be used.
A commenter suggested that CMS
should monitor whether the adoption of
new measures for the Hospital IQR
Program would create redundancy in
terms of what data is being collected.
This commenter cited the following
measures and measure topics included
in the table of measures and topics
under consideration for future
implementation (76 FR 25899 through
25901) which was included the FY 2012
IPPS/LTCH PPS proposed rule as
examples of potentially duplicative
measures: Timing of Antibiotic
Prophylaxis; Selection of Antibiotic
Prophylaxis; Pre-Operative Beta
Blockade; and Duration of Prophylaxis.
A few commenters cited several other
examples of measures that they believed
are already duplicative. Specifically,
these commenters believed that the 30day mortality rate and 30-day
readmission rate measures for AMI, HF,
and PN were duplicative of the 9 chartabstracted process measures currently
included in the Hospital IQR measure
set for these 3 conditions, and that for
this reason, the chart-abstracted
measures could be retired. Commenters
further noted that the periodic
evaluation of measures for redundancy
would significantly reduce the
administrative burden for hospitals
while maintaining incentive for
hospitals to focus on their quality
improvement efforts.
Commenters also suggested that the
HAC measure (Vascular CatheterAssociated Infections) is so similar to
the CLABSI measure that it is redundant
for CMS to include both of these
measures in the Hospital IQR Program
measure set. These commenters
believed that it is unnecessary and
potentially confusing and inefficient to
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collect data on these two measures
simultaneously.
Response: We agree that chartabstracted measures are burdensome for
hospitals to collect. As soon as we can
obtain quality data from EHRs, we
intend to limit the adoption of chartabstracted measures for future payment
determinations. To ease the burden
before then, we are finalizing our
proposal to retire four chart-abstracted
measures beginning with January 1,
2012 discharges. Additionally, we are
finalizing a policy in this final rule
under which the collection of data on
four chart-abstracted measures will be
suspended until such time that the
clinical evidence indicates that hospital
adherence to these practices has
unacceptably declined. We also
continuously seek to harmonize and
align measure specifications where
applicable in an effort to reduce the
incidence of duplicative measures both
within and across programs. We also
seek to reduce redundancy in
measurement. We will carefully
consider whether the measures cited by
commenters significantly overlap with
each other and, for that reason, whether
some of the measures cited should be
retired.
Comment: One commenter suggested
that for initial transition into EHR
reporting, CMS should limit the number
of electronic measures that could be
collected via EHR technology.
Response: We are mindful of the
potential challenges that could be faced
by hospitals during a transition to EHRbased reporting. We will keep these
challenges in mind as we develop our
proposals for adopting measures that
can be reported through EHRs.
Comment: In response to our
projected timeframe for transitioning to
EHR-based data collection, a commenter
noted that given the slow progress of
EHR software development, it was
premature to anticipate that Hospital
IQR Program measures could be
collected via EHRs by 2015.
Response: We believe FY 2015 is a
reasonable transition date for switching
from chart-abstracted measures to EHRbased reporting for the Hospital IQR
Program because that is the year when
certain hospitals will become subject to
payment adjustments if they do not
demonstrate meaningful use of certified
EHR technology. For this reason, we
believe that these hospitals will be EHRtechnology-ready by FY 2015.
Comment: A few commenters
supported using registries and the EHR
reporting mechanism to ease burden
and to obtain robust clinical data. Some
commenters believed that registries
assist hospitals in managing specific
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patient populations more effectively. A
commenter noted that reporting to a
registry is not the long term solution to
advance the reporting of the
increasingly complex quality data, but
could be an interim solution. A few
commenters opposed using registries
and believed that registry-based
measures would create an extra burden
for hospitals. These commenters
explained that many registries require
data collection from the medical record
only, whereas other registries require
the collection and submission of a
significant number of data elements.
Another commenter noted that registrybased reporting would not be
meaningful when EHR-based reporting
becomes more common in FY 2015.
Response: We believe that registries,
in general, hold promise for less
burdensome quality reporting, and that
is why we adopted several structural
measures that monitor participation in
systematic clinical database registries
for the Hospital IQR Program. We agree
that registry requirements may vary. We
also agree that registries could serve as
an interim solution until we implement
wide-spread EHR-based reporting for
the Hospital IQR Program.
Comment: Some commenters
encouraged CMS to consistently
evaluate the relevancy and need to
modify quality measures in its quality
reporting expansion efforts, for small
rural hospitals with limited resources.
Response: We thank the commenter
for this suggestion. In general, we seek
to adopt measures that are broadly
applicable to all hospitals, including
small rural hospitals. However, we are
mindful of the challenges faced by small
rural hospitals with limited resources.
In summary, we will continue to
pursue goals regarding the expansion
and updating of quality measures under
the Hospital IQR Program while
minimizing burden. We will take into
account the public comments we
received on this issue, including the
possible uses of EHRs and registries in
the Hospital IQR Program. We also note
that in accordance with the policy we
are finalizing in this final rule to
suspend data collection on four
measures (AMI–1, AMI–3, AMI–5, and
SCIP–6), the measure set for FY 2014
and/or FY 2015 that we finalize in this
final rule might change if we resume the
collection of data on one or more of
these measures.
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b. Hospital IQR Program Measures for
the FY 2014 Hospital IQR Payment
Determination
(1) Retention of 56 Hospital IQR
Program Measures Finalized in the FY
2011 IPPS/LTCH PPS Final Rule for the
FY 2014 Payment Determination
We previously finalized 60 measures
for the FY 2014 Hospital IQR Program
measure set. In general, we retain
measures used in prior payment
determinations for subsequent payment
determinations unless otherwise stated.
However, as we discussed above, in the
FY 2012 IPPS/LTCH PPS proposed rule
(76 FR 25892), we proposed to retire 8
measures from the FY 2014 measure set
and to retain the remaining 52 of the 60
quality measures finalized in the FY
2011 IPPS/LTCH PPS final rule for the
FY 2014 payment determination. We
invited public comment on our proposal
to retain these 52 measures for the FY
2014 payment determination. We note
that in this final rule we are finalizing
a policy under which we will retain four
of the eight measures we proposed to
retire and will retain but suspend data
collection for the other four measures.
Comment: One commenter was
concerned about the burden of chartabstraction of two Hospital IQR
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.
To reduce the chart-abstraction burden
for these measures, the commenter
suggested that patients with principal
diagnosis codes unrelated to the cause
for the ED visit be excluded from the
denominator.
Response: We share the commenter’s
concern regarding the burden hospitals
face to collect data on Hospital IQR
measures. We acknowledge that patients
seek medical attention in the hospital
ED for a variety of reasons, some of
which may not appear to be linked with
a discharge diagnosis. We will consider
whether it is appropriate to modify the
ED throughput measures to exclude
patients with a principal diagnosis code
seemingly unrelated to the cause for the
ED visit in the denominator. In such
case, we will seek an NQF ad hoc
review to have the new specifications
endorsed. However, we believe that all
patients, regardless of chief complaint
or discharge diagnosis, should have
access to timely and efficient care.
Comment: One commenter
recommended that for the Surgical Site
Infection (SSI) measure that was
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finalized in the FY 2011 IPPS/LTCH
final rule for the FY 2014 payment
determination, CMS should limit the
surgical procedures to not more than
two and increase the number of surgical
procedures gradually in the future.
Response: We thank the commenter
for the suggestion. In the measure
Specifications Manual, there are
currently 395 SCIP procedures summed
up into 6 stratifications: cardiac surgery,
other cardiac surgery, hip arthroplasty,
colon surgery, hysterectomy and
vascular surgery. We are working with
CDC on the collection of the Surgical
Site Infection data. The data collection
is consistent with the specifications,
and as recommended by the CDC, we
will be collecting data on 2 surgical
procedure categories. This will not only
reduce burden, but will allow the CDC
to collect data in a phased roll out.
Consistent with current NQF
harmonization efforts underway for this
measure, and based on
recommendations by CDC, we will be
collecting Surgical Site Infection data
only for colon and abdominal
hysterectomy procedures via NHSN for
the FY 2014 payment determination.
Comment: A commenter stated that
current mortality and readmissions
outcome measures in the Hospital IQR
Program pose challenges for hospitals.
Other commenters stated that the
hierarchical regression model on which
these measures are based includes a
risk-adjustment methodology that
hospitals cannot replicate or validate.
These commenters believed that this
hampered hospitals from generating
internal reports to assess performance
and that hospitals have to wait for CMS
to provide the information annually.
Response: Although it provides some
challenges to hospitals, we believe that
there are several reasons supporting our
conclusion that hierarchical modeling,
which is NQF-endorsed, is the
appropriate statistical approach for
calculating the hospital outcome
measures: 30-day risk-adjusted all-cause
readmission and mortality measures.
This conclusion is based on the
structure of the data and the underlying
assumption that hospital quality of care
influences 30-day mortality/readmission
rates. First, patients are clustered within
hospitals and, therefore, have a shared
exposure to the hospital quality and
processes. The use of hierarchical
modeling accounts for the clustering of
patients within hospitals. Second,
hierarchical models distinguish withinhospital variation and between-hospital
variation to estimate the hospital’s
contribution to the risk of mortality or
readmission. This allows for an
estimation of the hospital’s influence on
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patient outcomes. Finally, within
hierarchical models we can account for
both differences in case mix and sample
size to fairly profile hospital
performance. If we did not use
hierarchical modeling we could
overestimate variation and potentially
misclassify hospitals’ performance.
This approach to calculating the
numerator, therefore, although more
complex than that used for logistic
regression, is more statistically accurate
and fairer to hospitals. We agree that
hospitals currently cannot replicate the
RSMRs or RSRRs independently.
Although hospitals have access to the
inclusion/exclusion criteria and riskadjustment coefficients used; the model
requires the input of patient
longitudinal data across care settings
and data from the entire national sample
to estimate the hospital-specific effects
used in the calculations. We will
consider whether it is operationally
possible to provide these data to
hospitals and whether sharing these
data would be consistent with patient
privacy considerations.
Comment: A few commenters
opposed the retention of the HAC
measure: Manifestations of Poor
Glycemic Control and the two Global
Immunization measures (Immunization
for Influenza and Immunization for
Pneumonia) because they believed that
these measures are more appropriate to
collect at the physician level.
Response: We disagree with the
commenters’ belief that the measures
are better suited for the physician office.
The HAC measure, manifestation of
poor glycemic control, has ICD–9 codes
that are specific to a secondary
diagnosis in the hospital, not to
ambulatory settings. Certain acute
illnesses and procedures, such as
influenza or surgery, can cause blood
glucose to become uncontrolled in some
patients. In these instances, a patient
may react to high or low blood sugar
with adverse events such as coma, or a
secondary illness or infection. In
response to the comments on the two
Global Immunization measures, we
believe that the acute care setting offers
a unique opportunity to assess a
patient’s immunization status and offer
a service they may not otherwise
receive.
Comment: A commenter stated that
the current AMI and HF measures
adopted for the FY 2014 payment
determination are not well-aligned with
current evidence and treatment
guidelines for AMI or HF that are
reflected in the current performance
measures developed by the American
Heart Association/American College of
Cardiology/Physician Consortium for
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Performance Improvement. The
commenter also stated that the HF–1
discharge instruction measure does not
have a valid process outcome link.
Response: We are interested in the
heart failure measure set referenced by
the commenter, and we included these
measures in our list of measures under
future consideration for this program.
However, the AMI and HF measures
proposed for retention in the Hospital
IQR measure set were developed using
the most up to date clinical evidence.
The CMS TEP convened as part of our
measure maintenance work for these
measures includes members and
guideline authors from both the
American Heart Association and the
American College of Cardiology. We
look to TEPs to inform us of vital
changes to the guidelines, assuring our
measures are scientifically credible. We
believe that the processes assessed by
the HF–1 measure, which assesses
whether discharge instructions for heart
failure patients were issued, are vital in
assuring that patients are appropriately
informed of activities and behaviors that
promote health and positive outcomes.
Comment: A commenter
recommended that CMS separate the
IQI–11 Abdominal aortic aneurysm
(AAA) mortality rate (with or without
volume) measure into two distinct
measures: one measure for those
patients undergoing elective repair and
one measure for those undergoing
emergency or urgent repair. The
commenter believed that this measure
should be stratified by open surgical
and endovascular repair, and that the
risk-adjustment model should be tested
prospectively for accuracy.
Response: We thank the commenter
for this suggestion. AAA repair is a
technically difficult procedure with a
relatively high mortality rate (we refer
readers to http://
www.qualityindicators.ahrq.gov/
modules/iqi_resources.aspx). We have
adopted the measure as it is currently
specified by the Agency for Healthcare
Research and Quality, and endorsed by
the NQF which includes both elective
and emergent cases and is not stratified.
We believe that the measure is
appropriately risk-adjusted to account
for differences in risk factors in the
elective and emergent populations
undergoing this procedure.
After consideration of the public
comments we received, we are
finalizing the retention of 56 measures
that we finalized in the FY 2011 IPPS/
LTCH PPS final rule for the FY 2014
payment determination. We note that
this number includes the four measures
which, as discussed above, we are also
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(2) Additional Hospital IQR Program
Measures for the FY 2014 Payment
Determination
(A) CDC/NHSN-Based HealthcareAssociated Infection (HAI) Measures
HAIs are among the leading causes of
death in the U.S. CDC estimates that as
many as 2 million infections are
acquired each year in hospitals and
result in approximately 90,000 deaths
per year.8 It is estimated that more
Americans die each year from HAIs than
from auto accidents and homicides
combined. HAIs not only put the patient
at risk, but also increase the days of
hospitalization required for patients and
add considerable healthcare costs.
HAIs are largely preventable with
widely publicized interventions such as
better hygiene and advanced
scientifically tested techniques for
surgical patients. Therefore, the public
reporting of HAIs has been of great
interest to many healthcare consumers
and advocacy organizations because it
promotes awareness and permits health
care consumers to choose the hospitals
with lower HAI rates, as well as gives
hospitals an incentive to improve
infection control efforts. To maximize
the efficiency and improve the
coordination of HAI prevention efforts
across the Department, HHS established
in 2008 a senior-level Steering
Committee for the Prevention of
Healthcare-Associated Infections. In
2009, the Steering Committee, along
with scientists and program officials
across the government, developed the
HHS Action Plan to Prevent 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 was
most severe in that setting and the
scientific information on prevention and
the capacity to measure improvement
was most complete. Thus, prevention of
HAIs in acute care hospitals became the
first phase of the Action Plan and it
focuses on six high priority HAI-related
areas.
In addition, the Steering Committee
included in the Action Plan five-year
goals for nine specific measures of
improvement tied to the six HAI
prevention priority areas. Since the
release of the first Action Plan in June
8 McKibben L, Horan T, Guidance on public
reporting of healthcare-associated infections:
Recommendations of the Healthcare Infection
Control Practices Advisory Committee. AJIC 2005;
33:217–26
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2009, the Steering Committee has been
developing a successor plan in
collaboration with public and private
partners which is expected to
incorporate advances in science and
technology and expand the scope to the
outpatient environment. The successor
plan is also expected to address the
health and safety of healthcare
personnel, as well as the risks of
influenza transmission from healthcare
personnel to patients. The second
Action Plan is due for publication in
2011.
We also note that the House
Committee on Appropriations asked in
a 2009 Report that CMS include in its
‘‘pay for reporting’’ system two infection
control measures developed by the
Hospital Quality Alliance (HQA)—
Central line-associated bloodstream
infections and a surgical site infection
rate (H. Rep. No. 111–220, at 159
(2009)). In the report, the Committee
stated that ‘‘if the measures are included
in Hospital Compare, the public
reporting of the data is likely to reduce
HAI occurrence, an outcome
demonstrated in previous research.’’
In the FY 2011 IPPS/LTCH PPS final
rule, we adopted the two HAI measures
identified by the House Committee on
Appropriations in its 2009 report:
Central Line [catheter] Associated Blood
Stream Infection (CLABSI) measure, and
Surgical Site Infection (SSI) measure.
The CLABSI measure is currently being
collected as part of the FY 2013 Hospital
IQR measure set, and data submission
on the measure began with January 2011
events.9 The Surgical Site Infection
(SSI) measure is currently part of the FY
2014 Hospital IQR measure set, and data
submission on the measure will begin
with January 2012 events.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25894 through
25896), we proposed to adopt two
additional HAI measures for the FY
2014 Hospital IQR measure set. These
measures are: (1) Central Line Insertion
Practices, or CLIP (which is NQF # 298
and operationalized by the CDC for
collection through the NHSN); and (2)
Catheter Associated Urinary Tract
Infection (CAUTI) (NQF # 138). Both
measures are high priority HAI
measures that are included among the
prevention metrics established in the
HHS Action Plan To Prevent HAIs
which, as we noted above, underscores
the importance of reducing HAIs. As
detailed below, both measures also meet
Hospital IQR Program statutory
requirements for measure selection.
9 The CDC captures HAI data based on the onset
of an event, rather than based on the discharge date.
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Furthermore, both measures are
currently collected by the NHSN, which
is a secure, Internet-based surveillance
system maintained and managed by the
CDC, and can be used by all types of
healthcare facilities in the U.S.,
including acute care hospitals, long
term acute care hospitals, psychiatric
hospitals, rehabilitation hospitals,
outpatient dialysis centers, ambulatory
surgery centers, and long term care
facilities. The NHSN enables healthcare
facilities to collect and use data about
HAIs, adherence to clinical practices
known to prevent HAIs, the incidence
or prevalence of multidrug-resistant
organisms within their organizations,
and other adverse events. Some States
use NHSN as a means for healthcare
facilities to submit patient-level data on
the measures mandated through their
specific State legislation. Currently, 28
States require hospitals to report HAIs
using NHSN, and CDC provides support
to more than 4,000 hospitals that are
using NHSN. NHSN data collection
occurs via a Web-based tool hosted by
CDC provided free of charge to
providers. In addition, data submission
for HAI measures through EHRs may be
possible in the near future.
Comment: A commenter encouraged
CMS to include only those HACs that
could reasonably be prevented. A
commenter requested clarification on
how the proposed HAI measures differ
from the ‘‘never events’’ currently being
reported.
Response: In our selection of HACs,
we have to meet the requirements under
section 1886(d)(4)(D) of the Act. Section
1886(d)(4)(D) of the Act specifies that by
October 1, 2007, the Secretary was
required to select, in consultation with
the 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. Under this provision,
the HACs we select must be reasonably
preventable. Many of the HACs also are
‘‘never events’’ or serious reportable
events defined by the NQF. The HAI
measures, unlike the HACs, are
designed to look at more than ICD
codes. The CDC criteria for the HAIs
rely on chart-abstracted and point of
care assessments to identify HAIs. Many
of these infections can be identified
during the acute stay, before hospital
discharge, thereby providing a more real
time view of the patient.
Comment: A commenter suggested
that CMS should propose to adopt only
outcome HAI measures rather than
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process HAI measures. Furthermore, the
commenter recommended that CDC
should streamline the amount of
information required for collection
within HAI modules to ease the data
collection burden for providers.
Response: We agree with the
commenters regarding the preference for
outcome measures over process of care
measures. For example, we discuss
below our decision to not finalize the
proposed CLIP measure because we
have been persuaded by commenters
that the CLABSI measure already
adopted for the Hospital IQR Program is
sufficiently related and captures the
outcome of the process of care. We have
shared the comment regarding
streamlining data collection with the
CDC.
(i) Central Line Insertion Practice
Adherence Percentage (CLIP)
Central line associated blood stream
infections (CLABSIs) can be prevented
through proper management of the
central line. The CDC’s Healthcare
Infection Control Practices Advisory
Committee (CDC/HICPAC) Guidelines
for the Prevention of Intravascular
Catheter-Related Infections
recommends evidence-based central
line insertion practices known to reduce
the risk of subsequent central lineassociated bloodstream infection.10
These include hand-washing by
inserters, use of maximal sterile barriers
during insertion, proper use of a skin
antiseptic prior to insertion, and
allowing that skin antiseptic to dry
before catheter insertion. Despite the
scientific evidence supporting these
practices, several reports suggest that
adherence to these practices remains
low in United States hospitals. The
proposed CLIP process measure is a
companion measure to the previously
adopted CLABSI measure, and it
assesses the extent to which a facility
employs practices consistent with CDC/
HICPAC recommendations that are
known to reduce CLABSI. There are 2
States that currently require facilities to
report to NHSN at least one month of
CLIP data.
The CLIP measure is used in State
reporting initiatives and is an NQFendorsed measure (NQF # 298) that is
operationalized for collection by the
CDC via the NHSN. Therefore, the
measure meets the selection criteria
under section 1886(b)(3)(B)(viii)(IX)(aa)
of the Act. This CLIP prevention metric
is also listed in the HHS Action Plan To
10 O’Grady NP, Alexander M, Dellinger EP,
Gerberding JL, Heard SO, Maki DG, et al.,
Guidelines for the Prevention of Intravascular
Catheter-Related Infections. MMWR 2002; 51 (No.
RR–10:1–26).
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Prevent HAIs and, as we detailed above,
has been widely identified as a high
priority for public reporting.
Comment: A few commenters strongly
believed that the CLABSI measure in the
Hospital IQR Program is a valid, wellconstructed, and risk-adjusted outcome
measure. These commenters pointed out
that the decreasing incidence of central
line-associated infections was attributed
to the implementation of this measure
in early 2011 in conjunction with other
ongoing patient safety infection
initiatives. Some commenters noted the
current CLABSI rates have been
excellent.
Commenters opposed the adoption of
the CLIP measure because they believed
that it is labor-intensive to collect, hard
to validate, and does not address the
need for quick removal of the central
line which is the key to reducing
CLABSI. Based on these reasons, the
commenters opposed the adoption of
the proposed CLIP measure, which is a
process measure, because the outcome
itself (CLABSI) is being already reported
by hospitals. Furthermore, one
commenter suggested that if CMS
adopts the measure, it should clarify
that the measure is only applicable to
high risk units such as ICUs where
central lines are generally placed and
should only apply to hospitals with bad
CLABSI outcomes. A commenter
suggested that the measure be riskadjusted based on the morbidity of the
patient at the time of admission. A few
commenters recommended delaying the
adoption of the proposed CLIP measure
until FY 2015 to allow time to refine its
specifications. Some commenters
requested the removal of the CLABSI
HAC claims measure if the CLIP
measure is implemented. A commenter
believed that the proposed time frame to
begin data collection does not allow
proper time for hospitals to assure the
collection of these elements for all the
central line insertions.
Response: We agree with the
commenters that the existing CLABSI
outcome measure is preferable because
it captures the outcome that the process
of care measure (CLIP) is designed to
prevent. Therefore, by measuring the
outcome, we are inherently assessing
the effectiveness of central line insertion
and maintenance processes being
employed by the facility. Consistent
with our goal to shift toward outcome
measures, we are not finalizing our
proposal to adopt the CLIP measure for
the Hospital IQR measure set.
Comment: A few commenters asked
CMS for clarification whether the CLIP
measure developed by the Institute for
Healthcare Improvement (IHI) or the
CDC/NHSN CLIP measure is being
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51617
proposed for adoption into the Hospital
IQR measure set.
Response: We proposed to adopt the
CDC CLIP measure, and we believe that
it is an operationalization of the NQFendorsed CLIP measure (NQF # 0298)
for which IHI (not CDC) is the steward.
Although the NQF-endorsed CLIP
measure was developed by the IHI, it is
based upon the CDC prevention
guidelines for preventing Central Line
Associated Blood Stream Infections.
However, the CDC specifications for the
measure do not require that the hospital
report its daily monitoring of central
lines. For the reasons stated previously,
we will not be adopting the proposed
CLIP measure for the Hospital IQR
Program at this time.
(ii) Catheter Associated Urinary Tract
Infection (CAUTI)
The urinary tract is the most common
site of HAI, accounting for more than 30
percent of infections reported by acute
care hospitals.11 Healthcare-associated
urinary tract infections (UTIs) are
commonly attributed to catheterization
of the urinary tract. CAUTI can lead to
such complications as cystitis,
pyelonephritis, gram-negative
bacteremia, prostatitis, epididymitis,
and orchitis in males and, less
commonly, endocarditis, vertebral
osteomyelitis, septic arthritis,
endophthalmitis, and meningitis in all
patients. Complications associated with
CAUTI cause discomfort to the patient,
prolonged hospital stay, and increased
cost and mortality. Each year, more than
13,000 deaths are associated with
UTIs.12 Prevention of CAUTIs is
discussed in the CDC/HICPAC
document, Guideline for Prevention of
Catheter-associated Urinary Tract
Infections. The NQF-endorsed CAUTI
measure we proposed is currently
collected by the NHSN as part of Statemandated reporting and surveillance
requirements for hospitals. There are 3
States that require facilities to report to
NHSN at least one month of CAUTI
data.
Section 1886(b)(3)(B)(viii)(IX)(aa) of
the Act requires that effective for
payments beginning with FY 2013, each
measure specified by the Secretary for
inclusion in the Hospital IQR Program
be endorsed by the entity with a
contract under section 1890(a) of the
Act, unless the exception set forth in
section 1886(b)(3)(B)(viii)(IX)(bb) of the
11 Klevens RM, Edward JR, et al., Estimating
Health Care-Associated Infections and Deaths in
U.S. Hospitals, 2002. Public Health Reports 2007;
122:160–166.
12 Wong ES., Guideline for Prevention of
Catheter-Associated Urinary Tract Infections. Infect
Control 1981; 2:126–30.
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Act applies. The NQF currently holds
the contract under section 1890(a) of the
Act, and the NQF has endorsed this
CAUTI measure (NQF # 138). For this
reason, we believe that this measure
satisfies the endorsement requirement
applicable to the Hospital IQR Program.
This proposed measure is currently risk
stratified, and therefore is consistent
with section 1886(b)(3)(B)(viii)(VIII) of
the Act. Risk stratification means that it
is calculated using different categories
of patients with varying risk of
developing an infection. At the time of
the FY 2012 IPPS/LTCH PPS proposed
rule, this CAUTI measure (NQF # 138)
was undergoing measure maintenance
review by the NQF and we note that the
review may result in changes to the
specifications. We invited public
comment on our proposal to adopt these
two HAI measures into the Hospital IQR
Program for the FY 2014 payment
determination. We proposed that
hospitals would begin submitting data
on these measures beginning with
events that occur on or after January 1,
2012. We also proposed that hospitals
use the NHSN infrastructure and
protocols, as well as the specifications
(available at http://www.cdc.gov/nhsn/
PDFs/HSPmanual/HPS_Manual.pdf) to
report the measures for Hospital IQR
Program purposes. The proposed
reporting mechanism for these HAI
measures is discussed in greater detail
in section IV.A.5.i. of the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25919
through 25920).
Comment: Many commenters
supported the CAUTI measure and
suggested that CMS monitor a CAUTI
project initiative that is underway to test
the effects of collecting data for both
device days and patient days, each of
which might have different implications
for the urinary tract infection rate.
Several commenters cautioned against
using device days as the measure
denominator because that might have
the unintended consequence of
artificially inflating the UTI rate.
Response: We thank the commenters
for the suggestions. We will monitor this
project as suggested by the commenter.
Currently, we seek to adopt the
measures targeted in the 2009 HHS
Action Plan To Prevent HAIs. These
measures include the proposed NQFendorsed CAUTI measure and that
measure is based on device days. We do
not believe that reporting a measure by
device days would have a negative
effect on patient care or result in patient
harm.
Comment: A commenter remarked
that the measure might encourage
hospitals to reduce the CAUTI
incidence rate, but would not
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completely bring the rate down to zero.
The commenter also noted that it would
be difficult to diagnose every UTI at the
time of admission without increasing
the volume of potentially unnecessary
screenings. The commenter believed
that the pressure to remove catheters
quickly in the ICU and post-surgery can
have unintended consequences and
complications. Several commenters
stated that the CAUTI measure should
have exclusions for patients considered
to be high-risk to avoid unintended
consequences (for example, removal of
catheter too quickly). Commenters
believed that this measure should also
include a data capture point for catheter
reinsertion to collect the rate of repeat
instrumentation and infection risk for
those with early catheter removal.
Response: We thank the commenters
for these suggestions. As stated above,
UTI is the leading cause of HAIs in the
acute care setting, and significantly
reducing UTIs is a component of the
HHS Action Plan To Prevent HAIs, and
we have proposed to use the metric that
is listed in the Action Plan. We do not
believe that the screening of
catheterized patients according to the
NQF-endorsed specifications for this
measure will cause undue treatment or
patient harm. To date, there are no
published studies that we are aware of
that recommend a urinary catheter be
maintained in ICU and post-surgical
patients. We also thank the commenters’
suggestions for a catheter reinsertion
measure. However, we are not aware of
such NQF-endorsed measure. We are
adopting the measure as currently
specified in order to support the
reduction efforts of the HHS Action
Plan. However, we have forwarded
these suggestions to the CDC.
Comment: A few commenters
recommended that CMS delay the
adoption of this proposed measure to
FY 2015 or until: (1) The CDC has
addressed the validation and
implementation issues; (2) all hospitals
have attested to the installation of fully
functional EHR systems; (3) hospitals
and States have had enough time to
develop the proper infrastructure to
report these data (only 3 States currently
require hospitals to report these data);
and (4) the measure is risk-adjusted
based on the morbidity of the patient at
the time of admission.
Response: We disagree with these
recommendations. The measure is NQFendorsed with appropriate riskstratification as previously described.
We have been working in collaboration
with the CDC, and are assured that the
measure is ready for implementation in
the Hospital IQR Program beginning
with January 1, 2012 discharges. The
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data are collected via the NHSN, and
hospitals do not need a fully functional
EHR system in order to submit data to
the NHSN.
Comment: A commenter suggested
that CMS retire the current claims-based
Catheter-Associated Urinary Tract
Infection HAC measure once the
proposed CAUTI measure is adopted for
the Hospital IQR Program.
Response: We agree that the claimsbased CAUTI measure and the NHSN
CAUTI measure may overlap. However,
because the topic of HAIs is of great
importance, and a large quantity of data
for the NHSN version of the measure
will not be available to CMS for some
time, we will continue to utilize the
claims-based measure until such time as
the NHSN version is available to CMS.
We will seek an appropriate time to
retire the claims-based version of the
measure, taking into account the needs
of and impact on other programs, such
as the Hospital VBP Program.
After consideration of the public
comments we received, we are
finalizing the CAUTI measure that we
proposed to adopt for the FY 2014
payment determination.
(B) New Claims-Based Measure
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25896 through
25897), we proposed to add the
following new claim-based measure to
the Hospital IQR Program measure set
for the FY 2014 payment determination:
Medicare Spending per Beneficiary. The
details of this measure are discussed
below.
(i) Medicare Spending per Beneficiary
Measure
Healthcare costs consume an everincreasing amount of our Nation’s
resources, straining family, business,
and government budgets. Healthcare
costs take up a growing share of Federal
and State budgets and imperil the
governments’ long-term fiscal outlooks.
In the U.S., the sources of inefficiency
that are leading to rising healthcare
costs include payment systems that
reward medical inputs rather than
outcomes. Medicare is transforming
from a system that rewards volume of
service to one that rewards efficient,
effective care and reduces delivery
system fragmentation.
In order to further this transformation
and help address the critical issue of
health care costs, in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25896
through 25897) we proposed to add a
measure of Medicare spending per
beneficiary to the Hospital IQR Program
measure set for the FY 2014 payment
determination. This proposed Medicare
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spending per beneficiary measure
addressing the cost of care is a type of
measure that is not currently included
in the Hospital IQR Program. We are not
aware that the NQF or any other
consensus organizations under section
1886(b)(3)(B)(viii)(IX) of the Act have
currently endorsed any Medicare
spending per beneficiary measures. We
will give due consideration under
section 1886(b)(3)(B)(viii)(IX)(bb) of the
Act to any Medicare spending per
beneficiary measures that become
endorsed in the future. It is important
that the cost of care be explicitly
measured so that, in conjunction with
other quality measures included in the
Hospital IQR Program, we can recognize
hospitals that are involved in the
provision of high quality care at lower
cost.
We proposed that this Medicare
spending per beneficiary measure
would be calculated using claims data
for hospital discharges occurring
between May 15, 2012 and February 14,
2013. Therefore, the addition of this
proposed measure would not increase
the data submission burden on
hospitals. We outline below the
methodology that we proposed to use to
calculate the measure.
• The Medicare Spending per
Beneficiary Episode
As we stated in the proposed rule, in
order to calculate the Medicare
spending per beneficiary for each
hospital, we believe that it is necessary
to determine: (1) The timeframe, or
length of the ‘‘spending per beneficiary
episode’’ during which Medicare
payments would be aggregated; (2) the
types of Medicare payments to be
aggregated over this timeframe; and
(3) how to adjust or standardize these
payments across hospitals (for example,
risk adjustment).
• Length of the Medicare Spending per
Beneficiary Episode
Encouraging delivery of coordinated
care in an efficient manner is an
important goal which can best be
achieved through inclusion of Medicare
payments made outside the timeframe
of the hospital inpatient stay. We
proposed to use an episode that runs
from three days prior to an inpatient
PPS hospital admission (the index
admission) through 90 days post
hospital discharge.
We also sought public comment on an
alternative 30-day time period for the
initial implementation of this measure
that would be more consistent with the
30-day time period currently in use for
some outcome measures.
We received numerous public
comments on the proposed length of the
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Medicare spending per beneficiary
episode.
Comment: The majority of
commenters stated an episode spanning
90 days post-discharge was too long to
represent factors which are within
hospitals’ control, and that a shorter
period would focus on factors which are
more directly influenced by the
hospital. Commenters noted physician
care and patient compliance with postdischarge instructions as examples of
factors which are outside the hospital’s
control. Several commenters suggested a
30-day post-discharge period would be
more appropriate. Several commenters
noted that a 30-day post-discharge
period would be consistent with the
measures used in the Hospital
Readmissions Reduction Program. One
commenter noted that it would be
consistent with the bundling pilot
included in the Affordable Care Act.
Many commenters suggested a 15-day
post-discharge period, and a few
suggested a 7- or 15-day post-discharge
period. Three commenters suggested no
more than 14 days, with one suggesting
that this shorter period would simplify
separation of episodes for complex
patients.
Response: We are accepting the
suggestions that we align the length of
the spending per beneficiary episode
with other agency initiatives, including
the post-discharge period that applies to
the readmission measures under the
Hospital IQR Program and the one we
are adopting in this final rule for the
readmission measures we are finalizing
for the Hospital Readmissions
Reduction Program, for the initial
implementation of this measure. We
also believe that a shorter length will
allow hospitals to gain experience with
this measure while we consider whether
it would be appropriate to propose to
hold them accountable for coordinating
services over a longer post-discharge
period. Therefore, we are adopting a
shorter length of the Medicare spending
per beneficiary episode than we
proposed for the Medicare spending per
beneficiary measure to be included in
the FY 2014 Hospital IQR Program. We
also believe that a shorter Medicare
spending per beneficiary episode will
enable us to include a larger number of
episodes in the measure calculation
because admissions occurring more than
30 days after a discharge will now
represent new index admissions, rather
than having the Medicare payments
associated with them attributed back to
the first index admission. This will
potentially allow more opportunity for
hospitals to improve their performance
on the measure.
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We are finalizing a Medicare spending
per beneficiary episode which spans
from 3 days prior to hospital admission
through 30 days post hospital discharge,
for the initial implementation of this
measure. Our intent is to revisit the
episode length in future rulemaking as
we gain more experience with this
measure and as hospitals gain more
experience in redesigning care processes
and coordinating patient care in the
post-hospital discharge period, and we
will strongly consider lengthening the
Medicare spending per beneficiary
episode.
Comment: A few commenters
suggested that a 90-day post-discharge
period was not long enough. One
commenter suggested that an episode of
1 year or more post-discharge would be
required in order to realize savings
achieved by selection of treatment
alternatives which are more costly
initially. Another commenter suggested
that a minimum of 6 months would be
necessary to recognize system-wide cost
savings across all Part A and Part B
payments and stated that a 90-day postdischarge period, if adopted, should
only count inpatient hospital costs, in
recognition that other provider types do
not have similar incentives and that
readmissions could likely be reduced
over 90 days.
Response: We acknowledge that
including a longer post-discharge period
in the Medicare spending per
beneficiary episode could recognize
system-wide cost savings. However, we
are going to implement a 30-day postdischarge period for the measure for the
FY 2014 Hospital IQR Program for the
reasons discussed above. We intend to
revisit the episode length in the future
in order to determine whether a longer
Medicare spending per beneficiary postdischarge window would be appropriate
for incentivizing greater efficiency, care
coordination, and care transitions.
Comment: One commenter expressed
strong support for the 90-day postdischarge period, noting that it
encourages the teamwork and care
coordination that is necessary to achieve
the delivery of high quality, efficient
healthcare.
Response: We agree that a 90-day
episode would encourage teamwork and
cooperation for the provision of quality
care to Medicare beneficiaries. However,
we are finalizing a 30-day post
discharge window in order for hospitals
to gain experience with the measure,
and work toward redesign of care
processes, while we consider whether it
would be appropriate to propose to hold
them accountable for coordinating
services over a longer post-discharge
period.
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Comment: Several commenters
requested clarification as to whether the
spending per beneficiary measure was
intended to measure general perbeneficiary spending or to measure the
per-beneficiary spending of specific
hospitals. These commenters suggested
that a 90-day post discharge period was
appropriate for inclusion in an episode
to measure general per-beneficiary
spending, but that if that spending was
to be attributed to a specific hospital,
then a shorter period, such as 7 or 15
days would be more appropriate.
Response: The intent of the Medicare
spending per beneficiary measure is to
measure hospital-specific Medicare
spending per beneficiary, as compared
to the median Medicare spending
amount across all hospitals nationally.
We believe that a comparison of
individual hospitals’ spending to
hospital spending on a national level
will best allow hospitals to recognize
where opportunities for improved
efficiencies exist. We do not believe that
display of general per beneficiary
spending would achieve this intent,
because it would not indicate to
hospitals how their individual Medicare
spending per beneficiary amount
compares to other hospitals.
After consideration of all public
comments we received on the length of
the Medicare spending per beneficiary
episode, we are finalizing a Medicare
spending per beneficiary episode,
spanning from 3 days prior to
hospitalization through 30-days post
discharge. We are finalizing the policy
that only discharges occurring within 30
days before the end of the performance
period will be counted as index
admissions for purposes of calculating
episodes. We intend to revisit the length
of the Medicare spending per
beneficiary episode as we gain more
experience with the use of this measure
and as hospitals increasingly focus on
working to redesign care processes and
to coordinate with other providers of
care, in the interest of providing the
highest-quality, most efficient
coordinated care possible to the
beneficiaries they serve.
• Medicare Payments Included in the
Spending per Beneficiary Episode
In order to calculate the Medicare
spending per beneficiary, it is necessary
to define the Medicare payments
included in the spending per
beneficiary episode. Subject to the
adjustments described below, we
proposed to include all Medicare Part A
and Part B payments made for services
provided to the beneficiary during the
episode, including payments made by
beneficiaries that we can determine
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using our claims data, such as Part B
deductibles and coinsurance amounts.
We believe that this comprehensive
inclusion of Medicare Part A and Part B
spending emphasizes the importance of
care coordination in improving patient
care. Encouraging delivery of
coordinated care in an efficient manner
over an extended time period is an
important goal which can best be
achieved through the inclusion of
comprehensive Medicare Part A and
Part B spending.
We also proposed that transfers,
readmissions, and additional
admissions that began during the post
discharge period of an index admission
would be included in the episode used
for calculating the measure.
We proposed to exclude from the
Medicare spending per beneficiary
calculation episodes where at any time
during the episode the beneficiary is not
enrolled in both Medicare Part A and
Medicare Part B, including if the
beneficiary is enrolled in a Medicare
Advantage plan at any time during the
episode or becomes deceased. We also
proposed to exclude any episodes where
the beneficiary is covered by the
Railroad Retirement Board, and where
Medicare is a secondary payer. We also
proposed to exclude episodes where the
beneficiary is not enrolled in both
Medicare Part A and Medicare Part B,
for the 90 days prior to the episode,
because we would not be able to capture
all the data necessary for the severity of
illness adjustment discussed later in
this preamble. The rationale for
exclusion of these episodes from the
calculation of the Medicare spending
per beneficiary is that we do not have
full payment data to identify and
standardize spending which would
otherwise be attributable to these
episodes.
We received numerous public
comments on the payments proposed
for inclusion in the Medicare spending
per beneficiary measure.
Comment: Almost half of the
commenters requested clarification of
the proposed handling of transfer cases,
and many requested clarification of the
proposed handling of readmissions. One
commenter requested clarification of the
proposed handling of cases in which the
beneficiary’s primary insurance
becomes Medicaid during the episode,
due to exhaustion of Medicare Part A
benefits.
Response: We proposed to include in
the spending per beneficiary episode all
Medicare Part A and Part B payments
made for services provided to the
beneficiary during the episode that we
can determine using our claims data.
Readmissions and transfers would have
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been attributed to the hospital at which
the index hospitalization occurred as
long as they occurred during the postdischarge window of the index
admission. For example, Medicare
payments for any of the following which
happened during the hospital stay or the
post-discharge window would have
been included in the Medicare spending
per beneficiary episode: A beneficiary
was transferred from the subsection (d)
hospital to another subsection (d)
hospital for the purposes of receiving
inpatient services; a beneficiary was
transferred from the subsection (d)
hospital to a post-acute care setting,
such as a SNF, LTCH, or home; a
beneficiary was readmitted to the same
subsection (d) hospital; and/or the
beneficiary was admitted to a different
subsection (d) hospital. As noted above,
we are finalizing a Medicare spending
per beneficiary episode, spanning from
3 days prior to hospitalization through
30-days post discharge, in response to
public comment.
Based on public comment, however,
we have reconsidered the proposed
handling of transfers from one
subsection (d) hospital to another, as
discussed below. We also note that, in
response to public comment, we have
reconsidered whether statistical outliers
should be included in the Medicare
spending per beneficiary amount, and
we will exclude them, as discussed
below. To clarify our proposal regarding
beneficiaries whose primary insurance
becomes Medicaid during the episode,
due to exhaustion of Medicare Part A
benefits, we will not include Medicaid
payments made for services rendered to
those beneficiaries during the episode,
because this is a measure of Medicare
spending per beneficiary, not Medicaid
spending. We will include all Medicare
Part A payments made before benefits
are exhausted and all Medicare Part B
payments made during the episode,
consistent with our policy for inclusion
of all Medicare Part A and Part B
payments, with the exception of
statistical outliers, as discussed below,
in the calculation of hospitals’ Medicare
spending per beneficiary amounts in all
cases. We intend to analyze the impact
of including episodes in which
beneficiaries’ primary insurance
changes to Medicaid in this measure
and will consider refinements to this
policy in the future. We will also
include Medicare payments made for
services rendered to beneficiaries who
are eligible for both Medicare and
Medicaid in the Medicare spending per
beneficiary amount.
Comment: Several commenters stated
that inclusion of Medicare payments for
all Part A and Part B services occurring
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during the post-discharge period would
penalize hospitals for ensuring that
patients receive necessary postdischarge follow-up care.
Response: We do not believe that
inclusion of all Part A and Part B
Medicare spending during the Medicare
spending per beneficiary episode will
penalize hospitals for ensuring that
beneficiaries receive needed postdischarge care. The measure’s purpose
is to assess the amount of payments
Medicare makes surrounding an
inpatient hospital stay at a subsection
(d) hospital, as compared to a national
benchmark. We believe that hospitals
which provide quality inpatient care
and 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. We believe that
including a 30-day post-discharge
period, as compared to a shorter postdischarge period, such as 7 or 14 days,
will further reduce the risk that
hospitals might delay needed postdischarge care.
Comment: Six commenters expressed
the opinion that readmissions should be
excluded from the measure, and four of
those commenters believed that the
Affordable Care Act prohibits inclusion
of readmissions in this measure. Two of
those commenters noted that
readmissions are addressed in other
measures. One commenter suggested
that readmissions should not be
attributed to the hospital at which the
index admission occurred, and another
commenter suggested that readmissions
should not be treated as index
admissions, for the purposes of creating
new, distinct episodes. Six commenters
suggested that unrelated readmissions
should be excluded, and one commenter
suggested that unrelated readmissions
should not be attributed to the hospital
where the index hospitalization
occurred.
Response: We disagree with the
interpretation that the inclusion of
Medicare spending for readmissions is
contrary to the intent of the Affordable
Care Act that the Hospital VBP Program
may not include measures of
readmissions. The Medicare spending
per beneficiary measure is not a
measure of readmission rates, but rather
it is a measure of total Medicare
spending per beneficiary, relative to a
hospital stay. A Medicare spending per
beneficiary measure is required by the
Affordable Care Act to be included in
the Hospital VBP Program, and
therefore, in the Hospital IQR Program.
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We believe that 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.
With regard to exclusion of unrelated
readmissions, we acknowledge the
commenters who suggested that
unforeseen events which are unrelated
to the hospital stay could occur.
However, we note that the measure is
consistent with all cause readmission
measures and that determinations of the
degree of relatedness of each subsequent
hospital stay to an initial hospitalization
could be subjective and prohibitively
complex. We believe that inclusion of
all readmissions in the episode
attributable to the index hospital stay is
the best way to encourage quality
inpatient care, care coordination, and
care transitions. We note that 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 all readmissions will
notably disadvantage any individual
hospital. We also note that, in response
to public comment, we will exclude
statistical outliers from the calculation
of the Medicare spending per
beneficiary amount, as discussed below.
We agree with the commenter who
suggested that a readmission occurring
during a Medicare spending per
beneficiary episode should not
represent a new index hospitalization,
for the purpose of generating a new
Medicare spending per beneficiary
episode. We also acknowledge the
importance of aligning payment
initiatives across CMS. Based on our
consideration of the comments we
received, we are shortening the
proposed post-discharge period
included in the Medicare spending per
beneficiary episode to 30 days in this
final rule, which is consistent with the
Hospital Readmissions Reduction
Program.
Comment: One commenter stated that
no services for conditions unrelated to
the index hospitalization should be
attributed to the hospital at which that
hospitalization occurred.
Response: We acknowledge the fact
that health events which are unrelated
to the hospital stay could occur and
require treatment post-discharge, during
the Medicare spending per beneficiary
episode. However, we believe that
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51621
determinations of the degree of
relatedness of each subsequent hospital
stay to an initial hospitalization would
be subjective and prohibitively
complex. In order to capture the
potential efficiencies which hospitals
might achieve through provision of
comprehensive, high-quality inpatient
care, discharge planning, and care
transitions, we believe that it is
necessary to capture all Part A and Part
B Medicare payments which occur
during the Medicare spending per
beneficiary episode surrounding the
hospital stay. We also note that 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 all post-discharge follow-up
care will notably disadvantage any
individual hospital. Again, we note that,
in response to public comment, we will
exclude statistical outliers from the
calculation of the Medicare spending
per beneficiary amount, as discussed
below.
Comment: Four commenters stated
that transfer cases should be excluded,
in order to avoid penalizing hospitals
often called upon to receive transfers,
because follow-up care may be received
in a region outside the influence of the
hospital receiving the transfer, and for
consistency with the Hospital
Readmissions Reduction Program.
Response: The comments regarding
attribution of Medicare payments for
hospitalizations resulting in acute to
acute transfers, and specifically, the
potential impact on hospitals who
transfer patients to another subsection
(d) hospital or those who receive large
numbers of transfers, have persuaded us
that that the attribution of Medicare
payments for hospitalizations resulting
in acute to acute transfers requires
further consideration. At this time, we
will exclude cases involving acute to
acute transfers from being considered
index admissions. A case involving an
acute to acute transfer will therefore not
generate a new Medicare spending per
beneficiary episode. This means that
neither the hospital which transfers a
patient to another subsection (d)
hospital, nor the receiving subsection
(d) hospital will have an index
admission attributed to them for an
acute-to-acute transfer case. The
rationale for exclusion of these acute to
acute transfer cases as index admissions
is that CMS wishes to perform further
analysis of hospital impacts and explore
potential unintended consequences of
attribution of the Medicare spending per
beneficiary episode relative to the cases
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to either the transferring or the receiving
hospital. Therefore, at this time we will
exclude acute-to-acute transfer cases
from being counted as index
admissions, and these cases will not
create a new Medicare spending per
beneficiary episode. However, if a
patient is readmitted during the postdischarge window and then transferred
to another acute care hospital, we will
attribute these costs to the hospital
where the original index admission
occurred.
For example, if a beneficiary is
hospitalized in a subsection (d) hospital
(Hospital A), then discharged from that
hospital to home or to another subacute
level of care, such as a SNF, then that
hospitalization would represent an
index admission, and the Medicare Part
A and Part B payments (with the
exception of statistical outliers) which
are made during the Medicare spending
per beneficiary episode spanning from 3
days prior to admission through 30 days
post discharge (including payments to a
subacute facility) would be included in
the Medicare spending per beneficiary
amount attributed to Hospital A. We
would also include, in the total Part A
and Part B payments attributed to
hospital A, any Medicare payments
made for the beneficiary’s readmission
to the same or a different subsection (d)
hospital during the 30 day postdischarge window, including any case
where during that subsequent
hospitalization, the beneficiary is
transferred to another subsection (d)
hospital.
Comment: Several commenters
offered their views regarding the
importance of looking at Medicare
spending concurrently with other
measures of quality, and potential
unintended consequences of a measure
which is specific to Medicare spending.
These commenters stated that the scope
of the measure should not be Medicare
spending alone, but that spending data
should be tied to other measures. One
commenter suggested that the measure
should assess conformity toward an
endorsed care process. Several
commenters stated that an efficiency
measure should measure cost
concurrently with quality or outcomes
measures, and three commenters stated
that Medicare spending data could be
misinterpreted in the absence of quality
data.
One commenter stated that the
measure should be implemented for FY
2014, but should be adjusted to tie in a
new HCAHPS measure of care
transitions. Three commenters stated
that a spending-only measure could
result in the unintended consequence of
efforts to cut cost by limiting needed
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care, and another commenter suggested
that it could result in a risk of hospital
avoidance of complex patients. One
commenter stated that the measure
would penalize hospitals that work to
keep all but the sickest patients out of
the hospital. One commenter stated that
the measure would result in physicians
placing more patients into inpatient
care, post hospital discharge, in order to
assure proper care transitions, and one
commenter questioned the measure’s
inclusion in a quality reporting program
when it does not inherently measure
quality.
Response: We agree with the
commenters that it is useful to view a
measure of Medicare spending per
beneficiary in conjunction with other
quality measures. We will provide
explanatory language on Hospital
Compare, in order to assist beneficiaries
in interpreting the Medicare spending
per beneficiary measure data. We also
note that we developed this measure
with the intent of including it in the
Hospital VBP Program, where it will
represent the first measure in a new
Efficiency domain. Under that program,
we will weight and combine the
Efficiency domain with the other,
individual domain scores, in order to
calculate each hospital’s Total
Performance Score (TPS). This
procedure for calculating a TPS ensures
that spending per beneficiary makes up
only a portion of the TPS, and that the
remainder is based on hospitals’
performance on the other measures.
We disagree that Medicare spending
per beneficiary should be tied to a new
HCAHPS measure. The Affordable Care
Act requires the inclusion of efficiency
measures, and specifically the inclusion
of a measure of Medicare spending per
beneficiary, in the Hospital VBP
Program, which in turn, means that the
measure must also be adopted for the
Hospital IQR Program. We believe the
intent of this statutory mandate is for
Medicare spending to be independently
measured.
The data for the Medicare spending
per beneficiary measure will be posted
on Hospital Compare, along with the
other hospital quality measure data
available on that Web site. We will also
provide explanatory language, in order
to assist beneficiaries in interpreting the
Medicare spending per beneficiary
measure data. We appreciate the
commenters’ concerns regarding
unintended consequences of a spending
per beneficiary measure, and will
monitor for any utilization changes
which may result from this measure.
We disagree that the measure will
penalize hospitals that work to keep all
but the sickest beneficiaries out of the
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hospital. We proposed to utilize the
primary diagnoses and comorbidities
from claims submitted during the 90days preceding the Medicare spending
per beneficiary episode to risk-adjust
Medicare payments made for services
provided to beneficiaries during an
inpatient hospital stay and during the
Medicare spending per beneficiary
episode surrounding the stay. We
believe that this will adequately account
for hospital treatment of complex
patients. We also disagree with the
comment that the measure provides an
incentive for increased discharges from
hospitals to other inpatient settings. We
believe that hospitals will have an
incentive to coordinate care and
discharge beneficiaries to the most
appropriate setting, including utilizing
less-costly outpatient levels of care for
post-discharge care. With regard to
inclusion of the Medicare spending per
beneficiary in a quality reporting
program, we disagree with the comment
that it does not belong in the program.
We believe that hospitals’ provision of
quality, coordinated care will result in
more efficient and effective delivery of
care for Medicare beneficiaries and
provides an incentive to eliminate
unnecessary services. Therefore, we
believe that a measure of Medicare
spending per beneficiary is a measure of
quality.
Comment: Two commenters objected
to the use of an episode in the Medicare
spending per beneficiary measure
because they believed that it did not
meet the intent of the Affordable Care
Act to measure spending per
beneficiary.
Response: The Affordable Care Act
requires that the Hospital VBP Program
include measures of efficiency,
including Medicare spending per
beneficiary. As we expand the Hospital
VBP Program Efficiency domain, we
will consider adding additional
measures of efficiency, which could
include measures of internal hospital
efficiencies, through future rulemaking.
Comment: One commenter suggested
that spending for Medicare Advantage
beneficiaries should be included in the
measure, because non-managed care
beneficiaries are costlier.
Response: We do not have evidence
that managed care beneficiaries are less
expensive. In order to minimize burden
on hospitals, CMS has proposed the
Medicare spending per beneficiary
measure as a claims-based measure.
Therefore, we cannot include spending
for managed care beneficiaries in the
measure calculation since we do not
have fee-for-service claims for these
patients. In order to fairly compare
hospitals’ spending, we have proposed
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to exclude from the measure any
episodes in which we do not have
complete Medicare FFS claims data,
such as those enrolled in Medicare
Advantage plans. We will account for
the complexities and resulting costs
associated with caring for Medicare
beneficiaries who have complex
conditions by risk-adjusting for
beneficiary age and severity of illness.
Comment: One commenter suggested
that Medicare payments for drugs
should be included, because
expenditure on a new technology, for
example, could offset future costs for
drugs.
Response: We appreciate this
comment and will take it into
consideration in future rulemaking for
the Medicare spending per beneficiary
measure. At this time, we are able to
include Part A and Part B payments, so
payments for Part B drugs will be
included in the Medicare spending per
beneficiary amount. We will consider
whether to propose to include Medicare
payments made under the Medicare Part
D drug payment system in the future.
Comment: Two commenters stated
that a hospital cost efficiency measure
should be limited to hospital resource
use, such as resources used to treat HAIs
and falls, or provision of appropriate
lengths of stay.
Response: We disagree with these
comments. The Affordable Care Act
requires that the Hospital VBP Program
include measures of efficiency,
including Medicare spending per
beneficiary. We do not believe that a
measure of hospital resource use, rather
than Medicare payments, as suggested
by the commenters, would meet the
intent of the law that we include a
measure of Medicare spending per
beneficiary. As we expand the Hospital
VBP Program Efficiency domain, we
will consider adding additional
measures of efficiency, which could
include measures of internal hospital
efficiencies, through future rulemaking.
Comment: One commenter stated that
CMS policies should not punish the
most efficient states and that CMS
should seek savings from providers and
regions that use the highest levels of
respurces to care for patients.
Response: We agree that efficient
providers should not be penalized, and
we believe they will be incentivized
under this measure. We are finalizing
our proposal to calculate hospitals’
Medicare spending per beneficiary
ratios as compared to the median
spending across all hospitals; therefore,
we believe that hospitals who
demonstrate efficiencies in the
provision of care for their patients will
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perform well on the measure, regardless
of where the hospital is located.
Comment: Two commenters stated
that there was no scientific or
evidentiary support for the measure.
Response: We recognize that this
Medicare spending per beneficiary
measure is a new type of measure for
the Hospital IQR and Hospital VBP
Programs. A measure of Medicare
spending per beneficiary is is mandated
by the Affordable Care Act, so we
developed a measure to capture
Medicare payments made in an episode
surrounding a hospital stay, in order to
compare hospitals’ individual spending
to spending across all hospitals. We
considered many factors in developing
the measure and outlined in detail our
methodology in the proposed rule. We
believe that this measure will provide
an incentive to hospitals to redesign
care systems in order to better
coordinate and provide high-quality,
cost-efficient care to Medicare
beneficiaries. As we gain more
experience with the use of this new type
measure for the Hospital IQR Program,
we will continue to analyze and refine
the measure as appropriate, based on
that experience.
Comment: Several commenters
recommended that the scope of
Medicare payments included in the
Medicare spending per beneficiary be
narrowed. MedPAC suggested focus on
a subset of episode costs associated with
the stay, such as the stay itself and post
acute care provided during a shortened
post-discharge period. Two commenters
suggested use of condition-specific
measures to address costs associated
with diagnoses such as acute
myocardial infarction (AMI), heart
failure (HF), or pneumonia. One
commenter suggested that the measure
should be better targeted, consistent
with the Hospital Readmissions
Reduction Program and the bundling
pilot, and another commenter suggested
that the measure should use criteria
similar to those required for the
bundling pilot. One commenter
suggested that the measure be limited to
inpatient hospital spending over 90
days, in an effort to reduce readmissions
through care coordination, but with the
recognition that other types of providers
do not have the same incentives to
reduce Medicare spending.
Response: We appreciate the
commenters suggestion that the
Medicare spending per beneficiary
measure should be aligned with
measures used in other Medicare
payment incentive programs. We
believe that inclusion of Medicare
spending for all Part A and Part B
services in the calculation of the
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hospital’s Medicare spending per
beneficiary amount aligns with the aim
of reducing readmissions under the
Hospital Readmissions Reduction
Program. We also note that the bundling
pilot is under development and we will
seek to align the Hospital VBP Program
with that program as it develops.
We appreciate the comments
regarding the use of targeted or
condition-specific measures in the
interest of aligning with other CMSinitiatives. While the Affordable Care
Act does not limit the Secretary to
adopting only one efficiency measure, it
does specify that the efficiency
measures must include a measure of
Medicare spending per beneficiary, not
per condition. At this time, we believe
that inclusion of Medicare spending
related to hospital stays for all diagnoses
is the best approach to enable hospitals
identify where opportunities for
improved coordination and efficiency
exist, by measuring hospitals’
individual Medicare spending per
beneficiary amount, as compared to
Medicare spending per beneficiary on a
national basis. We will consider adding
condition-specific measures to the
Hospital IQR Program and to the
Efficiency domain in the Hospital VBP
Program in the future, through
rulemaking. We have shortened the
post-discharge period during which
Medicare payments will be included in
the calculation of the Medicare
spending per beneficiary amount in
order to more closely align the measure
with the Hospital Readmissions
Reduction Program and other related
initiatives.
We disagree with the comment that
only inpatient payments should be
counted toward the Medicare spending
per beneficiary amount. As we
explained above, we do not believe that
inclusion of inpatient hospital payments
only will sufficiently address the need
for care coordination and care
transitions across all settings, in the
interest of providing the highest-quality,
most efficient care to Medicare
beneficiaries.
Comment: Some commenters stated
that CMS should collect more data
regarding the impact of inclusion of
spending for post-acute care services in
the measure, due to variability in access
across different geographic areas, prior
to including spending for these services
in the measure. Two commenters
suggested that no post-discharge
services should be included in the
measure, and expressed their belief that
post-discharge services are not within a
hospital’s control. A few commenters
stated that the measure should address
processes or outcomes which are under
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hospital control, and that all Medicare
spending within a 90-day post-discharge
period is not under hospital control. A
few commenters expressed that postdischarge payments depend more on
physician management, beneficiary
compliance with care planning, and
community resources than they depend
on care coordination by the hospital.
Response: We acknowledge the
comments that geographic variability in
access to post-acute care services exists.
However, we believe that hospitals have
a responsibility to encourage the
highest-quality, most coordinated and
efficient care for the beneficiaries they
serve, regardless of their geographic
location.
We disagree with commenters who
stated that Medicare spending for postdischarge services is outside the
hospitals’ control, even within a 90-day
post-discharge period. (As previously
discussed, we are finalizing a 30-day
post-discharge period for the initial
implementation of this measure.) We
believe that as hospitals focus on
working to redesign care systems and to
coordinate with other providers of care
they can have a significant impact on
the quality and efficiency of services
provided to the Medicare beneficiaries
they serve. As a result, we plan to revisit
the issue of expanding the episode
duration by lengthening the period of
time post discharge in future
rulemaking. We acknowledge that
physician management, beneficiary
compliance with post-discharge
instructions, and availability of
community resources contribute to
Medicare spending after hospital
discharge. However, we believe that
hospitals have a significant influence on
Medicare spending during the episode
surrounding a hospitalization, through
the provision of appropriate, highquality care before and during inpatient
hospitalization and through proper
hospital discharge planning, care
coordination, and care transitions. We
believe that this measure will add an
additional incentive for hospitals to
apply this influence in ways that will
promote the provision of the highest
quality, most efficient care for
hospitalized Medicare beneficiaries.
After consideration of all public
comments we received on our proposals
regarding which Medicare payments we
will include in the Medicare spending
per beneficiary episode, we are
finalizing the inclusion of Medicare
payments for all Part A and Part B
services rendered to Medicare
beneficiaries during the Medicare
spending per beneficiary episode, with
the exception of statistical outliers, in
the Medicare spending per beneficiary
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amount, which we will attribute to the
hospital at which the index admission
occurred. We will exclude cases
involving acute to acute transfers from
being counted as index admissions. A
case involving an acute to acute transfer
will therefore not generate a new
Medicare spending per beneficiary
episode. This means that neither the
hospital which transfers a patient to
another subsection (d) hospital, nor the
receiving subsection (d) hospital will
have an index admission attributed to
them for purposes of creating a
Medicare spending per beneficiary
episode. However, if a patient is
readmitted during the post-discharge
window and then transferred to another
acute care hospital, we will attribute
these costs to the hospital where the
original index admission occurred.
We will attribute Medicare payments
for acute to subacute transfers, such as
discharges from a subsection (d)
hospital to a SNF, IRF, or LTCH, to the
index admission, as proposed.
• Adjusting the Medicare Payments
Included in the Spending per
Beneficiary Episode
Section 1886(o)(2)(B)(ii) of the Act
requires that a Medicare spending per
beneficiary measure adopted for the
Hospital VBP Program be ‘‘adjusted for
factors such as age, sex, race, severity of
illness, and other factors that the
Secretary determines appropriate.’’
Consistent with these statutory
requirements, we proposed to adjust the
proposed Medicare spending per
beneficiary measure for age and severity
of illness. We proposed to adjust for
severity of illness based on the
hierarchical condition categories (HCCs)
for the period 90 days prior to the
episode and based on the MS–DRG
during the index admission. Adding the
MS–DRG to the use of the HCC
improves the severity of illness
adjustment and better standardizes the
data, allowing for more valid
comparisons of Medicare spending per
beneficiary amounts across hospitals.
Note that we would exclude episodes
where the beneficiary is not enrolled in
both Medicare Part A and Medicare Part
B, for the 90 days prior to the episode
because we would not be able to capture
all the data necessary for the severity of
illness adjustment.
We did not propose to adjust the
Medicare spending per beneficiary for
sex and race, consistent with our
understanding of NQF’s position
strongly discouraging adjusting
measures based on these factors.
In addition, we proposed to exclude
geographic payment rate differences (for
example, based on the wage index and
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geographic practice cost index) in order
to standardize the spending per
beneficiary. We did not propose to
adjust for geographic differences in
spending that are unrelated to
geographic payment rate differences.
However, we sought comment on
whether there are geographic factors
other than payment rate differences that
should be considered in the spending
per beneficiary measure. We also
proposed to standardize spending by
excluding the portion of IPPS payments
resulting from the payment differentials
caused by hospital-specific rates, IME,
and DSH. We did not propose to
exclude spending for hospitals that are
paid Hospital-Specific Rates, rather we
proposed to exclude the differential
additional spending that results from
the use of the hospital-specific rates.
Making these adjustments allows for
more valid comparisons of Medicare
spending per beneficiary amounts
across hospitals. For example, without
adjusting for geographic payment rate
differences, a hospital might have
higher or lower spending per
beneficiary amounts compared to other
hospitals based on its wage index and
not its performance.
Comment: The majority of
commenters supported the proposal to
adjust for beneficiary age and severity,
as well as for geographic and hospitalspecific payment differences. Many
commenters suggested that payment
standardization should also go further,
to adjust for beneficiary demographic
and socioeconomic factors, including
sex, race, working status, disability
status, and Medicaid eligibility.
Response: We appreciate the
comments supporting the severity of
illness and age adjustments proposed.
We disagree with the comments that
risk-adjustment for the Medicare
spending per beneficiary measure
should include further adjustment for
socioeconomic factors. 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.
We intend to further analyze the
implications of risk-adjustment for
additional factors; however at this time,
we feel that for initial implementation,
consistency with the NQF position is
the best approach to risk-adjusting the
Medicare spending per beneficiary
measure. As we proposed, we will take
into account the underlying health
status and acuity levels for all patients
before the episode in risk-adjusting
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because these factors reflect the
complexities these patients may present.
Comment: Three commenters
suggested that physician services should
be risk-adjusted, as well as the hospital
services.
Response: We agree with these
commenters. We intend to adjust total
Medicare Part A and Part B payments
for services received during
hospitalization as well as for those
received during the episode
surrounding the hospital stay.
Comment: One commenter stated that
there is little evidence that the use of
the diagnosis categories used for
hierarchical condition category (HCC)
scores accurately quantify severity.
Three commenters suggested that HCCs
should look back further than 90 days,
and one stated that they should factor in
not only primary diagnoses, but also
comorbities.
Response: First, we are clarifying that
we are not applying the HCCs in a
hierarchical manner, in which some
diagnoses would in effect cancel others
out. Rather, we are utilizing the
diagnosis codes, both primary diagnoses
and comorbidities, from the 90 days
preceding the Medicare spending per
beneficiary episode to risk adjust the
Medicare Part A and Part B payments
for services received during the
Medicare spending per beneficiary
episode. We believe that this approach
is sensitive to all of the diagnoses most
directly affecting the hospital stay. In
addition, we will perform a risk
adjustment for the beneficiary’s age. We
are open to future refinements to the
risk-adjustment methodology, including
potentially looking back further than 90
days for risk adjustment to the Medicare
spending per beneficiary episode
calculation, in future rulemaking.
Comment: Some commenters
suggested that CMS should also exclude
from the calculation of the Medicare
spending per beneficiary measure any
payment differences resulting from
other policy or incentive payments,
including payment differences for
physician services rendered in
Federally-qualified health centers
(FQHC), rural health center (RHC), and
Outpatient PPS (OPPS) settings, new
technology add-ons, sole community
providers, and Medicare-dependent
hospitals, as well as incentives from the
Hospital VBP Program, meaningful use
under the EHR Incentive Program,
PQRS, or other current or future
incentive payment adjustments.
Response: We agree with the
commenters that Medicare payment
incentives, including the Hospital VBP
Program, meaningful use under the EHR
Incentive Program, PQRS, should not be
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factored in to the Medicare spending per
beneficiary amount. They will not be
included, in order to avoid penalizing
high-quality and efficient hospitals.
Likewise, we will exclude hospitalspecific rates from the Medicare
spending per beneficiary amount, so
payment differentials for sole
community hospitals and Medicaredependent hospitals would not be
included. We are excluding these
payment adjustments from the
calculation of the Medicare spending
per beneficiary amount because we
believe that they represent differences
in the Medicare payments made to these
types of hospitals, rather than
differences resulting from hospitals’
choices in provision of care or
coordination of post-discharge services.
We disagree with the comment that
the Medicare spending per beneficiary
amount should be adjusted for the
differential amount paid for physician
services rendered in RHCs, FQHCs, or
OPPS setting. First, we believe that
adjustment for these ‘‘site of services’’
differences would undermine the ability
of this measure to meaningfully capture
differences in Medicare spending per
beneficiary related to inpatient
hospitalizations. Also, we do not believe
that adjusting out such differences
would result in a significant impact to
any hospital’s Medicare spending per
beneficiary amount or their subsequent
value-based incentive payment amount.
Physician services make up only a
portion of the Medicare payments
which are summed to calculate a
hospital’s Medicare spending per
beneficiary amount, so the differential
impact of physician services on the
measure would be further minimized. In
addition we are moving to a 30-day
post-discharge period, which we believe
will further reduce the impact of any
payment differentials resulting from the
receipt of physician services in various
settings.
We are therefore not adjusting out
differential payments made for
physician services based on site of
service such as RHCs, FQHCs, or OPPS
settings. We appreciate the comments
on adjusting for the new-technology
add-on payment. We intend to address
this payment through future
rulemaking, prior to the implementation
of the FY 2014 Hospital VBP Program
payment adjustment, and we will seek
to align with other CMS incentive
programs in addressing new technology
add-on payments.
Comment: Four commenters stated
that CMS should adjust for hospital case
mix, in order to avoid penalizing
hospitals serving specific populations,
such as transplant centers or areas with
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51625
high levels of chronic illness. One
commenter suggested that CMS could
adjust for underuse, or hospitals’ failure
to provide needed care, in order to
avoid setting a benchmark reflecting
underuse, and for overuse, or excessive
use of healthcare services, due to
poverty by stratifying the beneficiaries
into cohorts reflecting disability status
and Medicaid eligibility status.
Response: We disagree that an
additional adjustment should be made
to the Medicare spending per
beneficiary amount to account for
hospital case mix. As we proposed, we
are applying a severity adjustment on a
per-beneficiary basis, so hospitals
serving large proportions of Medicare
beneficiaries with complex conditions
will not be disadvantaged.
We appreciate the comment regarding
stratifying beneficiaries according to
disability and Medicaid eligibility
status, as a method to avoid setting
benchmarks and making comparisons
which are not appropriate for all
populations. At this time, we are
implementing this measure with
adjustments for beneficiary age and
severity of illness, which is consistent
with NQF’s position on not riskadjusting potential race, socioeconomic,
or gender disparities. Stratification of
beneficiaries is an approach which we
may consider in future refinements to
the risk adjustment methodology,
through future rulemaking. We intend to
analyze the risk-adjustment
methodology, as we gain experience
with this measure, for potential changes
to the methodology we are finalizing for
the initial implementation.
Comment: Two commenters suggested
that CMS convene a panel to determine
the best risk-adjustment strategy. One
commenter suggested that no further
risk adjustment beyond what was
proposed should be undertaken without
further analysis.
Response: We agree that a panel may
be a useful tool in achieving consensus
on a strategy. We are open to
suggestions for future refinements to the
Medicare spending per beneficiary
measure, for future fiscal years’ payment
adjustments. However, at this time
convening a panel would delay
implementation of this important
measure emphasizing coordination and
efficiency in the delivery of health care
services to Medicare beneficiaries.
After considering all public comments
we received on our proposals for
adjusting the Medicare payments
included in the Medicare spending per
beneficiary episode, we are finalizing
our proposal to adjust the Medicare
spending per beneficiary amount for
beneficiary age and severity of illness,
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as calculated by applying the
hierarchical condition categories which
apply to the beneficiary during the 90
days preceding the Medicare spending
per beneficiary episode. We will also
adjust for geographic payment
differences such as wage index and
geographic practice cost differences. We
will further adjust for Medicare
payment differences resulting from
hospital-specific rates, IME and DSH
payments, as proposed. In addition, in
response to public comment as
discussed above, we will exclude
statistical outliers and Medicare
payment incentives, including the
Hospital VBP Program, meaningful use
under the EHR Incentive Program, and
PQRS incentives, from the calculation of
the Medicare spending per beneficiary
amount.
• Calculating a Hospital’s Medicare
Spending per Beneficiary Amount
For each subsection (d) hospital
participating in the Hospital IQR
Program, we proposed to add together
all the adjusted Medicare Part A and
Part B payments, as defined above, with
the exception of statistical outliers,
included in all the Medicare spending
per beneficiary episodes, as defined
above, for that hospital. We would then
divide this sum by the total number of
Medicare spending per beneficiary
episodes for that hospital. The resulting
amount would constitute the hospital’s
Medicare spending per beneficiary
amount for the period. The discharge
period that we proposed to apply the
proposed measure for the FY 2014
Hospital IQR Program is May 15, 2012
through February 14, 2013.
Comment: A few commenters
questioned whether CMS has sufficient
internal controls to ensure accurate
calculation of a complex measure
spanning time and service areas. Three
commenters expressed concern that
outliers would skew the calculation.
Response: We acknowledge that a
Medicare spending per beneficiary
measure is new to the Hospital IQR
Program. However, we will have in
place internal checks to ensure that
calculations are complete and accurate.
Hospitals wil also have an opportunity
to review and correct any information
made public about them, with respect to
this measure. We agree with the
commenters’ suggestion that statistical
outliers should be excluded, so that
low-volume hospitals are not potentially
disadvantaged by one or two anomalous
high-cost outliers having a significant
impact on their Medicare spending per
beneficiary amount. We will exclude
them from the calculation of individual
hospitals’ Medicare spending per
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beneficiary amount and from the
calculation of the median Medicare
spending per beneficiary amount across
hospitals.
Comment: Nine commenters
requested that the data used to calculate
the Medicare spending per beneficiary
amount be made public in time for
public comment, and so that hospitals
and advocacy groups could check CMS’
calculations. One commenter suggested
that a relative-value unit (RVU) system
be used for simplicity and transparency
in calculating standardized payment
amounts.
Response: We appreciate the
suggestion that an RVU system could be
used for the calculation of a Medicare
spending per beneficiary amount and
may consider such an approach for
future refinements through rulemaking.
We understand the importance of
hospital access to data used to calculate
the Medicare spending per beneficiary
measure. In response to these
comments, we intend to make a public
use file available, so that hospitals can
determine their own historical Medicare
spending per beneficiary amounts and
identify the drivers of those amounts.
After considering the public
comments received on our proposals for
calculating a hospital’s Medicare
spending per beneficiary amount, we
are finalizing calculation of a Medicare
spending per beneficiary amount which
is inclusive of most Medicare Part A and
Part B payments made for services
provided to Medicare beneficiaries
during the Medicare spending per
beneficiary episode. In addition to the
exclusions we identified above, we will
exclude statistical outliers from the
calculation of individual hospitals
Medicare spending per beneficiary
amounts and from the calculation of the
median Medicare spending per
beneficiary amount across hospitals. We
intend to make a public use file
available so that hospitals may
determine their own historical Medicare
spending per beneficiary amounts.
• Calculating a Hospital’s Medicare
Spending per Beneficiary Ratio
We proposed to calculate a hospital’s
Medicare spending per beneficiary ratio
as the hospital’s Medicare spending per
beneficiary amount divided by the
median Medicare spending per
beneficiary amount across all hospitals.
As noted above, we also proposed to
adopt this proposed measure for the
Hospital VBP Program FY 2014 measure
set. The proposed method for scoring
and incorporating this Medicare
spending per beneficiary ratio into the
hospital’s TPS for the Hospital VBP
Program, as part of a new Efficiency
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domain, is fully described in section
IV.B.3.b.(3)(C) of the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25928)
and the method we are adopting is fully
described in section IV.B.3.b.(3)(C) of
this final rule. The proposed weighting
for the Efficiency domain is proposed in
the FY 2012 OPPS/ASC proposed rule.
Comment: One commenter suggested
that CMS use the mean, rather than the
median spending per beneficiary
amount for the purposes of calculating
the Medicare spending per beneficiary
ratio, stating that the mean is less
sensitive to being skewed by outliers.
Response: We disagree with the
comment that the median is more
sensitive to being skewed by outliers
than the mean is. That is why we
proposed to use the median for the
purposes of comparison and calculation
of the Medicare spending per
beneficiary ratio. Furthermore, we are
finalizing our proposal to exclude
outliers from the calculations.
Comment: MedPAC suggested that
CMS should align incentives for
hospitals and post-acute care providers
to reduce readmissions, toward an end
goal of alignment of incentives across
the sectors, in order to improve the
quality and reduce the cost of episodes
of care, and to reduce the number of
unnecessary inpatient episodes.
Response: We agree that alignment of
incentives is an important goal. We will
keep that goal in mind as we work to
refine the Medicare spending per
beneficiary measure. However, we
acknowledge that this measure alone
would not be a sufficient vehicle to fully
accomplish that goal.
After consideration of the public
comments received on our proposal for
calculating a hospital’s Medicare
spending per beneficiary ratio, we are
finalizing our proposal to calculate
individual hospitals’ Medicare spending
per beneficiary ratios as their individual
Medicare spending per beneficiary
amount divided by the median
Medicare spending per beneficiary
amount across all hospitals.
In summary, after consideration of all
public comments we received, we are
finalizing the following policies related
to the inclusion of the Medicare
spending per beneficiary measure in the
Hospital IQR Program.
We are finalizing a Medicare spending
per beneficiary episode, spanning from
three days prior to hospitalization
through 30-days post discharge. We are
finalizing the policy that only
discharges occurring within 30 days
before the end of the performance
period will be counted as index
admissions.
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We are finalizing the inclusion of all
Medicare Part A and Part B payments
for services rendered to Medicare
beneficiaries during the Medicare
spending per beneficiary episode, with
the exception of statistical outliers, in
the Medicare spending per beneficiary
amount, which we will attribute to the
hospital at which the index admission
occurred. We are finalizing that cases
involving acute to acute transfers will be
excluded from being counted as index
admissions and that those cases will not
generate new Medicare spending per
beneficiary episodes.
We are finalizing our proposal to
adjust the Medicare spending per
beneficiary amount for beneficiary age
and for severity of illness, as calculated
by applying the hierarchical condition
categories which apply to the
beneficiary during the 90 days
preceding the Medicare spending per
beneficiary episode. We are finalizing
our proposal to adjust for geographic
payment differences such as wage index
and geographic practice cost differences.
We are finalizing our proposal to adjust
for Medicare payment differences
resulting from hospital-specific rates,
IME and DSH payments, and to adjust
for Medicare payment incentives,
including Hospital VBP Program,
meaningful use under the EHR Incentive
Program, and PQRS.
We are finalizing calculation of a
Medicare spending per beneficiary
amount which is inclusive of all
Medicare Part A and Part B payments
made for services provided to Medicare
beneficiaries during the Medicare
spending per beneficiary episode
surrounding an index hospitalization,
excluding statistical outliers. We intend
to make a public use file available so
that hospitals may determine their own
historical Medicare spending per
beneficiary amount.
We are finalizing our proposal to
calculate individual hospitals’ Medicare
spending per beneficiary ratios as their
individual Medicare spending per
beneficiary amount divided by the
median Medicare spending per
beneficiary amount across all hospitals.
We note that after consideration of the
comments, this measure is also being
finalized for inclusion in the Hospital
VBP Program, and this discussion is
located in section IV.B.3.b. of this final
rule.
(C) New Web-Based Structural Measure
Structural measures assess the
characteristics and capacity of the
provider to deliver quality health care.
In the FY 2009 IPPS final rule, we
finalized the ‘‘Participation in a
Systematic Database Registry for Cardiac
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Surgery’’ measure (73 FR 48609) for the
FY 2010 payment determination. This
measure does not require the hospital to
actually participate in a cardiac surgery
registry, instead, it only requires the
hospital to report whether or not it
participates in a cardiac surgery registry.
In the FY 2010 IPPS/RY 2010 LTCH PPS
final rule (74 FR 43871 and 43872), we
adopted two more structural measures:
Participation in a Systematic Clinical
Database Registry for Stroke Care; and
Participation in a Systematic Clinical
Database Registry for Nursing Sensitive
Care under the Hospital IQR Program for
the FY 2011 payment determination.
Based on public comments, we collect
these structural measures once
annually.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25897 through
25898), we proposed to include a new
structural measure, Participation in a
Systematic Clinical Database Registry
for General Surgery, in the Hospital IQR
Program beginning with the FY 2014
payment determination. The
Participation in a Systematic Clinical
Database Registry for General Surgery
measure would require each hospital
that participates in Hospital IQR
Program to indicate whether it is
participating in a Systematic Clinical
Database Registry for General Surgery
and, if so, to identify the registry. This
measure, like two of the previously
adopted structural measures on registry
participation (Participation in a
Systematic Clinical Database Registry
for Stroke Care; and Participation in a
Systematic Clinical Database Registry
for Nursing Sensitive Care), is an
application of an NQF-endorsed
measure (NQF # 0493) ‘‘Participation by
a physician or other clinician in a
systematic clinical database registry that
includes consensus endorsed quality
measures’’ to the inpatient facility.
We recognize that the NQF has
endorsed this measure for the
physician/clinician setting, but believe
that this measure is highly relevant to
the hospital setting, in that participation
in a systematic clinical database registry
for various topics is quite common in
hospitals. Therefore, we previously
adopted the Stroke and Nursing
Sensitive Care registry participation
measures as applications of the measure
appropriate to the hospital inpatient
setting. We reviewed the NQF’s
consensus endorsed measures, as well
as measures endorsed or adopted by
other organizations, and were unable to
identify any other measures specifically
for participation in a systematic clinical
database registry for general surgery that
have been endorsed for the hospital
inpatient setting. Having given due
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consideration to other measures that
have been endorsed or adopted by a
consensus entity, we proposed to adopt
an application of this non-NQF
endorsed measure under the Secretary’s
authority to select non-NQF endorsed
measures where such measures do not
exist for a specified topic or medical
topic. We proposed to adopt the
measure under the exception authority
provided in section
1886(b)(3)(B)(IX)(bb) of the Act.
Additionally, we believe that, for the
same reasons, the previously adopted
structural measures for Stroke and
Nursing Sensitive Care registries also
meet the requirements under this
authority and proposed to continue
collecting them on that basis.
We proposed that annual data
submission for this proposed structural
measure via a Web-based collection tool
would occur between April 1, 2013 and
May 15, 2013 with respect to the time
period January 1, 2012, through
December 31, 2012. This collection
period and time period were included
in a correction notice to the FY 2012
IPPS/LTCH proposed rule published at
(76 FR 34633).
We believe that participation in a
registry provides hospitals with
valuable ongoing quality improvement
information and demonstrates a
commitment to improve. Many
registries also collect outcome data and
provide feedback to hospitals about
their performance. We invited public
comment on this proposal to include
this structural measure for the FY 2014
payment determination.
Comment: Some commenters did not
support the adoption of the proposed
structural measure because they
believed that the measure is neither
tightly linked to improving the quality
of patient care, nor is it NQF-endorsed
or adopted by the HQA.
Response: This measure is an
application of an NQF-endorsed
measure for the hospital inpatient
setting. We believe that structural
measures are backbones to quality care
as they assess whether infrastructure or
conditions conducive to providing high
quality care are present.
Comment: Some commenters did not
support the adoption of this structural
measure because they believed that
registry participation might create a
false assumption among beneficiaries
that the quality of a hospital can be
judged by its participation or nonparticipation in the registry. The
commenters also objected because they
felt they would be required to
participate in a registry and incur fees,
and believed that registry participation
should be voluntary. Furthermore, the
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commenters stated that the addition of
another registry measure is not
meaningful given CMS’ goal of
establishing an EHR-based quality data
reporting program by 2015.
Response: We understand the
commenters’ concerns. We want to
clarify that the structural registry
measure that we are finalizing does not
require participation in any registry. To
meet the reporting requirements for the
structural measure, hospitals only have
to answer yes or no to a question about
whether they participate in a systematic
clinical database registry for general
surgery, and if so to indicate the
registry. We do not believe adoption of
Acute Myocardial Infarction (AMI) ..
Heart Failure (HF) ...........................
Pneumonia (PN) .............................
Surgical Care Improvement Project
(SCIP).
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AMI–1 Aspirin at arrival [SUSPENDED].
AMI–2 Aspirin prescribed at discharge.
AMI–3 ACEI/ARB for left ventricular systolic dysfunction [SUSPENDED].
AMI–5 Beta-blocker prescribed at discharge [SUSPENDED].
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–6 Appropriate Hair Removal [SUSPENDED].
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 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.
Acute Myocardial Infarction (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day mortality rate.
Pneumonia (PN) 30-day mortality rate.
HCAHPS survey.
Acute Myocardial Infarction 30-day Risk Standardized Readmission Measure.
Heart Failure 30-day Risk Standardized Readmission Measure.
Pneumonia 30-day Risk Standardized Readmission Measure.
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.
Complication/patient safety for selected indicators (composite).
Mortality for selected medical conditions (composite).
PSI 04 Death among surgical in patients with serious treatable complications.
•
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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.**
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Mortality Measures (Medicare Patients).
Patients’ Experience of Care ..........
Readmission Measure (Medicare
Patients).
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AHRQ Patient Safety Indicators
(PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures.
AHRQ PSI and Nursing Sensitive
Care.
Structural measures ........................
Healthcare-Associated Infections ...
16:07 Aug 17, 2011
2014 payment determination: 1 HAI
measure (CAUTI) collected through the
NHSN, 1 claims-based measure
(Medicare Spending Per Beneficiary),
and 1 structural measure (Participation
in a Systematic Clinical Database
Registry for General Surgery). As a
result, there will be a total of 59
measures in the FY 2014 Hospital IQR
measure set, but we will only be
collecting data on 55 of those measures
for purposes of the FY 2014 payment
determination. The 59 measures are
listed below, and the 4 measures for
which we will not be collecting data are
designated with the word
‘‘SUSPENDED.’’
Hospital IQR program measures for FY 2014 payment determination reflecting retirement of 4 measures,
suspension of data collection for 4 measures and adoption of 3 new measures
Topic
VerDate Mar<15>2010
a structural measure is incompatible
with our goal to switch to EHR-based
reporting by 2015, because many
registries accept data from EHRs. After
consideration of the public comments
received, we are finalizing the proposed
structural measure for FY 2014 payment
determination.
In summary, after consideration of the
public comments received, we are
finalizing the retirement of 4 measures
from the FY 2014 measure set that was
finalized in the FY 2011 IPPS/LTCH
PPS final rule, suspending collection for
4 measures beginning with January 1,
2012 discharges, and adding 3 new
measures to the measure set for the FY
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Hospital IQR program measures for FY 2014 payment determination reflecting retirement of 4 measures,
suspension of data collection for 4 measures and adoption of 3 new measures
Topic
Hospital Acquired Condition Measures.
Emergency Department Throughput
• Foreign Object Retained After Surgery.
•
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•
•
•
•
•
•
Prevention: Global
Measures.
51629
Immunization
Cost Efficiency ................................
•
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.
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.**
* Measures finalized in the FY 2011 IPPS/LTCH PPS final rule for the FY 2014 payment determination.
** Additional measures adopted in this final rule for FY 2014 payment determination.
c. Hospital IQR Program Quality
Measures for the FY 2015 Payment
Determination
(1) Retention of FY 2014 Payment
Determination Measures for the FY 2015
Payment Determination
We generally retain the Hospital IQR
Program measures from one year to the
next. Consistent with this approach, in
the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 25901), we proposed to
retain all of the proposed measures for
the FY 2014 payment determination, if
finalized, for the FY 2015 payment
determination.
We did not receive any comments
related to this proposal and are,
therefore, finalizing it.
(2) New Hospital IQR Program Measures
for the FY 2015 Payment Determination
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(A) New CDC/NHSN–Based HealthcareAssociated Infection (HAI) Measures for
the 2015 Payment Determination
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25901 through
25903), for the FY 2015 payment
determination, we proposed to adopt
three additional HAI measures that are
currently collected by CDC via the
NHSN. These measures are: (1)
Methicillin-resistant Staphylococcus
Aureus (MRSA) Bacteremia measure; (2)
Clostridium difficile (C. difficile)
standardized infection ratio (SIR); and
(3) Healthcare Personnel (HCP)
Influenza Vaccination and the
specifications for these measures are
available at http://www.cdc.gov/nhsn/
PDFs/HSPmanual/HPS_Manual.pdf.
Like the CLIP and the CAUTI measures
that we proposed for the FY 2014
payment determination, all three
proposed HAI measures are high
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priority HAI measures listed in the HHS
Action Plan to Prevent HAIs and were
listed in previous rulemaking as
possible quality measures for future
payment determinations.
Our review indicated that there are no
measures for MRSA or C. difficile SIR
that have been endorsed by the NQF or
another consensus entity for the
hospital inpatient setting. Therefore, we
proposed to adopt these non-NQFendorsed measures under the
Secretary’s authority to select non-NQF
endorsed measures where such
measures do not exist for a specified
topic or medical topic. We proposed to
adopt these two CDC-developed
measures (MRSA and C. difficile SIR)
under the exception authority provided
in section 1886 (b)(3)(B)(IX)(bb) of the
Act.
The HCP Influenza Vaccination
measure is NQF-endorsed (NQF #0431)
for the hospital setting. Therefore, this
measure meets the requirement for
measure selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
The proposed reporting mechanism
for these proposed HAI measures is
discussed in greater detail in section
IV.A.5.i. of the FY 2012 IPPS/LTCH PPS
proposed rule. We invited public
comment on these proposed HAI
measures.
Comment: One commenter applauded
CMS’s proposed use of the measure
exception authority under section
1886(b)(3)(B)(IX)(bb) of the Act to adopt
the CDC-developed, non-NQF-endorsed
MRSA and C. difficile SIR measures in
the interest of public safety. The
commenter believed that CMS’s
proposal has met Congressional intent
and takes into account the statutory
requirements that govern the Hospital
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VBP Program, which mandate that
measures be selected for that program
on HAIs, as measured by the prevention
metrics and targets established in the
HHS Action Plan to Prevent HAIs.
Response: We appreciate the
commenter’s recognition of our efforts
to adopt measures for the Hospital IQR
Program to protect patient safety while
fulfilling statutory mandates and
promoting HHS initiatives.
Comment: A commenter believed that
the three proposed HAI measures for the
FY 2015 payment determination need
further refinement before they can be
included in the Hospital IQR Program.
Response: We thank the commenter
for the comment. We will continue to
collaborate with CDC to assure the
specifications for the three proposed
HAI measures are complete before the
data collection period begins.
Comment: Some commenters did not
support the proposed MRSA and C.
difficile SIR HAI measures because they
are not NQF-endorsed.
Response: Given the high priority of
the MRSA and C. difficile SIR measures
in the HHS Action Plan to Prevent HAIs,
we proposed to implement these two
measures to advance the goals of this
initiative, despite of the lack of
endorsement for the measures. As stated
previously, we were unable to identify
any other measures specifically for
MRSA and C. Difficile SIR that have
been NQF-endorsed for the hospital
inpatient setting. We found no other
measures that have been endorsed or
adopted by a consensus entity.
Therefore, we proposed to adopt these
two non NQF-endorsed measures under
the Secretary’s exception authority set
out in section 1886(b)(3)(B)(IX)(bb) of
the Act to select non-NQF endorsed
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measures where such measures do not
exist for a specified area or medical
topic. We have chosen to leverage the
existing NHSN reporting system to
collect HAI measures because we have
already established a mechanism for
reporting to the NHSN and it reduces
potential hospital burden since many
hospitals currently use the system.
(1) Methicillin-Resistant Staphylococcus
Aureus (MRSA) Bacteremia Measure
There are different types of
staphylococcus aureus bacteria,
commonly called ‘‘staph.’’ Staph
bacteria are normally found on the skin
or in the nose. The bacteria are generally
harmless unless they enter the body
through a cut or other wound, and even
then they usually cause only minor skin
problems in healthy people. MRSA
infection is caused by a strain of staph
bacteria that has become resistant to the
antibiotics commonly used to treat
ordinary staph infections. Older adults
with weakened immune systems and
patients in hospital or nursing home
settings are most vulnerable to MRSA
infections. Health care-associated MRSA
infections typically are associated with
invasive procedures or devices, such as
surgeries, intravenous tubing, urinary
catheters, or artificial joints. MRSA
infections account for about 60 percent
of skin infections seen in United States
emergency departments and invasive
MRSA infections may cause about
18,000 deaths during a hospital stay a
year.13 Currently, there are 6 States that
require facilities to report MRSA
information to NHSN. As stated above,
we were unable to identify any other
measures specifically for MRSA that
have been endorsed by the NQF for the
hospital inpatient setting. We found no
other measures that have been endorsed
or adopted by a consensus entity.
Therefore, we proposed to adopt this
non-NQF-endorsed and CDC-developed
measure under the Secretary’s authority
to select non-NQF-endorsed measures
where such measures do not exist for a
specified area or medical topic, under
the exception authority provided in
section 1886(b)(3)(B)(IX)(bb) of the Act.
The proposed reporting mechanism for
the MRSA measure is discussed in
greater detail in section IV.A.5.i. of the
FY 2012 IPPS/LTCH PPS proposed rule.
We invited public comment on this
proposed HAI measure.
Comment: A commenter pointed out
that the MRSA measure poses particular
issues because it requires linkages
13 Catherine Liu, Arnold Bayer, et al., Clinical
practice Guidelines by the for the treatment of
Methicillin-Resistant Staphylococcus Aureus
Infections in Adult and Children. Infectious Disease
Society of America 2011; 52:e18
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16:07 Aug 17, 2011
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between laboratory data with
admission-discharge-transfer systems.
The commenter indicated that hospitals
using this measure must manually enter
the data. Therefore, the commenter
recommended delaying the adoption of
this measure until there is adequate
vendor support for hospitals to manage
the demands of reporting NHSN
measures.
Response: Like C. difficile laboratory
identified events, MRSA bacteremia
event data are a combination of
laboratory results and admission/
discharge/transfer data. As with C.
difficile laboratory event reporting,
these two data types are often available
electronically, and CDC expects that
hospitals will increasingly use
electronic data sources to report MRSA
event data.
According to CDC, users can enter the
required LabID Event data either
manually or electronically. Capacity to
electronically link admission/discharge/
transfer and laboratory results data is
not a prerequisite for reporting LabID
event data to NHSN, but that capacity is
a way to significantly improve
efficiency and economy of reporting.
CDC is already working with a number
of vendors who are submitting LabID
data via the CDC Clinical Document
Architecture (CDA) import function and
that number continues to grow. In
addition, the monthly patient day and
admission counts for an entire facility
are often regularly tabulated for the
facility for other administrative uses and
so is more likely to be readily available
compared to location specific monthly
counts, which often require separate
efforts to be tabulated within the
facility’s data system.
The denominator and laboratory data
demands that are required for C.
Difficile and MRSA Bacteremia have
proven to be manageable among
facilities who are already reporting at
the facility-wide inpatient level in the
States who have mandated such
reporting. Facilities that do not use
vendor CDA reporting, may still receive
helpful lab printouts and reports to
assist with identification of results that
meet criteria for LabID Event reporting.
The LabID form is short and requires
only a limited number of variables, and
the number of C. difficile and MRSA
blood tests identified using the 14-day
rule has shown to be within reasonable
and manageable limits for currently
participating facilities. If such numbers
are very high for an entire facility, this
may indicate the need for this important
monitoring and surveillance to help
guide appropriate facility infection
control response.
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Comment: A commenter
recommended that CMS allow hospitals
to select two most applicable patient
care units for purposes of reporting data
on this proposed measure. The selected
units should initially report a year of
baseline data, followed by reporting
data to CDC for no more than 6 months
each year.
Response: The MRSA bacteremia
measure that we proposed and are
finalizing in this final rule applies to
patients hospital-wide, which is
consistent with how the measure is
presented in the HHS Action Plan to
Prevent HAIs. We thank the commenter
for the recommendation to allow
hospitals to select two most applicable
patient care units to report data on.
However, allowing hospitals to choose
two units could possibly skew the data
and make it impossible to compare
performance among hospitals. We found
that monitoring at the location level and
allowing facilities to choose their
specific locations has not provided
enough substantial data for meaningful
nationwide comparative rates. This type
of reporting was attempted in the CMS
9th SOW and showed that facilities
tended to not choose locations with the
highest rates and in need of further
prevention efforts and also did not
provide enough numbers by location
type for reliable benchmarked, riskadjusted rates.
After consideration of the public
comments we received, we are
finalizing the MRSA measure for the FY
2015 payment determination.
(2) C. difficile SIR Measure
Clostridium difficile (C. difficile) is a
bacterium that can cause symptoms
ranging from diarrhea, pseudomembranous colitis, and toxic
megacolon to life-threatening sepsis and
even death. Illness from C. difficile most
commonly affects older adults in
hospitals or in long term care facilities
where germs spread easily, antibiotic
use is common and people are
especially vulnerable to infection.
Illness from C. difficile typically occurs
after use of antibiotic medications. C.
difficile spreads mainly on hands from
person to person, but also on commonly
touched services such as cart handles,
bedrails, bedside tables, toilets, sinks,
stethoscopes, thermometers, and
telephones.
In recent years, C. difficile infections
have become more frequent, more
severe and more difficult to treat. Each
year, tens of thousands of people in the
United States get sick from C. difficile,
including some otherwise healthy
people who are not hospitalized or
taking antibiotics. Healthcare providers
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have become more aware of the C.
difficile infection and therefore, more
testing is being done for symptomatic
patients. The C. difficile pathogens may
require specialized monitoring to
evaluate if intensified infection control
efforts are required to reduce the
occurrence of these organisms and
related infections. Currently, there are 3
States that require facilities to report C.
difficile data to NHSN. Our goal for this
proposed C. difficile SIR measure is to
provide a common mechanism (CDC/
NHSN) for all hospitals including
hospitals participating in the Hospital
IQR Program to report and analyze these
data in order to inform infection control
staff of the impact of targeted prevention
efforts. The NHSN is listed in the HHS
Action Plan to Prevent HAIs as the data
source for HAI measures.
Comment: Some commenters believed
that the calculation of C. difficile SIRs
will be challenging because hospitals
use testing mechanisms with differing
sensitivity to identify the presence of C.
difficile. These commenters were
concerned that the resulted difference in
C. difficile SIR measurement may
unfairly portray hospitals that use the
more sensitive testing technology as
having more C. difficile cases. A
commenter pointed out that the C.
difficile SIR measure poses particular
issues because it requires linkages
between laboratory data with
admission-discharge-transfer systems.
The commenter noted that currently,
hospitals using this measure must
manually enter the data. Therefore, the
commenter recommended delaying the
proposed adoption of this measure until
there is adequate vendor support for
hospitals to electronically interface with
the NHSN for reporting.
Response: CDC acknowledged that
differences in the sensitivity of C.
difficile laboratory testing methods
could make a difference in the C.
difficile event data that hospitals report.
CDC is currently evaluating the impact
and possible implications for C. difficile
reporting through NHSN. C. difficile
laboratory event data is a combination
of laboratory results and admission/
discharge/transfer data. These two data
types are often available electronically,
and CDC expects that hospitals will
increasingly use electronic data sources
to report C. difficile event data.
However, EHRs are not the only means
of capturing such information. The same
data can be abstracted from hospital
reports and entered manually into
NHSN. Therefore, there is not a
dependence on electronic data capture,
but there is an important opportunity to
use electronic means to report, and
waiting until widespread EHR adoption
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would delay progress that could be
made on these HAIs. Like MRSA
Bacteremia, C. difficile facility-wide
Lab-ID event reporting will be riskadjusted by hospital type, teaching and
med affiliation, and bed size. In
addition, NHSN has added a question
on the required annual facility survey
beginning with 2010 data that asks
about the type of testing the lab
conducts for C. difficile and this
information will be used for additional
risk-adjustment along with review of
usability of admission on prevalence.
Comment: One commenter requested
clarification that the measure is only
applicable to high-risk units and not
hospital-wide.
Response: The CDC measure of C.
difficile listed in the HHS Action Plan
to Prevent HAIs calls for hospital-wide
measurement of C. difficile events.
Because the risk of C. difficile extends
throughout the hospital, the measure
applies to all hospital C. difficile events,
and this is part of the specifications for
this measure.
After consideration of the public
comments we received, we are
finalizing this measure for the FY 2015
payment determination. Data collection
will begin with January 1, 2013
infection events.
(3) Healthcare Personnel (HCP)
Influenza Vaccination (NQF # 0431)
For the FY 2015 payment
determination, in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25902
through 25903), we proposed to adopt
one additional HAI measure that is
currently collected by CDC via the
NHSN: Healthcare Personnel (HCP)
Influenza Vaccination (NQF # 0431).
This measure assesses the percentage of
HCP employed at the facility that
received a prophylactic vaccination for
influenza. This measure is NQFendorsed, and therefore, the measure
meets the selection criteria under
section 1886(b)(3)(B)(viii)(IX)(aa) of the
Act.
Rates of serious illness and death
resulting from influenza and its
complications are increased in high-risk
populations such as persons over 50
years or under four years of age, and
persons of any age who have underlying
conditions that put them at an increased
risk. HCP can acquire influenza from
patients and can transmit influenza to
patients and other HCP. Many HCP
provide care for, or are in frequent
contact with, patients with influenza or
patients at high risk for complications of
influenza. The involvement of HCP in
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51631
influenza transmission has been a longstanding concern.14 15 16
Vaccination is an effective preventive
measure against influenza, and can
prevent many illnesses, deaths, and
losses in productivity.17 HCP are
considered a high priority for expanding
influenza vaccine use. Achieving and
sustaining high influenza vaccination
coverage among HCP is intended to help
protect HCP and their patients and
reduce disease burden and healthcare
costs. Results of several studies indicate
that higher vaccination coverage among
HCP is associated with lower incidence
of nosocomial influenza.18 19 20 Such
findings have led some to call for
mandatory influenza vaccination of
HCP.21 22 23 24 25
Until recently, vaccination coverage
among HCP has been well below the
national Healthy People 2010 target of
14 Maltezou HC, Drancourt M., Nosocomial
influenza in children. Journal of Hospital Infection
2003; 55:83–91.
15 Hurley JC, Flockhart S., An influenza outbreak
in a regional residential facility. Journal of Infection
Prevention 2010; 11:58–61.
16 Salgado CD, Farr BM, Hall KK, Hayden FG.,
Influenza in the acute hospital setting. The Lancet
Infectious Diseases 2002; 2:145–155.
17 Wilde JA, McMillan JA, Serwint J, Butta J,
O’Riordan MA, Steinhoff MC., Effectiveness of
influenza vaccine in health care professionals: a
randomized trial. The Journal of the American
Medical Association 1999; 281:908–913.
18 Salgado CD, Giannetta ET, Hayden FG, Farr
BM., Preventing influenza by improving the vaccine
acceptance rate of clinicians. Infection Control and
Hospital Epidemiology 2004; 25: 923–928.
19 Potter J, Stott DJ, Roberts MA, et al., Influenza
vaccination of health-care workers in long-term-care
hospitals reduces the mortality of elderly patients.
Journal of Infectious Diseases 1997; 175:1–6.
20 Hayward AC, Harling R, Wetten S, et al.,
Effectiveness of an influenza vaccine programme for
care home staff to prevent death, morbidity, and
health service use among residents: cluster
randomised controlled trial. British Medical Journal
2006; 333:1241–1246.
21 Talbot TR, Bradley SF, Cosgrove SE, et al.,
SHEA position paper: Influenza vaccination of
healthcare workers and vaccine allocation for
healthcare workers during vaccine shortages.
Infection Control and Hospital Epidemiology 2005;
26:882–890
22 American College of Physicians (ACP), ACP
policy on influenza vaccination of health care
workers. http://www.acponline.org/running_
practice/quality_improvement/projects/adult_
immunization/flu_hcw.pdf
23 Greene LR, Cain TA, Dolan SA et al., APIC
position paper: influenza immunization of
healthcare personnel. Association of Professionals
in Infection Control (APIC). November 2008. http:
//www.apic.org/Content/NavigationMenu/Practice
Guidance/Topics/Influenza/APIC_Position_Paper_
Influenza_11_7_08final_revised.pdf
24 National Patient Safety Foundation (NPSF),
Mandatory flu vaccinations for healthcare workers.
Press Release, November 18, 2009. http://
www.npsf.org/pr/pressrel/2009–11-18.php
25 Infectious Diseases Society of America (IDSA),
IDSA policy on mandatory immunization of health
care workers against seasonal and 2009 H1N1
influenza. Infectious Diseases Society of America
(IDSA). September 30, 2009. http://www.idsociety.
org/HCWimmunization/
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60 percent,26 but preliminary data
suggest 62 percent of HCP reported
receiving seasonal influenza vaccine in
2009–2010.27 Only 37 percent reported
receiving the 2009 pandemic A/H1N1
vaccine.28
HCP refers to all personnel working in
healthcare settings who have the
potential for exposure to patients and/
or to infectious materials, including
body substances, contaminated medical
supplies and equipment, contaminated
environmental surfaces, or
contaminated air.29 HCP may include
(but are not limited to) physicians,
nurses, nursing assistants, therapists,
technicians, emergency medical service
personnel, dental personnel,
pharmacists, laboratory personnel,
autopsy personnel, students and
trainees, contractual staff not employed
by the healthcare facility, and persons
(for example, clerical, dietary, housekeeping, laundry, security,
maintenance, billing, and volunteers)
not directly involved in patient care but
potentially exposed to infectious agents
that can be transmitted to and from HCP
and patients. Settings in which HCP
may work include, but are not limited
to, acute care hospitals, long-term care
facilities, skilled nursing facilities,
rehabilitation centers, physicians’
offices, urgent care centers, outpatient
clinics, home health agencies, and
emergency medical services.
Currently, four States have ‘‘offer’’
laws for influenza vaccination of HCP,
meaning that vaccine must be offered to
HCP by healthcare facilities; and three
States (Alabama, California, and New
Hampshire) have ‘‘ensure’’ laws for
influenza vaccination of HCP, meaning
that vaccination of non-immune HCP is
26 Walker FJ, Singleton JA, Lu P, Wooten KG,
Strikas RA., Influenza vaccination of healthcare
workers in the United States, 1989–2002. Infection
Control and Hospital Epidemiology 2006; 27:257–
265.
27 http://www.cdc.gov/mmwr/preview/
mmwrhtml/rr55e209a1.htm Influenza Vaccination
of Health-Care Personnel.
Recommendations of the Healthcare Infection
Control Practices Advisory Committee (HICPAC)
and the Advisory Committee on Immunization
Practices.
28 Centers for Disease Control and Prevention.,
Interim results: Influenza A (H1N1) 2009 and
Monovalent Seasonal Influenza Vaccination
Coverage Among Health-Care Personnel—United
States August 2009- January 2010. Morbidity and
Mortality Weekly Report (MMWR); 59:357–362.
Available at: http://www.cdc.gov/mmwr/preview/
mmwrhtml/mm5912a1.htm.
29 Adapted from: Pearson ML., Bridges CB.,
Harper SA.,: Influenza vaccination of health-care
personnel: Recommendations of the Healthcare
Infection Control Practices Advisory Committee
(HICPAC) and the Advisory Committee on
Immunization Practices (ACIP). Morbidity and
Mortality Weekly Report (MMWR) 2006; 55:1–16.
Available at: http://www.cdc.gov/mmwr/preview/
mmwrhtml/rr5502a1.htm.
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16:07 Aug 17, 2011
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mandatory in the absence of a specified
exemption or refusal; and, additionally,
numerous hospitals and other
healthcare facilities have established
policies requiring mandatory influenza
vaccination of their HCP.30
Currently, no State requires that
hospitals report this measure to NHSN.
However, approximately 13 hospitals
(including long term acute care and
rehabilitation), outpatient hemodialysis
centers, long term care facilities, and
ambulatory surgical centers are
currently reporting HCP immunization
data to NHSN. In September 2009, CDC
released the Healthcare Personnel Safety
(HPS) Component of NHSN, which
complements Patient Safety and
Biovigilance components available in
NHSN. The HPS Component replaced
CDC’s National Surveillance System for
Health Care Workers (NaSH) and is
comprised of two modules: the Blood/
Body Fluid Exposure Module and the
Influenza Vaccination and Management
and Exposure Module.31 Currently,
participation in either module is
voluntary. The current Influenza
Vaccination and Management and
Exposure Module may soon offer
options for healthcare facilities to
submit vaccination summary data.
NHSN plans to partner with vendorbased surveillance systems to permit
periodic data extractions into NHSN.
The modules feature basic, custom,
and advanced analysis capabilities
available in real-time, which allow
individual healthcare facilities to
compile and analyze their own data, as
well as benchmark these results to
aggregate NHSN estimates. The HPS
Component can assist participating
facilities in developing surveillance and
analysis capabilities to permit the
timely recognition of HCP safety
problems and prompt interventions
with appropriate measures. Influenza
vaccination data submitted to CDC will
ultimately capture regional trends on
the yearly uptake of the vaccine,
prophylaxis and treatment for
healthcare personnel, as well as the
elements within yearly influenza
campaigns that succeed or require
improvement. At the State and national
levels, the HPS Component will aid in
monitoring rates and trends.
We proposed to adopt the Healthcare
Provider Influenza Vaccination measure
that is currently collected by the CDC
via the NHSN because of its importance
in preventing influenza not only among
30 For additional information regarding healthcare
facilities’ influenza vaccine policies, please see:
http://www.immunize.org/honor%2Droll/.
31 Available at: http://www.cdc.gov/nhsn/
hps.html.
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healthcare workers but also among the
patients that they attend. As stated
earlier, this measure assesses the
percent of Healthcare Personnel
employed at the facility that received a
prophylactic vaccination for influenza.
Detailed specifications for the proposed
measure are available at: http://
www.cdc.gov/nhsn/PDFs/HSPmanual/
HPS_Manual.pdf. As we also stated
above, this measure is NQF-endorsed for
the hospital setting. The proposed
reporting mechanism for this proposed
HAI measure is discussed in greater
detail in section IV.A.5.i. of the FY 2012
IPPS/LTCH PPS proposed rule. We
invited public comment on this
proposed HAI measure.
Comment: Many commenters fully
supported the proposed measure and
stated that the measure will promote
efforts in improving hospitals influenza
vaccination rates and patient safety.
Some commenters urged CMS to adopt
this measure for the FY 2014 payment
determination. Commenters
recommended additional measures for
other vaccines that prevent highly
communicable diseases, such as
pertussis, and diseases such as hepatitis
B. A commenter strongly supported the
adoption of this measure for the
Hospital VBP Program. Finally, a
commenter recommended that CMS
adopt an adult immunization composite
measure that is endorsed by NQF.
Response: We thank the commenters
for their recognition of the significance
of this measure and for their strong
support of the measure. Because the
measure is scheduled to undergo NQF
maintenance, we proposed to begin
collection of the measure for the
Hospital IQR Program in 2013 (FY 2015
payment determination) rather than
2012 (FY 2014 payment determination)
as suggested by the commenter in order
to ensure that necessary revisions to the
specifications are in place before the
start of collection. We will consider the
commenters’ suggestions for additional
measure topics as we select future
measures.
Comment: Many commenters
supported the public reporting of this
proposed measure. However, a
commenter was concerned that the
collection of data via NHSN is
redundant and labor intensive because
the current specifications of the NHSN
system require hospitals to submit
detailed data on every employee, rather
than aggregated data on vaccination
rates. Some commenters believed that
most hospitals already have a database
to track employee vaccination status.
The commenters recommended that
CMS either identify an alternative NQFendorsed measure or postpone the
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adoption of the measure in the Hospital
IQR Program until the CDC has
completed and fully tested the summary
data collection tool. A few commenters
suggested delaying the proposed
measure until data can be collected via
EHRs. A few commenters believed that
current NQF-endorsed measures
specifying the reporting of the
vaccination status of all healthcare
personnel are too labor-intensive.
Commenters recommended that CMS
either adopt a simplified definition of
the measure that focuses solely on
hospital employees and excludes
contracted staff, or allow hospitals to
submit summary data on HCP rates,
ideally from existing databases, to
reduce burden. Commenters also
suggested that CMS allow for external
factors outside of the facilities control
(for example, vaccination shortage).
Response: The measure is currently
being respecified by the CDC to
eliminate unnecessary burden on
hospitals. CDC will be adding aggregate
reporting of healthcare personnel
influenza vaccination coverage to NHSN
and has submitted a proposed measure
to NQF that uses aggregate reporting in
the measure proposal. The scope of the
proposed respecified measure is
hospital employees and credentialed
non-employees. These steps will enable
hospitals—and other healthcare
facilities—to take advantage of aggregate
reporting capacity that is built into
occupational health information
systems. We are confident that such
revisions to the measure specifications
will be fully implementable by the
proposed FY 2015 payment
determination. This is a change to how
the measure is reported to NHSN
(reporting on the influenza vaccination
coverage of at the facility level, rather
than for individual personnel at the
facility, and is not a change in the
substance of the measure itself).
After consideration of the public
comments received, we are finalizing
the HCP Influenza Vaccination measure
for the FY 2015 payment determination.
Required data collection for the FY 2015
payment determination will cover the
period from January 1, 2013 through
March 31, 2013. For future payment
determinations, data collection will
cover the period from October 1 through
March 31st to coincide with the flu
season.
(B) New Chart-Abstracted Measures for
the FY 2015 Payment Determination
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25903 through
25907), we proposed to adopt two sets
of chart-abstracted measures for the FY
2015 payment determination: the Stroke
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and Venous Thromboembolism (VTE)
measure sets. All of these proposed
measures have either previously been
proposed for the Hospital IQR Program,
or have been listed as being under
consideration for future adoption into
the program. In addition, with one
exception (STK–1: VTE Prophylaxis), all
of the measures in these two measure
sets have been electronically specified
and are among the measures adopted for
the EHR Incentive Program for eligible
hospitals. While we proposed to adopt
these for chart-abstracted submission in
2013 for the FY 2015 payment
determination, we believe that by a
future date, such as 2015, hospitals will
be able to switch to EHR-based
submission of these and all other chartabstracted measures submitted for the
Hospital IQR Program, and, as we
discuss in greater detail below, we
intend to work toward this goal over the
next few years.
The Stroke measure set we proposed
to adopt consists of 8 measures; and the
VTE measure set consists of 6 measures.
Both measure sets are NQF-endorsed
and their specifications are currently
available in the Specifications Manual,
which can be found on QualityNet. We
believe that both of the proposed
measure sets compliment the data
elements in our current SCIP VTE and
AMI measure sets.
Comment: Many commenters
supported the adoption of the Stroke
measure set and the VTE measure set
into the Hospital IQR Program because
the measures in the sets are NQFendorsed and HQA-adopted, and they
are used by The Joint Commission as
core measure sets. Commenters believed
that the measures will provide
meaningful information regarding how
well Stroke care and VTE care are being
managed in a hospital setting. The
commenters further noted that the
measure sets are already e-specified for
the meaningful use criteria under the
EHR Incentive Program. The
commenters recommended delaying the
adoption of the measure sets until there
is harmonization of the measure sets for
both the EHR Incentive Program and the
Hospital IQR Program, so that the
reporting burden would be significantly
reduced for hospitals. Some
commenters disagreed with CMS’
assertion that the addition of measures
will align the Hospital IQR Program
with the EHR Incentive Program
because the Stroke measure set and the
VTE measure set calculations derived
from chart-based measure specifications
are not the same as those derived from
e-measure specifications. The
commenters believed that any
discrepancy in calculation of
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51633
performance rates may lead to confusion
when they are publicly reported.
Commenters recommended comparison
of data collected through manual
abstraction and EHR-based reporting to
resolve discrepancies in calculations
prior to display on Hospital Compare.
Response: We thank the commenters
for their support of the Stroke measure
set and the VTE measure set. Providing
hospitals with one set of harmonized
specifications is a key goal for CMS for
the future. We are aware of the
differences in the chart-abstracted and
EHR e-measure specifications, and have
been working with relevant stakeholders
to remedy the situation. We also
recognize that many hospitals
participating in the Hospital IQR
Program have not adopted EHR
technology at this time. Therefore, we
are finalizing our proposal to include
the chart-abstracted Stroke and VTE
measure sets for data collection
beginning with January 1, 2013
discharges.
We also thank the commenters for
their recommendations. We plan to
update the Specifications Manual’s
chart-abstracted specifications for the
stroke clinical quality measure set in
order to align with the electronic
specifications for these measures. As we
move towards alignment and
harmonization of clinical quality
measures reporting among federal
reporting initiatives, we plan to
compare, test, and align these reporting
specifications using different data
sources.
(i) Stroke Measure Set
Stroke is a topic of great relevance to
the Medicare population due to its
impact on morbidity and mortality, and
it is an area with great potential for
quality improvement for hospitals
caring for stroke patients. Stroke is the
third most common cause of death in
the United States and is one of the top
20 conditions contributing to Medicare
costs. Approximately 8 to 12 percent of
ischemic strokes are fatal,32 and
mortality following stroke is influenced
by the quality of care provided to
patients during their initial
hospitalization.33 In the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR
43873), we listed 8 Stroke measures as
being under consideration for adoption
for the FY 2012 Hospital IQR payment
determination. Numerous commenters
encouraged us to adopt the listed stroke
32 American Heart Association, Heart Disease and
Stroke Statistics—2009 Update. American Heart
Association, 2009: p. 1–36.
33 Weir, N.U., et al., Variations between countries
in outcome after stroke in the International Stroke
Trial (IST). Stroke, 2001. 32(6): p. 1370–7.
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measures which they see as evidencebased measures that accurately measure
the care of the stroke patient (74 FR
43875 through 43876). Commenters
believed that the measures are widely
recognized for their roles in minimizing
secondary strokes and other
complications.
We proposed to adopt a stroke
measure set with 8 NQF-endorsed
process of care measures for the FY
2015 payment determination. The table
below lists and describes each of these
eight proposed measures.
8 PROPOSED STROKE MEASURES
STK–1: Venous Thromboembolism (VTE) Prophylaxis for patients with ischemic or hemorrhagic stroke. (NQF #0434).
STK–2: Ischemic stroke patients discharged on antithrombotic
therapy. (NQF #0435).
STK–3: Anticoagulation therapy for atrial fibrillation/flutter. (NQF
#0436).
STK–4: Thrombolytic Therapy for Acute ischemic stroke patients. (NQF #0437).
STK–5: Antithrombotic therapy by the end of hospital day two.
(NQF #0438).
STK–6: Discharged on statin medication. (NQF #0439) ..............
STK–8: Stroke education. (NQF #0440) ......................................
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STK–10: Assessed for rehabilitation services. (NQF #0441) ......
Because the NQF is the entity that
holds a contract with the Secretary
under section 1890(a) of the Act,
measures that are endorsed by the NQF
meet the requirement for measure
selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
Aside from the consideration of NQF
endorsement, we believe that the
inclusion of the proposed stroke
measure set in the Hospital IQR Program
would provide a comprehensive view of
how well stroke care is being managed
in a hospital setting. As stated earlier,
detailed measure specifications for these
8 proposed measures are available in the
Specifications Manual located in
QualityNet. We invited public comment
on the proposed stroke measure set.
Comment: A commenter stated that
there are errors in the e-specifications of
the Stroke measure set and requested
corrections of the errors to avoid
variability of rates caused by
discrepancy in measure specifications.
Response: We have received public
comments identifying a number of
issues and questions about the
electronic specifications for the Stroke
related HITSP measure specifications
listed in TN906/v1.0. We are working
with the measure steward to make
updates to these electronic
specifications and will notify the public
when the updates are published. In the
future, we anticipate that electronic
specification review will be part of the
NQF measure endorsement process.
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Percent of patients with an ischemic stroke or a hemorrhagic stroke and who
are non-ambulatory should start receiving DVT prophylaxis by end of hospital day two.
Percent of patients with an ischemic stroke prescribed antithrombotic therapy
at discharge.
Percent of patients with an ischemic stroke with atrial fibrillation discharged on
anticoagulation therapy.
Percent of acute ischemic stroke patients who arrive at the hospital within 120
minutes (2 hours) of time last known well and for whom IV t-PA was initiated
at this hospital within 180 minutes (3 hours) of time last known well.
Percent of patients with ischemic stroke who receive antithrombotic therapy by
the end of hospital day two.
Percent of ischemic stroke patients with LDL >/= 100 mg/dL, or LDL not measured, or, who were on cholesterol reducing therapy prior to hospitalization
are discharged on a statin medication.
Percent of patients with ischemic or hemorrhagic stroke or their caregivers
who were given education or educational materials during the hospital stay
addressing all of the following: personal risk factors for stroke, warning signs
for stroke, activation of emergency.
Percent of patients with an ischemic stroke or hemorrhagic stroke who were
assessed for rehabilitation services.
After consideration of the public
comments we received, we are
finalizing the Stroke measure set for the
FY 2015 payment determination.
(ii) VTE Measure Set
It is widely agreed that VTE is the
number one preventable cause of
hospital death in the United States and
the cost of VTE when it occurs is very
high. A recent study from AHRQ in
Health Affairs highlighted that when an
acute VTE event occurs, it increases the
costs of care by 25 percent. In 2008, the
Surgeon General issued a Call to Action
to Prevent Deep Vein Thrombosis and
Pulmonary Embolism. (This document
can be found at: http://www.surgeon
general.gov/topics/deepvein/callto
action/call-to-action-on-dvt-2008.pdf.)
VTE prevention with pharmacologic
agents can impact the cost effectiveness
of care. Specifically, patients who
received anti-coagulant medication
during hospitalization have less
likelihood of recurrence of VTEs upon
discharge to home. Parenteral
anticoagulation is the first line of
therapy because of its rapid onset of
action. Because the oral anticoagulant
medication has a very slow onset of
action, it cannot be used as monotherapy for acute VTE. A minimum of
5 days of parenteral anticoagulation is
recommended as ‘‘overlap therapy’’
while oral anticoagulant medication is
being initiated. More thrombotic
complications and higher costs are
associated with treatment in patients
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demonstrating a subtherapeutic aPTT.
Unfractionated Heparin (UFH) Dosages/
Platelet Count Monitoring by Protocol
(or Nomogram) has significantly
advanced the use of UFH with the
demonstrated ability to achieve
therapeutic aPTTs more rapidly than
with standard UFH dosing. When this
occurs, patients can be discharged
sooner. However, anticoagulation
therapy poses risks to patients and often
leads to adverse drug events due to
complex dosing, requisite follow-up
monitoring and inconsistent patient
compliance. The use of standardized
practices for anticoagulation therapy
that includes patient/caregiver
involvement may reduce the risk of
adverse drug events.
The Hospital IQR Program currently
has 2 measures of VTE prophylaxis for
surgical patients (SCIP–VTE–1: Venous
thromboembolism (VTE) prophylaxis
ordered for surgery patients; and SCIP–
VTE–2: VTE prophylaxis within 24
hours pre/post surgery) in the SCIP
measure set. In the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR
43873), we listed 5 VTE measures (VTE–
1: Venous thromboembolism
prophylaxis; VTE–3: Venous
thromboembolism patients with
anticoagulation overlap therapy; VTE–4:
Venous thromboembolism patients
receiving unfractionated heparin with
dosages/platelet count monitoring by
protocol; VTE–5: Venous
thromboembolism discharge
instructions; and VTE–6: Incidence of
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potentially-preventable venous
Thromboembolism) as possible new
measures for the FY 2012 payment
determination. In the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50213
through 50218), we listed 6 VTE
measures (VTE–1: Venous
thromboembolism prophylaxis; VTE–2:
Intensive care unit venous
thromboembolism prophylaxis; VTE–3:
Venous thromboembolism patients with
anticoagulation overlap therapy; VTE–4:
Venous thromboembolism patients
receiving unfractionated heparin with
dosages/platelet count monitoring by
protocol; VTE–5: Venous
thromboembolism discharge
instructions; and VTE–6: Incidence of
potentially-preventable venous
thromboembolism) as measures we were
51635
considering for possible future adoption
into the program.
We proposed to adopt for the FY 2015
Hospital IQR measure set 6 VTE
measures which are aimed at preventing
the incidence of potentially preventable
VTE. These 6 measures are listed and
described below.
6 PROPOSED VENOUS THROMBOEMBOLISM (VTE) MEASURES
VTE–1: Venous thromboembolism
prophylaxis (NQF #0371).
VTE–2: Intensive care unit venous
thromboembolism
prophylaxis
(NQF #0372).
VTE–3: Venous thromboembolism
patients
with
anticoagulation
overlap therapy (NQF #0373).
VTE–4: Venous thromboembolism
patients receiving unfractionated
heparin with dosages/platelet
count monitoring by protocol
(NQF #0374).
VTE–5: Venous thromboembolism
discharge
instructions
(NQF
#0375).
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VTE–6: Incidence of potentially-preventable
venous
Thromboembolism (NQF #0376).
Percent of patients who received VTE prophylaxis or have documentation why no VTE prophylaxis was
given the day of or the day after hospital admission or surgery end date for surgeries that start the day
of or the day after hospital admission.
Percent of patients who received VTE prophylaxis or have documentation why no VTE prophylaxis was
given the day of or the day after the initial admission (or transfer) to the Intensive Care Unit (ICU) or surgery end date for surgeries that start the day of or the day after ICU admission (or transfer).
Percent of patients diagnosed with confirmed VTE who received an overlap of parenteral (intravenous [IV]
or subcutaneous [subcu]) anticoagulation and warfarin therapy. For patients who received less than 5
days of overlap therapy, they must be discharged on both medications. Overlap therapy must be administered for at least 5 days with an international normalized ratio (INR) = 2 prior to discontinuation of the
parenteral anticoagulation therapy or the patient must be discharged on both medications.
Percent of patients diagnosed with confirmed VTE who received intravenous (IV) UFH therapy dosages
AND had their platelet counts monitored using defined parameters such as a nomogram or protocol.
Percent of patients diagnosed with confirmed VTE that are discharged to home, to home with home health
or home hospice on warfarin with written discharge instructions that address all four criteria: Compliance
issues, dietary advice, follow-up monitoring, and information about the potential for adverse drug reactions/interactions.
Percent of patients diagnosed with confirmed VTE during hospitalization (not present on arrival) who did
not receive VTE prophylaxis between hospital admission and the day before the VTE diagnostic testing
order date.
These 6 measures were endorsed in a
2008 NQF project titled: National
Voluntary Consensus Standards for
Prevention and Care of Venous
Thromboembolism: Additional
Performance Measures. Because the
NQF is the entity that holds a contract
with the Secretary under section 1890(a)
of the Act, measures that are endorsed
by the NQF meet the requirement for
measure selection under section
1886(b)(3)(B)(viii)(IX)(aa) of the Act.
Aside from the consideration of NQFendorsement, we believe that the
inclusion of the VTE measure set in the
Hospital IQR Program would provide a
comprehensive view of how well VTE
care is being managed in a hospital
setting. Detailed measure specifications
for these 6 proposed measures are
available in the Specifications Manual
located on QualityNet. We invited
public comment on the proposed VTE
measure set.
Comment: One commenter supported
the adoption of VTE 1, VTE 2, and VTE
3 but noted that the excluded
populations in the denominator of the
measures need to be expanded so that
the compliance rates can be better
portrayed. One commenter opposed the
adoption of VTE 4 and VTE 5 because
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the commenter believed that the level of
detail being reported does not meet the
objectives of the Hospital IQR Program.
Further, the commenter recommended
that VTE 6 not be adopted because the
commenter believed that the definition
is not consistent with epidemiological
principles.
Response: VTE is a condition that can
be reasonably prevented by following
evidence based guidelines, which are
the basis for the VTE measure set. We
believe including this VTE measure set
will encourage broad use of VTE
prophylaxis in both medical and
surgical patients. VTE 1, VTE 2, and
VTE 3 address appropriate preventive
treatment for surgical patients, patients
in the ICU, and patients on
anticoagulants. VTE 4 and VTE 5 assess
important factors in VTE prophylaxis.
VTE 4 seeks to encourage hospitals to
use a standardized tool for the titration
of VTE prophylactic agents to achieve
appropriate levels of effectiveness. The
use of a nomogram or standardized
protocol may reduce the incidence of
adverse events related to nontherapeutic blood levels. VTE 5 is a
measure of patient education related to
VTE and prophylaxis including follow
up care, dietary restrictions, and adverse
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interactions. VTE 6 is an important
measure of the incidence of VTE in the
hospitalized patient. Therefore, we are
finalizing the adoption of the VTE
measure set for discharges beginning on
or after January 1, 2013.
Comment: One commenter urged
CMS to separately report on Hospital
Compare measure rates calculated using
e-specifications and measure rates
calculated using chart-abstracted data.
Response: We thank the commenter
for the suggestion. Currently the especifications are not used for Hospital
IQR, but are used for Medicare EHR
Incentive Programs. We currently do not
post measure rates for Medicare EHR
Incentive Programs on the Hospital
Compare Web site. We will continue to
post measure data collected as part of
the Hospital IQR and Hospital VBP
Programs on the Hospital Compare Web
site.
Comment: One commenter stated that
the reporting of 76 measures by FY 2015
is a resource and data burden for
hospitals.
Response: We anticipate that once
hospitals have acquired the capability to
submit data on measures electronically
in a future date such as 2015, the
burden will be reduced significantly.
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After consideration of the public
comments we received, we are
finalizing the proposed VTE measure set
for the FY 2015 payment determination.
Data collection will begin with
discharges on or after January 1, 2013.
In summary, after consideration of the
public comments received, we are
finalizing the retention of 59 measures
for the FY 2014 measure set, and adding
17 new measures to the measure set for
the FY 2014 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). As a result,
Topic
Hospital IQR program measures for FY 2015 payment determination
Acute Myocardial Infarction (AMI)
Measures.
Heart Failure (HF) Measures ..........
Stroke Measure Set ........................
VTE Measure Set ...........................
Pneumonia (PN) Measures ............
Surgical Care Improvement Project
(SCIP) Measures.
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AMI–1 Aspirin at arrival [SUSPENDED].
AMI–2 Aspirin prescribed at discharge.
AMI–3 ACEI/ARB for left ventricular systolic dysfunction [SUSPENDED].
AMI–5 Beta-blocker prescribed at discharge [SUSPENDED].
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.**
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–6: Appropriate Hair Removal [SUSPENDED].
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 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.
Acute Myocardial Infarction (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day mortality rate.
Pneumonia (PN) 30-day mortality rate.
HCAHPS survey.
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Acute Myocardial Infarction 30-day Risk Standardized Readmission Measure.
Heart Failure 30-day Risk Standardized Readmission Measure.
Pneumonia 30-day Risk Standardized Readmission Measure.
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.
Complication/patient safety for selected indicators (composite).
Mortality for selected medical conditions (composite).
PSI–4 Death among surgical inpatients with serious treatable complications.
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Mortality Measures (Medicare Patients).
Patients’ Experience of Care Measure.
Readmission Measures (Medicare
Patients).
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AHRQ Patient Safety Indicators
(PSIs), Inpatient Quality Indicators (IQIs) and Composite Measures.
AHRQ PSI and Nursing Sensitive
Care.
Structural Measures ........................
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there will be a total of 76 measures in
the FY 2015 Hospital IQR measure set,
but we will only be collecting data on
72 of those measures for purposes of the
FY 2015 payment determination. The 76
measures are listed below, and the 4
measures for which we will not be
collecting data are designated with the
word ‘‘SUSPENDED.’’
• Participation in a Systematic Database for Cardiac Surgery.
• Participation in a Systematic Clinical Database Registry for Stroke Care.
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Topic
Healthcare-Associated
Measures.
51637
Hospital IQR program measures for FY 2015 payment determination
Infections
Hospital Acquired Condition Measures.
Emergency Department Throughput
Measures.
Prevention: Global Immunization
Measures.
Cost Efficiency ................................
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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. difficile).**
Healthcare Provider Influenza Vaccination.**
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.
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.*
* New quality measures for the FY 2014 payment determination.
** New quality measures for FY 2015 payment determination.
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 all 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
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 switch to complete EHRbased reporting of all chart-abstracted
measures to CMS for the Hospital IQR
Program, and we intend to work
diligently toward this goal. We believe
this will simplify measure collection
and submission for the Hospital IQR
Program, and will reduce the burden on
hospitals. We invited public comment
and suggestions on this topic.
In future rules, it is our intention to
propose to adopt outcome measures for
stroke and joint replacement surgery
which we have developed and
anticipate submitting for NQF review. In
addition, we intend to propose
additional HAI measures as they gain
NQF endorsement. We also invited
public comment on the following
quality measures and topics set out
below that we are considering for the
future. We seek to limit the number of
chart-abstracted measures and topics in
the near future, in order to facilitate the
transition to EHR-based reporting.
POSSIBLE HOSPITAL IQR PROGRAM FUTURE MEASURES AND TOPICS
Measurement topic
Measure title/description/concept
Mortality/Complications .....................................
Readmissions ...................................................
Patient Safety ...................................................
Medication Safety .............................................
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Surgical Outcome Measures ............................
Healthcare-Associated Infections .....................
Readmissions ...................................................
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Acute stroke 30-day mortality rate.
Total Hip and Total Knee arthroplasty 30-day complications.
Stroke 30-Day Risk Standardized Readmission Measure.
Total Hip and Total Knee Arthroplasty 30-Day Risk Standardized Readmission Measure.
Surgical checklist use for surgical procedures.
NQF approved Serious Reportable Events.
Universal Documentation and Verification of Current Medications in the Medical Record.
Drug-Drug interaction.
Medication Reconciliation.
Lower Extremity Bypass Complications.
ICD Complications.
Risk Adjusted Case Mix Adjusted Elderly surgery outcomes.
Risk Adjusted Case Mix Adjusted Colorectal surgery outcomes.
Ventilator Associated Pneumonia.
Post Procedure Pneumonias.
Multi Drug Resistant Organisms—VRE, Klebsiella, Acinetobacter.
COPD 30-day Risk Standardized Readmission Rate.
CABG 30-day Risk Standardized Readmission Rate.
Other Vascular Condition 30-day Risk Standardized Readmission.
Percutaneous Coronary Intervention (PCI) 30-day Risk Standardized Readmission Rate.
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POSSIBLE HOSPITAL IQR PROGRAM FUTURE MEASURES AND TOPICS—Continued
Measurement topic
Measure title/description/concept
Average Length of Stay ....................................
Mortality ............................................................
SCIP .................................................................
Care Coordination ............................................
Heart Failure .....................................................
Tobacco & Alcohol Cessation ..........................
Nursing Sensitive (remainder of measures) .....
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Cardiac Surgery measures ...............................
Comment: Commenters generally
supported CMS adopting more outcome
measures in the future. The commenters
further stated that CMS should not
dismiss process of care measures that
have a direct link to outcome measures.
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• All-Patient Condition-Specific Readmission Rates for AMI, Heart Failure, Pneumonia, CABG,
COPD, PCI, other vascular conditions.
• All-condition 30-day readmission rate.
• Overall inpatient hospital average length of stay (ALOS) and ALOS by medical service category.
• 30-day Risk Standardized Mortality Rate following PCI for STEMI/shock patients.
• 30-day risk-standardized mortality rate following PCI for non-STEMI/non-shock patients.
• Short Half-Life prophylactic administered preoperatively redosed within 4 hours after preoperative dose.
• Cardiac Rehabilitation Referral for AMI, HF, Cardiac Surgery.
• Symptom and Activity Assessment.
• Symptom Management.
• Patient Education.
• Combination Medical Therapy for LVSD.
• Beta Blocker Therapy for LVSD.
• Counseling Regarding ICD for Patients with LVSD.
• TAM–1: Tobacco Use Screening.
• TAM–2: Tobacco Use Treatment.
• TAM–3: Tobacco Use Treatment Management at Discharge.
• TAM–4: Assessing Status after Discharge.
• TAM–5: Alcohol Use Screening.
• TAM–6: Alcohol Use Brief Intervention.
• TAM–7: Alcohol and other Drug dependence—Treatment Management at Discharge.
• TAM–8: Substance Use—Assessing Status after Discharge.
• NSC–2: Patients surveyed on an eligible reporting unit that have at least one stage II or
greater [National Ulcer Advisory Panel (NPUAP)] nosocomial pressure ulcer on the day of the
prevalence study.
• NSC–3: Number of patient falls, with or without injury to the patient, by type of Unit during the
calendar month × 1000.
• NSC–4: Number of patient falls with an injury level of minor or greater by Type of Unit during
the calendar month × 1,000.
• NSC–5: Patients surveyed on the eligible reporting unit that have a vest restraint and/or limb
restraint (upper or lower or both) on the day of the prevalence study.
• NSC–12: Number of productive hours worked as specified in the Set Measure Identifier.
• NSC–13: Total number of productive hours worked by nursing staff (stratified by type of certification RN, LPN/LVN, UAP) with direct patient care responsibilities by Type of Unit during
the calendar month.
• NSC–14: Nursing satisfaction survey.
• NSC 15: The total number of voluntary separations (as specified under the Performance
Measure Identifier and Description above) during the calendar month.
• Post-operative Renal Failure.
• Surgical Re-exploration.
• Anti-Platelet Medication at Discharge.
• Beta Blockade at Discharge.
• Anti-Lipid Treatment Discharge (Statin at Discharge).
• Risk-Adjusted Operative Mortality for CABG.
• Risk-Adjusted Operative Mortality for Aortic Valve Replacement (AVR).
• Risk-Adjusted Operative Mortality for Mitral Valve Replacement/Repair (MVR).
• Risk-Adjusted Operative Mortality MVR+CABG Surgery.
• Risk-Adjusted Operative Mortality for AVR+CABG.
• Surgical Volume—a. Isolated Coronary Artery Bypass Graft (CABG) Surgery, b. Valve Surgery, c. CABG+Valve Surgery.
• Timing of Antibiotic Prophylaxis for Cardiac Surgery Patients.
• Selection of Antibiotic Prophylaxis for Cardiac Surgery Patients.
• Pre-Operative Beta Blockade.
• Duration of Prophylaxis for Cardiac Surgery Patients.
• Prolonged Intubation (ventilation).
• Deep Sternal Wound Infection Rate.
• Stroke/Cerebrovascular Accident.
• CABG Composite Score.
Response: We thank the commenters
for their suggestions which we will take
into consideration for future measures.
Comment: Many commenters were
supportive of our proposed list of future
measures and measure topics.
Response: We thank the commenters
for their support of our future measure
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topics and will take their comments into
consideration in our selection of future
measures.
Comment: Many commenters
supported the inclusion of The Joint
Commission Smoking Cessation and
Tobacco measure sets for the Hospital
IQR Program and recommended EHR-
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based reporting for these measures. For
future cardiac readmission measures,
one commenter recommended that CMS
take into account the FDA-approved
new classes of medications for
prevention of cardiac readmissions and
improvement of patient outcomes. One
commenter suggested that any 30-day
ischemic stroke mortality or
readmission measure must include
stroke severity as a risk-adjustment
factor.
Response: We thank the commenters
for their specific suggestions and will
consider them as we decide which
measures to propose to adopt in the
future for the Hospital IQR Program.
Comment: Some commenters were
opposed to some measures and measure
topics on our list of future measure and
measure topics: One commenter
opposed the Nursing Sensitive Care
measures and Readmission measures for
AMI, HF, PN, and PCI. One commenter
opposed the adoption of the ventilator
associated pneumonia (VAP) measure
because the commenter believed that
the definitions and diagnosis are
problematic, and opposed the adoption
of the SCIP, and MDRO measures
because they are not NQF-endorsed.
Two commenters were opposed to the
care coordination measure. A
commenter opposed the adoption of the
SCIP (process) measure (short Half-Life
prophylactic administered
preoperatively redosed within 4 hours
after preoperative dose) because the
related Surgical Site Infection (SSI)
outcome measure is already part of the
Hospital IQR Program.
Response: We thank the commenters
for their recommendations and will take
them into consideration as we decide
which measures to propose to adopt in
the future for the Hospital IQR Program.
Comment: Some commenters
recommended measures that are not on
our list of future measures and measure
topics. One commenter proposed a new
measure for hyponatremia. One
commenter proposed a measure for AMI
and HF such as the NQF-endorsed Heart
Failure (HF): Beta-blocker therapy (NQF
#0083). One commenter supported a
surgical checklist measure for Hospital
IQR Program. One commenter
recommended NQF-endorsed wound
care measures and malnutrition
evaluation measures if they are
available. One commenter
recommended adopting measures that
would indicate share-decision making
in hospitals. One commenter suggested
a measure for Surgical Site Infection
following implementation of a CIED.
One commenter recommended PTCA
Readmission measures. One commenter
strongly urged CMS to adopt measures
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based on registry data (for example,
CABG), CTM–3, PAC measures,
efficiency measures, CAD and CHD
measures, patient-reported outcomes,
and cross-cutting measures of care for
patients with multiple chronic
conditions.
Response: We appreciate all the
suggestions for additional measures and
measure topics and will take them into
consideration as we decide which
measures to propose to adopt in the
future for the Hospital IQR Program.
Comment: One commenter
recommended that, in addition to
current reporting efforts, future
reporting should strike a balance
between driving quality and system
improvement as well as attempt to
capture the entire episode of care so that
the quality of care and care continuum
can be better portrayed.
Response: We thank the commenter
for the recommendation and will take it
into consideration as we decide which
measures to propose to adopt in the
future for the Hospital IQR Program.
We thank the commenters for their
comments and suggestions regarding
future Hospital IQR measure adoption.
5. Form, Manner, and Timing of Quality
Data Submission
a. Background
Sections 1886(b)(3)(B)(viii)(I) and (II)
of the Act state that the applicable
percentage increase, for FY 2007 and
each subsequent fiscal year, shall be
reduced by 2.0 percentage points (or,
beginning with FY 2015, by one-quarter
of such applicable percentage increase
(determined without regard to sections
1886(b)(3)(B)(ix), (xi), or (xii) of the Act)
for any subsection (d) hospital that does
not submit quality data in a form and
manner, and at a time, specified by the
Secretary. The data submission
requirements, Specifications Manual,
and submission deadlines are posted on
the QualityNet Web site at: http://
www.QualityNet.org/. CMS requires that
hospitals submit data in accordance
with the specifications for the
appropriate discharge periods. Hospitals
submit quality data through the secure
portion of the QualityNet Web site
(formerly known as QualityNet
Exchange) (https://www.QualityNet.org).
This Web site meets or exceeds all
current Health Insurance Portability and
Accountability Act requirements for
security of protected health information.
In order to participate in the Hospital
IQR Program, hospitals must meet
specific procedural requirements.
Hospitals choosing to participate in the
Hospital IQR Program must also meet
specific data collection, submission, and
validation requirements.
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51639
b. Procedural Requirements for FY 2012
Payment Determinations and
Subsequent Years
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25914 through
25920), we proposed Hospital IQR
Program procedural requirements that
are, for the most part, the same as the
procedures adopted in the FY 2011
IPPS/LTCH PPS final rule for the
Hospital IQR Program. Hospitals must
comply with the following procedural
requirements to participate—
• Register with QualityNet, before
participating hospitals initially begin
reporting data, regardless of the method
used for submitting data.
• Identify a QualityNet Administrator
who follows the registration process
located on the QualityNet Web site
(http://www.QualityNet.org).
• Complete a Notice of Participation.
New subsection (d) hospitals and
existing hospitals that wish to
participate in the Hospital IQR Program
for the first time must complete an
online Notice of Participation (formerly
known as ‘‘Reporting Hospital Quality
Data for Annual Payment Update Notice
of Participation,’’ also referred to as
IPledge) that includes the name and
address of each hospital campus that
shares the same CMS Certification
Number (CCN). We revise the Notice of
Participation periodically as needed and
provide appropriate notification of any
revisions to hospitals and QIOs through
the routine Hospital IQR Program
communication channels, which
include memo and e-mail notification
and QualityNet Web site articles and
postings.
• Any hospital that receives a new
CCN on or after October 15, 2009
(including new subsection (d) hospitals
and hospitals that have merged) that
wishes to participate in the Hospital
IQR Program and has not otherwise
submitted a Notice of Participation
using the new CCN must submit a
completed Notice of Participation no
later than 180 days from the date
identified as the open date (that is, the
Medicare acceptance date) on the
approved CMS Quality Improvement
Evaluation System (QIES) (which we
referred to in the proposed rule as the
CMS Online System Certification and
Reporting (OSCAR) system) to
participate in the Hospital IQR Program.
We proposed regulation text to codify
this requirement.
• We will accept Hospital IQR
Program withdrawal forms for the FY
2013 payment determination from
hospitals any time from October 1, 2011
until August 15, 2012. The August 15,
2012 deadline will give us sufficient
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time to update the FY 2013 payment to
hospitals starting on October 1, 2012. If
a hospital withdraws from the program
for the FY 2013 payment determination,
it will receive a reduction of 2.0
percentage points to the FY 2013
applicable percentage increase. Once a
hospital has submitted a Notice of
Participation, it is considered to be an
active Hospital IQR Program participant
until such time as the hospital submits
a withdrawal form to CMS.
• We will determine if a hospital has
complied with our data submission
requirements by looking at whether the
hospital has properly submitted data to
the appropriate data warehouses for
HCAHPS, CDC/NHSN, chart-abstracted
measures, and structural measure
quality measure data during the four
calendar year quarters of FY 2012.
The Hospital IQR Program procedural
requirements have remained relatively
unchanged for the past several years and
we proposed to codify them at 42 CFR
412.140. We invited public comment on
this proposal.
We received no comments on our
proposal to codify the Hospital IQR
Program procedural requirements.
Therefore, for the reasons described
above, we are codifying the Hospital
IQR Program procedural requirements at
42 CFR 412.140.
c. Procedural Requirements for FY 2013
and Subsequent Years
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25915), we
proposed that hospitals that have an
open date (as noted on the approved
CMS OSCAR system/QIES) before
March 31, 2009 that did not participate
in the Hospital IQR Program in FY 2011
or FY 2012 but that wish to participate
in the Hospital IQR Program for the FY
2013 payment determination must
submit a completed Notice of
Participation to CMS on or before
December 31, 2011. These hospitals,
unlike hospitals that receive a new CCN,
do not need to get their operations up
and running. Therefore, we believe this
is a reasonable deadline that will enable
these hospitals to decide whether they
want to participate in the Hospital IQR
Program while also enabling us to
collect enough data from them to make
an accurate FY 2013 payment
determination. We proposed regulation
text that provides that hospitals that
would like to participate in the Hospital
IQR Program for the first time, or that
previously withdrew from the program
and would like to participate again,
must submit to CMS a completed Notice
of Participation Form by December 31 of
the fiscal year preceding the fiscal year
in which they would like to participate.
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We received no comments regarding
the proposal to require hospitals to
submit a completed Notice of
Participation Form by December 31 of
the fiscal year preceding the fiscal year
in which they would like to participate.
Therefore, for the reasons described
above, we will require a completed
Notice of Participation Form by
December 31 of the fiscal year preceding
the fiscal year in which they would like
to participate.
d. Data Submission Requirements for
Chart-Abstracted Measures
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 2525915), we
proposed to reduce the quarterly
submission deadline for chart-abstracted
quality measures from 41⁄2 months to
104 days. In other words, for FY 2014
payment determinations, the quarterly
deadline for the quality measures under
the topic that require chart abstraction
(AMI, HF, PN, SCIP, Emergency
Department Throughput (EDT), and
Global Immunization (GIM)) will be 104
days following the last discharge date in
the calendar quarter. We proposed to
reduce the data submission deadline in
order to allow for a correction period,
which we will propose in future
rulemaking. We also believe that this
proposed change will encourage
hospitals to utilize quality measure
information in a more rapid manner to
facilitate quality improvement. We also
want to provide hospitals sufficient
notice of any proposed changes to our
submission deadline, since we
recognize the advance time needed by
hospitals to modify their recordkeeping
and abstraction practices to comply
with this proposed requirement. We
also proposed to change the aggregate
population and sampling deadline from
4 months to 3 months to align with the
corresponding proposal to change the
data submission deadline from 135 to
104 days.
We will continue to require hospitals
to submit aggregate population and
sample size counts to CMS on a
quarterly basis for Medicare and nonMedicare discharges for the topic areas
for which chart-abstracted data must be
submitted (currently AMI, HF, PN, and
SCIP) (75 FR 50221). Starting with the
FY 2014 payment determination, we
proposed to change the submission
deadline for hospitals to submit
aggregate population and sample size
count data for the measures requiring
chart abstraction from 4 months to 3
months following the last discharge date
in the calendar quarter. We proposed
this 3-month deadline for submission of
the aggregate population and sample
size counts data to provide CMS with
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information necessary to notify
hospitals about their data completeness
status. Specifically, we currently
provide a Provider Participation Report
the day after the submitted file is
processed, which includes a calculation
of the number of hospital submitted
cases by topic, hospital self-reported
aggregate population and sample size
count, and Medicare FFS claims by
clinical topic and SCIP surgical
category. We expect that hospitals will
use this report after submission to assess
their patient-level data completeness
and will submit additional patient-level
cases before the proposed quarterly
patient-level deadline. We proposed to
provide hospitals with the same 14-day
period after the proposed aggregate
population and sample size count
deadline to submit the required patientlevel records.
Comment: Several commenters
opposed the shorter timeframes due to
the increased administrative burden that
this would create for hospitals.
Response: We appreciate the
comment and are sensitive to the
burden faced by hospitals to meet the
requirements under the Hospital IQR
Program. In the CY 2012 OPPS/ASC
proposed rule (76 FR 42363 through
42365), we proposed to implement a
review and corrections process for the
Hospital VBP Program that would give
hospitals an opportunity to review and
correct data submitted on all Hospital
IQR Program chart-abstracted measures,
whether or not those measures are
adopted as Hospital VBP Program
measures. We noted that under the
Hospital IQR Program, hospitals
currently have an opportunity to
submit, review, and correct any of the
chart-abstracted information submitted
to the QIO Clinical Warehouse for the
full 41⁄2 months following the last
discharge date in a calendar quarter,
although we also noted that we had
proposed to shorten this period. In
response to the comments stating that
the shortened timeframe would increase
the burden to hospitals under the
Hospital IQR Program, we re-examined
the timing issues that had prompted us
to propose to shorten the period and
concluded that the existing 41⁄2 month
submission period would give hospitals
a sufficient amount of time to review
and correct their chart-abstracted data,
and would also give us a sufficient
amount of time to perform our
administrative functions. For this
reason, we will not finalize our proposal
to shorten the chart-abstracted data
submission period to 104 days, and
hospitals will continue to have 41⁄2
months following the last discharge date
in a calendar quarter to submit their
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chart-abstracted data for that quarter. To
be consistent with our decision to retain
the 41⁄2 month data submission period,
we will also not finalize our proposal to
shorten the aggregate population and
sampling deadline from 4 months to 3
months, and hospitals will continue to
have 4 months to submit this data.
Comment: One commenter expressed
concern that the reduced submission
deadline would reduce the amount of
time vendors have to analyze, report
and resubmit the various data files.
Response: We thank the commenter
for their input and appreciate the
commenter’s concern regarding the
proposed reduced timeframes. For the
reasons stated above, we will not
finalize our proposals to shorten the
chart-abstracted data submission
deadline or the aggregate population
and sampling deadline.
Comment: A few commenters
suggested that efforts be made to
synchronize reporting timeframes with
other standard reporting requirements,
such as The Joint Commission’s
requirements and timeframes.
Response: We believe that the
reporting deadlines we have developed
for the Hospital IQR Program take into
consideration both the burden to
hospitals and our administrative and
operational needs. However, we
appreciate the commenters’ suggestion
to align our reporting deadlines with the
reporting deadlines imposed by other
organizations and will take it into
consideration in developing future
rulemaking.
Comment: Many commenters
suggested that CMS shorten the data
submission timeline from 135 days to
122 days, not the proposed 104 days.
These commenters asserted that this
would build in time for a data
correction period while ensuring that
hospitals are not overwhelmed by a
drastically shortened data collection
period.
Response: We thank the commenters
for their input. As noted above, we are
not finalizing our proposals to shorten
the chart-abstracted data submission
deadline or the aggregate population
and sampling deadline. However, we
will take the commenters’ suggestions
into consideration in developing future
rulemaking.
Comment: One commenter supported
the reduction in submission days
because it would increase efficiency in
the program. A few commenters
supported the opportunity to review
and correct data and suggested the
reduced submission deadline was not a
burden in exchange for the review
opportunity.
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Response: We thank the commenters
for supporting our proposals to shorten
the chart-abstracted data submission
deadline and the aggregate population
and sampling deadline, however for the
reasons noted above, we will not be
finalizing these proposals.
After consideration of the public
comments we received, we will not
finalize our proposal to shorten the
chart-abstracted data submission period
to 104 days, and hospitals will continue
to have 41⁄2 months following the last
discharge date in a calendar quarter to
submit their chart-abstracted data for
that quarter. To be consistent with our
decision to retain the 41⁄2 month data
submission period, we will also not
finalize our proposal to shorten the
aggregate population and sampling
deadline from 4 months to 3 months,
and hospitals will continue to have 4
months to submit this data.
We did not receive any comments on
our proposal to continue providing
hospitals with 14 days after the
aggregate population and sample size
count deadline to submit the required
patient-level records, and we are
finalizing that proposal.
e. Sampling and Case Thresholds
Beginning with the FY 2015 Payment
Determination
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25915 through
25916), we proposed to continue the
requirement for hospital submission of
population and sampling data for the FY
2015 payment determination and future
years. Hospitals must submit to CMS
quarterly aggregate population and
sample size counts for Medicare and
non-Medicare discharges for the topic
areas for which chart-abstracted data
must be submitted (AMI, HF, PN, SCIP,
EDT and GIM). Hospitals are required to
submit their aggregate population and
sample size count for each topic area.
In accordance with the policy we
adopted in the FY 2011 IPPS/LTCH PPS
final rule, hospitals that have not treated
patients in a specific topic area must
still submit quarterly population and
sample size counts for all Hospital IQR
chart-abstracted data topics. For
example, if a hospital has not treated
AMI patients, the hospital is still
required to submit a zero for its
quarterly aggregate population and
sample count for that topic in order to
meet the requirement. We view it as
vital for hospitals to determine
accurately their aggregate population
and appropriate sampling size data in
order for CMS to assess hospitals’ data
reporting completeness for their total
population of cases, Medicare and nonMedicare.
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In order to reduce the burden on
hospitals that treat a low number of
patients in a Hospital IQR Program topic
area, a hospital that has five or fewer
discharges (Medicare and non-Medicare
combined) in a topic area during a
quarter in which data must be submitted
would not be required to submit patientlevel data for that topic area for the
quarter. The hospital must still submit
its aggregate population and sample size
counts for Medicare and non-Medicare
discharges for the topic areas each
quarter. Hospitals meeting the five or
fewer patient discharge exception may
voluntarily submit these data.
We strongly recommend that
hospitals review the QIO Clinical
Warehouse Feedback Reports and the
Hospital IQR Program Provider
Participation Reports that are available
after patient-level data are submitted to
the QIO Clinical Warehouse. We
generally update these reports on a daily
basis to provide accurate information to
hospitals about their submissions. These
reports enable hospitals to ensure that
their data were submitted on time and
accepted into the QIO Clinical
Warehouse.
We did not receive any public
comments related to this proposal.
Therefore, we are finalizing our
proposal regarding hospital submission
of population and sampling data for the
FY 2015 payment determination and
future years as proposed.
f. HCAHPS Requirements for the FY
2013, FY 2014, and FY 2015 Payment
Determinations
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25916 through
25917), beginning with discharges
occurring in third quarter CY 2011, we
proposed to move the HCAHPS data
submission deadline forward by one
week in order to allow for a review and
correction period, which we will
propose in future rulemaking. Currently,
hospitals have about 14 weeks after the
end of a calendar quarter to submit
HCAHPS data for that quarter to the QIO
Clinical Warehouse. If this proposal is
adopted, hospitals will have about 13
weeks after the end of a calendar quarter
to submit HCAHPS data for that quarter
to the QIO Clinical Warehouse.
Other than this proposed change, we
did not propose any other changes to
the HCAHPS requirements for the FY
2013 and FY 2014 Hospital IQR Program
payment determinations, which were
adopted in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50220). For FY 2015
Hospital IQR payment determinations,
we proposed to continue the HCAHPS
requirements as follows. Under these
requirements, a hospital must
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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 2015 Hospital IQR
Program, we proposed that the HCAHPS
data will be based on discharges from
January 1, 2013 through December 31,
2013.
Every hospital choosing to contract
with a survey vendor must provide the
sample frame of HCAHPS-eligible
discharges to its survey vendor with
sufficient time to allow the survey
vendor to begin contacting each
sampled patient within 6 weeks of
discharge from the hospital. (We refer
readers to the Quality Assurance
Guidelines located at 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 wish to
emphasize that hospitals must also
provide the administrative data that is
required for HCAHPS in a timely
manner to their survey vendor. This
includes the patient MS–DRG at
discharge, or alternative information
that can be used to determine the
patient’s service line, in accordance
with the survey protocols in the most
recent HCAHPS Quality Assurance
Guidelines.
We note that the HCAHPS Quality
Assurance Guidelines require that
hospitals maintain complete discharge
lists that indicate which patients were
eligible for the HCAHPS survey, which
patients were not eligible, which
patients were excluded, and the
reason(s) for ineligibility and exclusion.
(We refer readers to the Quality
Assurance Guidelines located at http://
www.hcahpsonline.org for details about
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HCAHPS eligibility and sample frame
creation.) In addition, the hospital must
authorize the survey vendor to submit
data via My QualityNet, the secure part
of the QualityNet Web site, on the
hospital’s behalf.
Hospitals must submit at least 300
completed HCAHPS surveys in a rolling
four-quarter period unless the hospital
is too small to obtain 300 completed
surveys. We wish to emphasize that the
absence of a sufficient number of
HCAHPS eligible discharges is the only
acceptable reason for submitting fewer
than 300 completed HCAHPS surveys in
a rolling four quarter period. If a
hospital obtains fewer than 100
completed surveys, the hospital’s
HCAHPS scores will be accompanied by
a footnote on the Hospital Compare Web
site alerting the Web site users that the
scores should be reviewed with caution,
as the number of surveys may be too
low to reliably assess hospital
performance.
After the survey vendor submits the
data to the QIO Clinical Warehouse, we
strongly recommend that hospitals
employing a survey vendor promptly
review the two HCAHPS Feedback
Reports (the Provider Survey Status
Summary Report and the Data
Submission Detail Report) that are
available. These reports enable a
hospital to ensure that its survey vendor
has submitted the data on time and the
data has been accepted into the QIO
Clinical Warehouse.
In order to ensure compliance with
HCAHPS survey and administration
protocols, hospitals and survey vendors
must participate in all oversight
activities. As part of the oversight
process, during the onsite visits or
conference calls, the HCAHPS Project
Team will review the hospital’s or
survey vendor’s survey systems and
assess protocols based upon the most
recent HCAHPS Quality Assurance
Guidelines. All materials relevant to
survey administration will be subject to
review. The systems and program
review includes, but is not limited to:
(a) Survey management and data
systems; (b) printing and mailing
materials and facilities; (c) telephone
and Interactive Voice Response (IVR)
materials and facilities; (d) data receipt,
entry and storage facilities; and, (e)
written documentation of survey
processes. As needed, hospitals and
survey vendors will be subject to followup site visits or conference calls. We
wish to point out that the HCAHPS
Quality Assurance Guidelines state that
hospitals should refrain from activities
that explicitly influence how patients
respond on the HCAHPS survey. If we
determine that a hospital is not
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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.
Comment: One commenter asked
about the purpose of the proposed
HCAHPS review and correction period.
Another commenter recommended that
CMS change its HCHAPS data
submission timeline to match the
current Joint Commission data
submission schedule, which is two
weeks earlier than the CMS deadline.
Response: The proposed one-week
HCAHPS review and correction period
would allow a formal opportunity for
hospitals (or their HCAHPS survey
vendors) to resubmit data for patients in
order to correct errors in the data
submitted for those patients prior to the
review and correction period.
Given the amount of time necessary
for participating hospitals or their
survey vendors to fully administer the
HCAHPS survey, receive survey
responses, and create the necessary data
files, we do not believe it is appropriate
to further shorten the data submission
period either by beginning the period
sooner, or ending it sooner.
After consideration of the public
comments we received, we are
finalizing the HCAHPS requirements
discussed above, as proposed.
In the Hospital Inpatient VBP Program
proposed rule, we proposed that
HCAHPS scores become part of the FY
2013 Hospital VBP Program (76 FR
2462). We adopted that proposal in the
Hospital Inpatient VBP Program final
rule (76 FR 26510). As HCAHPS scores
become incorporated in hospital
payment, we believe that a neutral
third-party should administer the
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survey for hospitals whose annual
payment updates will be affected by
their HCAHPS scores. It is our belief
that an experienced survey vendor will
be best able to ensure reliable results.
Therefore, we are considering whether
to require that-subsection (d) hospitals
engage an HCAHPS-approved survey
vendor to administer the HCAHPS
survey. We invited public comment that
will inform our future policy on this
issue
Comment: One commenter expressed
support for requiring the use of an
approved survey vendor to administer
the HCAHPS survey when the survey
will be used for hospital payment
purposes.
Response: We thank the commenter
for this suggestion. We are considering
this policy change for the future and we
will take this suggestion into
51643
consideration as we develop future
proposals.
g. Procedures for Claims-Based
Measures
In the FY 2012 IPPS/LTCH PPS
proposed rule, we proposed to adopt a
new claims-based measure for FY 2014,
the Medicare Spending per Beneficiary
Measure, which is included in the chart
below.
FY 2014 Payment determination: adopted and proposed claims-based quality measures (no additional hospital data submission required)
Topic
Mortality Measures (Medicare Patients) ...........
Readmission Measure (Medicare Patients) .....
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) and Composite
Measures.
AHRQ PSI and Nursing Sensitive Care ...........
Hospital Acquired Condition Measures ............
Cost Efficiency ..................................................
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Acute Myocardial Infarction (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day mortality rate.
Pneumonia (PN) 30-day mortality rate.
Acute Myocardial Infarction 30-day Risk Standardized Readmission Measure.
Heart Failure 30-day Risk Standardized Readmission Measure.
Pneumonia 30-day Risk Standardized Readmission Measure.
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.
Complication/patient safety for selected indicators (composite).
Mortality for selected medical conditions (composite).
PSI 04 Death among surgical inpatients with serious treatable complications.
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.
Medicare Spending per Beneficiary.*
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* New proposed measure for FY 2014.
We did not propose to change the
procedures and time periods we
adopted in the FY 2011 IPPS/LTCH PPS
final rule for the FY 2012, FY 2013 and
FY 2014 payment determinations. For
the FY 2014 payment determination, we
proposed to use up to 3 years of
Medicare FFS claims data to calculate
the measures, as appropriate for the
measures.
Hospitals are encouraged to regularly
check the QualityNet Web site, http://
www.QualityNet.org, for program
updates and information.
We received no comments on these
procedures and are finalizing them with
the clarification that we will use 3 years
of Medicare FFS claims data to calculate
the measures.
h. Data Submission Requirements for
Structural Measures
Structural measures assess the
characteristics and capacity of the
provider to deliver quality healthcare. In
the FY 2012 IPPS/LTCH PPS proposed
rule, we proposed to add one additional
structural measure for the FY 2014
payment determination, Participation in
a Systematic Clinical Database Registry
for General Surgery. Beginning with FY
2013, we proposed to align the
submission deadline for all structural
measures with the submission deadline
for the fourth calendar quarter of the
chart-abstracted measures.34 We
proposed to update the period of data
collection that hospitals will submit the
Topic
required registry participation
information once annually for the
structural measures via a Web-based
collection tool between April 1, 2012
and May 15, 2012 with respect to the
time period of January 1, 2011 through
December 31, 2011. This proposal will
give CMS a more complete picture of
registry participation as well as
synchronize data submissions for
structural and chart-abstracted
measures. These measures do not
require the hospital to participate in a
registry.
Below is the list of structural
measures we have adopted for the FY
2014 payment determination:
FY 2014 Payment determination: Structural measures
Cardiac Surgery ................................................
Stroke Care ......................................................
• Participation in a Systematic Database for Cardiac Surgery.
• Participation in a Systematic Clinical Database Registry for Stroke Care.
34 We corrected this language in the proposed rule
in a correction notice published at 76 FR 34633 to
remove an incorrect reference to these measures
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aligning in FY 2014, when in fact they will be
aligned starting in FY 2013.
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Topic
FY 2014 Payment determination: Structural measures
Nursing Sensitive Care .....................................
General Surgery ...............................................
• Participation in a Systematic Clinical Database Registry for Nursing Sensitive Care.
• Participation in a Systematic Clinical Database Registry for General Surgery.*
* New measure for FY 2014 proposed in the FY 2012 IPPS/LTCH PPS proposed rule and adopted in this final rule.
Comment: Several commenters noted
an error in the proposed rule regarding
the date of collection and the period of
collection for the proposed structural
measure as well as the existing
structural measures.
Response: We issued a correction
notice on this issue on June 14, 2011 (76
FR 34633 through 34634). The
correction notice corrected both the
period of time for which the data will
be corrected as well as the timeframe
during which we will actually collect
the data. We erroneously stated in the
proposed rule at (76 FR 25898) that
collection would begin in July 2012
with respect to the time period January
1, 2012 to June 30, 2012, instead of
collection to begin in April 2013 with
respect to the time period January 1,
2012 through December 31, 2012.
Comment: A few commenters
supported the alignment of the data
collection for structural measures with
the data submission deadline for the
fourth quarter of the chart-abstracted
measures.
Response: We appreciate the
commenters’ support for this proposed
alignment.
After consideration of the public
comments we received, we are
finalizing our proposal that, beginning
with FY 2013, we are aligning the
submission deadlines for all structural
measures with the submission deadline
for the fourth calendar quarter of the
chart-abstracted measures. For FY 2013,
hospitals will be required to submit the
required registry participation
information once annually for the
structural measures via a Web-based
collection tool between April 1, 2012
and May 15, 2012 with respect to the
time period of January 1, 2011 through
December 31, 2011. For FY 2014,
hospitals will be required to submit the
required registry participation
information once annually for the
structural measures via a Web-based
collection tool will be between April 1,
2013 and May 15, 2013 with respect to
the time period of January 1, 2012
through December 31, 2012.
i. Data Submission and Reporting
Requirements for Healthcare-Associated
Infection (HAI) Measures Reported via
NHSN
As discussed above, in the FY 2012
IPPS/LTCH PPS proposed rule we
proposed to adopt 2 new HAI measures
for the FY 2014 payment determination
and 3 HAI measures for FY 2015
payment determination. For FY 2014,
only the Catheter Associated Urinary
Tract Infection will be adopted. For FY
2015, we are adopting all of the three
HAI measures that we proposed:
Healthcare Provider Influenza
Vaccination, MRSA Bacterimia and C.
Difficile. Below is the list of HAI
measures we are finalizing for the FY
2014 and FY 2015 payment
determinations:
FY 2014 and 2015 Payment determination: Adopted healthcare-associated infection measures
(CDC/NHSN)
Topic
•
•
•
•
•
Surgical Site Infection.*
Catheter Associated Urinary Tract Infection.**
Clostridium Difficile.***
Healthcare Provider Influenza Vaccination.***
MRSA Bacteremia.***
* Measures adopted for FY 2014 payment determination in the FY 2011 IPPS/LTCH PPS final rule.
** Measure adopted for FY 2014 payment determination in this final rule.
*** Measures adopted for FY 2015 payment determination in this final rule.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 259219 through
25920), we proposed to update the
current data submission and reporting
requirements for these proposed
measures. Specifically, we proposed to
utilize the data submission and
reporting standard procedures that have
been set forth by CDC for NHSN
participation in general and for
submission of these measures to NHSN.
We refer readers to the CDC’s NHSN
Web site (http://www.cdc.gov/nhsn) for
detailed data submission and reporting
procedures. We believe that these
procedures are feasible because they are
already widely used by over 4,000
hospitals reporting HAI data using the
NHSN. Our proposal seeks to reduce
hospital burden by aligning CMS data
submission and reporting procedures
with NHSN procedures currently used
by hospitals, including hospitals
complying with 28 State HAI reporting
requirements. The existing data
collection and submission timeframes
for the HAI measures for the FY 2014
payment determination, which we
proposed to use for the HAI measures
we have proposed above, are shown
below. Hospitals must submit their
quarterly data to NHSN for Hospital IQR
Program purposes on or around the
dates shown in the table below (updates
to this will be posted on the QualityNet
Web site).
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SUBMISSION TIMEFRAMES FOR HAI MEASURES FOR THE FY 2014 PAYMENT DETERMINATION
CDC–NHSN Collection and quarterly report
generation timeframe
CY 2012 Infection Events
Q1
Q2
Q3
Q4
(Jan–Mar 2012) ............................................
(Apr–Jun 2012) ............................................
(Jul–Sep 2012) .............................................
(Oct–Dec 2012) ............................................
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January 31st—August 15th ..............................
April 30th—November 15th ..............................
July 31st—Feb-15th .........................................
October 31st—May 15th ..................................
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Final submission deadline for hospital IQR
program FY 2014 payment determination
August 15, 2012.
November 15, 2012.
February 15, 2013.
May 15, 2013.
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Hospitals would have until the
Hospital IQR Program final submission
deadline to submit their quarterly data
to NHSN. After the final Hospital IQR
Program submission deadline has
occurred for each CY 2012 quarter, CMS
will obtain the hospital-specific
calculations that have been generated by
the NHSN for the Hospital IQR Program.
We invited public comment on this
proposal.
Comment: A few commenters
requested clarification of the data
collection dates for the MRSA and C.
Difficile SIR measures for FY 2015
payment determination.
Response: For the FY 2015 payment
determination, data collection will
begin with January 1, 2013 events.
After consideration of the public
comments we received, we will adopt
the data submission and reporting
standard procedures that have been set
forth by CDC for NHSN participation in
general and for submission of these
measures to NHSN as listed above.
6. Chart Validation Requirements for
Chart-Abstracted Measures
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a. Changes to the Chart Validation
Requirements and Methods for the FY
2012 Payment Determination and
Subsequent Years
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25920 through
25922), we proposed several changes to
the chart validation requirements and
methods we adopted in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50225
through 50229) for the FY 2012 payment
determination and subsequent years. In
previous years, charts were requested by
the CMS CDAC contractor and hospitals
were given 45 days from the date of the
request to submit the requested records.
If any record(s) were not received by the
45-day requirement, the CMS CDAC
contractor assigned a ‘‘zero’’ validation
score to each measure in a missing
record. We proposed to change the time
period given to hospitals to submit
medical records to the CDAC contractor
to 30 calendar days, and we proposed to
codify this proposal at 42 CFR
412.140(d)(1). This proposed change in
submission timeframe will align the
current process with the requirements
in 42 CFR 476.78(b)(2), which currently
allow only 30 days for chart submission
in the context of reviews by QIOs. We
proposed this deadline modification to
reduce the time we need to complete
validation, and provide hospitals with
feedback on their abstraction accuracy.
We believe that this linkage between
Hospital IQR Program validation
discharge quarters and the same fiscal
year’s Hospital VBP Program proposed
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performance period would improve the
reliability and accuracy of the Hospital
VBP Program’s chart-abstracted
measures. Hospitals that are subject to
Hospital IQR payment reduction due to
not passing our validation requirement
would be excluded from receiving a
Hospital VBP performance score and
corresponding incentive payment under
section 1886(o)(1)(C)(ii)(I) of the Act.
Thus, CMS would ensure that the data
submitted on chart-abstracted measures
we adopt for the Hospital VBP Program
is accurate by virtue of validating it
under the validation procedures we
have adopted for the Hospital IQR
Program.
Comment: A few commenters
recommended that CMS consider
options to receive electronic copies of
records rather than paper records.
Response: We appreciate the feedback
and will consider the suggestion in
developing future rulemaking to reduce
the validation burden to hospitals using
electronic health records. We recognize
that many more hospitals will transition
their recordkeeping to EHRs in the
coming years, and we will strive to
provide the public with accurate quality
data while maintaining alignment with
hospital recordkeeping practices.
Comment: Most commenters
supported the reduction in the time
frame for hospitals to submit the
requested records to the CDAC
contractor from 45 calendar days to 30
calendar days if the reduction will
improve the timeliness of feedback to
the hospitals.
Response: We appreciate the input
and believe that the reduction will
improve the timeliness of feedback to
the hospitals.
Comment: Some commenters oppose
the reduction in the time frame as this
decrease in the timeframe would
negatively impact hospitals’ capability
to respond in a timely manner and
could negatively affect hospitals’ ability
to perform quality checks.
Response: We appreciate the
comment, but believe that decreasing
the time frame for chart submission will
allow CMS to provide more timely
feedback to hospitals on the validation
results.
Comment: One commenter believed
that validating Hospital VBP data under
the Hospital IQR Program data would
efficiently use both CMS and hospital
resources.
Response: We appreciate the
commenter’s support for this proposal.
After consideration of the public
comments we received, we are adopting
as final our proposal to change the time
period given to hospitals to submit
medical records to the CDAC contractor
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from 45 to 30 calendar days, and are
codifying this policy at 42 CFR
412.140(d)(1).
b. Supplements to the Chart Validation
Process for the FY 2014 Payment
Determination and Subsequent Years
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25920 through
25922), we proposed to continue to use
the supplements to the chart validation
requirements and methods we adopted
in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50227 through 50229) for FY
2014 payment determinations and
future years with several proposed
modifications.
We proposed to add hospitals to our
validation sample if they were open
under their current CCNs in FY 2012
but not selected for validation in the
three previous annual Hospital IQR
Program validation samples. We
proposed this addition to supplement
our validation approach to ensure that
all eligible Hospital IQR Program
hospitals are selected for validation at
least once every 4 years. We proposed
this addition starting in FY 2015
because FY 2015 would be the fourth
year that CMS would have used the
random validation approach (which
begins in FY 2012 as adopted in the FY
2011 IPPS/LTCH PPS final rule). We
invited public comment on this
proposal.
Comment: One commenter disagreed
with the policy we adopted in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50229) to conduct random sampling of
hospitals, and believes that CMS should
utilize the charts provided to the QIOs
to identify hospitals potentially
submitting poor quality data.
Response: Section
1886(b)(3)(B)(viii)(XI) of the Act states
that ‘‘the Secretary shall establish a
process to validate measures specified
under this clause as appropriate. Such
process shall include the auditing of a
number of randomly selected hospitals
sufficient to ensure validity of the
reporting program under this clause as
a whole and shall provide a hospital
with an opportunity to appeal the
validation of measures reported by such
hospital.’’ We believe that our FY 2012
Hospital IQR Program validation
process meets the requirement regarding
randomly selected hospitals in section
1886(b)(3)(B)(viii)(XI) of the Act. While
we appreciate the commenter’s concern,
we believe that by ensuring all hospitals
are validated at least once every four
years, we will ensure that hospitals with
poor data are identified. In addition, we
note that, under the policy that we
adopted in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50227 through 50229),
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hospitals that fail validation for the FY
2012 payment determination and
subsequent years will be selected for
validation the following year to ensure
deficiencies are corrected.
Comment: Most commenters
supported a requirement that eligible
hospitals be selected at least once every
four years for validation. Most
commenters also stated that because
CMS intends to use the results of
Hospital IQR chart validation for the
Hospital VBP Program, all eligible
hospitals should be regularly included
in the chart validation process.
Response: We appreciate the
commenters’ support for this proposal
to ensure that all hospitals are validated
at least once every 4 years.
After considering the public
comments we received, we are adopting
as final the proposal to supplement our
validation approach to ensure that all
eligible Hospital IQR Program hospitals
are selected for validation at least once
every 4 years.
Starting with the FY 2012 payment
determination and continuing in
subsequent fiscal years, the chart
validation process audits 800 randomly
selected hospitals for the discharge
quarters. This sample size is sufficient
to validate more than 22 percent of
subsection (d) hospitals in an applicable
fiscal year and ensure accuracy of the
Hospital IQR Program quality data.
For the FY 2014 payment
determination, we proposed to validate
24 chart-abstracted measures including
19 currently validated measures, and 5
proposed additional measures. The FY
2014 proposed validation reflects the 5
measures we proposed to add (2 EDT
measures, Central Line Associated
Blood Stream Infection, Global
Influenza Immunization, and Global
Pneumonia Immunization measures)
and the 8 measures we proposed to
retire (AMI–1, AMI–3, AMI–4, AMI–5,
HF–4, PN–4, PN–5c, and SCIP Infection
6).
Validation of the HCAHPS measure is
conducted through our oversight
activities. We provide oversight of all
HCAHPS survey vendors and hospitals
self-administering the survey in order to
ensure that the data collection protocols
are followed. We also provide oversight
and validation through our review of
Quality Assurance Plans, site visits,
conference calls and detailed data
analyses each quarter to ensure there are
no anomalies found in the data. In
particular, we use site visits to review
all data collection activities, including
data reviews to track a discharged
patient from sampling to survey
administration to data submission.
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We proposed, starting with FY 2014
payment determinations, a modest
increase to the current Hospital IQR
Program validation sample of SCIP,
AMI, HF, and PN cases. Specifically, we
proposed to add three charts per
selected hospital per quarter to the
validation sample. This additional
quarterly sample would enable us to
validate the CLABSI measure that we
added to the Hospital IQR Program
measure set beginning with the FY 2014
payment determination. CLABSI is a
relatively rare event compared to SCIP,
AMI, HF, and PN cases. In 2009, about
18,000 CLABSIs occurred in ICU
patients in the United States, and these
infections were a major contributor to
prolonged hospital stays and inpatient
mortality. We proposed a process to
validate the CLABSI measure that takes
into account the relative infrequency of
this event and the case-finding
methodology for it, specifically the
requirements for a positive blood
culture result and the presence of a
central venous catheter in the patient at
the time of, or within 48 hours before,
onset of the infection.
We recognize that the current
validation process and sample size for
AMI, HF, PN, and SCIP measures is not
likely to be sufficiently reliable to detect
systematic underreporting of CLABSI.
Unlike the current AMI, HF, PN, and
SCIP chart-abstracted process of care
measures, CLABSI is a rarely occurring
infection among acute care inpatient
discharges. We estimate that about 0.1
percent to 0.2 percent of all acute care
inpatient patient discharges nationwide
involve patients who are infected with
a CLABSI. We believe that our current
Hospital IQR Program AMI, HF, PN, and
SCIP sample sizes and sample methods
would not reliably validate CLABSI
measure rates at the hospital level
because of the relatively rare occurrence
of these events. We also seek to target
validation of the CLABSI measure to
minimize hospital burden in complying
with our sample size proposals, for
which hospitals must find, photocopy,
and return requested medical records to
CMS. If CMS did not utilize this
targeted validation approach for the
CLABSI measure, hospitals would have
to submit 200 to 300 additional
randomly selected cases in order to
effectively validate this measure, given
its rare occurrence. We believe that our
proposed CLABSI validation process
addresses these limitations through the
use of a targeted incremental validation
sample comprised of three charts of
possible CLABSI events, and will
reliably validate the Hospital IQR
Program CLABSI measure while not
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overly burdening hospitals with medical
record requests.
Specifically, we proposed to identify
sampled hospitals’ three quarterly
potential CLABSI charts using a twostep selection process that would target
intensive care unit patients with
bloodstream infection (positive blood
culture results) and a Central Venous
Catheter (CVC) provided by sampled
hospitals to CMS. In the first step of this
process, a CMS contractor would
require the 800 randomly sampled
hospitals to provide a quarterly list of
all blood cultures positive for infection
status taken from intensive care units
conducting CLABSI surveillance during
the discharge quarter. We are aware that
this list will include both reported
CLABSI events and many non-CLABSI
events, including patients with and
without CVCs. In clinical terms, our
intent in reviewing these positive blood
culture lists is to identify the
information needed to determine
whether the blood culture isolate is a
likely pathogen found at least once, or
a common skin commensal (CSC) found
in two or more positive blood cultures
drawn on separate occasions. CSC’s are
microorganisms that are commonly
found on the skin and often indicate
contamination of the blood culture
media rather than infection by the
microorganism when it is identified in
a single blood culture test. Two sets of
blood cultures are needed to
differentiate true infection from
contamination. The list of CSCs is
comprised of the following organisms:
diphtheroids (Corynebacterium spp.);
Bacillus spp. (not B. anthracis);
Priopionibacterium spp.; coagulase
negative staphylococci including S.
epidermidis; viridans group
streptococci; Aerococcus spp.; and
Micrococcus spp. This list of CSCs is
also found at the NHSN Web site, http://
www.cdc.gov/nhsn/PDFs/pscManual/
4PSC_CLABScurrent.pdf. We would
also require hospitals to self-identify
intensive care unit patients with a CVC
that are on this blood culture list. Using
all of this information, we would be able
to identify intensive care unit patients
with a bloodstream infection and with
a CVC (that is, candidate CLABSI
events) for subsequent sampling.
In the second step of this process, we
would randomly sample these candidate
CLABSI events (ICU patients with a
CVC and where a pathogen was
recovered at least once or the same CSC
was cultured from 2 or more blood
cultures drawn on separate occasions).
Specifically, the CMS CDAC would
require hospitals to submit up to 3
medical records each quarter meeting
these criteria, randomly selected by
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CMS from among eligible charts. This
number of medical records is sufficient
to detect unreported CLABSI events
based on our sample size analysis and
experience from State health
department validation efforts. This
proposed process utilizes the validation
experience from at least ten current
State health department validation
initiatives. In addition, we proposed to
randomly validate CLABSI data by
abstracting all necessary quality data
from the 12 quarterly medical records in
our AMI, HF, PN, and SCIP targets
already collected for Hospital IQR
Program validation as well as the 3
additional records we later propose to
collect for ED throughput/
Immunization. Our intent in validating
all currently requested quarterly
medical records for CLABSI is to assess
reliability of CLABSI measure rates from
a random sample of patients
independent from the proposed 3 record
sample selected using blood culture lists
and CVC presence to target
underreporting of CLABSI events to the
CDC’s NHSN. In our proposed 12 record
random sample of CLABSI events, we
will not use blood culture list and CVC
presence in our sampling, since this
sample is already drawn from the AMI,
HF, PN, and SCIP hospital reported data
reported to CMS. By combining a
random and targeted sampling approach
using two independent sources to
validate CLABSI data, we believe that
we are adequately assessing the
accuracy and reliability of the CLABSI
measure in accordance with section
1886(b)(3)(B)(viii)(XI) of the Act.
We proposed to determine the
CLABSI validation score using a process
that begins with the CMS contractor
validation coordinator comparing the
CDAC’s CLABSI infection status to the
hospital’s event data reported to NHSN
for the applicable quarter. For each
medical record reviewed, a hospital
would receive a match only if the CMS
contractor validation coordinator
determines equivalency between the
CMS contractor’s determination of
infection status and the infection status
reported to NHSN. For example, if one
of the CMS-requested validation
medical records revealed CLABSI and
the event was not reported to the NHSN,
then the hospital would receive a zero
score for the CLABSI measure for that
validated record. If the CMS contractor
discovered that a second record in the
CMS validation sample indicated no
CLABSI event, but a CLABSI was
reported to the NHSN for the record, the
hospital would also receive a zero score
for the CLABSI measure for that
validation record. Thus, hospitals
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would only receive a 100 percent
CLABSI validation score for individual
records if their CMS validation records’
CLABSI status was consistent with the
information reported, or not reported, to
NHSN. In the above example, if the
CMS quarterly validation process
identified that 13 out of 15 total
sampled records accurately reported the
presence of a CLABSI or did not report
a CLABSI where none was present, then
the hospital’s CLABSI validation score
would be 13/15, or about 87 percent.
Comment: One commenter suggested
that the CLABSI chart validation
process, which uses CDC criteria for
identification of CLABSI events,
requires experienced interpretation and
is more subjective than current
validation measure criteria. The
commenter believed that CMS should
validate mismatches using a Certified
Infection Control Practitioner. The
commenter recommended excluding the
validation results for CLABSI from the
overall score for the initial year of
validation and allowing hospitals to
appeal CLABSI mismatches regardless
of the overall score in order to educate
hospitals on CLABSI mismatches.
Response: We appreciate the
comment, and plan to provide
educational feedback on all validated
CLABSI cases on match status and
abstracted reasons for CLABSI event
status to hospitals. Based on the
relatively rare nature of CLABSI events,
we anticipate a relatively high match
rate among hospitals surpassing the
current 75 percent passing threshold.
Based on this information, we believe
that the proposed approach to validate
CLABSI data is the least burdensome
and most statistically sound approach.
We also believe that providing hospitals
with the opportunity to appeal validated
cases that do not affect the overall score
would delay completion of the entire
appeals process.
Comment: Some commenters did not
support what they believed to be a
manual and time consuming record
identification process and expressed
concerned that CMS has not identified
exactly what data elements should be on
the quarterly list of blood cultures
positive for infection or what format
would be used for submitting the list to
CMS.
Response: We appreciate the input
and are aware of the additional time
required by this process. We included
this burden in our Paperwork Reduction
Act burden request for public review
and OMB consideration. However, we
believe the need to ensure that
information reported to the public is
accurate and validated outweighs the
additional burden. We will provide
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additional information regarding the
exact data elements and format for
submission of the quarterly list of blood
cultures positive for infection in future
communications.
Comment: One commenter expressed
concern that the proposed CLABSI
validation sample of three charts is not
a sufficient sample.
Response: We appreciate the
commenter’s concern about the sample
size for validation. However, the
number of charts to be validated for
CLABSI is actually 18 charts, not 3
charts. As stated above, in addition to
validating the 3 CLABSI charts
submitted by hospitals as part of the
targeted CLABSI sample, we will also
validate CLABSI data elements on the
other 15 quarterly charts that are
submitted for the AMI, HF, PN, SCIP
and ED throughput/Immunization
measures. Our intent in including three
additional quarterly charts in the
CLABSI validation sample is to target
CLABSI events unreported to NHSN by
using blood culture lists and ICU status
to increase targeting efficiency. In
addition, we weighed the burden to
hospitals, the reliability of hospital
validation results in the sample size,
and the program costs of validation
expenses when proposing the sample
size. We believe these considerations
support our proposal to use a threechart validation sample for CLABSI.
Comment: One commenter expressed
concern that the process of requiring
hospitals to submit two additional lists
and three charts has the potential to
introduce new errors into the system
and additional penalties for hospitals.
The commenter recommended that the
proposal be piloted and the burden
assessed.
Response: We appreciate the input
and are aware of the additional time
required by this process. However, we
believe that this process will allow us to
validate the CLABSI measure in the
most efficient way possible. Although a
pilot was not conducted, we
collaborated with CDC and used the
experience of State hospital health
departments in validating CLABSI
information in formulating this
proposal.
Comment: One commenter was
concerned that CMS has not estimated
the burden of work required for 800
hospitals to provide a quarterly list of
blood cultures positive for infection
status taken from ICUs conducting
CLABSI surveillance during the
discharge quarter. The commenter
believed that additional consideration
should be given to the time burdens on
hospitals should they have to note on
this list which samples came from
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patients with CVCs in the ICUs under
surveillance. The commenter believed
that the practice of looking for
unreported CLABSI cases among charts
sent for AMI, HF, PN and SCIP
measures may not be fruitful because
only a small proportion of these patients
will be in the ICU with CVCs. The
commenter also questioned whether the
proposed scoring model has been tested,
if there has been any direct pilot
experience with matching this data
against NHSN data, and if there are
reasons why cases omitted from NHSN
would show up on the ICU blood
culture list (or vice versa).
Response: We appreciate the input
and are aware of the additional time
required by this process. We included
this burden in our Paperwork Reduction
Act burden request for public review
and OMB consideration. However, we
believe the need to ensure that
information reported to the public is
accurate and validated outweighs the
additional burden. Although a pilot was
not conducted, we collaborated with
CDC and used the experience of State
hospital health departments in
validating CLABSI information in
formulating this proposal. We believe
that this process is less burdensome to
hospitals than other options considered,
including CMS onsite chart review and
larger samples. We recognize that only
a small proportion of cases for AMI, HF,
PN, and SCIP patients will be in the
ICU, however, we believe that validating
the existence or absence of CLABSI and
the associated match in NHSN for those
limited cases will result in an
appropriately validated quality measure.
Comment: Several commenters urged
CMS to evaluate whether or not the list
can be procured from information that
is stored in the NHSN.
Response: The intent of the
supplemental CLABSI sample of three
quarterly charts is to target CLABSI
events unreported to NHSN by using
blood culture lists and ICU status to
increase targeting efficiency. We believe
that using reported NHSN events as the
sole validation sample list would ignore
the possibility of unreported CLABSI
events. We intend to continue our
collaboration with CDC in the future to
assess and improve our validation
process.
After consideration of the public
comments we received, we are adopting
as final the proposal to identify sampled
hospitals’ three quarterly potential
CLABSI charts using the two-step
selection process outlined above as well
as abstracting all necessary quality data
from the 15 quarterly medical records in
our AMI, HF, PN, SCIP and ED
Throughput/Immunization charts
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already collected for Hospital IQR
Program validation.
Starting with the FY 2014 payment
determination, we also proposed to add
a sixth quarterly sample, which would
enable us to validate the EDT measures
and the Immunization for Influenza and
Immunization for Pneumonia global
measures that we added to the Hospital
IQR Program measure set. We proposed
to modify the current process (75 FR
50225–75 FR 50229) for these measures
in two ways. First, we proposed to
select 3 additional records each quarter
from the records submitted by the 800
annually sampled hospitals. These
records would only include principal
diagnoses and surgical procedures not
already included in the AMI, HF, PN,
and SCIP populations eligible for
validation sampling in these four topic
areas. Second, we would abstract EDT
and the Immunization for Influenza and
Immunization for Pneumonia global
measure data from the 15 quarterly AMI,
HF, PN, SCIP and CLABSI records
already submitted by hospitals for
Hospital IQR Program validation. We
would validate 18 records per quarter
for these measures. With the addition of
this sample of three records, we would
ensure that all hospitals that reported
chart-abstracted Hospital IQR data in all
principal procedure and diagnosis codes
would be eligible for sample selection
for these global measures, thus, starting
in FY 2014, we would be validating a
total of 18 records per quarter per
validated hospital in 6 strata (1) SCIP,
(2) AMI, (3) HF, (4) PN, (5) CLABSI, and
(6) EDT/immunization measures.
Comment: Several commenters
supported the increased number of
charts for validation in the Hospital IQR
Program and believe the additional
charts will enhance the validation
process.
Response: We appreciate the
commenters’ support for this proposal.
After consideration of the public
comments we received, starting with FY
2014, we are adding a sixth quarterly
sample to validate the EDT measures
and the Immunization for Influenza and
Immunization for Pneumonia global
measures and to modify the current
process as described above.
7. QIO Regulation Changes for Provider
Medical Record Deadlines Possibly
Including Serious Reportable Events
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25922 through
25923), we proposed changes to the QIO
regulation text to require submission of
medical records within 21 days of
serious reportable events. Our State
QIOs use information collected under
the provision we proposed to change, 42
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CFR 476.78, to educate hospitals on
medical record abstraction accuracy,
and to identify potential opportunities
for quality improvement through
medical record review. It is our goal to
improve QIO work, such as quality
improvement assistance, beneficiary (or
beneficiary representative) requested
QIO quality of care reviews, and QIO
medical necessity reviews to achieve the
following three aims: (1) Improve
individual care; (2) improve health for
populations; and (3) lower cost through
improvement. QIOs serve a critical role
in advancing these three aims through
their work with Medicare providers and
beneficiaries to advance quality care
and health.
To assist us in achieving these aims,
we proposed changes to 42 CFR
476.78(b), along with minor editorial
revisions. Specifically, we proposed to
add a new § 476.78(b)(2)(ii) that would
require the submission of medical
information within 21 days in those
situations in which a ‘‘serious
reportable event’’ or other circumstance
has been identified during the course of
a QIO review. For purposes of this
subsection, we proposed to define the
term ‘‘serious reportable event’’ to be
consistent with the NQF’s definition of
a serious reportable event in its report
‘‘Serious Reportable Events in
Healthcare 2006 Update.’’ These events
include the following:
Surgical Events
• Surgery performed on the wrong
body part.
• Surgery performed on the wrong
patient.
• Wrong surgical procedure
performed on a patient.
• Unintended retention of a foreign
object in a patient after surgery or other
procedure.
• Intraoperative or immediately
postoperative death in an ASA Class I
patient.
Product or Device Events
• Patient death or serious disability
associated with the use of contaminated
drugs, devices or biologics provided by
the healthcare facility.
• Patient death or serious disability
associated with the use or function of a
device in patient care in which the
device is used or functions other than as
intended.
• Patient death or serious disability
associated with intravascular air
embolism that occurs while being cared
for in a healthcare facility.
Patient Protection Events
• Infant discharged to the wrong
person.
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• Patient death or serious disability
associated with patient leaving the
facility without permission.
• Patient suicide, or attempted
suicide, resulting in serious disability
while being cared for in a healthcare
facility.
Care Management Events
• Patient death or serious disability
associated with a medication error (for
example, errors involving the wrong
drug, wrong dose, wrong patient, wrong
time, wrong rate, wrong preparation or
wrong route of administration).
• Patient death or serious disability
associated with a hemolytic reaction
(abnormal breakdown of red blood cells)
due to the administration of ABO/
HLA—incompatible blood or blood
products.
• Maternal death or serious disability
associated with labor or delivery in a
low-risk pregnancy while being cared
for in a healthcare facility.
• Patient death or serious disability
associated with hypoglycemia, the onset
of which occurs while the patient is
being cared for in a healthcare facility.
• Death or serious disability
associated with failure to identify and
treat hyperbilirubinemia (condition
where there is a high amount of
bilirubin in the blood) in newborns.
• Stage 3 or 4 pressure ulcers
acquired after admission to a healthcare
facility.
• Patient death or serious disability
due to spinal manipulative therapy.
• Artificial insemination with the
wrong donor sperm or wrong egg.
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Environmental Events
• Patient death or serious disability
associated with an electric shock while
being cared for in a healthcare facility.
• Any incident in which a line
designated for oxygen or other gas to be
delivered to a patient contains the
wrong gas or is contaminated by toxic
substances.
• Patient death or serious disability
associated with a burn incurred from
any source while being cared for in a
healthcare facility.
• Patient death or serious disability
associated with a fall while being cared
for in a healthcare facility.
• Patient death or serious disability
associated with the use of restraints or
bedrails while being cared for in a
healthcare facility.
Criminal Events
• Any instance of care ordered by or
provided by someone impersonating a
physician, nurse, pharmacist, or other
licensed healthcare provider.
• Abduction of a patient of any age.
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• Sexual assault on a patient within
or on the grounds of a healthcare
facility.
• Death or significant injury of a
patient or staff member resulting from a
physical assault (that is, battery) that
occurs within or on the grounds of a
healthcare facility.
This proposed 21 day medical record
deadline would be used when, for
example, in the QIO’s judgment, delays
in receiving medical information could
negatively undermine its efforts to
evaluate the quality of care provided or
the facility’s adherence to payment
policies. It also would enable QIOs to
better utilize, and respond to,
information about adverse events gained
from the quality reporting program, in a
timely fashion so that QIOs can have an
improved and more immediate impact
on the quality of health care.
We also proposed a technical
correction to 42 CFR 476.78(a) to correct
a cross-reference.
We invited public comment on our
proposal to improve patient care
through QIO access to more rapid
provider information about ‘‘serious
reportable events’’ and our proposed
technical correction to 42 CFR
476.78(a).
Comment: One commenter supported
the regulation changes to require
submission of medical information
within 21 days of serious reportable
events and wanted the investigation of
these most serious and NQF-defined
events to quickly evaluate the quality of
care, to have a more immediate impact,
and to prevent other such terrible events
from occurring in a facility again.
Response: We agree with the
commenter and appreciate the support
for this proposal.
Comment: One commenter expressed
concern that asking hospitals to report
serious reportable events to both Patient
Safety Organizations and to QIOs would
create a duplication and undue burden
on hospitals.
Response: We appreciate the
commenter’s concern but wish to clarify
that this proposal does not change any
existing requirements for reporting
serious reportable events. This proposal
would simply reduce the current
submission requirement from 30 days to
21 days.
Comment: One commenter asked that
CMS clarify the term ‘‘medical
information.’’ The commenter asked
whether this term refers to the complete
medical record or to portions of the
medical record. The commenter also
asked what CMS requires if the medical
record is not yet complete.
Response: We thank the commenter
for these questions and refer the
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commenter to 42 CFR 476.78(b) and 42
CFR 482.24. Hospitals, under these
regulations in our conditions of
participation, are required to provide
patient care data and other pertinent
information to the QIO at the time the
QIO is collecting review information
that is required for the QIO to make its
determinations. This information
includes, but is not limited to, the
medical record.
After consideration of the public
comments we received, we are adopting
the requirement that hospitals submit
medical information within 21 days in
those situations in which a ‘‘serious
reportable event’’ or other circumstance
has been identified during the course of
a QIO review. We also are finalizing our
proposed technical correction to 42 CFR
476.78(a) to correct a cross-reference.
8. Data Accuracy and Completeness
Acknowledgement Requirements for the
FY 2012 Payment Determination and
Subsequent Years
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25923), we
proposed to require hospitals to
continue to electronically acknowledge
their data accuracy and completeness
once annually. However, we proposed
to change the submission deadline to be
used for the FY 2013 Hospital IQR
Program payment determination and
subsequent years.35 This proposal will
allow us to align the submission
deadline with the final quarter of the
chart-abstracted measures. Hospitals
will continue to submit the required
electronic acknowledgment that the data
provided to meet the FY 2013 Hospital
IQR Program data submission
requirements is accurate and complete
to the best of the hospital’s knowledge
at the time of data submission.36 We
proposed to make the submission
deadline for the Data Accuracy and
Completeness Acknowledgement May
15, 2012 with respect to the time period
of January 1, 2011 through December 31,
2011. We invited public comment on
this proposal.
Comment: A few commenters
supported the alignment of the Data
35 In a correction notice published at (76 FR
34633), we corrected an erroneous reference in the
proposed rule to the fiscal year for which it
proposed to change the submission deadline for the
Data Accuracy and Completeness
Acknowledgement. The reference to this period in
this sentence was changed from FY 2012 to FY
2013.
36 In a correction notice published at (76 FR
34633), we corrected an erroneous reference in the
proposed rule to the fiscal year for which it
proposed to change the submission deadline for the
Data Accuracy and Completeness
Acknowledgement. The reference to this period in
this sentence was changed from FY 2012 to FY
2013.
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Accuracy and Completeness
Acknowledgement with the data
submission deadline for the fourth
quarter of the chart-abstracted measures.
Response: We appreciate the
commenters’ support on this proposal.
After consideration of the public
comments we received, we are adopting
the submission deadline for the Data
Accuracy and Completeness
Acknowledgement of May 15, 2012 with
respect to the time period of January 1,
2011 through December 31, 2011.
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9. Public Display Requirements for the
FY 2014 Payment Determination and
Subsequent Years
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25923), we
proposed to continue, for the FY 2014
payment determination and subsequent
years, the approach we adopted in the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50230) for public display
requirements for the FY 2012 payment
determination and subsequent years.
The Hospital IQR Program quality
measures are typically reported on the
Hospital Compare Web site 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
1886(b)(3)(B)(viii)(VII) of the Act. Before
we display this information, hospitals
will be permitted to review their
information as recorded in the QIO
Clinical Warehouse.
We invited public comment on this
proposal.
We did not receive any comments
related to this proposal and are,
therefore, finalizing it.
10. Reconsideration and Appeal
Procedures for the FY 2012 Payment
Determination
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25923 through
25925), we proposed to continue, for the
FY 2012 payment determination and
subsequent years, the general approach
we adopted in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50230) for
reconsideration and appeal procedures
for the FY 2011 payment determination.
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We also proposed to codify the
requirements under this process at 42
CFR 412.140(e). We discuss each of the
regulatory provisions that we proposed,
as well as specific changes, below.
We proposed that the general
deadline for submitting a request for
reconsideration in connection with the
FY 2012 payment determination will be
30 days from the date of receipt of the
payment determination notification.
Historically, most reconsideration
requests are based on the failure to meet
established data submission deadlines.
While we want to ensure that hospitals
have an opportunity to request
reconsiderations when warranted, we
also need to balance this goal with our
need to complete the reconsideration
process in a timely manner and with the
hospitals’ desire to obtain final
decisions on their requests in a timely
manner. Therefore, we proposed to
reduce the reconsideration and appeal
period from a deadline of November 1st
2012 to 30 days after hospital receipt of
the payment determination notification.
Notifications will be sent via a trackable
mail option such as certified U.S. mail
or registered mail. We include this
change in the proposed § 412.140(e)(1).
As discussed more fully below, we
proposed that all hospitals submit a
request for reconsideration and receive
a decision on that request before they
can file an appeal with the Provider
Reimbursement Review Board (PRRB).
For the FY 2012 payment
determination, we proposed to continue
utilizing many of the same procedures
that we used for the FY 2011 requests
for reconsideration. However, we
clarified that a hospital must submit all
documentation and evidence that
supports its request for reconsideration
at the time that it submits its request.
This includes copies of any
communications, such as e-mails that
the hospital believes demonstrate its
compliance with the program
requirements, as well as all paper
medical records that support the
hospital’s rationale for seeking
reconsideration. The information that
must be included when a hospital
submits a reconsideration request has
been listed in proposed § 412.140(e)(2).
Under these proposed procedures, the
hospital must:
—Submit to CMS, via QualityNet, a
Reconsideration Request form
(available on the QualityNet Web site)
containing the following information:
—Hospital CMS Certification number
(CCN).
—Hospital Name.
—CMS-identified reason for failure (as
provided in the CMS notification of
failure letter to the hospital).
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—Hospital basis for requesting
reconsideration. This must identify
the hospital’s specific reason(s) for
believing it met the Hospital IQR
Program requirements and should
receive the full update to the
standardized amount.
—CEO contact information, including
name, e-mail address, telephone
number, and mailing address (must
include the physical address, not just
the post office box). We note that to
the extent a hospital can submit a
request for reconsideration on-line,
the burden on our staff would be
reduced and, as a result, we can more
quickly review the request.
—QualityNet System Administrator
contact information, including name,
e-mail address, telephone number,
and mailing address (must include the
physical address, not just the post
office box).
—Paper medical record requirement for
reconsideration requests involving
validation. We proposed that if a
hospital asks us to reconsider an
adverse Hospital IQR Program
payment decision made because the
hospital failed the validation
requirement, the hospital must submit
paper copies of all the medical
records that it submitted to the CDAC
contractor each quarter for purposes
of the validation. Hospitals must
submit this documentation to a CMS
contractor. The contractor will be a
QIO support contractor, which has
authority to review patient level
information under 42 CFR Part 480.
We proposed to post the address
where hospitals can ship the paper
charts on the QualityNet Web site
after we issue the FY 2012 IPPS/LTCH
PPS final rule.
Hospitals submitting a Hospital IQR
Program validation reconsideration
request will have all data elements to be
reconsidered reviewed by CMS, and not
their State QIO. (The State QIO is
available to conduct a quarterly
validation appeal if requested to do so
by a hospital.)
Hospitals must provide a written
justification for each appealed data
element classified during the validation
process as a mismatch. We will review
the data elements that were labeled as
mismatched, as well as the written
justifications provided by the hospitals,
and make a decision on the
reconsideration request.
As we mentioned above, a hospital
that submits a reconsideration request to
CMS must receive a decision on that
request prior to submitting a PRRB
appeal. We believe that the
reconsideration process is less costly for
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both CMS and hospitals, and that it
decreases the number of PRRB appeals
by resolving issues earlier in the
reconsideration and appeals process.
We proposed language at § 412.140(e)(3)
stating that a hospital that receives an
adverse decision on its reconsideration
request may appeal that decision to the
PRRB.
Following receipt of a request for
reconsideration, we will—
• Provide an e-mail
acknowledgement, using the contact
information provided in the
reconsideration request, to the CEO and
the QualityNet Administrator that the
request has been received.
• Provide written notification to the
hospital CEO, using the contact
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 to continue for the FY
2012 Hospital IQR Program
reconsideration and future years the
scope of review when a hospital
requests reconsideration because it
failed our validation requirements,
which we adopted in the FY 2010 IPPS/
RY 2010 LTCH PPS final rule (74 FR
43892). The scope of this review will be
as follows:
1. Hospital requests reconsideration
for CDAC contractor-abstracted data
elements classified as mismatches
affecting validation scores. Hospitals
must timely submit a copy of the entire
requested medical record to the CDAC
contractor during the quarterly
validation process for the requested case
to be eligible to be reconsidered on the
basis of mismatched data elements.
Only hospitals that fail to meet the
passing threshold for the quarterly
validation would receive an opportunity
to appeal the validation results to their
State QIO.
2. Hospital requests reconsideration
for medical record copies submitted
during the quarterly validation process
and classified as invalid record
selections. Invalid record selections are
defined as medical records submitted by
hospitals during the quarterly validation
process that do not match the patient’s
episode of care information as
determined by the CDAC contractor (in
other words, the contractor determines
that the hospital returned a medical
record that is different from that which
was requested). If the CDAC contractor
determines that the hospital has
submitted an invalid record selection
case, it awards a zero validation score
for the case because the hospital did not
submit the entire copy of the medical
record for that requested case. During
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the reconsideration process, our review
of invalid record selections will initially
be limited to determining whether the
record submitted to the CDAC
contractor was actually an entire copy of
the requested medical record. If we
determine during reconsideration that
the hospital did submit the entire copy
of the requested medical record, then
we would abstract data elements from
the medical record submitted by the
hospital.
3. Hospital requests reconsideration
for medical records not submitted to the
CDAC contractor within the proposed
30 calendar day deadline. Our review
will initially be limited to determining
whether the CDAC contractor received
the requested record within the
proposed 30 calendar days, and whether
the hospital received the initial medical
record request. If we determine during
reconsideration that the CDAC
contractor did receive a paper copy of
the requested medical record within the
proposed 30 calendar days, then we
would abstract data elements from the
medical record submitted by the
hospital. If we determine that the
hospital received a request for medical
records and did not submit the
requested records within the proposed
30 day period, CMS will not accept
these records as part of the
reconsideration. CMS will not abstract
data from charts not received timely by
the CMS contractor. Please note that this
proposed language is also designed to
address those instances where the
hospital’s request is based on ‘‘invalid
record selections,’’ which we have
defined as medical records submitted
during the quarterly validation process
that do not match the patient’s episode
of care information as determined by the
CMS contractor as described above in
situation 2, above ‘‘Hospital requests
reconsideration for medical record
copies submitted during the quarterly
validation process and classified as
invalid record selections.’’
In sum, we proposed to continue to
initially limit the scope of our
reconsideration reviews involving
validation to information already
submitted by the hospital during the
quarterly validation process, and we
will not abstract medical records that
were not submitted to the CMS
contractor during the quarterly
validation process. We would expand
the scope of our review only if we find
during the initial review that the
hospital correctly and timely submitted
the requested medical records. In that
case, we would abstract data elements
from the medical record submitted by
the hospital as part of our review of its
reconsideration request.
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If a hospital is dissatisfied with the
result of a Hospital IQR Program
reconsideration decision, the hospital
may file an appeal under 42 CFR Part
405, Subpart R (a PRRB appeal). We
invited public comment on the extent to
which these proposed procedures will
be less costly for hospitals, and whether
they will lead to fewer PRRB appeals.
Comment: Several commenters
supported CMS’ proposal to reduce the
timeframe for appeals from November
1st to 30 days from the date of receipt
of the payment determination
notification because it would shorten
the reconsideration and appeals process,
thereby allowing hospitals who
successfully appeal CMS’ decision to
receive their full annual payment
update in a more expedited manner.
Response: We agree and appreciate
the commenters support for this
proposal.
Comment: One commenter opposed
the proposal to shorten the timeframe
and argued that because many hospitals
may decide to retain an attorney for a
reconsideration request, and because of
the time it takes to coordinate an appeal
with an attorney, the deadline should
remain at November 1 annually.
Response: We appreciate the
commenter’s input regarding the time
necessary to coordinate a
reconsideration request. However, we
believe that hospitals will have
adequate time to evaluate whether to
request reconsideration under this
proposal and that the benefits of a faster
reconsideration process outweigh any
potential inconvenience to hospitals.
In summary, we thank the
commenters for their input. We believe
our reconsideration process, including
the proposed shorter timeframe for
requesting reconsideration, is minimally
burdensome. The form for
reconsiderations and a detailed
description of the reconsideration
process are available at http://
qualitynet.org >Hospitals-Inpatient>
APU Reconsideration.
After consideration of the public
comments we received, we are
finalizing the reconsideration process
we proposed, including the proposal
that the general deadline for submitting
a request for reconsideration in
connection with the FY 2012 payment
determination will be 30 days from the
date of receipt of the payment
determination notification.
11. Hospital IQR Program Disaster
Waivers
In our experience, there have been
times when hospitals have been unable
to submit required quality data due to
extraordinary circumstances that are not
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within their control. It is our goal to not
penalize hospitals for such
circumstances or unduly increase their
burden during these times. Therefore, in
the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 25925) we proposed to
continue, for the FY 2014 and
subsequent years payment
determinations, the process we adopted
in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50225), for hospitals to
request and for CMS to grant waivers
with respect to the reporting of required
quality data when there are
extraordinary circumstances beyond the
control of the hospital. Under the
process, in the event of extraordinary
circumstances, such as a natural
disaster, not within the control of the
hospital, for the hospital to receive
consideration for an extension or waiver
of the requirement to submit quality
data for one or more quarters, a hospital
would submit to CMS a request form
that would be made available on the
QualityNet Web site. The following
information should be noted on the
form:
• Hospital CCN;
• Hospital Name;
• CEO and any other designated
personnel contact information,
including name, e-mail address,
telephone number, and mailing address
(must include a physical address, a post
office box address is not acceptable);
• Hospital’s reason for requesting an
extension or waiver;
• Evidence of the impact of the
extraordinary circumstances, including
but not limited to photographs,
newspaper and other media articles; and
• A date when the hospital will again
be able to submit Hospital IQR Program
data, and a justification for the proposed
date.
The request form must be signed by
the hospital’s CEO. We proposed that a
request form must be submitted within
30, rather than 45, days of the date that
the extraordinary circumstance
occurred. The QIO in the hospital’s
State will forward the request form to
CMS. Following receipt of the request
form, CMS will: (1) Provide a written
acknowledgement using the contact
information provided in the request, to
the CEO and any additional designated
hospital personnel, notifying them that
the hospital’s request has been received;
and (2) provide a formal response to the
CEO and any additional designated
hospital personnel using the contact
information provided in the request
notifying them of our decision.
This proposal does not preclude CMS
from granting waivers or extensions to
hospitals that have not requested them
when we determine that an
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extraordinary circumstance, such as an
act of nature (for example, hurricane),
affects an entire region or locale. If CMS
makes the determination to grant a
waiver or extension to hospitals in a
region or locale, CMS proposes to
communicate this decision through
routine communication channels to
hospitals, vendors and QIOs, including
but not limited to issuing memos, emails and notices on the QualityNet
Web site. We proposed to include an
overview of this process in proposed 42
CFR 412.140(c)(2). We invited public
comment on this proposal.
Comment: One commenter expressed
concern with the proposed reduction in
the timeframe for submission noting
that during truly devastating events, it
may take more than 30 days for
complete restoration of electronic
communication that CMS depends upon
to post forms, post notices, and issue emails. The commenter recommended
that the waiver process not only be
permitted electronically, but also
through use of U.S. Postal Service where
electronic communications have not
been established.
Response: We appreciate the
commenter’s input and recognize that
during truly devastating events
complete restoration of electronic
communication could take more than 30
days. However, the form can be
completed and submitted using the U.S.
Postal Service, fax or electronic
submission. In addition, a hospital can
request the assistance of their State QIO
to complete and submit the form. We
also note that we may grant an
extension or waiver, to hospitals that
have not requested them, of one or more
submission deadlines in extraordinary
circumstances that affect an entire
region or locale.
Comment: Many commenters stated
they had no objections to reducing the
timeframe for waiver submissions.
Response: We appreciate the
commenters’ support for the proposal.
After consideration of the public
comments we received, we are adopting
as final the process that requires that a
request form must be submitted within
30, rather than 45, days of the date that
the extraordinary circumstance
occurred.
12. Electronic Health Records (EHRs)
a. Background
Starting with the FY 2006 IPPS final
rule, we have encouraged hospitals to
take steps toward the adoption of EHRs
(also referred to in previous rulemaking
documents as electronic medical
records) that will allow for reporting of
clinical quality data from the EHRs
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directly to a CMS data repository (70 FR
47420 through 47421). We sought to
prepare for future EHR submission of
quality measures by sponsoring the
creation of electronic specifications for
quality measures under consideration
for the Hospital IQR Program.
b. HITECH Act EHR Provisions
The HITECH Act (Title IV of Division
B of the ARRA, together with Title XIII
of Division A of the ARRA) authorizes
payment incentives under Medicare for
the adoption and use of certified EHR
technology beginning in FY 2011.
Hospitals are eligible for these payment
incentives if they meet requirements for
meaningful use of certified EHR
technology, which include reporting on
quality measures using certified EHR
technology. With respect to the
selection of quality measures for this
purpose, under section 1886(n)(3)(A)(iii)
of the Act, as added by section 4102 of
the HITECH Act, the Secretary shall
select measures, including clinical
quality measures, that hospitals must
provide to CMS in order to be eligible
for the EHR incentive payments. With
respect to the clinical quality measures,
section 1886(n)(3)(B)(i) of the Act
requires the Secretary to give preference
to those clinical quality measures that
have been selected for the Hospital IQR
Program under section
1886(b)(3)(B)(viii) of the Act or that
have been endorsed by the entity with
a contract with the Secretary under
section 1890(a) of the Act. All measures
must be proposed for public comment
prior to their selection, except in the
case of measures previously selected for
the Hospital IQR Program under section
1886(b)(3)(B)(viii) of the Act. The final
rule for the Medicare and Medicaid EHR
Incentive Programs includes 15 clinical
quality measures for eligible hospitals
and critical access hospitals (75 FR
44418), 2 of which were previously
selected for the Hospital IQR Program
under section 1886(b)(3)(B)(viii) of the
Act. The remaining 13 measures for
these incentive programs are being
proposed for the Hospital IQR Program
for the FY 2015 payment determination.
We continue to believe there are
important synergies with respect to the
two programs. We believe the financial
incentives under the HITECH Act for
the adoption and meaningful use of
certified EHR technology by hospitals
will encourage the adoption and use of
certified EHRs for the reporting of
clinical quality measures under the
Hospital IQR Program. Through the EHR
Incentive Programs we expect that the
submission of quality data through
EHRs will provide a foundation for
establishing the capacity of hospitals to
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send, and for CMS to receive, quality
measures via hospital EHRs for Hospital
IQR Program measures in the future.
The HITECH Act requires that the
Secretary seek to avoid redundant and
duplicative reporting, with specific
reference to the Hospital IQR Program
for eligible hospitals. To the extent that
quality measures are included in both
the Hospital IQR Program and the EHR
Incentive Programs, this would mean
that Hospital IQR Program would need
to transition to use of certified EHR
technology rather than manual chart
abstraction. We are considering what
the most practical approach to effect
such a transition might be. One option
is to select a date after which chartabstracted data would no longer be used
in the Hospital IQR Program. This
would require sufficient advance notice
to hospitals for hospitals to report the
data via certified EHR technology. At
that point, we believe that it is likely
that nearly all IPPS hospitals will have
implemented certified EHR technology
as incentivized by the HITECH Act.
Another option would be to allow
hospitals to submit the same measure
for the Hospital IQR Program based on
either chart-abstraction or EHR-based
reporting. This would require extensive
testing to ensure equivalence given that
the data for the Hospital IQR Program
supports both the public reporting of
such information and the Hospital VBP
Program. We are concerned that this
option would not be feasible. We
invited public comment on the
approach of selecting calendar year
2015 after which chart-abstracted data
would no longer be accepted for the
Hospital IQR Program.
Comment: Many commenters
overwhelmingly supported the
alignment of Hospital IQR Program
measures with the EHR Incentive
Programs’ meaningful use criteria for
objective/measure. Some commenters
recommended that CMS monitor the
adoption rate of EHRs in the EHR
Incentive Programs in order to gauge a
target date for complete transition. A
few commenters supported the FY 2015
target date for complete transition from
chart-abstraction to EHR-based data
collection while several commenters
doubted the EHR-readiness of some
hospitals and believed that 2020 is
probably a more realistic date for a
complete transition. A commenter
recommended the maintaining chartabstraction for small hospitals which
may not be able to afford EHR
technology.
Response: We thank the commenters
for supporting our goal to advance the
Hospital IQR Program toward EHRbased reporting. As we state in section
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IV.A.3.a of this final rule, we anticipate
that most hospitals will have the
capability to report quality measures
electronically by 2015 because of the
upcoming payment adjustments for
eligible hospitals that do not meet the
criteria as meaningful users of certified
EHR technology.
Comment: Commenters also noted
complete electronic measure testing,
validation, and comparison of measure
outcomes obtained from chartabstraction and electronic specifications
are crucial in the transition process.
Response: As we move towards
alignment and harmonization of clinical
quality measures reporting among
federal reporting initiatives, we plan to
test, compare, and align these reporting
specifications to ensure consistency.
We thank the commenters for the
comments and suggestions and we will
take them into account as we develop
future proposals regarding the transfer
to EHR technology for chart-abstracted
records under the Hospital IQR
Program.
Ultimately, we anticipate that all of
the Hospital IQR measures that are
chart-abstracted will be e-specified and
also included in the EHR Incentive
Programs. We envision a single
reporting infrastructure for electronic
submission of these measures 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 quality measures will
necessarily be capable of being
submitted through EHRs. As a
consequence, not all Hospital IQR
Program measures would necessarily be
appropriate for inclusion in the EHR
Incentive Programs.
We again note that the provisions in
this FY 2012 IPPS/LTCH PPS proposed
rule do not implicate or implement any
HITECH statutory provisions. Those
provisions are the subject of separate
rulemaking and public comment.
B. Hospital Value-Based Purchasing
(VBP) Program
1. Background
Section 1886(o) of the Act requires the
Secretary to establish a Hospital VBP
Program under which value-based
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51653
incentive payments are made in a fiscal
year to hospitals meeting performance
standards established for a performance
period for such fiscal year. Both the
performance standards and the
performance period for a fiscal year are
to be established by the Secretary.
Section 1886(o)(1)(B) of the Act
directs the Secretary to begin making
value-based incentive payments under
the Hospital VBP Program to hospitals
for discharges occurring on or after
October 1, 2012. These incentive
payments will be funded for FY 2013
through a reduction to the FY 2013 base
operating MS–DRG payment for each
discharge of 1 percent, as required by
section 1886(o)(7)(B)(i) of the Act.
Section 1886(o)(1)(C) of the Act
provides that the Hospital VBP Program
applies to subsection (d) hospitals (as
defined in section 1886(d)(1)(B) of the
Act), but excludes from the definition of
the term ‘‘hospital,’’ with respect to a
fiscal year: (1) A hospital that is subject
to the payment reduction under section
1886(b)(3)(B)(viii)(I) of the Act (the
Hospital IQR Program) for such fiscal
year; (2) a hospital for which, during the
performance period for the fiscal year,
the Secretary cited deficiencies that
pose immediate jeopardy to the health
or safety of patients; and (3) a hospital
for which there are not a minimum
number (as determined by the Secretary)
of measures for the performance period
for the fiscal year involved, or for which
there are not a minimum number (as
determined by the Secretary) of cases for
the measures that apply to the hospital
for the performance period for such
fiscal year.
2. Overview of the Hospital Inpatient
VBP Program
On April 29, 2011, we issued the
Hospital Inpatient VBP Program final
rule to implement section 1886(o) of the
Act (76 FR 26490, May 6, 2011). As
described more fully in the Hospital
Inpatient VBP Program final rule, we
adopted for the FY 2013 Hospital VBP
Program 13 measures that we have
already adopted for the Hospital IQR
Program, categorized into two domains
(76 FR 26495 through 26511). We
grouped 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).
To determine whether a hospital meets
the proposed performance standards for
these measures, we will compare each
hospital’s performance during this
performance period to its performance
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during a 3-quarter baseline period from
July 1, 2009 through March 31, 2010 (76
FR 26493 through 26495).
We also finalized a methodology for
assessing the total performance of each
hospital based on performance
standards under which we will score
each hospital based on achievement and
improvement ranges for each applicable
measure. We will calculate a Total
Performance Score for each hospital by
combining the greater of the hospital’s
achievement or improvement points for
each measure to determine a score for
each domain, 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
Total Performance Score into a valuebased incentive payment using a linear
exchange function. 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).
For FY 2014, we also adopted in the
Hospital Inpatient VBP Program final
rule 13 outcome measures comprised of
3 mortality measures, 2 AHRQ
composite measures, and 8 hospitalacquired condition (HAC) measures (76
FR 26511). These measures are set forth
below.
FINALIZED OUTCOME MEASURES FOR THE FY 2014 HOSPITAL VBP PROGRAM
Mortality Measures (Medicare Patients) ...........
AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs) Composite
Measures.
Hospital Acquired Condition Measures ............
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3. Additional FY 2014 Hospital VBP
Program Measure
a. Background
Section 1886(o)(2)(A) of the Act
requires the Secretary to select for the
Hospital VBP Program measures, other
than readmission measures, from the
measures specified under section
1886(b)(3)(B)(viii) of the Act for the
Hospital IQR Program. Section
1886(o)(2)(B)(i) of the Act requires the
Secretary, with respect to value-based
incentive payments made for discharges
occurring during FY 2013, to ensure that
the selected measures cover at least the
following specified conditions or topics:
Acute Myocardial Infarction (AMI);
Heart Failure (HF); Pneumonia (PN);
Surgeries, as measured by the Surgical
Care Improvement Project (SCIP);
Healthcare-Associated Infections (HAIs),
as measured by the prevention metrics
and targets established in the HHS
Action Plan to Prevent HAIs (available
at: http://www.hhs.gov/ash/initiatives/
hai/actionplan/index.html) (or any
successor plan); and HCAHPS. Section
1886(o)(2)(B)(ii) of the Act requires the
Secretary, with respect to value-based
incentive payments made for discharges
occurring during FY 2014 or a
subsequent year, to ensure that Hospital
VBP Program measures include
efficiency measures, including measures
of Medicare spending per beneficiary.
Section 1886(o)(2)(C)(i) of the Act
provides that the Secretary may not
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•
•
•
•
•
Acute Myocardial Infarction (AMI) 30-day mortality rate.
Heart Failure (HF) 30-day mortality rate.
Pneumonia (PN) 30-day mortality rate.
Complication/patient safety for selected indicators (composite).
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.
select a measure with respect to a
performance period for a fiscal year
unless the measure has been specified
under the Hospital IQR Program and
included on the Hospital Compare Web
site for at least one year prior to the
beginning of the performance period.
Section 1886(o)(2)(C)(ii) of the Act
provides that a measure selected under
section 1886(o)(2)(A) of the Act shall
not apply to a hospital if the hospital
does not furnish services appropriate to
the measure.
b. Efficiency Measure—Medicare
Spending Per Beneficiary Measure—for
the FY 2014 Hospital VBP Program
(1) Introduction
Section 1886(o)(2)(B)(ii) of the Act
requires the Secretary to ensure that, for
Hospital VBP discharges occurring
during FY 2014 or a subsequent year,
the measures selected ‘‘include
efficiency measures, including measures
of ‘Medicare spending per beneficiary’
* * *.’’ Therefore, for the FY 2014
Hospital VBP Program, in the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25927 through 25928), we proposed to
adopt a Medicare spending per
beneficiary measure. We also proposed
this measure for inclusion in the
Hospital IQR Program in the proposed
rule and we described it in detail in
section IV.A.3.b.(2)(B) of the proposed
rule (76 FR 25896 through 25897). Our
proposed and final approaches to
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scoring this measure and including it in
the Hospital VBP Program are discussed
below.
(2) Scoring the Medicare Spending per
Beneficiary Measure
Section 1886(o)(5)(B)(ii) of the Act
requires that the hospital performance
score be determined using the higher of
its achievement or improvement score
for each measure. Therefore, in the FY
2012 IPPS/LTCH PPS proposed rule (76
FR 25927 through 25928), we proposed
to calculate each hospital’s achievement
score and improvement score on the
proposed Medicare spending per
beneficiary measure, in order to
determine which score will be used to
calculate the Total Performance Score
for the hospital.
We proposed this scoring
methodology because it is generally
similar to the methodology proposed for
scoring the clinical process of care and
outcome measures in the Hospital
Inpatient VBP Program proposed rule
(76 FR 2465 through 2471).
(A) Scoring Based on Achievement
We proposed to calculate a Medicare
per beneficiary spending ratio of the
Medicare spending per beneficiary
amount for each hospital to the median
Medicare spending per beneficiary
amount across all hospitals during the
performance period. We proposed that a
hospital would earn between 1 and 10
achievement points on the Medicare
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spending per beneficiary measure if its
individual Medicare spending per
beneficiary ratio during the performance
period falls at or between the
achievement threshold and the
achievement benchmark for the
measure. We proposed to set the
achievement threshold at the median
Medicare spending per beneficiary ratio
across all hospitals during the
performance period. We proposed to set
the benchmark at the mean of the lowest
decile of Medicare spending per
beneficiary ratios during the
performance period. We proposed that a
hospital whose individual Medicare
spending per beneficiary ratio fell below
the achievement threshold would score
0 achievement points on the measure,
and that a hospital whose individual
Medicare spending per beneficiary ratio
falls at or above the achievement
benchmark would score the maximum
of 10 achievement points on the
measure. We have clarified the scoring
language, as detailed below, to indicate
that a hospital whose Medicare
spending per beneficiary ratio falls
above the achievement threshold would
not score achievement points, because a
lower ratio, within the achievement
range, results in higher points on this
measure. We also provided a narrative
formula to illustrate the proposed
calculation of achievement points,
which we have clarified below.
(B) Scoring Based on Improvement
In the FY 2012 IPPS/LTCH PPS
proposed rule 76 FR 25927 through
25928), we proposed that a hospital
would earn between 1 and 9
improvement points on the proposed
Medicare spending per beneficiary
measure if its individual Medicare
spending per beneficiary ratio during
the performance period falls within the
improvement range. We proposed to set
the threshold for improvement at the
hospital’s own Medicare spending per
beneficiary ratio, as calculated during
the baseline period. We proposed a
baseline period of May 15, 2010 through
February 14, 2011 for the Medicare
spending per beneficiary measure and
discussed this proposal in section
IV.B.3.b.(4) of the preamble of the FY
2012 IPPS/LTCH PPS proposed rule (76
FR 25928). We proposed that the
improvement benchmark would be
equal to the achievement benchmark for
the performance period, which is the
mean of the lowest decile of Medicare
spending per beneficiary ratios across
all hospitals. We proposed that a
hospital whose Medicare spending per
beneficiary ratio is equal to or lower
than its baseline period Medicare
spending per beneficiary ratio would
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score 0 improvement points on the
measure We have clarified the scoring
language, as detailed below, to indicate
that a hospital whose Medicare
spending per beneficiary ratio falls
above the improvement threshold (the
hospital’s own Medicare spending per
beneficiary during the baseline period)
would not score improvement points,
because a lower ratio, within the
improvement range, results in higher
points on this measure.
Comment: Several commenters
suggested that the narrative scoring
examples included in the proposed rule
were incorrect, because they were
similar to those used for scoring other
quality measures. The commenters
believed the formulas did not apply to
the spending per beneficiary measure.
One commenter noted that the scoring
process description should be clarified
to indicate that a lower Medicare
spending per beneficiary ratio would
result in a higher score on the measure
than would a higher Medicare spending
per beneficiary ratio.
Response: We disagree that the
narrative scoring examples were
incorrect. However, we agree that it
would be beneficial to clarify the
examples, for consistency with the
numeric examples. The narrative
examples in the proposed rule appeared
in a different order than the numeric
examples, resulting in a negative
number being divided by a negative
number and yielding a positive number.
The numeric examples result in a
positive number being divided by a
positive number, which is again a
positive number. In this final rule, we
are clarifying the narrative examples.
We are clarifying the description of the
scoring process to indicate that a lower
Medicare spending per beneficiary ratio
would result in a higher score on the
measure, if it falls within the
achievement or improvement range, as
suggested by a commenter.
Comment: One commenter requested
clarification of the purpose of
calculating a ratio to the median
spending amount rather than giving
consideration to the distribution of
scores, and suggested evaluating the
distribution of scores by geographic
region.
Response: The purpose of using a
ratio in the Medicare spending per
beneficiary measure is to quantify a
hospital’s individual Medicare spending
per beneficiary amount, as compared to
spending nationally. The use of a ratio
also facilitates our comparison of a
hospital’s baseline Medicare spending
per beneficiary, relative to national
Medicare spending per beneficiary,
during the baseline period, to the
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51655
hospital’s performance period Medicare
spending per beneficiary, relative to the
national Medicare spending per
beneficiary during the performance
period. We believe that comparison of
standardized Medicare spending per
beneficiary ratios on a national level is
the best way to help hospitals
understand where opportunities for
improved efficiencies lie.
After considering all public comments
on scoring of the Medicare spending per
beneficiary measure, we are finalizing
our proposal that a hospital will earn
between 1 and 10 achievement points
on the Medicare spending per
beneficiary measure if its individual
Medicare spending per beneficiary ratio
during the performance period falls at or
between the achievement threshold and
the achievement benchmark for the
measure. We are finalizing the
achievement threshold at the median
Medicare spending per beneficiary ratio
across all hospitals during the
performance period. We are finalizing
the benchmark at the mean of the lowest
decile of Medicare spending per
beneficiary ratios during the
performance period. A hospital whose
individual Medicare spending per
beneficiary ratio falls above the
achievement threshold will score 0
achievement points on the measure, and
a hospital whose individual Medicare
spending per beneficiary ratio falls at or
below the achievement benchmark will
score the maximum of 10 achievement
points on the measure. A hospital
whose individual Medicare spending
per beneficiary ratio falls at or below the
achievement threshold, but above the
benchmark, will score between 1 and 9
points according to the following
formula:
[9 * ((achievement threshold ¥
Hospital’s performance period
Medicare spending per beneficiary
ratio)/(achievement threshold ¥
benchmark))] + .5
We are finalizing our proposal that a
hospital will earn between 1 and 9
improvement points on the proposed
Medicare spending per beneficiary
measure if its individual Medicare
spending per beneficiary ratio during
the performance period falls within the
improvement range. We are finalizing
the threshold for improvement at the
hospital’s own Medicare spending per
beneficiary ratio, as calculated during
the baseline period. We are finalizing
the baseline period of May 15, 2010
through February 14, 2011 for the
Medicare spending per beneficiary
measure. We are finalizing that the
improvement benchmark would be
equal to the achievement benchmark for
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the performance period, which is the
mean of the lowest decile of Medicare
spending per beneficiary ratios across
all hospitals. A hospital whose
Medicare spending per beneficiary ratio
is equal to or higher than its baseline
period Medicare spending per
beneficiary ratio will score 0
improvement points on the measure. If
a hospital’s score on the measure during
the performance period is less than its
baseline period score but above the
benchmark (within the improvement
range), the hospital will receive a score
of 0–9 according to the following
formula:
[10 * ((Hospital baseline period
Medicare spending per beneficiary
ratio ¥ Hospital performance
period Medicare spending per
beneficiary ratio)/(Hospital baseline
period Medicare spending per
beneficiary ratio ¥ Benchmark)] ¥
.5
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(C) Example of Scoring the Medicare
Spending per Beneficiary Measure
In the proposed rule, we provided the
following numeric example of scoring
this measure:
If Hospital A had the following
spending per beneficiary amounts
during the baseline and performance
period:
Baseline = $10,105
Performance = $9,125;
and the median spending per
beneficiary amounts across all hospitals
for the baseline and performance
periods were:
Median Baseline = $11,672
Median Performance = $12,467;
then the Medicare spending per
beneficiary ratios for Hospital A in the
baseline and performance periods
would be:
Baseline Ratio = 0.866
Performance Ratio = 0.732.
The achievement threshold is the
median ratio across all hospitals, which
would be 1.0. In this example, we
assume a benchmark of 0.712. We
would calculate achievement and
improvement points for Hospital A as
follows:
Achievement Points = 9 * (1.0 ¥
0.732) / (1.0 ¥ 0.712) + 0.5 = 8.868
Improvement Points = 10 * (0.866 ¥
0.732) / (0.866 ¥ 0.712) ¥ 0.5 =
8.185
These points are rounded to yield 9
attainment points and 8 improvement
points.
Because section 1886(o)(5)(B)(ii) of
the Act, as added by section 3001 of the
Affordable Care Act, requires that the
hospital performance score will be
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determined using the higher of
attainment or improvement score for
each measure, the hospital in this
example would receive 9 points on the
Medicare spending per beneficiary
measure.
Comment: One commenter stated that
the scoring example was correct.
Response: We agree that this example
is correct, and we have clarified the
narrative formulas, for consistency with
this example, as suggested by other
commenters.
(D) Incorporation of Medicare Spending
Per Beneficiary Measure Score into the
Overall Hospital Total Performance
Score
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25928), we
proposed to incorporate the Medicare
spending per beneficiary measure score
into the FY 2014 Hospital VBP Program
as part of a new domain: the
‘‘Efficiency’’ domain. The Medicare
spending per beneficiary measure score
would be the Efficiency domain score
for purposes of the FY 2014 Hospital
VBP Program. Consistent with the
domain scoring method in the Hospital
Inpatient VBP Program final rule (76 FR
26490 through 26547), we proposed to
determine the total earned points for the
Efficiency domain in general by adding
the points earned for each domain
measure and dividing by the total
possible points, then multiplying that
number by 100 percent. However,
because we proposed to adopt only one
measure for the Efficiency domain for
the FY 2014 Hospital VBP Program, the
total points earned for the domain
would be the points earned on the
Medicare spending per beneficiary
measure. We proposed that the total
possible points that a hospital could
earn for the Efficiency domain for FY
2014 would be 10, which is equal to the
total possible points that the hospital
could earn for the Medicare spending
per beneficiary measure. We proposed
that the Efficiency domain percentage
score would be calculated for FY 2014
as follows: Efficiency domain score =
Total points earned on the Medicare
spending per beneficiary measure
divided by 10, then multiplied by 100
percent.
Once the Efficiency domain score has
been determined, we proposed to assign
it a weight for use in the calculation of
the Total Performance Score. We
proposed FY 2014 domain weighting,
additional FY 2014 measures, and other
proposals for the FY 2014 Hospital VBP
Program in the CY 2012 OPPS/ASC
proposed rule (76 FR 42354 through
42365).
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Comment: Two commenters requested
clarification of the proposed weighting
of the Efficiency domain.
Response: We proposed to weight the
Efficiency domain at 20 percent in the
CY 2012 OPPS/ASC proposed rule (76
FR 42362 through 42363).
After considering the public
comments we received on the proposals
for incorporation of Medicare spending
per beneficiary measure score into the
overall hospital Total Performance
Score, we are finalizing our proposal to
incorporate the Medicare spending per
beneficiary measure score into the FY
2014 Hospital VBP Program as part of a
new domain: The ‘‘Efficiency’’ domain.
We are finalizing that the Medicare
spending per beneficiary measure score
will be the Efficiency domain score for
purposes of the FY 2014 Hospital VBP
Program. We are finalizing our proposal
to determine the total earned points for
the Efficiency domain by adding the
points earned for each domain measure
and dividing by the total possible
points, then multiplying that number by
100 percent. For the FY 2014 payment
adjustment, there is only 1 measure in
the Efficiency domain, the Medicare
spending per beneficiary measure, and
the total possible points are 10. We are
finalizing that the Efficiency domain
percentage score would be calculated
for FY 2014 as follows: Efficiency
domain score = Total points earned on
the Medicare spending per beneficiary
measure divided by 10, then multiplied
by 100 percent.
We are finalizing our proposal to
assign a weight to the Efficiency
domain, for use in the calculation of the
Total Performance Score. We note that
we proposed FY 2014 domain
weighting, additional FY 2014
measures, and other proposals for the
FY 2014 Hospital VBP Program in the
CY 2012 OPPS/ASC proposed rule (76
FR 42354 through 42365).
4. Efficiency Domain (Medicare
Spending per Beneficiary Measure)
Performance Period and Baseline Period
Section 1886(o)(2)(C)(i) of the Act
prohibits the Secretary from selecting a
measure for the Hospital VBP Program
with respect to a performance period
unless it has been specified under the
Hospital IQR Program and included on
the Hospital Compare Web site for at
least 1 year prior to the beginning of
such performance period. Section
1886(o)(8) of the Act requires that
hospitals be notified of the calculation
of their value-based incentive payment
no later than 60 days prior to the fiscal
year involved. In order to comply with
these statutory requirements for the FY
2014 Hospital VBP Program, in the FY
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2012 IPPS/LTCH PPS proposed rule (76
FR 25928), we proposed to adopt a 9month period of performance from May
15, 2012 through February 14, 2013 for
the proposed Medicare spending per
beneficiary measure. If the measure is
adopted, this would allow for a 1-year
display period on Hospital Compare, a
60-day notification period, and would
allow the time needed for
administrative processes. We noted that
this would have meant that only IPPS
discharges occurring from May 15, 2012
through 90 days prior to February 14,
2013 would count as index stays for
purposes of creating the Medicare
spending per beneficiary episodes. This
was because, as proposed, the Medicare
spending per beneficiary measure
would have included a Medicare
spending per beneficiary episode
spanning from 3 days prior to admission
through 90-days post-discharge.
However, we have finalized a shorter
Medicare spending per beneficiary
episode, which spans from 3 days prior
to admission through 30 days postdischarge. Therefore, discharges
occurring within 30 days of the end of
the performance period will be counted
as index admissions, as described in
section IV.A.3.b.(2)(B) of this final rule.
The Medicare spending per beneficiary
episode is described in section
IV.A.3.b.(2)(B) of the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25896
through 25897), and in section
IV.A.3.b.(2)(B) of this final rule.
For the purposes of calculating
improvement points on the proposed
Medicare spending per beneficiary
measure, it is necessary to establish the
baseline period to which the
performance period score will be
compared. For purposes of the FY 2014
Hospital VBP Program, we proposed to
adopt a baseline period of May 15, 2010
through 90 days prior to February 14,
2011 for this proposed measure. This
proposal was intended to indicate that
only discharges occurring 90 days prior
to the end of the performance period
would be counted as index admissions,
because, as proposed, the Medicare
spending per beneficiary measure
would have included a Medicare
spending per beneficiary episode
spanning from 3 days prior to admission
through 90-days post-discharge.
However, we have finalized a shorter
Medicare spending per beneficiary
episode, which spans from 3 days prior
to admission through 30 days postdischarge. Therefore, discharges
occurring within 30 days of the end of
the baseline period will be counted as
index admissions, as described in
section IV.A.3.b.(2)(B) of this final rule.
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The proposed baseline period is
consistent with the baseline period that
has been proposed for the FY 2013
clinical process of care and patient
experience of care measures in the
Hospital Inpatient VBP Program final
rule (76 FR 26490 through 26547)
because it precedes the performance
period by 2 years.
We invited public comment on all of
our proposals related to the Efficiency
Domain and Medicare spending per
beneficiary measure.
Comment: A large number of
commenters addressed the proposed
period of performance for the Medicare
spending per beneficiary measure. All
but one of those commenters stated that
implementation should be delayed.
Most commenters stated that the
Medicare spending per beneficiary
measure was not posted on Hospital
Compare in time to meet the
requirement of the Affordable Care Act
that it be displayed there for 1 year prior
to the start of the performance period
and that therefore, CMS must choose
another performance period for the
measure. A number of commenters
specifically noted the language in
section 3001 of the Affordable Care Act
requiring measures of Medicare
spending per beneficiary be included in
the calculation of value-based incentive
payments made for discharges occurring
during fiscal year 2014 or a subsequent
fiscal year. Nine commenters stated that
the measure should be delayed pending
the outcome of NQF study or
endorsement. A few commenters stated
that the measure should be delayed
until results of IOM work can be
incorporated, and several commenters
suggested that CMS wait for the
outcome of its GROUPER study. A few
commenters stated that implementation
should be delayed so that further
analysis and testing should be
performed. One commenter stated that
the performance period was
inappropriate, because it precedes the
payment year, making it impossible for
hospitals to improve performance
during the payment year. That
commenter further questioned the
association of a baseline year with the
performance year. A few commenters
suggested that the Medicare spending
per beneficiary measure should utilize a
12-month performance period, similar
to other VBP measures. One commenter
stated that the proposed period of
performance should be implemented
without revision.
Response: We disagree with
comments that this measure was not
included on Hospital Compare in a
timely manner. The measure was
included on April 21, 2011, which is
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51657
more than 1 year before the proposed
performance period start date of May 15,
2012. We disagree with comments that
we should use the Affordable Care Act
language regarding inclusion of a
Medicare spending per beneficiary
measure for discharges occurring in ‘‘a
subsequent fiscal year’’ to delay the
implementation of this measure. We
believe that the Medicare spending per
beneficiary measure is an important step
in encouraging hospitals to redesign and
coordinate care with other providers
and suppliers of care, and that its timely
implementation is critical to
incentivizing hospitals to provide the
highest-quality, most efficient care
possible to Medicare beneficiaries. We
acknowledge that movement toward
consistency in performance periods
across Hospital VBP Program measures,
to the extent possible, is an important
goal. However we note that some
measures within the Hospital VBP
Program, including the Medicare
spending per beneficiary measure,
cannot initially have 12-month periods
of performance, due to statutory
constraints on display and notification
timeframes.
In order to implement this measure
for FY 2014, and to display it on
Hospital Compare for 1 year prior to the
start of the performance period, as
required by statute, a 9-month period of
performance is the longest we are able
to implement for the FY 2014 payment
adjustment. We note that all hospitals
will have the same 9-month
performance period during which their
Medicare spending per beneficiary
ratios will be compared. Therefore, we
do not believe that any hospital will be
unfairly disadvantaged by this
performance period. We will analyze
and consider the possibility of moving
to a 12-month period of performance for
the Medicare spending per beneficiary
measure in the future. In response to the
comment which questions the use of a
performance period which precedes the
payment adjustment year, we note that
the section 1886(o)(4) of the Act, as
added by section 3001 of the Affordable
Care Act requires that the performance
period for a fiscal year begin and end
prior to the beginning of that fiscal year.
Section 1886(o)(5)(B)(ii) of the Act, as
added by section 3001(a) of the
Affordable Care Act, requires that the
hospital performance score be
determined using the higher of
achievement or improvement points,
and we believe that the use of a baseline
period is the best means of comparison,
in order to determine how much
hospitals have improved on this
measure and calculate improvement
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points. We disagree with comments in
favor of delaying the implementation of
the Medicare spending per beneficiary
measure for further refinement or
endorsement. We believe that the
measure provides an accurate
comparison of hospital-specific
Medicare spending per beneficiary. We
intend to perform ongoing analysis of
this measure, in order to continually
improve it, but we believe that its
prompt implementation is an important
step in ensuring that Medicare
beneficiaries receive high-quality,
coordinated, and efficient care. We
appreciate the commenter’s support for
the implementation of this measure as
proposed.
Comment: A few commenters stated
that the measure could first be
implemented for public reporting
purposes, but not be attributed to
specific hospitals. Another commenter
suggested that CMS could implement
the measure by first publishing
spending on a per-region basis.
Response: As stated above, we believe
that the Medicare spending per
beneficiary measure is an important step
in encouraging hospitals to redesign and
coordinate care with other providers
and suppliers of care, and that its
prompt implementation is critical to
incentivizing hospitals to provide the
highest-quality, most efficient care
possible to Medicare beneficiaries. This
measure would be incorporated as one
component of the hospital’s Total
Performance Score for the Hospital VBP
Program.
In summary, after consideration of the
public comments we received, we are
finalizing the following proposals, with
regard to inclusion of the Medicare
spending per beneficiary measure in the
FY 2014 Hospital VBP Program. We are
finalizing our proposal to include of the
Medicare spending per beneficiary
measure in the FY 2014 Hospital VBP
Program. We are finalizing our proposal
that a hospital will earn between 1 and
10 achievement points on the Medicare
spending per beneficiary measure if its
individual Medicare spending per
beneficiary ratio during the performance
period falls at or between the
achievement threshold and the
achievement benchmark for the
measure. We are finalizing the
achievement threshold at the median
Medicare spending per beneficiary ratio
across all hospitals during the
performance period. We are finalizing
the benchmark at the mean of the lowest
decile of Medicare spending per
beneficiary ratios during the
performance period. A hospital whose
individual Medicare spending per
beneficiary ratio falls above the
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achievement threshold will score 0
achievement points on the measure, and
a hospital whose individual Medicare
spending per beneficiary ratio falls at or
below the achievement benchmark will
score the maximum of 10 achievement
points on the measure. A hospital
whose individual Medicare spending
per beneficiary ratio falls at or below the
achievement threshold, but above the
benchmark, will score between 1–9
points according to the following
formula: [9 * ((achievement thresholdHospital’s performance period Medicare
spending per beneficiary ratio)/
(achievement threshold-benchmark))] +
0.5.
We are finalizing our proposal that a
hospital will earn between 1 and 9
improvement points on the proposed
Medicare spending per beneficiary
measure if its individual Medicare
spending per beneficiary ratio during
the performance period falls within the
improvement range. We are finalizing
the threshold for improvement at the
hospital’s own Medicare spending per
beneficiary ratio, as calculated during
the baseline period. We are finalizing
the baseline period of May 15, 2010
through February 14, 2011 for the
Medicare spending per beneficiary
measure. We are finalizing the
improvement benchmark would be
equal to the achievement benchmark for
the performance period, which is the
mean of the lowest decile of Medicare
spending per beneficiary ratios across
all hospitals. A hospital whose
Medicare spending per beneficiary ratio
is equal to or higher than its baseline
period Medicare spending per
beneficiary ratio will score 0
improvement points on the measure. If
a hospital’s score on the measure during
the performance period is less than its
baseline period score but above the
benchmark (within the improvement
range), the hospital will receive a score
of 0–9 according to the following
formula:
[10 * ((Hospital baseline period
Medicare spending per beneficiary
ratio¥Hospital performance period
Medicare spending per beneficiary
ratio)/(Hospital baseline period
Medicare spending per beneficiary
ratio¥Benchmark)]¥0.5.
We are finalizing our proposal to
incorporate the Medicare spending per
beneficiary measure score into the FY
2014 Hospital VBP Program as part of a
new domain: the ‘‘Efficiency’’ domain.
We are finalizing that the Medicare
spending per beneficiary measure score
will be the Efficiency domain score for
purposes of the FY 2014 Hospital VBP
Program. We are finalizing our proposal
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to determine the total earned points for
the Efficiency domain by adding the
points earned for each domain measure
and dividing by the total possible
points, then multiplying that number by
100 percent. For the FY 2014 payment
adjustment, there is only 1 measure in
the Efficiency domain, the Medicare
spending per beneficiary measure, and
the total possible points are 10. We are
finalizing that the Efficiency domain
percentage score would be calculated
for FY 2014 as follows: Efficiency
domain score = Total points earned on
the Medicare spending per beneficiary
measure divided by 10, then multiplied
by 100 percent.
We are finalizing our proposal to
assign a weight to the Efficiency
domain, for use in the calculation of the
Total Performance Score. We note that
we proposed FY 2014 domain
weighting, additional FY 2014
measures, and other proposals for the
FY 2014 Hospital VBP Program in the
CY 2012 OPPS/ASC proposed rule (76
FR 42354 through 42365).
We are finalizing a 9-month period of
performance from May 15, 2012 through
February 14, 2013 for the Medicare
spending per beneficiary measure. We
are finalizing a 9-month baseline period
of May 15, 2010 through February 14,
2011. We are finalizing that only
discharges occurring within 30 days of
the end of the baseline period will be
counted as index admissions for the
purposes of establishing baseline period
Medicare spending per beneficiary
episodes.
5. Simultaneous Specification of
Additional Measures for the Hospital
VBP Program and the Hospital IQR
Program
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25928), we
proposed to simultaneously specify
additional measures for the Hospital
VBP Program and the Hospital IQR
Program, as appropriate, for use in both
programs. Our rationale is to improve
patient safety and quality of care in an
expedited manner that is compliant
with applicable statutory guidance. We
noted that we used this approach in the
FY 2012 IPPS/LTCH PPS proposed rule
by proposing to add the Medicare
spending per beneficiary measure to
both the Hospital VBP and Hospital IQR
Programs. We also stated that we would
provide all associated regulatory impact
and policy rationale in future proposals
for both programs. We stated our belief
that this proposal notifies stakeholders
through rulemaking and welcomed
comments on this proposal.
Comment: Several commenters
objected to the proposal to
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simultaneously adopt measures for both
the Hospital VBP Program and the
Hospital IQR Program. The commenters
believed that such an approach is
inconsistent with section
1886(o)(2)(C)(i) of the Act, because they
believed that CMS is statutorily required
to add measures to the Hospital VBP
Program only if they are specified under
the Hospital IQR Program and included
on the Hospital Compare Web site for at
least one year prior to the beginning of
the Hospital VBP performance period
that applies for the fiscal year.
Response: We believe that our
proposal is consistent with section
1886(o)(2)(C)(i) of the Act. That
provision prohibits the Secretary from
selecting a measure for the Hospital VBP
Program unless the measure ‘‘has been
specified under the Hospital IQR
Program and included on the Hospital
Compare Web site for at least one year
prior to the beginning of the applicable
performance period.’’ This provision
does not require that a measure be
specified for the Hospital IQR Program
before it is included on the Hospital
Compare Web site, nor does it require
that we include on the Hospital
Compare Web site performance data on
the measure prior to selecting the
measure for the Hospital VBP Program.
We believe that by including measures
on Hospital Compare, we are providing
the public with sufficient notice that we
might choose to select any or all of them
for the Hospital IQR Program measure
set and, possibly simultaneously, for the
Hospital VBP Program measure set
(provided the performance period for
these measures begins at least one year
after their initial Hospital Compare
inclusion and other statutory
requirements are met).
Comment: Some commenters
supported CMS’ proposal to
simultaneously specify measures in the
Hospital IQR and Hospital VBP
Programs. Some commenters generally
supported the alignment of Hospital IQR
Program and Hospital VBP Program
measures.
Response: We appreciate the
commenters’ support of our proposal.
We believe that this policy will enable
us to expand the measure set as quickly
as possible.
We note that we intend to provide as
much notice as is feasibly possible
before proposing to select any measure
for the Hospital VBP Program. However,
as we stated in the proposed rule, one
of our main goals is to adopt measures
as expeditiously as possible for the
purpose of improving patient safety and
the quality of care. After consideration
of the public comments received, we are
finalizing our proposal to adopt a policy
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under which we can simultaneously
propose to adopt measures for use in
both the Hospital IQR and Hospital VBP
Programs.
6. Responses to Additional Hospital
VBP Program Comments
We received additional comments
regarding other aspects of the Hospital
VBP Program for which we did not
make proposals in the FY 2012 IPPS/
LTCH PPS proposed rule. We offer the
following clarifications and references
in response to these comments.
Comment: Several commenters stated
that the performance period for the 8
HAC measures adopted for the FY 2014
Hospital VBP Program is incorrect
because the measures were not
displayed on Hospital Compare on
March 3, 2011. These commenters
further suggest that CMS must select a
new performance period to meet the
statutory requirements.
Response: We disagree with
commenters’ assertion that we must
change the performance period for these
measures. The 8 finalized HAC
measures were first included on
Hospital Compare on March 3, 2011 in
the ‘‘Highlights’’ section and the
Hospital Compare ‘‘Glossary.’’ We
believe that this display meets the
requirement in section 1886(o)(2)(C)(i)
that measures be included on the
Hospital Compare Web site for at least
one year prior to the beginning of the
performance period that applies to the
FY 2014 Hospital VBP Program. As
stated in the Hospital Inpatient VBP
Program final rule (76 FR 26495), the FY
2014 performance period for the 8
finalized HAC measures will begin on
March 3, 2012.
Comment: Some commenters opposed
the use of HAC measures in the Hospital
VBP Program, and argued that hospitals
will be penalized on those measures
under two separate payment policies.
Response: As we stated in the
Hospital Inpatient VBP Program final
rule, we view the Hospital VBP Program
and the program authorized under
section 3008 of the Affordable Care Act
as related but separate efforts to reduce
HACs. We intend to monitor the various
interactions of programs authorized by
the Affordable Care Act and their
overall impact on providers and
suppliers (76 FR 26504).
Comment: Some commenters
suggested that CMS change the finalized
domain weighting scheme for the FY
2013 Hospital VBP Program and weight
all domains equally, arguing that doing
so would help ‘‘bend the cost curve’’
and create a more equitable payment
system. Other commenters expressed
specific concern with the patient
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51659
experience domain’s weighting at 30
percent, arguing that cultural, regional,
and educational differences can affect a
patient’s perspective of care.
Response: We disagree with the
comments’ suggestions that we alter the
domain weighting scheme we finalized
for the FY 2013 Hospital VBP Program.
As we explained in the Hospital
Inpatient VBP Program final rule (76 FR
26526), we considered many factors
when determining the appropriate
weight for the FY 2013 Hospital VBP
Program, including the number of
measures in each domain, the reliability
of individual measure data, systematic
effects of alternative weighting schemes
on hospitals according to their location
and characteristics, and HHS quality
improvement priorities. We also believe
that delivery of high-quality, patientcentered care requires us to carefully
consider the patient’s experience in the
hospital inpatient setting.
Taking all of these considerations into
account, we finalized the use of a 70
percent clinical process of care and 30
percent patient experience of care
(HCAHPS) weighting scheme for the FY
2013 Hospital VBP Program. We believe
that assigning a 30 percent weight to the
patient experience of care domain is
appropriate because the HCAHPS
measure is comprised of eight
dimensions that address different
aspects of patient satisfaction. We
believe the finalized 30 percent weight
appropriately balances hospitals’
incentives to perform well on both the
clinical process measures and the
HCAHPS survey.
We also refer readers to the CY 2012
OPPS/ASC proposed rule (76 FR 42362
through 76 FR 42363) for our proposed
weighting scheme for the FY 2014
Hospital VBP Program.
We adopted a number of HCAHPS
dimensions for the FY 2013 Hospital
VBP Program that assess the patient’s
communication experience with
hospital staff (including doctors and
nurses), and communication regarding
medicines and discharge information.
We believe that the communication
experience of all patients is a critical
aspect of quality of care, and one that
should be measured and publicly
reported for all hospitals. Accordingly,
the communication items have been an
integral part of HCAHPS since its
national implementation in 2006, have
been included in the Hospital IQR
Program since 2007, have been publicly
reported since 2008, and have been
adopted in the Hospital VBP Program in
a manner that rewards hospitals for
either their performance compared to
other hospitals, or their improvement
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compared to their own previous
performance.
Comment: One commenter argued
that because urban safety net hospitals
typically serve a diverse patient
population, these hospitals are likely to
score poorly on the communication
dimensions of the HCAHPS survey, and
that for this reason, the use of HCAHPS
in the Hospital VBP Program would be
detrimental to them. Several
commenters stated that CMS should
distinguish safety net and urban safety
net hospitals from other hospitals
because of the distinct challenges faced
by such hospitals and because such
hospitals are disadvantaged by the
Hospital VBP Program, particularly the
HCAHPS domain.
Response: We thank the commenters
for their input. As we discussed in the
Hospital Inpatient VBP Program final
rule (76 FR 26502), we recognize that
urban hospitals, particularly large ones,
have historically not performed as well
on HCAHPS as rural hospitals.
However, our internal studies of
HCAHPS results show that hospitals in
some urban areas scored in the top 25
percent of hospitals overall. We believe
that those results suggest that urban
hospitals can achieve high scores under
the HCAHPS domain.
‘‘Safety net’’ hospital is not an official
CMS term or category. However, we are
aware of several differing definitions of
this term. Employing a definition of
‘‘Safety Net hospital’’ created by the
AHRQ, we looked into the ability of
safety net hospitals to score well on
HCAHPS in the Hospital VBP Program.
We found 30 hospitals that meet all
three of AHRQ’s criteria for Safety Net
hospital: (1) high Medicaid percentage;
(2) high percentage of uncompensated
care; and (3) located in a high poverty
county. Of these 30 hospitals, 3
hospitals (10 percent) fall in the top 10
percent of all hospitals in terms of
projected earned total HCAHPS points
for the Hospital VBP Program. This
suggests that safety net hospitals can
achieve the highest HCAHPS Hospital
VBP Program scores and at a similar rate
to non-safety net hospitals.
Comment: One commenter requested
that CMS publicly report the patient
mix characteristics of each hospital, and
publicly report the non-patient-mix
adjusted HCAHPS scores to allow
hospitals to determine the impact of
patient-mix adjustment in Hospital VBP
Program payments.
Response: We thank the commenter
for the suggestion. We currently provide
patient-mix adjustment coefficients for
HCAHPS measures on our HCAHPS OnLine Web site, http://
www.hcahpsonline.org, along with
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instructions on how hospitals can
derive the adjustments that apply to
their scores. We will consider the
benefits of publicly reporting the patient
mix characteristics and the pre- and
post-patient-mix adjusted HCAHPS
scores of participating hospitals.
C. Hospital Readmissions Reduction
Program
1. Background
a. Overview
CMS is committed to promoting high
quality health care and improving
patient health outcomes. Readmission to
a hospital may be an adverse event for
patients and many times imposes a
financial burden on the health care
system. Successful efforts to reduce
preventable readmission rates will
improve quality of care while
simultaneously decreasing costs.
Hospitals can work with their
communities to lower readmission rates
and improve patient care in a number of
ways, such as ensuring patients are
clinically ready to be discharged,
reducing infection risk, reconciling
medications, improving communication
with community providers responsible
for post-discharge patient care,
improving care transitions, and ensuring
that patients understand their care plans
upon discharge.
Many studies have demonstrated the
effectiveness of these types of inhospital and post-discharge
interventions in reducing the risk of
readmission, confirming that hospitals
and their partners have the ability to
lower readmission rates.37 38 39 These
types of efforts taken during and after a
hospitalization have been shown to be
effective in reducing readmission rates
in geriatric populations generally,40 41 as
well as for multiple specific conditions.
Moreover, such interventions can be
cost saving. For example, in the case of
37 Gwadry-Sridhar FH, Flintoft V, Lee DS, Lee H,
Guyatt GH: A systematic review and meta-analysis
of studies comparing readmission rates and
mortality rates in patients with heart failure. Arch
Intern Med. 2004;164(21):2315–2320.
38 McAlister FA, Lawson FM, Teo KK, Armstrong
PW.: A systematic review of randomized trials of
disease management programs in heart failure.
AmJMed. 2001;110(5):378–384.
39 Krumholz HM, Amatruda J, Smith GL, et al.:
Randomized trial of an education and support
intervention to prevent readmission of patients with
heart failure. J Am Coll Cardiol. 2002;39(1):83–89.
40 Coleman EA, Parry C, Chalmers S, Min SJ.: The
care transitions intervention: Results of a
randomized controlled trial. Arch Intern Med.
2006;166:1822–8.
41 Naylor MD, Brooten D, Campbell R, Jacobsen
BS, Mezey MD, Pauly MV, Schwartz JS.:
Comprehensive discharge planning and home
follow-up of hospitalized elders: A randomized
clinical trial. JAMA. 1999;281:613–20.
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heart failure, improved hospital 42 and
post-discharge care,43 44 including predischarge planning,45 46 home-based
follow-up, and patient education,47 48
have been shown to lower heart failure
readmission rates, suggesting that heart
failure readmission rates might be
reduced if proven interventions were
more widely adopted. Financial
incentives to reduce readmissions will
in turn promote improvement in care
transitions and care coordination, as
these are important means of reducing
preventable readmissions.49
In its 2007 ‘‘Report to Congress:
Promoting Better Efficiency in
Medicare,’’ 50 MedPAC noted the
potential benefit to patients of lowering
readmissions and suggested payment
strategies that would incentivize
hospitals to reduce these rates. MedPAC
identified 7 conditions and procedures
that accounted for almost 30 percent of
potentially preventable readmissions:
Heart failure; chronic obstructive
pulmonary disease; pneumonia; acute
myocardial infarction; coronary artery
bypass graft surgery; percutaneous
transluminal coronary angioplasty; and
other vascular procedures.
To promote quality of care, CMS
developed hospital quality of care
42 Gwadry-Sridhar FH, Flintoft V, Lee DS, Lee H,
Guyatt GH.: A systematic review and meta-analysis
of studies comparing readmission rates and
mortality rates in patients with heart failure. Arch
Intern Med. 2004;164(21):2315–2320.
43 Lappe JM, Muhlestein JB, Lappe´ DL, et al.:
Improvements in 1-year cardiovascular clinical
outcomes associated with a hospital-based
discharge medication program. Ann Intern Med.
2004;141(6):446–453.
44 Phillips CO, Wright SM, Kern DE, Singa RM,
Shepperd S, Rubin HR.: Comprehensive discharge
planning with postdischarge support for older
patients with congestive heart failure: A
metaanalysis [published correction appears in
JAMA. 2004;292(9):1022]. JAMA. 2004;291(11):
1358–1367.
45 Rich MW, Beckham V, Wittenberg C, Leven CL,
Freedland KE, Carney RM.: A multi disciplinary
intervention to prevent the readmission of elderly
patients with congestive heart failure. N Engl J Med.
1995;333(18):1190–1195.
46 Schneider JK, Hornberger S, Booker J, Davis A,
Kralicek R.: A medication discharge planning
program: Measuring the effect on readmissions. Clin
Nurs Res. 1993;2(1):41–53.
47 Koelling TM, Johnson ML, Cody RJ, Aaronson
KD.: Discharge education improves clinical
outcomes in patients with chronic heart failure.
Circulation. 2005;111(2):179–185.
48 Krumholz HM, Amatruda J, Smith GL, et al.:
Randomized trial of an education and support
intervention to prevent readmission of patients with
heart failure. J Am Coll Cardiol. 2002;39(1):83–89.
49 Coleman EA.: 2005. Background Paper on
Transitional Care Performance Measurement.
Appendix I. In: Institute of Medicine, Performance
Measurement: Accelerating Improvement.
Washington, DC: National Academy Press.
50 Medicare Payment Advisory Commission
(MedPAC). Report to Congress: Promoting Greater
Efficiency in Medicare; 2007. Available at http://
www.medpac.gov/documents/
Jun07_EntireReport.pdf. Accessed January 10, 2011.
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measures that compare patient
outcomes across different hospitals.
These measures, including hospital riskstandardized readmission measures for
Acute Myocardial Infarction (AMI),
Heart Failure (HF) and Pneumonia (PN),
were originally developed for public
reporting as a part of the Hospital IQR
Program. We adopted the HF
readmission measure for the Hospital
IQR Program in the FY 2009 IPPS final
rule for the FY 2010 payment
determination (73 FR 48606) and the
AMI and PN readmission measures in
the CY 2009 OPPS/ASC final rule with
comment period for the FY 2010
payment determination (73 FR 68781).
Details about the methodology used for
these measures may be found on the
Web site at: http://www.qualitynet.org/
dcs/ContentServer?c=Page&pagename=
QnetPublic%2FPage%2FQnetTier4&
cid=1219069855841.
As described above, readmission rates
are important markers of quality of care,
particularly of the care of a patient in
transition from an acute care setting to
a non-acute care setting, and improving
readmissions can positively influence
patient outcomes and the cost of care.
The above hospital risk-standardized
readmission measures are endorsed by
the National Quality Forum (NQF) and
have been publicly reported on Hospital
Compare Web site since 2009 (http://
www.hospitalcompare.hhs.gov) to
encourage quality improvement and
lower readmission rates. In the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25928 through 25937), we proposed that
the readmission measures for these
three conditions be used for the
Hospital Readmissions Reduction
Program under section 1886(q) of the
Act, as added by section 3025 of the
Affordable Care Act. Below is a
discussion of the proposals we included
regarding these measures, the public
comments we received regarding these
proposals, our response to these public
comments, and our final policy
decisions.
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b. 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 hospitals under
section 1886(d) of the Act will be
reduced to account for certain excess
readmissions.
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In this year’s IPPS rulemaking, we
address: (i) Those aspects of the
Hospital Readmissions Reduction
Program that relate to the conditions
and readmissions to which the Hospital
Readmissions Reduction Program will
apply for the first program year
beginning October 1, 2012; (ii) the
readmission measures and related
methodology used for those measures,
as well as the calculation of the
readmission rates; and (iii) public
reporting of the readmission data.
Specific information regarding the
payment adjustment required under
section 1886(q) of the Act will be
proposed in next year’s IPPS/LTCH PPS
proposed rule. Although we did not
propose specific policies regarding the
payment adjustment under the Hospital
Readmissions Reduction Program in the
FY 2012 IPPS/LTCH PPS proposed rule,
we believe that it is still important to set
forth the general framework of the
Hospital Readmissions Reduction
Program, including the payment
adjustment provisions, in order for the
public to understand how the measures
discussed and finalized in this
rulemaking will affect certain hospital
payments beginning in FY 2013.
Section 1886(q)(1) of the Act sets forth
the methodology by which payments to
‘‘applicable hospitals’’ will be adjusted
to account for excess readmissions.
Pursuant to section 1886(q)(1) of the
Act, payments for discharges from an
‘‘applicable hospital’’ will be an amount
equal to the product of the ‘‘base
operating DRG payment amount’’ and
the adjustment factor for the hospital for
the fiscal year. That is, the ‘‘base
operating DRG payments’’ are reduced
by an adjustment factor that accounts
for excess readmissions. Section
1886(q)(1) of the Act requires the
Secretary to make payments for a
discharge in an amount equal to the
product of ‘‘the base operating DRG
payment amount’’ and ‘‘the adjustment
factor’’ for the hospital in a given fiscal
year. Section 1886(q)(2) of the Act
defines the base operating DRG payment
amount as ‘‘the payment amount that
would otherwise be made under
subsection (d) (determined without
regard to subsection (o) [the Hospital
VBP Program]) for a discharge if this
subsection did not apply; reduced by
* * * any portion of such payment
amount that is attributable to payments
under paragraphs (5)(A), (5)(B), (5)(F),
and (12) of subsection (d).’’ Paragraphs
(5)(A), (5)(B), (5)(F), and (12) of
subsection(d) refer to outlier payments,
IME payments, DSH payments, and
payments for low volume hospitals,
respectively.
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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 intend to propose
regulations to implement the statutory
provisions related to the definition of
‘‘base operating DRG payment amount’’
in the FY 2013 IPPS/LTCH PPS
proposed rule.
Section 1886(q)(3)(A) of the Act
defines the ‘‘adjustment factor’’ for an
applicable hospital for a fiscal year as
equal to the greater of ‘‘(i) the ratio
described in subparagraph (B) for the
hospital for the applicable period (as
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
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for each applicable condition, to the
‘‘risk-adjusted expected readmissions’’
for the applicable hospital for the
applicable condition.
Section 1886(q)(5) of the Act provides
definitions of ‘‘applicable condition,’’
‘‘expansion of applicable conditions,’’
‘‘applicable hospital,’’ ‘‘applicable
period,’’ and ‘‘readmission.’’ The term
‘‘applicable condition,’’ which we
addressed in detail below in section
IV.C.3.a. of this preamble, is defined as
a ‘‘condition or procedure selected by
the Secretary among conditions and
procedures for which: (i) Readmissions
* * * represent conditions or
procedures that are high volume or high
expenditures * * * and (ii) measures of
such readmissions * * * have been
endorsed by the entity with a contract
under section 1890(a) * * * and such
endorsed measures have exclusions for
readmissions that are unrelated to the
prior discharge (such as a planned
readmission or transfer to another
applicable hospital).’’ The term
‘‘expansion of the applicable condition’’
refers to the Secretary’s authority,
beginning with 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 by
section 1886(q)(5)(D) of the Act,
‘‘means, with respect to a fiscal year,
such period as the Secretary shall
specify.’’ As explained in the FY 2012
IPPS/LTCH PPS proposed rule and in
this 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 reporting requirements for hospitalspecific readmission rates. Section
1886(q)(7) of the Act limits
administrative and judicial review of
certain determinations made pursuant
to section 1886(q) of the Act. Finally,
section 1886(q)(8) of the Act requires
the Secretary to collect data on
readmission rates for all hospital
inpatients for ‘‘specified hospitals’’ in
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order to calculate the hospital-specific
readmission rates for all hospital
inpatients and to publicly report these
readmission rates.
2. Implementation of the Hospital
Readmissions Reduction Program
a. Overview
We intend to implement the
requirements of the Hospital
Readmissions Reduction Program in the
FY 2012, FY 2013, and future IPPS/
LTCH PPS rulemaking cycles.
Comment: A few commenters
supported CMS’ implementation of the
Hospital Readmissions Reduction
Program and CMS’s implementation
approach. One commenter specifically
appreciated the phased-in approach for
implementation.
Response: We appreciate the
commenters’ support for the Hospital
Readmissions Reduction Program and
the phased-in approach we have taken.
Comment: Some commenters urged
that, prior to next year’s rulemaking in
which CMS will discuss and implement
the provisions related to the payment
adjustment and other outstanding
issues, CMS hold a series of stakeholder
calls to solicit input in the development
of the Hospital Readmissions Reduction
Program.
Response: We appreciate the
comments on our implementation
process of the Hospital Readmissions
Reduction Program. We intend to solicit
formal public input on our proposal
related to the readmissions reduction
through rulemaking. In addition, the
public can provide input on proposals
related to the Hospital Readmissions
Reduction Program through the Hospital
Open Door Forums calls that we hold
periodically to provide hospitals with
information on various issues and to
listen to questions and concerns from
hospitals. The public can find out more
information about the Hospital Open
Door Forums, including when they will
be held, on the CMS Web site: http://
www.cms.gov/OpenDoorForums/18_
ODF_Hospitals.asp#TopOfPage.
Comment: One commenter expressed
concern that the Hospital Readmissions
Reduction Program’s payment
adjustments are likely to have a
disproportionate impact on rural
hospitals.
Response: We appreciate the
comment on the impact of the Hospital
Readmissions Reduction Program on
rural hospitals. We note that we did not
propose policies related to the Hospital
Readmissions Reduction Program
payment adjustment in the proposed
rule. Therefore, this comment is outside
the scope of the issues addressed in the
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proposed rule. As discussed in more
detail below, we plan to propose
policies related to the implementation
of the payment adjustment set forth in
section 1886(q) of the Act in the FY
2013 IPPS/LTCH PPS proposed rule. We
will consider this comment when
formulating these policies.
Comment: One commenter stated that
the simultaneous implementation of the
readmissions reduction measures for
AMI, HF, and PN in the Hospital
Readmissions Reduction Program and
the Hospital IQR Program would cause
‘‘double jeopardy,’’ that is, the hospital
would be penalized twice for care
provided to the same patients.
Response: While the readmissions
measures that we proposed for the
Hospital Readmissions Reduction
Program are also part of the Hospital
IQR Program, hospitals are not assessed
under the Hospital IQR Program based
on their performance on the measures.
Rather, under the Hospital IQR Program,
hospitals are only required to
participate in the program and to report
the measure in order to avoid a payment
reduction, regardless of their
performance on the reported measures.
Moreover, the readmission measures
included in the Hospital IQR Program
are not eligible to be included in the
Hospital VBP Program. In the case of the
three proposed NQF-endorsed 30-day
risk standardized readmissions
measures for AMI, HF, and PN, no
additional information is required of
hospitals because we use information
that is already submitted on Medicare
Part A and Part B claims for payment
purposes. The Hospital Readmissions
Reduction Program includes a payment
adjustment based on the hospital’s
performance with regard to the claimsbased readmissions measures.
Therefore, in this situation, we do not
believe hospitals will be penalized
twice based on the same readmissions
measures. However, we intend to
monitor any potential interactions that
the Hospital Readmissions Reduction
Program may have with other programs.
We anticipate implementing the
readmissions payment adjustment
through future rulemaking.
Comment: One commenter expressed
concern about a number of potential
unintended consequences that could
result from the Hospital Readmissions
Reduction Program, including
premature discharge of patients,
providers avoiding certain types of
patients who are more ill or complicated
and therefore likely to be readmitted.
Another commenter suggested that the
Hospital Readmissions Reduction
Program resulted in increased pressure
on emergency physicians not to readmit
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patients within the 30-day window.
This commenter also expressed
concerns that physicians in emergency
departments do not have access to the
patient’s record if they have had a
recent inpatient stay at another hospital.
Response: We appreciate the
commenters pointing out these potential
unintended consequences of the
Hospital Readmissions Reduction
Program. As part of our implementation
of the Hospital Readmissions Reduction
Program, we will monitor trends to
determine if there are unintended
consequences of the policy, such as
systematic shifting, diversion, and
delays in care, in order to assess and
take appropriate action to minimize any
such unintended consequences.
Comment: One commenter stated that
it is important to ensure that transplant
centers are not unduly penalized by the
Hospital Readmissions Reduction
Program, when transplant patients are
readmitted for infections caused by the
transplantation of organs from marginal
donors.
Response: The three applicable
conditions for readmission measures
only apply to patients discharged with
a primary diagnosis code for AMI, HF,
and PN, and do not apply to transplant
patients who have contracted infections
from the transplantation of infected
organs. Therefore, patient admissions
for transplants and corresponding
discharges with those primary codes are
not included in the index
hospitalizations counted for these
measures. However, if a transplant
recipient is subsequently admitted with
AMI, HF or PN and is readmitted within
30 days, the readmission would be
included in the readmissions
methodology. Therefore, we do not
believe that transplant centers would be
disproportionately penalized by the
Hospital Readmissions Reduction
Program.
Comment: One commenter stated that
it is important for hospitals to be able
to track patients who are subsequently
admitted to other hospitals and
requested that CMS develop patient
identifiers that would allow for this
tracking. Two commenters stated that
hospitals need a mechanism to track
and understand patient readmissions in
real time.
Response: We recognize the value in
being able to track patients’
readmissions to other hospitals real time
both for a hospital’s internal quality
improvement purpose, and for
validating our readmission measure
criteria. We thank the commenters for
their suggestions, and we will consider
whether it is operationally possible to
provide these data to hospitals and
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whether sharing these data would be
consistent with patient privacy
considerations.
Comment: One commenter
recommended that CMS provide
hospitals with their expected
readmission ratio and actual
readmission counts on a quarterly basis,
as well as claims data for the prior 12
months for any readmission attributed
to them.
Response: To provide the measures
quarterly, including the expected
readmission rates and the actual counts
of readmissions, is resource intensive.
We thank the commenters for their
suggestions and will consider them if
resources allow us to do so in the future.
The readmission measures are
calculated using the data from the
claims that hospitals submitted to CMS
for payment. Therefore, hospitals
should have access to at least their own
facility’s patient claims data for the
prior 12 months for any readmission
attributed to them.
We thank the commenters for these
suggestions. We will consider whether it
is operationally possible to provide
hospitals with these measures quarterly
and the patient data for any readmission
attributed to the hospitals. In addition
we will look into whether sharing these
patient data would be consistent with
patient privacy considerations.
Comment: Two commenters requested
that data be made available to advocacy
and watchdog organizations so that the
proposed measures can be replicated
and validated independently prior to
the end of the comment period. One
commenter recommended that CMS’
calculations, including its methodology
for all risk adjustments and how it
calculates hospital-specific observed
and expected rates be made available to
the public so that CMS’ work can be
replicated and verified.
Response: We have made the
methodology reports for risk-adjusting
the proposed measures and the software
(in SAS format) to calculate the
measures publicly available through
https://www.Qualitynet.org. However,
because of the comparative nature
inherent to the calculating the measures,
we note that the statistical models used
to calculate the measures require data
from all applicable hospitals, and
cannot be replicated using only a single
hospital’s data. With regard to providing
data to advocacy and watchdog groups
for independent validation, we have
provided the downloadable files on the
Hospital Compare Web site. The
downloadable files contain the
aggregate-level data that we publicly
reported. As we noted above, we will
consider whether it is operationally
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51663
possible to provide additional data to
third parties and whether sharing these
data would be consistent with patient
privacy considerations.
b. Provisions in the FY 2012 IPPS/LTCH
PPS Final Rule
As explained above, the adjustment
factor set forth in section 1886(q) of the
Act does not apply to discharges until
FY 2013. Therefore, we are able to
implement the Hospital Readmissions
Reduction Program over two years. We
are first addressing issues such as the
selection of readmission measures and
the calculation of the Excess
Readmission Ratio, which will then be
used, in part, to calculate the
readmission payment adjustment factor.
Specifically, in the FY 2012 IPPS/LTCH
PPS proposed rule and in this final rule,
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;
• Public reporting of the readmission
data; and
• Definition of ‘‘applicable period.’’
With respect to the topics of
‘‘measures for readmission’’ for the
applicable conditions, and
‘‘methodology for calculating the Excess
Readmission Ratio,’’ we are specifically
addressing the following:
• Index hospitalizations;
• Risk Adjustment;
• Risk Standardized Readmission
Rate;
• Data sources; and
• Exclusion of Certain Readmissions.
c. Provisions To Be Included in the FY
2013 IPPS/LTCH PPS Proposed Rule
In the FY 2013 IPPS/LTCH PPS
rulemaking, we will address the
provisions in section 1886(q) of the Act
that are related to the payment
adjustment, as well as the rest of the
provisions in section 1886(q) of the Act
that are not addressed in the FY 2012
IPPS/LTCH PPS rulemaking.
Specifically, in the FY 2013 IPPS/LTCH
PPS proposed rule, we plan to address
section 1886(q) of the Act related to the
following provisions:
• Base operating DRG payment
amount, including policies for SCHs
and MDHs;
• Adjustment factor (both the ratio
and floor adjustment factor);
• Aggregate payments for excess
readmissions;
• Applicable hospital.
We believe it is appropriate to first
address the readmission measures and
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the calculation of the Excess
Readmission Ratio that will be used, in
part, to calculate the readmission
payment adjustment factor and the
application of the readmission payment
adjustment factor to inpatient hospital
payments. We believe the 2-year
rulemaking schedule provides adequate
time and opportunities for careful
consideration of the various aspects of
the Hospital Readmissions Reduction
Program by both CMS and stakeholders
prior to implementation of the Hospital
Readmissions Reduction Program in FY
2013.
Comment: One commenter asked that
cancer hospitals payment based on
limits set by the Tax Equity and Fiscal
Responsibility Act of 1982 be exempt
from the Hospital Readmissions
Reduction Program.
Response: We appreciate the
comment, but we note that this
comment is not within the scope of the
proposals in the FY 2012 IPPS/LTCH
PPS proposed rule regarding the
Hospital Readmissions Reduction
Program. In the proposed rule, we noted
that we plan to address the provisions
of section 1886(q)(5)(C) of the Act
related to the definition of ‘‘applicable
hospital’’ in the FY 2013 IPPS/LTCH
PPS proposed rule.
Comment: Several comments
addressed the payment adjustment
under section 1886(q) of the Act. One
commenter expressed appreciation that
the readmission payment adjustment
factor would not be applied to Medicare
DSH, IME, or outlier payments. Some
commenters believed that the
readmission payment adjustment factor
should only be applied to discharges
following readmissions and not all
discharges. Other commenters believed
that the formula set forth in the statute
to calculate the aggregate payments due
to excess readmissions would result in
a payment penalty that is too severe.
Commenters also stated that the formula
to calculate the aggregate payments due
to excess readmissions should be the
product of the Excess Readmission
Ratio, the average base DRG operating
payment, and the expected number of
readmissions, rather than the current
statutory language that defines aggregate
payments for excess readmissions as the
product of the total number of
admissions for the condition, the
average base DRG payment for the
condition, and the Excess Readmission
Ratio.
Commenters also stated that the
statutory formula is inconsistent and
combines quantities that are not
comparable because the Excess
Readmission Ratio is based on the ratio
of risk-adjusted actual readmissions to
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risk-adjusted expected readmissions and
that ratio, which is based on
readmissions, is applied to the total
number of admissions. Commenters
believed that the statutory formula is
contrary to Congressional intent,
because the monetary savings if the
formula were implemented consistent
with the statute is far greater than the
CBO score of the provision. Commenters
suggested that CMS adopt a less literal
and rigid interpretation of the statute or
seek a technical amendment to the law.
Response: We appreciate the
comments on the readmission payment
adjustment factor, but we again note
that we did not propose policies related
to the Hospital Readmissions Reduction
Program payment adjustment in the
proposed rule. Therefore, these
comments are not within the scope of
issues discussed in the FY 2012 IPPS/
LTCH PPS proposed rule. We will
consider these comments when
formulating policies related to the
Hospital Readmissions Reduction
Program payment adjustment in next
year’s IPPS/LTCH PPS rulemaking.
d. Expansion of the Applicable
Conditions To Be Included in the Future
Rulemaking
Pursuant to section 1886(q)(5)(B) of
the Act, beginning in FY 2015, the
Secretary ‘‘shall, to the extent
practicable,’’ expand the list of
applicable conditions for the Hospital
Readmissions Reduction Program
beyond the three conditions described
in section 1886(q)(5)(A) of the Act to
include additional conditions that have
been identified by MedPAC as high cost
or high volume in its 2007 Report to
Congress, as well as other conditions as
determined appropriate by the
Secretary. We plan to implement this
provision of the Hospital Readmissions
Reduction Program in future
rulemaking.
Comment: A few commenters
expressed support for the future
expansion of applicable conditions for
the Hospital Readmissions Reduction
Program. One commenter requested that
CMS consider some often undertreated
clinical conditions that commonly
afflict hospital patients (such as
disorders associated with abnormal
sodium level). Some commenters urged
CMS to provide details about expansion
of the applicable conditions soon so that
they can begin interventions to improve
readmissions for these conditions.
Response: We appreciate the
commenters’ support and their
proactive approach to reduce hospital
readmissions. We will take these
suggestions into account as we continue
to implement the Hospital Readmissions
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Reduction Program in the future. We
plan to consider the remaining four
conditions that accounted for almost 12
percent of potentially preventable
readmissions as identified by the
MedPAC in its 2007 ‘‘Report to
Congress’’ as well as other conditions as
determined appropriate by the
Secretary.51
Comment: One commenter stated that
complying with the Hospital
Readmissions Reduction Program
measure requirements and concurrently
undergoing the adoption of EHR
technology is overwhelming. The
commenter requested delaying the
expansion of applicable conditions until
after 2015, when the EHR transition is
projected to be complete.
Response: We appreciate the
commenter’s concerns. The Secretary is
authorized under section 1886(q)(5)(B)
of the Act to expand the list of
applicable conditions beginning in FY
2015. Therefore, we believe hospitals
would have sufficient time to prepare to
address both the HITECH EHR Incentive
Program and the Hospital Readmissions
Reduction Program. We will collaborate
with stakeholders to assess the impact
of expanding the list of applicable
conditions as 2015 approaches.
Comment: Another commenter
suggested that, if CMS were to adopt the
Healthcare Associated Infection (HAI)
measure of Clostridium Difficile
infection proposed for the Hospital IQR
Program, it should consider adopting a
readmission measure for Clostridium
Difficile infection for the Hospital
Readmissions Reduction Program for FY
2013 or a subsequent year because doing
so would help to achieve the goals of
the HHS Action Plan to Prevent HAIs.
Response: We appreciate the
commenter’s suggestion. However, we
want to clarify that there is currently no
NQF-endorsed readmission measure
that covers the condition of Clostridium
Difficile infection that could have been
considered as an applicable condition
for FY 2013. For the FY 2013 payment
determination for the Hospital
Readmissions Reduction Program, we
are required to adopt NQF-endorsed
measures for the high cost/high
expenditure conditions that are
selected.
For the Hospital IQR Program, we
proposed and are finalizing the
clostridium Difficile infection measure
that was listed among the targeted
metrics in the HHS Action Plan to
Prevent HAIs, and we believe that doing
51 Medicare Payment Advisory Commission
(MedPAC). Report to Congress: Promoting Greater
Efficiency in Medicare; 2007. Available at http://
www.medpac.gov/documents/
Jun07_EntireReport.pdf. Accessed January 10, 2011.
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so will further the goals of the Action
Plan. In the future, should this
condition meet the statutory criteria and
should a readmission measure for the
condition be established that also meets
the statutory criteria, we will consider it
for future expansion of the Hospital
Readmissions Reduction Program in
accordance with the applicable
condition requirements set forth in
section 1886(q)(5) of the Act.
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3. Provisions for the Hospital
Readmissions Reduction Program
a. Applicable Conditions for the FY
2013 Hospital Readmissions Reduction
Program
Section 1886(q) of the Act sets forth
payment adjustments for applicable
hospitals to account for excess
readmissions, for applicable conditions,
that are high volume or high
expenditure, in the hospital. These
payment adjustments are determined
based on the occurrence of readmissions
for ‘‘applicable conditions.’’ When
selecting ‘‘applicable conditions,’’ the
Secretary must select among conditions
and procedures for which (1)
readmissions are ‘‘high volume or high
expenditure’’; and (2) ‘‘measures of such
readmissions’’ have been endorsed by
the entity with a contract under section
1890(a) of the Act’’ (currently NQF) and
(3) 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).’’
Consistent with these requirements, in
the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 25931), we proposed to
include AMI, HF, and PN as ‘‘applicable
conditions’’ for the FY 2013 Hospital
Readmissions Reduction Program. As
set forth below, we believe these
conditions meet the criteria for
‘‘applicable conditions’’ under section
1886(q)(5)(A) of the Act. We also note
that in MedPAC’s 2007 Report to
Congress that we discussed in section
IV.C.1.a. of this preamble, MedPAC
listed three conditions (AMI, HF, and
PN) as priorities for hospital-specific
public reporting of readmission rates.
With regards to the first criterion, that
readmissions of ‘‘applicable conditions’’
be ‘‘high volume or high expenditure,’’
MedPAC identified AMI, HF, and PN as
being among the seven conditions and
procedures associated with
approximately 30 percent of potentially
preventable readmissions, based on an
3M analysis conducted for MedPAC of
2005 MedPAR (Medicare FFS hospital
claims). Of these seven conditions and
procedures, HF and PN were the highest
in terms of volume and expenditures.
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In addition, in our analysis of the 235
diagnostic categories for hospitalization
based on 2008 Medicare hospital claims
data, HF and PN were first and second,
respectively, as the most frequent
diagnostic category for both total
admissions and total readmissions. AMI
was ninth among the 235 conditions in
terms of frequency of admission and 8th
in frequency of readmission. Therefore,
we believe that AMI, HF and PN
consitute high volume and high
expenditure conditions particularly as
this term relates to hospital admission
and readmission.
With regards to the second criterion,
we believe that measures of
readmissions for these applicable
conditions also meet the statutory
requirements. Section 1886(q)(5)(A)(ii)
of the Act requires that each ‘‘applicable
condition’’ have ‘‘measures of
readmissions’’ that ‘‘(I) have been
endorsed by the entity with a contract
under section 1890(a) [of the Act]; and
(II) 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).’’ As
discussed in section IV.C.3.c. of this
preamble, we believe selecting AMI, HF,
and PN as ‘‘applicable conditions’’ is
consistent with this statutory
requirement. The NQF (the entity with
a contract under section 1890(a) of the
Act) has endorsed ‘‘measures of
readmissions’’ for each of these three
conditions, and those NQF-endorsed
measures ‘‘have exclusions for
readmissions that are unrelated to the
prior discharge (such as a planned
readmission or transfer to another
applicable hospital).’’
We believe AMI, HF, and PN meet
both prongs of the definition of
‘‘applicable condition.’’ Therefore, in
the FY 2012 IPPS/LTCH PPS proposed
rule, we proposed to include AMI, HF,
and PN as ‘‘applicable conditions’’ for
the Hospital Readmissions Reduction
Program for FY 2013. We invited public
comment on this proposal.
Comment: One commenter
encouraged CMS to carefully review and
address the selection of applicable
conditions. One commenter urged CMS
to exercise caution in implementing
financial incentives to reduce
readmission of patients for pneumonia
and COPD because of the clinical
variability and uncertainty involving the
effectiveness of interventions for such
patients.
Response: We note that we did not
propose a COPD-based measure in the
FY 2012 IPPS/LTCH PPS proposed rule,
but we will take the comment into
consideration should we consider
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51665
proposing COPD as an applicable
condition in future rulemaking. In the
case of pneumonia, we note that studies
suggest optimal care for pneumonia
during the index hospitalization may
reduce the risk of subsequent
readmission.52 53 Furthermore, as we
discussed above, pneumonia meets all
of the statutory criteria to be included
as a readmissions measure for the
Hospital Readmissions Reduction
Program for FY 2013.
As we discussed in the proposed rule,
we believe the three applicable
conditions that we have selected for the
Hospital Readmissions Reduction
Program for FY 2013 meet the stringent
selection criteria as laid out in the
statute and are conditions for which
hospital interventions can lead to
reduced readmissions. Specific
interventions evaluated under the QIO
9th Statement of Work for reducing
readmissions are listed at: http://www.
cfmc.org/caretransitions/files/toolkit/
intervention/QIO%20Developed%
20Tools/Interventions_by_Driver_
031011.pdf. We believe these three
applicable conditions are most
appropriate for the Hospital
Readmissions Reduction Program.
Comment: One commenter stated that
using only three applicable conditions
in the FY 2013 Hospital Readmissions
Reduction Program will create
opportunities for gaming.
Response: We believe that the
commenter was suggesting that
hospitals might change coding practices
to avoid identifying patients with AMI,
HF, or PN. We plan to monitor trends
in admissions and readmissions to
ensure there no systematic shift in
patients’ primary discharge diagnoses
codes occurs as a result of
implementation of the Hospital
Readmissions Reduction Program.
After consideration of the public
comments we received, we are
finalizing the proposed applicable
52 Dean NC, Bateman KA, Donnelly SM, et al.
2006. Improved clinical outcomes with utilization
of a community-acquired pneumonia guideline.
Chest 130(3):794–799.
53 Gleason PP, Meehan TP, Fine JM, et al. 1999.
Associations between initial antimicrobial therapy
and medical outcomes for hospitalized elderly
patients with pneumonia. Arch Intern Med
159(21):2562–2572.
54 Benbassat J, Taragin M. 2000. Hospital
readmissions as a measure of quality of health care:
advantages and limitations. Arch Intern Med
160(8):1074–1081.
55 Benbassat J, Taragin M. 2000. Hospital
readmissions as a measure of quality of health care:
advantages and limitations. Arch Intern Med
160(8):1074–1081.
56 Jonas M, Grossman E, Boyko V, et al. 1999.
Relation of early and one-year outcome after acute
myocardial infarction to systemic arterial blood
pressure on admission. Am J Cardiol 84:162–165.
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conditions of AMI, HF, and PN for use
in the Hospital Readmissions Reduction
Program for FY 2013.
b. Definition of ‘‘Readmission’’
Section 1886(q)(5)(E) of the Act
defines ‘‘readmission’’ as, ‘‘in the case
of an individual who is discharged from
an applicable hospital, the admission of
the individual to the same or another
applicable hospital within a time period
specified by the Secretary from the date
of such discharge.’’ The definition
further states that ‘‘[i]nsofar as the
discharge relates to an applicable
condition for which there is an
endorsed measure * * * such time
period (such as 30 days) shall be
consistent with the time period
specified for such measure.’’
The three NQF-endorsed readmission
measures define a readmission as
occurring when a patient is discharged
from the applicable hospital to a nonacute setting (for example, home health,
skilled nursing, rehabilitation or home)
and then is admitted to the same or
another acute care hospital within a
specified time period from the time of
discharge from the index hospitalization
(http://www.qualitynet.org/dcs/Content
Server?c=Page&pagename=
QnetPublic%2FPage%2FQnetTier4
&cid=1219069855841. The time period
specified for these measures is 30 days.
Because the measures as endorsed by
NQF are calculated based on
readmissions occurring within 30 days,
in the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25931 through
25932), we proposed 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 also 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 invited public
comment on our proposal to adopt,
without revision, a proposed definition
of readmission with a time period of 30
days from the date of discharge from the
index hospitalization as set forth in the
existing NQF-endorsed measures.
Comment: One commenter asked how
multiple readmissions will be
calculated.
Response: 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
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separate readmissions. For any given
patient, only the first readmission they
have will be counted for the Hospital
Readmissions Reduction Program. In
addition, 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 they experience within 30
days after discharge would be counted
as a new ‘‘index’’ admission (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.
Comment: One commenter
recommended defining ‘‘readmission’’
to mean ‘‘readmission to the same
hospital’’ because hospitals cannot
control the admitting practices of other
institutions.
Response: Section 1886(q)(5)(E) of the
Act, as added by the Affordable Care
Act, defines ‘‘readmission’’ as ‘‘in the
case of an individual who is discharged
from an applicable hospital, the
admission of the individual to the same
or another applicable hospital.’’ We do
not believe that the commenter’s
suggestion to limit the definition of
readmission to only those readmissions
to the same hospital is consistent with
the statutory definition of
‘‘readmission.’’ The statutory definition,
which is consistent with the definition
of ‘‘readmission’’ in the NQF-endorsed
measures, captures the more than 20
percent of readmissions that occur at a
hospital that is different from the
hospital where the initial admission
took place. We believe this is the
appropriate approach. Although
hospitals may not have influence over
the admitting practices of outside
institutions, we believe that hospitals
can communicate effectively with postacute care providers and take other
measures that can better prepare a
patient for discharge to reduce the risk
of readmission.
After consideration of the public
comments we received, we are
finalizing our proposal to adopt 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.
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c. Readmission Measures and Related
Methodology
(1) Readmission Measures for
Applicable Conditions
As explained above, section
1886(q)(5)(A)(ii) of the Act requires that
each ‘‘applicable condition’’ selected by
the Secretary has ‘‘measures of
readmissions’’ that ‘‘have been endorsed
by the entity with a contract under
section 1890(a) [of the Act]’’ and that
‘‘such endorsed measures have
exclusions for readmissions that are
unrelated to the prior discharge.’’ In the
FY 2012 IPPS/LTCH PPS proposed rule
(76 FR 25932), we proposed to adopt
three NQF-endorsed, hospital riskstandardized readmission measures for
AMI, HF, and PN which are currently
included in the Hospital IQR Program.
These existing measures are:
• Acute Myocardial Infarction [AMI]
30-day Risk Standardized Readmission
Measure (NQF #0505);
• Heart Failure [HF] 30-day Risk
Standardized Readmission Measure
(NQF #0330); and
• Pneumonia [PN] 30-day Risk
Standardized Readmission Measure
(NQF #0506).
CMS adopted these measures for the
Hospital IQR Program in the FY 2009
IPPS/LTCH PPS final rule for the FY
2010 payment determination (73 FR
48606) and the CY 2009 OPPS/ASC
final rule with comment period (73 FR
68781). The NQF (the entity with a
contract under section 1890(a) of the
Act) has endorsed each of these
‘‘measures of readmissions’’ and, as
explained in more detail below, those
NQF-endorsed measures ‘‘have
exclusions for readmissions that are
unrelated to the prior discharge.’’
Therefore, we believe these measures
meet the statutory requirements for
selection for the Hospital Readmissions
Reduction Program, and we proposed
them, without modification, as
measures for the program.
Comment: Many commenters
suggested changes to specific aspects of
the three NQF-endorsed 30-day
readmission measures for AMI, HF, and
PN (for example, exclusions for
unrelated readmissions and riskadjustment of the readmission
measures). These comments are
summarized and included in the
sections of this document that discuss
those specific aspects of the measures.
Response: For the FY 2013 Hospital
Readmission Reduction Program, the
statute requires us to adopt NQFendorsed measures for the 3 conditions
selected. We have proposed to use the
three measures as currently NQF
endorsed. As we discuss below in the
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section regarding NQF endorsement of
the measures, we believe that altering
specific aspects of the measures that are
part of the NQF endorsed methodology
(such as exclusions and risk adjustment)
would be inconsistent with the statutory
requirement to use NQF-endorsed
readmission measures.
Comment: One commenter supported
CMS’ proposal to adopt, without
alteration, the three NQF-endorsed 30day readmission measures for AMI, HF,
and PN.
Response: We appreciate the
commenter’s support of the readmission
measures.
After consideration of the public
comments we received, we are
finalizing three readmission reduction
measures for the FY 2013 Hospital
Readmissions Reduction Program: AMI
30-day risk standardized readmission
measure, HF 30-day risk standardized
readmission measure, and PN 30-day
risk standardized readmission measure.
(2) NQF Endorsement of Measures of
Readmissions
We note that these measures and their
underlying methodologies were NQFendorsed. In the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25932), we
proposed to adopt, for purposes of the
Hospital Readmissions Reduction
Program, the measures and related
methodologies as they are currently
endorsed by NQF. This includes the
currently endorsed 30-day time
window, risk-adjustment methodology,
and exclusions for certain readmissions
that comprise the measures. We stated
our belief that our proposal to adopt,
without modification, these measures of
readmission is consistent with the
statutory language, which requires the
measures of readmissions to be
‘‘endorsed by the entity with a contract
under section 1890(a) [of the Act].’’ If
we were to modify the endorsed
measures, we are concerned that they
would no longer be considered
‘‘endorsed.’’ If the NQF were to later
endorse a revised measure for one of
these conditions, we would then
propose through notice and comment
rulemaking that the revised measure be
used prospectively for purposes of the
Hospital Readmissions Reduction
Program.
We welcomed public comment on our
proposal to use, for each of the proposed
applicable conditions, existing measures
as endorsed by the NQF.
We did not receive any public
comments specifically on the NQFendorsement of the three proposed
readmission measures. Therefore, we
are finalizing the three NQF-endorsed
Hospital Readmissions Reduction
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Program measures as proposed for the
FY 2013 Hospital Readmissions
Reduction Program.
(3) Endorsed Measures With Exclusions
for Unrelated Readmissions
Section 1886(q)(5)(A)(i)(ii)(II) of the
Act requires that each of the
readmission measures also have
‘‘exclusions for readmissions that are
unrelated to the prior discharge (such as
a planned readmission or transfer to
another applicable hospital).’’ The three
NQF-endorsed readmission measures
that we proposed in the FY 2012 IPPS/
LTCH PPS proposed rule for inclusion
in the Hospital Readmissions Reduction
Program have exclusions that meet this
statutory requirement. Under each
measure, certain unrelated readmissions
are not taken into account when
determining the number of readmissions
under the measures.
The AMI 30-day risk standardized
readmission measure, as endorsed by
the NQF and as proposed in the FY
2012 IPPS/LTCH PPS proposed rule, has
exclusions for certain unrelated
readmissions. Because admissions for
Percutaneous Transluminal Coronary
Angioplasty (PTCA) or Coronary Artery
Bypass Graft (CABG) may be staged or
are typically scheduled readmissions for
patients initially admitted for AMI, the
AMI 30-day risk standardized
readmission measure does not count as
readmissions those admissions after
discharge that include PTCA or CABG
procedures, unless the principal
discharge diagnosis for the readmission
is one of the following diagnoses that
are not consistent with a scheduled
readmission: Heart failure, acute
myocardial infarction, unstable angina,
arrhythmia, and cardiac arrest (that is,
readmissions with these diagnoses and
a PTCA or CABG procedure are counted
as readmissions). We adopted this
approach when first developing this
measure after consultation with clinical
experts, including cardiologists, and
review of relevant readmissions data.
During the development of the
readmission measures for both HF and
PN, we similarly asked clinical experts
to identify planned readmissions for
these conditions, that is, those which
would not count as a readmission, after
an admission for HF or PN. Specifically,
the clinical experts were asked whether
there were common follow-up causes of
readmissions for a scheduled procedure
that represented a continuation of care
after either a HF or PN admission,
respectively. No such related, planned
procedures were identified as occurring
commonly after the index admissions
for HF or PN at the time of the
development of the Hospital IQR
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51667
Program measures. Therefore, no similar
exclusions exist for the HF and PN
measures of readmissions as they are
currently endorsed.
The three NQF-endorsed riskstandardized readmission measures that
we proposed in the FY 2012 IPPS/LTCH
PPS proposed rule exclude transfers to
other acute care facilities from each of
the readmission measures. The NQFendorsed proposed measures consider
these multiple contiguous
hospitalizations to be a single acute
episode of care. The measures attribute
the readmission for transferred patients
to the hospital that ultimately
discharges the patient to a non-acute
care setting (for example, to home or a
skilled nursing facility). Thus, in the
case of a patient who is transferred
between two or more hospitals, if the
patient is readmitted in the 30 days
following the final hospitalization, the
measures attribute such a readmission
to the hospital that discharged the
patient to a non-acute care setting. We
believe that the exclusion of transfers to
other applicable hospitals under the
measures is sufficient to meet the
requirement set forth in section
1886(q)(5)(A)(ii)(II) of the Act that
certain ‘‘unrelated’’ readmissions be
excluded from the measures selected for
use in the program.
Comment: Many commenters stated
that the current set of existing
exclusions for unrelated readmissions
did not meet Congress’ intent, which
they believed requires additional
exclusions for certain readmissions.
These commenters noted that although
the AMI measure contains exclusion for
certain planned procedures, neither the
heart failure nor the pneumonia
measures contain such exclusions.
Response: We thank the commenters
for sharing their views on exclusions for
the proposed readmission measures.
Section 1886(q)(5)(A) of the Act requires
us to select as the initial readmission
measures those that are endorsed by the
entity with a contract under section
1890(a) (currently the NQF), and that
have exclusions for readmissions that
are unrelated to the prior discharges
(such as a planned readmission or
transfer to another applicable hospital).
The statute does not state that the
measures must account for all possible
unrelated readmissions. Moreover,
adding exclusions would be
inconsistent with the statute, which
requires us to adopt the measures as
endorsed by the NQF, and the
endorsements currently include specific
exclusions for unrelated readmissions,
which include transfers.
We recognize that there could
conceivably be additional readmissions
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that could properly be excluded from
the readmission measures, and we
intend to further explore if there are any
such readmissions. If we determine that
changes should be made to the measures
used for the Hospital Readmissions
Reduction Program in FY 2013, we will
bring them to NQF for review for
continued endorsement for the
measures and would subsequently
propose the revised measure for use in
the Hospital Readmissions Reduction
Program in future rulemaking.
Comment: Several commenters urged
CMS to ‘‘* * * conduct a study to
thoroughly determine the common
reasons for planned readmissions, as
well as determine a subset of
readmissions that are unrelated to a
patient’s initial admission. * * *’’
These commenters also recommended
three possible interim steps: (1) Not
counting readmissions for certain
patients (cancer, trauma, burns, endstage renal disease, psychiatric
disorders, substance abuse, and
rehabilitation); (2) allowing a coding
modifier on hospital claims to identify
planned readmissions; or (3) using
existing classification schemes such as
MS–DRGs or AHRQ’s classification
system (http://www.hcup-us.ahrq.gov/
toolssoftware/ccs/ccs.jsp), the clinical
classification software, which ‘‘groups
diagnoses and procedure codes into
clinically meaningful groups’’ to
identify related readmissions (and to
exclude readmissions that are not
identified as related).
Response: We appreciate the
commenters’ suggestions. As part of our
ongoing implementation of the Hospital
Readmissions Reduction Program, we
intend to further explore whether there
are other readmissions that could be
excluded from the readmission
measures finalized in this rule, and we
expect that we will solicit public input
on this issue in future rulemaking.
However, again we note that because the
FY 2013 measures must be NQFendorsed, any changes to the measures
used for the program in FY 2013 would
have to be brought to NQF for review for
continued endorsement before we
could, in future rulemaking, propose the
measures for use in the Hospital
Readmissions Reduction Program.
Comment: Some commenters
expressed concern that inappropriate
transfers from acute care hospitals to a
different acute care hospital might
occur. Several of these commenters
requested that CMS monitor transfers to
ensure that potentially high-risk
patients are not unnecessarily
transferred in an attempt to artificially
reduce hospital readmission rates.
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Response: We note that the NQFendorsed readmission measures as
finalized in this rule are designed to
count all readmissions unless they meet
the planned procedure definition for
AMI or involve a transfer to another
acute care hospital. This approach is
consistent with section 1886(q)(5)(ii)(II)
of the Act which requires that
‘‘endorsed measures have exclusions for
readmissions that are unrelated to the
prior discharge (such as a planned
readmission or transfer to another
applicable hospital).’’
With regard to the commenters’
concerns about hospitals transferring
patients to another acute care institution
to avoid being accountable for
readmissions, we will consider future
monitoring of transfer rates to assess if
there are any unexpected changes in
transfer patterns in response to the
Hospital Readmissions Reduction
Program.
Comment: Two commenters
expressed concern regarding the
appropriateness of the exclusion criteria
for unrelated readmissions for use in
measures when applied to hospitals that
treat specialized patient populations,
such as LTCHs and IPPS-exempt cancer
hospitals. One commenter emphasized
the importance to rural hospitals of not
counting unrelated or planned
readmissions. Another commenter
suggested that CMS not count
readmissions related to random events
such as falls or readmissions that occur
during natural disasters or states of
emergency. One commenter suggested a
method of reporting ‘‘nonreportable’’
admissions via the claims payment
system. One commenter believed that
the upcoming implementation of ICD–
10 would enhance CMS’ ability to
identify and remove readmissions
related to random events.
Response: We thank the commenters
for their input on exclusion criteria, and
we will consider these suggestions as
we continue to implement the Hospital
Readmissions Reduction Program. The
proposed NQF-endorsed readmission
measures were designed as ‘‘all-cause’’
readmission measures (that is, they
count readmission regardless of the
reason for readmission) because, from a
patient perspective, readmission from
any cause is an adverse event. Similarly,
as we discussed above, many cases of
seemingly unrelated diagnoses may, in
fact, correspond to the original
hospitalization, and differentiation is
not always possible solely on the basis
of the admitting diagnosis for the
readmission. For instance, a patient
with heart failure who develops a
hospital-acquired infection may
ultimately be readmitted with sepsis. In
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this context, we believe that the NQFendorsed readmission measure for heart
failure appropriately considers the
readmission to be related to the care the
patient received for heart failure during
the first hospitalization.
In our view, readmissions that are
truly unrelated to the hospitalization
should not affect some hospitals more
than others, because these readmissions
should have the same probability of
occurring for similarly situated patients,
regardless of where the patient was
initially hospitalized. We also note that
planned readmissions are easier to
identify, especially those that are
elective and scheduled in advance
either as follow-on care for a procedure
following a hospitalization or that have
been scheduled by outpatient providers,
and are not indicative of care quality.
Comment: One commenter stated
there is another readmission measure
available that has excludes greater
numbers of unrelated readmissions and
is in use in a State.
Response: The readmissions measure
referred to by the commenter is 3M’s
Potentially Preventable Readmission
measure and is in use in the State of
Florida. This measure was reviewed by
NQF in 2009 and was not endorsed
(NQF # HOE–007–08). It is our
understanding that the NQF’s Steering
Committee’s decision not to endorse the
measure reflected the Committee’s
concern about the measure’s approach
to identifying preventable readmissions.
The measure developer specified over
98,000 admission–readmission
diagnoses pairs (for example, a heart
failure admission followed by
readmission for a fall) as either
clinically related and therefore
preventable or not related and therefore
not preventable. The NQF Steering
Committee did not think these
judgments were reliable, and it rejected
the measure in part on this basis. We
agree with the Steering Committee that
this measure did not accurately specify
what is related or unrelated simply by
looking at the diagnoses for the
admission and the readmission.
After consideration of the public
comments we received, we are
finalizing the NQF-endorsed measures
with exclusions for unrelated
conditions, as proposed.
(4) Methodology of Readmission
Measures
In the following section, we describe
the major components of the measure
methodology of the three NQF-endorsed
risk-standardized readmission measures
for AMI, HF and PN that we proposed
for the implementation of the Hospital
Readmissions Reduction Program.
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Additional details about each of these
measures may be found online at http://
www.QualityNet.org>HospitalInpatient>Readmission
Measures>methodologies. This Web
page is located at http://www.quality
net.org/dcs/ContentServer?c=Page&
pagename=QnetPublic%2FPage%2
FQnetTier4&cid=1219069855841.
Briefly, as is described in more detail
in the sections below, the measures are
risk-standardized rates of readmission.
For each hospital, qualifying index
hospitalizations are identified based on
the principal discharge diagnosis of the
patient and the inclusion/exclusion
criteria (section IV.C.3.c.(4)(A) of this
preamble on index hospitalizations).
Each hospitalization is evaluated for
whether the patient had a readmission
to an acute care setting in the 30-days
following discharge (section
IV.C.3.c.(4)(B) of this preamble on
readmission). Patient-risk factors,
including age, and chronic medical
conditions are also identified from
inpatient and outpatient claims for the
12-months prior to the hospitalization
for risk-adjustment (section
IV.C.3.c.(4)(D) of this preamble on riskadjustment). The readmissions, sample
size for each hospital, and patient riskfactors are then used to calculate a riskstandardized readmission ratio for each
hospital. For the purposes of publiclyreporting the measures, this riskstandardized readmission ratio is then
multiplied by the national crude rate of
readmission for the given condition to
produce a risk-standardized
readmission rate (RSRR) (section
IV.C.3.c.(5)(B) of this preamble).
(A) Index Hospitalization
An index hospitalization for each of
the readmission measures is the
hospitalization from which we evaluate
the 30 days after discharge for possible
readmissions. The measures, as
endorsed by the NQF, evaluate eligible
hospitalizations and readmissions of
Medicare patients discharged from an
applicable hospital (as defined by
section 1886(q)(5)(C) of the Act) having
a principal discharge diagnosis for the
measured condition in an applicable
period. The NQF-endorsed measures, as
specified, exclude patients under 65
year of age.
The discharge diagnoses for each
applicable condition are based on a list
of specific ICD–9–CM codes for that
condition. These codes are listed in the
2010 Measures Maintenance Technical
Report: Acute Myocardial Infarction,
Heart Failure, and Pneumonia 30-Day
Risk-Standardized Readmission
Measures. They also are posted on the
QualityNet Web site: http://www.
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QualityNet.org>HospitalInpatient>Readmission
Measures>methodologies. See http://
www.qualitynet.org/dcs/Content
Server?c=Page&pagename=Qnet
Public%2FPage%2FQnetTier4&cid=
1219069855841.
The current NQF-endorsed CMS 30day risk standardized readmission
measures exclude the following
admissions from the group of index
hospitalizations:
• Hospitalizations for patients with
an in-hospital death (because they are
not eligible for readmission);
• Hospitalizations for patients
without at least 30 days post-discharge
enrollment in Medicare FFS (because
the 30-day readmission outcome cannot
be assessed in this group);
• Hospitalizations for patients
discharged against medical advice
(because providers did not have the
opportunity to deliver full care and
prepare the patient for discharge).
• Hospitalizations for patients under
the age of 65.
Comment: One commenter noted that
admissions related to disaster
preparedness or recovery should be
excluded from the measures. One
commenter noted that the nature of
traumatic injuries is such that certain
medical conditions are not always
readily apparent upon admission and
lead to the need for readmission.
Response: We appreciate the
commenter’s recommendation, and we
intend to consider whether to it would
be appropriate to allow waivers for
extraordinary regional or local
circumstances, such as natural disasters
that are not in the control of the
hospital. Any such process would be
proposed in a future rulemaking.
(B) Readmission
As explained above, the initial
hospitalization assessed for a
readmission is called the index
hospitalization. The proposed measures,
as endorsed by the NQF, define
readmission as a second admission to
another acute care hospital within 30
days of the index hospitalization. Under
the proposed measures, as endorsed by
the NQF, a patient who is readmitted
twice within 30 days simply is counted
as having been readmitted; this patient’s
readmissions are not counted differently
than a patient with a single readmission
within 30 days of discharge.
With the exception of the exclusions
discussed previously (transfers and
planned readmissions, as discussed in
the Exclusions for Unrelated
Readmissions section above), the
proposed measures, as currently
endorsed by the NQF, include
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51669
readmissions for all causes, without
regard to the principal diagnosis of the
readmission. There are several reasons
for this approach. First, from the
patient’s perspective, readmission from
any cause is an adverse event. Second,
although we would expect few hospitals
to use gaming strategies, we strive to
make sure that measures do not create
incentives for hospitals to do so.
Limiting the readmissions to particular
diagnoses creates an opportunity for
hospitals to potentially avoid having
readmissions counted by changing
coding practices. Further, doing so
could create a perverse incentive
whereby hospitals begin to avoid
patients with conditions that are part of
the readmissions measures. Third, as
discussed above, there are not currently
any clinically and technically sound
and accepted strategies for accurately
identifying readmission that are
unrelated to hospital quality based on
the documented cause of readmission.
Finally, we believe it is important that
hospitals strive to reduce readmissions
from all causes, not just for patients
with conditions that happen to be
readmissions measures. While the
measures do not presume that each
readmission is preventable,
interventions have generally shown
reductions in all types of readmissions
(including both related and unrelated
readmissions). The NQF measures are
intended to provide incentives for
hospitals to reduce readmissions and
not to achieve zero readmissions.
(C) Time Window
The three proposed measures, as
endorsed by the NQF, count
readmissions within a 30-day period
from the date of the initial discharge
from the index hospitalization. The
timeframe of 30 days is a clinically
meaningful period for hospitals, in
collaboration with their medical
communities, to reduce readmission
risk. This time period for assessing
readmission is an accepted standard in
research and measurement. We believe
that during this 30-day time period,
hospital and community partners can
take steps to reduce risk by ensuring
patients are clinically ready to be
discharged, improving communication
across providers, reducing risks of
infections, and educating patients on
symptoms to monitor whom to contact
with questions and where and when to
seek follow-up care can influence
readmission rates.
Comment: One commenter suggested
the proposed 30-day time period (time
window) is too long and should be
reduced to 15 days. Another commenter
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supported the 30-day time window, but
indicated that they preferred 15 days.
Response: The proposed timeframe of
30 days from the date of the initial
discharge from the index hospitalization
is the timeframe that has been NQFendorsed as part of the three
readmission measures. The timeframe of
30 days is considered an acceptable
standard in both the research and
measurement communities as this time
period is long enough to capture a
substantial proportion of readmissions
attributable to an index hospitalization,
a greater proportion than captured in
just 15 days, and yet it is short enough
that outcomes can be attributed to and
influenced by hospital care and the
early transition to the outpatient setting.
The use of the 30-day timeframe is also
a clinically meaningful period for
hospitals to collaborate with their
communities in an effort to reduce
readmissions. Multiple studies have
shown that interventions by hospitals
can make an impact on 30-day
readmission rates.54 55 56 Finally, we
again note that, as required under the
Act, we proposed the measures as they
were endorsed by the NQF. Since the
NQF-endorsed measures use a 30-day
time period, we are finalizing our
proposal to count readmissions within a
30-day period from the date of the
initial discharge from the index
hospitalization.
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(D) Risk Adjustment
Section 1886(q)(4)(C)(i)(I) of the Act
requires that the number of
readmissions used in the Excess
Readmission Ratio be risk adjusted. This
language requires us, when comparing
hospitals’ readmission rates, to account
for differences in the severity of
illnesses of the patients that hospitals
treat. Risk adjustment essentially ‘‘levels
the playing field’’ for comparing
hospital performance by taking into
account that some hospitals’ patients are
sicker than others on admission and
therefore have a higher risk of
readmission.
The methodology for calculating the
RSRRs under the NQF-endorsed
measures that we proposed adjusts for
key factors that are clinically relevant
and have strong relationships with the
54 Benbassat J, Taragin M. 2000. Hospital
readmissions as a measure of quality of health care:
advantages and limitations. Arch Intern Med
160(8):1074–1081.
55 Benbassat J, Taragin M. 2000. Hospital
readmissions as a measure of quality of health care:
advantages and limitations. Arch Intern Med
160(8):1074–1081.
56 Jonas M, Grossman E, Boyko V, et al. 1999.
Relation of early and one-year outcome after acute
myocardial infarction to systemic arterial blood
pressure on admission. Am J Cardiol 84:162–165.
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outcome (for example, patient
demographic factors, patient co-existing
medical conditions, and indicators of
patient frailty). Under the current NQFendorsed methodology, these covariates
are obtained from Medicare claims
extending 12 months prior to, and
including, the index admission. This
risk-adjustment approach adjusts for
differences in the clinical status of the
patient at the time of the index
admission as well as for demographic
variables.
A complete list of the variables used
for risk adjustment and the clinical and
statistical process for selecting the
variables for each NQF-endorsed
measure, as proposed, is available in the
publicly-available technical
documentation of the existing measures
for AMI, HF, and PN. The risk
adjustment variables for each condition
are presented in the 2010 Measures
Maintenance Technical Report: Acute
Myocardial Infarction, Heart Failure,
and Pneumonia 30-Day RiskStandardized Readmissions Measures
that are posted on http://www.
QualityNet.org>HospitalInpatient>Readmission
Measures>Resources. The variables
used are Condition Categories that
group ICD–9–CM codes into clinically
coherent variables. The 2010 Condition
Category-ICD–9–CM Crosswalk provides
a map to the specific ICD–9–CM codes
in each variable and is also posted on
http://www.QualityNet.org>HospitalInpatient>Readmission
Measures>Measure Calculation
Methodology or readers may use the
following Web site address: http://
www.qualitynet.org/dcs/Content
Server?c=Page&pagename=QnetPublic
%2FPage%2FQnetTier4&
cid=1219069855841.
Comment: Many commenters argued
that CMS should risk-adjust for patient
characteristics beyond the medical
diagnosis, age and gender currently
included in the NQF-endorsed risk
adjustment methodology. Specifically,
commenters believed that patient race,
language, life circumstances,
environmental factors, and
socioeconomic status (SES) should be
included in the risk-adjustment
methodology, because these factors also
have an impact on health outcomes.
Commenters expressed concern that
without adding these adjustment
factors, the Hospital Readmissions
Reduction Program may
disproportionately affect hospitals
serving a large number of minorities,
and by penalizing these hospitals, the
program could in turn
disproportionately harm minority
patients. Commenters stated that failure
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to account for these factors could result
in ‘‘disparate-impact discrimination,’’
potentially violating Title VI of Civil
Rights Act and 45 CFR 80.3.
Response: We do not agree that the
use of the current NQF-endorsed risk
adjustment methodology in the Hospital
Readmissions Reduction Program will
harm minorities. The proposed
readmission measures are riskstandardized readmission measures that
adjust for case-mix differences based on
the clinical status of the patient at the
time of admission to the hospital. That
is, they are risk-adjusted for certain key
variables (for example, age, sex, comorbid diseases and indicators of
patient frailty) that are clinically
relevant and/or have been found to have
strong relationships with the outcome.
To the extent that race or SES results in
certain patient groups having a greater
disease burden, those factors are
accounted for in the measure. A more
complete description of the risk
adjustment model and its development
is available on the QualityNet Web site
(http://www.qualitynet.org/dcs/Content
Server?c=Page&pagename=Qnet
Public%2FPage%2FQnetTier4&
cid=1219069855841).
However, these measures are not
adjusted for other factors such as race,
English language proficiency or SES. We
believe such additional adjustments are
not appropriate because the association
between such patient factors and health
outcomes can be due, in part, to
differences in the quality of health care
received by groups of patients with
varying race/language/SES. Differences
in the quality of health care received by
certain racial and ethnic groups may be
obscured if the measures risk-adjust for
race and ethnicity. Additionally, riskadjusting for patient race, for instance,
may suggest that hospitals with a high
proportion of minority patients are held
to different standards of quality than
hospitals treating fewer minority
patients.
We appreciate the concerns of
hospitals that care for
disproportionately large numbers of
disadvantaged populations. Our
analysis indicates that better quality of
care is achievable regardless of the
demographics of the hospital’s patients.
(See: Medicare Hospital Quality
Chartbook 2010).
Although we believe the current riskadjustment methodology properly
accounts for different patient
circumstances, we will monitor whether
the Hospital Readmissions Reduction
Program has a disparate impact on
57 http://www.cms.gov/HospitalQualityInits/
20_OutcomeMeasures.asp#TopOfPage.
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hospitals that care for large numbers of
disadvantaged patients. If such an
impact is found, we will consider
whether additional program
modifications would be appropriate and
consistent with the statutory
requirements and intent of the program.
For example, one option might be to
refine the measures themselves to
include factors such as SES in the risk
adjustment. We also note that there are
programs that provide technical and
financial support that may assist
hospitals in improving performance on
the readmission measures included in
the Hospital Readmissions Reduction
Program such as the Community Based
Care Transitions program authorized
under section 3026 of the Affordable
Care Act and the Partnership for
Patients, a new public-private
partnership that will help improve the
quality, safety and affordability of
health care. In addition, assistance in
lowering readmission rates is available
from the Quality Improvement
Organizations.
Comment: Several commenters
suggested that trauma hospitals and
safety-net hospitals are at increased risk
of being subject to a payment
adjustment under the Hospital
Readmissions Reduction Program
because of insufficient risk-adjustment
for ‘‘case-mix’’ or the fact that their
patients are sicker, lack access to
appropriate post-discharge care, may
suffer numerous chronic conditions,
and may have substance abuse or
behavioral problems. Another
commenter expressed concern that
coding does not capture patients in
palliative care or those readmitted from
hospice, but acknowledged that CMS
risk adjustment methodology is the state
of the art at present.
Response: We thank the commenters
for their input. As noted above, our
analyses suggest that trauma and safety
net hospitals caring for high proportions
of at-risk patients can, and frequently
do, perform as well on the readmission
measures as those hospitals with fewer
at-risk patients (see: Medicare Hospital
Quality Chartbook 2010, pp 14–19).
We do not exclude hospice patients or
those who have elected palliative care
from the readmission measures because
we do not believe that it is appropriate
to differentiate, as to the
appropriateness of care provided,
between patients who have elected
hospice or palliative care and those who
have not.
After consideration of the public
comments we received, we are
finalizing the risk-adjustment
methodology as proposed and endorsed
by the NQF.
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(E) Applicable Period
Section 1886 (q)(5)(D) of the Act
authorizes the Secretary to specify the
‘‘applicable period’’ with respect to a
fiscal year. Currently, for Hospital IQR
Program public reporting purposes, we
use 3 years of data (three 12-month
increments) to calculate the three
proposed readmission measures. This
provides substantially more data than a
1- or 2-year timeframe and increases the
precision of the measure in
distinguishing performance among
hospitals. Additionally, it is
advantageous to have three years worth
of data for purposes of displaying the
three proposed readmission measures
on Hospital Compare where we
categorize hospital performance into
one of three discrete categories: ‘‘Better
than the US national rate,’’ ‘‘No
different than the US national rate,’’ and
‘‘Worse than the US national rate.’’
For the FY 2013 Hospital
Readmissions Reduction Program, in the
FY 2012 IPPS/LTCH PPS proposed rule
(76 FR 25934), we proposed to use 3
years of data for discharges from July 1,
2008 through June 30, 2011 as the
applicable period upon which to
calculate Excess Readmission Ratios for
each of the three proposed measures.
Based on our experience with the
Hospital IQR Program, we believe that
this timeframe increases the precision of
the measures in distinguishing
performance among hospitals. However,
for purposes of the Hospital
Readmissions Reduction Program, we
will not be categorizing hospital
performance in three categories; rather,
we will be using the measures to
calculate Excess Readmission Ratios for
the three conditions. In the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25934), we proposed to use a 3-year data
period spanning July 1, 2008 through
June 30, 2011, as the applicable period
for determining the FY 2013 Hospital
Readmissions Reduction Program
payment adjustment. We indicated that
we are currently conducting analyses to
determine an appropriate data period
(for example, 1 year, 2 years, 3 years)
that will yield reliable Excess
Readmission Ratios for the three
proposed measures, and that we intend
to consider both the positive and
negative consequences of using longer
or shorter data periods for this program.
We also indicated that should our
analysis or public comment indicate
that a shorter data period yields Excess
Readmission Ratios with acceptable
reliability, we may consider finalizing a
shorter time period.
We invited public comment and
suggestions on the topic of an
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51671
appropriate length for the applicable
period to consider for the three
proposed readmission measures for FY
2013.
Comment: Many commenters
recommended that CMS shorten the
proposed applicable period of 3 years so
that only more recent data would be
used for the Hospital Readmissions
Reduction Program. Some commenters
urged CMS to shorten the timeframe
because the commenters believed it was
unfair to assess hospital performance on
data that occurred during 2008, which
is ‘‘long before [the Hospital
Readmissions Reduction Program
provision] was passed * * *’’
Response: We thank the commenters’
for their views regarding the data used
for the measures. We proposed 3 years
as the applicable period because we
believe that this time period would
ensure the proposed measures covers a
sufficient number of applicable patients
for hospital performance to be fairly
portrayed. For example, from 2006
through 2008, only 2,500 of the 4,500
qualifying hospitals for the Hospital
Readmissions Reduction Program
reported at least 25 discharges for AMI
during that time period.
As stated above, we indicated that we
are currently conducting analyses to
determine if a different data period (for
example, 1 or 2 years) might also yield
reliable Excess Readmission Ratios for
the three proposed measures. We intend
to consider both the positive and
negative consequences of using longer
or shorter data periods for this program.
If our analysis or public comments
indicate that a shorter data period yields
Excess Readmission Ratios with
acceptable reliability, we may consider
finalizing a shorter time period.
Because we did not receive any public
comments demonstrating that a shorter
period would yield reliable and
meaningful results upon which
differences in hospital performance
could be appropriately distinguished,
and because our own analysis indicated
that 3 years continues to be an
appropriate period, we are finalizing 3
years as the applicable period for the FY
2013 Hospital Readmissions Reduction
Program.
(F) Data Sources
As discussed above, the adjustment
under section 1886(q) of the Act is made
to the ‘‘base operating DRG payment
amount,’’ and components of the ratio
used to determine a hospital’s
adjustment factor also use that payment
amount. Payments under section 1886
of the Act, including the ‘‘base operating
DRG payment amount,’’ are made for
services furnished to Medicare’s fee-for-
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service population under part A.
Therefore, for purposes of implementing
the Hospital Readmissions Reduction
Program under section 1886(q) of the
Act, in the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25934), we
proposed to use Medicare claims data
for the Medicare FFS population over
the age of 65 only. This is the same
universe of claims used for calculating
the NQF-endorsed measures for the
purposes of the Hospital IQR Program.
The administrative data sources for
the risk adjustment analyses are
Medicare administrative claims datasets
that contain FFS inpatient and
outpatient (Medicare Parts A and B)
claims information in the prior 12
months and subsequent one month for
patients admitted in each of these years.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25934), we
proposed to use claims from the index
hospitalization included the measure
and from the prior 12 months from all
of these data sources to gather risk
factors. If the patient does not have any
claims in the 12 months prior to the
index hospitalization admission, only
comorbidities from the included
admission are used.
We welcomed public comment on
this proposal.
We did not receive any public
comments on this proposal. Therefore,
we are finalizing the data sources used
for the Hospital Readmissions
Reduction Program as proposed in the
FY 2012 IPPS/LTCH PPS proposed rule.
(G) Minimum Number of Discharges for
Applicable Conditions
Section 1886(q)(4)(C)(II)(ii) of the Act
authorizes the Secretary to exclude
readmissions for an applicable
condition for which there are ‘‘fewer
than a minimum number (as determined
by the Secretary).’’ Currently, for public
reporting purposes under the Hospital
IQR Program, only hospitals with at
least 25 discharges for each of the three
proposed applicable conditions are
included in the display of the three
proposed readmission measures on
Hospital Compare. We chose this
number of discharges for the Hospital
IQR Program based on our findings that
using fewer cases did not provide
sufficiently reliable information on
hospital performance. In general, the
larger the number of cases, the more
reliable the information. In the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25935), we indicated that we are
currently conducting additional
analyses to further evaluate the
appropriate minimum number of
discharges needed to yield reliable
Excess Readmission Ratios for the three
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proposed measures. However, based on
our experience with the Hospital IQR
Program, in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25934
through 25935), we proposed to use the
current threshold of 25 discharges for
each of the three measures for the
Hospital Readmissions Reduction
Program. However, we indicated that
should our analysis or public comment
indicate that a different minimum
number of discharges would be more
appropriate for this program, we would
consider finalizing a different number.
We invited public comment and
suggestions on the topic of appropriate
minimum number of discharges to
consider for the three proposed
readmission measures.
Comment: Several commenters
supported the proposed minimum
number of 25 discharges. Other
commenters stated that 25 discharges is
too small a number to reliably profile
hospitals.
Response: We appreciate hearing from
commenters regarding the proposed
minimum number of discharges. We
continue to believe that 25 discharges is
the appropriate cut-off. As noted in the
proposed rule, we have been using 25
cases as the minimum sample size for
publicly reporting hospital quality
measures on Hospital Compare Web site
for the Hospital IQR Program. Hospitals
are familiar with this threshold. We also
proposed to use this threshold of 25
discharges for each of the three
measures to calculate the Excess
Readmission Ratios because we believe
this number helps maximize hospital
participation and at the same time
ensures that we achieve reasonable
reliability for profiling hospital
performance.
After consideration of the public
comments we received, we are
finalizing our proposal to use 25
discharges as the minimum number of
discharges for applicable conditions for
the FY 2013 Hospital Readmissions
Reduction Program. We note that
analyses to determine appropriate
sample size to yield reliable Excess
Readmission Ratios for the three
readmission measures are ongoing. If
the results of our analyses suggest that
a different minimum number of
discharges would be more appropriate,
we will propose to revise the minimum
number accordingly through future
rulemaking.
(H) Reporting Hospital-Specific
Readmission Rates
Section 1886(q)(6)(A) of the Act
requires the Secretary to ‘‘make
information available to the public
regarding readmission rates of each
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subsection (d) hospital under the
[readmissions reduction] program.’’
Section 1886(q)(6)(B) of the Act requires
the Secretary to ‘‘ensure that a
subsection (d) hospital has the
opportunity to review and submit
corrections for, the information to be
made public with respect to the hospital
* * * prior to such information being
made public.’’ Section 1886(q)(6)(C) of
the Act requires the Secretary to post
the hospital-specific readmission
information on the Hospital Compare
Web site in an easily understandable
format.
We currently report information on
the three readmission rates that we are
finalizing in this rule on the Hospital
Compare Web site for each subsection
(d) hospital. We provide hospitals with
an opportunity to preview their
readmission rates for 30 days prior to
posting on the Web site. In the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25935), we proposed to use a similar
process and timeframe for the rates
calculated for the Hospital
Readmissions Reduction Program.
Through this process, hospitals will be
able to review the information and
submit to CMS corrections in advance of
the information to be made public. We
will review all such correction
submissions and determine the
appropriateness of any revisions. We
will inform the hospital requesting
corrections of our findings, and we will
make any appropriate revisions to the
information to be made available to the
public regarding the hospital’s
readmission rates.
We invited public comment on this
proposal.
Comment: Several commenters
supported our proposal to use a preview
period and public reporting process that
is similar to that used in the Hospital
IQR Program. Two commenters
requested more information about how
the information will be presented on the
Hospital Compare Web site. One
recommended that more specific data
on actual readmission rates be
portrayed.
Response: We appreciate the
commenters’ support for the proposed
reporting procedure for hospital-specific
readmission rates. This reporting
procedure will be different from what is
reported with the Hospital IQR Program.
The Hospital IQR Program identifies
hospitals on Hospital Compare as being
better than, no different than, or worse
than the national rate for readmission.
However, the Hospital Readmissions
Reduction Program will include
hospital-specific readmission rates.
Comment: One commenter requested
clarification on ‘‘what grounds and with
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what data’’ a hospital might appeal its
calculated expected readmissions ratio.
Response: As stated earlier, hospitals
will be able to review the information
and submit to CMS corrections related
to their readmission rate in advance of
the information to be made public. We
will review all such correction
submissions and determine the
appropriateness of any revisions. The
policies regarding what aspects of the
readmission rates are subject to
corrections, as well as specifics
regarding the review and correction
process will be proposed in future
rulemaking. We will consider the
commenter’s concern as we develop our
proposal.
After consideration of the public
comments we received, we are
finalizing the proposed reporting
procedure for hospital-specific
readmission rates for the FY 2013
Hospital Readmissions Reduction
Program.
(I) Readmission Rates for All Patients
Section 1886(q)(8)(A) of the Act
requires the Secretary to calculate
readmission rates for all patients for a
‘‘specified hospital’’ for an applicable
condition and ‘‘other conditions
deemed appropriate by the Secretary for
an applicable period.’’ Section
1886(q)(8)(D)(ii) of the Act defines
‘‘specified hospital’’ as: ‘‘a subsection
(d) hospital; hospitals described in
clauses (i) through (v) of subsection
(d)(1)(B) (psychiatric hospitals,
rehabilitation hospitals, children’s
hospitals, LTCHs, and cancer hospitals);
and, as determined feasible and
appropriate by the Secretary, other
hospitals not otherwise described.
* * *’’ Such information is to be
calculated in the same manner as used
to calculate readmission rates for
hospitals with respect to the postings on
the CMS Hospital Compare Web site.
Section 1886(q)(8)(C) of the Act
requires specified hospitals, or a State or
an appropriate entity on behalf of the
hospitals, to submit to the Secretary, in
a form, manner and time specified by
the Secretary, data and information
determined necessary to calculate the
all patient readmission rates. Section
1886(q)(8)(D) of the Act defines ‘‘all
patients’’ to mean patients who are
treated on an inpatient basis and
discharged from a specified hospital. In
the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 25935), we did not propose
any specific policies to implement
section 1886(q)(8) of the Act, but we
invited public comment and suggestions
for issues related to implementation of
these provisions, such as the
mechanisms to collect the all-patient
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data, the collection of patient identifiers
to track patient care history across
multiple settings to conduct risk
adjustment for outcome measures, what
entities could submit all patient data on
behalf of hospitals, and more generally,
the requirement for all patient data
submission.
Comment: One commenter supported
the calculation of all-patient
readmission rates. Another commenter
supported the decision to defer
proposals for the collection of data
necessary for readmission rates of all
patients to allow CMS enough time to
put the underlying infrastructure in
place. One commenter suggested
allowing hospitals to either submit data
directly to CMS, or through a third party
that is not another payer.
Response: We appreciate the
comments provided on this issue. As we
stated in the proposed rule, we will take
them into account in the calculation and
reporting of readmission rates for all
patients in future rulemaking.
(5) Excess Readmission Ratio
(A) Statutory Background
Section 1886(q)(4)(C) of the Act
requires the Secretary to develop a riskadjusted ‘‘Excess Readmission Ratio.’’
The Excess Readmission Ratio will be
used in the calculation of ‘‘aggregate
payments for excess readmissions’’ as
required under section 1886(q)(4)(A)(iii)
of the Act, which, in turn, is used to
determine the adjustment factor under
section 1886(q)(3) of the Act.
Specifically, section 1886(q)(4)(C)(i) of
the Act states that the term ‘‘ ‘excess
readmission ratio’ means, with respect
to an applicable condition for a hospital
for an applicable period, the ratio * * *
of * * * the risk adjusted readmissions
based on actual readmissions * * * to
* * * the risk adjusted expected
readmissions. * * *’’ The Act also
requires that the numerator and
denominator of the ratio, that is, ‘‘risk
adjusted readmissions based on actual
readmissions’’ and the ‘‘risk adjusted
expected readmissions,’’ be determined
‘‘consistent with a readmission measure
methodology that has been endorsed
under paragraph (5)(A)(ii)(I) [of the
Act].’’
(B) Excess Readmission Ratio
Methodology
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25935 through
25936), we proposed to use the riskstandardized ratio calculated for the
NQF-endorsed measures for AMI, HF,
and PN as the ‘‘Excess Readmission
Ratio.’’ This risk-standardized ratio
(Excess Readmission Ratio), as required
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by the Act, is a ratio of ‘‘risk adjusted
readmission based on actual’’ to ‘‘risk
adjusted expected readmissions.’’
Moreover, use of this ratio meets the
statutory requirement that the
numerator and denominator of the ratio
be determined in a manner that is
‘‘consistent with’’ an NQF-endorsed
readmission measure methodology.
The proposed ratio is a measure of
relative performance. If a hospital
performs better than an average hospital
that admitted similar patients (that is,
patients with the same risk factors for
readmission such as age and
comorbidities), the ratio will be less
than one. If a hospital performs worse
than average, the ratio will be greater
than one. Hospitals with a ratio greater
than one have excess readmissions
relative to average quality hospitals with
similar types of patients.
As part of the Hospital IQR Program,
the risk-standardized ratio is used to
generate the measure results for these
three measures that are reported on
Hospital Compare Web site. The riskstandardized ratio is the unique result
produced by the measures for each
hospital for each condition to assess
relative hospital performance. Hospitals
may not be familiar with this ratio
because the measure result reported on
Hospital Compare for each hospital and
each condition is this ratio multiplied
by a constant (the national raw rate of
readmission for the condition), and it is
currently presented as the riskstandardized readmission rate (RSRR).
Multiplying by a constant transforms
the ratio into a rate (the riskstandardized readmission rate) that is
better understood by the public. Thus
Hospital Compare results for CMS
readmission measures are computed as
follows:
[Hospital risk-standardized ratio] X
[national raw readmission rate]
(i) Numerator and Denominator of the
Risk-Standardized Ratio (Excess
Readmission Ratio)
The NQF-endorsed measures, which
we are finalizing in this rule for the
Hospital Readmissions Reduction
Program, calculate this riskstandardized ratio (Excess Readmission
Ratio) using hierarchical logistic
modeling, which is a widely accepted
statistical method that evaluates relative
hospital performance based on
outcomes such as readmission. The
method adjusts for variation across
hospitals in how sick their patients are
when admitted to the hospital (and
therefore variation in hospitals’ patients’
readmission risk) as well as the
variation in the number of patients that
a hospital treats to reveal difference in
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quality. The detailed methodology for
these measures is publicly-available and
the calculation ‘‘SAS packs’’ are made
available upon request. This is the
calculation software that permits the
measures to be calculated. We describe
the key details of the methodology here.
In order to model the extent to which
hospitals affect patients’ risk of
readmission, this statistical model first
analyzes data on all the patients
discharged from all hospitals for a given
condition that indicate for each patient
what comorbidities were present when
the patient was admitted and whether or
not the patient was readmitted and
calculates:
• How much variation in hospital
readmission rates overall is accounted
for by variation across hospitals in
patients’ individual risk factors (such as
age and other medical conditions); a risk
weight (beta-coefficient) is calculated
for each patient risk factor at all
hospitals. The specific approach and
variables used in the risk adjustment are
discussed below.
• How much variation in readmission
rates is accounted for by hospitals’
contribution to readmission risk, after
adjusting for differences in readmission
due to differences in patients’ risk
factors. The model estimates the amount
by which a specific hospital increases or
decreases patients’ risk of readmission
relative to an average hospital based on
the hospitals actual readmission relative
to hospitals with similar patients. The
estimated amount each hospital
contributes (or subtracts) from its
patients readmission risk compared to
hospitals with similar patients is called
the ‘‘hospital-specific readmission
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effect.’’ It is used only in the numerator
to estimate the adjusted actual
readmissions. The hospital-specific
effect will be negative for a hospital
above the national average (that is, with
lower than average adjusted rates of
readmissions), positive for a hospital
below the national average (that is, with
higher than average adjusted rates of
readmissions), and close to zero for an
average hospital. If there are no quality
differences resulting in excess
readmissions among hospitals (if all
hospitals had the same readmission
rates relative to hospitals with similar
patients), the hospital-specific effects for
all hospitals will be zero and the ratio
for all hospitals will be one.
Comment: One commenter expressed
concern that multiplying the ratio by the
national raw rate of readmissions could
inflate the readmission rate for a given
hospital.
Response: As discussed above, the
Excess Readmission Ratio is calculated
using hierarchical logistic regression
which 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. The excess
readmissions ratio is multiplied by the
national readmission rate for reporting
of risk-standardized readmission rates to
the public as a part of the Hospital IQR
Program for ease of interpretation. This
serves to standardize all hospitals rates
to the national rate but should not be
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interpreted as the unadjusted rate for a
given hospitals. Depending on the
hospital’s performance it may be higher
or lower than the hospital’s raw
readmission rate. The Hospital
Readmissions Reduction Program uses
the Excess Readmission Ratio rather
than the raw readmission rate.
(ii) Numerator Calculation—Adjusted
Actual Readmissions
For each hospital, the numerator of
the ratio used in the NQF-endorsed
methodology (actual adjusted
readmissions) is calculated by
estimating the probability of
readmission for each patient at that
hospital and summing up over all the
hospital’s patients to get the actual
adjusted number of readmissions for
that hospital. This estimated probability
of readmission for each patient is
calculated using:
• The hospital-specific effect
(probability of readmission relative to
the probability of readmission at an
average hospital);
• The intercept term for the model
(this is the average hospital-specific
effect and is the same for all hospitals
and for both numerator and
denominator equations). The intercept
term is the probability of readmission
for each patient when the value of all
the patient risk factors is zero;
• The probability of readmission
contributed by each of the patients’ risk
factors (risk adjustment coefficients
multiplied by the patient’s risk factors,
X)
Mathematically, the numerator
equation can be expressed as:
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51674
Comment: One commenter requested
clarification on how the numerator
calculation of probable readmissions is
related to the adjusted actual
readmission. The commenter suggested
that CMS take actual readmissions
(observed) divided by the expected
readmission.
Response: As explained in the FY
2012 IPPS/LTCH PPS proposed rule and
this final rule, consistent with the
requirements in section
1886(q)(4)(C)(i)(I) of the Act, the
numerator is the adjusted actual number
of readmissions, which is the sum of the
probability of readmission for all
patients admitted at the particular
hospital given the patients’ risk factors
and the hospitals estimated contribution
to readmission risk. This estimated
contribution to readmission risk—the
hospital-specific effect discussed in the
rule—is derived from the hospital’s
actual readmission rate relative to
hospitals with similar patients. Thus,
the numerator is each hospital’s
adjusted actual readmissions. This
approach to calculating the numerator,
although more complex than that used
for logistic regression, is the method
traditionally used in hierarchical
regression modeling and is statistically
more accurate given the type of data
being used. Other methods may
overestimate the differences between
hospitals.
Thus, the ratio compares the total
adjusted actual readmissions at the
hospital to the number that would be
expected if the hospital’s patients were
treated at an average hospital with
similar patients. Hospitals with more
adjusted actual readmissions than
expected readmissions will have a riskstandardized ratio (Excess Readmission
Ratio) greater than one.
Because the ratio is risk-adjusted, a
hospital may have high crude
readmission rates (number of 30-day
readmissions among patients with the
applicable condition divided by number
of admissions for patients with the
applicable condition) yet have a riskstandardized ratio (Excess Readmission
Ratio) less than one. For example, if a
hospital with a higher than average raw
readmission rate cares for very sick
patients, the ratio may show that the
adjusted actual number of readmissions
(the numerator), which accounts for the
case-mix, is actually lower than what
would be expected for an average
hospital caring for these patients
(denominator) and therefore the Excess
Readmission Ratio, as proposed, will be
less than one, demonstrating that this
hospital performs better than average,
despite having a high crude readmission
rate. Similarly, if a hospital has a
seemingly low unadjusted readmission
rate but cares for a very low risk
population of patients, it may be found
to have an adjusted actual number of
readmissions that is higher than the
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(iii) Denominator Calculation—
Expected Readmissions (at an Average
Quality Hospital Treating the Same
Patients)
The denominator of the riskstandardized ratio (Excess Readmission
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51675
Ratio) under this NQF-endorsed
methodology sums the probability of
readmission for each patient at an
average hospital. This probability is
calculated using:
• The intercept term for the model
(the same for all hospitals and for both
numerator and denominator equations);
and
• The increase or decrease in the
probability of readmission contributed
by each of the patients’ risk factors (risk
adjustment coefficients multiplied by
the patient’s risk factors, X).
This can be expressed mathematically
as:
expected number of readmissions, and
therefore a ratio greater than one.
In summary, in the FY 2012 IPPS/
LTCH PPS proposed rule, we proposed
to 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.
We welcomed public comment on our
proposal to use this methodology for
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calculating the ‘‘risk adjusted
readmissions based on actual
readmissions’’ as well as the ‘‘risk
adjusted expected readmissions’’ used
to determine the Excess Readmission
Ratio, as set forth in section
1886(q)(5)(C) of the Act.
Comment: Some commenters
interpreted the Affordable Care Act as
requiring CMS to calculate observed and
expected rates and, therefore, these
commenters suggested that CMS revise
the measures to use the calculation of
observed and expected rates. Some
commenters compared the hierarchical
modeling approach to the logistic
regression model, which produces an
expected rate for the denominator and
uses the observed (raw count of
readmission) for the numerator. One
commenter requested CMS to provide
reasons for not using a conventional
observed over expected ratio in the
methodology.
Response: We appreciate the
commenter’s thoughts on the Excess
Readmission Ratio. Consistent with the
statutory requirement that the Secretary
must develop a risk-adjusted Excess
Readmission Ratio that is the ratio of
‘‘the risk adjusted readmissions based
on actual readmission, as determined
consistent with a readmission measure
methodology that has been endorsed
under paragraph (5)(A)(ii)(I) * * * to
the risk adjusted expected
readmissions,’’ we proposed to calculate
the Excess Readmission Ratio using
hierarchical modeling (rather than
logistic regression, which produces an
observed over expected ratio).
We believe that hierarchical modeling
is a more appropriate statistical
approach for hospital outcomes
measures than the calculation of
observed over expected ratio using the
logistic regression model for various
reasons. First, the hierarchical model
meets the requirement under section
1886(q)(4)(C)(i)(I) of the Act for NQFendorsement and risk-adjustment.
Second, we believe that hierarchical
modeling is a more appropriate
statistical approach given the structure
of the data and the underlying
assumption of such measures which is
that hospital quality of care influences
30-day readmission rates. Patients are
clustered within hospitals and, as such,
have a shared exposure to the hospital’s
quality processes. The advantage of
using the hierarchical modeling is that
it accounts for the clustering of patients
within hospitals. Third, hierarchical
models distinguish within-hospital
variation and between-hospital variation
in the estimation of the hospital’s
contribution to the risk of mortality. The
estimation of the hospital’s influence on
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patient outcomes is more noticeable.
Finally, within hierarchical models, we
can account for both differences in case
mix and sample size to more fairly
profile hospital performance. If we did
not use hierarchical modeling, we may
overestimate variation and potentially
mischaracterize hospitals’ performance
with respect to readmissions.
After consideration of the public
comments we received, we are
finalizing the proposed methodology for
readmission measures, including the
definitions of ‘‘index hospitalization,’’
‘‘readmission,’’ ‘‘time window,’’ ‘‘risk
adjustment methodology,’’ ‘‘applicable
periods,’’ ‘‘data sources,’’ ‘‘minimum
number of discharges for applicable
conditions,’’ and ‘‘reporting hospitalspecific readmission rates,’’ as
proposed, for use in the FY 2013
Hospital Readmissions Reduction
Program.
D. Rural Referral Centers (RRCs)
(§ 412.96)
Under the authority of section
1886(d)(5)(C)(i) of the Act, the
regulations at § 412.96 set forth the
criteria that a hospital must meet in
order to qualify under the IPPS as an
RRC. For discharges that occurred
before October 1, 1994, RRCs received
the benefit of payment based on the
other urban standardized amount rather
than the rural standardized amount (as
discussed in the FY 1993 IPPS final rule
(59 FR 45404 through 45409)). Although
the other urban and rural standardized
amounts are the same for discharges
occurring on or after October 1, 1994,
RRCs continue to receive special
treatment under both the DSH payment
adjustment and the criteria for
geographic reclassification.
Section 402 of Public Law 108–173
raised the DSH 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
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
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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.)
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 2012 includes data
from all urban hospitals nationwide,
and the regional values for FY 2012 are
the median CMI values of urban
hospitals within each census region,
excluding those hospitals with
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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 2010
(October 1, 2009 through September 30,
2010), and include bills posted to CMS’
records through March 2011.
For the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25938), 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,
2011, they must have a CMI value for
FY 2010 that is at least—
• 1.5292; or
• The median CMI value (not
transfer-adjusted) for urban hospitals
(excluding hospitals with approved
teaching programs as identified in
§ 413.75) calculated by CMS for the
census region in which the hospital is
located. (We refer readers to the table set
forth in the FY 2012 IPPS/LTCH PPS
proposed rule at 76 FR 25938.)
The final CMI criteria for FY 2012 are
based on the latest available data (FY
2010 bills received through March
2011). In addition to meeting other
criteria, if rural hospitals with fewer
than 275 beds are to qualify for initial
RRC status for cost reporting periods
beginning on or after October 1, 2011,
they must have a CMI value for FY 2010
that is at least—
• 1.5305; 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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Region
1. New England (CT, ME, MA,
NH, RI, VT) ...........................
2. Middle Atlantic (PA, NJ, NY)
3. South Atlantic (DE, DC, FL,
GA, MD, NC, SC, VA, WV) ..
4. East North Central (IL, IN,
MI, OH, WI) ...........................
5. East South Central (AL, KY,
MS, TN) .................................
6. West North Central (IA, KS,
MN, MO, NE, ND, SD) ..........
7. West South Central (AR, LA,
OK, TX) .................................
8. Mountain (AZ, CO, ID, MT,
NV, NM, UT, WY) .................
9. Pacific (AK, CA, HI, OR,
WA) .......................................
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A hospital seeking to qualify as an
RRC should obtain its hospital-specific
CMI value (not transfer-adjusted) from
its fiscal intermediary or MAC. Data are
available on the Provider Statistical and
Reimbursement (PS&R) System. In
keeping with our policy on discharges,
the CMI values are computed based on
all Medicare patient discharges subject
to the IPPS MS–DRG-based payment.
2. Discharges
Section 412.96(c)(2)(i) provides that
CMS set forth the national and regional
numbers of discharges in each year’s
annual notice of prospective payment
rates for purposes of determining RRC
status. As specified in section
1886(d)(5)(C)(ii) of the Act, the national
standard is set at 5,000 discharges. In
the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 25938 and 25939), we
proposed to update the regional
standards based on discharges for urban
hospitals’ cost reporting periods that
began during FY 2009 (that is, October
1, 2008 through September 30, 2009),
which are the latest cost report data
available at the time the proposed rule
was developed.
Therefore, in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25938 and
25939), 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, 2011, must have, as the
number of discharges for its cost
reporting period that began during FY
2009, at least—
• 5,000 (3,000 for an osteopathic
hospital); or
• The median number of discharges
for urban hospitals in the census region
in which the hospital is located. (We
refer readers to the table set forth in the
FY 2012 IPPS/LTCH PPS proposed rule
at 76 FR 25939).)
Based on the latest discharge data
available at this time, that is, for cost
Case-mix
index value reporting periods beginning on or after
October 1, 2011, the final median
numbers of discharges for urban
1.3237
1.3745 hospitals by census region are set forth
in the following table.
1.4589
Region
1.4620
1.3996
1.4456
1.5689
1.6277
1.5169
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1. New England (CT, ME, MA,
NH, RI, VT) .........................
2. Middle Atlantic (PA, NJ,
NY) ......................................
3. South Atlantic (DE, DC, FL,
GA, MD, NC, SC, VA, WV)
4. East North Central (IL, IN,
MI, OH, WI) .........................
5. East South Central (AL,
KY, MS, TN) ........................
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Region
6. West North Central (IA, KS,
MN, MO, NE, ND, SD) ........
7. West South Central (AR,
LA, OK, TX) ........................
8. Mountain (AZ, CO, ID, MT,
NV, NM, UT, WY) ...............
9. Pacific (AK, CA, HI, OR,
WA) .....................................
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Number of
discharges
8,116
6,426
9,608
8,900
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, 2011, the hospital
would be required to have at least 3,000
discharges for its cost reporting period
that began during FY 2009.
E. Payment Adjustment for Low-Volume
Hospitals (§ 412.101)
1. Background
Section 1886(d)(12) of the Act, as
added by section 406(a) of Public Law
108–173, provides for a payment
adjustment to account for the higher
costs per discharge for low-volume
hospitals under the IPPS, effective
beginning FY 2005. The additional
payment adjustment to a low-volume
hospital provided for under section
1886(d)(12) of the Act is ‘‘in addition to
any payment calculated under this
section.’’ Therefore, the additional
payment adjustment is based on the per
discharge amount paid to the qualifying
hospital under section 1886 of the Act.
In other words, the low-volume add-on
payment amount is based on all other
per discharge payments made under
section 1886 of the Act, including
capital, DSH, IME, and outliers. For
SCHs and MDHs, the low-volume addon payment amount is based on either
the Federal rate or the hospital-specific
rate, whichever results in a greater
operating IPPS payment. Sections 3125
and 10314 of the Affordable Care Act
amended the definition of a low-volume
hospital under section 1886(d)(12)(C) of
Number of
the Act. Sections 3125 and 10314 of the
discharges
Affordable Care Act also revised the
methodology for calculating the
8,141 payment adjustment for low-volume
hospitals.
11,919
Prior to the amendments made by the
Affordable Care Act, section
11,422
1886(d)(12)(C)(i) of the Act defined a
8,981 low-volume hospital as ‘‘a subsection
(d) hospital (as defined in paragraph
7,528 (1)(B)) that the Secretary determines is
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located more than 25 road miles from
another subsection (d) hospital and that
has less than 800 discharges during the
fiscal year.’’ Section 1886(d)(12)(C)(ii) of
the Act further stipulates that the term
‘‘discharge’’ means ‘‘an inpatient acute
care discharge of an individual
regardless of whether the individual is
entitled to benefits under Part A.’’
Therefore, the term ‘‘discharge’’ refers to
total discharges, not merely Medicare
discharges. Furthermore, under section
406(a) of Public Law 108–173, which
initially added subparagraph (12) to
section 1886(d) of the Act, the provision
requires the Secretary to determine an
applicable percentage increase for these
low-volume hospitals based on the
‘‘empirical relationship’’ between ‘‘the
standardized cost-per-case for such
hospitals and the total number of
discharges of such hospitals and the
amount of the additional incremental
costs (if any) that are associated with
such number of discharges.’’ The statute
thus mandates that the Secretary
develop an empirically justifiable
adjustment based on the relationship
between costs and discharges for these
low-volume hospitals. The statute also
limits the adjustment to no more than
25 percent.
Based on an analysis we conducted
for the FY 2005 IPPS final rule (69 FR
49099 through 49102), a 25-percent lowvolume adjustment to all qualifying
hospitals with less than 200 discharges
was found to be most consistent with
the statutory requirement to provide
relief to low-volume hospitals where
there is empirical evidence that higher
incremental costs are associated with
low numbers of total discharges. In the
FY 2006 IPPS final rule (70 FR 47432
through 47434), we stated that a
multivariate analyses supported the
existing low-volume adjustment
implemented in FY 2005. Therefore, the
low-volume adjustment of an additional
25 percent would continue to be
provided for qualifying hospitals with
less than 200 discharges.
2. Temporary Changes for FYs 2011 and
2012
Section 1886(d)(12) of the Act was
amended by sections 3125 and 10314 of
the Affordable Care Act. The changes
made by these sections of the Affordable
Care Act are effective only for
discharges occurring during FYs 2011
and 2012. Beginning with FY 2013, the
preexisting low-volume hospital
payment adjustment and qualifying
criteria, as implemented in FY 2005,
will resume. Specifically, as discussed
above, the provisions of the Affordable
Care Act revised the definition of a lowvolume hospital and also revised the
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methodology for calculating the
payment adjustment for low-volume
hospitals for FYs 2011 and 2012.
Sections 3125(3) and 10314(1) of the
Affordable Care Act amended the
qualifying criteria for low-volume
hospitals under section 1886(d)(12)(C)(i)
of the Act to make it easier for hospitals
to qualify for the low-volume
adjustment. Specifically, the revised
provision specifies that, for FYs 2011
and 2012, a hospital qualifies as a lowvolume hospital if it is ‘‘more than 15
road miles from another subsection (d)
hospital and has less than 1,600
discharges of individuals entitled to, or
enrolled for, benefits under Part A
during the fiscal year.’’ In addition,
section 1886(d)(12)(D) of the Act, as
added by section 3125(4) and amended
by section 10314 of the Affordable Care
Act, provides that the payment
adjustment (the applicable percentage
increase) is to be determined ‘‘using a
continuous linear sliding scale ranging
from 25 percent for low-volume
hospitals with 200 or fewer discharges
of individuals entitled to, or enrolled
for, benefits under Part A in the fiscal
year to 0 percent for low-volume
hospitals with greater than 1,600
discharges of such individuals in the
fiscal year.’’
Section 3125(3)(A) of the Affordable
Care Act revised the distance
requirement of ‘‘25 road miles’’ to ‘‘15
road miles’’ for FYs 2011 and 2012 such
that a low-volume hospital is required
to be only more than 15 road miles,
rather than more than 25 road miles,
from another subsection (d) hospital for
purposes of qualifying for the lowvolume payment adjustment in FYs
2011 and 2012. The mileage
requirement will revert back to ‘‘more
than 25 road miles’’ for fiscal years after
FY 2012.
Sections 3125(3)(B) and 10314(1) of
the Affordable Care Act revised the
discharge requirement for FYs 2011 and
2012 to less than 1,600 discharges of
individuals entitled to, or enrolled for,
benefits under Medicare Part A during
the fiscal year. Prior to enactment of the
Affordable Care Act, under section
1886(d)(12) of the Act, as added by
section 406(a) of Public Law 108–173,
the discharge requirement to qualify as
a low-volume hospital is less than 800
total discharges annually, which
includes discharges of both Medicare
and non-Medicare patients. This
discharge requirement will apply also
for fiscal years after FY 2012.
Section 3125(4) of the Affordable Care
Act added section 1886(d)(12)(D) to the
Act, and section 10314(2) of the
Affordable Care Act further modified
that section of the Act. Section
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1886(d)(12)(D) of the Act, as modified,
revises the methodology for calculating
the payment adjustment under section
1886(d)(12)(A) of the Act for lowvolume hospitals for discharges
occurring in FYs 2011 and 2012. For FY
2010 and prior fiscal years, and
beginning again in FY 2013, sections
1886(d)(12)(A) and (B) of the Act require
the Secretary to determine an applicable
percentage increase for low-volume
hospitals based on the ‘‘empirical
relationship’’ between ‘‘the
standardized cost-per-case for such
hospitals and the total number of
discharges of such hospitals and the
amount of the additional incremental
costs (if any) that are associated with
such number of discharges.’’ The statute
thus requires the Secretary to develop
an empirically justifiable adjustment
based on the relationship between costs
and discharges for these low-volume
hospitals. The statute also limits the
adjustment to no more than 25 percent.
Based on analyses we conducted for the
FY 2005 IPPS final rule (69 FR 49099
through 49102) and the FY 2006 IPPS
final rule (70 FR 47432 through 47434),
a 25-percent low-volume adjustment to
all qualifying hospitals with less than
200 discharges was found to be most
consistent with the statutory
requirement to provide relief to lowvolume hospitals where there is
empirical evidence that higher
incremental costs are associated with
low numbers of total discharges.
However, section 1886(d)(12)(D) of the
Act, as added by the Affordable Care
Act, provides that, for discharges
occurring in FYs 2011 and 2012, the
Secretary shall determine the applicable
percentage increase using a continuous
linear sliding scale ranging from an
additional 25-percent payment
adjustment for hospitals with 200 or
fewer Medicare discharges to a 0percent additional payment adjustment
for hospitals with more than 1,600
Medicare discharges.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50238 through 50275 and
50414), we revised our regulations at 42
CFR 412.101 to reflect the changes to
the payment adjustment for low-volume
hospitals provided for by the provisions
of the Affordable Care Act. We also
clarified the existing regulations to
indicate that a hospital must continue to
qualify as a low-volume hospital in
order to receive the payment adjustment
in that year; that is, it is not based on
a one-time qualification. Furthermore,
we established a procedure for a
hospital to request low-volume hospital
status.
Specifically, in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50238 and
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50414), we revised our regulations at
§ 412.101(b)(2)(ii) to provide that, to
qualify for the low-volume payment
adjustment in FYs 2011 and 2012, a
hospital must be located more than 15
road miles from the nearest subsection
(d) hospital. We also defined, at
§ 412.101(a), the term ‘‘road miles’’ to
mean ‘‘miles’’ as defined at
§ 412.92(c)(i). This change in the
qualifying criteria from 25 to 15 road
miles is applicable only for FYs 2011
and 2012, but the definition of ‘‘road
miles’’ continues to apply even after the
distance requirement reverts to 25 road
miles beginning in FY 2013.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50238 through 50239 and
50414), we revised our regulations at
§ 412.101(b)(2)(ii) to provide that, to
qualify for the low-volume adjustment
in FYs 2011 and 2012, a hospital must
have fewer than 1,600 ‘‘Medicare
discharges’’ during the fiscal year based
on the hospital’s Medicare discharges
from the most recently available
MedPAR data as determined by CMS.
We also revised the regulations to
specify at § 412.101(a) that the term
‘‘Medicare discharges’’ means a
‘‘discharge of inpatients entitled to
Medicare Part A, including discharges
associated with individuals whose
inpatient benefits are exhausted or
whose stay was not covered by
Medicare and also discharges of
individuals enrolled in a MA
organization under Medicare Part C.’’
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50240 through 50241), we
adopted a continuous linear sliding
scale equation to determine the lowvolume payment adjustment for FYs
2011 and 2012 for eligible low-volume
hospitals with Medicare discharges of
more than 200 and less than 1,600 (that
is, from 201 to 1,599 Medicare
discharges). Consistent with the statute,
for FYs 2011 and 2012 for eligible lowvolume hospitals with 200 or fewer
Medicare discharges, we established a
low-volume payment adjustment of 25
percent.
Under the regulations at
§ 412.101(c)(2), for FYs 2011 and 2012,
the low-volume adjustment is
determined as follows:
• Low-volume hospitals with 200 or
fewer Medicare discharges will receive
a low-volume adjustment of an
additional 25 percent for each
discharge.
• Low-volume hospitals with
Medicare discharges of more than 200
and fewer than 1,600 will receive for
each discharge a low-volume
adjustment of an additional percent
calculated using the formula: [(4/
14)¥(Medicare discharges/5600)]. For
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additional information on the
mathematical interpretation of this
formula, we refer readers to the FY 2011
IPPS/LTCH PPS final rule (75 FR
50241).
While we revised the qualifying
criteria and the payment adjustment for
low-volume hospitals for FYs 2011 and
2012, consistent with the amendments
made by the Affordable Care Act, we
also noted in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50240) that we did
not modify the process for requesting
and obtaining the low-volume hospital
payment adjustment. In general, 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 and, if so, the applicable
add-on percentage. The fiscal
intermediary or MAC and CMS may
review available data, in addition to the
data the hospital submits with its
request for low-volume hospital status,
in order to determine whether or not the
hospital meets the qualifying criteria.
3. Discharge Data Source To Identify
Qualifying Low-Volume Hospitals and
Calculate the Payment Adjustment
(Percentage Increase) for FY 2012
As described above, for FYs 2005
through 2010 and FY 2013 and
subsequent years, since the discharge
determination is made based on the
hospital’s number of total discharges,
the hospital’s most recently submitted
cost report is used to determine if the
hospital meets the criteria to receive the
low-volume payment adjustment in the
current year (§ 412.101(b)(2)(i)). For FYs
2011 and 2012, the hospital’s Medicare
discharges from the most recently
available MedPAR data, as determined
by CMS, are used to determine if the
hospital meets the discharge criteria to
receive the low-volume payment
adjustment in the current year
(§ 412.101(b)(2)(ii)). As also described
above, the applicable low-volume
percentage increase is determined using
a continuous linear sliding scale
equation that results in a low-volume
adjustment ranging from an additional
25 percent for hospitals with 200 or
fewer Medicare discharges to a 0
percent additional payment adjustment
for hospitals with 1,600 or more
Medicare discharges.
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50241), we established that,
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51679
for FY 2011, the low-volume payment
adjustment would be determined using
Medicare discharge data for FY 2009
from the March 2010 update of the
MedPAR files, as these were the most
recent available data. We also stated that
we expected to use Medicare claims
data from FY 2010 to determine the lowvolume payment adjustment for FY
2012, as these would be the most recent
available data at that time.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25941), we
proposed that, for FY 2012, qualifying
low-volume hospitals and their payment
adjustment would be determined using
Medicare discharge data from the most
recent update of the FY 2010 MedPAR
file, that is, the December 2010 update,
as these data were the most recent data
available at that time. We also proposed
that if more recent FY 2010 Medicare
discharge data are available (such as
data from the March 2011 update of the
MedPAR files), we would use such data
in the final rule. Table 14 in the
proposed rule (which was listed in
section VI. of the Addendum to the
proposed rule and available via the
Internet) listed the ‘‘subsection (d)’’
hospitals with fewer than 1,600
Medicare discharges based on the
December 2010 update of the FY 2010
MedPAR files and their proposed FY
2012 low-volume payment adjustment.
We noted that eligibility for the
proposed low-volume payment
adjustment for FY 2012 is also
dependent upon meeting (if the hospital
is qualifying for the low-volume
payment adjustment for the first time in
FY 2012), or continuing to meet (if the
hospital qualified in FY 2011) the
mileage criteria specified at
§ 412.101(b)(2)(ii). In addition, we
proposed a procedure for a hospital to
request low-volume hospital status for
FY 2012 (as described below).
Comment: Commenters supported the
proposal to update the Medicare
discharge data upon which to base the
low-volume hospital adjustment for FY
2012 (we note that there were no public
comments opposed to the proposal). In
addition, a few commenters urged CMS
to explore ways to continue increased
payments to the hospitals that received
additional payments in FYs 2011 and
2012 under the temporary expansion of
the low-volume hospital adjustment
provided for by the Affordable Care Act
rather than revert to the prior lowvolume hospital adjustment policy for
FY 2013 and subsequent years.
Response: We appreciate the
commenters’ support. We are finalizing
our proposal to determine the FY 2012
low-volume hospitals and their payment
adjustments based on the number of
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Medicare discharges from the most
recent update of the FY 2010 MedPAR
file. Specifically, we will make these
determinations using the March 2011
update, as these data are the most recent
data available. Table 14, which is
referenced in section VI. of the
Addendum to this final rule and
available via the Internet on the CMS
Web site, lists the ‘‘subsection (d)’’
hospitals with fewer than 1,600
Medicare discharges based on the March
2011 update of the FY 2010 MedPAR
file and their payment adjustments for
FY 2012. The eligibility for the lowvolume payment adjustment for FY
2012 is also dependent upon meeting (if
the hospital is qualifying for the lowvolume payment adjustment for the first
time in FY 2012), or continuing to meet
(if the hospital qualified in FY 2011) the
mileage criteria specified at
§ 412.101(b)(2)(ii).
With regard to commenters who urged
CMS to explore ways to continue the
enhanced low-volume hospital payment
adjustment beyond FYs 2011 and 2012,
we note that the statute restricts the
temporary increases in the low-volume
payment adjustments to FYs 2011 and
2012. Therefore, beginning with FY
2013, the low-volume hospital
qualifying criteria and the amount of the
payment adjustment to such hospitals
will revert back to those policies that
were in effect prior to the amendments
made by the Affordable Care Act.
We note that the list of hospitals with
fewer than 1,600 Medicare discharges in
Table 14 does not reflect whether or not
the hospital meets the mileage criterion,
and a hospital also must be located
more than 15 road miles from any other
IPPS hospital in order to qualify for a
low-volume hospital payment
adjustment in FY 2012.
In order to receive a low-volume
hospital 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,
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
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whether or not the hospital meets the
low-volume mileage criterion. In
addition, the fiscal intermediary or
MAC will refer to the hospital’s
Medicare discharge data determined by
CMS (for FY 2012 as shown in Table 14
of this final rule (which is listed in
section VI. of the Addendum to this
final rule and available via the
Internet)), to determine whether or not
the hospital meets the discharge
criterion, and the amount of the
payment adjustment, once it is
determined that both the mileage and
discharge criteria are met. The Medicare
discharge data shown in Table 14, as
well as the Medicare discharge data for
all ‘‘subsection (d)’’ hospitals with
claims in the March 2011 update of the
FY 2010 MedPAR file, is also available
on the CMS Web site for hospitals to
check their Medicare discharges to help
them to decide whether or not to apply
for low-volume hospital status.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25941), we
proposed that for FY 2012, a hospital
must make its request for low-volume
hospital status in writing to its fiscal
intermediary or MAC by September 1,
2011, in order for the applicable lowvolume percentage add-on to be applied
to payments for its discharges beginning
on or after October 1, 2011. This
proposal is similar to the policy we
established in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 20574 through
20575). We did not receive any public
comments on this proposed procedure.
Therefore, in this final rule, we are
finalizing this procedure for a hospital
to request low-volume hospital status
for FY 2012. We also are finalizing our
proposal that a hospital that qualified
for the low-volume payment adjustment
in FY 2011 may continue to receive a
low-volume payment adjustment in FY
2012, without reapplying, if it continues
to meet the Medicare discharge
criterion, based on the latest available
FY 2010 MedPAR data (as finalized
above and shown in Table 14) and the
distance criterion. However, the
hospital must verify in writing to its
fiscal intermediary or MAC that it
continues to be more than 15 miles from
any other ‘‘subsection (d)’’ hospital no
later than September 30, 2011. Further,
similar to the policy we established for
FY 2011 (Transmittal 2060, Change
Request 7134; October 1, 2010), we are
finalizing our proposal with regard to
requests for low-volume hospital status
for FY 2012 received after September 1,
2011. In such cases, if the hospital
meets the criteria to qualify as a lowvolume hospital, the fiscal intermediary
or MAC will apply the applicable low-
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volume adjustment in determining
payments to the hospital’s FY 2012
discharges prospectively within 30 days
of the date of the fiscal intermediary’s
or MAC’s low-volume status
determination.
F. Indirect Medical Education (IME)
Adjustment (§ 412.105)
1. Background
Section 1886(d)(5)(B) of the Act
provides for an additional payment
amount under the IPPS for hospitals
that have residents in an approved
graduate medical education (GME)
program in order to reflect the higher
indirect patient care costs of teaching
hospitals relative to nonteaching
hospitals. The regulations regarding the
calculation of this additional payment,
known as the indirect medical
education (IME) adjustment, are located
at § 412.105.
Public Law 105–33 (BBA 1987)
established a limit on the number of
allopathic and osteopathic residents that
a hospital may include in its full-time
equivalent (FTE) resident count for
direct GME and IME payment purposes.
Under section 1886(h)(4)(F) of the Act,
for cost reporting periods beginning on
or after October 1, 1997, a hospital’s
unweighted FTE count of residents for
purposes of direct GME may not exceed
the hospital’s unweighted FTE count for
its most recent cost reporting period
ending on or before December 31, 1996.
Under section 1886(d)(5)(B)(v) of the
Act, a similar limit on the FTE resident
count for IME purposes is effective for
discharges occurring on or after October
1, 1997. Changes to the policies
regarding counting residents for both
IME and direct GME payment purposes
as a result of the implementation of
sections 5503 through 5506 of the
Affordable Care Act were issued in a
final rule published in the Federal
Register on November 24, 2010 (75 FR
72133).
2. IME Adjustment Factor for FY 2012
The IME adjustment to the MS–DRG
payment is based in part on the
applicable IME adjustment factor. The
IME adjustment factor is calculated by
using a hospital’s ratio of residents to
beds, which is represented as r, and a
formula multiplier, which is
represented as c, in the following
equation: c × [{1 + r} .405¥1]. The
formula is traditionally described in
terms of a certain percentage increase in
payment for every 10-percent increase
in the resident-to-bed ratio.
Section 502(a) of Public Law 108–173
modified the formula multiplier (c) to be
used in the calculation of the IME
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adjustment. Prior to the enactment of
Public Law 108–173, the formula
multiplier was fixed at 1.35 for
discharges occurring during FY 2003
and thereafter. In the FY 2005 IPPS final
rule, we announced the schedule of
formula multipliers to be used in the
calculation of the IME adjustment and
incorporated the schedule in our
regulations at § 412.105(d)(3)(viii)
through (d)(3)(xii). Section 502(a)
modified the formula multiplier
beginning midway through FY 2004 and
provided for a new schedule of formula
multipliers for FYs 2005 and thereafter
as follows:
• For discharges occurring on or after
April 1, 2004, and before October 1,
2004, the formula multiplier is 1.47.
• For discharges occurring during FY
2005, the formula multiplier is 1.42.
• For discharges occurring during FY
2006, the formula multiplier is 1.37.
• For discharges occurring during FY
2007, the formula multiplier is 1.32.
• For discharges occurring during FY
2008 and fiscal years thereafter, the
formula multiplier is 1.35.
Accordingly, for discharges occurring
during FY 2012, the formula multiplier
is 1.35. We estimate that application of
this formula multiplier for the FY 2012
IME adjustment will result in an
increase in IPPS payment of 5.5 percent
for every approximately 10-percent
increase in the hospital’s resident-to-bed
ratio.
Comment: Several commenters
supported CMS’ proposal to maintain
the IME formula multiplier at 1.35.
Commenters stated they support the
continued IME adjustment factor
because IME payments are an important
part of guaranteeing both a strong
cardiothoracic surgery and general
surgery workforce, both of which are
currently facing increasing shortages.
Another commenter stated that it
supported maintaining the current level
of IME payments because it is an
important funding source for safety net
teaching hospitals.
Response: We appreciate the
commenters’ support. We note that the
IME formula multiplier is set by
Congress; any change to the multiplier
would require a legislative change.
Therefore, we are finalizing our
proposal that the IME formula
multiplier for FY 2012 be set at 1.35,
which we estimate will result in an
increase in IPPS payments of 5.5
percent for every approximately 10percent increase in the hospital’s
resident-to-bed ratio.
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G. Payment Adjustment for Medicare
Disproportionate Share Hospitals
(DSHs) and Indirect Medical Education
(IME) (§§ 412.105 and 412.106)
1. Background
Section 1886(d)(5)(F) of the Act
provides for additional Medicare
payments to subsection (d) hospitals
that serve a significantly
disproportionate number of low-income
patients. The Act specifies two methods
by which a hospital may qualify for the
Medicare disproportionate share
hospital (DSH) adjustment. Under the
first method, hospitals that are located
in an urban area and have 100 or more
beds may receive a Medicare DSH
payment adjustment if the hospital can
demonstrate that, during its cost
reporting period, more than 30 percent
of its net inpatient care revenues are
derived from State and local
government payments for care furnished
to needy patients with low incomes.
This method is commonly referred to as
the ‘‘Pickle method.’’
The second method for qualifying for
the DSH payment adjustment, which is
the most common, is based on a
complex statutory formula under which
the DSH payment adjustment is based
on the hospital’s geographic
designation, the number of beds in the
hospital, and the level of the hospital’s
disproportionate patient percentage
(DPP). A hospital’s DPP is the sum of
two fractions: the ‘‘Medicare fraction’’
and the ‘‘Medicaid fraction.’’ The
Medicare fraction (also known as the
‘‘SSI fraction’’ or ‘‘SSI ratio’’) is
computed by dividing the number of the
hospital’s inpatient days that are
furnished to patients who were entitled
to both Medicare Part A (including
patients who are enrolled in a Medicare
Advantage (Part C) plan) and
Supplemental Security Income (SSI)
benefits by the hospital’s total number
of patient days furnished to patients
entitled to benefits under Medicare Part
A (including patients who are enrolled
in a Medicare Advantage (Part C) plan).
The Medicaid fraction is computed by
dividing the hospital’s number of
inpatient days furnished to patients
who, for such days, were eligible for
Medicaid, but were not entitled to
benefits under Medicare Part A, by the
hospital’s total number of inpatient days
in the same period.
Because the DSH payment adjustment
is part of the IPPS, the DSH statutory
references (under section 1886(d)(5)(F)
of the Act) to ‘‘days’’ apply only to
hospital acute care inpatient days.
Regulations located at § 412.106 govern
the Medicare DSH payment adjustment
and specify how the DPP is calculated
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51681
as well as how beds and patient days are
counted in determining the Medicare
DSH payment adjustment. Under
§ 412.106(a)(1)(i), the number of beds for
the Medicare DSH payment adjustment
is determined in accordance with bed
counting rules for the IME adjustment
under § 412.105(b).
As we did in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25942), we
are combining, under section IV.G.2. of
this preamble, our discussion of changes
to the policies for counting beds in
relation to the calculations for the IME
adjustment at § 412.105(b) and the DSH
payment adjustment at § 412.106(a)(1)(i)
and for counting patient days for
purposes of the DSH payment
adjustment at § 412.106(a)(1)(ii).
2. Policy Change Relating to the
Exclusion of Hospice Beds and Patient
Days From the Calculation of the
Medicare DSH Payment Adjustment and
the IME Payment Adjustment
a. Background
As discussed in the FY 2004 IPPS
final rule (68 FR 45415 through 45420),
when determining a hospital’s Medicare
DSH payment, our policy is to include
patient days in hospital units or wards
that would be directly included in
determining the allowable costs of
inpatient hospital care payable under
the IPPS on the Medicare cost report.
Under this policy, CMS uses the level of
care generally provided in such a unit
or ward as a proxy for determining the
level of care provided to a particular
patient on a particular day within that
unit. As stated in the FY 2004 IPPS final
rule, our policy is ‘‘not intended to
focus on the level or type of care
provided to individual patients in a
unit, but rather on the level and type of
care provided in the unit as a whole.’’
(68 FR 45417) In the FY 2005 IPPS final
rule, we amended this policy to
specifically exclude observation and
swing days from the patient day count.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25942 and 25943),
we proposed to establish an additional
exclusion with respect to counting bed
days and patient days for patients
receiving hospice services in an
inpatient setting of a hospital.
b. Hospice Inpatient Services
Section 1861(dd)(1) of the Act defines
hospice care to include a limited set of
‘‘items and services provided to a
terminally ill individual by, or by others
under arrangements made by, a hospice
program under a written plan (for
providing such care to such individual)
established and periodically reviewed
by the individual’s attending physician
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and by the medical director.’’ Among
those items and services specified under
section 1861(dd)(1)(G) of the Act is
‘‘short-term inpatient care (including
both respite care and procedures
necessary for pain control and acute and
chronic symptom management) in an
inpatient facility meeting such
conditions as the Secretary determines
to be appropriate to provide such care,
but such respite care may be provided
only on an intermittent, nonroutine, and
occasional basis and may not be
provided consecutively over longer than
five days.’’ Based on these statutory
definitions of hospice care, the
Secretary, through regulation at
§ 418.302, has grouped hospice care
services into four categories for payment
purposes. Two of these payment
categories describe hospice services in
an inpatient setting: Inpatient respite
care day and general inpatient care day.
Section 418.302(b)(3) of the
regulations defines an inpatient respite
care day as ‘‘a day on which the
individual who has elected hospice care
receives care in an approved facility on
a short-term basis for respite.’’ Section
40.2.2 of Chapter 9 of the Medicare
Benefit Policy Manual (https://
www.cms.gov/manuals/Downloads/
bp102c09.pdf) further describes an
inpatient respite care day as a shortterm inpatient day provided only when
necessary to relieve family members or
other caregivers caring for the
individual at home. Under the Act,
inpatient respite care is limited to 5
consecutive days for a given stay.
Similarly, the regulations at
§ 418.302(b)(4) describe a general
inpatient care day as ‘‘a day on which
an individual who has elected hospice
care receives general inpatient care in
an inpatient facility for pain control or
acute or chronic symptom management
which cannot be managed in other
settings.’’
Section 40.1.5 of Chapter 9 of the
Medicare Benefit Policy Manual
provides that general inpatient care is
appropriate when care for pain control
or acute or chronic symptom
management cannot feasibly be
provided in another setting. This section
of the Medicare Benefit Policy Manual
further states that such care is ‘‘not
equivalent to a hospital level of care.’’
That hospice care is not hospital level
care is further supported by the
provision at § 418.202(e), which
provides that general inpatient care and
inpatient respite care hospice services
can be ‘‘provided in a participating
hospice inpatient unit, or a participating
hospital or [skilled nursing facility], that
additionally meets the standards in
§ 418.202(a) and (e) regarding staffing
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and patient areas * * * [and] must
conform to the [hospice provider’s]
written plan of care.’’
Furthermore, hospice services
provided in an inpatient hospital setting
are not payable under the IPPS. Rather,
at this time, these services are payable
under two of the four prospectively
determined all-inclusive categories of
care under the hospice payment system.
In the FY 2004 IPPS final rule (68 FR
45418), we stated that we believed it
‘‘reasonable to interpret the phrase
‘hospital’s patient days,’ to mean only
the hospital’s inpatient days at a level
of care that would be covered under the
IPPS as a means to determine an IPPS
payment adjustment.’’ In that rule, we
acknowledged that it would be
‘‘administratively inefficient and
impracticable’’ to calculate a hospital’
inpatient days based on a determination
of whether a particular patient in a
particular inpatient bed for a particular
stay is receiving a level of care that
would be covered under the IPPS (68 FR
45418). Accordingly, we adopted a
policy under which we use the level of
care that is generally provided in
particular units or wards as a proxy for
determining whether the care provided
to a particular patient is of a type that
would be covered under the IPPS.
However, we have recognized
exceptions to this policy for certain
categories of nonacute care, even if that
care is provided in an acute care unit.
Therefore, in the FY 2012 IPPS/LTCH
PPS proposed rule, we proposed to
revise § 412.106(a)(1)(ii) to exclude
patient days associated with hospice
patients receiving inpatient hospice
services in an inpatient hospital setting
from the Medicare and Medicaid
fractions of the DPP. We also proposed
to amend our cost reporting instructions
accordingly. Our proposal to exclude
hospice inpatient days was analogous to
our decision in the FY 2005 IPPS final
rule to exclude observation and swingbed days from the Medicare and
Medicaid fractions of the DPP. In that
rule, we stated that our policies to
exclude observation days and swing-bed
days from the count of patient days
‘‘stem from the fact that although the
services are provided in beds that would
otherwise be available to provide an
IPPS level of services, these days are not
payable under the IPPS * * *’’ (69 FR
49097). Similarly, our proposal to
exclude inpatient hospice days
stemmed from the fact that these days
are not acute care services generally
payable under the IPPS.
We noted in the proposed rule that,
on rare occasions, patients receiving
care under a third payment category,
routine home care, may also receive
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services in an inpatient hospital setting.
Unlike inpatient respite care or general
inpatient services, routine home care
services are not intended to be provided
in a hospital setting. For the same
reasons stated above, such days should
also be excluded from the Medicare and
Medicaid fractions of the DPP.
We also proposed to exclude from the
hospital’s bed count days associated
with hospice patients who receive
inpatient hospice services in the
hospital for purposes of both the IME
payment adjustment and the DSH
payment adjustment. The rules for
counting hospital beds for the purposes
of the IME adjustment are codified in
the IME regulations at § 412.105(b),
which is cross-referenced in
§ 412.106(a)(1)(i) for purposes of the
DSH payment adjustment. Our bed
counting policy is to include bed days
available for IPPS-level acute care
hospital services. Inpatient hospice
services provided in an acute unit or
ward are occasional, alternative uses of
acute inpatient beds that would
otherwise be considered available for
IPPS-level acute care hospital services
(as long as other criteria for a bed to be
considered as an available bed are met
under § 412.105(b)). A bed used for
inpatient hospice services on a given
day is not available to be used for IPPSlevel services. Therefore, we proposed
to revise § 412.105(b)(4) to state that
such hospice days are excluded from
the counts of available beds for
purposes of the IME payment
adjustment. Because the same rules
govern the counting of available beds for
purposes of the DSH payment
adjustment under § 412.106(a)(1)(i),
under the proposal, hospice days would
also be excluded from the count of
available beds for purposes of the DSH
payment adjustment.
In the proposed rule, we noted that
there is a circumstance in which a
hospital will provide IPPS-level acute
care hospital services to a hospice
patient for which it would receive
payment under the IPPS. This occurs
when a Medicare beneficiary receiving
hospice care under his or her hospice
benefit requires acute care hospital
services to treat a condition unrelated to
his or her hospice plan of care. For
example, an individual who has elected
the hospice benefit could be treated in
the inpatient hospital setting for a
condition or illness, such as a broken
bone, that is unrelated to his or her
terminal illness. Under these
circumstances, the patient is receiving
acute care hospital services of the sort
payable under the IPPS. As such,
consistent with § 412.106(a)(1)(ii), we
did not propose to exclude these patient
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days from the Medicare and Medicaid
fractions of the DPP or from the count
of available beds under § 412.105(b)(4)
and § 412.106(a)(1)(i).
We further noted that hospitals may
have hospice units that are separate and
distinct from their acute care inpatient
units. Under existing regulations at
§ 412.105(b)(3) and
§ 412.106(a)(1)(ii)(A), services provided
in distinct nonacute care inpatient units
are excluded from the patient day and
bed day count. Our proposal with
respect to inpatient hospice services did
not change or affect this policy.
Comment: Several commenters
believed that the proposal would have
an immaterial impact on providers’ DSH
payment adjustments while creating an
unnecessary administrative burden to
the extent that providers would have to
take steps to identify the excluded days.
The commenters requested that CMS
reevaluate the administrative burden
created by the need to identify hospice
days in light of what the commenters
describe as the immaterial impact of
hospice days on the DSH payment
adjustments.
Response: We do not agree with the
commenters that our proposal would
create an undue administrative burden
for providers. Hospitals already identify
hospice patients for the purpose of
billing and payment. Because hospice
patients in an inpatient setting are
already being specifically identified for
other purposes, we do not believe it
would be an undue administrative
burden for hospitals to identify and
exclude these patients for purposes of
the DSH payment adjustment.
Comment: Commenters requested
clarification regarding the effective date
of the proposal, including whether the
regulation change is intended to be
prospective. The commenters also
questioned whether the change in
policy would be reflected on the cost
report.
Response: Our proposal to exclude
hospice bed days from the calculation of
the DSH payment adjustment is a
regulation change that will be effective
for cost reporting periods beginning on
or after October 1, 2011. As we stated
in the proposed rule, we plan to amend
the cost reporting instructions to reflect
our change in policy.
Comment: A few commenters
requested that CMS not apply the
intern-to-resident bed (IRB) ratio cap
with respect to the proposed removal of
hospice bed days from the calculation of
the DSH payment adjustment. Instead,
the commenters requested that hospitals
be allowed to exclude these inpatient
hospice days from their prior year’s IRB
ratio for purposes of applying that ratio
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as the cap on the hospital’s current year
IRB ratio.
Response: We believe the commenters
are referring to a provision that was
included in the Balanced Budget Act of
1997, known as the cap on the intern
and resident-to-bed (IRB) ratio that is
applicable to the IME payment that
teaching hospitals receive under the
IPPS. Under section 1886(d)(5)(B)(vi)(I)
of the Act, and implemented in the
regulations at § 412.105(a)(1)(i), a
hospital’s IRB ratio in the current cost
reporting period generally cannot
exceed, or is capped by, the value of the
IRB ratio in the preceding cost reporting
period. Therefore, if a teaching
hospital’s IRB ratio increases in the
current cost reporting period relative to
the prior cost reporting period, its
receipt of an increase in IME payment
as a result of that increase to the IRB
ratio is delayed by 1 year. Because,
effective for cost reporting periods
beginning on or after October 1, 2011,
certain inpatient hospice bed days are to
be excluded from the count of available
beds under § 412.105(b)(4), assuming
there are no changes in the FTE resident
count in the numerator of the IRB ratio
from the cost reporting period occurring
prior to October 1, 2011, a reduced bed
count in the cost reporting period that
begins on or after October 1, 2011, could
cause an increase in the IRB ratio.
However, because the prior cost
reporting period’s bed count would still
reflect the inclusion of the inpatient
hospital beds, the IRB ratio for the cost
reporting period that begins on or after
October 1, 2011 will be capped by the
lower IRB ratio from the preceding
period, thereby limiting the IME
payment somewhat for the cost
reporting period that begins on or after
October 1, 2011.
We do not agree with the commenters’
request to not apply the IRB ratio cap
with respect to inpatient hospice days
by permitting teaching hospitals to
exclude the inpatient hospice days from
the denominator of the IRB ratio of the
prior period. While it is true that the
law and regulations permit teaching
hospitals to make adjustments to their
prior year IRB ratios under certain
circumstances such as for Medicare
GME affiliation agreements, new
programs, or absorption of residents
displaced by another hospital’s closure,
we do not believe a similar exception is
warranted under this policy. In this
instance, no harm is occurring to either
the teaching hospital or residents in the
GME programs as a result of not
including the bed days of hospice
inpatients in the denominator of the IRB
ratio. Rather, it is simply a matter of
receiving an increased IME payment
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51683
immediately in the current cost
reporting period, or, through application
of the IRB ratio cap, on a 1-year delay
in the following cost reporting period.
In fact, the intent of the IRB ratio cap
is to modulate such changes in a
hospital’s IRB ratio from year to year.
Therefore, we are not waiving the IRB
ratio cap effective for cost reporting
periods that begin on or after October 1,
2011.
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
proposed rule. The referenced statutory
changes made by the Affordable Care
Act do not go into effect in FY 2012 and
were not addressed in this year’s
proposed rule.
After consideration of the public
comments we received, we are adopting
our proposed policies without
modifications. In summary, we are
excluding inpatient hospice days from
the patient day count under
§ 412.106(a)(1)(ii) (for DSH) and the bed
day count under § 412.105(b) (for IME)
and under § 412.106(a)(1)(i) (for DSH).
H. Medicare-Dependent, Small Rural
Hospitals (MDHs) (§ 412.108)
1. Background
Under the IPPS, separate special
payment protections are provided to a
Medicare-dependent, small rural
hospital (MDH). MDHs are paid for their
hospital inpatient services based on the
higher of the Federal rate or a blended
rate based in part on the Federal rate
and in part on the MDH’s hospitalspecific rate. Section 1886(d)(5)(G)(iv) of
the Act defines an MDH as a hospital
that is located in a rural area, has not
more than 100 beds, is not an SCH, and
has a high percentage of Medicare
discharges (that is, not less than 60
percent of its inpatient days or
discharges either in its 1987 cost
reporting year or in two of its most
recent three settled Medicare cost
reporting years). The regulations at 42
CFR 412.108 set forth the criteria that a
hospital must meet to be classified as an
MDH.
Although MDHs are paid under an
adjusted payment methodology, they are
still IPPS hospitals paid under section
1886(d) of the Act. Like all IPPS
hospitals paid under section 1886(d) of
the Act, MDHs are paid for their
discharges based on the DRG weights
calculated under section 1886(d)(4) of
the Act.
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Through and including FY 2006,
under section 1886(d)(5)(G) of the Act,
MDHs are paid based on the Federal rate
or, if higher, the Federal rate plus 50
percent of the amount by which the
Federal rate is exceeded by the updated
hospital-specific rate based on the
hospital’s FY 1982 or FY 1987 costs per
discharge, whichever of these hospitalspecific rates is higher. Section 5003(b)
of Public Law 109–171 (DRA 2005)
amended section 1886(d)(5)(G) of the
Act to provide that, for discharges
occurring on or after October 1, 2006,
MDHs are paid based on the Federal rate
or, if higher, the Federal rate plus 75
percent of the amount by which the
Federal rate is exceeded by the updated
hospital-specific rate based on FY 1982,
FY 1987, or FY 2002 costs per
discharge, whichever of these hospitalspecific rates is highest.
For each cost reporting period, the
fiscal intermediary or MAC determines
which of the payment options will yield
the highest aggregate payment. Interim
payments are automatically made at the
highest rate using the best data available
at the time the fiscal intermediary or
MAC makes the determination.
However, it may not be possible for the
fiscal intermediary or MAC to determine
in advance precisely which of the rates
will yield the highest aggregate payment
by year’s end. In many instances, it is
not possible to accurately forecast the
outlier payments, the amount of the
DSH adjustment or the IME adjustment,
all of which are applicable only to
payments based on the Federal rate and
not to payments based on the hospitalspecific rate. The fiscal intermediary or
MAC makes a final adjustment at the
settlement of the cost report after it
determines precisely which of the
payment rates would yield the highest
aggregate payment to the hospital.
If a hospital disagrees with the fiscal
intermediary’s or the MAC’s
determination regarding the final
amount of program payment to which it
is entitled, it has the right to appeal the
determination in accordance with the
procedures set forth in 42 CFR Part 405,
Subpart R, which govern provider
payment determinations and appeals.
2. Extension of the MDH Program
As we discussed in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50286 and
50287), section 3124 of the Affordable
Care Act extended the MDH program
from the end of FY 2011 (that is, for
discharges occurring before October 1,
2011) to the end of FY 2012 (that is, for
discharges occurring before October 1,
2012). Under prior law, as specified in
section 5003(a) of Public Law 109–171
(DRA 2005), the MDH program was to
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be in effect through the end of FY 2011
only. Section 3124(a) of the Affordable
Care Act amended sections
1886(d)(5)(G)(i) and 1886(d)(5)(G)(ii)(II)
of the Act to extend the MDH program
and payment methodology from the end
of FY 2011 to the end of FY 2012, by
striking ‘‘October 1, 2011’’ and inserting
‘‘October 1, 2012’’. Section 3124(b) of
the Affordable Care Act also made
conforming amendments to sections
1886(b)(3)(D)(i) and 1886(b)(3)(D)(iv) of
the Act. Section 3124(b)(2) of the
Affordable Care Act also amended
section 13501(e)(2) of OBRA 1993 to
extend the provision permitting
hospitals to decline reclassification as
an MDH through FY 2012. In the FY
2011 IPPS/LTCH PPS final rule (75 FR
50287 and 50414), we amended the
regulations at § 412.108(a)(1) and
(c)(2)(iii) to reflect the statutory
extension of the MDH program through
FY 2012. In the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25944), we
did not propose any additional changes
to this regulatory text for FY 2012.
We did not receive any public
comments regarding the extension of the
MDH program.
I. Certified Registered Nurse Anesthetist
(CRNA) Services Furnished in Rural
Hospitals and CAHs (§ 412.113)
Section 2312 of the Deficit Reduction
Act of 1984 (Pub. L. 98–369) provided
for reimbursement to hospitals on a
reasonable cost basis for the costs that
certain hospitals incur in connection
with the services of certified registered
nurse anesthetists (CRNAs). Section
2312(c) provided that pass-through
payment of CRNA costs was effective for
cost reporting periods beginning on or
after October 1, 1984, and before
October 1, 1987. Section 9320 of the
Omnibus Budget Reconciliation Act of
1986 (Pub. L. 99–509) (which
established a fee schedule for the
services of nurse anesthetists) amended
section 2312(c) of Public Law 98–369 by
extending the CRNA pass-through
provision through cost reporting periods
beginning before January 1, 1989. In
addition, Public Law 99–509 amended
section 1861 of the Act to add a new
subsection (bb), which provides that
CRNA services include anesthesia
services and related care furnished by a
CRNA. Section 1861(bb)(2) of the Act
states that the term ‘‘certified registered
nurse anesthetist’’ includes an
anesthesiologist assistant. Section 608 of
the Family Support Act of 1988 (Pub. L.
100–485) extended pass-through
payments for CRNA services through
1991 and amended section 9320 of
Public Law 99–509 by including
language referring to eligibility for pass-
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through payments for CRNA services if
the facility is ‘‘* * * a hospital located
in a rural area (as defined for purposes
of section 1886(d) of the Social Security
Act).’’ Reasonable cost-based payment
for CRNA services was extended
indefinitely by section 6132 of the
Omnibus Budget Reconciliation Act of
1989 (Pub. L. 101–239).
Section 1886(d) of the Act defines
‘‘rural’’ as any area outside an urban
area. This definition of ‘‘rural’’ was in
effect when Public Law 100–485 was
implemented. In 1999, the Balanced
Budget Refinement Act (Pub. L. 106–
113) amended section 1886(d)(8) of the
Act by adding a new subparagraph (E),
which permits a hospital physically
located in an urban area to apply for
reclassification to be treated as rural. In
addition, Public Law 106–113 made a
corresponding change to section
1820(c)(2)(B)(i) of the Act, which
specifies the rural location requirement
for CAH designation, by adding the
phrase ‘‘or is treated as being located in
a rural area pursuant to section
1886(d)(8)(E).’’
The regulations implementing passthrough payments for anesthesia
services and related care furnished by
qualified nonphysician anesthetists
(that is, both CRNAs and
anesthesiologist assistants) employed by
a hospital or CAH, are located at
§ 412.113(c). In the FY 2011 IPPS/LTCH
PPS proposed rule (75 FR 24010), we
proposed to revise § 412.113(c)(2)(i)(A)
to state that, effective for cost reporting
periods beginning on or after October 1,
2010, CAHs and hospitals that have
reclassified as rural pursuant to section
1886(d)(8)(E) of the Act and § 412.103 of
the regulations also are rural for
purposes of section 1886(d) of the Act
and, therefore, are eligible to be paid
based on reasonable cost for anesthesia
services and related care furnished by a
qualified nonphysician anesthetist.
After consideration of the public
comments, in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50303), we
adopted a policy that would allow
otherwise eligible critical access
hospitals (CAHs) or hospitals, that have
reclassified from urban to rural status
under section 1886(d)(8)(E) of the Act
and 42 CFR 412.103, to receive
reasonable cost payments for anesthesia
services and related care furnished by
qualified nonphysician anesthetists
(also referred to in this section as CRNA
pass-through payments), effective for
cost reporting periods beginning on or
after October 1, 2010. After the issuance
of the final rule, we received an inquiry
from a public commenter who indicated
that CMS had misunderstood its
submitted comment on the FY 2011
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IPPS/LTCH PPS proposed rule in which
the commenter stated that the policy
should be effective on the basis of a
calendar year, not a cost reporting
period, since as a rule a hospital can
only begin receiving CRNA passthrough payments at the beginning of a
calendar year. Our response to this
public comment in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50303)
indicated that it was unnecessary to
modify the effective date in the final
rule because ‘‘if the provision is
effective for cost reporting periods
beginning on or after October 1, 2010, it
will also be in effect for the calendar
year beginning January 1, 2011.’’ While
this statement was accurate, it did not
take into account that if a hospital’s cost
reporting period begins on or after
January 1, 2011, the hospital would be
ineligible to receive CRNA pass-through
payments until the beginning of the next
calendar year, on January 1, 2012.
Under the finalized policy in the FY
2011 IPPS/LTCH PPS final rule,
hospitals reclassifying from urban to
rural areas with cost reporting periods
beginning between October 1, 2010, and
December 31, 2010, would be able to
first receive CRNA pass-through
payments effective January 1, 2011,
while hospitals with cost reporting
periods beginning on or after January 1,
2011, would not be able to receive
CRNA pass-through payments until one
year later on January 1, 2012.
In an interim final rule with comment
period included in the Federal Register
on November 24, 2010 (75 FR 72256),
we stated that our intention in the FY
2011 IPPS/LTCH PPS final rule was not
to make the provision for CRNA passthrough payment for anesthesia services
and related care furnished by qualified
nonphysician anesthetists effective
January 1, 2011, for some hospitals and
CAHs and January 1, 2012, for other
hospitals and CAHs. We stated our
belief that the provision would be more
equitable if it had a uniform effective
date for all eligible hospitals and CAHs.
While we considered changing the
effective date to January 1, 2011, for all
hospitals and CAHs to begin receiving
CRNA pass-through payments under
this provision, we noted that our
regulations at 42 CFR 412.113(c)(2)(iii)
state that the hospital or CAH must
demonstrate to its fiscal intermediary
prior to the start of the calendar year
that it meets the requirements for
receiving CRNA pass-through payments.
For this reason, we stated our belief that
the best option was to adopt an effective
date of December 2, 2010, for all
hospitals and CAHs, which we provided
for in the interim final rule with
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comment period. With an effective date
of December 2, 2010, any hospital or
CAH, regardless of its specific fiscal
year beginning date, was provided the
opportunity to demonstrate prior to
January 1, 2011, that it met the
requirements for receiving CRNA passthrough payments beginning January 1,
2011. In the interim final rule with
comment period, we amended the
regulations at § 412.113(c)(2)(i)(A) to
provide for an effective date of
December 2, 2010, for all eligible
hospitals and CAHs to receive CRNA
pass-through payments for anesthesia
services and related care furnished by
qualified nonphysician anesthetists.
As we indicated in the FY 2012 IPPS/
LTCH PPS proposed rule, in this final
rule, we are responding to the one
public comment received on the interim
final rule with comment period and
setting forth our final policy.
Comment: One commenter supported
CMS’ decision to change the effective
date of the policy to December 2, 2010,
because this change will allow all
eligible hospitals and CAHs to begin
receiving CRNA pass-through payments
effective January 1, 2011.
Response: We appreciabe the
commenter’s support. In this final rule,
we are finalizing the effective date
established in the interim final rule with
comment period.
We received two additional comments
in response to the FY 2012 IPPS/LTCH
PPS proposed rule.
Comment: One commenter suggested
that CMS consider, for future
rulemaking, an increase in the limit on
the number of procedures and FTE
hours that a facility may have and
remain qualified for reasonable costbased reimbursement for services
furnished by qualified nonphysician
anesthetists. The commenter stated that
this increase would ensure better
coverage for emergency rooms and
surgery cases, which would support
patient services and improve patient
safety and efficiency of treatment.
Another commenter stated that while it
appreciated and supported changing the
regulations to permit CRNA passthrough payments for reclassified
hospitals, it urged CMS to permit
hospitals in Lugar counties the same
benefit.
Response: Because we did not
propose any further changes to the
CRNA pass-through payment policy in
the FY 2012 IPPS/LTCH PPS proposed
rule, we consider these comments to be
outside the scope of the proposed rule.
Therefore, we are not responding to
these comments in this final rule.
However, we may consider these public
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comments in the development of future
rulemaking.
After consideration of the public
comments we received, we are
finalizing the effective date of December
2, 2010, that was established in the
interim final rule with comment period.
Effective December 2, 2010, in addition
to hospitals and CAHs geographically
located in rural areas, as defined in
§ 412.62(f), and are not deemed to be
located in an urban area under
§ 412.64(b)(3), hospitals and CAHs that
have reclassified as rural under the
regulations at § 412.103 are also eligible
to receive CRNA pass-through
payments.
J. Additional Payments for Qualifying
Hospitals With Lowest Per Enrollee
Medicare Spending
1. Background
Section 1109 of the Affordable Care
Act requires additional payments for
FYs 2011 and 2012 for ‘‘qualifying
hospitals.’’ Section 1109(d) defines a
‘‘qualifying hospital’’ as a ‘‘subsection
(d) hospital * * * that is located in a
county that ranks, based upon its
ranking in age, sex and race adjusted
spending for benefits under parts A and
B * * * per enrollee within the lowest
quartile of such counties in the United
States.’’ Therefore, a ‘‘qualifying
hospital’’ is one that meets the following
conditions: (1) It is a ‘‘subsection (d)
hospital’’ as defined in section
1886(d)(1)(B) of the Act; and (2) it is
located in a county that ranks within the
lowest quartile of counties based upon
its spending for benefits under Medicare
Part A and Part B per enrollee adjusted
for age, sex, and race. Section 1109(b) of
the Affordable Care Act makes available
$400 million to qualifying hospitals for
FY 2011 and FY 2012. Section 1109(c)
of the Affordable Care Act requires the
$400 million to be divided among each
qualifying hospital in proportion to the
ratio of the individual qualifying
hospital’s FY 2009 IPPS operating
hospital payments to the sum of total FY
2009 IPPS operating hospital payments
made to all qualifying hospitals.
Section 1109 is one of several
provisions in the Affordable Care Act
that addresses concerns about how
Medicare makes adjustments for
geographic differences in the cost of
providing services and geographic
variation in the volume and intensity of
health care spending. Some other
provisions in the Affordable Care Act
that relate to concerns about geographic
variation in Medicare payments include:
• Section 3102(a), which provides a
floor of 1.0 on the physician fee
schedule work geographic practice cost
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index (GPCI) through the end of CY
2010 (later extended by the Medicare
and Medicaid Extension Act of 2010
through the end of CY 2011);
• Section 3102(b), as amended by
section 1108 of the Affordable Care Act,
which requires that only one-half of the
relative cost differences in employee
wages and office rents be reflected in
the practice expense GPCIs in 2010 and
2011;
• Section 10324, which provides for a
floor on the wage index and the practice
expense GPCI in frontier States (defined
as 50 percent or more of the counties in
the State having a population density of
less than 6 people per square mile).
These provisions provide temporary
adjustments in payments while other
initiatives are underway to evaluate
geographic adjustment factors that are
used in Medicare’s payment systems.
For instance, section 3101 of the
Affordable Care Act requires the
Secretary, not later than January 1, 2012,
to make appropriate adjustments to the
practice expense GPCI considering
alternative data sources such as the
American Community Survey for the
nonphysician employee portion of the
GPCI. Section 3137 of the Affordable
Care Act requires the Secretary to
submit to Congress a report that
includes a plan to reform the hospital
wage index system under section 1886
of the Act by December 31, 2011. In
addition to these provisions, the
Secretary has contracted with the
Institute of Medicine (IOM) to study the
hospital wage index and the physician
fee schedule GPCI. The IOM released its
first report to CMS on June 1, 2011. The
report provides an evaluation and
assessment of:
(1) The empirical validity of the
adjustment factors (the hospital wage
index and physician fee schedule GPCI);
(2) The methodology used to
determine the adjustment factors;
(3) Measures used for the adjustment
factors, taking into account—
• Timeliness of data and frequency of
revisions to such data;
• Sources of data and the degree to
which such data are representative of
costs; and
• Operational costs of providers who
participate in Medicare.
The report includes recommendations
for the Secretary to consider. It is
available on the Web site at: http://
iom.edu/Reports/2011/GeographicAdjustment-in-Medicare-PaymentPhase-I-Improving-Accuracy.aspx. We
are looking forward to reviewing IOM’s
report and acting expeditiously on its
recommendations to improve
Medicare’s payment systems and better
adjust for geographic differences in the
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cost of hospital labor as well as the cost
of operating a physician practice.
2. Methodology for Identifying
Qualifying Hospitals and Eligible
Counties
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50303 through 50342), we
finalized our methodology for
distributing the $400 million to
qualifying hospitals located in the
lowest quartile of counties in per
enrollee Medicare spending. First, we
provided our methodology for
determining the bottom quartile of
counties with the lowest Medicare Part
A and Part B spending adjusted by age,
sex, and race for the purpose of
disbursing the available $400 million.
We developed an adjustment model by
age, sex, and race, as required under the
provisions of section 1109. We then
applied this adjustment to the county
Medicare Part A and Part B spending
data to account for the demographics of
the Medicare beneficiaries in those
counties. After those adjustments were
applied, we determined the Medicare
Part A and Part B spending by county
per enrollee. As we explained in the
final rule, our methodology for
determining the Medicare Part A and
Part B spending per enrollee by county
adjusted for age, sex, and race is similar
to the methodology we use to calculate
risk adjustment models for Medicare
Advantage (MA) ratesetting. For more
information on the methodology we
used to calculate the county Medicare
per enrollee spending rates, we refer
readers to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50303 through 75 FR
50307).
In addition, in the FY 2011 IPPS/
LTCH PPS final rule, we developed a
methodology to identify the qualifying
hospitals located in each of the eligible
counties. As we stated earlier, section
1109 defines a qualifying hospital as a
‘‘subsection (d) hospital’’ (as defined for
purposes of section 1886(d) of the Act)
that is ‘‘located in’’ an eligible county.
A subsection (d) hospital is defined in
section 1886(d)(1)(B) of the Act, in part,
as a ‘‘hospital located in one of the 50
States or the District of Columbia.’’
Therefore, we excluded Puerto Rico
hospitals and CAHs from the provisions
of section 1109 because they do not
meet the definition of a ‘‘subsection (d)
hospital.’’
In the FY 2011 IPPS/LTCH PPS final
rule, we identified ‘‘qualifying
hospitals’’ based on their Medicare
provider number (now referred to as the
‘‘CMS certification number’’ (CCN))
because this number is used by
hospitals to identify themselves on their
Medicare cost reports. We also provided
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that, in order to meet the definition of
a ‘‘qualifying hospital,’’ the hospital, as
identified by its CCN, must: (1) Have
existed as a subsection (d) hospital as of
April 1, 2010; (2) be geographically
located in an eligible county; and (3)
have received IPPS operating payments
(in accordance with section 1886(d) of
the Act) under its CCN in FY 2009. We
used the Online Survey, Certification
and Reporting (OSCAR) database to
determine a hospital’s county location
associated with that CCN. We also
specified that the address listed for a
hospital’s CCN must be currently
located in a qualifying county in order
for a hospital to meet the definition of
a ‘‘qualifying hospital.’’ For more
information on how we identified the
qualifying hospitals, we refer readers to
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50307 and 50308). We note that
we did not propose to clarify, nor in this
final rule are we clarifying, the
application of our definition in section
IV.J.4. of this preamble.
3. Determination of Annual Payment
Amounts
The third step in the implementation
of section 1109 of the Affordable Care
Act required that we determine the
payment amount that each qualifying
hospital would receive. Specifically,
section 1109(c) of the Affordable Care
Act required that the payment amount
for a qualifying hospital be determined
‘‘in proportion to the portion of the
amount of the aggregate payments under
section 1886(d) of the Social Security
Act to the hospital for fiscal year 2009
bears to the sum of all such payments
to all qualifying hospitals for such fiscal
year.’’ As specified in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50310
through 50312), we determined that a
qualifying hospital’s payment amount
will be based on the proportion of its
IPPS operating payments made in FY
2009 under section 1886(d) of the Act
relative to the total IPPS operating
payments made to all qualifying
hospitals in FY 2009 under section
1886(d) of the Act. The FY 2009 IPPS
operating payments made under section
1886(d) of the Act includes DRG and
wage-adjusted payments made under
the IPPS standardized amount with addon payments for operating DSH,
operating IME, operating outliers, and
new technology (collectively referred to
in this preamble as the IPPS operating
payment amount). We used the March
2010 update of the FY 2009 MedPAR
hospital inpatient claims data to
determine the IPPS operating payment
amounts for each qualifying hospital in
order to calculate the proportion of
money that each qualifying hospital
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would receive under this provision. For
more information on the methodology
we used to calculate the payment
determinations, we refer readers to the
FY 2011 IPPS/LTCH PPS final rule (75
FR 50310 through 75 FR 50312).
4. Eligible Counties and Qualifying
Hospitals
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50312 through 50342), we
published the list of eligible counties,
that is, the lowest quartile of counties
with Medicare Part A and Part B
spending per enrollee adjusted for age,
sex, and race, the qualifying hospitals
located in those counties, and the
qualifying hospitals’ payment weighting
factors, for purposes of making
payments under section 1109 for FY
2011 and FY 2012. We identified 3,142
counties in the United States. Therefore,
there are 786 eligible counties (rounded
from 785.5 eligible counties). Of those
786 eligible counties, there are only 273
counties in which qualifying hospitals
are located, using the methodology that
we finalized in the FY 2011 IPPS/LTCH
PPS final rule. Using CCNs, we
identified 416 IPPS hospitals that are
currently located in those eligible
counties and that received IPPS
operating payments in FY 2009.
In response to public comments on
the FY 2011 IPPS/LTCH PPS proposed
rule, in the FY 2011 IPPS/LTCH PPS
final rule, we corrected the list of
eligible counties by replacing two
counties on our list of eligible counties
(adding Crooks County, OR and
Bottineu County, ND). However, we did
not identify any qualifying hospitals
located in those two eligible counties.
Therefore, we provided the public an
opportunity to notify CMS by August
30, 2010, if there were any qualifying
IPPS hospitals located in either of the
two newly added counties. We stated
that if we added qualifying hospitals in
these counties as a result of accurate
notification from the public, we would
publish a revised list of qualifying
hospitals and their payment weighting
factors on the CMS Web site after
August 30, 2010. We did not receive any
public comments that there were
qualifying hospitals located in Crooks
County, OR or Bottineu County, ND.
Therefore, the list of eligible counties
and qualifying hospitals that was
finalized in Tables 1 and 2 in the FY
2011 IPPS/LTCH PPS final rule
remained valid for distribution of
payments under section 1109 for FY
2011 and FY 2012.
In auditing our determination of
qualifying hospitals prior to the
distribution of payments for FY 2011,
we found that the following providers
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on the list of qualifying hospitals which
we finalized in the FY 2011 IPPS/LTCH
PPS final rule were not subsection (d)
hospitals in FY 2011:
CMS Certification No.
Provider name
110231 ...........
Landmark Hospital of Athens
LLC.
Bonner General Hospital.
SW Idaho Advanced Care.
Complex Care Hospital of
Idaho.
Continuing Care Hospital at
St. Luke’s.
Calhoun Health Services.
Select Specialty Hospital—
Springfield Inc.
Holy Rosary Healthcare.
Advanced Care of South
New Mexico.
Amsterdam Memorial Hospital.
Providence St. Peter Chemical Dependency Center.
130024 ...........
130069 ...........
130070 ...........
160156 ...........
250112 ...........
260221 ...........
270002 ...........
320088 ...........
330010 ...........
500143 ...........
Because these providers were not
subsection (d) hospitals in FY 2011, the
statute precludes them from being
qualifying hospitals eligible to receive
section 1109 payments for FY 2011. In
the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 25947), we proposed to
clarify that, in applying our definition of
qualifying hospitals for making
payments under section 1109 of the
Affordable Care Act, these 11 providers
(and other providers that do not meet
the statutory definition) are not
qualifying hospitals and, therefore, are
removed from the list of qualifying
hospitals. Furthermore, we proposed to
clarify that, in order to meet the
definition of ‘‘qualifying hospital’’
under section 1109 for FY 2012, a
hospital that is on the list of qualifying
hospitals in the proposed rule must
meet the statutory criteria of a
‘‘qualifying hospital’’ for some portion
of FY 2012 (a hospital must be a
subsection (d) hospital for some part of
FY 2012).
In addition, we noted that, prior to the
issuance of the FY 2012 final rule and
prior to making section 1109 payments
for FY 2012, we intend to review
providers’ status vis-a`-vis the statutory
definition of qualifying hospital.
Accordingly, we noted that, in this FY
2012 final rule and again prior to
distribution of section 1109 payments
for FY 2012, we would update the list
of qualifying hospitals and payment
weighting factors based on these
findings. We indicated that, in addition
to the opportunity to submit comments
on the proposed rule, we were
proposing to provide hospitals an
opportunity after the FY 2012 IPPS
rulemaking cycle to notify CMS whether
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51687
any qualifying hospitals removed from
the list have been removed in error and
to notify CMS if a hospital is on the list
of qualifying hospitals and will not be
a qualifying hospital (for example, a
subsection (d) hospital) for any or all
part of FY 2012. We also stated that the
public would be allowed to submit
input on these two topics via e-mail to
Nisha Bhat, [email protected].
All information, including relevant
documentation, must be received by
November 1, 2011.
5. Payment Determinations and
Distributions for FY 2011 and FY 2012
Under section 1109(b) of the
Affordable Care Act, the total pool of
payments available to qualifying
hospitals for FY 2011 and FY 2012 is
$400 million. In the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50308
through 50310), we stated that we
would distribute $150 million for FY
2011 and $250 million for FY 2012. We
stated that we would distribute
payments to the qualifying hospitals
through an annual one-time payment
during each of FY 2011 and FY 2012
through their Medicare contractor (fiscal
intermediary or MAC). We instructed
qualifying hospitals to report these
additional payments on their Medicare
hospital cost report corresponding to the
appropriate cost reporting period that
the hospitals receive the payments and
that hospitals should report these
payments on the ‘‘Other adjustment’’
line on Worksheet E, Part A of the
Medicare hospital cost report Form
2552. We noted that we require these
payments to be reported on the cost
report for tracking purposes only and
that these additional payments will not
be adjusted or settled by the fiscal
intermediary or MAC on the cost report.
In the FY 2012 IPPS/LTCH PPS
proposed rule, we noted that at the time
of the issuance of the proposed rule, we
had not yet made the payments to the
qualifying hospitals for FY 2011. As we
stated in the FY 2011 IPPS/LTCH PPS
final rule, and again in the FY 2012
proposed rule, we will make the FY
2011 payments during FY 2011 (that is,
by September 30, 2011). However, in the
proposed rule, we indicated that we
were notifying the public that we
intended to change the method we
would use to distribute the payment for
FY 2011 and FY 2012, in order to ease
the reporting burden on hospitals.
Rather than making a one-time annual
payment to the qualifying hospitals
through their Medicare contractor using
the Medicare cost report, in the
proposed rule, we indicated that we
planned to make payments to the
qualifying hospitals through a one-time
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annual payment made by one Medicare
contractor who would directly pay all of
the qualifying hospitals. We stated that
we would send each qualifying hospital
a letter stating the specifics of how the
hospital will receive its payments.
Because these one-time annual
payments would be made through a
special process outside of the scope of
normal payments by their Medicare
contractor, the hospitals’ Medicare
contractor would no longer need to
track the payment amounts made to the
hospitals under this provision. We
believed this would simplify and
expedite the payment process so that
one Medicare contractor is responsible
for overseeing the distribution of
payments. In addition, we believed that
this simplified process would ease the
administrative burden within CMS to
track that payments have been properly
made to the qualifying hospitals. In
addition, the burden to hospitals is
reduced because hospitals would no
longer have to report these additional
payments on their Medicare hospital
cost report corresponding to the
appropriate cost reporting period for
which the hospitals receive payments in
FY 2011 or FY 2012 (as we instructed
in the FY 2011 IPPS/LTCH PPS final
rule and note above).
In the FY 2011 IPPS/LTCH PPS final
rule, we also stated that we would make
only one determination of eligible
counties and qualifying hospitals for FY
2011 and FY 2012, with the caveat that
we would accept additional public
input on the limited issue of whether
there are any qualifying hospitals in the
two newly identified eligible counties.
As we stated earlier, we did not receive
any public input on qualifying hospitals
for the two newly identified eligible
counties. However, as we describe
above, 11 hospitals that were included
on the list of qualifying hospitals do not
meet the statutory criteria in section
1109 of the Affordable Care Act.
Therefore, in the proposed rule, we
proposed to revise our list of qualifying
hospitals and their payment weighting
factors finalized in the FY 2011 IPPS/
LTCH PPS final rule to exclude these 11
hospitals. As explained in the FY 2011
IPPS/LTCH PPS final rule, we finalized
in that rule (to the best of our ability)
the list of eligible counties and
qualifying hospitals once for ease of
implementation of the section 1109
provision and to allow hospitals to plan
their budgets accordingly. We indicated
that the proposed revision of our
determination to exclude these 11
hospitals would result in changes to the
payment weighting factors. We
proposed to update the payment
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weighting factors accordingly.
Therefore, we proposed to distribute the
remaining $250 million in FY 2012 to
those qualifying hospitals included in
the proposed rule based on the payment
weighting factors proposed in the
proposed rule. In addition, in order to
distribute the section 1109 payments for
FY 2011 in as timely a manner as
possible, we indicated that we intended
to make preliminary section 1109
payments for FY 2011 using the
proposed list of qualifying providers
and payment weighting factors using the
payment method described above. We
stated that if additional hospitals are
deleted from the proposed list of
qualifying hospitals for FY 2011 because
they do not meet the statutory criteria,
the payment weighting factors would
need additional revision. If this
situation occurs, we proposed to further
amend the payment weighting factors
for payments to be made in FY 2012 so
that each qualifying hospital receives its
appropriate share of the total $400
million.
We referred readers to the CMS Web
site at: http://www.cms.gov/Acute
InpatientPPS/TopOfPage for the tables
listed below. The tables were included
collectively as the ‘‘Section 1109 Files’’
for the FY 2012 IPPS/LTCH proposed
rule.
• The final list of eligible counties
that was published in the FY 2011 IPPS/
LTCH PPS final rule. We noted that we
were not updating this table.
• The finalized list of qualifying
hospitals, location, and payment
weighting factors (based on the March
2010 update of the FY 2009 MedPAR
file); based on the proposed
clarifications described above for FY
2011.
• The distribution of the $400 million
for FY 2011 and FY 2012 by State based
on the proposed list of qualifying
hospitals, location, and payment
weighting factors.
We noted that the Web address for
this Web site was effective as of April
19, 2011, and that, in the future, these
tables may be archived to the Web site
at: http://www.cms.gov/AcuteInpatient
PPS/FFD/list.asp#TopOfPage.
Comment: Commenters supported
CMS’ continuation of its policy to
distribute the remaining of the $400
million allocated under the provision of
section 1109 of the Act in FY 2012.
Commenters also supported CMS’
proposal to make one-time annual
payments through one Medicare
contractor rather than individual
Medicare contractors. Commenters
asked CMS to provide the name and the
contact information of the contractor
who will be making the one-time annual
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payments to the qualifying hospitals. In
addition, commenters urged CMS to
notify the qualifying hospitals of the
timing of their FY 2011 and FY 2012
payments.
Response: We appreciate the
commenters’ support of the
implementation of the section 1109
provision. Qualifying hospitals received
their share of the $150 million for their
FY 2011 payments on July 14, 2011. The
payments were made directly to the
hospitals by one Medicare contractor.
We will continue this payment process
for FY 2012. If hospitals have questions
with regard to this process, they can
contact their Medicare contractor or
CMS directly.
As we proposed, we are providing
hospitals, in addition to the opportunity
to submit comments on the proposed
rule, the opportunity after the FY 2012
IPPS rulemaking cycle to notify CMS as
to whether any qualifying hospitals
removed from the list have been
removed in error and to notify CMS if
a hospital is on the list of qualifying
hospitals and will not be a qualifying
hospital (for example, a subsection (d)
hospital) for any part of FY 2012. The
public is allowed to submit input on
these two topics via e-mail to Nisha
Bhat, [email protected] by
November 1, 2011. Given the November
1, 2011 deadline for hospitals to
comment on the list of qualifying
hospitals to receive section 1109
payments for FY 2012, we plan to
distribute $250 million to the qualifying
hospitals for FY 2012 in the end of 2011
or early 2012.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25947), we
identified 11 providers that were not
subsection(d) hospitals in FY 2011 and,
therefore, do not qualify to receive
section 1109 payments for FY 2011. In
preparation of this final rule, we again
reviewed our list of qualifying hospitals
and have found that an additional
hospital, Columbia Regional Hospital
(CNN 260178), has not been a
subsection(d) hospital for any part of FY
2011 and, therefore, does not meet the
statutory criteria to receive payments
under section 1109 for FY 2011 and FY
2012. We have revised the list of
qualifying hospitals and their payment
weighting factors for FY 2011
accordingly. In addition, we found that
the following hospitals have converted
to become CAHs during FY 2011 and
will not be subsection (d) hospitals in
FY 2012.
CMS Certification No.
200032 .........
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Provider name
Stephens Memorial Hospital.
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CMS Certification No.
320069 .........
Provider name
Miners’ Colfax Medical Center.
Thus, these two hospitals will receive
payments under section 1109 for FY
2011 but they will no longer qualify to
receive payments for FY 2012. We have
posted the list of qualifying hospitals
and payment weighting factors for FY
2012 on the CMS Web site.
We refer readers to the CMS Web site
at: http://www.cms.gov/AcuteInpatient
PPS/TopOfPage for the tables listed
below. The tables are included
collectively as the ‘‘Section 1109 Files’’
for the FY 2012 IPPS/LTCH final rule.
• The final list of eligible counties
that was published in the FY 2011 IPPS/
LTCH PPS final rule. We note that we
were not updating this table.
• The finalized list of qualifying
hospitals, location, and payment
weighting factors (based on the March
2010 update of the FY 2009 MedPAR
file); based on the clarifications
finalized above for FY 2011.
• The proposed list of qualifying
hospitals, location, and payment
weighting factors (based on the March
2010 update of the FY 2009 MedPAR
file) based on the clarifications above for
FY 2012. The final list of qualifying
hospitals, location, and payment
weighting factors for FY 2012 will be
posted after comments on the accuracy
of the list of qualifying hospitals are
received and evaluated after November
1, 2011.
• The distribution of the $400 million
for FY 2011 and FY 2012 by State based
on the proposed list of qualifying
hospitals, location, and payment
weighting factors.
The Web address for this Web site is
effective on the date of display of this
final rule and, in the future, these tables
may be archived to the Web site at:
http://www.cms.gov/
AcuteInpatientPPS/FFD/
list.asp#TopOfPage.
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K. Changes in the Inpatient Hospital
Update
1. FY 2012 Inpatient Hospital Update
In accordance with section
1886(b)(3)(B)(i) of the Act, each year we
update the national standardized
amount for hospital 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
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hospitals’’) in all areas, subject to the
hospital submitting quality information
under rules established by the Secretary
in accordance with section
1886(b)(3)(B)(viii) of the Act. For
hospitals that did not provide these
data, the update was equal to the market
basket percentage increase less an
additional 2.0 percentage points. The
update for the hospital-specific rates for
SCHs and MDHs is set by section
1886(b)(3)(B)(iv) of the Act as discussed
further below.
As discussed below in section IV.K.3.
of this preamble, section 1886(b)(3)(B)
of the Act, as amended by sections
3401(a) and 10319(a) of the Affordable
Care Act, sets the applicable percentage
increase under the IPPS for FY 2012 as
equal to the rate-of increase in the
hospital market basket for IPPS
hospitals in all areas (which is currently
based on the second quarter 2011
forecast of the FY 2006-based IPPS
market basket), subject to a reduction of
2.0 percentage points if the hospital fails
to submit quality information under
rules established by the Secretary in
accordance with section
1886(b)(3)(B)(viii) of the Act, and then
subject to an adjustment based on
changes in economy-wide productivity
(the multifactor productivity (MFP)
adjustment), and an additional
reduction of 0.1 percentage point.
Sections 1886(b)(3)(B)(xi) and
(b)(3)(B)(xii) of the Act, as added by
section 3401(a) of the Affordable Care
Act, state that application of the MFP
adjustment and the additional FY 2012
adjustment of 0.1 percentage point may
result in the applicable percentage
increase being less than zero.
In accordance with section
1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care
Act, in the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25949), based on
IHS Global Insight, Inc.’s (IGI’s) first
quarter 2011 forecast of multifactor
productivity (MFP), we proposed an
MFP adjustment (the 10-year moving
average of MFP for the period ending FY
2012) of 1.2 percent.
Consistent with current law, and
based on IGI’s first quarter 2011 forecast
of the FY 2012 market basket increase,
we proposed an applicable percentage
increase to the FY 2012 operating
standardized amount of 1.5 percent (that
is, the FY 2012 estimate of the market
basket rate-of-increase of 2.8 percent
less an adjustment of 1.2 percentage
points for economy-wide productivity
and less 0.1 percentage point) for
hospitals in all areas, provided the
hospital submits quality data in
accordance with our rules. For hospitals
that do not submit quality data, we
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proposed an applicable percentage
increase to the operating standardized
amount of ¥0.5 percent (that is, the FY
2012 estimate of the market basket rateof-increase of 2.8 percent, less 2.0
percentage points for failure to submit
quality data, less an adjustment of 1.2
percentage points for economy-wide
productivity, and less an additional
adjustment of 0.1 percentage point).
We did not receive any public
comments on these proposals to
implement the applicable percentage
increase. However, we did receive
public comments concerning our
proposed MFP adjustment. We address
these public comments in section
IV.K.3. of this preamble. 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, we are finalizing an applicable
percentage increase to the FY 2012
operating standardized amount of 1.9
percent (that is, the FY 2012 estimate of
the market basket rate-of-increase of 3.0
percent less an adjustment of 1.0
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 our rules. For
hospitals that do not submit quality
data, we are finalizing an applicable
percentage increase to the operating
standardized amount of ¥0.1 percent
(that is, the FY 2012 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 1.0 percentage point for
economy-wide productivity, and less an
additional adjustment of 0.1 percentage
point). We note that, for the proposed
rule, we used the first quarter 2011
forecast of the FY 2006-based IPPS
market basket rate-of-increase. For this
final rule, we used the most recent data
available, which was the second quarter
2011 forecast of the FY 2006-based IPPS
market basket rate-of-increase.
Similarly, for the proposed rule, we
used IGI’s first quarter 2011 forecast of
MFP. For this final rule, we used the
most recent data available, which was
IGI’s second quarter 2011 forecast of
MFP. We also note that between the
proposed and final rules, we also
incorporated Bureau of Labor Statistics
(BLS) revised historical data for MFP
from 1987 to 2010, with 2010 being a
preliminary value.
In the proposed rule, we proposed to
revise the existing regulations at 42 CFR
412.64(d) to reflect the current law.
Specifically, in accordance with section
1886(b)(3)(B) of the Act, as amended by
sections 3401(a) and 10319(a) of the
Affordable Care Act, we proposed to
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add a new paragraph (iv) to
§ 412.64(d)(1) to set the applicable
percentage increase to the FY 2012
operating standardized amount as the
percentage increase in the market basket
index, subject to a reduction of 2.0
percentage points if the hospital fails to
submit quality information under rules
established by the Secretary in
accordance with section
1886(b)(3)(B)(viii) of the Act, and then
subject to a multifactor productivity
adjustment and, lastly, subject to the
additional reduction of 0.1 percentage
point. 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) 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 and MDHs equals the applicable
percentage increase set forth in section
1886(b)(3)(B)(i) of the Act (that is, the
same update factor as for all other
hospitals subject to the IPPS). Therefore,
the update to the hospital specific rates
for SCHs and MDHs is also subject to
section 1886(b)(3)(B)(i) of the Act, as
amended by sections 3401(a) and
10319(a) of the Affordable Care Act.
Accordingly, in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 25949), we
proposed an update to the hospitalspecific rates applicable to SCHs and
MDHs of 1.5 percent for hospitals that
submit quality data or ¥0.5 percent for
hospitals that fail to submit quality data.
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 and MDHs of 1.9
percent for hospitals that submit quality
data or ¥0.1 percent for hospitals that
fail to submit quality data. As we noted
above, for the proposed rule, we used
IGI’s first quarter 2011 forecast of the FY
2006-based IPPS market basket rate-ofincrease. For this final rule, we used the
most recent data available, which was
IGI’s second quarter 2011 forecast of the
FY 2006-based IPPS market basket rateof-increase. Similarly, for the proposed
rule, we used IGI’s first quarter 2011
forecast of MFP. For this final rule, we
used the most recent data available,
which was IGI’s second quarter 2011
forecast of MFP. We also note that
between the proposed rule and the final
rule, we also incorporated BLS revised
historical data for MFP from 1987 to
2010, with 2010 being a preliminary
value. For FY 2012, the regulations in
§§ 412.73(c)(16), 412.75(d), 412.77(e),
412.78(e), and 412.79(d) already contain
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provisions that set the update factor for
SCHs and MDHs equal to the update
factor applied to the national
standardized amount for all IPPS
hospitals. Therefore, as we proposed,
we are not making further changes to
these five regulatory provisions to
reflect the FY 2012 update factor for
SCHs and MDHs.
2. FY 2012 Puerto Rico Hospital Update
Puerto Rico hospitals are paid a
blended rate for their inpatient
operating costs based on 75 percent of
the national standardized amount and
25 percent of the Puerto Rico-specific
standardized amount. Section
1886(d)(9)(C)(i) of the Act is the basis
for determining the applicable
percentage increase applied to the
Puerto Rico-specific standardized
amount. Section 401(c) of Public Law
108–173 amended section
1886(d)(9)(C)(i) of the Act, which states
that, for discharges occurring in a fiscal
year (beginning with FY 2004), the
Secretary shall compute an average
standardized amount for hospitals
located in any area of Puerto Rico that
is equal to the average standardized
amount computed under subclause (I)
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 2012 IPPS/LTCH PPS proposed rule
(76 FR 25949), we proposed an
applicable percentage increase to the
Puerto Rico-specific operating
standardized amount of 1.5 percent. 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 Ricospecific operating standardized amount
of 1.9 percent. As we noted above, for
the proposed rule, we used IGI’s first
quarter 2011 forecast of the FY 2006based IPPS market basket rate-ofincrease. For this final rule, we used the
most recent data available, which was
IGI’s second quarter 2011 forecast of the
FY 2006-based IPPS market basket rateof-increase. Similarly, for the proposed
rule, we used IGI’s first quarter 2011
forecast of MFP. For this final rule, we
used the most recent data available,
which was IGI’s second quarter 2011
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forecast of MFP. We also note that
between the proposed rule and the final
rule, we also incorporated BLS revised
historical data for MFP from 1987 to
2010, with 2010 being a preliminary
value.
For FY 2012, under the authority of
section 1886(d)(9)(C)(i) of the Act, as
amended by section 401(c) of Public
Law 108–173, we proposed to revise the
existing regulations at § 412.211(c) to set
the update factor for the Puerto Ricospecific operating standardized amount
equal to the update factor applied to the
national standardized amount for all
IPPS hospitals (76 FR 25949). 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
§ 412.211(c) to reflect current law.
3. Productivity Adjustment
Section 3401(a) of the Affordable Care
Act amended section 1886(b)(3)(B) of
the Act to require certain adjustments to
the ‘‘applicable percentage increase’’ to
the operating IPPS. One such change is
to require that, in FY 2012 (and in
subsequent fiscal years), the applicable
percentage increase be annually
adjusted by changes in economy-wide
productivity. Section
1886(b)(3)(B)(xi)(II) of the Act, as added
by section 3401(a) of the Affordable
Care Act, defines this productivity
adjustment as equal to the 10-year
moving average of changes in annual
economy-wide, private nonfarm
business multifactor productivity (MFP)
(as projected by the Secretary for the 10year period ending with the applicable
fiscal year, calendar year, cost reporting
period, or other annual period) (the
‘‘MFP adjustment’’). The Bureau of
Labor Statistics (BLS) is the agency that
publishes the official measure of private
nonfarm business MFP. We refer readers
to the BLS Web site at: http://
www.bls.gov/mfp to obtain the BLS
historical published MFP data.
The projection of MFP is currently
produced by IHS Global Insight, Inc.
(IGI), an economic forecasting firm. In
order to generate a forecast of MFP, IGI
replicated the MFP measure calculated
by the BLS using a series of proxy
variables derived from its U.S.
macroeconomic models. These models
take into account a broad range of
factors that influence the total U.S.
economy. IGI forecasts the underlying
proxy components such as Gross
Domestic Product (GDP), capital, and
labor inputs required to estimate MFP
and then combines those projections
according to the BLS methodology. In
Table IV.K.1 below, we identify each of
the major MFP component series
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employed by the BLS to measure MFP.
We also provide the corresponding
concepts forecasted by IGI and
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determined by IGI and CMS to be the
best available proxies for the BLS series.
TABLE IV.K.1—MULTIFACTOR PRODUCTIVITY COMPONENT SERIES EMPLOYED BY THE BUREAU OF LABOR STATISTICS AND
IHS GLOBAL INSIGHT
BLS series
IGI series
Real value-added output, constant 2005 dollars.
Private nonfarm business sector labor input; 2005 = 100.00.
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Aggregate capital inputs; 2005 = 100.00.
IGI found that the historical growth
rates of the BLS components used to
calculate MFP and the IGI components
identified are consistent across all series
and, therefore, suitable proxies for
calculating MFP. We have included
below a more detailed description of the
methodology used by IGI to construct a
forecast of MFP, which is aligned
closely with the methodology employed
by the BLS. For more information
regarding the BLS method for estimating
productivity, we refer readers to the BLS
Web site at: http://www.bls.gov/mfp/
mprtech.pdf.
At the time of the development of this
FY 2012 final rule, the BLS had
published a historical time series of
private nonfarm business MFP for 1987
through 2010, with 2010 being a
preliminary value. Using this historical
MFP series and the IGI forecasted series,
the IGI had developed a forecast of MFP
for 2011 through 2021, as described
below.
To create a forecast of BLS’ MFP
index, the forecasted annual growth
rates of the ‘‘non-housing, nongovernment, nonfarm, real GDP,’’
‘‘hours of all persons in private nonfarm establishments adjusted for labor
composition,’’ and ‘‘real effective capital
stock’’ series (ranging from 2011 to
2021) are used to ‘‘grow’’ the levels of
the ‘‘real value-added output,’’ ‘‘private
nonfarm business sector labor input,’’
and ‘‘aggregate capital inputs’’ series
published by the BLS. Projections of the
‘‘hours of all persons’’ measure are
calculated using the difference between
projections of the BLS index of output
per hour and real GDP. This difference
is then adjusted to account for changes
in labor composition in the forecast
interval.
Using these three key concepts, MFP
is derived by subtracting the
contribution of labor and capital inputs
from output growth. However, in order
to estimate MFP, we need to understand
the relative contributions of labor and
capital to total output growth.
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Non-housing, non-government, nonfarm real GDP, Billions of chained 2005
dollars—annual rate.
Hours of all persons in private non-farm establishments, 2005 = 100.00, adjusted for labor composition effects.
Real effective capital stock used for full employment GDP, Billions of chained
2005 dollars.
Therefore, two additional measures are
needed to operationalize the estimation
of the IGI MFP projection: Labor
compensation and capital income. The
sum of labor compensation and capital
income represents total income. The
BLS calculates labor compensation and
capital income (in current dollar terms)
to derive the nominal values of labor
and capital inputs. IGI uses the
‘‘nongovernment total compensation’’
and ‘‘flow of capital services from the
total private nonresidential capital
stock’’ series as proxies for the BLS’
income measures. These two proxy
measures for income are divided by
total income to obtain the shares of
labor compensation and capital income
to total income. In order to estimate
labor’s contribution and capital’s
contribution to the growth in total
output, the growth rates of the proxy
variables for labor and capital inputs are
multiplied by their respective shares of
total income. These contributions of
labor and capital to output growth are
subtracted from total output growth to
calculate the ‘‘change in the growth
rates of multifactor productivity’’:
MFP = Total output growth¥((labor
input growth * labor compensation
share) + (capital input growth *
capital income share))
The change in the growth rates (also
referred to as the compound growth
rates) of the IGI MFP are multiplied by
100 in order to calculate the percent
change in growth rates (the percent
change in growth rates are published by
the BLS for its historical MFP measure).
Finally, the growth rates of the IGI MFP
are converted to index levels based to
2005 to be consistent with the BLS’
methodology. For benchmarking
purposes, the historical growth rates of
IGI’s proxy variables were used to
estimate a historical measure of MFP,
which was compared to the historical
MFP estimate published by the BLS.
The comparison revealed that the
growth rates of the components were
consistent across all series and,
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therefore, validated the use of the proxy
variables in generating the IGI MFP
projections. The resulting MFP index
was then interpolated to a quarterly
frequency using the Bassie method for
temporal disaggregation. The Bassie
technique utilizes an indicator (pattern)
series for its calculations. IGI uses the
index of output per hour (published by
the BLS) as an indicator when
interpolating the MFP index.
As described in section I. of the
Addendum to this final rule, we
proposed to determine the IPPS market
basket percentage increase for FY 2012,
which is used to determine the FY 2012
applicable percentage increase, based on
the FY 2006-based IPPS market basket.
The FY 2006-based IPPS market basket
was finalized and adopted in the FY
2010 IPPS/LTCH PPS final rule (74 FR
43843). Section 3401(a) of the
Affordable Care Act amended section
1886(b)(3)(B) of the Act in part by
adding a new clause (xi) which requires
that, after determining the applicable
percentage increase for a fiscal year,
‘‘such percentage increase shall be
reduced by the productivity adjustment
described in subclause (II)’’ (which we
refer to as the ‘‘MFP adjustment’’).
Section 1886(b)(3)(B)(i)(XX) of the Act
establishes the applicable percentage
increase for FY 2007 and each
subsequent fiscal year as equal to the
rate-of-increase (that is, the percentage
increase) in the hospital market basket
for IPPS hospitals, subject to the
hospital submitting quality data under
rules established by the Secretary in
accordance with section
1886(b)(3)(B)(viii) of the Act and to
other statutory adjustments, including
the productivity adjustment.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25951), we
proposed that the MFP adjustment be
subtracted from the FY 2012 operating
applicable percentage increase. We
proposed that the end of the 10-year
moving average of changes in the MFP
should coincide with the end of the
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appropriate FY update period. Because
the applicable percentage increase is
reduced by the MFP adjustment, we
believed it is appropriate for the
numbers associated with both
components of the calculation (the
underlying market basket percentage
increase used to determine the
applicable percentage increase and the
productivity adjustment) to line up so
that changes in market conditions are
aligned. Therefore, for the FY 2012
update, the MFP adjustment is
calculated as the 10-year moving
average of changes in MFP for the
period ending September 30, 2012. We
proposed to round the final annual
adjustment to the one-tenth of one
percentage point level up or down as
applicable according to conventional
rounding rules (that is, if the number we
are rounding is followed by 5, 6, 7, 8,
or 9, we would round the number up;
if the number we are rounding is
followed by 0, 1, 2, 3, or 4, we would
round the number down).
In accordance with section
1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care
Act, we proposed to base the FY 2012
market basket update used to determine
the applicable percentage increase for
the IPPS on the first quarter 2011
forecast of the FY 2006-based IPPS
market basket, which was estimated to
be 2.8 percent. This percentage increase,
subject to the hospital submitting
quality data under rules established by
the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act, was then
reduced by the proposed MFP
adjustment (the 10-year moving average
of MFP for the period ending FY 2012)
of 1.2 percent, which was calculated as
described above and based on IGI’s first
quarter 2011 forecast. We also proposed
that if more recent data were
subsequently available (for example, a
more recent estimate of the market
basket and MFP adjustment), we would
use such data, if appropriate, to
determine the FY 2012 market basket
update and MFP adjustment in the final
rule. Following application of the
productivity adjustment, the applicable
percentage increase is then reduced by
0.1 percentage point, as required by
section 1886(b)(3)(B)(xii) of the Act, as
added and amended by sections 3401
and 10319(a) of the Affordable Care Act
(as discussed in section I. of the
Addendum to this final rule).
Comment: One commenter expressed
concern about the impact of the
proposed productivity adjustment, the
Affordable Care Act mandated
reduction, and the documentation and
coding adjustment. The commenter
specifically stated that further
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reductions cannot be sustained and will
continue to deplete scarce resources,
making hospitals’ mission of providing
high quality care to patients even more
challenging.
Response: As the commenter
acknowledged, the Affordable Care Act
requires that a productivity adjustment
and a 0.1 percentage point reduction be
applied to IPPS provider payment
updates for FY 2012. Therefore, CMS is
mandated to apply these adjustments to
the IPPS hospital payments for FY 2012.
We refer readers to section II.D. of this
preamble for our responses to public
comments on the documentation and
coding adjustment.
After consideration of the public
comments we received and based on a
more recent estimate of the market
basket and MFP adjustment, we are
finalizing our proposed method for
calculating and applying the MFP
adjustment. In accordance with section
1886(b)(3)(B) of the Act, as amended by
section 3401(a) of the Affordable Care
Act, we base the FY 2012 market basket
update used to determine the applicable
percentage increase for the IPPS on IGI’s
second quarter 2011 forecast of the FY
2006-based IPPS market basket rate-ofincrease, which is estimated to be 3.0
percent. This percentage increase,
subject to the hospital submitting
quality data under rules established by
the Secretary in accordance with section
1886(b)(3)(B)(viii) of the Act, is then
reduced by the MFP adjustment (the 10year moving average of MFP for the
period ending FY 2012) of 1.0 percent,
which was calculated as described
above and based on IGI’s second quarter
2011 forecast. Following application of
the productivity adjustment, the
applicable percentage increase is then
reduced by 0.1 percentage point, as
required by section 1886(b)(3)(B)(xii) of
the Act, as added and amended by
sections 3401 and 10319(a) of the
Affordable Care Act (as discussed in
section I. of the Addendum to this final
rule).
L. Additional Payments to Hospitals
With High Percentage of End-Stage
Renal Disease (ESRD) Discharges
(§ 412.104)
Under existing regulations at
§ 412.104(a), we provide additional
Medicare payments to a hospital for
inpatient services provided to Medicare
beneficiaries with end-stage renal
disease (ESRD) who receive dialysis
during a hospital stay if the hospital’s
ESRD Medicare beneficiary discharges,
excluding certain MS–DRGs noted
below, where the beneficiary receives
dialysis during the inpatient stay, are 10
percent or more of its total Medicare
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discharges. These additional payments
are intended to lessen the impact of the
added costs for hospitals that deliver
inpatient dialysis services to a high
concentration of ESRD Medicare
beneficiaries. The regulation provides
that discharges classified into MS–DRG
652 (Renal Failure), MS–DRG 682
(Renal Failure with MCC), MS–DRG 683
(Renal Failure with CC), MS–DRG 684
(Renal Failure without CC/MCC), and
MS–DRG 685 (Admit for Renal Dialysis)
are excluded from the calculation of
ESRD Medicare beneficiary discharges
for purposes of determining a hospital’s
eligibility for these additional payments.
We excluded these MS–DRGs because
they include payment for the cost of
inpatient dialysis treatments.
The current Medicare cost reporting
instructions in the Provider
Reimbursement Manual, Part II (PRM–
II), at section 3630.1, require hospitals
to enter as the denominator of the
calculation on Line 5 ‘‘total Medicare
discharges as reported on Worksheet S–
3, Part I,’’ excluding discharges for the
dialysis MS–DRGs. As drafted, this
instruction includes only discharges for
beneficiaries enrolled in original fee-forservice Medicare in the denominator of
the calculation. In the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25951),
we proposed to clarify that our policy is
that the term ‘‘Medicare discharges’’
used in § 412.104(a) refers to discharges
of all beneficiaries entitled to Medicare
Part A. Discharges associated with
individuals entitled to Medicare Part A
include discharges of individuals
receiving benefits under original
Medicare, discharges of individuals
whose inpatient benefits are exhausted
or whose stay was not covered by
Medicare, and discharges for
individuals enrolled in Medicare
Advantage Plans, cost contracts under
section 1876 of the Act (health
maintenance organizations (HMOs)) and
competitive medical plans (CMPs).
Consistent with this proposed
clarification, these discharges would be
included in the denominator of the
calculation for the purpose of
determining eligibility for the ESRD
additional payment to hospitals.
Similarly, for the numerator of this
calculation, all discharges of ESRD
beneficiaries who are entitled to
Medicare Part A and who receive
inpatient dialysis, subject to the
exclusions of certain discharges
classified into MS–DRGs 652, 682, 683,
684, and 685, would be included in the
determination of eligibility for the
additional payment to hospitals. We
also stated that we intended to revise
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section 3630.1 of the PRM–II to reflect
this clarification.
Comment: One commenter disagreed
with our proposed clarification to
include Medicare Advantage discharges
in the denominator of the calculation for
the purpose of determining eligibility
for the ESRD additional payment to
hospitals. The commenter believed that
CMS is inconsistent in its policies
regarding the treatment of Medicare
Advantage days and asserted that legally
these discharges should not be treated
the same as discharges of patients who
are enrolled in original Medicare Part A.
Response: We do not agree with the
assertion of the commenter.
Beneficiaries who elect to receive their
benefits through Medicare Advantage
remain entitled to benefits under
Medicare Part A while enrolled in Part
C. For example, the hospice benefit is
administered under Medicare Part A,
regardless of whether an individual has
elected to enroll in Part C. Thus, if a
beneficiary enrolled in a Medicare
Advantage plan elects to receive hospice
care, that benefit is administered under
the traditional fee-for-service model and
not by the beneficiary’s Medicare
Advantage plan. If, while receiving
hospice care, the beneficiary also needs
hospital inpatient care unrelated to the
condition that caused the beneficiary to
elect hospice care, the cost of that care
would still be administered by the
beneficiary’s Medicare Advantage plan.
As a result, it is possible for a
beneficiary enrolled in a Medicare
Advantage plan to receive benefits
administered under Part A and Part C
simultaneously. Beneficiaries enrolled
in Medicare Advantage plans are
entitled to benefits under Part A, and we
believe it is appropriate to include in
the denominator all discharges of
individuals entitled to Part A, regardless
of whether their benefits are
administered by a Medicare Advantage
plan or by traditional fee-for-service
Medicare.
Comment: One commenter indicated
that including these days in both the
numerator and denominator would limit
a hospital’s ability to qualify for the
additional payment. The commenter
disagreed with including the additional
discharges in both the numerator and
denominator and advocated that the
additional discharges should be added
to only the numerator.
Response: We acknowledge the
commenter’s concerns. However, there
is no policy or legal rationale to treat
these days differently for the purpose of
the numerator and denominator of this
calculation. We recognize that this may
make it somewhat more difficult for
some hospitals to qualify for this add-
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on payment, but note that it may allow
some hospitals more opportunity to
qualify if a large proportion of their
Medicare Advantage patient discharges
are for Medicare beneficiaries with
ESRD.
Comment: Several commenters
expressed concern that the instructions
in section 3630.1 of the PRM–II
currently do not include these days on
the Medicare Cost Report Worksheet S–
3. They also believed there are
difficulties when identifying those
discharges not associated with original
Medicare Part A.
Response: We intend to revise these
instructions to reflect the clarification in
this final rule.
Comment: One commenter suggested
that CMS define more clearly the
effective date of the clarification.
Response: As explained above,
beneficiaries who elect to receive their
benefits through Medicare Advantage
remain entitled to benefits under Part A
and must be included in the
computation of ‘‘Medicare discharges’’
for purposes of determining whether a
hospital qualifies for additional
payments under § 412.104(a). However,
the PRM–II instructions currently do not
provide for discharges associated with
individuals enrolled in Medicare
Advantage plans to be included in the
calculation. Accordingly, this
clarification is needed to ensure that
hospitals understand that beneficiaries
who have elected to receive their
benefits through Medicare Advantage
must be included in the ESRD add-on
payment calculation. We intend to
revise the PRM–II instructions to require
that beneficiaries enrolled in MA plans
be included in both the numerator and
demoninator of this calculation. The
revised instructions will be effective for
cost reporting periods starting on or
after October 1, 2011.
After consideration of the public
comments we received, we are
finalizing our clarification that the term
‘‘Medicare discharges’’ used in
§ 412.104(a) of the regulations refers to
discharges of all beneficiaries entitled to
Medicare Part A. Individuals entitled to
Medicare Part A include individuals
receiving benefits under original
Medicare, individuals whose inpatient
benefits are exhausted or whose stay
was not covered by Medicare, and
individuals enrolled in Medicare
Advantage Plans, cost contracts under
section 1876 of the Act (HMOs), and
CMPs. Consistent with this clarification,
these discharges, subject to the
exclusions of certain discharges
classified into MS–DRGs 652, 682, 683,
684, and 685, must be included in the
denominator of the calculation for the
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purpose of determining eligibility for
the ESRD additional payment to
hospitals. Similarly, for the numerator
of this calculation, all discharges of
ESRD beneficiaries who are entitled to
Medicare Part A and who receive
inpatient dialysis, excluding discharges
for the dialysis MS–DRGs, must be
included in the determination of
eligibility for the ESRD additional
payment to hospitals. We intend to
revise the instructions under section
3630.1 of the PRM–II to reflect this
clarification. The revised instructions
will apply to cost reporting periods
beginning on or after October 1, 2011.
M. Changes to the Reporting
Requirements for Pension Costs for
Medicare Cost-Finding Purposes
1. Background
Currently, certain pension costs may
be allowable costs under Medicare to
the extent such costs are related to the
reasonable and necessary cost of
providing patient care and represent
costs actually incurred. Reasonable cost
reimbursement is addressed in section
1861(v)(1)(A) of the Act. Section
1861(v)(1)(A) of the Act defines
‘‘reasonable cost,’’ in part, as the cost
actually incurred, excluding costs found
to be unnecessary in the efficient
delivery of needed health services.
Section 1861(v)(1)(A) of the Act does
not specifically address the
determination of reasonable costs, but
authorizes the Secretary to promulgate
regulations and principles to be applied
in determining reasonable costs.
We have issued regulations
implementing this provision of the Act,
including 42 CFR 413.9(a), which
provide that payments ‘‘must be based
on the reasonable cost of services
covered under Medicare and related to
the care of beneficiaries.’’ In addition,
§ 413.9(c)(2) states that ‘‘The provision
in Medicare for payment of reasonable
cost of services is intended to meet the
actual costs.’’ Further, the regulations at
412.9(c)(3) state that ‘‘Reasonable cost
includes all necessary and proper
expenses incurred in furnishing services
* * *.’’ Therefore, in accordance with
the statute, the regulations include two
principles that help guide the
determination of which expenses may
be considered allowable reasonable
costs that can be paid under Medicare;
that is, such costs must be ‘‘related’’ to
the care of Medicare beneficiaries, and
such costs must actually be ‘‘incurred.’’
Consistent with these provisions, we
have issued instructions in section 2142
of the Provider Reimbursement Manual,
Part I (PRM–I) for determining and
reporting qualified defined benefit
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pension costs on the cost report for
Medicare cost-finding purposes. For
Medicare wage index purposes, the cost
reporting instructions in section 3605.2
of the Provider Reimbursement Manual,
Part II (PRM–II) for Worksheet S–3, Part
II, Lines 13 through 20, require hospitals
to comply with the requirements in
section 2142 of the PRM–I.
Specifically, section 2142.5 of the
PRM–I defines the current period
liability for pension cost (that is, the
maximum allowable pension cost) based
on the actuarial accrued liability,
normal cost, and unfunded actuarial
liability. Under section 2142.4(A) of
PRM–I, these liability measurements are
to be computed in accordance with the
Employee Retirement Income Security
Act of 1974 (ERISA), regardless of
whether or not the pension plan is
subject to ERISA. Also, section
2142.6(A) of the PRM–I requires the
current period liability for pension cost
to be funded in order to be allowable.
In addition, section 2142.6(C) of the
PRM–I allows for funding in excess of
the current period liability to be carried
forward and recognized in future
periods. We note that, on March 28,
2008, CMS published Revision 436, a
technical clarification to section 2142 of
the PRM–I.
Under ERISA, the actuarial accrued
liability and normal cost are typically
determined on an ongoing plan basis
using long-term, best-estimate
assumptions. The interest assumption
reflects the average rates of return
expected over the period during which
benefits were payable, taking into
account the investment mix of plan
assets. Pension costs for plans not
subject to ERISA (such as church plans
and plans sponsored by public sector
employers) also are typically based on
the actuarial accrued liability and
normal cost using long-term, best
estimate assumptions.
The Pension Protection Act (PPA) of
2006 (Pub. L. 109–280) amended ERISA.
Under the PPA amendments to ERISA,
the actuarial accrued liability and
normal cost are no longer used as a basis
for determining ERISA minimum
required or maximum tax deductible
contributions. ERISA contribution limits
are now based on a ‘‘funding target’’ and
‘‘target normal cost’’ measured on a
settlement basis using the current
market interest rates for investment
grade corporate bonds that match the
duration of the benefit payouts. The
Internal Revenue Service (IRS)
publishes the applicable interest rate
tables on a monthly basis. Because
pension liabilities are very sensitive to
changes in the interest rate used to
discount future benefit payouts, pension
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costs based on the PPA ‘‘funding target’’
and ‘‘target normal cost’’ values are
expected to be less stable than those
based on the pre-PPA traditional longterm, best-estimate assumptions, which
change infrequently. Furthermore, plans
not subject to the ERISA requirements,
as amended by the PPA, are not likely
to use the new ‘‘funding target’’ and
‘‘target normal cost’’ basis for
determining pension costs, and ERISA
plans are not likely to continue to report
costs developed using the actuarial
accrued liability and normal cost based
on long-term basis, best estimate
assumptions. Accordingly, there is no
longer a standard actuarial basis used by
all plans.
In response to the PPA amendments
to ERISA, we began a review of the rules
for determining pension costs for
Medicare cost-finding and wage index
purposes. As an interim measure, we
issued a Joint Signature Memorandum
(JSM) in November 2009 that contained
instructions and a spreadsheet to assist
hospitals and Medicare contractors in
determining the annual allowable
defined benefit pension cost for the FY
2011 wage index (JSM/TDL–10061, 11–
20–09, December 3, 2009). Although
these instructions were released for
purposes of the wage index, they also
serve as interim guidance for Medicare
cost-finding purposes.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25951 through
25953), we proposed to revise our
policy for determining pension cost for
Medicare purposes. As mentioned
above, due to the ERISA rules, as
amended by the PPA, there is no longer
a standard actuarial cost basis used by
all types of plans. Therefore, we
proposed to no longer rely on actuarial
computations to determine the
maximum annual cost limitation for
Medicare. Instead, the general
parameters of our proposal would
maintain the current requirement that
pension costs must be funded to be
reportable, and would require all
hospitals to report the actual pension
contributions funded during the
reporting period, on a cash basis.
In addition, under this cash basis
approach, we proposed separate
methodologies for measuring pension
costs for Medicare cost-finding purposes
(discussed below under section IV.M.2.
of this preamble) and for purposes of
updating the wage index (discussed in
section III.D.2. of this preamble). It was
necessary to have two distinct proposals
in order to address the different goals of
determining a hospital’s payments and
updating the average hourly wage to
establish the geographic area wage
index. The function of the wage index
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is to measure relative hospital labor
costs across areas. This function is
distinct from Medicare payment
determinations, where the goal is to
measure the actual costs incurred by
individual hospitals. These two distinct
proposals would require separate
updated instructions to section 2142 of
the PRM–I for Medicare cost-finding
purposes and section 3605.2 of the
PRM–II for purposes of the wage index.
Below is a detailed discussion of the
new methodology for reporting pension
costs for Medicare cost-finding
purposes. A full discussion of our
policy for reporting pension costs under
the wage index is discussed in section
III.D.2. of this preamble, along with a
summary of the public comments we
received, our responses, and statements
of our final policy.
We note that we stated in the
proposed rule that we ‘‘would require
all hospitals to report the actual pension
contributions funded during the
reporting period, on a cash basis.’’ Our
intent was for ‘‘reporting period’’ to
refer to the hospital’s Medicare ‘‘cost
reporting period’’ rather than another
defined reporting period since for costfinding purposes pension costs are
reported on a Medicare cost report basis.
Similarly, below in the following
discussions, the term ‘‘reporting period’’
refers to a Medicare cost reporting
period.
The final policy below reflects our
commitment to the general principles of
the President’s Executive Order released
January 18, 2011, entitled ‘‘Improving
Regulation and Regulatory Review.’’
2. Allowable Defined Benefit Pension
Plan Cost for Medicare Cost-Finding
Purposes
As mentioned above, the defined
benefit pension plan costs (hereafter
referred to as ‘‘pension costs’’) reported
for Medicare payment purposes should
reflect the actual costs incurred by an
individual provider. In the FY 2012
IPPS/LTCH PPS proposed rule, we
proposed to retain the policy in the
current manual requiring pension costs
to be funded in order to be reportable.
We believe funding is an appropriate
basis because it measures the actual
expenditure towards the current period
liability for pensions. We also proposed
to continue to limit the current period
liability for pension costs (that is,
maximum annual allowable pension
costs). However, we proposed to change
the methodology for calculating the
limit on the current period liability. We
proposed that this methodology would
be effective for cost reporting periods
beginning on or after October 1, 2011.
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Specifically, we proposed a limit on
the current period liability equal to 150
percent of the average contributions
made during the three consecutive
reporting periods out of the five most
recent reporting periods which produce
the highest average. We believe a
threshold of 150 percent is appropriate
for the following reasons: First, the
proposed threshold should be adequate
to allow for typical fluctuations in
contributions and for inflation. Second,
we believe a threshold is necessary to
limit the current period liability in order
to ensure that reported pension costs are
reasonable and do not reflect excessive
or advance funding in any particular
year. In addition, the proposed limit
would help ensure that pension costs in
the current year are reasonable because
we expect the limit to capture pension
costs which relate exclusively to patient
care services furnished in the current
cost reporting period.
The proposed 150-percent limit was
established based on an analysis of
historical contribution data submitted
by pension plans subject to ERISA and
published by the U.S. Department of
Labor (DOL). Based on our analysis of
the DOL contribution data, we expect
that pension costs in excess of the limit
will only occur in a small number of
cases. We believe the use of readily
available historical contribution data to
establish the limitation will avoid the
complexity of a limitation based on
technical actuarial measurements. A
limit based on average contributions
made during the three consecutive
reporting periods out of the five most
recent reporting periods which produce
the highest average will help to ensure
that periods when no contributions (or
only minimal contributions) are made
will not dramatically reduce the limit in
subsequent periods.
We believe use of a 5-year look-back
period will minimize the administrative
burden on providers that would be
associated with a longer period. We also
believe using the three consecutive
reporting periods which produce the
highest average contributions will better
reflect a typical average pension cost
while use of contributions for any three
periods, even nonconsecutive periods,
could introduce atypical results.
Specifically, using the three highest
nonconsecutive years of contributions
in the 5-year look-back period may
overstate the average contribution.
However, because excessive
contributions tend to reduce future
funding requirements, we believe it
would be unusual for excessive
contributions to occur in three
consecutive periods.
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While we proposed a limit, we
recognized there may be situations
when pension costs in excess of the 150percent limit might be reasonable, such
as a funding requirement imposed by a
third party, that is, ERISA’s minimum
funding requirement, statute or
collective bargaining agreement.
Therefore, we proposed to allow
hospitals with contributions in excess of
the proposed limit to submit
documentation demonstrating that all or
a portion of the ‘‘excess’’ costs are
reasonable and necessary for a
particular cost reporting period. In
addition, we believe that providers’
pension costs in excess of the 150percent limit that are not considered
reasonable for the current cost reporting
period are likely to be prefunded
pension costs attributable to the patient
care services for a future cost reporting
period. Therefore, similar to the current
instruction in section 2142.6(C) of the
PRM–I, we proposed to continue to use
a carry forward policy. Specifically, we
proposed that current period
contributions in excess of the 150percent limit that are not considered
reasonable for the current cost reporting
period under the proposed review
process be carried forward and reported
in future period(s) as the applicable
limit for the future period(s) will allow.
In the proposed rule we inadvertently
stated that ‘‘Medicare contractors’’
would be required to maintain historical
data in order to determine the 150percent limit and track any carry
forward amounts. However, we
intended to write that ‘‘providers’’
would be required to maintain historical
data in order to determine the 150percent limit and track any carry
forward amounts. We also indicated that
we anticipate making a worksheet
available for this purpose.
We solicited public comments as to
documentation or criteria that would be
appropriate to make a determination as
to whether excess costs are reasonable
and necessary. We also invited public
comments on the proposal and
indicated special interest in receiving
public comments related to our proposal
to limit the reportable pension amount.
Comment: A number of commenters
suggested CMS convene a Medicare
Technical Advisory Group (MTAG)
before establishing a policy on pension
costs.
Response: An MTAG is not required
by statute. Engaging in notice and
comment rulemaking provides sufficient
process for developing a policy on this
issue. In addition, the actuarial
terminology used in section 2142 of
PRM–I is no longer used under ERISA
as amended by the PPA. Accordingly,
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we believe it is important to address the
pension cost issue as expeditiously as
possible.
Comment: Many commenters
supporting an MTAG also stated that an
MTAG might recommend adoption of
Generally Accepted Accounting
Principles (GAAP) (with no funding
limit) for the wage index, leading CMS
to also adopt GAAP as the basis for costfinding purposes, provided those costs
are funded either during the cost
reporting period or within 12 months
after the end of the cost reporting
period. Commenters also suggested that
CMS consider any needed modifiers (to
GAAP) for either underfunded or
overfunded plans. One commenter
noted that a proposal to base pension
expense for both the wage index and for
cost-finding purposes on a 3-year
average of actual funding is inconsistent
with the other principles of the cost
report relying on GAAP and accrual
versus cash-basis accounting. The
commenters stated that pension funding
should be treated the same as the
liquidation of liabilities, to be paid
within 1 year after the end of the cost
reporting period, or with approval of an
exception, within 3 years.
Response: Pension costs determined
in accordance with GAAP (as
promulgated by the Financial
Accounting Standards Board) are
somewhat unique compared to other
types of costs under GAAP because
pension costs under GAAP are not
dependent on the amount funded.
Therefore, in order to ensure that this
policy is consistent with CMS policy
that costs must be funded in order to be
reportable, it was necessary to diverge
from GAAP principles in this instance.
Furthermore, since GAAP with a
funding requirement for Medicare costfinding purposes would require the
GAAP pension expense to be modified
to account for any prepaid costs
(overfunding) or accrued costs
(underfunding), we believe this would
create unnecessary complexity.
Under the new policy, pension costs
are based on the amount funded during
the cost reporting period plus any carry
forward amounts, subject to the 150percent limitation. A provision to allow
recognition of funding which occurs
within 1 year after the end of the
reporting period (or 3 years with
approval) could result in confusion as to
which period funding should be
attributed. The period during which
funding will be measured (and upon
which costs determined) must be clearly
and consistently defined.
We do not believe that pension costs
determined under the new policy will
be materially different from those that
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would result under GAAP with a
funding requirement because in either
case, pension costs would be limited to
the amount funded (including any carry
forward contributions). Furthermore, we
believe our policy offers more flexibility
for providers to establish and follow a
funding strategy that meets their
organizational objectives.
Comment: A number of commenters
supported the proposed limit on the
current period liability equal to 150percent of the average contributions
made during the three consecutive cost
reporting periods out of the five most
recent cost reporting periods that
produce the highest average. They
particularly appreciated the additional
provision allowing a hospital with
pension contributions in excess of the
proposed limit to submit documentation
demonstrating that all or a portion of the
‘‘excess’’ costs are reasonable and
necessary for a specific cost reporting
period.
Response: We appreciate the
commmenters’ support of our proposal.
We recognize there may be situations
when pension costs in excess of the 150percent limit are reasonable and
necessary and should be reportable as a
current period cost. Therefore, as
proposed, this final policy will allow a
provider to submit documentation to
show that ‘‘excess’’ contributions are
reasonable and necessary and should be
recognized as current period costs.
Comment: One commenter asked
CMS to clarify how the limit would be
determined if there was a plan or
corporate merger, if a provider adopted
a new plan or increased benefits under
an existing plan, or became a new
Medicare provider. The commenter
expressed concern that, although the
limit would be easy to administer, it
would ignore real costs in these
situations.
Response: In a merger situation (either
a plan merger or corporate merger), the
contribution history should include all
contributions made by a provider to a
defined benefit plan (either a
predecessor plan or the current plan)
during the 5-year look-back period.
Under a systemwide (multipleemployer) pension plan, the
contribution history for each
participating provider should reflect
only the plan contributions attributed to
that provider. For a provider who is new
to the Medicare program, the
contribution history used to determine
the limit should include all pension
contributions made during the 5-year
look-back period (which is used to
develop the 3 year average), including
periods, before the provider was part of
the Medicare program. In the case of a
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newly adopted plan, the 5-year lookback period and/or the 3-year averaging
period will be limited to the number of
cost reporting periods the provider
sponsored a defined benefit pension
plan. In the case of a benefit
improvement, we believe the 150percent limit (which includes a 50percent margin for cost increases) will
be adequate since the cost of benefit
improvements is typically spread over a
period of years. In any of these
situations, a provider may submit
documentation to show that
contributions in excess of the 150
percent limit are reasonable and
necessary and should be allowable as a
current period cost.
Comment: One commenter asked for
clarification as to which cost reporting
periods will be used to determine the
limit on allowable pension costs.
Specifically, the commenter asked if
CMS will base the limit on the
hospital’s five most recent settled cost
reports or as-filed cost reports. Another
commenter asked what timeframe
constitutes ‘‘recent’’ cost reporting
periods.
Response: The historical contribution
data required to compute the limit are
not currently reflected on the cost
reports. Therefore, settled or as-filed
cost reports are not used for the
calculation. (We are exploring ways to
modify the cost report to show the
actual contributions made in each cost
reporting period as well as the pension
cost for the current period after
application of the 150-percent limit.)
Instead, the 150-percent limit will be
based on the actual pension plan
contributions made by a provider as
shown on statements provided by the
pension plan trustee or insurance
carrier, or as reflected on Schedule B or
SB of IRS Form 5500. In the case of a
systemwide (multiple employer)
pension plan, the home office will need
to identify the contributions attributed
to each participating provider. The limit
will be based on the average
contributions for the three highest
consecutive cost reporting periods out
of the five most recent cost reporting
periods ending with the current cost
reporting period.
Comment: One commenter asked
whether the hospital would be required
to submit documentation regarding its
pension contributions in excess of the
limit to the Medicare contractor or to
CMS. The commenter also inquired as
to how the reasonableness and necessity
of the excess contribution will be
determined and how the determination
of reasonableness will be reported to the
provider.
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Response: We have not yet finalized
the specific procedure to be used when
requesting approval of excess
contributions. Further details will be
provided as soon as possible, after
publication of this final rule. Each
request will be reviewed on a facts and
circumstances basis. We are not setting
forth specific criteria for determining
whether a pension cost is reasonable
and necessary for the current reporting
period because that may prevent us
from responding to circumstances that
we may not have anticipated and
recognizing costs that are reasonable for
the current period. However, examples
of when approval will be likely be
granted include excess contributions
required to satisfy a funding
requirement imposed by law or under a
collective bargaining agreement, or to
avoid ERISA funding restrictions.
Comment: There were a number of
technical questions and requests for
clarification on specific aspects of the
proposed policy. One commenter
requested that CMS clarify whether
allowable pension costs for cost-finding
will be based on cash contributions,
subject to the 150 percent limit,
regardless of whether the pension plan
shows a current period liability under
ERISA or another method. Another
commenter observed ‘‘the funding limit
is based on 150 percent of three
consecutive cost reporting periods out
of recent reporting with the highest
average and noted that this is similar in
nature to the GME/IME three year
rolling average in its complexities.’’
This commenter asked if the data would
be actual contributions from prior years,
or would it be the contributions that
were limited by a previous 150-percent
limit.
Response: Under the revised policy,
pension contributions up to the 150percent limit will not be subject to
actuarial requirements under ERISA,
GAAP or otherwise. However, a
provider with costs in excess of the
limit will have the option to submit
actuarial data to demonstrate that those
costs are reasonable and necessary for
the current cost reporting period and
should therefore be included as current
period pension costs.
The historical contributions used to
determine the 150-percent limit would
be the actual cash contributions made
by the provider to the pension plan,
without regard to the 150-percent limit
applicable to any prior period.
The following example is provided to
show the calculation of the FY 2012
pension cost for a provider with a
September 30 fiscal year (FY) cost
reporting end date:
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• Contributions made in the five most
recent cost reporting periods:
• October 1, 2011—September 30, 2012:
$2,000,000
• October 1, 2010—September 30, 2011:
5,000,000
• October 1, 2009—September 30, 2010:
4,000,000
• October 1, 2008—September 30, 2009:
5,000,000
• October 1, 2007–September 30, 2008:
6,000,000
• October 1, 2011 Carry Forward
Balance: $1,000,000
The 150-percent limit for FY 2012
will be based on contributions for FYs
2008 through 2010 because these
represent the highest three consecutive
years of contributions out of the 5 most
recent years. The average contribution
for those 3 highest consecutive years is
($4,000,000 + $5,000,000 + $6,000,000)/
3 = $5,000,000. The limit equals
$7,500,000 (150 percent of $5,000,000).
The provider’s cash funding in the
current cost reporting period (FY 2012)
is $2,000,000 (none of which was
reported as a pension cost in a prior
period). The provider has also
documented a carry forward balance of
$1,000,000, which represents the cash
basis contributions made prior to the
effective date of the new policy which
were not recognized as costs in a prior
cost reporting period. For FY 2012, the
provider may claim the full $3,000,000
($2,000,000 in current period
contributions plus $1,000,000 in carry
forward contributions) because the
amount does not exceed the $7,500,000
limit. If the provider’s carry forward
balance had been $8,000,000, only
$7,500,000 would be reportable as a
current period cost due to the 150
percent limit. In that case, the remaining
$2,500,000 ($2,000,000 current period
contributions + $8,000,000 carry
forward balance ¥$7,500,000 current
period 150 percent limit) should be
reflected as a carry forward balance for
the following year.
Comment: One commenter asked if
current period pension expense would
be calculated similar to previous years
and would still be subject to the
liquidation of liability requirements
(that is, funded within 1 year of
accrual). The same commenter
speculated that there may be confusion
on how to determine the allowable
pension expense, given the various
terms used between GAAP, PRM, IRS,
and ERISA. The commenter asked for
examples of how to compute allowable
pension expense and to provide a
crosswalk or revise the terms from the
CMS manuals to GAAP and/or IRS
terminology.
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Response: Generally, Pension costs for
cost-finding purposes will no longer be
based on actuarially determined
measurements. We are aware that there
may be confusion due to differences in
actuarial terminology and cost
methodology applicable for various
purposes. This is a key reason why we
are no longer requiring actuarial cost
measurements to determine pension
costs. Accordingly, no crosswalk is
needed to reconcile differences in
terminology. Furthermore, under the
new policy, pension costs will be
determined on a cash basis rather than
an accrual basis. Funding which occurs
after the end of a cost reporting period
will be considered as a pension funding
for the subsequent cost reporting period,
subject to the 150-percent limit in that
year. Under the new policy, the
liquidation of liability provision will no
longer apply. However, the liquidation
of liability provision would still be in
effect for the cost reporting period
immediately prior to the effective date
of this new policy. An example of the
calculation of the allowable pension
cost under the new policy was included
in our response to a previous comment.
Comment: One commenter
recommended that there should be
specific statements in the cost report
that pension costs for cost-finding will
be treated differently from pension costs
for the wage index. The commenter also
suggested separate PRM cost reporting
instructions for the Medicare cost report
versus the Medicare wage index, given
that there will be separate
methodologies for determining pension
costs.
Response: We are implementing
different pension cost policies for wage
index and cost-finding purposes.
Accordingly, the PRM will be revised to
include separate and distinct pension
cost provisions for wage index and cost
finding purposes.
We would like to thank the provider
community for their public comments
regarding our proposed policy for
reporting pension costs for Medicare
cost-finding purposes. After considering
their concerns and suggestions, we are
finalizing our proposal for reporting
pension costs for Medicare cost-finding
purposes for the reasons set forth in the
proposed rule (76 FR 25951 through
25953) and as explained in this final
rule. This new policy is effective for
cost reporting periods beginning on and
after October 1, 2011.
Under this final policy, a provider’s
pension cost for cost-finding purposes
will equal the cash basis contribution
deposits (made within the current cost
reporting period and not reflected as a
pension cost for a prior cost reporting
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period) plus any carry forward
contributions, subject to a limitation.
The limitation is equal to 150 percent of
the average pension contributions made
by the provider during the highest 3
consecutive cost reporting periods out
of the 5 most recent cost reporting
periods (ending with the current cost
reporting period). In the case of a newly
adopted 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.
This final policy allows a provider
with current period contributions and
carry forward contributions in excess of
the 150-percent limit to submit
documentation to show that all or a
portion of the excess contributions are
reasonable and necessary and should
therefore be reportable as current period
pension costs. Pension contributions in
excess of the reportable amount can be
carried forward and reported in a
subsequent cost reporting period,
subject to the 150-percent limitation. As
of the effective date of this new policy,
providers should establish a carry
forward balance to account for any
contributions made prior to the effective
date of the new policy (on a cash basis)
that were not reflected as pension costs
in a prior period. The carry forward
balance must then be updated annually
to reflect any increases (current period
contributions in excess of the reportable
amount) or decreases (carry forward
balances which are recognized as a
current period pension cost). The
provider must ensure that there is no
duplication of recognized contributions
in accounting for carry forward
contributions. In addition, providers
must document, and maintain for audit,
the data used to establish the carry
forward balance and any subsequent
updates.
Under this revised policy,
contributions are to be determined on a
cash basis. Section 2305 of the PRM–I
(liquidation of liabilities provision) will
be amended, effective for cost reporting
periods subject to this new policy, to
exclude qualified defined benefit
pension plan costs. The liquidation of
liabilities provision will continue to
apply to contributions made to liquidate
pension costs for cost reporting periods
prior to the effective date of this revised
policy. We plan to make future
amendments to conform existing
regulations and PRM–I provisions with
this final policy.
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N. Rural Community Hospital
Demonstration Program
1. Background
Section 410A(a) of the Medicare
Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA),
Public Law 108–173, required the
Secretary to establish a demonstration
program to test the feasibility and
advisability of establishing ‘‘rural
community hospitals’’ to furnish
covered inpatient hospital services to
Medicare beneficiaries. The
demonstration program pays rural
community hospitals for such services
under a cost-based methodology for
Medicare payment purposes for covered
inpatient hospital services furnished to
Medicare beneficiaries. A rural
community hospital, as defined in
section 410A(f)(1) of MMA, is a hospital
that—
• Is located in a rural area (as defined
in section 1886(d)(2)(D) of the Act) or is
treated as being located in a rural area
under section 1886(d)(8)(E) of the Act;
• Has fewer than 51 beds (excluding
beds in a distinct part psychiatric or
rehabilitation unit) as reported in its
most recent cost report;
• Provides 24-hour emergency care
services; and
• Is not designated or eligible for
designation as a CAH under section
1820 of the Act.
Section 410A(a)(4) of Public Law 108–
173, in conjunction with paragraphs (2)
and (3) of section 410A(a), provided that
the Secretary was to select for
participation no more than 15 rural
community hospitals in rural areas of
States that the Secretary identified as
having low population densities. Using
2002 data from the U.S. Census Bureau,
we identified the 10 States with the
lowest population density in which
rural community hospitals were to be
located in order to participate in the
demonstration program: Alaska, Idaho,
Montana, Nebraska, Nevada, New
Mexico, North Dakota, South Dakota,
Utah, and Wyoming. (Source: U.S.
Census Bureau, Statistical Abstract of
the United States: 2003.)
We originally solicited applicants for
the demonstration program in May
2004; 13 hospitals began participation
with cost reporting years beginning on
or after October 1, 2004. In 2005, 4 of
these 13 hospitals withdrew from the
program and became CAHs. In a notice
published in the Federal Register on
February 6, 2008 (73 FR 6971), we
announced a solicitation for up to 6
additional hospitals to participate in the
demonstration program. Four additional
hospitals were selected to participate
under this solicitation. These four
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additional hospitals began under the
demonstration program payment
methodology with the hospital’s first
cost reporting period starting on or after
July 1, 2008. At that time, there were 13
hospitals participating in the
demonstration program.
Five hospitals (3 of the hospitals were
among the 13 hospitals that were
original participants in the
demonstration program and 2 of the
hospitals were among the 4 hospitals
that began the demonstration program
in 2008) withdrew from the
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.) So far in
CY 2011 one hospital has withdrawn
from the demonstration, saying that a
large number of managed care patients
has made the demonstration
methodology unfavorable. These actions
left 7 of the pre-expansion 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.
In addition, section 410A(c)(2) of
Public Law 108–173 required that, ‘‘[i]n
conducting the demonstration program
under this section, the Secretary shall
ensure that the aggregate payments
made by the Secretary do not exceed the
amount which the Secretary would have
paid if the demonstration program
under this section was not
implemented.’’ This requirement is
commonly referred to as ‘‘budget
neutrality.’’ Generally, when we
implement a demonstration program on
a budget neutral basis, the
demonstration program is budget
neutral in its own terms; in other words,
the aggregate payments to the
participating hospitals do not exceed
the amount that would be paid to those
same hospitals in the absence of the
demonstration program. Typically, this
form of budget neutrality is viable
when, by changing payments or aligning
incentives to improve overall efficiency,
or both, a demonstration program may
reduce the use of some services or
eliminate the need for others, resulting
in reduced expenditures for the
demonstration program’s participants.
These reduced expenditures offset
increased payments elsewhere under
the demonstration program, thus
ensuring that the demonstration
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program as a whole is budget neutral or
yields savings. However, the small scale
of this demonstration program, in
conjunction with the payment
methodology, makes it extremely
unlikely that this demonstration
program could be viable under the usual
form of budget neutrality. Specifically,
cost-based payments to participating
small rural hospitals are likely to
increase Medicare outlays without
producing any offsetting reduction in
Medicare expenditures elsewhere.
Therefore, a rural community hospital’s
participation in this demonstration
program is unlikely to yield benefits to
the participant if budget neutrality were
to be implemented by reducing other
payments for these same hospitals.
In the past seven IPPS final
regulations, spanning the period for
which the demonstration program has
been implemented, we have adjusted
the national inpatient PPS rates by an
amount sufficient to account for the
added costs of this demonstration
program, thus applying budget
neutrality across the payment system as
a whole rather than merely across the
participants in the demonstration
program. As we discussed in the FY
2005, FY 2006, FY 2007, FY 2008, FY
2009, FY 2010, FY 2011 IPPS final rules
(69 FR 49183; 70 FR 47462; 71 FR
48100; 72 FR 47392; 73 FR 48670; 74 FR
43922, and 75 FR 50343 respectively),
we believe that the language of the
statutory budget neutrality requirements
permits the agency to implement the
budget neutrality provision in this
manner. In light of the statute’s budget
neutrality requirement, we are finalizing
a methodology to calculate a budget
neutrality adjustment factor to the FY
2012 national IPPS rates.
2. Changes to the Demonstration
Program Made by the Affordable Care
Act
Sections 3123 and 10313 of the
Affordable Care Act (Pub. L. 111–148)
amended section 410A of Public Law
108–173, which established the rural
community hospital demonstration
program. Sections 3123 and 10313 of
the Affordable Care Act changed the
rural community hospital
demonstration program in several ways.
First, the Secretary is required to
conduct the demonstration program for
an additional 5-year period that begins
on the date immediately following the
last day of the initial 5-year period
under section 410A(a)(5) of Public Law
108–173, as amended (section
410A(g)(1) of Pub. L. 108–173, as added
by section 3123(a) of the Affordable
Care Act and further amended by
section 10313 of that Act). Further, the
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Affordable Care Act requires that, in the
case of a rural community hospital that
is participating in the demonstration
program as of the last day of the initial
5-year period, the Secretary shall
provide for the continued participation
of such rural hospital in the
demonstration program during the 5year extension, unless the hospital
makes an election, in such form and
manner as the Secretary may specify, to
discontinue participation (section
410A(g)(4)(A) of Pub. L. 108–173, as
added by section 3123(a) of the
Affordable Care Act and further
amended by section 10313 of such Act).
In addition, the Affordable Care Act
provides that during the 5-year
extension period, the Secretary shall
expand the number of States with low
population densities determined by the
Secretary to 20 (section 410A(g)(2) of
Pub. L. 108–173, as added by section
3123(a) and amended by section 10313
of the Affordable Care Act). Further, the
Secretary is required to use the same
criteria and data that the Secretary used
to determine the States under section
410A(a)(2) of Public Law 108–173 for
purposes of the initial 5-year period.
The Affordable Care Act also allows not
more than 30 rural community hospitals
in such States to participate in the
demonstration program during the 5year extension period (section
410A(g)(3) of Pub. L. 108–173, as added
by section 3123(a) of the Affordable
Care Act and as further amended by
section 10313 of such Act).
Additionally, we note that we indicated
in the FY 2011 IPPS final rule (75 FR
50343) that section 410A(g)(4)(b) of
Public Law 108–173 as added by section
3123(a) of the Affordable Care Act and
as further amended by section 10313 of
that Act provides that the amount of
payment under the demonstration
program for covered inpatient hospital
services furnished in a rural community
hospital [other than services furnished
in a psychiatric or rehabilitation unit of
the hospital that is a distinct part] is the
reasonable costs of providing such
services for discharges occurring in the
first cost reporting period beginning on
or after the first day of the 5-year
extension period. We want to clarify
that we believe that section
410A(g)(4)(B) of Public Law 108–173, as
added by section 3123(a) of the
Affordable Care Act and as further
amended by section 10313 of such Act,
provides this with respect to a rural
community hospital that is participating
in the demonstration program under
section 410A as of the last day of the
initial 5-year period. Specifically, the
Affordable Care Act requires that in the
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case of a rural community hospital that
is participating in the demonstration as
of the last day of the initial 5-year
period, the Secretary in calculating
payments under subsection (b) shall
substitute under paragraph (1)(A) the
phrase ‘‘the reasonable costs of
providing such services for discharges
occurring in the first cost reporting
period beginning on or after the first day
of the 5-year extension period’’ for the
phrase ‘‘the reasonable costs of
providing such services for discharges
occurring in the first cost reporting
period beginning on or after the
implementation of the demonstration.’’
The phrase ‘‘the reasonable costs of
providing such services for discharges
occurring in the first cost reporting
period beginning on or after the
implementation of the demonstration’’
does not precisely track the language in
section 410A(b)(1)(A) of Public Law
108–173. Therefore, we cannot delete
and replace it as described in the
Affordable Care Act. However, we
believe the language of section
410A(g)(4)(B)(i) of Public Law 108–173,
as amended, is clear. Namely, a rural
community hospital that is participating
in the demonstration as of the last day
of the initial 5-year period shall be paid
for its covered inpatient hospital
services ‘‘the reasonable costs of
providing such services for discharges
occurring in the first cost reporting
period beginning on or after the first day
of the 5-year extension period.’’ (This
methodology does not apply to services
furnished in a psychiatric or
rehabilitation unit of the hospital which
is a distinct part.) For discharges
occurring in a subsequent cost reporting
period during the demonstration, the
formula in section 410A(b)(1)(B) of
Public Law 108–173, as amended,
would apply to such hospitals. That is,
the payment will be the lesser of
reasonable cost or the target amount. We
calculate the target amount in the
second cost reporting period by taking
the reasonable costs of providing
covered inpatient hospital services in
the first cost reporting period beginning
on or after the first day of the 5-year
extension and increasing it by the IPPS
market basket percentage increase (as
defined in section 1886(b)(3)(B)(iii) of
the Act) for that particular cost reporting
period. We calculate the target amount
in subsequent cost reporting periods by
taking the preceding cost reporting
period’s target amount and increasing it
by the IPPS market basket percentage
increase (as defined in section
1886(b)(3)(B)(iii) of the Act) for that
particular cost reporting period. (We
note that, in calculating target amounts,
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51699
we utilize the IPPS market basket
percentage increase as defined in
section 1886(b)(3)(B)(iii) of the Act, as
opposed to the applicable percentage
increase as defined in section
1886(b)(3)(B)(i) of the Act. We note that
section 410A(b)(2)(B) of Public Law
108–173, in pertinent part, provides that
target amounts are ‘‘increased by the
applicable percentage increase (under
clause (i) of section 1886(b)(3)(B) of the
Social Security Act * * *) in the market
basket percentage increase (as defined
in clause (iii) of such section) for that
particular cost reporting period.’’ The
phrase ‘‘applicable percentage increase
(under clause (i) of section 1886(b)(3)(B)
of the Social Security Act * * *) in the
market basket percentage increase
* * *’’ is ambiguous, as there is no
applicable percentage increase in the
market basket percentage increase.
Because the focus of the provision is the
amount of the IPPS market basket
percentage increase, we believe the
provision is addressing the IPPS market
basket percentage increase, and not the
applicable percentage increase, which
includes other adjustments to the
market basket percentage increase.
Further, because section 410A(b)(2)(B)
of Public Law 108–173 is addressing
target amounts under the
demonstration, we believed it was
logical to read the statute as providing
for an update structure mimicking the
update structure for target amounts of
reasonable cost-based providers like
children’s and cancer hospitals, as well
as RNCHIs. This rationale applies any
time we use the IPPS market basket
percentage increase to update target
amounts in the demonstration. With
respect to hospitals that are newly
joining the demonstration, they are paid
the reasonable costs of providing
covered inpatient hospital services,
other than services furnished in a
psychiatric or rehabilitation unit of the
hospital which is a distinct part, for
discharges occurring in the hospital’s
first cost reporting period beginning on
or after the implementation of the
demonstration program (section
410A(b)(1)(A) of Public Law 108–173).
We have determined that each of these
new hospitals will begin participating in
the demonstration with its first cost
reporting period beginning on or after
April 1, 2011. We chose this date
because it follows immediately upon the
notification of the hospitals of their
acceptance to the demonstration and it
will allow the hospitals to begin
participation in the demonstration as
soon as possible. With respect to rural
community hospitals newly joining the
demonstration, for discharges occurring
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in a subsequent cost reporting period
under the demonstration program, the
formula in section 410A(b)(1)(B) of
Public Law 108–173, as amended,
would apply. That is, payments will be
the lesser amount of reasonable costs or
the target amount. We calculate the
target amount in the second cost
reporting period by taking the
reasonable costs of providing covered
inpatient hospital services in the first
cost reporting period and increasing it
by the IPPS market basket percentage
increase for that particular cost
reporting period. We calculate the target
amount in subsequent cost reporting
periods by taking the preceding cost
reporting period’s target amount and
increasing it by the IPPS market basket
percentage increase for that particular
cost reporting period. In addition,
various other technical and conforming
changes were made to section 410A of
Public Law 108–173 by section 3123(a)
of the Affordable Care Act and as further
amended by section 10313 of that Act.
We published a solicitation for
applications for additional participants
in the Rural Community Hospital
Demonstration Program in the Federal
Register on August 30, 2010 (75 FR
52960). Applications were due on
October 14, 2010. The 20 States with the
lowest population density, which are
eligible for the demonstration program
are: Alaska, Arizona, Arkansas,
Colorado, Idaho, Iowa, Kansas, Maine,
Minnesota, Mississippi, Montana,
Nebraska, Nevada, New Mexico, North
Dakota, Oklahoma, Oregon, South
Dakota, Utah, and Wyoming (Source:
U.S. Census Bureau, Statistical Abstract
of the United States: 2003). We
approved 19 new hospitals for
participation in the demonstration
program. We reported in the proposed
rule that we were waiting for these
hospitals to respond as to whether they
accept the terms and conditions
stipulated for their participation in the
demonstration; and, therefore, we based
cost estimates for the demonstration for
this new set of hospitals based on the
assumption that all 19 hospitals would
elect to participate. We proposed that if
fewer were actually to make this
election, we would accordingly adjust
the demonstration cost estimates in this
final rule. At the end of the response
period, 18 of the 19 selected hospitals
accepted the terms of conditions of the
demonstration and agreed to participate;
one hospital declined participation.
Therefore, we are basing the cost
estimates for this final rule on the
assumption that 18 of these newly
participating hospitals will participate
in the demonstration during FY 2012.
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3. FY 2012 Budget Neutrality
Adjustment
In order to ensure that the
demonstration is budget neutral as is
required by the statute, in the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
25955 through 25960), we proposed to
adjust the national IPPS rates to account
for any added costs attributable to the
demonstration program. Specifically, we
proposed that the budget neutrality
adjustment would account for: (1) The
estimated costs of the demonstration
program in FY 2012 for the 8 currently
participating hospitals (‘‘pre-expansion
participating hospitals’’); (2) the
estimated costs of the demonstration in
FY 2012 for the 19 hospitals newly
selected to begin participation in the
demonstration program; and (3) the
amount by which the costs of the
demonstration program, as indicated by
settled cost reports for cost reporting
periods beginning in FYs 2007 and 2008
for hospitals participating in the
demonstration program during FYs 2007
and 2008, exceeded the amount that was
identified in the FY 2007 and FY 2008
IPPS final rules as the budget neutrality
offsets for FYs 2007 and 2008.
We are finalizing our proposed
methodology except where specified
below. We note that we proposed that
if updated data became available for the
final rule, we would use them to
estimate the costs of the demonstration
program in FY 2012. For this final rule,
we have updated data which resulted in
various components of the methodology
being updated. We explain in more
detail below in sections IV.N.3. a. and
b. the specific changes.
a. Component of the FY 2012 Budget
Neutrality Adjustment That Accounts
for Estimated FY 2012 Demonstration
Program Costs of the ‘‘Pre-Expansion
Participating Hospitals’’
In the proposed rule, we noted that
eight hospitals that were selected for
participation in either 2004 or 2008 are
currently continuing to participate in
the extension period mandated by the
Affordable Care Act. (We refer to these
hospitals as ‘‘pre-expansion
participating hospitals’’ in this preamble
discussion of the rural community
hospital demonstration program.) (In the
proposed rule, we said that hospitals
were selected in 2005; this was a
mistake. Hospitals were selected for the
demonstration only in 2004 and in
2008.) In the proposed rule, the
component of the FY 2012 budget
neutrality adjustment to the national
IPPS rates that accounts for the
estimated demonstration program costs
in FY 2012 for the eight ‘‘pre-expansion
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participating hospitals’’ was calculated
by utilizing three separate
methodologies: one methodology for the
six hospitals that had participated in the
demonstration program since its
inception and that we indicated were
continuing to participate in the
demonstration program (‘‘originally
participating hospitals’’); a second
methodology for one hospital that is
currently participating in the
demonstration program and that was
among the four hospitals that joined the
demonstration program in 2008; and a
third methodology for the other hospital
that is currently participating in the
demonstration program that was among
the four hospitals that joined the
demonstration program in 2008.
Different methods were used for these
three sets of hospitals because the data
available to us to estimate the
demonstration program costs for each
was different. We are finalizing the
above methodology, except as explained
previously, certain aspects of the
methodology have been updated in this
final rule based on updated data. We
also note that the number of hospitals
that were selected for participation in
either 2004 or 2008 and that are
currently continuing to participate in
the extension period decreased by one
for this final rule since one of the
‘‘originally participating’’ hospitals left
the demonstration. In order to account
for this decrease, we adjusted the
methodology described above and
explained in detail below by reducing
the number of pre-expansion
participating hospitals used in the
calculation from eight to seven and
reducing the number of originally
participating hospitals used in the
calculation from six to five. We have
updated cost report data available for
this final rule, consistent with our
proposal to use updated data in the final
rule to the extent they are available.
Specifically, in the following
description, we are identifying for one
of the pre-expansion participating
hospitals that there is a more recently
finalized cost report available (as
compared to the ‘‘as submitted cost
report’’ used in the proposed rule). We
are updating various components of the
payment methodology to reflect the
newly available finalized cost report for
this hospital. In the following
description, we are identifying which
cost reports are the same as those
identified in the proposed rule, and we
also identify the one that has changed.
(1) Consistent with the proposed rule,
and for this final rule, for the five (six
in the proposed rule) ‘‘originally
participating hospitals,’’ that is,
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hospitals that have participated in the
project since its inception and that are
continuing to participate, the estimate of
the portion of the budget neutrality
adjustment that accounts for the
estimated FY 2012 demonstration
program costs is based on data from
their settled cost reports applicable to
the second year of the demonstration—
that is, for cost reporting periods ending
in FY 2007. We are using these cost
reports because they are the most recent
finalized cost reports and, thus, we
believe their accounting of costs is the
most accurate indicator available to us
at this time to estimate FY 2012
demonstration costs.
(2) For one of the two hospitals that
joined the demonstration program in
2008, and that is still participating, we
proposed to estimate the FY 2012
demonstration program costs under
section 410A of Public Law 108–173 as
amended based on data from its as
submitted cost report beginning January
1, 2008. For this final rule, because we
have received a finalized cost report for
the cost report period beginning January
1, 2009, we are using updated cost
report data for this hospital.
(3) The remaining hospital of the
seven (eight in the proposed rule) ‘‘preexpansion participating hospitals’’
which began participation in FY 2008 is
an Indian Health Service provider.
Historically, the hospital has not filed
standard Medicare cost reports. Under
the proposed rule, and for this final
rule, we used its full ‘‘as submitted’’
cost report filed for the period beginning
October 1, 2008 to estimate its FY 2012
costs. We used this ‘‘as submitted’’ cost
report because as the most recent cost
report we believe it allows us to
estimate FY 2012 costs accurately.
As we proposed, for this final rule, we
are using the same general methodology
used for the FY 2011 IPPS/LTCH PPS
final rule, but providing more detail.
The methodology for calculating the
estimated FY 2012 demonstration cost
for the seven (eight in the proposed
rule) ‘‘pre-expansion participating
hospitals’’ is as follows:
Step 1: As proposed, in this final rule,
in order to calculate demonstration
costs for each of the five (six in the
proposed rule) ‘‘originally participating
hospitals’’ for the cost reporting period
ending in FY 2007, we subtracted the
amount it would have otherwise been
paid under the applicable payment
system(s) for covered inpatient hospital
services without the demonstration
during such period (as indicated on the
settled cost report for this period) from
the amount paid to it for such services
under the reasonable cost methodology
in section 410A(b) of Public Law 108–
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173 (as indicated on the settled cost
report for this period). Steps 1(a)
through (c) below are performed to
calculate FY 2007 demonstration costs
for these five hospitals. (As proposed,
for this final rule, we are using final
settled cost reports ending in FY 2007
to represent FY 2007 demonstration
costs for each of these hospitals because
a substantial portion of the months
included within these cost report years
(respective to each hospital) fall within
FY 2007, and, therefore we believe that
for purposes of this analysis it is
appropriate to consider data from these
cost reports to represent FY 2007
inpatient costs for the demonstration
during that period.) In addition, we note
that throughout the remainder of the
preamble discussion on the budget
neutrality adjustment for the rural
community hospital demonstration we
refer to ‘‘covered inpatient hospital
services’’ as that term is defined in
section 410A(f)(2) of Public Law 108–
173 as amended as ‘‘inpatient hospital
services.’’ We also note that the phrase
‘‘the reasonable cost methodology’’
means the reasonable cost methodology
in section 410A(b) of Public Law 108–
173 or the reasonable cost methodology
in section 410A(b) of Public Law 108–
173, as amended, as applicable in the
particular situation.
• Step 1(a): As proposed, for this final
rule, first, for each hospital, we
subtracted the amount that would
otherwise be paid under the IPPS for the
hospital’s inpatient hospital services
(excluding those associated with swing
beds) for the cost reporting period
ending in FY 2007 (as indicated on the
settled cost report for this period) from
the amount paid for such services under
the reasonable cost methodology (as
indicated on the settled cost report for
this period). The result of this difference
is each hospital’s demonstration costs
for its inpatient hospital services
(excluding those associated with swing
beds) for the cost reporting period
ending in FY 2007. (We used the
amount the hospital would otherwise be
paid under the IPPS as indicated above
because this is the payment
methodology under which the hospital’s
beds (excluding swing beds) would be
paid in the absence of the
demonstration. This rationale applies
throughout the preamble discussion on
the rural community hospital
demonstration budget neutrality
adjustment whenever this is a
component of the methodology.)
• Step 1(b): As proposed, for this final
rule, next, with respect to the hospitals
that have swing beds, we subtracted the
amount the hospital would otherwise be
paid under section 1888(e)(7) of the Act
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51701
for the inpatient hospital services
associated with the swing beds for the
cost reporting period ending in FY 2007
(as indicated in the settled cost report
for this period) from the amount paid
for such services under the reasonable
cost methodology (as indicated in the
settled cost report for such period). The
result of this difference is each
hospital’s demonstration costs
associated with its swing beds for the
cost reporting period ending in FY 2007.
(We used the amount the hospital
would otherwise be paid under section
1888(e)(7) of the Act as indicated above
because this is the payment
methodology under which the hospital’s
swing beds would be paid in the
absence of the demonstration. This
rationale applies throughout the
preamble discussion on the rural
community hospital demonstration
budget neutrality adjustment whenever
this is a component of the proposed
methodology.)
• Step 1(c): Next, under the proposed
rule, in order to calculate total estimated
FY 2010 demonstration costs for all six
(five in this final rule) hospitals, we
added together the differences
calculated above in Step 1(a) and Step
1(b) as applicable for each of the six
hospitals and then multiplied this sum
by the IPPS market basket percentage
increases for FYs 2008 through 2010,
which were adopted in the respective
IPPS final rules and a 2-percent annual
volume adjustment for the years 2008
through 2010.
We note that, for this final rule, for
purposes of Step 1(c), in order to
calculate total estimated FY 2010
demonstration costs for all five
hospitals, we added together the
differences calculated above in Step 1(a)
and Step 1(b) as applicable for each of
the five hospitals and then multiplied
this sum by the IPPS market basket
percentage increases for FYs 2008
through 2010, which were adopted in
the respective IPPS final rules and a 3percent annual volume adjustment for
the years 2008 through 2010. For this
final rule, we are using a 3-percent
volume adjustment. In the proposed
rule, we proposed to include a volume
adjustment in the methodology for
calculating demonstration costs
recognizing that the volume of services
provided in small rural hospitals tend to
fluctuate. In this final rule, we have
revised the volume adjustment from the
2-percent amount stated in the proposed
rule, which was based on an assessment
at the inception of the demonstration as
to the growth in volume of services, to
3 percent based on updated data. Three
percent per year is the current estimate
nationwide as to the rate of increase in
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the number of Medicare fee-for-service
discharges.
As we proposed, for this final rule, we
are applying the applicable IPPS market
basket percentage increases described
above to model estimated FY 2010
demonstration costs because we believe
that this update factor appropriately
indicates the trend of increase in
hospital operating costs. Further, this
approach is consistent with the agency’s
use of the IPPS market basket
percentage increase to update the rateof-increase limits (which is a reasonable
cost-based methodology) for children’s
and cancer hospitals as well as RNCHIs.
Therefore, we believe it enables us to
estimate appropriately demonstration
costs that are tied to a reasonable costbased methodology. Also, this approach
is consistent with how we update target
amounts under the demonstration under
section 410A(b)(2)(B) of Public Law
108–173. We note that the rationale
provided herein for utilizing an IPPS
market basket percentage increase and a
3-percent annual volume adjustment to
estimate demonstration costs is
applicable throughout the preamble
discussion on the rural community
hospital budget neutrality adjustment
whenever these factors are used to
model the trend of increase and volume
increases in the budget neutrality
adjustment methodology finalized in
this final rule.
As a side note, as a special feature of
the demonstration, we added a
supplemental worksheet to the standard
hospital cost report which is completed
by the fiscal intermediary in the final
settlement for these five ‘‘originally
participating hospitals.’’ This
supplemental worksheet includes the
calculation of the hospital’s first year
reasonable costs of inpatient hospital
services (excluding those associated
with swing beds) as set forth in section
410A of Public Law 108–173, and, in
addition, for the hospital’s second year
cost reports (those cost reports ending in
FY 2007), the target amount (that is, the
previous year’s Medicare reasonable
cost amount for inpatient hospital
services updated by the IPPS market
basket percentage increase as provided
in section 410A(b)(2)(B) of Pub. L. 108–
173). (This supplemental worksheet also
includes a calculation of the amount
that would otherwise be paid for the
hospital’s inpatient hospital services
under the IPPS, as is ordinarily
presented on the standard hospital cost
report. For hospitals that have swing
beds, this supplemental worksheet also
includes the following: the estimated
amount the hospital would otherwise be
paid under section 1888(e)(7) of the Act
for the inpatient hospital services
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associated with the hospital’s swing
beds; the estimated amount the hospital
would be paid under the reasonable cost
methodology for the inpatient hospital
services provided in its swing beds, and
the hospital’s target amount for its
swing beds.
Step 2: In the proposed rule, in order
to calculate estimated FY 2008
demonstration costs for the non-Indian
Health Service hospital that began the
demonstration program in 2008, we
subtracted the estimated amount it
would have otherwise been paid for
inpatient hospital services without the
demonstration under the applicable
payment system(s) (as indicated on its
‘‘as submitted’’ cost report beginning
January 1, 2008) from the estimated
costs of such services under the
reasonable cost methodology (as
indicated on the ‘‘as submitted’’ cost
report for this period). We proposed that
Steps 2(a) through (c) below would be
performed to calculate this amount.
Step 2(a): Specifically, we subtracted
the estimated amount that would
otherwise be paid under the IPPS for the
hospital’s inpatient hospital services
(excluding swing beds) for the cost
reporting period beginning January 1,
2008 (as indicated on the ‘‘as
submitted’’ cost report) from the
estimated amount to be paid for such
services under the reasonable cost
methodology (as indicated on the ‘‘as
submitted’’ cost report for such period).
• Step 2(b): Next, we subtracted the
estimated amount that would otherwise
be paid under section 1888(e)(7) of the
Act for the inpatient hospital services
associated with the swing beds during
the cost reporting period beginning
January 1, 2008 (as indicated on the ‘‘as
submitted’’ cost report) from the
estimated amount to be paid for such
services under the reasonable cost
methodology as indicated on the ‘‘as
submitted’’ cost report for such period.
• Step 2(c): We added together the
differences calculated in Steps 2(a) and
(b) above to obtain the hospital’s total
estimated FY 2008 demonstration cost.
• Step 2(d): Then, in order to
calculate the hospital’s estimated FY
2010 demonstration costs, we took the
amount calculated in Step 2(c) above
and multiplied it by the IPPS market
basket percentage increases for FYs
2009 and 2010 as adopted in the
respective IPPS final rules and a 2percent annual volume adjustment for
FY 2010.
For this final rule, we have updated
data available for this non-Indian
service hospital, which began the
demonstration in 2008; specifically, we
have a finalized cost report for the cost
reporting period beginning January 1,
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2009. This cost report has calculations
for the reasonable cost of inpatient
services, determined in accordance with
the principles of section 410A of Pub. L
108–173, as well as what the cost
amounts would be for the hospital
absent the demonstration. Therefore, in
this final rule, with respect to Step 2, in
order to calculate estimated FY 2009
demonstration costs for the non-Indian
Health Service hospital that began the
demonstration program in 2008, we
subtracted the estimated amount it
would have otherwise been paid for
inpatient hospital services without the
demonstration under the applicable
payment system(s) (as indicated on the
final settled cost report beginning
January 1, 2009) from the estimated
costs of such services under the
reasonable cost methodology (as
indicated on the final settled cost report
for this period). Steps 2(a) through (c)
below are performed to calculate this
estimated amount for the final rule. We
note that we are using the cost report
beginning January 1, 2009 to represent
FY 2009 demonstration costs for this
hospital because it corresponds most
precisely to FY 2009 and, therefore, we
believe correctly represents FY 2009
inpatient costs for the demonstration for
that period.
• Step 2(a): Specifically, we
subtracted the estimated amount that
would otherwise be paid under the IPPS
for the hospital’s inpatient hospital
services (excluding swing beds) for the
cost reporting period beginning January
1, 2009 (as indicated on the finalized
settled cost report) from the estimated
amount to be paid for such services
under the reasonable cost methodology
(as indicated on the finalized settled
cost report for such period).
• Step 2(b): Next, we subtracted the
estimated amount that would otherwise
be paid under section 1888(e)(7) of the
Act for the inpatient hospital services
associated with the swing beds during
the cost reporting period beginning
January 1, 2009 (as indicated on the
finalized settled cost report) from the
estimated amount to be paid for such
services under the reasonable cost
methodology as indicated on the
finalized settled cost report for such
period.
• Step 2(c): We added together the
differences calculated in Steps 2(a) and
(b) above to obtain the hospital’s total
estimated FY 2009 demonstration cost.
• Step 2(d): Then, in order to
calculate the hospital’s estimated FY
2010 demonstration costs, we took the
amount calculated in Step 2(c) above
and multiplied it by the IPPS market
basket percentage increase for FY 2010
as adopted in the respective IPPS final
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rule and a 3-percent annual volume
adjustment for FY 2010 since the
volume adjustment has been updated in
this final rule. Whereas we proposed
updates for FYs 2009 and 2010 in the
proposed rule, we are only using an
update for the latter year in this final
rule because we are using more recent
cost and payment data, which are
obtained from the cost report for cost
report period beginning January 1, 2009.
Step 3: Under the proposed rule, and
for this final rule, in order to calculate
the estimated FY 2009 demonstration
costs for the Indian Health Service
provider, we subtracted the estimated
amount the hospital would have
otherwise been paid for inpatient
hospital services without the
demonstration under the applicable
payment system (as indicated on the ‘‘as
submitted’’ cost report beginning
October 1, 2008) from the estimated
costs for such services under the
reasonable cost methodology (as
indicated in the ‘‘as submitted’’ cost
report for such period). As proposed, for
this final rule, Step 3(a) below is
performed to calculate this amount. (As
proposed, for this final rule, we are
using the cost report beginning October
1, 2008 to represent FY 2009
demonstration costs for this hospital
because it corresponds most precisely to
FY 2009 and, therefore, we believe
correctly represents FY 2009 inpatient
costs for the demonstration for that
period.)
• Step 3(a): Specifically, we
subtracted the estimated amount the
hospital would have otherwise been
paid for inpatient hospital services
under the IPPS in the cost reporting
period beginning October 1, 2008
without the demonstration (as indicated
on the ‘‘as submitted’’ cost report for
this period) from the estimated amount
to be paid under the reasonable cost
methodology for such services (as
indicated in the ‘‘as submitted’’ cost
report for such period). We note that
this provider had no swing beds,
therefore, we did not estimate any
portion of the costs under section
1888(e)(7) of the Act.
• Step 3(b): Next, under the proposed
rule, in order to calculate the Indian
Health Service provider’s estimated FY
2010 demonstration costs, we
multiplied the difference calculated in
Step 3(a) above by the IPPS market
basket percentage increase for FY 2010
adopted in the FY 2010 IPPS/LTCH PPS
final rule and the 2-percent annual
volume adjustment.
For this final rule, for purposes of step
3(b), in order to calculate the Indian
Health Service provider’s estimated FY
2010 demonstration costs, we
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multiplied the difference calculated in
Step 3(a) above by the IPPS market
basket percentage increase for FY 2010
adopted in the FY 2010 IPPS/LTCH PPS
final rule and a 3-percent annual
volume adjustment.
Step 4: In the proposed rule, in order
to calculate total estimated FY 2010
demonstration costs for all eight ‘‘preexpansion participating hospitals’’, we
then added the estimated FY 2010
demonstration costs calculated with
proposed rule data in Steps 1(c), 2(d),
and 3(b) above.
For purposes of this final rule, with
respect to Step 4, in order to calculate
total estimated FY 2010 demonstration
costs for all seven ‘‘pre-expansion
participating hospitals’’, we then added
the estimated FY 2010 demonstration
costs calculated with the final rule data
in Steps 1(c), 2(d), and 3(b) above.
Step 5: Next, under the proposed rule,
in order to calculate total estimated FY
2012 demonstration costs for all eight
(seven in this final rule) ‘‘pre-expansion
hospitals,’’ we multiplied the amount
calculated with proposed rule data in
Step 4 above by the FY 2011 IPPS
market basket percentage increase
adopted in the FY 2011 IPPS/LTCH PPS
final rule and the proposed FY 2012
IPPS market basket percentage increase
contained elsewhere in the FY 2012
IPPS/LTCH PPS proposed rule and a 2percent annual volume adjustment for
FYs 2011 and 2012.
Under this final rule, for purposes of
Step 5, in order to calculate total
estimated FY 2012 demonstration costs
for all seven ‘‘pre-expansion hospitals,’’
we multiplied the amount calculated in
Step 4 above with the final rule data by
the FY 2011 IPPS market basket
percentage increase adopted in the FY
2011 IPPS/LTCH PPS final rule and the
FY 2012 IPPS market basket percentage
increase contained elsewhere in the
final rule and a 3-percent annual
volume adjustment for FYs 2011 and
2012. We used the FY 2012 IPPS market
basket percentage increase adopted in
this final rule because it is the most
current estimate available at the time of
this rule. (The FY 2012 IPPS market
basket percentage increase adopted in
this final rule is used when the FY 2012
IPPS market basket percentage is used to
model the trend of increase which is
used in the final budget neutrality
adjustment methodology for the reason
set forth previously.) Thus, for this final
rule, we arrived at the total estimated
FY 2012 demonstration costs for all
seven currently participating hospitals
which must be offset, which is
$20,255,315.
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51703
b. Portion of the FY 2012 Budget
Neutrality Adjustment That Accounts
for Estimated FY 2012 Demonstration
Program Costs for Hospitals Newly
Selected to Participate in the
Demonstration Program
Section 410A(g)(3) of Public Law 108–
173, as added by section 3123 of the
Affordable Care Act and as further
amended by section 10313 of such Act,
provides that ‘‘[n]otwithstanding
subsection (a)(4), during the 5-year
extension period, not more than 30 rural
community hospitals may participate in
the demonstration program under this
section.’’ In the proposed rule, we
indicated that 19 hospitals were newly
selected to join the demonstration and,
therefore, our proposed budget
neutrality adjustment was based on data
for Medicare inpatient costs and
payments from recently submitted cost
reports for these 19 hospitals. As
indicated in section IV.N.2. of this
preamble, 18 hospitals accepted the
terms of conditions of the
demonstration and agreed to participate.
Based on this updated data, for this final
rule, we had to adjust our budget
neutrality adjustment to account for the
estimated costs associated with the 18
hospitals, as opposed to 19 hospitals,
that have agreed to participate. As
proposed, in order to ensure budget
neutrality for the newly selected
hospitals, we are including a component
in the budget neutrality adjustment
factor to the FY 2012 national IPPS rates
to account for the estimated FY 2012
costs of those new hospitals. As we
proposed, for this final rule, we are
generally using ‘‘as submitted’’ cost
reports to estimate demonstration costs
because they are the most recent cost
reports and, therefore, we believe most
accurately reflect the hospital’s cost and
payment for Medicare inpatient services
in the respective year. We note that
hospitals were required to submit pages
from their most recent cost reports with
their applications. For 13 of these
hospitals, these cost reports had end
dates in FY 2009; for the 5 remaining
hospitals, they had end dates in FY
2010. Therefore, in various steps in the
methodology below, we begin various
estimates with FY 2009 if the hospital
submitted a cost report ending in FY
2009, and FY 2010 if the hospital
submitted a cost report ending in FY
2010.
As we proposed, for this final rule, we
are using the following methodology in
order to estimate FY 2012
demonstration program costs for the 18
newly selected hospitals. This
methodology differs from that in the FY
2011 IPPS/LTCH PPS final rule,
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because, at that time, hospitals had not
been selected for participation, and thus
we had no data specific to those
hospitals that would enter the
demonstration as a result of its
expansion mandated by the Affordable
Care Act.
Step 1(a): For each hospital that
submitted a cost report ending in FY
2009, we subtracted the estimated
amount that would be paid for its
inpatient hospital services (excluding
those associated with swing beds) under
the IPPS for such period (as indicated
on the ‘‘as submitted’’ cost report for
such period) from the estimated amount
for reasonable costs for such services (as
indicated on the ‘‘as submitted’’ cost
report for such period) in order to
calculate the difference between the
hospital’s estimated cost and payment
for its inpatient hospital services
(excluding those associated with swing
beds) during the cost reporting period
ending in FY 2009.
Step 1 (b): For each hospital that
submitted a cost report ending in FY
2010, we subtracted the estimated
amount that would be paid for its
inpatient hospital services (excluding
those associated with swing beds) under
the IPPS (as indicated on the ‘‘as
submitted’’ cost report for such period)
from the estimated amount for the
reasonable cost for such services (as
indicated on the ‘‘as submitted’’ cost
report for such period) in order to
calculate the difference between the
hospital’s estimated costs and payment
for its inpatient hospital services
(excluding those associated with swing
beds) during such period.
Step 1(c): While a portion of the 18
newly selected hospitals that have
swing beds reported estimated costs for
those beds, some hospitals did not,
namely a portion of the hospitals that
submitted cost reports ending in FY
2009. Therefore, we needed to gap-fill in
order to account for this issue. For each
of the hospitals with swing beds that
submitted cost reports ending in FY
2009, but that did not submit with its
application estimated costs associated
with those swing beds, we assigned an
estimated cost for its swing beds based
on an average of the estimated costpayment difference associated with the
swing beds of the newly participating
hospitals that reported such data on
their applications. We are assigning
estimated costs based on the average of
the cost-payment difference for those
hospitals that submitted these data,
because these hospitals represent a
sample of hospitals chosen for the
demonstration, which we believe can
accurately reflect costs and payment.
We believe that these amounts, derived
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from the applications of the hospitals
that submitted these data, accurately
reflect this sample because they are
hospitals of similar size and
circumstances. Furthermore, these
hospitals, which submitted the data,
were chosen from the same set of States
as the overall set of the newly selected
hospitals. As proposed, for this final
rule, we utilized the methodology in
Steps 1(c)(i) through (c)(iii) below to
calculate this amount, except we note
that, as explained previously, the
annual volume adjustment and FY 2012
IPPS market basket percentage increase
have changed from the proposed to this
final rule based on updated data:
• Step 1(c)(i): For each of the
hospitals with swing beds that
submitted with its application both a
cost report ending in FY 2009 and
estimated costs of those swing beds
during such period, we calculated its
estimated cost-payment difference for
those swing beds (that is, we subtracted
the amount that the hospital estimates
will be paid under section 1888(e)(7) of
the Act for the inpatient hospital
services associated with its swing beds
for such period from the amount that
the hospital estimates it would be paid
for the reasonable costs for such services
during such period as those amounts are
reported on the hospital’s application)
by simply taking this amount from the
hospital’s application.
• Step 1(c)(ii): Then, for each of the
hospitals with swing beds that
submitted with its application both a
cost report ending in FY 2010 and the
estimated costs of those swing beds
during such period, we calculated the
difference between the estimated costs
and payment for those swing beds for
such period by simply taking this
amount from the hospital’s application.
(We note that all hospitals that had
swing beds and that submitted cost
reports ending in FY 2010 with their
application supplied data on the
estimated cost and payment for swing
bed services on these cost reports.)
• Step 1(c)(iii): Next, we totaled all of
the individual amounts calculated
under Steps 1(c)(i) and (c)(ii) above and
then divided this amount by the total
number of hospitals that provided data
on estimated costs on swing beds in
their applications. We used the result of
this computation as the estimated cost
for the swing beds for each of the
hospitals that failed to submit estimated
costs for those beds with their
applications.
• Step 1(d): Then, in order to
calculate the total costs during the cost
reporting period ending in FY 2009 for
each hospital that submitted a cost
report ending in FY 2009, we did the
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following: (a) If the hospital had no
swing beds, its total estimated costs for
such period is the difference calculated
under Step 1(a); (b) If the hospital had
swing beds, we added the difference
calculated under Step 1(a) with the
difference calculated under Step 1(c)(i)
or Step 1(c)(iii) as applicable.
• Step 1(e): Next, in order to calculate
total estimated FY 2009 costs for all of
the hospitals that submitted cost reports
ending in FY 2009 with their
applications, we added together all of
the total estimated costs that were
calculated for each such hospital under
Step 1(d) above. We note that we believe
that using cost reports ending in FYs
2009 and 2010 best reflect costs and
payment in FYs 2009 and 2010 because
these cost reports most closely respond
to those fiscal years.
• Step 1(f): Then, in order to calculate
the total estimated FY 2011 costs for the
newly selected hospitals that submitted
cost reports ending in FY 2009 with
their applications, we multiplied the
amount calculated in Step 1(e) above by
the FYs 2010 and 2011 IPPS market
basket percentage increases adopted in
the respective IPPS/LTCH PPS final
rules as well as a 3-percent (2-percent in
the proposed rule) annual volume
adjustment for each of FYs 2010 and
2011.
• Step 1(g): Then, in order to
calculate the total estimated FY 2010
costs for each hospital that submitted a
cost report ending in FY 2010, we did
the following: (a) If the hospital had no
swing beds, its total estimated costs is
the difference calculated under Step
1(b); (b) If the hospital had swing beds,
we added the difference calculated
under Step 1(b) with the difference
calculated under Step 1(c)(ii).
• Step 1(h): Next, in order to calculate
the total FY 2010 costs for all of the
hospitals that submitted FY 2010 cost
reports with their applications, we
added together all of the total estimated
FY 2010 costs calculated for each such
hospital under Step 1(g) above.
• Step (1)(i): Then, we calculated the
total estimated FY 2011 costs for all of
the newly selected hospitals that
submitted cost reports ending in FY
2010 by multiplying the amount
calculated in Step 1(h) above by the FY
2011 IPPS market basket percentage
increase adopted in the respective IPPS/
LTCH PPS final rule as well as a 3percent (2-percent in the proposed rule)
annual volume adjustment for FY 2011.
• Step (1)(j): Next, in order to
calculate total estimated FY 2012
demonstration costs for all of the 18
newly selected hospitals, we added
together the amounts calculated in Steps
1(f) and 1(i) above and then multiplied
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this sum by the IPPS FY 2012 market
basket percentage increase contained
elsewhere in this final rule and a 3percent annual volume adjustment for
FY 2012. (We note that, for the proposed
rule, we multiplied the amounts
calculated in Steps 1(f) and 1(i) by the
proposed FY 2012 IPPS market basket
percentage increase contained
elsewhere in the proposed FY 2012
IPPS\LTCH PPS proposed rule and a 2percent annual volume adjustment. As
explained previously, these factors have
changed in this final rule based on
updated data.) The amount of the
estimated FY 2012 demonstration costs
for the 18 newly selected hospitals,
which must be offset, is $32,196,745.
c. Portion of the FY 2012 Budget
Neutrality Adjustment to Offset the
Amount by Which the Costs of the
Demonstration Program in FYs 2007 and
2008 Exceeded the Amount That was
Identified in the FYs 2007 and 2008
IPPS Final Rules as the Budget
Neutrality Offset for FYs 2007 and 2008
In addition, we proposed that, in
order to ensure that the demonstration
program in FYs 2007 and 2008 was
budget neutral, we would incorporate a
component into the budget neutrality
adjustment factor to the FY 2012
national IPPS rates, which would offset
the amount by which the demonstration
program costs as indicated by settled
cost reports beginning in FYs 2007 and
2008 for hospitals participating in the
demonstration program during FYs 2007
and 2008 exceeded the amount that was
identified in the FYs 2007 and 2008
IPPS final rules as the budget neutrality
offset for FYs 2007 and 2008.
Specifically, we proposed the following
methodology (this is the same
methodology as used in the FY 2011
IPPS/LTCH PPS final rule, but we added
detail):
• Step One: Calculate the costs of the
demonstration program for each of FYs
2007 and 2008 according to the settled
cost reports that began in FYs 2007 or
2008 for the then participating hospitals
(which represent the third and fourth
years of the demonstration program for
each of the then participating hospitals)
and then add these two sums together.
The costs of the demonstration program
for each of FYs 2007 and 2008 is the
difference resulting from subtracting the
total amount that would otherwise be
paid to the then participating hospitals
under the applicable payment system(s)
(that is, under the IPPS and under
section 1888(e)(7) of the Act to the
extent the participating hospital had
swing beds) without the demonstration
from the amount paid to those hospitals
under the demonstration payment
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methodology in section 410A(b) of
Public Law 108–173. (We proposed to
use these settled cost reports, which
represent the third and fourth years of
the demonstration program for each of
the then participating hospitals, because
we believed they correctly represent
inpatient costs for the demonstration
program during each of those 2 years.
These settled cost reports represent the
third and fourth years of the
demonstration, because the
demonstration started with cost report
start dates on or after October 1, 2004.
Therefore, the first year of the
demonstration program would be
represented by cost reports with a start
date between October 1, 2004 and
September 30, 2005 (that is, FY 2005;
the second year of the demonstration
program is represented by cost reports
with start date between October 1, 2005
and September 30, 2006 (FY 2006); the
third year of the demonstration program
is represented by cost reports with start
date between October 1, 2006 and
September 30, 2007 (FY 2007); the
fourth year of the demonstration
program is represented by cost reports
with start date between October 1, 2007
and September 30, 2008 (FY 2008).
• Step Two: Subtract the amount that
was offset by the budget neutrality
adjustment for FYs 2007 and 2008
($9,197,870 for FY 2007 and $9,681,893
for FY 2008) from the combined costs of
the demonstration program in FYs 2007
and 2008 as calculated in Step one.
• Step Three: The result of Step two
is a dollar amount, for which we would
calculate a factor that would offset such
amounts and would be incorporated
into the overall proposed budget
neutrality adjustment to the proposed
national IPPS rates for FY 2012. This
specific component to the overall
budget neutrality adjustment for FY
2012 would account for the difference
between the combined costs of the
demonstration program in FYs 2007 and
2008 and the amount of the budget
neutrality adjustment published in the
FYs 2007 and 2008 IPPS final rules and,
therefore, would ensure that the
demonstration program is budget
neutral for FYs 2007 and 2008.
Because of delays in the settlement
process for the demonstration hospitals’
third and fourth year cost reports, that
is, for cost reporting periods starting in
each FYs 2007 and 2008 respectively,
we were unable in the proposed rule to
state the costs of the demonstration
program corresponding to FYs 2007 and
2008 for purposes of determining the
amount by which the costs
corresponding to FYs 2007 and 2008
exceeded the amount offset by the
budget neutrality adjustment for FYs
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2007 and 2008. Similarly, for this final
rule, we are unable to identify the
specific numeric amount representing
this offsetting process that can be
incorporated into the budget neutrality
adjustment applied to the national IPPS
rates due to delays in the settlement
process for the demonstration hospitals’
third and fourth year cost reports. We
note that we anticipate that they may be
available for the FY 2013 IPPS/LTCH
PPS proposed and final rules. Therefore,
the estimated adjustment to the national
IPPS rates in this final rule cannot
include a component to account for
these costs.
For this FY 2012 IPPS/LTCH PPS
final rule, the estimated amount for
which an adjustment to the national
IPPS rates is being calculated is the sum
of the amounts specified in sections
IV.N.3.a. and IV N.3.b. of this final rule,
which is $52,452,060 (this estimate does
not account for the numeric result of the
method in IV.N.3.c.). Sections IV.N.3.a.
and IV.N.3.b. of this final rule state
dollar amounts, which represent
estimated costs attributable to the
demonstration program for the
respective component of the overall
estimated calculation of the final budget
neutrality factor for FY 2012. This
estimated amount is based on the
specific assumptions identified, as well
as from data sources that are used
because they represent either the most
recently finalized, (that is, settled) or, if
‘‘as submitted,’’ recently available cost
reports.
Comment: One commenter pointed
out that if the newly participating
hospitals’ cost reports for the preceding
year are not settled, or the hospital is
appealing certain determinations made
by the fiscal intermediary or MAC, the
target amount for any year under the
demonstration program may be subject
to change. The commenter asked
whether cost reports would have to be
reopened to reflect the final settlement
of the years in which the respective
target amount is developed.
Response: We will approach this issue
consistent with standard cost report
review.
O. Bundling of Payments for Services
Provided to Outpatients Who Later Are
Admitted as Inpatients: 3-Day Payment
Window
1. Background
Section 1886(a)(4) of the Act includes
in the definition of ‘‘operating costs of
inpatient hospital services’’ the cost of
diagnostic services (including clinical
diagnostic laboratory tests) ‘‘or other
services related to the admission’’ (as
defined by the Secretary) furnished by
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the hospital (or by an entity that is
wholly owned or operated by the
hospital) to the patient during the 3
days preceding the date of the patient’s
admission to a subsection (d) hospital
subject to the IPPS. For a nonsubsection (d) hospital (psychiatric
hospitals and units, inpatient
rehabilitation hospitals and units, longterm care hospitals, children’s hospitals,
and cancer hospitals), the statutory
payment window is 1 day preceding the
date of the patient’s admission.
Section 102(a)(1) of the Preservation
of Access to Care for Medicare
Beneficiaries and Pension Relief Act of
2010 (Pub. L. 111–192, enacted on June
25, 2010) specifies that the term in
section 1886(a)(4) of the Act, ‘‘other
services related to the admission’’,
includes ‘‘all services that are not
diagnostic services (other than
ambulance and maintenance renal
dialysis services) for which payment
may be made under this title [Title
XVIII] that are provided by a hospital (or
an entity wholly owned or wholly
operated by the hospital) to a patient—
(A) on the date of the patient’s inpatient
admission; or (B) during the 3 days (or,
in the case of a hospital that is not a
subsection (d) hospital, during the 1
day) immediately preceding the date of
admission unless the hospital
demonstrates (in a form and manner,
and at a time, specified by the Secretary)
that such services are not related (as
determined by the Secretary) to such
admission.’’ Public Law 111–192 makes
no changes to the existing policy
regarding billing for diagnostic services.
Under the 3-day (or 1-day) payment
window policy, all outpatient diagnostic
services furnished to a Medicare
beneficiary by a hospital (or an entity
wholly owned or operated by the
hospital), on the date of a beneficiary’s
admission or during the 3 days (1 day
for a non-subsection (d) hospital)
immediately preceding the date of a
beneficiary’s inpatient hospital
admission, must be included on the Part
A bill for the beneficiary’s inpatient stay
at the hospital. All outpatient
nondiagnostic services provided by the
hospital (or an entity wholly owned or
wholly operated) on the date of the
inpatient admission or during the 3 days
(1 day for a non-subsection (d) hospital)
immediately preceding the date of a
beneficiary’s inpatient hospital
admission are deemed related to the
admission and must be billed with the
inpatient stay unless the hospital attests
that specific nondiagnostic services are
unrelated to the hospital claim.
Further, section 102(c) of Public Law
111–192 prohibits the reopening of a
claim, adjusting a claim, or making
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payments pursuant to any request for
payment under Title XVIII, submitted
by an entity (including a hospital or an
entity wholly owned or operated by the
hospital), for services (as described in
section 102(c)(2) of Pub. L. 111–192), for
purposes of treating, as unrelated to a
patient’s inpatient admission, services
provided during the 3 days (or, in the
case of a hospital that is not a
subsection (d) hospital, during the 1
day) immediately preceding the date of
the patient’s inpatient admission.
Services described in section 102(c)(2)
of Public Law 111–192 are other
services related to the admission which
were previously included on a claim or
request for payment submitted under
Part A of Title XVIII for which a
reopening, adjustment, or request for
payment under Part B of Title XVIII,
was not submitted prior to June 25, 2010
for purposes of treating, as unrelated to
a patient’s inpatient admission.
In an interim final rule with comment
period issued in the Federal Register on
August 16, 2010 (75 FR 50346 through
50349), we discussed and made changes
to the Medicare regulations pertaining
to the 3-day payment (or, if applicable,
1-day) window policy in order to
comport with the requirements of
section 102 of Pub. L. 111–192. We refer
readers to that interim final rule with
comment period for further information
about the 3-day (or, if applicable, 1-day)
payment window policy. We had
received public comments on the
August 16, 2010 interim final rule with
comment period, and we indicated in
the FY 2012 IPPS/LTCH PPS proposed
rule that we planned to address these
public comments as well as any public
comments we may receive on the
proposals in the proposed rule in this
FY 2012 IPPS/LTCH PPS final rule.
Comment: One commenter supported
the statutory and regulatory changes
made to the 3-day payment window
provision. One commenter asked for
clarification of the timeframe for
submitting claims based on the
requirements of section 102(c) of Public
Law 111–192. The commenter’s
understanding is that a hospital must
have identified any unrelated
nondiagnostic services for which it
wished to bill separately on an
outpatient claim for services provided
prior to June 25, 2010, and cannot file
an adjustment claim now to unbundle
any such services from the inpatient
admission if it did not originally do so
prior to June 25, 2010. The commenter’s
assumption is that providers can file an
adjustment claim for services that have
been billed since June 25, 2010. The
commenter suggested that CMS make a
simple statement to that effect so it is
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unambiguous to providers that this
statutory provision only applies to
services provided prior to June 25, 2010.
Response: Section 102(c) of Public
Law 111–192 prohibits us from
reopening a claim, adjusting a claim, or
making payment pursuant to any
request for payment, submitted for other
services related to the admission, which
were previously included on a claim or
request for payment for which a
reopening, adjustment, or request for
payment under Part B was not
submitted prior to June 25, 2010.
Hospitals may bill Medicare separately
for outpatient nondiagnostic services
furnished prior to June 25, 2010,
provided that: (1) The services are not
related to an inpatient stay (the
determination of ‘‘related’’ for services
furnished prior to June 25, 2010 is based
on guidance published in the Federal
Register on February 11, 1998 (63 FR
6866)); (2) such services were not
previously included on a Medicare
claim; and (3) the claim meets all
applicable filing deadlines.
Section 102(c) of Public Law 111–192
does not preclude a provider from
submitting a new Medicare Part B claim
and a Part A adjustment claim for the
purpose of unbundling outpatient
services that the provider believes were
improperly bundled with an inpatient
claim, in circumstances where all of the
following conditions are met: (a) The
outpatient services were furnished to a
beneficiary on or after June 25, 2010; (b)
the outpatient services were not
provided on the same calendar day as a
beneficiary’s inpatient admission; (c)
the outpatient services were
nondiagnostic; (d) the provider attests
that the outpatient services were
clinically unrelated to the beneficiary’s
inpatient admission and such claim is
supported by documentation in the
patient’s medical record; and (e) the
claim meets all applicable filing
deadlines.
Comment: Some commenters urged
CMS to consider providing guidance as
to how providers may establish policies
and procedures for identifying
nondiagnostic services that are
unrelated to the admission, and what
those policies and procedures should
consider in making this determination.
One of the commenters recognized that
CMS looks to hospitals to make this
determination, but given the volume of
questions about the payment window
policy for Medicare both prior to and
since the statutory change, the
commenter stated that it seems many
hospitals remain confused about how to
make that determination.
Some commenters requested that
CMS clearly define ‘‘clinically
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associated’’ outpatient nondiagnostic
services in the Medicare Claims
Processing Manual to avoid further
confusion in the hospital community
regarding what constitutes unrelated
outpatient nondiagnostic services.
According to one of the commenters,
lack of a clear definition of clinically
associated services could cause
confusion and more complications
under post-review audits.
One commenter supported the
continued use of an exact match (for all
digits) between the ICD–9–CM principal
diagnosis code assigned for both the
preadmission services and the inpatient
stay to identify services that are
clinically associated with the
admission. Another commenter did not
support using ICD–9–CM codes to
define what is related and what is not
related and suggested that all
continuous services are by definition
related services.
According to one of the commenters,
it will be substantially difficult for
billing systems to present an
opportunity for the hospital to
determine when to unbundle such
services in any reasonable way short of
holding claims from being generated
and submitted for what may amount to
a very large number of inpatient claims,
and this may serve to slow down the
billing process for those claims. The
commenter contended that most billing
systems for hospital services have
capabilities to define bundling rules for
diagnostic services that should always
be bundled into the inpatient admission
for billing purposes. However, for
bundling of nondiagnostic services (or
for unbundling), the commenter
believed that a manual process was
necessary so that hospitals would not
make perfunctory decisions regarding
when to bundle or not bundle. The
commenter was concerned that this
could lead to hospitals always making
the determination to bundle to save the
administrative time, effort, and cost to
unbundle or to define rules to always
unbundle particular nondiagnostic
services without assuring that they
should truly be unbundled.
Response: In accordance with section
1886(a)(4) of the Act, outpatient
nondiagnostic services furnished within
the 3-day (or, if applicable, 1-day)
window that are related to an inpatient
admission must be bundled with the
billing of the inpatient stay. An
outpatient nondiagnostic service is
related to the admission if it is clinically
associated with the reason for a patient’s
inpatient admission. As we discussed
above and in the interim final rule with
comment period issued in the Federal
Register on August 16, 2010 (75 FR
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50346 through 50349), section 102 of
Public Law 111–192 broadened the
definition of related outpatient
nondiagnostic services. Adopting the
definition that CMS had prior to June
25, 2010, for related nondiagnostic
services, as suggested by one of the
commenters (that is, there would need
to be an exact match (all 5 digits)
between the principal diagnosis code
assigned for both the preadmission
services and the inpatient stay) would
be too narrow and would impermissibly
limit the number and scope of
outpatient nondiagnostic services that
are clinically related to the admission
and should be bundled with the
inpatient stay payment.
In response to the commenter who
requested that all continuous services
(for example, inpatient admission
through the emergency department,
hospitalization for complications after
outpatient surgery, among others) be
considered related services and be
included in the inpatient stay, we
believe that may result in services being
bundled in the inpatient stay that are
not related to the admission. However,
we will take these comments into
consideration as we develop updates to
the Medicare instructions in the future.
Comment: One commenter urged
CMS to delay the effective date of this
policy to April 1, 2011, because—
(1) Hospitals did not have a policy in
place on June 25, 2010, and have not
programmed their billing systems to
accommodate this policy retroactively.
According to the commenter, to ask
hospitals to retroactively implement this
policy presents a major burden with
regard to system changes, as well as
claims rebilling and/or adjusting; and
(2) The creation of the condition code
or modifier is administered through the
National Uniform Billing Committee
and should follow that body’s
guidelines that state approved changes
are usually effective April 1, October 1,
or about 90 days after approval, as
appropriate.
Response: Section 102(a) of Public
Law 111–192 pertains to the 3-day (or
1-day) payment window and was
effective for services furnished on or
after the date of enactment, June 25,
2010. CMS does not have the authority
to delay the enactment of this law.
Comment: Some commenters were
concerned that hospitals have not
historically included the diagnosis and
procedures codes from the outpatient
services on the inpatient claim, only the
charges. The commenters were
concerned that inclusion of the
diagnosis codes from the outpatient
claim could impact the MS–DRG
assignment as well as have health
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statistic and quality reporting
implications.
The commenters also were concerned
with the administrative burden of
having to recode the outpatient
procedures from CPT–4 codes, which
are reported in the outpatient setting, to
ICD–9–CM codes, which are reported in
the inpatient setting. The commenters
also raised questions regarding the type
of documentation that will be required
to support adding the code to an
inpatient claim.
Response: As we specified in a
memorandum to hospitals explaining
the policy changes pertaining to
nondiagnostic services subject to the
payment window (dated August 9, 2010
and distributed to hospitals through the
fiscal intermediaries/MACs), hospitals
must include on a Medicare claim for a
beneficiary’s inpatient stay the
diagnoses, procedures, and charges for
all preadmission outpatient diagnostic
services and all admission-related
preadmission outpatient nondiagnostic
services. We note that, in combining on
the inpatient bill the diagnoses,
procedures, and charges for the
outpatient services, a hospital must
convert CPT–4 codes to ICD–9–CM
codes and include outpatient diagnostic
and admission-related nondiagnostic
services that span the period of the
payment window. We are aware that the
inclusion of some diagnosis codes
reported on the outpatient claim that are
bundled into the inpatient stay may
affect the MS–DRG assignment. Also,
the inclusion of an outpatient surgical
procedure that is converted from CPT–
4 coding to ICD–9–CM coding for
inpatient reporting may affect the MS–
DRG assignment of the inpatient claim.
The law requires that preadmission
diagnostic services and related
nondiagnostic services be included on
the claim for the inpatient admission.
Therefore, in some cases, including
such services on the inpatient claim
may affect the MS–DRG assignment and,
when appropriately included, is
permissible.
The process of bundling claims has
remained unchanged. That is, the
bundling of claims incorporates
transferring all the information reported
in the outpatient encounter, such as the
diagnosis and procedure codes as well
as the charges, to the inpatient setting.
We are aware that there are separate
ICD–9–CM Coding Guidelines for the
inpatient setting and the outpatient
setting. Appropriate guidelines should
be followed at the time of coding based
on the setting of the encounter. We note
that the bundling rules for the 3-day (1day) payment window policy do not
affect the Coding Guidelines for
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inpatient and outpatient settings. In
response to the commenter’s request for
guidance on the type of documentation
that would be required to support
adding the code to an inpatient claim,
the guidance would be the same for
reporting any diagnosis on a claim. If
there is documentation in the patient’s
medical record that confirms that the
condition or diagnosis is present, that
diagnosis should be reported.
2. Condition Code 51 (Attestation of
Unrelated Outpatient Nondiagnostic
Services)
As we stated in the August 16, 2010
interim final rule with comment period
(75 FR 50348), we intend to establish a
process for hospitals to attest to
nondiagnostic services as being
unrelated to the hospital claim when a
hospital submits an outpatient claim. As
part of the process, hospitals would be
required to maintain documentation in
the beneficiary’s medical record to
support their claim that the outpatient
nondiagnostic services are unrelated to
the beneficiary’s inpatient admission.
The National Uniform Billing
Committee (NUBC) is a committee
established by the American Hospital
Association and includes the
participation of all the major national
provider and payer organizations. The
NUBC was formed to develop a single
billing form and standard data set that
could be used nationwide by
institutional providers and payers for
handling health care claims. The NUBC
has provided a mechanism through the
establishment of a condition code for a
hospital to attest directly on the
outpatient claim to specific
nondiagnostic services as being
clinically unrelated to an inpatient
hospital claim (that is, the preadmission
diagnostic services are clinically
distinct or independent from the reason
for the beneficiary’s inpatient
admission). As of April 1, 2011, a
hospital must add condition code 51 on
claims for separately billed outpatient
nondiagnostic services furnished on or
after June 25, 2010 (the date of
enactment of Public Law 111–192) if the
hospital wishes to attest to
nondiagnostic services as being
unrelated to the inpatient hospital
claim. We issued a manual system
revision through Change Request #7142,
Transmittal 796, on October 29, 2010,
instructing CMS contractors to accept
condition code 51 on outpatient claims.
Comment: One commenter supported
the use of a condition code but believed
that the use of a condition code alone
should be sufficient to signify that
unrelated outpatient services billed on a
separate outpatient claim are distinct
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from the inpatient services. The
commenter discouraged CMS from
requiring hospitals to maintain
documentation in the beneficiary’s
medical record to support their claim
that the outpatient services are related.
Another commenter disagreed with
the proposal to implement an attestation
process. The commenters stated that it
would require additional administrative
effort by hospital staff that does not
seem necessary, as claims are required
to be filed correctly under the law.
According to the commenter, if an
attestation is required, the attestation
process should be easy to follow and
clearly defined.
One commenter was concerned about
the ease with which hospitals could
apply a condition code and that
unwarranted unbundling could still
occur, depending on how the standard
is defined for nondiagnostic related
services.
Response: The implementation of
condition code 51, effective April 1,
2011, provides a process for hospitals to
attest to nondiagnostic services as being
unrelated to the inpatient hospital claim
when a hospital submits an outpatient
claim. However, upon review, the
hospital must be able to document that
the services are unrelated based on
information in the patient’s medical
record. As we stated in the interim final
rule with comment period issued in the
Federal Register on August 16, 2010 (75
FR 50348), hospitals have experience
with making similar attestations on the
outpatient or inpatient claim.
3. Applicability of the Payment Window
Policy to Services Furnished at
Physicians’ Practices
We have received several inquiries
regarding the applicability of the
payment window to preadmission
services furnished at hospital-owned or
hospital-operated physicians’ clinics or
practices. The statutory language under
section 1886(a)(4) of the Act is clear that
the 3-day (or, where applicable, 1-day)
payment window policy applies not
only to diagnostic and related
nondiagnostic services furnished to
patients at hospitals, but also to those
services furnished at entities that are
wholly owned or operated by the
admitting hospital. In a 1998 final rule
on payment for preadmission services
(63 FR 6866), we stated, ‘‘A hospitalowned or hospital-operated physician
clinic or practice is subject to the
payment window provision. The
technical portion of preadmission
diagnostic services performed by the
physician clinic or practice must be
included on the inpatient bill and may
not be billed separately. A physician’s
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professional service is not subject to the
window.’’ Thus, we made clear that the
term ‘‘entities’’ under this section of the
statute includes physicians’ clinics or
practices. Although the 1998 rule
provides specific guidance regarding
billing for preadmission diagnostic
services furnished at hospital-owned or
hospital-operated physician’s practices,
we had issued no guidelines regarding
billing for preadmission nondiagnostic
services provided by a hospital-owned
or hospital-operated physician’s
practice.
Prior to the June 25, 2010 enactment
of section 102(a)(1) of Public Law 111–
192, the payment window policy for
preadmission nondiagnostic services
was rarely applicable because the policy
required an exact match between the
principal ICD–9 CM diagnosis codes for
the outpatient services and the inpatient
admission. Because of the exact match
policy, very few services furnished in a
physician’s office or clinic that is
wholly owned or operated by the
hospital would have been be subject to
the policy. However, the change to the
payment window policy made by Public
Law 111–192 broadened the definition
of nondiagnostic services that are
subject to the payment window to
include any nondiagnostic service that
is clinically related to the inpatient
admission, regardless of whether the
inpatient and outpatient diagnoses are
the same. As a result, this statutory
change broadens the applicability of the
payment window policy in hospitalowned or hospital-operated physician
offices or clinics (that is, clinics that are
not provider-based but are wholly
owned or operated by the hospital). We
note that, under the amended statute, in
order to be able to bill separately for
nondiagnostic preadmission services
that fall within the payment window,
hospitals and hospital-owned or
hospital-operated entities must now
attest that the services are not related to
an admission by using condition code
51 (Attestation of Unrelated Outpatient
Nondiagnostic Services) when billing
for the services.
In response to ongoing requests to
clarify the applicability of the payment
window policy to preadmission
nondiagnostic services provided in
hospital-owned or hospital-operated
physicians’ offices or clinics, as we did
in the proposed rule, we are clarifying
that the 3-day (or, where applicable, 1day) payment window policy applies to
both preadmission diagnostic and
nondiagnostic services furnished to a
patient at physician’s practices that are
wholly owned or wholly operated by
the admitting hospital. For purposes of
the payment window, ‘‘wholly owned
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or operated’’ means that the admitting
hospital must be the sole owner or the
sole operator of the entity providing the
preadmission services. A hospital is
considered the sole operator of an entity
if the hospital has exclusive
responsibility for conducting or
overseeing the entity’s routine
operations, regardless of whether the
hospital also has policymaking
authority over the entity (we refer
readers to the regulations at 42 CFR
412.2(c)(5)(i) and to discussions and
examples of wholly owned or operated
scenarios in rules issued in the Federal
Register on January 12, 1994 (59 FR
1656) and February 11, 1998 (63 FR
6865 through 6867)).
In the circumstance in which a clinic
or a physician office that is not
provider-based meets the definition of
being wholly owned or wholly operated
by the hospital and the 3-day (or, if
applicable, 1-day) payment window
applies to related nondiagnostic
preadmission services, the overhead
costs associated with those services
would be considered operating costs of
inpatient hospital services and, as such,
included in the hospital’s bill for the
inpatient service. As explained more
fully in the CY 2012 Medicare Physician
Fee Schedule proposed rule (76 FR
42915), we have proposed that
Medicare’s payment to the physician for
the physician fee schedule service
would be at the lower facility rate,
which does not include overhead, staff,
equipment, and supplies required to
perform the service in the physician’s
office (rather than the higher nonfacility
rate that does include those overhead
costs) in order to avoid duplicate
payment for the services under both the
IPPS and the Medicare Physician Fee
Schedule.
Under 42 CFR 414.22(b)(5)(i),
Medicare pays physicians using the
nonfacility relative value units when
services are provided in a physician’s
office and bases physician payment on
the facility relative value units when the
physician provides services in a facility,
including hospitals, skilled nursing
facilities, community mental health
centers, and ambulatory surgical
centers. Because a hospital-owned or
hospital-operated physician practice or
clinic that is not provider-based is a
nonfacility setting, we have proposed in
the CY 2012 Medicare Physician Fee
Schedule proposed rule (76 FR 42915)
to change the regulation to reflect the
proposal to pay for a service provided
in a nonfacility setting at the facility rate
in order to comply with section 102(a)
of Public Law 111–192. We indicated in
the IPPS proposed rule that we intended
to discuss such a proposal in more
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detail in a future physician fee schedule
proposed rule and address how this
statutory provision will be implemented
in physicians’ offices that are wholly
owned or wholly operated by the
hospital. In all circumstances, we would
expect that, in the case of a physician
practice that is wholly owned or wholly
operated by the hospital, the hospital
would inform the physician offices and
clinics when an inpatient admission
occurs.
Comment: One commenter stated that
it may be difficult to track activity
between hospital-owned practices and
the hospital that owns the practices.
Response: Due to the fact that the
hospital owns the facility, it is our
expectation that the hospital will be
able to coordinate and track the patient
activity of the facilities it owns. The full
adoption of electronic medical record
should help facilitate coordination and
tracking of patients within and among
hospital systems.
We received a few public comments
regarding the applicability of the
payment window policy to services
furnished at physicians’ practices that
are wholly owned or wholly operated by
the hospital. We stated in the FY 2012
IPPS/LTCH PPS proposed rule that CMS
would address the payment window
policy as it impacts physician billing in
the CY 2012 Medicare Physician Fee
Schedule proposed rule. Therefore,
those comments are not within the
scope of this IPPS/LTCH final rule. The
CY 2012 Medicare Physician Fee
Schedule proposed rule (CMS–1524–P)
appeared in the Federal Register on July
19, 2011. The deadline for submitting
public comments on that proposed rule
is August 30, 2011. Instructions for
submitting public comments on that
proposed rule are included in the
proposed rule (76 FR 42772).
P. Changes to MS–DRGs Subject to the
Postacute Care Transfer Policy
1. Background
Existing regulations at § 412.4(a)
define discharges under the IPPS as
situations in which a patient is formally
released from an acute care hospital or
dies in the hospital. Section 412.4(b)
defines acute care transfers, and
§ 412.4(c) defines postacute care
transfers. Our policy, set forth in
§ 412.4(f), provides that when a patient
is transferred and his or her length of
stay is less than the geometric mean
length of stay for the MS–DRG to which
the case is assigned, the transferring
hospital is generally paid based on a
graduated per diem rate for each day of
stay, not to exceed the full MS–DRG
payment that would have been made if
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51709
the patient had been discharged without
being transferred.
The per diem rate paid to a
transferring hospital is calculated by
dividing the full DRG payment by the
geometric mean length of stay for the
MS–DRG. Based on an analysis that
showed that the first day of
hospitalization is the most expensive
(60 FR 45804), our policy generally
provides for payment that is double the
per diem amount for the first day, with
each subsequent day paid at the per
diem amount up to the full MS–DRG
payment (§ 412.4(f)(1)). Transfer cases
are also eligible for outlier payments. In
general, the outlier threshold for transfer
cases, as described in § 412.80(b), is
equal to the fixed-loss outlier threshold
for nontransfer cases (adjusted for
geographic variations in costs), divided
by the geometric mean length of stay for
the MS–DRG, and multiplied by the
length of stay for the case, plus one day.
We established the criteria set forth in
§ 412.4 for determining which DRGs
qualify for postacute care transfer
payments in the FY 2006 IPPS final rule
(70 FR 47419 through 47420). The
determination of whether a DRG is
subject to the postacute care transfer
policy was initially based on the
Medicare Version 23.0 GROUPER (FY
2006) and data from the FY 2004
MedPAR file. However, if a DRG did not
exist in Version 23.0 or a DRG included
in Version 23.0 is revised, we use the
current version of the Medicare
GROUPER and the most recent complete
year of MedPAR data to determine if the
DRG is subject to the postacute care
transfer policy. Specifically, if the
DRG’s total number of discharges and
proportion of short-stay discharges to
postacute care exceed the 55th
percentile for all DRGs, CMS will apply
the postacute care transfer policy to that
DRG and to any other MS–DRG that
shares the same base DRG. In the
preamble to the FY 2006 final rule (70
FR 47419), we stated that ‘‘we will not
revise the list of DRGs subject to the
postacute care transfer policy annually
unless we are making a change to a
specific DRG.’’
To account for MS–DRGs subject to
the postacute care policy that exhibit
exceptionally higher shares of costs very
early in the hospital stay, § 412.4(f) also
includes special payment methodology.
For these MS–DRGs, hospitals receive
50 percent of the full MS–DRG payment,
plus the single per diem payment, for
the first day of the stay, as well as a
reduced per diem payment for
subsequent days (up to the full MS–DRG
payment (§ 412.4(f)(6)). For an MS–DRG
to qualify for the special payment
methodology, the geometric mean
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length of stay must be greater than 4
days, and the average charges of 1-day
discharge cases in the MS–DRG must be
at least 50 percent of the average charges
for all cases within the MS–DRG. DRGs
that are part of an MS–DRG group must
meet DRG special payment policy if any
one of the MS–DRGs that share that
same base MS–DRG qualifies
(§ 412.4(f)(6)).
2. Changes to the Postacute Care
Transfer MS–DRGs
Based on our annual review of MS–
DRGs, we have identified a number of
MS–DRGs that should be included on
the list of MS–DRGs subject to the
postacute care transfer policy. As we
discussed in section III.G. of the
proposed rule, in response to public
comments and based on our analysis of
FY 2010 MedPAR claims data, in the FY
2012 IPPS/LTCH PPS proposed rule, we
proposed to make several changes to
MS–DRGs to better capture certain
severity of illness levels, to be effective
for FY 2012. Specifically, we proposed
to modify the assignment of the
autologous bone marrow transplants
now assigned to MS–DRG 015
(Autologous Bone Marrow Transplant)
to capture the severity levels of ‘‘with
CC/MCC’’ and ‘‘without CC/MCC.’’ We
proposed to establish two new MS–
DRGs (proposed MS–DRGs 016 and 017
(Autologous Bone Marrow Transplant
with MCC/CC and without MCC/CC,
respectively) to replace MS–DRG 015.
We also proposed to establish three new
MS–DRGs to capture three severity of
illness levels for skin debridement—
proposed MS–DRG 570 (Skin
Debridement with MCC); proposed MS–
DRG 571 (Skin Debridement with CC);
and proposed MS–DRG 572 (Skin
Debridement without CC/MCC). In
addition, we proposed to move the
codes for rechargeable dual array deep
brain stimulation (codes 02.93 and
86.98) to MS–DRGs 023 and 024
(Craniotomy with Major Device
Implant/Acute Complex CNS PDX, with
MCC and without MCC, respectively)
where similar devices are currently
assigned. We proposed to move two
procedure codes that either repair a
thoracic aneurysm or place a stent graft
(codes 38.45 and 39.73) out of MS–DRG
237 and 238 (Major Cardiovascular
Procedures with MCC or Thoracic
Aortic Aneurysm Repair, and Major
Cardiovascular Procedures with MCC
and without MCC, respectively). We
proposed to assign these two codes to
MS–DRGs 219, 220, and 221 (Cardiac
Valve & Other Major Cardiothoracic
Procedure without Cardiac
Catheterization with MCC, with CC, and
without CC, respectively). We proposed
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to add a procedure code for partial
gastrectomy (43.89) to MS–DRGs 619,
620, and 621 (O.R. Procedure for
Obesity with MCC, with CC, and
without CC/MCC, respectively). A
discussion of these proposed changes
and our final changes can be found in
section II.G. of the preamble of the final
rule.
In light of the proposed changes to the
MS–DRGs, according to the regulations
under § 412.4(c), we evaluated these
proposed FY 2012 MS–DRGs against the
general postacute care transfer policy
criteria using the FY 2010 MedPAR
data. If an MS–DRG qualified for the
postacute care transfer policy, we also
evaluated that MS–DRG under the
special payment methodology criteria
according to regulations at § 412.4(f)(6).
As a result of our review, we proposed
to update the list of MS–DRGs that are
subject to the postacute care transfer
policy to include the proposed new
MS–DRGs 570, 571, and 572 for FY
2012. (These MS–DRGs were reflected
in Table 5, which was listed in section
VI. of the Addendum to the proposed
rule and available via the Internet, and
were also listed in the tables at the end
of this section.)
In addition, based on our evaluation
of the proposed FY 2012 MS–DRGs
using the FY 2010 Med PAR data, we
identified the following two existing
MS–DRGs that meet the criteria to be
subject to the postacute care transfer
policy for FY 2012: MS–DRGs 023
(Craniotomy with Major Device Implant
or Acute Complex CNS PDX with MCC)
and MS–DRG 024 (Craniotomy with
Major Device Implant or Acute Complex
CNS PDX without MCC). We proposed
to add these two MS–DRGs to the list of
MS–DRGs that are subject to the
postacute care transfer policy for FY
2012. The following table lists the
respective criteria for each MS–DRG
that we proposed to add to the postacute
care transfer policy list.
Further, based on our evaluation of
the proposed FY 2012 MS–DRGs using
the FY 2010 Med PAR data, we
determined that MS–DRGs 228 (Other
Cardiothoracic Procedures with MCC),
229 (Other Cardiothoracic Procedures
with CC), 230 (Other Cardiothoracic
Procedures without CC/MCC), 640
(Miscellaneous Disorders of Nutrition,
Metabolism, Fluids/Electrolytes with
MCC), and 641 (Miscellaneous
Disorders of Nutrition, Metabolism,
Fluids/Electrolytes without MCC) no
longer meet the postacute care transfer
criteria. Therefore, we proposed that
they be removed from the list of DRGs
subjected to the postacute care transfer
policy, effective FY 2012.
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Finally, we determined that MS–
DRGs 216 (Cardiac Valve & Other Major
Cardiothoracic Procedure with Cardiac
Catheterization with MCC), 217 (Cardiac
Valve & Other Major Cardiothoracic
Procedure with Cardiac Catheterization
with CC), and 218 (Cardiac Valve &
Other Major Cardiothoracic Procedure
without CC/MCC) meet the criteria for
the special payment methodology.
Therefore, we proposed that they would
be subject to the DRG special payment
methodology, effective FY 2012.
Comment: Several commenters
supported the proposed changes to the
lists of MS–DRGs subject to the
postacute care transfer and special
payment policy. Commenters also
requested that CMS expand its analysis
to remove additional MS–DRGs that no
longer meet the postacute care transfer
policy criteria and to add MS–DRGs that
currently meet special payment policy
criteria.
Response: As stated in the FY 2006
final rule (70 FR 47419), CMS
determined that an annual review of all
DRGs ‘‘would likely lead to great
volatility in the payment methodology
of certain DRGs’’. Therefore, it is our
policy to not conduct an annual review
of MS–DRGs unless we have proposed
to make changes to specific MS–DRGs.
We note that, during this rulemaking
process, we reviewed additional MS–
DRGs for which we were proposing
changes to determine whether they meet
the postacute care transfer or special
payment policy criteria (MS–DRGs (16,
17, 219, 220, 221, 237, 238, 250, 251,
573, 574, 575, 576, 577, 578, 619, 620,
and 621). However, in the proposed
rule, we only discussed the MS–DRGs
that were proposed to be newly added
to, or removed from, the postacute care
transfer or special payment policy, as
listed on Table 5. Following issuance of
the proposed rule, we conducted an
additional review of MS–DRGs for
purposes of finalizing the postacute care
transfer and special payment status
policy modifications, and that review
confirmed that these previously
reviewed MS–DRGs do not require any
further changes in postacute care
transfer or special payment status.
During this review, we determined
that MS–DRGs 640 (Miscellaneous
Disorders of Nutrition, Metabolism,
Fluids/Electrolytes with MCC) and 641
(Miscellaneous Disorders of Nutrition,
Metabolism, Fluids/Electrolytes without
MCC) were inadvertently listed as MS–
DRGs for which significant GROUPER
logic changes were being proposed. The
changes to these MS–DRGs were
determined to be descriptive title
changes only and not material logic
changes. Therefore, considering whether
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to change the postacute care transfer
and special payment policy status for
these MS–DRGs was a technical error.
Therefore, we are not finalizing our
proposed changes for these two MS–
DRGs. The remaining proposed changes
to the postacute care transfer and
special payment policy lists are being
finalized as proposed and are
summarized in the following tables. We
refer readers to the bolded text in the
first table to see which criteria were not
met in our analysis for each MS–DRG
removed from the postacute care
transfer policy list. Table 5, which is
listed in section VI. of the Addendum to
this final rule and available through the
Internet on the CMS Web site, lists all
MS–DRGs for FY 2012 and specifies
whether or not they are subject to the
postacute care transfer policy and the
special payment policy. For FY 2012,
there are a total of 275 MS–DRGs subject
to the postacute care transfer policy, and
30 MS–DRGs meet the special payment
policy criterion.
LIST OF MS–DRGS CHANGING POSTACUTE CARE TRANSFER POLICY STATUS IN FY 2012
MS–DRG
MS–DRG Title
023 ...............
CRANIO W MAJOR DEV IMPL/ACUTE COMPLEX CNS PDX W MCC OR CHEMO IMPLANT.
CRANIO W MAJOR DEV IMPL/ACUTE COMPLEX CNS PDX W/O MCC.
OTHER CARDIOTHORACIC PROCEDURES
W MCC.
OTHER CARDIOTHORACIC PROCEDURES
W CC.
OTHER CARDIOTHORACIC PROCEDURES
W/O CC/MCC.
SKIN DEBRIDEMENT W MCC ..........................
SKIN DEBRIDEMENT W CC .............................
SKIN DEBRIDEMENT W/O CC/MCC ................
024 ...............
228 ...............
229 ...............
230 ...............
570 ...............
571 ...............
572 ...............
Postacute
care transfers
(55th percentile:
1,596)
Short-stay
postacute
care transfers
Percent of
short-stay
postacute
care transfers
to all cases
(55th percentile:
8.0037%)
4,631
2,225
373
8.05
YES
1,745
*1,000
161
9.23
YES**
1,936
*1,223
456
23.55
NO
2,395
*1,322
421
17.58
NO
640
*228
11
*1.72
NO
5,189
5,538
2,539
3,968
3,832
*1,378
1,558
1,087
226
30.03
19.63
8.90
YES
YES
YES**
Total cases
Postacute
care transfer
policy status
* Indicates a current postacute care transfer policy criterion that the MS–DRG did not meet.
** As described in the policy at 42 CFR 412.4(d)(3)(ii)(D), MS–DRGs that share the same base MS–DRG shall all meet postacute care transfer
policy if any one of the MS–DRGs that share that same base MS–DRG qualifies.
LIST OF MS–DRGS CHANGING DRG SPECIAL PAYMENT POLICY STATUS IN FY 2012
MS–DRG
MS–DRG Title
216 ...............
CARDIAC VALVE & OTH MAJ CARDIOTHORACIC PROC W
CARD CATH W MCC.
CARDIAC VALVE & OTH MAJ CARDIOTHORACIC PROC W
CARD CATH W CC.
CARDIAC VALVE & OTH MAJ CARDIOTHORACIC PROC W
CARD CATH W/O CC/MCC.
217 ...............
218 ...............
Q. Hospital Services Furnished Under
Arrangements
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Geometric
mean length
of stay
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25964 and 25965),
we stated that, for purposes of Medicare
payment, section 1861(b) of the Act
defines ‘‘inpatient hospital services’’ in
part as ‘‘* * * the following items and
services furnished to an inpatient of a
hospital and (except as provided in
paragraph (3)) by the hospital: (1) Bed
and board; (2) such nursing services and
other related services, such use of
hospital facilities, and such medical
social services as are ordinarily
furnished by the hospital for the care
and treatment of inpatients * * *; and
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Special payment policy
status
14.2497327
$164,838
125,398
YES
9.518336312
126,655
84,669
YES
7.102572558
0
0
YES
(3) such other diagnostic or therapeutic
items or services, furnished by the
hospital or by others under
arrangements with them made by the
hospital, as are ordinarily furnished to
inpatients either by such hospital or by
others under such arrangements.’’
We noted that the statute specifies
that ‘‘routine services,’’ for example,
bed, board, nursing and other related
services, except those specified at
paragraph (3) of section 1861(b) of the
Act are to be provided by ‘‘the
hospital,’’ and not just ‘‘a hospital.’’
Similarly, we noted that our
implementing regulations at 42 CFR
409.12 indicate that Medicare pays for
‘‘nursing and related services, use of
PO 00000
50% of average charges
for all cases
within MS–
DRG
Average
charges of
1-day
discharges
hospital * * * facilities, and medical
social services as * * * inpatient
hospital services or inpatient CAH
services . . . only if those services are
ordinarily furnished by the hospital or
CAH.’’ We pointed out that, consistent
with the statute, only with regard to
other diagnostic or therapeutic services
do the regulations at 42 CFR 409.16
state that Medicare will also pay for
these services if furnished ‘‘by others
under arrangements made by the
hospital or CAH.’’.
Instructions at section 2118 (Cost of
Services Furnished under Arrangement)
of the Provider Reimbursement Manual,
Part I (PRM–I), relating to payment for
routine services, allow additional
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services to be provided under
arrangements. It had come to our
attention that some providers in the
hospital community have interpreted
the provision relating to services
provided ‘‘under arrangement’’ under
section 2118 of the PRM–I to mean that
even routine services described in
sections 1861(b)(1) and (b)(2) of the Act,
which are normally provided to hospital
inpatients by the hospital, can be
provided outside the hospital by an
outside entity under arrangement.
To the extent that our manual
provisions could be read to allow
hospitals to furnish such ‘‘routine
services’’ ‘‘under arrangement,’’ we
proposed a change to limit the services
a hospital may provide under
arrangement to reflect the statutory
definition of ‘‘inpatient hospital
services’’ and the implementing
regulations. Under our proposed policy,
if routine services, that is, services
described in sections 1861(b)(1) and
(b)(2) of the Act, are provided in the
hospital, they are considered as being
provided ‘‘by the hospital .’’ We stated
that we believe that this proposal is
consistent with the statute because the
statutory language specifying that the
routine services described in sections
1861(b)(1) and (b)(2) of the Act be
provided ‘‘by the hospital’’ suggests that
the hospital is required to exercise
professional responsibility over the
services, including quality controls. In
situations in which certain routine
services are provided through
arrangement ‘‘in the hospital,’’ for
example, contracted nursing services,
we believe the arrangement generally
results in the hospital exercising the
same level of control over those services
as the hospital does in situations in
which the services are provided by the
hospital’s salaried employees.
Therefore, if routine services are
provided in the hospital to its
inpatients, we consider the service as
being provided by the hospital.
However, if these services are provided
to its patients outside the hospital, the
services are considered as being
provided under arrangement, and not by
the hospital. Therefore, consistent with
the statute, only therapeutic and
diagnostic services can be provided
under arrangement outside the hospital.
We indicated that if we finalized this
policy, we would change the provisions
of section 2118 of the PRM–I
accordingly.
We received numerous comments
from the hospital provider community
as well as several provider
organizations. A few commenters had
singular, limited comments; the
majority of commenters presented
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arguments, similar in content, against
adopting our proposed change to limit
the services a hospital could provide
under arrangement.
Comment: Commenters argued that
our proposal to limit the services a
hospital may provide under
arrangements is not required by the
statute or regulations. Commenters also
believed that CMS’ proposed reading of
the statutory definition of inpatient
hospital services is only one possible
interpretation of the statute.
Furthermore, commenters stated that
CMS’ ‘‘use of the definition of inpatient
hospital services as the basis for its
proposal may not be appropriate’’ and
concluded that, under our proposal,
‘‘routine services, including ICU
services, would not be considered to be
inpatient hospital services,’’ but that we
did not state ‘‘what such services would
be if not inpatient hospital services
* * *.’’
Response: In the proposed rule, we
focused our discussion on section
1861(b) of the Act because it provides
the statutory basis for our policy to limit
the services that may be furnished
under arrangement. As we noted in the
proposed rule, the reference to
diagnostic or therapeutic items or
services in section 1861(b)(3) of the Act
includes the language, ‘‘[furnished by]
* * * or by others under
arrangements.’’ Therefore, we believe it
is consistent with the statutory language
to limit the services that may be
furnished outside of a hospital under
arrangement to only diagnostic and
therapeutic services.
Our policy does not alter the
definition of inpatient hospital services,
but instead limits the services a hospital
may provide under arrangements
outside the hospital. Under our
proposal, if a patient of Hospital A is in
Hospital B receiving routine services,
the patient will still be an ‘‘inpatient,’’
but the services will not be considered
‘‘inpatient hospital services’’ furnished
by the hospital for purposes of payment
for services defined under section
1861(b) of the Act. If the patient is
admitted to Hospital B, then the patient
would be an ‘‘inpatient’’ of Hospital B
and the routine services furnished to
that individual would meet the
definition of ‘‘inpatient routine
services’’ under section 1861(b) of the
Act.
Comment: Commenters wrote that
there are ‘‘specific statutory provisions
* * * that would allow hospitals to use
the type of arrangements CMS is
proposing to prohibit,’’ and argued that,
‘‘CMS’s reliance on the tangentiallyrelated hospital inpatient services
definition as the basis for its proposal
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seems to be an end-run around them.’’
Section 1862(a)(14) of the Act was cited
as specific statutory authority that
allows hospitals to furnish all categories
of inpatient hospital services under
arrangement. Commenters noted that
this provision does not limit the type of
entity that may furnish services under
arrangement nor specify what services
may be provided under arrangement.
Response: We disagree with this
position. Section 1862(a)(14) of the Act
states, in part, that payment under Part
A or Part B may not be made for certain
services ‘‘furnished to an individual
who is a patient of a hospital or critical
access hospital by an entity other than
the hospital or critical access hospital,
unless the services are furnished under
arrangements * * * with the entity
made by the hospital or CAH.’’
Although we agree with the commenters
that the language of section 1862(a)(14)
of the Act does not place restrictions on
what services may be provided under
arrangement, it does not specifically
authorize the furnishing of routine
services to be provided under
arrangement, nor does it conflict with
the interpretation of section 1861(b) of
the Act set forth in the proposed rule.
Instead, when read in conjunction with
section 1861(b) of the Act, as interpreted
in our proposal, the language ‘‘furnished
under arrangements’’ in section
1862(a)(14) of the Act is limited to only
those services that may be furnished
under arrangement consistent with our
proposed policy.
Comment: Commenters discussed a
decision of the Provider Reimbursement
Review Board (PRRB) in which
pulmonary intensive care services were
furnished under arrangements to
patients of one hospital by another
hospital located across the street
(University of Missouri Med. Ctr. v.
BCBSA, PRRB Dec. No. 79–D82,
Medicare & Medicaid Guide (CCH) 30,
317 (Nov. 28, 1979)). The PRRB found
that ‘‘routine inpatient services
provided under arrangement * * * are
allowable costs and are incorporated in
the provider’s costs of routine services.’’
The PRRB also found that the services
were properly furnished under
arrangements. Commenters noted that
the CMS Administrator did not modify
or reverse this decision, and thereby, it
was the final decision of the Secretary.
Response: We recognize that certain
routine services have previously been
provided under arrangements, and we
are now changing this policy to
preclude a hospital from furnishing
routine services under arrangements
with another entity unless the services
are provided in the hospital in which
the patient has been admitted as an
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inpatient. We note that the date of this
PRRB decision was November 28, 1979.
This was 3 years prior to the statutory
payment provisions included in the Tax
Equity and Fiscal Responsibility Act
(TEFRA) of 1982, which sets Medicare
payment based on reasonable costs
subject to a ceiling, and 4 years prior to
implementation of the IPPS. We point
out that both hospitals involved in the
PRRB case were paid under the same
Medicare payment provisions at that
time, that is, routine cost limits.
As discussed in greater detail below,
we have decided to change this policy
because we are concerned that similar
arrangements between entities that are
not paid under the same Medicare
payment provisions—for example,
arrangements between IPPS hospitals
and hospitals excluded from the IPPS—
have resulted in hospitals receiving
payments for services based on payment
provisions that do not ordinarily apply
to that facility.
Comment: One commenter cautioned
that CMS should recognize that there
are regulations that allow hospitalswithin-hospitals (HwHs) to obtain other
services through contract or other
agreements. The commenter specifically
cites the requirement that a HwH
‘‘performs the basic functions of [a
hospital] through the use of employees
or under contracts or other agreements
with entities other than the hospital
occupying space in the same building or
on the same campus * * *’’ This
requirement further states that food and
dietetic services, housekeeping,
maintenance, among others, could be
obtained under contracts or agreements
with the co-located hospital. The
commenter urged CMS to clarify that
the proposed change will not impact a
HwH’s ability to obtain the necessary
services that are allowed under the
HwH requirements at 42 CFR 412.22.
Response: We developed the HwH
regulations to ensure, to the extent
possible, that co-located hospitals (two
hospitals occupying space in the same
building or in one or more separate
buildings located on the same campus)
function as two separate entities, each
having its own governing body, medical
staff, chief medical officer, and chief
executive officer. In addition, the HwH
has to meet other criteria, including at
least one of the criteria specified in
§ 412.22(e)(1)(v), regarding performance
of basic hospital functions. Under the
changes to our policy governing services
furnished under arrangements that we
are finalizing in this final rule, the
services that can be furnished to the
HwH under § 412.22(e)(1)(v)(A) (food
and dietetic services, housekeeping and
maintenance, and other services
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necessary to maintain a clean and safe
physical environment) by the host
hospital or an entity that controls both
hospitals could still be furnished at the
hospital (the HwH) to that hospital’s
patients. Likewise, the provision at
§ 412.22(e)(1)(v)(A) allowing specified
basic functions to be performed at a
HwH through the use of employees or
under contracts or other arrangements
with entities other than the co-located
hospital, or through a third entity that
controls both hospitals, would only
apply where those routine services are
furnished at the HwH. If, however, the
HwH was moving its patients to another
hospital to receive routine services
under arrangements with that hospital,
and maintaining that patient in hospital
records as its own inpatient, it would
not be allowed under the changes to the
‘‘hospital services provided under
arrangement’’ that we are finalizing in
this final rule.
Comment: One commenter was
concerned with what it characterized as
CMS’ lack of clarity about why it
proposed this change. The commenter
recommended that CMS not finalize the
proposal until it provides a sufficient
policy rationale for the proposal, or
explains the circumstances that are
causing CMS to be concerned.
Response: As noted above, we became
aware that 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 the 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. We find
it problematic that the patient was, at all
times, considered an inpatient of
hospital A even though the patient
occupied an inpatient bed at hospital B.
Because the two hospitals in the
example above are under two different
payment systems, we believe this
arrangement can result in inappropriate
and potentially excessive Medicare
payments. The IPPS-excluded hospital,
hospital A, is paid on a reasonable cost
basis, subject to a ceiling. In most cases,
this payment is greater than if the
hospital were paid under the IPPS for
the same patient. Furthermore, although
there is a ceiling on the amount of
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Medicare payment for hospital A, there
are also provisions that allow hospital A
to receive adjustments to its ceiling in
certain circumstances, which could
allow payment to hospital A above
those allowed by its ceiling. Therefore,
these current arrangements could allow
hospital A to request an adjustment to
its ceiling because its ICU costs have
increased beyond what is allowed. In
that case, hospital A would receive
additional payments beyond its ceiling.
We believe that by limiting the
furnishing of routine services under
arrangements to situations in which the
services are furnished in hospital A, we
will reduce the opportunity for gaming.
In these more limited situations,
hospital A will exercise sufficient
control over the use of hospital
resources when furnishing these
services such that the services are
appropriately included in hospital A’s
cost report.
Under our proposal, if hospital A did
not have the resources to treat a patient,
it would transfer the patient to hospital
B for ICU services, and hospital B would
bill Medicare consistent with the IPPS
provisions. Hospital A would be paid
for an inpatient discharge.
Comment: Numerous commenters
believed that CMS’ primary goal in
proposing to limit the kinds of services
that can be provided under arrangement
was to ensure that the hospital will
exercise professional responsibility over
the ‘‘arranged for’’ services. Commenters
claimed that CMS had provided no
evidence that the hospital furnishing the
routine or ICU services cannot exercise
the same responsibility. Therefore, the
commenters claimed that CMS had not
provided a sufficient policy rationale in
support of the proposal.
Response: Section 207 of the Hospital
Manual (Pub. No. 10) states with respect
to furnishing services under
arrangements, that such arrangements
were ‘‘not intended that [the hospital]
merely serve as a billing mechanism for
the other party * * *.The hospital’s
professional supervision * * * requires
many of the same quality controls as are
applied to the services furnished by
salaried employees.’’ As discussed in
more detail above, the current policy
may also result in inappropriate and
excessive Medicare payments, as well as
present an opportunity for gaming, and
we believe it is appropriate to limit the
inclusion of costs on a cost report to
those situations in which the hospital
has exercised sufficient control and
responsibility over the use of hospital
resources in treating patients.
Comment: One commenter cited two
recent Medicare initiatives that involve
ACOs, the Pioneer ACO Program under
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the Innovation Center and the Medicare
Shared Savings Program under section
1899 of the Affordable Care Act, as
evidence of the Secretary’s commitment
to high-level efficiency, provider
collaboration, and innovative service
models which will preserve or enhance
quality of care for beneficiaries while
promoting greater efficiencies
throughout the Medicare program. The
commenter noted that the present policy
that CMS has proposed to disallow,
where a hospital furnishing ICU services
‘‘under arrangements’’ to inpatients of
another hospital is an existing example
of efficient use of medical resources as
well as successful provider
collaboration that also enhances the
level of beneficiary care and therefore,
allowing such an arrangement to
continue is fully consistent with CMS’
stated objectives.
Response: We understand that interfacility cooperation and collaboration
can indeed result in savings for the
Medicare program, and we are
committed to the specific goals of the
CMMI and the Shared Savings Program.
However, we do not agree that such
positive objectives are applicable to the
existing arrangements under which
inpatients at one hospital effectively
become inpatients at another hospital
for as long a time as necessary, without
having been discharged from the first
hospital and admitted to the second.
Comment: Most commenters
requested that CMS, if it finalizes the
proposed policy, adopt a grandfathering
provision to allow hospitals that have
been furnishing routine services under
arrangements outside of the hospital to
continue furnishing these services in
this manner. Commenters stated that
this policy would place significant
administrative burdens on these
hospitals, would be more expensive to
the Medicare program, would be
inconvenient and disruptive to patients,
and would inappropriately inflate
readmission rates under the Hospital
Readmissions Reduction Program.
Response: We do not believe it is
appropriate to adopt a grandfathering
provision. As noted above, 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.
We do not believe that our proposal
would be disruptive or inconvenient to
patients; it does not prevent hospitals
from transferring patients to another
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facility to receive necessary services that
the transferring hospital cannot provide.
We recognize that, for a few
providers, this policy will require the
hospital to discharge its patients to the
other hospital that will provide the
routine/ICU services. However, this is
necessary in order to be consistent with
our current reading of section 1861(b) of
the Act.
We do not believe that a hospital’s
readmission rates under the Hospital
Readmissions Reduction Program would
be affected by this policy because
transfers to other providers are not
included in the calculations of excess
readmissions. Each of the measures of
readmissions used in the Hospital
Readmissions Reduction Program has
exclusions for transfers to other
hospitals. We discuss these exclusions
in section IV.C. of this preamble.
After consideration of the public
comments and for the reasons set forth
above, we are finalizing our proposal.
Therefore, effective for services
provided on or after October 1, 2011, if
routine services are provided in the
hospital to its inpatients, these services
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.
R. Finalization of Interim Final Rule
With Comment Period on Revisions to
the Reduction and Increases to
Hospitals FTE Resident Caps for
Graduate Medical Education Payment
Purposes
On March 14, 2011, we issued in the
Federal Register (76 FR 13515) an
interim final rule with comment period
that implemented section 203 of the
Medicare and Medicaid Extenders Act
of 2010 relating to the treatment of
teaching hospitals that are members of
the same Medicare graduate medical
education affiliated groups for the
purpose of determining possible fulltime equivalent (FTE) resident cap
reductions. In this final rule, we are
restating a majority of the provisions of
the interim final rule with comment
period, responding to the public
comments we received, and stating our
final policy.
1. Background and Provisions of the
Interim Final Rule With Comment
Period
a. Statutory Authority
Section 1886(h) of the Act, as added
by section 9202 of the Consolidated
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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 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 full-time
equivalent (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 an additional payment
amount 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, known as the
indirect medical education (IME)
adjustment, 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.
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 its most
recent cost reporting period ending on
or before December 31, 1996. Under
section 1886(d)(5)(B)(v) of the Act, a
similar limit on the FTE resident count
for IME purposes is effective for
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discharges occurring on or after October
1, 1997.
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, and to authorize the
‘‘redistribution’’ of the estimated
number of 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
section 1886(h)(8) of the Act provisions
‘‘in the same manner’’ as the FTE
resident caps for IME. The regulations
implementing section 5503 of the
Affordable Care Act were included in
the Hospital Outpatient Prospective
Payment System final rule with
comment period, published on
November 24, 2010 in the Federal
Register (75 FR 72147). Section IV.R.1.b.
of this final rule summarizes the
provisions of section 5503 of the
Affordable Care Act as implemented in
the November 24, 2010 Federal
Register.
b. Reductions and Increases to
Hospitals’ FTE Resident Caps for GME
Payment Purposes Under Section 5503
of the Affordable Care Act
As previously discussed, 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 instituted a cap on
the number of allopathic and
osteopathic residents a hospital is
allowed to count for direct GME and
IME purposes. Dental and podiatric
residents are not included in this
statutorily mandated cap. Some
hospitals have trained a number of
allopathic and osteopathic residents in
excess of their FTE resident caps, while
other hospitals have reduced their FTE
resident counts to 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 under
Medicare for certain hospitals, and
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authorizes a ‘‘redistribution’’ to
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.
Section 1886(h)(8)(A) 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 if its
‘‘reference resident level’’ is less than its
‘‘otherwise applicable resident limit,’’ as
these terms are described below. Section
1886(h)(8)(A)(ii) of the Act and the
November 24, 2010 Federal Register (75
FR 72147) describes which hospitals are
exempt from a cap reduction under
section 5503 of the Affordable Care Act.
Included in that group are rural
hospitals with fewer than 250 acute care
inpatient beds. For other hospitals, any
such reduction will be equal to 65
percent of the difference between the
hospital’s ‘‘otherwise applicable
resident limit’’ and its ‘‘reference
resident level.’’
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, by an
aggregate 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. A
single hospital may receive an increase
in its FTE resident cap of no more than
75 additional FTEs. That is, a hospital
is allowed to receive up to 75 additional
slots for direct GME and up to 75
additional slots for IME. 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 directs 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
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51715
in terms of the ratio of the total
population living in an area designated
as a health professional shortage area
(HSPA), 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 Federal Register (75 FR
72168).
c. Treatment of Affiliated Groups Under
Section 5503 of the Affordable Care Act
A previous redistribution of ‘‘unused’’
FTE resident slots was performed in
2005 under section 422 of the Medicare
Prescription Drug, Improvement and
Modernization Act of 2003 (MMA) (Pub.
L. 108–173). Section 422 of the MMA
provided for the redistribution of
unused residency positions effective for
portions of cost reporting periods
beginning on or after July 1, 2005. While
the redistribution under section 5503 of
the Affordable Care Act as initially
enacted is similar to the previous
redistribution under section 422 of
MMA, there are substantive differences
between the two provisions. One of
those differences involves the treatment
of hospitals that were members of the
same Medicare GME affiliated groups
for purposes of determining whether a
hospital should receive a cap reduction.
The regulations governing Medicare
GME affiliated groups and Medicare
GME affiliation agreements are at 42
CFR 413.75(b) and 413.79(f),
respectively. Medicare GME affiliation
agreements allow teaching hospitals to
temporarily transfer cap slots to other
hospitals in order to facilitate the crosstraining of residents. The duration of the
temporary cap slots transfer is a
minimum of 1 year beginning on July 1
of a year, per the Medicare GME
affiliation agreement.
Under section 422 of MMA, the
statute explicitly directed the Secretary
to apply the provisions to hospitals that
were members of the same Medicare
GME affiliated group as of July 1, 2003.
Specifically, section 1886(h)(7)(A)(iii) of
the Act states ‘‘The provisions of clause
(i) shall be applied to hospitals which
are members of the same Medicare GME
affiliated group (as defined by the
Secretary under paragraph (4)(H)(ii)) as
of July 1, 2003.’’ Therefore, in
implementing section 422 of MMA, we
based the FTE resident cap reductions
for hospitals that were participating in
a Medicare GME affiliated group on the
aggregate cap and count data from all
hospitals participating in the same
Medicare GME affiliated group(s). If a
hospital was training a number of
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residents below its FTE resident cap for
the reference cost reporting period but
the hospital was part of a Medicare GME
affiliated group for some or all of that
reference cost reporting period, the
Medicare contractor determined if the
aggregate affiliated count for all
hospitals in the Medicare GME affiliated
group was greater than the aggregate
affiliated cap. If the aggregate affiliated
count was greater than the aggregate
cap, then there was no reduction made
to the FTE caps of any hospital in the
Medicare GME affiliated group (even for
the hospital that was part of the
Medicare GME affiliated group, but was
training below its cap).
However, as we noted in the
November 24, 2010 Federal Register (75
FR 72161), in contrast to section 422 of
MMA, section 5503 of the Affordable
Care Act as initially enacted did not
include language specific to Medicare
GME affiliated groups as was included
in section 422 of MMA under section
1886(h)(7)(A)(iii) of the Act. Thus,
section 5503 of the Affordable Care Act
as initially enacted did not provide for
determinations based on the aggregate
experience of a Medicare GME affiliated
group. Therefore, we stated in the
November 24, 2010 Federal Register (75
FR 72161), that the determination of
whether a hospital would receive a cap
reduction based on that individual
hospital’s experience and not the
aggregate experience of the Medicare
GME affiliated group.
d. Section 203 of the Medicare and
Medicaid Extenders Act of 2010 (Pub. L.
111–309)
Section 203 of the Medicare and
Medicaid Extenders Act of 2010
(MMEA) further amended section
1886(h)(8) of the Act by adding a new
subparagraph (I) which reads: ‘‘(I)
Affiliation.—The provisions of this
paragraph shall be applied to hospitals
which are members of the same
affiliated group (as defined by the
Secretary under paragraph (4)(H)(ii))
and the reference resident level for each
such hospital shall be the reference
resident level with respect to the cost
reporting period that results in the
smallest difference between the
reference resident level and the
otherwise applicable resident limit.’’
This subparagraph refers to the
treatment of hospitals that are members
of the same Medicare GME affiliated
groups, as described in section IV.R.1.c.
of this final rule for purposes of
determining a hospital’s possible cap
reductions under section 1886(h)(8)(A)
of the Act. Similar to section 422 of
MMA, this amendment to the language
at section 1886(h)(8) of the Act allows
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us to consider hospitals that are
members of the same Medicare GME
affiliated group in the aggregate, rather
than only on an individual basis, for the
purposes of determining a GME FTE cap
reduction.
Although this amendment allows us
to implement section 5503 of the
Affordable Care Act in a manner similar
to section 422 of MMA, a key difference
in implementation remains. One point
of note is that section 422 of MMA
(section 1886(h)(7)(A)(ii)(I) of the Act)
refers to the most recent cost reporting
period ending on or before September
30, 2002, as the reference cost reporting
period. However, as stated in the August
11, 2004 Federal Register (69 FR
49125), if a hospital was a member of a
Medicare GME affiliated group for the
academic year beginning July 1, 2003,
its reference cost reporting period was
the cost reporting period that included
July 1, 2003. This differs from section
5503 of the Affordable Care Act, which
instructs the Secretary to choose the
reference cost reporting period out of
the hospital’s three most recent cost
reporting periods ending before March
23, 2010, for which a cost report has
been settled or has been submitted to
the Medicare contractor by March 23,
2010, that has the highest FTE resident
count (section 1886(h)(8)(H)(i) of the
Act).
For hospitals that were members of
the same Medicare GME affiliated
groups, the MMEA now allows us to
determine the reference cost reporting
period as the cost reporting period out
of the hospitals three most recent cost
reporting periods ending before March
23, 2010, for which a cost report has
been settled or has been submitted to
the Medicare contractor by March 23,
2010, with the smallest difference
between the reference resident level and
the otherwise applicable resident limit
(section 1886)(h)(8)(I) of the Act).
Therefore, based on the amendment
made to section 1886(h)(8) of the Act by
section 203 of the MMEA of adding
subparagraph (I), in the interim final
rule with comment period, we
established a methodology to determine
whether a hospital is subject to a cap
reduction under section 5503 of the
Affordable Care Act based on that
hospital’s participation in a Medicare
GME affiliated group(s) or an emergency
Medicare GME affiliated group under 42
CFR 413.79(f). Although the MMEA
provision applies to both regular
Medicare GME affiliation agreements
and emergency Medicare GME
affiliation agreements, for ease of
reference, we refer in this discussion to
both with the phrase ‘‘Medicare GME
affiliation agreements.’’ We believe that
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the purpose of section 203 of MMEA is
to amend section 1886(h)(8) of the Act
in order to implement section 5503 of
the Affordable Care Act in a manner that
is similar to section 422 of MMA with
regard to treatment of hospitals that are
members of the same Medicare GME
affiliated group. Accordingly, we are
implementing section 203 of the MMEA
in a manner similar to the way in which
section 422 of MMA was implemented.
The methodology used to determine a
cap reduction for hospitals that are
members of the same affiliated group is
as follows:
Part 1: Determine the ‘‘Reference Cost
Reporting Period’’
The Medicare contractor will assess
each hospital on an individual basis.
First, the Medicare contractor will
determine whether a hospital was a
member of a Medicare GME affiliated
group at any point during any of the
hospital’s three most recent cost
reporting periods ending before March
23, 2010, for which a cost report has
been settled or has been submitted to
the Medicare contractor by March 23,
2010. That is, the Medicare contractor
will determine whether the caps during
any of those three cost reporting periods
were revised because the hospital was a
member of a Medicare affiliation
agreement. If a hospital was not a
member of a Medicare GME affiliated
group during any of those three cost
reporting periods, the Medicare
contractor will determine if and by how
much that hospital’s FTE resident caps
should be reduced in accordance with
the policy established in the November
24, 2010 final rule (75 FR 72155 through
72168).
If the Medicare contractor determines
that a hospital was a member of a
Medicare GME affiliated group at any
point during any of the three most
recent cost reporting periods ending
before March 23, 2010 for which a cost
report has been settled or has been
submitted to the Medicare contractor by
March 23, 2010, subparagraph (I) of
section 1886(h)(8) of the Act applies,
and the Medicare contractor will
determine a hospital’s reference cost
reporting period by determining the cost
reporting period from the three most
recent cost reporting periods ending
before March 23, 2010, for which a cost
report has been settled or has been
submitted to the Medicare contractor by
March 23, 2010, that results in the
smallest difference between the
reference resident level and the
otherwise applicable resident limit. For
example, a hospital with a FYE of
December 31 may not be a member of
a Medicare GME affiliated group for the
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academic years beginning July 1, 2006,
2007, or 2008, but it may be a member
of a Medicare GME affiliated group for
the academic year beginning July 1,
2005. In the cost reporting period
ending December 31, 2006, the months
of January through June 2006 would be
affected by the July 1, 2005 Medicare
GME affiliation agreement. Therefore, in
this example, the hospital is indeed a
member of a Medicare GME affiliated
group at some point, albeit for only a
portion of a cost reporting period,
during its three most recent cost
reporting periods ending before March
23, 2010, for which a cost report has
been settled or has been submitted to
the Medicare contractor by March 23,
2010 (in this case, these cost reporting
periods would include FYE December
31, 2008, FYE December 31, 2007, and
FYE December 31, 2006), and as such its
reference cost reporting period would be
determined as the cost reporting period
that results in the smallest difference
between the reference resident level and
the otherwise applicable resident limit.
As previously discussed, section 422 of
the MMA specified a single time period
that would be used for all hospitals that
were members of a Medicare GME
affiliated group; that is as of July 1,
2003. However, section 5503 of the
Affordable Care Act does not specify
one cost reporting period, but rather it
specifies that the reference cost
reporting period is one out of three
possible cost reporting periods. For a
hospital that was a member of a
Medicare GME affiliated group at any
point during any of the three applicable
cost reporting periods, after determining
the cost report that is a hospital’s
reference cost reporting period based on
the cost report that results in the
smallest difference between the
reference resident level and the
otherwise applicable resident limit, to
determine whether there are any excess
slots we believe it is appropriate to
consider whether a hospital was a
member of a Medicare GME affiliated
group as of July 1 of that reference cost
reporting period. The hospital may or
may not have been a member of a
Medicare GME affiliated group during
that reference cost reporting period. We
do not believe that section 1886(h)(8)(I)
of the Act, as added by section 203 of
the MMEA, requires that a hospital must
be a member of a Medicare GME
affiliated group during all 3 cost
reporting periods, nor during the year
determined to be the reference cost
reporting period. Rather, being a
member of a Medicare GME affiliated
group at some point in only one of the
three cost reporting periods warrants
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that a hospital’s reference cost reporting
period be determined based on which
cost report has the smallest difference
between the reference resident level and
the otherwise applicable resident limit.
To determine if an FTE resident cap
reduction is appropriate, if the hospital
was a member of a Medicare GME
affiliated group as of July 1 in the
reference cost reporting period, we will
look at the Medicare GME affiliated
group in the aggregate, when we
determine if the subject hospital has
excess capacity for purposes of a
reduction under sections 5503 and 203.
If the hospital was not a member of a
Medicare GME affiliated group as of July
1 in the reference cost reporting period,
excess FTEs training at other members
of the affiliated group will not be
considered for the purposes of a
reduction under sections 5503 and 203
and that hospital’s FTE resident caps
should be reduced in accordance with
the policy established for hospitals that
are not members of Medicare GME
affiliated groups in the November 24,
2010 final rule (75 FR 72155 through
72168). The nature of this determination
underscores the fact that reductions to
the FTE resident caps of hospitals that
are members of Medicare GME affiliated
groups must still be made on an
individual hospital basis. The following
is an example of a reference cost
reporting period determination. (For
ease of illustration, this example focuses
on reductions to the IME FTE resident
caps only, but the methodology is the
same for reductions to the direct GME
FTE resident caps):
Hospital A has a FTE resident cap of
10 FTE residents. Hospital A’s three
most recent cost reports that have been
settled or submitted to the Medicare
contractor by March 23, 2010 include
cost reporting periods with FYE 12/31/
2006, 12/31/2007, and 12/31/2008.
During these three cost reporting
periods, Hospital A trained 8, 9, and 9
FTE residents, respectively. For the
academic years beginning July 1, 2006
and July 1, 2007, Hospital A was not a
member of a Medicare GME affiliated
group. However, for the academic year
beginning July 1, 2008, Hospital A is
affiliated with Hospital B and Hospital
C. As a result of its Medicare GME
affiliation agreement with Hospitals B
and C, Hospital A’s adjusted cap or
otherwise applicable resident limit is 12
for the academic year beginning July 1,
2008. Thus, when determining the
reference cost reporting period for
Hospital A, the Medicare contractor
would compare the resident level for
Hospital A with its otherwise applicable
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51717
resident limit for each of the cost
reporting period as indicated below:
• Cost Reporting Period 1 (01/01/2006–
12/31/2006): 10 (FTE Resident Cap)—
8 (FTE Resident Count) = 2
• Cost Reporting Period 2 (01/01/2007–
12/31/2007): 10 (FTE Resident Cap)—
9 (FTE Resident Count) = 1
• Cost Reporting Period 3 (01/01/2008–
12/31/2008): 11 (Adjusted FTE
Resident Cap)—9 (FTE Resident
Count) = 2
(Note that although Hospital A received
an increase of 2 FTEs, from 10 to 12,
under the Medicare GME affiliation
agreement for the academic year
beginning July 1, 2008, since Hospital A
has a 12/31 fiscal year end, the actual
cap adjustment is prorated to half of 2,
for an increase to its FTE resident cap
of 1, equaling 11). In this example, the
smallest difference between the
reference resident level and the
otherwise applicable resident limit for
Hospital A is 1, which occurs in the cost
reporting period with FYE 12/31/2007.
Thus, Hospital A’s reference cost
reporting period is 01/01/2007–12/31/
2007. Note that Hospital A is not a
member of a Medicare GME affiliated
group during FYE 12/31/07. The
implications of this are discussed
below.
Part 2: Determine the Applicable
Reductions
For a hospital that was a member of
a Medicare GME affiliated group at any
point during any of its three most recent
cost reporting periods ending before
March 23, 2010, for which a cost report
has been settled or has been submitted
to the Medicare contractor by March 23,
2010, once the Medicare contractor
determines that hospital’s reference cost
reporting period (that is, the cost report
with the smallest difference between the
hospital’s FTE resident cap and FTE
resident count), the Medicare contractor
must then determine if the hospital was
a member of a Medicare GME affiliated
group as of the July 1 that occurs during
that reference cost reporting period. If
not, and the hospital’s FTE resident
count was equal to or exceeded its FTE
resident cap in that reference cost
report, no reduction to its FTE resident
cap is made and no further steps are
necessary. If that hospital’s FTE resident
count was less than its FTE resident cap
during that reference cost report, then
the Medicare contractor would reduce
the FTE resident cap by 65 percent of
the difference between the FTE resident
cap and the FTE resident count.
If the hospital was a member of a
Medicare GME affiliated group as of the
July 1 that occurs during that reference
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cost reporting period, the Medicare
contractor will look at the members of
the Medicare GME affiliated group for
that period in the aggregate, for the
purpose of determining a reduction to
the particular hospital’s FTE resident
cap. In other words, assuming the
Medicare contractor is assessing
Hospital X, once it is determined that
Hospital X was training residents below
its adjusted FTE resident cap as part of
a Medicare GME affiliation agreement
occurring during Hospital X’s reference
cost reporting period, the Medicare
contractor will treat the hospitals in the
Medicare GME affiliated group in the
aggregate, but only for the purpose of
determining the reduction to Hospital
X’s FTE resident cap. The Medicare
contractor will not actually reduce the
FTE resident caps of the other hospitals
that were affiliated with Hospital X in
that year because each hospital is
evaluated separately, and it may be that
the reference cost reporting periods for
the other hospitals may not be the same
as Hospital X’s reference cost reporting
period. (It may be that the reference cost
reporting period for another hospital is
one in which that hospital was not part
of a Medicare GME affiliated group, in
which case, treatment as a group is not
warranted when determining that
hospital’s FTE cap reduction).
For the hospital that was a member of
a Medicare GME affiliated group as of
the July 1 that occurs during that
reference cost report, the Medicare
contractor will determine for each
hospital in the Medicare GME affiliated
group respectively its FTE resident cap
and FTE resident count (IME and direct
GME separately). The Medicare
contractor will add each hospital’s FTE
resident caps (IME and direct GME
separately) to determine the aggregate
affiliated FTE resident cap. The
contractor will then add each hospital’s
FTE resident count (IME and direct
GME separately) to determine the
aggregate affiliated FTE resident count.
If the aggregate FTE resident counts are
equal to or exceed the aggregate FTE
resident caps, no reductions would be
made to that particular hospital’s FTE
resident cap under section 5503 of
Affordable Care Act, and no further
steps are necessary for that hospital. We
emphasize that at this point, the
contractor has only determined that the
particular hospital will not be subject to
an FTE resident cap reduction—as the
FTE resident cap reduction
determination is ultimately one that is
done on an individual hospital basis, at
this point the contractor has not made
any determinations regarding the status
of the other hospitals that are in the
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same Medicare GME affiliated group as
the particular hospital under review.
However, where the aggregate FTE
resident count is below the aggregate
FTE resident cap (IME and direct GME
separately), a reduction to the particular
hospital’s FTE resident cap would be
necessary. In these cases, for each
hospital that is a member of the same
Medicare GME affiliated group, the
Medicare contractor will determine the
following FTE information from the cost
report that includes July 1 of the
particular hospital’s reference cost
reporting period:
(1) The ‘‘1996’’ FTE resident cap (as
adjusted by new programs, if applicable)
for the hospital under review—For IME,
from Worksheet E, Part A of the
Medicare cost report, the sum of lines
3.04 and 3.05. If the hospital’s IME FTE
resident cap was reduced under section
422 of the MMA, subtract from this sum
the amount reported on Worksheet E–3,
Part VI, line 13. For direct GME from
Worksheet E–3, Part IV of the Medicare
cost report, the sum of lines 3.01 and
3.02. If the hospital’s direct GME FTE
resident cap was reduced under section
422 of the MMA, subtract from this sum
the amount reported on Worksheet E–3,
Part VI, line 2.
(2) The ‘‘affiliated’’ FTE resident cap
for the hospital under review assessed—
For IME, line 3.07; and for direct GME,
line 3.04.
(3) The total number of allopathic and
osteopathic FTE residents for the
hospital under review—For IME, line
3.08; for direct GME, line 3.05.
(4) The difference between the
aggregate ‘‘affiliated’’ FTE resident cap
and the total FTE resident counts for all
of the affiliated hospitals—For IME, è
line 3.08 minus è (lines 3.04 + 3.05—
applicable section 422 reduction
amount); and for direct GME, è line 3.05
minus è (lines 3.01 + 3.02— applicable
section 422 reduction amount).
(5) For IME, for those hospitals whose
FTE resident count from line 3.08 is
greater than the ‘‘affiliated’’ FTE
resident cap on line 3.07, indicate
‘‘zero.’’ For direct GME, for those
hospitals whose FTE resident count
from line 3.05 is greater than the
‘‘affiliated’’ FTE resident cap on line
3.04, indicate ‘‘zero.’’ For IME, for those
hospitals whose FTE resident count
from line 3.08 is less than the
‘‘affiliated’’ FTE resident cap on line
3.07, determine the difference between
the hospital’s ‘‘affiliated’’ FTE resident
cap and the hospital’s FTE resident
count, line 3.08 minus line 3.07. For
direct GME, for those hospitals whose
FTE resident count from line 3.05 is less
than the ‘‘affiliated’’ FTE resident cap
on line 3.04, determine the difference
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between the hospital’s ‘‘affiliated’’ FTE
resident cap and the hospital’s FTE
resident count, line 3.05 minus line
3.04.
(6) For IME and direct GME
separately, to determine the total
amount by which the FTE resident
counts are below the ‘‘affiliated’’ FTE
resident caps, add the amounts
determined under step 5 for all
hospitals that trained fewer residents
than its ‘‘affiliated’’ FTE resident caps.
(7) For IME and direct GME
separately, determine a pro rata cap
reduction for the hospital under review
by dividing the hospital’s specific
amount in step 5 by the total amount for
all of those hospitals in step 6, and
multiply by the amount in step 4 (that
is, (step 5/step 6) × step 4).
(8) For IME and direct GME
separately, determine the actual cap
reduction for the hospital under review
by multiplying the pro rata cap
reduction from step 7 by 0.65.
(9) For IME and direct GME
separately, determine the reduced FTE
resident cap for the hospital under
review by subtracting the actual cap
reduction from step 8 from the ‘‘1996’’
FTE resident cap from step 1. This is the
hospital’s FTE resident cap effective
July 1, 2011.
The following is an example of how
the reductions to the FTE resident caps
will be determined where the FTE
resident counts in the aggregate for
hospitals that were affiliated as of July
1 of the reference cost reporting period
for a particular hospital are below the
hospitals’ FTE resident caps in the
aggregate. For ease of illustration, this
example focuses on reductions to the
IME caps only, but the methodology is
the same for reductions to the direct
GME caps.
In this example, the Medicare
contractor has determined, using the
methodology from Step 1, that the
reference cost reporting period (the
period with smallest difference between
the reference resident level and the
otherwise applicable resident limit) for
Hospital D is January 1, 2007 to
December 31, 2007. The academic year
that occurs in this reference cost
reporting period begins July 1, 2007.
Hospitals D, E, and F are members of a
Medicare GME affiliated group for the
academic year that begins July 1, 2007.
Hospital D is also separately affiliated
with Hospitals G and H for the academic
year that begins July 1, 2007. Thus, the
affiliated group for GME payment
purposes, and for purposes of
determining possible FTE cap
reductions for Hospital D under
subparagraph (I) consists of Hospitals D,
E, F, G, and H. Hospital E’s cost report
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that includes July 1, 2007 is FYE June
30, 2008. Hospital D’s, F’s, and G’s cost
report that includes July 1, 2007 is their
FYE December 31, 2007, and Hospital
H’s cost report that includes July 1, 2007
is its FYE September 30, 2007. Using
steps 1 through 9 above, the reduction
to the FTE resident caps for Hospital D
is determined in the table below.
In this example, Hospital D’s FTE
resident count of 75 was 15 less than its
‘‘affiliated’’ FTE resident cap of 90, and
Hospital H’s FTE resident count of 65
was 60 less than its ‘‘affiliated’’ FTE
resident cap of 125 (as determined
under step 5). Hospital F’s ‘‘affiliated’’
FTE resident cap equaled its FTE
resident count. Under this methodology,
the fact that Hospitals E and G exceeded
their respective ‘‘affiliated’’ FTE
resident caps minimizes the reductions
to Hospital D’s ‘‘1996’’ FTE resident
caps through the calculation of a pro
rata reduction under step 7.
We note that although Hospital H is
also under its cap; its cap is not reduced
in this exercise. Under section 5503, the
cap reduction determination is
calculated individually for each hospital
based on its individual reference cost
reporting period, so each hospital would
be evaluated for a possible reduction
separately. Hospital H will be evaluated
separately, and it may be that Hospital
H’s reference cost report may not be its
FYE September 30, 2007 cost report,
and ultimately, Hospital H may or may
not be subject to an FTE resident cap
reduction. Thus, under step 8, the actual
cap reduction of 5.2 FTEs for Hospital
D is determined by taking 65 percent of
8 (rather than 65 percent of 15). As a
result, under step 9, Hospital D’s final
FTE resident cap effective on July 1,
2011 is determined to be 109.8 FTEs.
We also note that the reduction to
Hospital D’s ‘‘1996’’ FTE resident caps
was minimized only because Hospitals
E and G exceeded their ‘‘affiliated’’ FTE
resident caps. If all hospitals in the
Medicare GME affiliated group had
trained residents below their
‘‘affiliated’’ FTE resident caps, a pro rata
reduction would not benefit Hospital D.
In that case, the ‘‘1996’’ FTE resident
caps of Hospital D in the Medicare GME
affiliated group would be reduced by 65
percent of the difference between its
‘‘affiliated’’ FTE resident cap and FTE
resident count.
We believe this final policy is similar
to the method used to implement
section 422 of the MMA with regard to
hospitals that were members of the same
Medicare GME affiliated group in that,
as under section 422 of the MMA, we
are only treating a hospital as part of a
group if the hospital was a member of
a Medicare GME affiliation agreement
during its reference cost reporting
period under section 1886(h)(8) of the
Act. In implementing section 203 of the
MMEA in this manner, we believe we
have addressed the concerns raised by
commenters in response to the August
3, 2010 proposed rule (75 FR 46395) in
that this policy could protect hospitals
from a loss of slots if the aggregate
counts equal to or exceed the
‘‘affiliated’’’ FTE resident caps, and
could limit the loss of slots in the
instance where a hospital is a member
of a Medicare GME affiliated group and
the aggregate counts are below the
‘‘affiliated’’ FTE resident caps.
authorizes a ‘‘redistribution’’ to
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. Section 1886(h)(8) of the Act
requires that any such reduction to the
FTE resident caps will be equal to 65
percent of the difference between the
hospital’s ‘‘otherwise applicable
resident limit’’ and its ‘‘reference
resident level.’’ Section 5503 of the
Affordable Care Act as initially enacted
did not include language specific to
Medicare GME affiliated groups and did
not provide for FTE resident cap
reduction determinations based on the
aggregate experience of a Medicare GME
affiliated group. Accordingly, section
203 of the MMEA further amended
section 1886(h)(8) of the Act to specify
that the provisions of section 1886(h)(8)
of the Act shall be applied to hospitals
which are members of the same
Medicare GME affiliated group, and the
‘‘reference resident level’’ for each such
hospital is the FTE resident count from
the cost reporting period that results in
the smallest difference between the FTE
resident count and the FTE resident cap.
In the March 14, 2011 interim final rule
with comment period, we implemented
section 203 of the MMEA relating to the
treatment of teaching hospitals that are
members of the same Medicare graduate
medical education affiliated groups for
the purpose of determining possible
full-time equivalent resident cap
reductions. We also revised
§ 413.79(m)(7) of our regulations to
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2. Summary of the Provisions of the
Interim Final Rule With Comment
Period
As stated earlier, in the final rule
published in the November 24, 2010
Federal Register (75 FR 71800), we
implemented section 5503 of the
Affordable Care Act, which added a new
section 1886(h)(8) to the Act. Section
5503 of the Affordable Care Act
provides for reductions in the statutory
FTE resident caps for direct GME under
Medicare for certain hospitals, and
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reflect the changes made by section 203
of the MMEA.
3. Summary of Public Comments,
Departmental Responses, and
Statements of Final Policies
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a. Summary of Public Comments and
Departmental Responses
Comment: Several commenters
supported CMS’ interpretation and
implementation of section 203 of the
MMEA. One commenter believed that
CMS has ‘‘very reasonably’’ addressed a
complex issue, considering that the
Affordable Care Act requires that
multiple cost reporting periods be
referenced to determine possible cap
reductions, and the MMEA’s intent that
CMS consider affiliated group
participation in deciding the
appropriate level of cap reductions.
Commenters stated that they recognized
the challenges and complexities of the
implementation of section 203 of the
MMEA, but that CMS’ methodology is
reasonable. Given the complexities of
implementation, commenters urged
CMS to review public comments
received on the interim final rule with
comment period very carefully and
make modifications if necessary.
Response: We appreciate the
commenters’ support and recognition of
our efforts to develop a process that is
as fair, reasonable, and intuitive as
possible within the statutory guidelines
for determining if and by how much the
FTE resident caps of hospitals that were
members of Medicare GME affiliated
groups will be reduced. Likewise, we
have made sure that we applied
deliberate, thoughtful, and equitable
treatment in reviewing and responding
to public comments we received on the
interim final rule with comment period.
Comment: Commenters suggested that
CMS test its methodology for validity
because it is difficult to assess such a
national policy on hospital-specific
reductions. Commenters asked CMS to
compare the sum of the cap reductions
that result from the methodology in the
interim final rule with comment period
to the result that would have occurred
in the absence of the interim final rule
with comment period in order to avoid
inappropriate results. Moreover,
commenters stated that these checks
should be performed for each affiliated
group, and for each individual hospital,
to ensure that all reductions are not
counterintuitive, or that a hospital
would not be getting a greater reduction
under application of the MMEA
methodology, than in the absence of
being treated as part of an affiliated
group.
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One commenter stated that it did not
believe it was the expectation of
Congress that the inclusion of section
203 within the MMEA would result in
only minor changes in the overall
results of the reduction determinations
made under section 5503 of the
Affordable Care Act. Thus, this
commenter believed that CMS should
implement a ‘‘global check’’ to ensure
that the resulting reductions applied to
all affiliated groups sum to significantly
less than would have been the case
absent the application of this
methodology.
Response: As the commenters have
already acknowledged, it was difficult
to devise a methodology for applying a
pro rata reduction to the FTE resident
caps of hospitals that were in Medicare
GME affiliated groups during their
reference cost reporting period. This is
because we had to examine FTE
resident caps and counts over a 3-year
period, not under a single one as under
section 422 of the MMA, and account
for the fact that, for hospitals in
Medicare GME affiliated groups, FTE
resident caps and counts could vary
over those 3-year periods. Determining
if and when to apply section 203 of the
MMEA at the individual hospital level
or at the affiliated group level was
somewhat challenging. Nevertheless,
given the fluid dynamics of Medicare
GME Affiliated groups that result from
sharing FTE resident caps and resident
rotations, we understood that under any
mathematical formula that could be
applied, there could be the potential for
unexpected results and unintended
consequences. In recognition of this
challenge, we, in conjunction with the
Medicare contractors, made sure that in
each instance that the pro rata reduction
was applied, the FTE resident cap
reduction to an affiliated hospital was
less than the reduction that it would
have received in the absence of the
section 203 of the MMEA and being
treated as part of a Medicare GME
affiliated group. In other words, in all
cases, we made sure that each affiliated
group and each hospital only benefited
from treatment as a group. Furthermore,
we also ensured that if an FTE resident
cap reduction was warranted at the
individual hospital level, no other
hospital in the affiliated group was
negatively impacted by the pro rata
reduction that occurred to an individual
hospital. That is, because, as we
explained in the interim final rule with
comment period (76 FR 13518 and
13519), the Medicare contractor was to
assess each hospital and ultimately
make an FTE resident cap reduction on
an individual basis, other hospitals in
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the Medicare GME affiliated group
whose FTE resident counts exceeded
their applicable FTE resident caps
during their reference cost reporting
periods would not be receiving FTE cap
reductions, and would not be impacted.
Comment: One commenter asked
CMS to clarify the impact on the
redistribution of ‘‘unused’’ IME cap
slots when a Medicare GME affiliated
group includes a hospital that reports
and receives only direct GME
reimbursement (for example, a
children’s or cancer hospital). The
commenter stated that because the
residents would likely qualify for IME
payments at an IPPS hospital, it would
seem inappropriate to reduce the
aggregate IME cap of the affiliated group
simply because IME slots were being
used by a non-IME hospital. (The
commenter also noted that, with regard
to HRSA’s Children’s GME Payment
Program (CHGME), HRSA advised
children’s hospitals receiving cap slots
under a Medicare GME Affiliation
Agreement with an IPPS hospital to
share only the direct GME cap and not
the IME cap.)
Response: Because children’s
hospitals are excluded from payment
under the IPPS under section 1886(d) of
the Act, they do not receive IME
payment and they do not have IME FTE
caps for Medicare purposes. ‘‘IME caps’’
that have been assigned to children’s
hospitals under HRSA’s CHGME
program have no bearing on Medicare
payment. Children’s hospitals with
approved medical residency training
programs only receive direct GME
payments from Medicare and, therefore,
only have direct GME FTE resident
caps. Therefore, when a children’s
hospital is part of a Medicare GME
affiliation agreement with an IPPS
hospital, while direct GME FTE resident
cap slots may be transferred between the
two facilities, the amount entered for
the IME FTE resident cap slots should
be ‘‘zero’’ or ‘‘not applicable.’’ (We note
that the same is true for teaching IRFs
or IPFs that affiliate with IPPS hospitals.
The IME teaching adjustment under the
IRF PPS and the IPF PPS has no bearing
on the IPPS, and should not be reflected
in Medicare GME affiliation
agreements).
We disagree with the commenter who
believed that we are reducing the
aggregate IME cap of the affiliated group
simply because IME slots are being used
by a hospital that does not receive
payment under the IPPS. Rather, we
believe that under section 5503 of the
Affordable Care Act, the FTE resident
caps of hospitals, affiliated or not, are
being reduced in the instance where
there is excess capacity between the
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hospital’s FTE resident cap and FTE
resident count. If, under the Medicare
GME affiliation agreement, an IPPS
hospital sends FTE slots and residents
to a children’s hospital, only direct GME
FTE slots are being transferred. IME
slots remain with the IPPS hospital, and
if they are not actually being used by the
IPPS hospital, there is excess IME
capacity. Thus, if, in the Medicare GME
affiliated group as a whole, the aggregate
IME FTE resident cap exceeds the
aggregate IME FTE resident count (that
is, there is excess capacity), whether or
not a children’s hospital is one of the
hospitals in the affiliated group, one or
more of the hospitals in that affiliated
group will ultimately be subject to a
reduction to its FTE resident cap.
(Because a children’s hospital has no
IME cap, it will obviously not be the
hospital subject to the IME FTE resident
cap reduction.)
Comment: One commenter asked
CMS to confirm that the ‘‘actual cap
reduction’’ cannot exceed the ‘‘1996’’
FTE cap for a hospital that was a
member of a Medicare GME affiliated
group during their reference cost
reporting period. Specially, the
commenter asked for confirmation that
a hospital with a ‘‘1996’’ FTE cap of
zero would never have an FTE cap
reduction. The commenter stated that
they assumed no hospital would be
assigned a negative ‘‘final FTE cap’’
effective July 1, 2011.
Response: The commenter is correct
that an FTE resident cap reduction
under section 5503 of the Affordable
Care Act, consistent with section 422 of
the MMA, cannot exceed the amount in
a hospital’s 1996 FTE resident cap
(including applicable add-ons for new
programs under § 413.79(e) of the
regulations). Further, an FTE resident
cap cannot be reduced below zero, nor
would an FTE resident cap that is
already zero be further reduced.
Comment: Commenters reiterated that
it is Congress’ position that only unused
slots be removed from hospitals subject
to section 5503 of the Affordable Care
Act and, therefore, asked CMS to
consider the most recent cost reporting
data available, specifically from the
academic year 2010, in the
implementation of section 5503. These
commenters asserted that section 203 of
the MMEA applies to ‘‘hospitals which
are members of the same affiliated group
(emphasis added),’’ and that it is
effective ‘‘as if included in the
enactment of section 5503(a)’’ of the
Affordable Care Act. The commenters
stressed that the statute did not state
that the provision pertains to ‘‘hospitals
that were members of the same affiliated
group.’’ The commenters argued that
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‘‘without explanation,’’ the interim final
rule with comment period applies the
protections of the MMEA only to those
hospitals that were affiliated prior to the
2010 academic year, which is contrary
to the plain reading of the statute.
Rather, the commenters believed that a
hospital that was in an affiliated group
on the date the ACA was enacted is
entitled to protection under the MMEA.
Response: We disagree with the
commenters that the plain reading of the
statute requires that the protections of
the MMEA regarding being a member of
a Medicare GME affiliated group be
applied to hospitals that ‘‘are’’ members
of the same affiliated group ‘‘as of the
date of enactment’’ (that is, March 23,
2010) because the MMEA is effective
‘‘as if included in the enactment of
section 5503(a)’’ of the Affordable Care
Act. Rather, we believe that the plain
reading of the language that section 203
of the MMEA is effective ‘‘as if included
in the enactment of section 5503(a)’’ of
the Affordable Care Act means that (1)
the provisions of section 5503 should be
applied to affiliated hospitals (that is,
consideration as a group should be
given, not only at the individual
hospital level), and (2) for these
affiliated hospitals, the reference
resident level for each such hospital
shall be the reference resident level with
respect to the cost reporting period that
results in the smallest difference
between the reference resident level and
the otherwise applicable resident limit.
Section 203 of the MMEA did not in any
way make any changes to the Affordable
Care Act timeframe of the reference cost
reporting periods. Rather, section 203 of
the MMEA only stated that, for a
hospital that is part of a Medicare GME
affiliated group, that reference period
should be the one that results in the
smallest difference between the FTE
resident cap and the FTE resident count.
As a result, even for hospitals that are
affiliated, their reference cost reporting
period would be chosen from the very
same reference cost reporting periods as
nonaffiliated hospitals; that is, any of
the three most recent cost reporting
periods ending before March 23, 2010,
for which a cost report has been settled
or has been submitted to the Medicare
contractor by March 23, 2010.
Therefore, the fact that a hospital was
affiliated as of March 23, 2010, has no
bearing on the choice of the reference
cost reporting period. Because the
MMEA did not revise the rule regarding
the timeframe for the reference cost
reporting periods, the hospital’s cost
report for its academic year 2010 cannot
be used as the hospital’s reference cost
reporting period.
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Comment: Commenters made the
following suggestions on how CMS
should properly implement section 203
of the MMEA:
(1) Consistent with the method that
CMS initially proposed for
implementing the provision for
affiliated hospitals under section 422 of
the MMA, use the adjusted FTE cap
from the Medicare GME affiliation
agreement in effect for academic year
2010, while determining the FTE count
from whichever cost reporting period
CMS would otherwise use.
(2) Use the adjusted FTE cap and the
FTE count from a cost reporting period
that at least partially overlaps academic
year 2010. For a hospital with a
December 31 fiscal year end, this period
would be its fiscal year 2009 cost
reporting period. The commenter also
stated that where the adjusted FTE caps
for those earlier periods is favorable to
hospitals; it had no objection to CMS’
exercise of its discretion to use those
earlier period adjusted FTE caps in its
FTE cap reduction calculation.
However, for hospitals that were in an
affiliated group only in academic year
2010, the commenter asserted that the
legislation requires that CMS take the
corresponding agreement into account
in its calculations.
(3) Allow the hospital to show that it
has slots approved within the past 3
years that remained unfilled, accounting
for at least 5 percent of the hospital’s
unadjusted 1996 FTE caps;
(4) Consider whether the hospital has
evidence of cross-training activities in
years prior to academic year 2010. In the
commenter’s case, the commenter
alleged that two hospitals had been
‘‘training partners since 2006,’’ but as a
result of a ‘‘mere oversight,’’ they had
not entered into a Medicare GME
affiliation agreement until July 1, 2009.
The commenter asserted that ‘‘nothing
about the joint training, however, could
be characterized as a ‘rushed attempt to
avoid a cap reduction.’ ’’
Response: In response to the
commenters’ first recommendation, the
portion of section 422 of the MMA that
is relevant to hospitals that were part of
a Medicare GME affiliated group is
implemented at section
1886(h)(7)(A)(iii) of the Act, which
states, ‘‘the provisions of clause (i) shall
be applied to hospitals which are
members of the same affiliated group
* * * as of July 1, 2003.’’ As we
explained in the August 11, 2004 final
rule (69 FR 49126), ‘‘we proposed to
interpret clause (i) to mean that the
Secretary is to use a hospital’s July 1,
2003 ‘affiliated’ FTE resident cap as the
otherwise applicable FTE resident cap
when determining a possible reduction
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to the FTE resident cap. In other words,
if a hospital is affiliated as of July 1,
2003, we proposed to superimpose the
‘affiliated’ FTE resident cap onto the
hospital’s reference cost reporting
period * * * If a hospital is part of a
Medicare affiliated group for the
program year beginning July 1, 2003, we
are proposing to compare the hospital’s
July 1, 2003 ‘affiliated’ FTE resident cap
to its resident level on the most recent
cost report ending on or before
September 30, 2002.’’
We did not finalize this approach
under the MMA because we received
public comments that opposed this
approach and ‘‘expressed great concern
regarding the proposed methodology
whereby a hospital’s ‘affiliated’ FTE
resident cap for the period July 1, 2003
to June 30, 2004 would be compared to
the hospital resident FTE counts
corresponding to a different (in some
cases, not even overlapping) period for
purposes of section 422’’ (69 FR 49128).
Those commenters stated that CMS
should provide the most straightforward
option and that ‘‘it would not ‘make
sense’ to reduce the FTE resident cap of
a hospital based on a comparison of its
cap in an affiliation agreement that was
from a period different than its reference
cost reporting period. Therefore, most
commenters generally recommended
that each hospital’s specific July 1, 2003
‘affiliated’ FTE resident cap should be
compared to its FTE resident count for
the July 1, 2003 through June 30, 2004
academic year, while one commenter
recommended that CMS allow each
hospital to elect whether to have its
specific July 1, 2003 ‘affiliated’ FTE
resident cap compared to its FTE
resident count for the [cost reporting]
period July 1, 2003 to June 30, 2004, for
purposes of determining if and by how
much the hospital’s FTE resident caps
would be reduced’’ (69 FR 49128).
As we acknowledged when we
implemented section 422 of the MMA,
hospitals either benefit or are
disadvantaged somewhat in each
instance that Congress chooses a base
year or years for purposes of
determining future payments (69 FR
49129). Similarly, for section 5503 of
the Affordable Care Act, Congress
clearly specified the base years, and the
public has been given notice since
November 24, 2010, that they consist of
the three most recent cost reporting
periods ending before March 23, 2010,
for which a cost report has been settled
or submitted to the Medicare contractor
by March 23, 2010. We strove to
implement section 422 of the MMA in
the fairest and most reasonable manner,
and we are making every effort to
implement section 5503 of the
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Affordable Care Act consistently with
section 422 whenever feasible. We
believe it is certainly reasonable to
conclude that just as many commenters
opposed our original proposal under
section 422 to superimpose the adjusted
affiliated FTE resident cap from the
affiliation agreement ‘‘as of July 1,
2003’’ onto an earlier reference cost
report, many commenters would again
oppose and reject a final similar policy
under section 5503. Therefore, in the
case of section 203 of the MMEA, we
believe it would be inappropriate to
adopt the position of a small number of
commenters suggesting that we compare
an FTE resident cap that applies to a
later Medicare GME affiliation
agreement to an FTE resident count
from an earlier cost reporting period.
While the commenters’ suggested
method in the instant case would help
a particular hospital, because under the
July 1, 2009 affiliation agreement the
commenters mentioned, this hospital
happened to have given away slots,
thereby reducing its adjusted FTE
resident caps, this method could
adversely affect other hospitals that
were receiving slots under the July 1,
2009 affiliation agreement. Therefore,
we are not adopting the commenters’
suggestion regarding use of the adjusted
FTE cap from the Medicare GME
affiliation agreement in effect for
academic year 2010, while determining
the FTE count from whichever cost
reporting period CMS would otherwise
use.
We do not agree with the commenters’
second suggestion to use the adjusted
FTE resident cap and the FTE resident
count from a cost reporting period that
at least partially overlaps the July 1,
2009–June 30, 2010 academic year
because this could result in use of a
reference cost report that does not
comport with the statutory requirement
to use one of the three most recent cost
reporting periods ending before March
23, 2010, for which a cost report has
been settled or has been submitted to
the Medicare contractor by March 23,
2010. As the commenters even noted,
for a hospital with a December 31 fiscal
year end, this period would be its fiscal
year 2009 cost reporting period.
However, that cost report would not
likely have been submitted to the
Medicare contractor by March 23, 2010.
The commenters stated that they have
no objection to the use of an earlier cost
reporting period where the adjusted FTE
caps for those earlier periods are
favorable to a hospital. However, we do
not believe it is appropriate to institute
a policy where hospitals may pick and
choose which cost reporting period
would be most favorable to them to use
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as the reference cost reporting period.
As we stated in response to a comment
in the November 24, 2010 final rule (75
FR 72160), ‘‘* * * we do not believe it
would be appropriate to include in the
determination of which cost reports are
used to establish a hospital’s reference
resident level, those cost reporting
periods that occurred at the time the
Affordable Care Act was in
development. Rather the cost reporting
period used to determine the reference
resident level should be a cost reporting
period that reflects a number of FTE
residents that a hospital is accustomed
to training, not a number of FTE
residents that is based on a hospital’s
rushed attempt to avoid a cap
reduction.’’
Regarding the commenters’ third
recommendation, there is no skirting the
issue that there are still unfilled slots.
We do not have the authority to waive
cap reductions for any excess capacity,
even for hospitals that may demonstrate
that they have been or are consistently
filling almost all of their FTE slots.
Regarding the fourth recommendation,
we do not believe there is any validity
to considering whether a hospital had
evidence of cross-training activities in
years prior to the July 1, 2009–June 30,
2010 academic year. Evidence of crosstraining does not equate to an actual,
formal Medicare GME affiliation
agreement in which responsible
representatives of each hospital agree to
exchange FTE resident cap slots. Rather,
in accordance with the long-standing
regulations regarding Medicare GME
affiliation agreements at section
413.79(f)(1), a formal agreement must be
submitted to CMS and the Medicare
contractor by July 1 of an academic year
in order to effectuate the transfer of FTE
slots. We cannot deem hospitals to be
affiliated simply because cross-training
occurred. Accordingly, we are not
adopting the commenters’ third and
fourth suggestions either.
Comment: Commenters stated that
CMS should not be resistant to changing
its policy as expressed in the interim
final rule with comment period out of
a concern that doing so would violate
the ‘‘logical outgrowth’’ doctrine. The
commenters asserted that their
comments addressed the ‘‘exact same’’
subject-matter as that addressed in the
interim final rule with comment period,
namely implementing section 203 of the
MMEA for hospitals that are members of
an affiliated group. Although CMS did
not make any proposals pertaining to
the use of academic year 2010 Medicare
GME affiliation agreements in the
interim final rule with comment period,
the commenter stated that CMS should
have done so as part of ‘‘proper
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rulemaking.’’ Further, the commenters
asserted that CMS should have
recognized that members of an affiliated
group in academic year 2010 are
entitled to the protections of the statute;
therefore, CMS cannot use its flawed,
incomplete analysis as a basis for
rendering its final implementation
decisions deficient as well. In addition,
the commenters argued that CMS has
taken latitude in prior rules and in
implementing a similar provision in the
MMA, where CMS made major changes
between its proposed rule and final rule
concerning cap reductions for affiliated
providers. Lastly, the commenters
understood that CMS is unlikely to
apply changes made at this juncture to
its calculation of the pool of slots to be
reallocated and as such, there are no
affected parties meriting protection
under the logical outgrowth doctrine.
Therefore, based on these arguments,
commenters expect CMS to furnish a
legal memorandum that addresses why
it is legally impossible for CMS to revise
its interim final rule with comment
period.
Response: Contrary to the
commenters’ assumption, we are not
concerned about logical outgrowth as
we do believe that the commenters’
comments are within the scope of the
interim final rule with comment period
on determination of possible FTE cap
reductions for hospitals that are
members of a Medicare GME affiliated
group. Rather, we disagree with the
commenters’ arguments both on
statutory and policy grounds, as
explained in response to the same
commenters’ comments above. (For
example, we disagree with the
commenters on what the plain reading
of the language at section 203 of the
MMEA is, and we disagree with the
commenters that it would be
appropriate to include in the
determination of which cost reports are
used to establish a hospital’s reference
resident level, those cost reporting
periods that occurred at the time the
Affordable Care Act was in
development). Therefore, we are not
accepting the commenters’
recommendations and are finalizing the
methodology for determining if and by
how much the FTE resident caps of
hospitals in Medicare GME affiliated
groups are to be reduced, as expressed
in the interim final rule with comment
period (76 FR 13515).
Comment: Commenters urged CMS to
allow hospitals to provide updated FTE
count data to CMS, given the severity of
the consequences of the reductions.
Commenters stated that CMS has given
its contractors until December 31, 2011,
to finalize their FTE cap reduction
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audits so there is sufficient time to
review any data that hospitals may
furnish them regarding their actual FTE
counts for the cost reporting periods at
issue.
Response: If, by allowing hospitals to
provide ‘‘updated’’ FTE count data, the
commenters mean that hospitals should
be allowed to provide FTE count data
from cost reporting periods after the
three applicable reference cost reporting
periods, as we stated above, we do not
believe it would be appropriate to
include in the determination of which
cost reports are used to establish a
hospital’s reference resident level, those
cost reporting periods that occurred at
the time the Affordable Care Act was in
development. In response to the
commenters’ assertion that because
CMS has given its contractors until
December 31, 2011, to finalize FTE cap
reduction audits, there is sufficient time
for the contractors to review data
regarding actual FTE counts, as we
explained in the November 24, 2010
final rule (75 FR 72154), this provision
regarding audits continuing until
December 31, 2011, was intended to be
used only under certain limited
circumstances. Specifically, we
explained that ‘‘there may be instances
where the audits of the reference
resident levels may not be completed by
July 1, 2011, and that, within the scope
of their normal audit work, the
Medicare contractors will complete as
many of these audits as possible, and
some of the audits may not be
completed until December 31, 2011’’
(emphasis added) (75 FR 72154). Thus,
the intent was not to require the
Medicare contractors to perform lengthy
and protracted reviews specifically for
the purpose of implementing section
5503, nor to allow hospitals to present
additional FTE resident count data in all
instances. Rather, only if additional FTE
resident count data was required by and
presented to the contractor within the
scope of the contractor’s normal audit
work, and that normal audit work would
not be completed by July 1, 2011, it
would be permissible for the audit work
to proceed until December 31, 2011.
Therefore, as implemented, the estimate
of slots available for redistribution that
CMS determined prior to July 1, 2011,
would be relatively close to the number
of available slots that would be
determined based on the final audited
data. If we were to allow all hospitals to
revise their cost report data and delay
all decisions until December 31, 2011,
the estimated number of slots available
for redistribution would be rendered
completely meaningless.
Comment: Commenters expressed
general dissatisfaction with caps on
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51723
resident FTEs because they believed the
caps are outdated. One commenter
expressed dissatisfaction that urban
teaching hospitals in several states were
unjustly excluded from receiving
resident slots under section 5503 of the
Affordable Care Act.
Response: We thank the commenters
for these comments, but note that they
are not within the scope of the interim
final rule with comment period.
b. Final Policies
After consideration of the public
comments we received, we are
finalizing all of the provisions set forth
in the March 14, 2011 interim final rule
with comment period, including the
revision of § 413.79(m)(7) of the
regulations, without modification.
4. Collection of Information
Requirements
This document does not impose
information collection and
recordkeeping requirements.
Consequently, it need not be reviewed
by the Office of Management and
Budget under the authority of the
Paperwork Reduction Act of 1995.
(44 U.S.C. Chapter 35)
5. Regulatory Impact Statement
a. Statement of Need
We need to issue a document that will
finalize the provisions of the March 14,
2011 interim final rule with comment
period, including the regulatory
provisions under 42 CFR 413.79(m)(7).
b. Overall Impact
We have examined the impact of this
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 Order 12866 directs
agencies to assess all costs and benefits
of available regulatory alternatives and,
if regulation is necessary, to select
regulatory approaches that maximize
net benefits (including potential
economic, environmental, public health
and safety effects, distributive impacts,
and equity). A regulatory impact
analysis (RIA) must be prepared for
major rules with economically
significant effects ($100 million or more
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
in any 1 year). This rule does not reach
the economic threshold and thus is not
considered a major rule.
In the November 24, 2010 final rule
which implemented section 5503 of the
Affordable Care Act (75 FR 72239), we
mentioned that we were unable to
project how many FTE resident slots
will be available for redistribution
under section 5503 of the Affordable
Care Act. Unlike section 422 of the
MMA, which also provided for a
redistribution of FTE resident slots but
provided that the redistributed slots will
be paid using the national average per
resident amount (PRA) for direct GME
payment purposes, section 5503 of the
Affordable Care Act requires that
hospitals be paid for their additional
FTE resident slots using the hospitals’
specific PRAs. Because we had not yet
determined the number of FTE resident
slots that will be redistributed under
section 5503 of the Affordable Care Act
or which hospitals will be receiving
additional FTE resident slots, we could
not calculate a direct GME impact for
section 5503 of the Affordable Care Act.
Similarly, we cannot calculate a direct
GME dollar impact for section 203 of the
MMEA.
Because the general effect of section
203 of the MMEA is to protect from loss
or mitigate the loss of slots of hospitals
that are members of a Medicare GME
affiliated group, there are fewer direct
GME and IME slots available for
redistribution to other hospitals.
However, we are unable to compute a
dollar impact on the redistribution of
those slots to other hospitals. First,
although there are currently 307
hospitals that are members of a
Medicare GME affiliated group, these
hospitals were not necessarily members
of Medicare GME affiliated groups
during the reference cost reporting
periods specified by section 5503 of the
Affordable Care Act. Second, since, as of
this date, final determinations have not
been made with regard to the number of
slots that all affected hospitals will be
losing or receiving, we cannot
determine a financial impact for
purposes of direct GME and IME for this
provision.
In the interim final rule with
comment period, we solicited public
comment on our analysis. We did not
receive any public comments specific to
this impact.
The RFA requires agencies to analyze
options for regulatory relief of small
entities, if a rule has a significant impact
on a substantial number of small
entities. For purposes of the RFA, small
entities include small businesses,
nonprofit organizations, and small
governmental jurisdictions. Most
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physician practices, hospitals and other
providers are small entities, either by
nonprofit status or by qualifying as
small businesses under the Small
Business Administration’s size
standards (revenues of less than $7.0 to
$34.5 million in any 1 year). States and
individuals are not included in the
definition of a small entity. For details,
see the Small Business Administration’s
Web site at http://ecfr.gpoaccess.gov/
cgi/t/text/text-idx?c=ecfr&sid=2465b
064ba6965cc1fbd2eae60854b11&rgn=
div8&view=text&node=13:1.0.1.1.16.1.
266.9&idno=13.
Individuals and States are not
included in the definition of a small
entity.
The RFA requires an agency to
prepare an initial regulatory flexibility
analysis when they issue a general
notice of proposed rulemaking.
However, HHS has maintained a
longstanding policy of voluntarily
preparing initial regulatory flexibility
analyses for all rulemaking. The
Secretary has determined that this final
rule will not have a significant
economic impact on a substantial
number of small entities.
In addition, section 1102(b) of the Act
requires us to prepare a regulatory
impact analysis if a rule may have a
significant impact on the operations of
a substantial number of small rural
hospitals. This analysis must conform to
the provisions of section 604 of the
RFA. For purposes of section 1102(b) of
the Act, we define a small rural hospital
as a hospital that is located outside of
a Metropolitan Statistical Area for
Medicare payment regulations and has
fewer than 100 beds. We are not
preparing an analysis for section 1102(b)
of the Act because the Secretary has
determined that this final rule will not
have a significant impact on the
operations of a substantial number of
small rural hospitals.
Section 202 of the Unfunded
Mandates Reform Act of 1995 also
requires that agencies assess anticipated
costs and benefits before issuing any
rule whose mandates require spending
in any 1 year of $100 million in 1995
dollars, updated annually for inflation.
In 2011, that threshold is approximately
$136 million. This rule will have no
consequential effect on State, local, or
tribal governments or on the private
sector.
Executive Order 13132 establishes
certain requirements that an agency
must meet when it promulgates a
proposed rule (and subsequent final
rule) that imposes substantial direct
requirement costs on State and local
governments, preempts State law, or
otherwise has Federalism implications.
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Because this rule does not impose any
costs on State or local governments, the
requirements of Executive Order 13132
are not applicable.
c. Anticipated Effects
We believe the general effect of
section 203 of the MMEA is that it could
protect from loss or mitigate the loss of
slots for hospitals that are members of
a Medicare GME affiliated group, and
therefore, there could be fewer direct
GME and IME slots available for
redistribution to other hospitals.
d. Alternatives Considered
Although there may be alternatives,
the method we are finalizing in this
final rule is the most consistent with
that of a similar provision for hospitals
that are members of Medicare GME
affiliated groups implemented as part of
section 422 of the MMA.
e. Conclusion
The analysis above, together with the
remainder of this preamble, provides a
regulatory flexibility analysis as well as
a regulatory impact analysis. For the
reasons outlined in the RIA, we are not
preparing an analysis for either the RFA
or section 1102(b) of the Act because we
have determined that this final rule will
not have a direct significant economic
impact on a substantial number of small
entities or a direct significant impact on
the operations of a substantial number
of small rural hospitals.
In accordance with the provisions of
Executive Order 12866, this rule was
reviewed by the Office of Management
and Budget.
6. Comment on Issues Outside of the
Scope of the Interim Final Rule With
Comment Period
We received one comment regarding
nuyrsing and allied health pass-through
payments. This comment is outside of
the scope of the interim final rule with
comment period. Therefore, we are not
responding to is in this final rule.
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. We initially implemented
the IPPS for capital-related costs in the
Federal fiscal year (FY) 1992 IPPS final
rule (56 FR 43358), in which we
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established a 10-year transition period
to change the xpayment 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, currently the standard
Federal rate is adjusted as follows:
(Standard Federal Rate) × (DRG Weight)
× (Geographic Adjustment Factor
(GAF)) × (COLA for hospitals
located in Alaska and Hawaii) × (1
+ Capital DSH Adjustment Factor +
Capital IME Adjustment Factor, if
applicable).
B. Exception Payments
The regulations at § 412.348(f)
provide that a hospital may request an
additional payment if the hospital
incurs unanticipated capital
expenditures in excess of $5 million due
to extraordinary circumstances beyond
the hospital’s control. This policy was
originally established for hospitals
during the 10-year transition period, but
as we discussed in the FY 2003 IPPS
final rule (67 FR 50102), we revised the
regulations at § 412.312 to specify that
payments for extraordinary
circumstances are also made for cost
reporting periods after the transition
period (that is, cost reporting periods
beginning on or after October 1, 2001).
Additional information on the exception
payment for extraordinary
circumstances in § 412.348(f) can be
found in the FY 2005 IPPS final rule (69
FR 49185 and 49186).
During the transition period, under
§§ 412.348(b) through (e), eligible
hospitals could receive regular
exception payments. These exception
payments guaranteed a hospital a
minimum payment percentage of its
Medicare allowable capital-related costs
depending on the class of the hospital
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(§ 412.348(c)), but were available only
during the 10-year transition period.
After the end of the transition period,
eligible hospitals can no longer receive
this exception payment. However, for a
certain period after the transition
period, eligible hospitals may receive
additional payments under the special
exceptions provisions at § 412.348(g),
which guarantees all eligible hospitals a
minimum payment of 70 percent of its
Medicare allowable capital-related costs
provided that special exceptions
payments do not exceed 10 percent of
total capital IPPS payments. Hospitals
eligible for special exceptions payments
are required to submit documentation to
the fiscal intermediary or MAC
indicating the completion date of their
project. Special exceptions payments
may be made only for the 10 years from
the cost reporting year in which the
hospital completes its qualifying
project, and the hospital must have
completed the project no later than the
hospital’s cost reporting period
beginning before October 1, 2001. Thus,
an eligible hospital may receive special
exceptions payments for up to 10 years
beyond the end of the capital IPPS
transition period. Under this limitation
on the period for special exceptions
payments at § 412.348(g)(7) of the
regulations, FY 2012 is the final year
hospitals can receive special exceptions
payments. (For more detailed
information regarding the special
exceptions policy under § 412.348(g),
we refer readers to the FY 2002 IPPS
final rule (66 FR 39911 through 39914)
and the FY 2003 IPPS final rule (67 FR
50102).)
C. New Hospitals
Under the IPPS for capital-related
costs, § 412.300(b) of the regulations
defines a new hospital as a hospital that
has operated (under current or previous
ownership) for less than 2 years. For
example, the following hospitals are not
considered new hospitals: (1) A hospital
that builds new or replacement facilities
at the same or another location, even if
coincidental with a change of
ownership, a change in management, or
a lease arrangement; (2) a hospital that
closes and subsequently reopens; (3) a
hospital that has been in operation for
more than 2 years but has participated
in the Medicare program for less than 2
years; and (4) a hospital that changes its
status from a hospital that is excluded
from the IPPS to a hospital that is
subject to the capital IPPS. For more
detailed information, we refer readers to
the FY 1992 IPPS final rule (56 FR
43418). During the 10-year transition
period, a new hospital was exempt from
the capital IPPS for its first 2 years of
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51725
operation and was paid 85 percent of its
reasonable costs during that period.
Originally, this provision was effective
only through the transition period and,
therefore, ended with cost reporting
periods beginning in FY 2002. Because,
as discussed in the FY 2003 IPPS final
rule (67 FR 50101), we believe that
special protection to new hospitals is
also appropriate even after the transition
period, we revised the regulations at
§ 412.304(c)(2) to provide that, for cost
reporting periods beginning on or after
October 1, 2002, a new hospital (defined
under § 412.300(b)) is paid 85 percent of
its Medicare allowable capital-related
costs through its first 2 years of
operation, unless the new hospital
elects to receive full prospective
payment based on 100 percent of the
Federal rate. (We refer readers to the FY
2003 IPPS final rule (67 FR 50101
through 50102) for a detailed discussion
of the special payment provisions for
new hospitals under the capital IPPS
after the 10-year transition period.)
D. Hospitals Located in Puerto Rico
Section 412.374 of the regulations
provides for the use of a blended
payment amount for prospective
payments for capital-related costs to
hospitals located in Puerto Rico.
Accordingly, under the capital IPPS, we
compute a separate payment rate
specific to Puerto Rico hospitals using
the same methodology used to compute
the national Federal rate for capitalrelated costs. In general, hospitals
located in Puerto Rico are paid a blend
of the applicable capital IPPS Puerto
Rico rate and the applicable capital IPPS
Federal rate.
Prior to FY 1998, hospitals in Puerto
Rico were paid a blended capital IPPS
rate that consisted of 75 percent of the
capital IPPS Puerto Rico specific rate
and 25 percent of the capital IPPS
Federal rate. However, effective October
1, 1997 (FY 1998), in conjunction with
the change to the operating IPPS blend
percentage for hospitals located in
Puerto Rico required by section 4406 of
Public Law 105–33, we revised the
methodology for computing capital IPPS
payments to hospitals in Puerto Rico to
be based on a blend of 50 percent of the
capital IPPS Puerto Rico rate and 50
percent of the capital IPPS Federal rate.
Similarly, in conjunction with the
change in operating IPPS payments to
hospitals located in Puerto Rico for FY
2005 required by section 504 of Public
Law 108–173, we again revised the
methodology for computing capital IPPS
payments to hospitals located in Puerto
Rico to be based on a blend of 25
percent of the capital IPPS Puerto Rico
rate and 75 percent of the capital IPPS
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Federal rate effective for discharges
occurring on or after October 1, 2004.
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E. Changes for FY 2012: MS–DRG
Documentation and Coding Adjustment
1. Background
In the FY 2008 IPPS final rule with
comment period (72 FR 47175 through
47186), we adopted the MS–DRG
patient classification system for the
IPPS, effective October 1, 2007, to better
recognize patient severity of illness in
Medicare payment rates. Adoption of
the MS–DRGs resulted in the expansion
of the number of DRGs from 538 in FY
2007 to 745 in FY 2008. (Currently,
there are 747 MS–DRGs, and for FY
2012, we are adopting 4 additional MS–
DRGs (for a total of 751 MS–DRG). By
increasing the number of DRGs and
more fully taking into account patient
severity of illness in Medicare payment
rates, the MS–DRGs encourage hospitals
to change their documentation and
coding of patient diagnoses. In that
same final rule with comment period
(72 FR 47183), we indicated that we
believe the adoption of the MS–DRGs
had the potential to lead to increases in
aggregate payments without a
corresponding increase in actual patient
severity of illness due to the incentives
for changes in documentation and
coding. Accordingly, we established
adjustments to both the national
operating standardized amount and the
national capital Federal rate to eliminate
the estimated effect of changes in
documentation and coding resulting
from the adoption of the MS–DRGs that
do not reflect real changes in case-mix.
Specifically, we established prospective
documentation and coding adjustments
of ¥1.2 percent for FY 2008, ¥1.8
percent for FY 2009, and ¥1.8 percent
for FY 2010. However, to comply with
section 7(a) of Public Law 110–90,
enacted on September 29, 2007, in a
final rule published in the Federal
Register on November 27, 2007 (72 FR
66886 through 66888), we modified the
documentation and coding adjustment
for FY 2008 to ¥0.6 percent, and
consequently revised the FY 2008 IPPS
operating and capital payment rates,
factors, and thresholds accordingly,
with these revisions effective October 1,
2007.
For FY 2009, section 7(a) of Public
Law 110–90 required a documentation
and coding adjustment of ¥0.9 percent
instead of the ¥1.8 percent adjustment
established in the FY 2008 IPPS final
rule with comment period. As discussed
in the FY 2008 IPPS final rule with
comment period (72 FR 48447 and
48733 through 48774), we applied an
additional documentation and coding
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adjustment of ¥0.9 percent to the FY
2009 IPPS national standardized
amounts and the national capital
Federal rate. The documentation and
coding adjustments established in the
FY 2009 IPPS final rule, as amended by
Public Law 110–90, are cumulative. As
a result, the ¥0.9 percent
documentation and coding adjustment
in FY 2009 was in addition to the ¥0.6
percent adjustment in FY 2008, yielding
a combined effect of ¥1.5 percent. (For
additional details on the development
and implementation of the
documentation and coding adjustments
for FY 2008 and FY 2009, we refer
readers to section II.D. of this preamble
and the following rules published in the
Federal Register: August 22, 2007 (72
FR 47175 through 47186 and 47431
through 47432); November 27, 2007 (72
FR 66886 through 66888); and August
19, 2008 (73 FR 48447 through 48450
and 48773 through 48775).)
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 24092
through 24101), we presented the
results of a retrospective evaluation of
the FY 2008 data for claims paid
through December 2008. We sought
public comment on our methodology
and analysis and our proposal to apply
a prospective adjustment to address the
effect of documentation and coding
changes unrelated to changes in real
case-mix in FY 2008. In addition, we
sought public comment on addressing
in the FY 2011 rulemaking cycle any
effect of documentation and coding
changes that do not reflect real changes
in case-mix for discharges occurring
during FY 2009. However, after
consideration of the public comments
received on the FY 2010 IPPS/RY 2010
LTCH PPS proposed rule, consistent
with the application of the
documentation and coding adjustment
to the operating IPPS standardized
amounts, we determined that it would
be appropriate to postpone the adoption
of any additional documentation and
coding adjustments to the capital IPPS
rates until a full analysis of FY 2009
case-mix changes could be completed
(74 FR 43926 through 43928).
For the FY 2011 IPPS/LTCH PPS
proposed rule (75 FR 24014), we
performed a thorough retrospective
evaluation of the most recent available
claims data, and the results of this
evaluation were used by our actuaries to
determine any necessary payment
adjustments beyond the cumulative
¥1.5 percent adjustment that has
already been applied to the national
capital Federal rate to ensure budget
neutrality for the implementation of
MS–DRGs. Specifically, we performed a
retrospective evaluation of the FY 2009
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claims data updated through December
2009 using the same analysis
methodology as we did for FY 2008
claims in the FY 2010 IPPS/RY 2010
LTCH PPS proposed and final rules.
Based on this evaluation, our actuaries
determined that the implementation of
the MS–DRG system resulted in a 5.4
percent change in case-mix due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2009.
We also noted our intent to update our
analysis with FY 2009 data on claims
paid through March 2009 (sic) for the
FY 2011 IPPS/LTCH PPS final rule. (We
note that the March 2009 update date
for claims paid data in the proposed
rule should have stated March 2010.)
As intended, as discussed in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50355), we updated our analysis with
FY 2009 data on claims paid through
March 2010 in that final rule. For the FY
2011 IPPS/LTCH PPS final rule,
applying the same analysis methodology
as we did for the proposed rule to an FY
2009 claims data updated through
March 2010 verified the 5.4 percent
change in case-mix due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2009.
The 5.4 percent estimate of the
cumulative effect of changes in
documentation and coding under the
MS–DRG system that did not reflect real
changes in case-mix for FYs 2008 and
2009 exceeded the cumulative ¥1.5
percent prospective documentation and
coding adjustment that had already been
applied to the national capital Federal
rate by 3.9 percentage points (5.4
percent minus 1.5 percent). Therefore,
in FY 2011, an additional cumulative
adjustment of ¥3.9 percent to the
national capital Federal rate would be
necessary to eliminate the full effect of
the documentation and coding changes
due to the adoption of the MS–DRGs on
future payments.
Therefore, in that same final rule,
under the Secretary’s broad authority
under section 1886(g) of the Act,
consistent with section 1886(d)(3)(A)(vi)
of the Act and section 7(b) of Public
Law 110–90, we implemented an
adjustment to the FY 2011 national
capital Federal rate of ¥2.9 percent to
account for part of the effect of the
estimated changes in documentation
and coding changes under the MS–DRG
system that occurred in FYs 2008 and
2009 that did not reflect real changes in
case-mix. We also established that we
will leave the ¥2.9 percent adjustment
in place for subsequent fiscal years to
account for the effect of that
documentation and coding change in
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subsequent years. Furthermore, we
stated our intention to address the
remaining estimated adjustment to the
national capital Federal rate of ¥1.0
percent (that is, the estimated effect of
documentation and coding changes
under the MS–DRG system of ¥5.4
percent minus the existing ¥0.6 percent
and ¥0.9 percent adjustments and the
¥2.9 percent adjustment for FY 2011)
in future rulemaking cycles.
2. Prospective MS–DRG Documentation
and Coding Adjustment to the National
Capital Federal Rate for FY 2012 and
Subsequent Years
As we stated in the FY 2012 IPPS/
LTCH PPS proposed rule, we continue
to believe that it is appropriate to make
adjustments to the capital IPPS rates to
eliminate the effect of any
documentation and coding changes as a
result of the implementation of the MS–
DRGs. These adjustments are intended
to ensure that future annual aggregate
IPPS payments are the same as
payments that otherwise would have
been made had the prospective
adjustments for documentation and
coding applied in FY 2008 and FY 2009
accurately reflected the changes due to
documentation and coding that
occurred in those years. As noted in
section V.A. of the preamble of the
proposed rule and this preamble, under
section 1886(g) of the Act, the Secretary
has broad authority in establishing and
implementing the IPPS for acute-care
hospital inpatient capital-related costs
(that is, the capital IPPS). We have
consistently stated since the initial
implementation of the MS–DRG system
that we do not believe it is appropriate
for Medicare expenditures under the
capital IPPS to increase due to MS–DRG
related changes in documentation and
coding. Accordingly, we believe that it
is appropriate under the Secretary’s
broad authority under section 1886(g) of
the Act, in conjunction with section
1886(d)(3)(A)(vi) of the Act and section
7(b) of Public Law 110–90, to make
adjustments to the national capital
Federal rate to eliminate the full effect
of the documentation and coding
changes resulting from the adoption of
the MS–DRGs. We believe that this is
appropriate because, in absence of such
adjustments, the effect of the
documentation and coding changes
resulting from the adoption of the MS–
DRGs results in inappropriately high
capital IPPS payments because that
portion of the increase in aggregate
payments is not due to an increase in
patient severity of illness (and costs).
As discussed above, based on our
retrospective evaluation of the FY 2009
claims, our actuaries determined that
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implementation of the MS–DRG system
resulted in a 5.4 percent change in casemix due to documentation and coding
that did not reflect real changes in casemix for discharges occurring during FY
2009. To date, we have made
adjustments to the national capital
Federal rate to account for 4.4 percent
(that is, ¥0.6 percent in FY 2008, ¥0.9
percent in FY 2009, and ¥2.9 percent
in FY 2011) of the estimated 5.4 percent
documentation and coding effect. Thus,
our current estimate of the remaining
adjustment to the national capital
Federal rate is ¥1.0 percent to account
for the effect of documentation and
coding changes under the MS–DRG
system for FYs 2008 and 2009.
In the proposed rule, under the
Secretary’s broad authority under
section 1886(g) of the Act, in
conjunction with section
1886(d)(3)(A)(vi) of the Act and section
7(b) of Public Law 110–90, consistent
with the intention we stated in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50357), we proposed to reduce the
national capital Federal rate in FY 2012
by ¥1.0 percent to account for the
remainder of the cumulative effect of
the estimated changes in documentation
and coding under the MS–DRG system
in FYs 2008 and 2009 that did not
reflect real changes in case-mix.
Furthermore, consistent with the
documentation and coding adjustments
we have made in the past, we proposed
to leave this proposed ¥1.0 percent
adjustment in place for subsequent
fiscal years to account for the effect in
FY 2012 and subsequent years. As
explained above, this proposed ¥1.0
percent adjustment accounts for the
remainder of our current estimate of the
cumulative effect of documentation and
coding changes under the MS–DRG
system for FYs 2008 and 2009 of ¥5.4
percent minus the existing ¥0.6
percent, ¥0.9 percent, and ¥2.9
percent adjustments.
We did not receive any public
comments on our proposal to
permanently reduce the national capital
Federal rate in FY 2012 by ¥1.0 percent
to account for the remainder of the
cumulative effect of the estimated
changes in documentation and coding
under the MS–DRG system that
occurred during FYs 2008 and 2009 that
did not reflect real changes in case-mix.
(The public comments we received on
our methodology and the magnitude of
our estimate of cumulative effect of the
estimated changes in documentation
and coding under the MS–DRG system
that occurred during FYs 2008 and 2009
that did not reflect real changes in casemix are discussed in section II.D. of this
preamble.)
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51727
In this final rule, under the
Secretary’s broad authority under
section 1886(g) of the Act, in
conjunction with section
1886(d)(3)(A)(vi) of the Act and section
7(b) of Pub. L. 110–90, consistent with
the intention we stated in the FY 2011
IPPS/LTCH PPS final rule (75 FR
50357), as we proposed, we are reducing
the national capital Federal rate in FY
2012 by ¥1.0 percent to account for the
remainder of the cumulative effect of
the estimated changes in documentation
and coding under the MS–DRG system
that occurred during FYs 2008 and 2009
that did not reflect real changes in casemix. Furthermore, consistent with the
documentation and coding adjustments
we have made in the past, and as we
proposed, we will leave this ¥1.0
percent adjustment in place for
subsequent fiscal years to account for
the effect in FY 2012 and subsequent
years. As explained above, this ¥1.0
percent adjustment accounts for the
remainder of our current estimate of the
cumulative effect of documentation and
coding changes under the MS–DRG
system that occurred during FYs 2008
and 2009 of ¥5.4 percent minus the
existing ¥0.6 percent, ¥0.9 percent,
and ¥2.9 percent adjustments.
3. Documentation and Coding
Adjustment to the Puerto Rico-Specific
Capital Rate
Under § 412.74, Puerto Rico hospitals
are currently paid based on 75 percent
of the national capital Federal rate and
25 percent of the Puerto Rico-specific
capital rate. In the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50358 through
50359), we discussed the retrospective
evaluation of the FY 2009 claims data
from the March 2010 update of the
MedPAR file of hospitals located in
Puerto Rico using the same
methodology used to estimate
documentation and coding changes
under IPPS for non-Puerto Rico
hospitals. This analysis shows that the
change in case-mix due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FYs 2008
and 2009 from hospitals located in
Puerto Rico was approximately 2.6
percent. (As discussed in that same final
rule, the Puerto Rico-specific capital
rate was not adjusted for the cumulative
effects of documentation and coding
changes in FY 2008 or FY 2009.) We
also explained that we continue to
believe that such an adjustment is
appropriate because all hospitals have
the same financial incentives for
documentation and coding
improvements, and the same ability to
benefit from the resulting increase in
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aggregate payments that do not reflect
real changes in case-mix.
Given this case-mix increase due to
changes in documentation and coding
under the MS–DRGs, consistent with
the adjustment we made to the FY 2011
national capital Federal rate (discussed
above) and consistent with our
adjustment to the FY 2011 Puerto Ricospecific standardized amount, under the
Secretary’s broad authority under
section 1886(g) of the Act, we
established an adjustment to the Puerto
Rico-specific capital rate of –2.6 percent
in FY 2011 for the cumulative increase
in case-mix due to changes in
documentation and coding under the
MS–DRGs for FYs 2008 and 2009. In
addition, consistent with our
implementation of other prospective
MS–DRG documentation and coding
adjustments to the capital Federal rate
and operating IPPS standardized
amounts, we established that we will
leave that ¥2.6 percent adjustment in
place for subsequent fiscal years in
order to ensure that changes in
documentation and coding resulting
from the adoption of the MS–DRGs do
not lead to an increase in aggregate
payments not reflective of an increase in
real case-mix in subsequent years. The
¥2.6 percent adjustment to the capital
Puerto Rico-specific rate that we made
in FY 2011 reflects the entire amount of
our current estimate of the effects of
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FYs 2008
and 2009 from hospitals located in
Puerto Rico. Consequently, in the FY
2012 IPPS/LTCH PPS proposed rule, we
did not propose to make any additional
adjustments to the capital Puerto Ricospecific rate for FY 2012 for the effect
of documentation and coding that did
not reflect real changes in case-mix.
We did not receive any public
comments on our proposal not to make
any additional adjustments to the
capital Puerto Rico-specific rate for FY
2012 for the effect of documentation and
coding changes that did not reflect real
changes in case-mix and, therefore, are
adopting our proposal as final in this
final rule.
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F. Other Changes for FY 2012
The annual update to the capital IPPS
national Federal and Puerto Ricospecific rates, as provided for at
§ 412.308(c), for FY 2012 is discussed in
section III. of the Addendum to this
final rule.
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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 2012 IPPS/LTCH PPS
proposed rule (76 FR 25968), we
proposed that the FY 2012 rate-ofincrease percentage to be applied to the
target amount for cancer and children’s
hospitals and RNHCIs would be the
estimated FY 2012 percentage increase
in the IPPS operating market basket,
estimated to be 2.8 percent. Beginning
with FY 2006, we have used the
percentage increase in the IPPS
operating market basket to update the
target amounts for children’s and cancer
hospitals. As explained in the FY 2006
IPPS final rule (70 FR 47396 through
47398), with IRFs, IPFs, and LTCHs
being paid under their own PPS, the
remaining number of providers being
paid based on reasonable cost subject to
a ceiling (that is, children’s hospitals, 11
cancer hospitals, and RNHCIs) is too
small and the cost report data are too
limited to be able to create a market
basket solely for these hospitals. For FY
2012, we 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
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reasons discussed in the FY 2006 IPPS
final rule.
In the FY 2012 IPPS/LTCH PPS
proposed rule, we proposed to use the
revised and rebased FY 2006-based IPPS
operating market basket to update the
target amounts for children’s and cancer
hospitals and RNHCIs for FY 2012.
Therefore, based on IHS Global Insight,
Inc.’s 2011 first quarter forecast, with
historical data through the 2010 fourth
quarter, we estimated that the FY 2012
update to the IPPS operating market
basket would be 2.8 percent (that is, the
estimate of the market basket rate-ofincrease). 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 2012. Therefore,
based on IHS Global Insight, Inc.’s 2011
second quarter forecast, with historical
data through the 2011 first quarter, we
estimate that the final FY 2012 update
to the IPPS operating market basket is
3.0 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 2012 IPPS operating
market basket, the FY 2012 rate-ofincrease percentage that is applied to
the FY 2011 target amounts in order to
calculate the final FY 2012 target
amounts for cancer and children’s
hospital and RNHCIs is 3.0 percent, in
accordance with the applicable
regulations in 42 CFR 413.40.
We note that IRFs, IPFs, and LTCHs,
which were paid previously under the
reasonable cost methodology, now
receive payment under their own
prospective payment systems, in
accordance with changes made to the
statute. In general, the prospective
payment systems for IRFs, IPFs, and
LTCHs provided transition periods of
varying lengths during which time a
portion of the prospective payment was
based on cost-based reimbursement
rules under Part 413. (However, certain
providers do not receive a transition
period or may elect to bypass the
transition period as applicable under 42
CFR Part 412, Subparts N, O, and P.) We
note that the various transition periods
provided for under the IRF PPS, the IPF
PPS, and the LTCH PPS have ended.
The IRF PPS, the IPF PPS, and the
LTCH PPS are updated annually. We
refer readers to section IV. of the
Addendum to this final rule for the
specific final update changes to the
Federal payment rates for LTCHs under
the LTCH PPS for FY 2012. The annual
updates for the IRF PPS and the IPF PPS
are issued by the agency in separate
Federal Register documents.
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B. Critical Access Hospital (CAH)
Payment for Ambulance Services
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1. Background
Section 1820 of the Act provides for
the establishment of Medicare Rural
Hospital Flexibility Programs (MRHFPs)
under which individual States may
designate certain facilities as critical
access hospitals (CAHs). Facilities that
are so designated and that meet the CAH
conditions of participation under 42
CFR Part 485, Subpart F, will be
certified as CAHs by CMS. Regulations
governing payments to CAHs for
services to Medicare beneficiaries are
located in 42 CFR Part 413. Section
1834(l) of the Act sets forth the payment
rules for ambulance services. Generally,
payment to ambulance providers and
suppliers for ambulance services are
made under the ambulance fee
schedule. Section 205 of Public Law
106–554 (BIPA) amended section
1834(l) of the Act by adding a paragraph
(8) to that section, which provides that
the Secretary shall pay the reasonable
costs incurred in furnishing ambulance
services if such services are furnished
by a CAH (as defined in section
1861(mm)(1) of the Act), or by an entity
that is owned and operated by a CAH,
but only if the CAH or entity is the only
provider or supplier of ambulance
services that is located within a 35-mile
drive of the CAH. The term ‘‘provider of
ambulance services’’ includes all
Medicare-participating providers that
submit claims under Medicare for
ambulance services (for example,
hospitals, CAHs, skilled nursing
facilities (SNFs), and home health
agencies (HHAs)). The term ‘‘supplier of
ambulance services’’ is defined as an
entity that provides ambulance services
and that is independent of any
Medicare-participating or nonMedicare-participating provider.
Section 205 was effective for services
furnished on or after December 21,
2000. Regulations implementing section
1834(l)(8) of the Act are set forth at 42
CFR 413.70(b)(5).
In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50361), we implemented
section 3128(a) of the Affordable Care
Act, which amended section 1834(l)(8)
of the Act by inserting ‘‘101 percent of’’
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before ‘‘the reasonable costs.’’ As such,
section 3128(a) increased payment for
ambulance services furnished by a
qualifying CAH or entity owned and
operated by a CAH to 101 percent of
reasonable costs, effective for cost
reporting periods beginning on or after
January 1, 2004. We amended the
regulations at § 413.70(b)(5)(i) to
conform to this statutory change by
stating that, effective for cost reporting
periods beginning on or after January 1,
2004, payment for ambulance services
furnished by a CAH or an entity that is
owned and operated by a CAH is 101
percent of the reasonable costs of the
CAH or the entity in furnishing those
services, but only if the CAH or the
entity furnishing those services is the
only provider or supplier of ambulance
services located within a 35-mile drive
of the CAH or the entity.
2. Requirement for CAH Ambulance
Within a 35-Mile Location of a CAH or
Entity
Section 413.70(b)(5) of the existing
regulations states that payment for
ambulance services furnished by a CAH
or an entity that is owned and operated
by a CAH is 101 percent of reasonable
costs of the CAH or the entity in
furnishing those services, but only if the
CAH or the entity is ‘‘the only provider
or supplier of ambulance services
located within a 35-mile drive of the
CAH or the entity’’. However, the
statutory language at section 1834(l)(8)
of the Act states that a CAH is eligible
to be paid based on 101 percent of
reasonable costs for ambulance services
furnished by the CAH or by an entity
that is owned and operated by a CAH,
but only if the CAH or the entity is the
only provider or supplier of ambulance
services that is located within a 35-mile
drive of such CAH. Because the statute
only requires that there be no other
provider or supplier of ambulance
services within a 35-mile drive of the
CAH and does not address whether
there is another provider or supplier of
ambulance services within a 35-mile
drive of the CAH-owned and operated
entity, we believe that the existing
regulation is not consistent with the
plain reading of the statutory language
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51729
at section 1834(l)(8) of the Act. In
addition, we believe the plain reading of
the statutory language at section
1834(l)(8) of the Act does not address
the situation where there is no provider
or supplier of ambulance services
within a 35-mile drive of the CAH, but
there is a CAH-owned and operated
entity furnishing ambulance services
that is more than a 35-mile drive from
the CAH, thus creating a ‘‘gap’’ in the
statutory language. That is, the statutory
language does not address the situation
where the entity that is owned and
operated by the CAH is located more
than a 35-mile drive from the CAH.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25969 through
25971), in order to ensure that the
regulations are consistent with the plain
language of section 1834(l)(8) of the Act,
we proposed to revise § 413.70(b)(5)(i)
by adding a new paragraph (C) to state
that, effective for cost reporting periods
beginning on or after October 1, 2011,
payment for ambulance services
furnished by a CAH or by a CAH-owned
and operated entity is 101 percent of
reasonable costs of the CAH or the
entity in furnishing those services, but
only if the CAH or the entity is the only
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH (Figure 1). Under this
proposed change, the CAH-owned and
operated entity would be paid 101
percent of reasonable costs for its
ambulance services only if there is no
other provider or supplier of ambulance
services within a 35-mile drive of the
CAH. However, if there is a provider or
supplier of ambulance services located
within a 35-mile drive of the CAH
(Figure 2), the CAH-owned and operated
entity would not be paid at 101 percent
of reasonable costs, but instead would
be paid under the ambulance fee
schedule.
Figure 1:
The CAH-owned and operated entity
would be paid at 101 percent of
reasonable costs for its ambulance
services because there is no other
provider or supplier of ambulance
services within a 35-mile drive of the
CAH.
E:\FR\FM\18AUR2.SGM
18AUR2
The CAH-owned and operated entity
would be paid under the ambulance fee
schedule for its ambulance services
because the CAH-owned and operated
entity is not the only provider or
supplier of ambulance services located
within a 35-mile drive of the CAH.
In addition, in the FY 2012 IPPS/
LTCH PPS proposed rule, we proposed
to establish a policy that would address
the ‘‘gap’’ in the statutory language, that
is, where the CAH-owned and operated
entity furnishing ambulance services is
more than a 35-mile drive from the
CAH, but there is no other provider or
supplier of ambulance services located
within a 35-mile drive of the CAH. We
proposed to include in the proposed
new paragraph (C) of § 413.70(b)(5)(i) a
provision which states that, effective for
cost reporting periods beginning on or
after October 1, 2011, if there is no
provider or supplier of ambulance
services within a 35-mile drive of the
CAH and there is a CAH-owned and
operated entity that is more than a 35mile drive from the CAH, the CAHowned and operated entity would be
paid at 101 percent of reasonable costs
for its ambulance services as long as that
entity is the closest provider or supplier
of ambulance services to the CAH
(Figure 3). Allowing the CAH-owned
and operated entity to be paid at 101
percent of reasonable costs if there is no
other provider or supplier of ambulance
services that is closer to the CAH is
consistent with the original purpose of
section 1834(l)(8) of the Act, which was
intended to help ensure an adequate
level of ambulance services in areas
served by CAHs. The statute allows for
reasonable cost-based payment only if
there is no other provider or supplier of
ambulance services within a 35-mile
drive of the CAH. If there is another
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH, the statute does not allow
for payment to the CAH or a CAHowned and operated entity at 101
percent of reasonable costs because
there is an adequate level of ambulance
services available. Accordingly, where a
CAH-owned and operated entity is
located more than a 35-mile drive from
the CAH, we proposed to allow payment
at 101 percent of reasonable costs only
if there is no other provider or supplier
of ambulance services located closer to
the CAH. If there is a closer provider or
supplier of ambulance services, that
closer provider or supplier would also
be assuring an adequate level of
ambulance services in the area served
by the CAH, and there would be no
need to pay the CAH-owned and
operated entity at 101 percent of
reasonable costs in order to ensure
access to ambulance services. Therefore,
if the CAH-owned and operated entity
(located more than a 35-mile drive from
the CAH) is not the closest provider or
supplier of ambulance services to the
CAH (Figure 4), the CAH-owned and
operated entity would be reimbursed
under the ambulance fee schedule.
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Figure 2:
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51730
The CAH-owned and operated entity
would be paid at 101 percent of
reasonable costs for its ambulance
services because even though the CAHowned and operated entity is more than
a 35-mile drive from the CAH, it is the
closest provider or supplier of
ambulance services to the CAH.
Figure 4:
The CAH-owned and operated entity
would receive payment under the
ambulance fee schedule for its
ambulance services because there is
another provider or supplier of
ambulance services that is closer to the
CAH than the CAH-owned and operated
entity.
Comment: One commenter requested
that CMS apply a similar policy as that
proposed for CAH ambulance services
to any provider-based department of a
CAH.
Response: We believe that the
commenter’s request to address policies
concerning other CAH provider-based
departments is outside of the scope of
the proposed rule. Our proposal only
addressed the requirements that a CAH
and CAH-owned and operated entity
would need to meet in order to be paid
101 percent of reasonable costs for
ambulance services. Therefore, we are
not responding to this comment in this
final rule, but may consider the
commenter’s suggestion in future
rulemaking.
Comment: One commenter stated that,
while the examples discussed in the
proposed rule clearly specified how
CAHs and CAH-owned and operated
entities in certain situations would be
paid, the commenter was aware of other
situations that were not addressed in the
proposed rule. The commenter stated
that many facilities operate ambulance
services in several locations and
requested that CMS address the
following scenario (referred to as
‘‘scenario one’’ in the remainder of this
section):
‘‘A CAH has a CAH-based ambulance
on its campus. There is no other
ambulance service within a 35-mile
drive of the CAH. The CAH owns and
operates a satellite of its ambulance
service at a 45-mile drive from the CAH.
Under this scenario, the CAH-based
ambulance site would be paid at 101
percent of reasonable cost, but would
the CAH-owned satellite be paid at 101
percent of costs or on the fee schedule?
Note that the two sites represent
different locations of the same
ambulance entity.’’
The commenter also requested that
CMS address the following scenario
(referred to as ‘‘scenario two’’ in the
remainder of this section):
‘‘In another scenario, assume that
both the CAH and the CAH-owned
entity’s ambulance services would be
paid at 101 percent of reasonable costs
in the above situation. How would the
CAH’s ambulance services be
reimbursed if there was a non-CAH
owned or operated ambulance service
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Figure 3:
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that was located between the CAH and
its ambulance satellite site? For
example, if the CAH-owned entity was
located 45 miles from the CAH (which
had its own ambulance onsite), but the
independent ambulance was located 40
miles from the CAH? Would the CAHowned entity 45 miles from the CAH be
paid on a fee basis or at 101 percent of
reasonable costs?’’
Response: Regarding scenario one, the
type of payment that the CAH and the
CAH-owned and operated entity would
receive for their ambulance services
would depend on whether the CAH and
the CAH-owned and operated entity
operate as one legal entity or are two
separate legal entities. If the CAH and
the CAH-owned and operated entity are
two separate legal entities, the fact that
the CAH has an ambulance on its main
campus would preclude the CAHowned and operated entity from
receiving payment at 101 percent of
reasonable costs for its ambulance
services because the CAH-owned and
operated entity is not the only provider
of ambulance services that is located
within a 35-mile drive from the CAH.
The CAH-owned and operated entity
would not receive payment based on
reasonable cost but, instead, would be
paid using the ambulance fee schedule
because there is a provider or supplier
of ambulance services located within a
35-mile drive of the CAH, which is the
ambulance stationed at the main CAH.
However, if the CAH and the CAHowned and operated entity are one legal
entity, both the CAH and the CAHowned and operated entity would be
paid based on 101 percent of reasonable
costs for their ambulance services as
long as there is no other provider or
supplier of ambulance services closer to
the main CAH than the CAH-owned and
operated entity.
For purposes of discussing scenario
two, we assume that the CAH and the
CAH-owned and operated entity are one
legal entity. As described above, in
scenario two, the CAH has an
ambulance service on its main campus,
a CAH-owned and operated entity is
located a 45-mile drive from the CAH,
and there is also a non-CAH ambulance
that is located a 40-mile drive from the
CAH. In this scenario, because the nonCAH ambulance is closer to the CAH
than the CAH-owned and operated
entity, the CAH-owned and operated
entity would not receive payment at 101
percent of reasonable costs but rather
would be paid using the ambulance fee
schedule. However, because there is no
other provider or supplier of ambulance
services within a 35-mile drive of the
main CAH, the main CAH would be
paid based on 101 percent of reasonable
costs for its ambulance services.
After consideration of the public
comments we received, we are adopting
our proposals without modification.
Specifically, we are adopting, as final,
the proposed revision of § 413.70(b)(5)(i)
of the regulations by adding a new
paragraph (C) to specify that, for cost
reporting periods beginning on or after
October 1, 2011, payment for ambulance
services furnished by a CAH or by a
CAH-owned and operated entity is 101
percent of reasonable costs of the CAH
or the entity in furnishing those
services, but only if the CAH or the
entity is the only provider or supplier of
ambulance services located within a 35mile drive of the CAH.
In addition, we are adopting, as final,
our proposal to include in new
§ 413.70(b)(5)(i) (C), a provision to
address the ‘‘gap’’ in the statutory
language, where there is no other
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH, but there is a CAH-owned
and operated entity furnishing
ambulance services more than a 35-mile
drive from the CAH. Specifically, for
cost reporting periods beginning on or
after October 1, 2011, if there is no
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH and there is a CAH-owned
and operated entity that is more than a
35-mile drive from the CAH, the CAHowned and operated entity will be paid
at 101 percent of reasonable costs for its
ambulance services as long as that entity
is the closest provider or supplier of
ambulance services to the CAH.
However, if there is a provider or
supplier of ambulance services that is
closer to the CAH than the CAH-owned
and operated entity, the CAH-owned
and operated entity will be paid based
on the ambulance fee schedule.
We also are finalizing a conforming
change to § 413.70(b)(5)(i)(B) to make
the effective date of that paragraph
consistent with the effective date of the
new paragraph (C).
C. Report of Adjustment (Exceptions)
Payments
Section 4419(b) of Public Law 105–33
requires the Secretary to publish
Class of hospital
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.
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 or an excluded unit of a
hospital must file its cost report for a
fiscal year in accordance with
§ 413.24(f)(2). The fiscal intermediary or
MAC reviews the cost report and issues
a notice of provider reimbursement
(NPR). Once the hospital or hospital
unit receives the NPR, if its operating
costs are in excess of the ceiling, the
hospital or hospital unit may file a
request for an adjustment payment.
After the fiscal intermediary or MAC
receives the hospital’s or hospital unit’s
request in accordance with applicable
regulations, the fiscal intermediary or
MAC or CMS, depending on the type of
adjustment requested, reviews the
request and determines if an adjustment
payment is warranted. This
determination is sometimes not made
until more than 6 months after the date
the request is filed because there are
times when the applications are
incomplete and additional information
must be requested in order to have a
completed application. However, in an
attempt to provide interested parties
with data on the most recent
adjustments for which we do have data,
we are publishing data on adjustment
payments that were processed by the
fiscal intermediary or MAC or CMS
during FY 2010.
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 2010. As
indicated above, the adjustments made
during FY 2010 only pertain to cost
reporting periods ending in years prior
to FY 2009. Total adjustment payments
given to excluded hospitals and hospital
units during FY 2010 are $11,364,155.
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.
Psychiatric ....................................................................................................................................
Children’s .....................................................................................................................................
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over ceiling
Number
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1
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$951,810
377,648
Adjustment
payments
$884,441
305,160
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Class of hospital
Adjustment
payments
Cancer .........................................................................................................................................
Religious Nonmedical Health Care Institution (RNHCI) ..............................................................
2
0
18,108,765
0
10,174,554
0
Total ......................................................................................................................................
........................
........................
11,364,155
VII. Changes to the Long-Term Care
Hospital Prospective Payment System
(LTCH PPS) for FY 2012
A. Background of the LTCH PPS
1. Legislative and Regulatory Authority
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Excess cost
over ceiling
Number
51733
Section 123 of the Medicare,
Medicaid, and SCHIP (State Children’s
Health Insurance Program) Balanced
Budget Refinement Act of 1999 (BBRA)
(Pub. L. 106–113) as amended by
section 307(b) of the Medicare,
Medicaid, and SCHIP Benefits
Improvement and Protection Act of
2000 (BIPA) (Pub. L. 106–554) provides
for payment for both the operating and
capital-related costs of hospital
inpatient stays in long-term care
hospitals (LTCHs) under Medicare Part
A based on prospectively set rates. The
Medicare prospective payment system
(PPS) for LTCHs applies to hospitals
that are described in section
1886(d)(1)(B)(iv) of the Social Security
Act (the Act), effective for cost reporting
periods beginning on or after October 1,
2002.
Section 1886(d)(1)(B)(iv)(I) of the Act
defines an LTCH as ‘‘a hospital which
has an average inpatient length of stay
(as determined by the Secretary) of
greater than 25 days.’’ Section
1886(d)(1)(B)(iv)(II) of the Act also
provides an alternative definition of
LTCHs: specifically, a hospital that first
received payment under section 1886(d)
of the Act in 1986 and has an average
inpatient length of stay (LOS) (as
determined by the Secretary of Health
and Human Services (the Secretary)) of
greater than 20 days and has 80 percent
or more of its annual Medicare inpatient
discharges with a principal diagnosis
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,
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outliers, updates, and a disproportionate
share adjustment.
In the August 30, 2002 Federal
Register, we issued a final rule that
implemented the LTCH PPS authorized
under the BBRA and BIPA (67 FR
55954). For the initial implementation
of the LTCH PPS (FYs 2003 through FY
2007), the system used information from
LTCH patient records to classify
patients into distinct long-term care
diagnosis-related groups (LTC–DRGs)
based on clinical characteristics and
expected resource needs. Beginning in
FY 2008, we adopted the Medicare
severity long-term care diagnosis-related
groups (MS–LTC–DRGs) as the patient
classification system used under the
LTCH PPS. Payments are calculated for
each MS–LTC–DRG and provisions are
made for appropriate payment
adjustments. Payment rates under the
LTCH PPS are updated annually and
published in the Federal Register.
The LTCH PPS replaced the
reasonable cost-based payment system
under the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA)
(Pub. L. 97–248) for payments for
inpatient services provided by a LTCH
with a cost reporting period beginning
on or after October 1, 2002. (The
regulations implementing the TEFRA
reasonable cost-based payment
provisions are located at 42 CFR Part
413.) With the implementation of the
PPS for acute care hospitals authorized
by the Social Security Amendments of
1983 (Pub. L. 98–21), which added
section 1886(d) to the Act, certain
hospitals, including LTCHs, were
excluded from the PPS for acute care
hospitals and were paid their reasonable
costs for inpatient services subject to a
per discharge limitation or target
amount under the TEFRA system. For
each cost reporting period, a hospitalspecific ceiling on payments was
determined by multiplying the
hospital’s updated target amount by the
number of total current year Medicare
discharges. (Generally, in section VIII. of
this preamble, when we refer to
discharges, the intent is to describe
Medicare discharges.) The August 30,
2002 final rule further details the
payment policy under the TEFRA
system (67 FR 55954).
In the August 30, 2002 final rule, we
provided for a 5-year transition period.
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During this 5-year transition period, a
LTCH’s total payment under the PPS
was based on an increasing percentage
of the Federal rate with a corresponding
decrease in the percentage of the LTCH
PPS payment that is based on
reasonable cost concepts. However,
effective for cost reporting periods
beginning on or after October 1, 2006,
total LTCH PPS payments are based on
100 percent of the Federal rate.
In addition, in the August 30, 2002
final rule, we presented an in-depth
discussion of the LTCH PPS, including
the patient classification system,
relative weights, payment rates,
additional payments, and the budget
neutrality requirements mandated by
section 123 of the BBRA. The same final
rule that established regulations for the
LTCH PPS under 42 CFR Part 412,
Subpart O also contained LTCH
provisions related to covered inpatient
services, limitation on charges to
beneficiaries, medical review
requirements, furnishing of inpatient
hospital services directly or under
arrangement, and reporting and
recordkeeping requirements. We refer
readers to the August 30, 2002 final rule
for a comprehensive discussion of the
research and data that supported the
establishment of the LTCH PPS (67 FR
55954).
In the June 6, 2003 Federal Register,
we published a final rule that set forth
the FY 2004 annual update of the
payment rates for the Medicare PPS for
inpatient hospital services furnished by
LTCHs (68 FR 34122). It also changed
the annual period for which the
payment rates were to be effective, such
that the annual updated rates were
effective from July 1 through June 30
instead of from October 1 through
September 30. We referred to the July
through June time period as a ‘‘longterm care hospital rate year’’ (LTCH PPS
rate year). In addition, we changed the
publication schedule for the annual
update to allow for an effective date of
July 1. The payment amounts and
factors used to determine the annual
update of the LTCH PPS Federal rate are
based on a LTCH PPS rate year. In the
past, while the LTCH payment rate
updates were effective July 1, the annual
update of the DRG classifications and
relative weights for LTCHs continued to
be linked to the annual adjustments of
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the acute care hospital inpatient DRGs
and were effective each October 1.
As discussed in detail in the RY 2009
LTCH PPS final rule (73 FR 26797
through 26798), we again changed the
schedule for the annual updates of the
LTCH PPS Federal payment rates
beginning with RY 2010. We
consolidated the rulemaking cycle for
the annual update of the LTCH PPS
Federal payment rates and description
of the methodology and data used to
calculate these payment rates with the
annual update of the MS–LTC–DRG
classifications and associated weighting
factors for LTCHs so that the updates to
the rates and the relative weights now
occur on the same schedule and appear
in the same publication. As a result, the
updates to the rates and the relative
weights are now effective on October 1
(on a Federal fiscal year schedule), and
the annual updates to the LTCH PPS
Federal rates are no longer published
with a July 1 effective date.
Public Law 110–173 (MMSEA)
enacted on December 29, 2007, included
provisions that have various effects on
the LTCH PPS. In addition to amending
section 1861 of the Act to add a
subsection (ccc) which provided an
additional definition of LTCHs, Public
Law 110–173 also required the Secretary
to submit, no later than 18 months after
the date of enactment of the law, a
report to Congress on a study of national
long-term care hospital facility and
patient criteria that included
‘‘recommendations for such legislation
and administrative actions, including
timelines for the implementation of
LTCH patient criteria or other actions,
as the Secretary determines
appropriate.’’ The payment policy
provisions under sections 114(c)(1) and
(c)(2) of Public Law 110–173 focused on
providing 3 years of relief for certain
LTCHs from the percentage threshold
payment adjustment policy at 42 CFR
412.534 and 412.536. However, because
of the original implementation schedule
of those sections of the regulations, the
payment provisions had varying
timeframes of applicability (73 FR
29701 through 29704). In addition,
section 114(c)(3) of Public Law 110–173
provided that the Secretary shall not
apply, for the 3-year period beginning
on the date of enactment of the Act the
revision to the short-stay outlier (SSO)
policy that was finalized in the RY 2008
LTCH PPS final rule (72 FR 26904 and
26992). In addition, section 114(c)(4) of
Public Law 110–173 provided that the
Secretary shall not, for the 3-year period
beginning on the date of enactment of
the Act, make the one-time adjustment
to the payment rates provided for in
§ 412.523(d)(3) or any similar provision
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(73 FR 26800 through 26804). The
statute also provided that the base rate
for RY 2008 be the same as the base rate
for RY 2007 (the revised base rate,
however, does not apply to discharges
occurring on or after July 1, 2007, and
before April 1, 2008) (73 FR 24875
through 24877). Section 114(d) of Public
Law 110–173 established a 3-year
moratorium (with specified exceptions)
on the establishment and classification
of new LTCHs, LTCH satellites, and on
the increase in the number of LTCH
beds in existing LTCHs or satellite
facilities. Finally, section 114(f) of
Public Law 110–173 provided for an
expanded review of medical necessity
for admission and continued stay at
LTCHs.
In the RY 2009 LTCH PPS final rule
(73 FR 26804 through 26812), we
established the applicable Federal rates
for RY 2009, consistent with section
1886(m)(2) of the Act as amended by
Public Law 110–173. We also revised
the regulations at § 412.523(d)(3) to
change the methodology for the onetime budget neutrality adjustment and
to comply with section 114(c)(4) of
Public Law 110–173. Other policy
revisions that were necessary as a result
of the statutory changes of Public Law
110–173 were addressed in separate
interim final rules with comment period
(73 FR 24871 and 73 FR 29699). In the
FY 2010 IPPS/RY 2010 LTCH PPS final
rule (74 FR 43976 through 43990), we
addressed all of the public comments
received and finalized these two interim
final rules with comment period.
Section 4302 of the ARRA, Public
Law 111–5, enacted on February 17,
2009, included several amendments to
the provisions set forth in section 114 of
Public Law 110–173. Specifically,
section 4302(a) modified the effective
dates of the provisions of section 114(c)
of Public Law 110–173, described
above, and added an additional category
of LTCHs or satellite facilities that
would not be subject to the percentage
threshold payment adjustment at
§ 412.536 for a 3-year period. In
addition, section 4302(a)(2)(A) of Public
Law 111–5 added ‘‘grandfathered’’
satellites (specified in § 412.22(h)(3)(i)
of the regulations) to those ‘‘applicable’’
LTCHs (specified in § 412.534(g) of the
regulations) originally granted relief
under section 114(c) of Public Law 110–
173. We issued instructions to the fiscal
intermediaries and MACs interpreting
the provisions of section 4302 of Public
Law 111–5 (Change Request 6444). In
addition, in the FY 2010 IPPS/RY 2010
LTCH PPS final rule (74 FR 43990
through 43992), we implemented the
provisions of section 4302 of Public Law
111–5 through an interim final rule with
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comment period. We received one
timely comment regarding the
provisions of section 4302 of Public Law
111–5 that were implemented through
the interim final rule with comment
period that was included in the FY 2010
IPPS/RY 2010 LTCH PPS final rule. We
addressed this public comment and
finalized the interim final rule with
comment period in section VII.E. of the
preamble of the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50399).
As discussed in the FY 2011 IPPS/
LTCH PPS final rule, a number of the
provisions of the Affordable Care Act
affected the policies, payment rates and
factors under the LTCH PPS.
Specifically, section 1886(m)(3)(A)(ii) of
the Act, as added by section 3401(c) of
the Affordable Care Act, specifies that,
for each of rate years 2010 through 2019,
any annual update to the standard
Federal rate shall be reduced by the
other adjustment specified in new
section 1886(m)(4) of the Act.
Furthermore, section 1886(m)(3)(A)(i) of
the Act specifies that, for rate year 2012
and subsequent rate years, any annual
update to the standard Federal rate shall
be reduced by the productivity
adjustment described in section
1886(b)(3)(B)(xi)(II) of the Act. Section
1886(m)(3)(A)(ii) and sections
1886(m)(4)(A) and (B) of the Act require
a 0.25 percentage point reduction for
rate year 2010 and a 0.50 percentage
point reduction for rate year 2011.
Section 1886(m)(3)(B) of the Act
provides that the application of
paragraph (3) of section 1886(m) of the
Act may result in the annual update
being less than zero for a rate year, and
may result in payment rates for a rate
year being less than such payment rates
for the preceding rate year. Furthermore,
section 3401(p) of the Affordable Care
Act specifies that the amendments made
by section 3401(c) of such Act shall not
apply to discharges occurring before
April 1, 2010 (75 FR 50387 through
50390). Sections 3106 and 10312 of the
Affordable Care Act together provide for
a 2-year extension to the payment
policies applicable to LTCHs and LTCH
satellite facilities set forth in sections
114(c) and (d)(1) of the MMSEA, as
amended by the ARRA. Specifically,
sections 3106 and 10312 of the
Affordable Care Act together result in
the phrase ‘‘3-year period’’ being
replaced with the phrase ‘‘5-year
period’’ each place it appears in sections
114(c) and (d)(1) of MMSEA, as
amended by the ARRA. As discussed in
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50399 through 50400), sections
3106 and 10312 of the Affordable Care
Act, which amended sections 114(c) and
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(d)(1) of the MMSEA, as amended by the
ARRA, result in the following:
• An additional 2-year delay in the
application of the SSO payment
adjustment, which would have applied
the additional payment option of an
‘‘IPPS comparable’’ payment to LTCHs
for certain SSO cases where the covered
length of stay is less than or equal to the
‘‘IPPS comparable threshold.’’
Therefore, the Secretary will not apply
this SSO payment adjustment for the 5year period beginning on the date of
enactment of MMSEA (December 29,
2007).
• An additional 2-year delay in the
one-time prospective budget neutrality
adjustment to the standard Federal rate
(§ 412.523(d)(3)). Thus, the Secretary is
precluded from making the one-time
adjustment to standard Federal rate
until December 29, 2012.
• An increase from 3 years to 5 years
to the timeframes set forth in section
114(c) of the MMSEA as amended by
the ARRA, thereby extending for an
additional 2 years the delay in the
application of the 25-percent payment
threshold policy for certain LTCHs and
LTCH satellite facilities (§§ 412.534 and
412.536), and extending for an
additional 2 years, the increased
percentage thresholds outlined at
section 114(c)(2) of the MMSEA as
amended by the ARRA.
• Additional 2-year extensions of the
moratorium on the establishment of new
LTCHs and LTCH satellite facilities and
the moratorium on the increase of LTCH
beds in existing LTCHs or satellite
facilities as provided by section 114(d)
of the MMSEA as amended by the
ARRA. In general, section 114(d) of the
MMSEA as amended by the ARRA
precluded the establishment and
classification of new LTCHs or LTCH
satellite facilities or additional beds
from being added to existing LTCHs or
LTCH satellite facilities unless one of
the specified exceptions to the
particular moratorium was met.
2. Criteria for Classification as a LTCH
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a. Classification as a LTCH
Under the existing regulations at
§ 412.23(e)(1) and (e)(2)(i), which
implement section 1886(d)(1)(B)(iv)(I) of
the Act, to qualify to be paid under the
LTCH PPS, a hospital must have a
provider agreement with Medicare and
must have an average Medicare
inpatient length of stay (LOS) of greater
than 25 days. Alternatively,
§ 412.23(e)(2)(ii) states that for cost
reporting periods beginning on or after
August 5, 1997, a hospital that was first
excluded from the PPS in 1986 and can
demonstrate that at least 80 percent of
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its annual Medicare inpatient discharges
in the 12-month cost reporting period
ending in FY 1997 have a principal
diagnosis that reflects a finding of
neoplastic disease must have an average
inpatient length of stay for all patients,
including both Medicare and nonMedicare inpatients, of greater than 20
days.
b. Hospitals Excluded From the LTCH
PPS
The following hospitals are paid
under special payment provisions, as
described in § 412.22(c), and therefore,
are not subject to the LTCH PPS rules:
• Veterans Administration hospitals.
• Hospitals that are reimbursed under
State cost control systems approved
under 42 CFR Part 403.
• Hospitals that are reimbursed in
accordance with demonstration projects
authorized under section 402(a) of the
Social Security Amendments of 1967
(Pub. L. 90–248) (42 U.S.C. 1395b–1) or
section 222(a) of the Social Security
Amendments of 1972 (Pub. L. 92–603)
(42 U.S.C. 1395b–1 (note)) (Statewide
all-payer systems, subject to the rate-ofincrease test at section 1814(b) of the
Act).
• Nonparticipating hospitals
furnishing emergency services to
Medicare beneficiaries.
3. Limitation on Charges to Beneficiaries
In the August 30, 2002 final rule, we
presented an in-depth discussion of
beneficiary liability under the LTCH
PPS (67 FR 55974 through 55975). In the
RY 2005 LTCH PPS final rule (69 FR
25676), we clarified that the discussion
of beneficiary liability in the August 30,
2002 final rule was not meant to
establish rates or payments for, or define
Medicare-eligible expenses. Under
§ 412.507, if the Medicare payment to
the LTCH is the full LTC–DRG payment
amount, as consistent with other
established hospital prospective
payment systems, a LTCH may not bill
a Medicare beneficiary for more than the
deductible and coinsurance amounts as
specified under §§ 409.82, 409.83, and
409.87 and for items and services as
specified under § 489.30(a). However,
under the LTCH PPS, Medicare will
only pay for days for which the
beneficiary has coverage until the SSO
threshold is exceeded. Therefore, if the
Medicare payment was for a SSO case
(§ 412.529) that was less than the full
LTC–DRG payment amount because the
beneficiary had insufficient remaining
Medicare days, the LTCH could also
charge the beneficiary for services
delivered on those uncovered days
(§ 412.507).
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51735
4. Administrative Simplification
Compliance Act (ASCA) and Health
Insurance Portability and
Accountability Act (HIPAA)
Compliance
Claims submitted to Medicare must
comply with both the Administrative
Simplification Compliance Act (ASCA)
(Pub. L. 107–105), and the Health
Insurance Portability and
Accountability Act of 1996 (HIPAA)
(Pub. L. 104–191). Section 3 of the
ASCA requires that the Medicare
Program deny payment under Part A or
Part B for any expenses incurred for
items or services ‘‘for which a claim is
submitted other than in an electronic
form specified by the Secretary.’’
Section 1862(h) of the Act (as added by
section 3(a) of the ASCA) provides that
the Secretary shall waive such denial in
two specific types of cases and may also
waive such denial ‘‘in such unusual
cases as the Secretary finds appropriate’’
(68 FR 48805). Section 3 of the ASCA
operates in the context of the HIPAA
regulations, which include, among other
provisions, the transactions and code
sets standards requirements codified as
45 CFR Parts 160 and 162, Subparts A
and I through R (generally known as the
Transactions Rule). The Transactions
Rule requires covered entities, including
covered health care providers, to
conduct certain electronic healthcare
transactions according to the applicable
transactions and code sets standards.
B. Medicare Severity Long-Term Care
Diagnosis-Related Group (MS–LTC–
DRG) Classifications and Relative
Weights for FY 2012
1. Background
Section 123 of the BBRA requires that
the Secretary implement a PPS for
LTCHs (that is, a per discharge system
with a diagnosis-related group (DRG)based patient classification system
reflecting the differences in patient
resources and costs). Section 307(b)(1)
of the BIPA modified the requirements
of section 123 of the BBRA by requiring
that the Secretary examine ‘‘the
feasibility and the impact of basing
payment under such a system [the longterm care hospital (LTCH) PPS] on the
use of existing (or refined) hospital
DRGs that have been modified to
account for different resource use of
LTCH patients, as well as the use of the
most recently available hospital
discharge data.’’
When the LTCH PPS was
implemented for cost reporting periods
beginning on or after October 1, 2002,
we adopted the same DRG patient
classification system (that is, the CMS
DRGs) that was utilized at that time
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under the IPPS. As a component of the
LTCH PPS, we refer to this patient
classification system as the ‘‘long-term
care diagnosis-related groups (LTC–
DRGs).’’ 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.) We believe the MS–DRGs (and by
extension, the MS–LTC–DRGs)
represent a substantial improvement
over the previous CMS DRGs in their
ability to differentiate cases based on
severity of illness and resource
consumption.
The MS–DRGs adopted in FY 2008
represent an increase in the number of
DRGs by 207 (that is, from 538 to 745)
(72 FR 47171). The MS–DRG
classifications are updated annually. As
described in section II.G. of this
preamble, for FY 2012, we are deleting
one MS–DRG and creating two new
MS–DRGs for a net gain of one MS–
DRG. With these adopted changes, we
have a total of 751 MS–DRG groupings
for FY 2012. Consistent with section 123
of the BBRA, as amended by section
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307(b)(1) of the BIPA, and § 412.515 of
the regulations, we use information
derived from LTCH PPS patient records
to classify LTCH discharges into distinct
MS–LTC–DRGs based on clinical
characteristics and estimated resource
needs. We then assign an appropriate
weight to the MS–LTC–DRGs to account
for the difference in resource use by
patients exhibiting the case complexity
and multiple medical problems
characteristic of LTCHs.
In a departure from the IPPS, and as
discussed in greater detail below in
section VII.B.3.f. of this preamble, we
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).) We also account for
adjustments to payments for short-stay
outlier (SSO) cases (that is, cases where
the covered length of stay at the LTCH
is less than or equal to five-sixths of the
geometric average length of stay for the
MS–LTC–DRG). Furthermore, we made
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.)
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.
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The MS–DRGs are organized into 25
major diagnostic categories (MDCs),
most of which are based on a particular
organ system of the body; the remainder
involve multiple organ systems (such as
MDC 22, Burns). Within most MDCs,
cases are then divided into surgical
DRGs and medical DRGs. Surgical DRGs
are assigned based on a surgical
hierarchy that orders operating room
(O.R.) procedures or groups of O.R.
procedures by resource intensity. The
GROUPER software program does not
recognize all ICD–9–CM procedure
codes as procedures affecting DRG
assignment. That is, procedures that are
not surgical (for example, EKG), or
minor surgical procedures (for example,
biopsy of skin and subcutaneous tissue
(procedure code 86.11)) do not affect the
MS–LTC–DRG assignment based on
their presence on the claim.
Generally, under the LTCH PPS, a
Medicare payment is made at a
predetermined specific rate for each
discharge and that payment varies by
the MS–LTC–DRG to which a
beneficiary’s stay is assigned. Cases are
classified into MS–LTC–DRGs for
payment based on the following six data
elements:
• Principal diagnosis;
• Additional or secondary diagnoses;
• Surgical procedures;
• Age;
• Sex; and
• Discharge status of the patient.
Through FY 2010, the number of
secondary or additional diagnoses and
the number of surgical procedures
considered for MS–DRG assignment was
limited to eight and six, respectively. In
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50127), we established that, for
claims submitted on the 5010 format
beginning January 1, 2011, we would
increase the capacity to process
diagnosis and procedure codes up to 25
diagnoses and 25 procedures. This
includes one principal diagnosis and up
to 24 secondary diagnoses for severity of
illness determinations. We refer readers
to section II.G.11.c. of the preamble of
the FY 2011 IPPS/LTCH PPS final rule
for a complete discussion of this change
(75 FR 50127).
Upon the discharge of the patient
from a LTCH, the LTCH must assign
appropriate diagnosis and procedure
codes from the most current version of
the International Classification of
Diseases, Ninth Revision, Clinical
Modification (ICD–9–CM). HIPAA
Transactions and Code Sets Standards
regulations at 45 CFR Parts 160 and 162
require that no later than October 16,
2003, all covered entities must comply
with the applicable requirements of
Subparts A and I through R of Part 162.
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Among other requirements, those
provisions direct covered entities to use
the ASC X12N 837 Health Care Claim:
Institutional, Volumes 1 and 2, Version
4010, and the applicable standard
medical data code sets for the
institutional health care claim or
equivalent encounter information
transaction (45 CFR 162.1002 and 45
CFR 162.1102). For additional
information on the ICD–9–CM Coding
System, we refer readers to the FY 2008
IPPS final rule with comment period (72
FR 47241 through 47243 and 47277
through 47281). We also refer readers to
the detailed discussion on correct
coding practices in the August 30, 2002
LTCH PPS final rule (67 FR 55981
through 55983). Additional coding
instructions and examples are published
in the Coding Clinic for ICD–9–CM, a
product of the American Hospital
Association. (We refer readers to section
II.G.13. of this preamble for additional
information on the annual revisions to
the ICD–9–CM codes.)
With respect to the ICD–9–CM coding
system, we have been discussing the
conversion to the ICD–10–CM and the
ICD–10–PCS coding systems for many
years. As is discussed in detail in
section II.G.11. of the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50122
through 50127) and in section III.G.13 of
this final rule, the ICD–10 coding
systems applicable to hospital inpatient
services will be implemented on
October 1, 2013. In order for the
industry to make the necessary
conversions from ICD–9–CM to ICD–10–
CM and ICD–10–PCS, we proposed,
through the ICD–9–CM Coordination
and Maintenance Committee, to
consider a moratorium on updates to the
ICD–9–CM and ICD–10 coding sets. We
refer readers to section II.G.13. of this
preamble for additional information on
the adoption of the ICD–10–CM and
ICD–10–PCS systems.
To create the MS–DRGs (and by
extension, the MS–LTC–DRGs),
individual DRGs were subdivided
according to the presence of specific
secondary diagnoses designated as
complications or comorbidities (CCs)
into three, two, or one level, depending
on the impact of the CCs on resources
used for those cases. Specifically, there
are sets of MS–DRGs that are split into
2 or 3 subgroups based on the presence
or absence of a CC or a major
complication and comorbidity (MCC).
We refer readers to section II.D. of the
FY 2008 IPPS final rule with comment
period for a detailed discussion about
the creation of MS–DRGs based on
severity of illness levels (72 FR 47141
through 47175).
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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
2012
As specified by our regulations at
§ 412.517(a), which requires that the
MS–LTC–DRG classifications and
relative weights be updated annually
and consistent with our historical
practice of using the same patient
classification system under the LTCH
PPS as is used under the IPPS, as we
proposed, we are updating the MS–
LTC–DRG classifications effective
October 1, 2011, through September 30,
2012 (FY 2012) consistent with the
changes to specific MS–DRG
classifications presented in section II.G.
of this final rule (that is, GROUPER
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51737
Version 29.0). Therefore, the MS–LTC–
DRGs for FY 2012 presented in this final
rule are the same as the MS–DRGs that
are being used under the IPPS for FY
2012. In addition, because the MS–LTC–
DRGs for FY 2012 are the same as the
MS–DRGs for FY 2012, the other
changes that affect MS–DRG (and by
extension MS–LTC–DRG) assignments
under Version 29.0 of the GROUPER
discussed in section II.G. of the
preamble of this final rule, including the
changes to the MCE software and
changes to the ICD–9–CM coding
system, also are applicable under the
LTCH PPS for FY 2012.
3. Development of the FY 2012 MS–
LTC–DRG Relative Weights
a. General Overview of the Development
of the MS–LTC–DRG Relative Weights
As we stated in the August 30, 2002
LTCH PPS final rule (67 FR 55984), one
of the primary goals for the
implementation of the LTCH PPS is to
pay each LTCH an appropriate amount
for the efficient delivery of medical care
to Medicare patients. The system must
be able to account adequately for each
LTCH’s case-mix in order to ensure both
fair distribution of Medicare payments
and access to adequate care for those
Medicare patients whose care is more
costly. To accomplish these goals, we
have annually adjusted the LTCH PPS
standard Federal prospective payment
system rate by the applicable relative
weight in determining payment to
LTCHs for each case.
Although the adoption of the MS–
LTC–DRGs resulted in some
modifications of existing procedures for
assigning weights in cases of zero
volume and/or nonmonotonicity (as
discussed in the FY 2008 IPPS final rule
with comment period (72 FR 47289
through 47295) and the FY 2009 IPPS
final rule (73 FR 48542 through 48550)),
as we proposed, the basic methodology
for developing the FY 2012 MS–LTC–
DRG relative weights in this final rule
continues to be determined in
accordance with the general
methodology established in the August
30, 2002 LTCH PPS final rule (67 FR
55989 through 55991). Under the LTCH
PPS, relative weights for each MS–LTC–
DRG are a primary element used to
account for the variations in cost per
discharge and resource utilization
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
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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.
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b. Development of the MS–LTC–DRG
Relative Weights for FY 2012
Beginning with the FY 2008 update,
we established a budget neutrality
requirement for the annual update to the
MS–LTC–DRG classifications and
relative weights at § 412.517(b) (in
conjunction with § 412.503), such that
estimated aggregate LTCH PPS
payments would be unaffected, that is,
would be neither greater than nor less
than the estimated aggregate LTCH PPS
payments that would have been made
without the classification and relative
weight changes (RY 2008 LTCH PPS
final rule (72 FR 26882 through 26884)).
Consistent with § 412.517(b) and as we
proposed, we applied a two-step budget
neutrality methodology, which is based
on the current year MS–LTC–DRG
classifications and relative weights. (For
additional information on the
established two-step budget neutrality
methodology, we refer readers to the FY
2008 IPPS final rule (72 FR 47295
through 47296).) Thus, for this final
rule, the annual update to the MS–LTC–
DRG classifications and relative weights
for FY 2012 are based on the FY 2011
MS–LTC–DRG classifications and
relative weights established in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50613 through 50627).
c. Data
In this final rule, to calculate the MS–
LTC–DRG relative weights for FY 2012,
we obtained total charges from FY 2010
Medicare LTCH bill data from the
March 2011 update of the FY 2010
MedPAR file, which are the best
available data at this time, and used the
Version 29.0 of the GROUPER to classify
LTCH cases. For the proposed rule, we
obtained total charges from FY 2010
Medicare LTCH bill data from the
December 2010 update of the FY 2010
MedPAR file, which were the best
available data at that time, and used the
proposed Version 29.0 of the GROUPER
to classify LTCH cases. Consistent with
our historical policy, we also proposed
to use more recent data if available and
the final version of the GROUPER to
develop the FY 2012 MS–LTC–DRG
relative weights for the final rule. (76 FR
25976)
Consistent with our historical
methodology and as we proposed, we
excluded the data from LTCHs that are
all-inclusive rate providers and LTCHs
that are reimbursed in accordance with
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demonstration projects authorized
under section 402(a) of Public Law 90–
248 or section 222(a) of Public Law 92–
603. In addition, as is the case with the
IPPS, Medicare Advantage (Part C)
claims are now included in the MedPAR
files (74 FR 43808). Consistent with
IPPS policy and as we proposed, we
continued to exclude such claims in the
calculations for the relative weights
under the LTCH PPS that are used to
determine payments for fee-for-service
Medicare claims. Specifically, we
removed any claims from the MedPAR
files that have a GHO Paid indicator
value of ‘‘1,’’ which effectively removes
Medicare Advantage claims from the
relative weight calculations (73 FR
48532). Therefore, in the development
of the FY 2012 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
2011 update of the FY 2010 MedPAR
file, as well as any Medicare Advantage
claims.
d. Hospital-Specific Relative Value
(HSRV) Methodology
By nature, LTCHs often specialize in
certain areas, such as ventilatordependent patients and rehabilitation
and wound care. Some case types
(DRGs) may be treated, to a large extent,
in hospitals that have, from a
perspective of charges, relatively high
(or low) charges. This nonrandom
distribution of cases with relatively high
(or low) charges in specific MS–LTC–
DRGs has the potential to
inappropriately distort the measure of
average charges. As we 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 used a hospitalspecific relative value (HSRV)
methodology to calculate the MS–LTC–
DRG relative weights for FY 2012. We
believe this method removes this
hospital-specific source of bias in
measuring LTCH average charges (67 FR
55985). Specifically, we reduced the
impact of the variation in charges across
providers on any particular proposed
MS–LTC–DRG relative weight by
converting each LTCH’s charge for a
case to a relative value based on that
LTCH’s average charge.
Under the HSRV methodology, we
standardize charges for each LTCH by
converting its charges for each case to
hospital-specific relative charge values
and then adjust those values for the
LTCH’s case-mix. The adjustment for
case-mix is needed to rescale the
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hospital-specific relative charge values
(which, by definition, average 1.0 for
each LTCH). The average relative weight
for a LTCH is its case-mix, so it is
reasonable to scale each LTCH’s average
relative charge value by its case-mix. In
this way, each LTCH’s relative charge
value is adjusted by its case-mix to an
average that reflects the complexity of
the cases it treats relative to the
complexity of the cases treated by all
other LTCHs (the average case-mix of all
LTCHs).
In accordance with our established
methodology, as we proposed, we
standardized charges for each case by
first dividing the adjusted charge for the
case (adjusted for SSOs under § 412.529
as described below in section VII.B.3.g.
(step 3) of the preamble of this final
rule) by the average adjusted charge for
all cases at the LTCH in which the case
was treated. SSO cases are cases with a
length of stay that is less than or equal
to five-sixths the average length of stay
of the MS–LTC–DRG (§ 412.529 and
§ 412.503). The average adjusted charge
reflects the average intensity of the
health care services delivered by a
particular LTCH and the average cost
level of that LTCH. The resulting ratio
is multiplied by that LTCH’s case-mix
index to determine the standardized
charge for the case (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
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different categories of DRGs based on
volume of cases within specific MS–
LTC–DRGs. MS–LTC–DRGs with at least
25 cases are each assigned a unique
relative weight; low-volume MS–LTC–
DRGs (that is, MS–LTC–DRGs that
contain between 1 and 24 cases based
on a given year’s claims data) are
grouped into quintiles (as described
below) and assigned the relative weight
of the quintile. No-volume MS–LTC–
DRGs (that is, no cases in the given
year’s claims data were assigned to
those MS–LTC–DRGs) are cross-walked
to other MS–LTC–DRGs based on the
clinical similarities and assigned the
relative weight of the cross-walked MS–
LTC–DRG (as described in greater detail
below). In this final rule, as we
proposed, we utilized these same three
categories of MS–LTC–DRGs for
purposes of determining the MS–LTC–
DRG relative weights for FY 2012. (We
provide in-depth discussions of our
policy regarding weight-setting for lowvolume 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 the
preamble of this final rule.)
As also noted above, while the LTCH
PPS and the IPPS use the same patient
classification system, the methodology
that is used to set the DRG relative
weights for use in each payment system
differs because the overall volume of
cases in the LTCH PPS is much less
than in the IPPS. In general, consistent
with our existing methodology and as
we proposed, we used the following
steps to determine the FY 2012 MS–
LTC–DRG relative weights: (1) If an MS–
LTC–DRG had at least 25 cases, it was
assigned its own relative weight; (2) if
an MS–LTC–DRG had between 1 and 24
cases, it was assigned to a quintile for
which we computed a relative weight
for all of the MS–LTC–DRGs assigned to
that quintile; and (3) if an MS–LTC–
DRG had no cases, it was 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
2012 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).
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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), consistent
with our existing methodology and as
we proposed, for purposes of
determining the FY 2012 MS–LTC–DRG
relative weights, we employ the quintile
methodology for low-volume MS–LTC–
DRGs, such that we group those ‘‘lowvolume 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 2012 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 and as we proposed, 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 2011 update of the FY
2010 MedPAR file, we identified 277
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 55 MS–LTC–DRGs (277/
5 = 55 with 2 MS–LTC–DRG as the
remainder). We assigned a low-volume
MS–LTC–DRG to a specific low-volume
quintile by sorting the low-volume MS–
LTC–DRGs in ascending order by
average charge in accordance with our
established methodology. Furthermore,
because the number of MS–LTC–DRGs
with less than 25 cases is not evenly
divisible by 5, the average charge of the
low-volume quintile was used to
determine which of the low-volume
quintiles would contain the 2 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 55th) of low-volume
MS–LTC–DRGs (with the lowest average
charge) into Quintile 1. The MS–LTC–
DRGs with the highest average charge
cases would be assigned into Quintile 5.
Because the average charge of the 166th
low-volume MS–LTC–DRG in the sorted
list is closer to the average charge of the
165th low-volume MS–LTC–DRG
(assigned to Quintile 3) than to the
average charge of the 167th low-volume
MS–LTC–DRG (assigned to Quintile 4),
we assign it to Quintile 3 (such that
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51739
Quintile 3 contains 56 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 3 of the 5 low-volume quintiles
contain 55 MS–LTC–DRGs (Quintiles 1,
2, and 4) and the other 2 low-volume
quintiles contain 56 MS–LTC–DRGs
(Quintiles 3 and 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 2012.
Accordingly, in order to determine
the FY 2012 relative weights for the
MS–LTC–DRGs with low volume, as we
proposed, we used the 5 low-volume
quintiles described above. The
composition of each of the 5 lowvolume 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 2012 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 in section VII.B.3.g.
of the preamble of this final rule. We
assigned the same relative weight and
average length of stay to each of the lowvolume MS–LTC–DRGs that 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 use the most recent available
claims data in the MedPAR file to
identify low-volume MS–LTC–DRGs
and to calculate the relative weights
based on our methodology.
We note that we will continue to
monitor the volume (that is, the number
of LTCH cases) in the low-volume
quintiles to ensure that our quintile
assignments used in determining the
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 2012
MS–LTC–DRG Relative Weights
In the proposed rule, we proposed, in
general, to determine the FY 2012 MS–
LTC–DRG relative weights based on our
existing methodology. (For additional
information on the original
development of this methodology, and
modifications to it since the adoption of
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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).)
Comment: One commenter expressed
concern that the inclusion of the ‘‘lowvolume’’ MS–LTC–DRGs (MS–LTC–
DRGs with between 1 and 24 cases in
the data used to determine the relative
weights) and the ‘‘no volume’’ MS–
LTC–DRGs (MS–LTC–DRGs that have
no LTCH cases in the data used to
determine the relative weights) may
inappropriately skew the relative
weights. Based on the data from the
proposed rule, there were 280 ‘‘lowvolume’’ MS–LTC–DRGs and 237 ‘‘no
volume’’ MS–LTC–DRGs, which
represents approximately 68 percent of
the 751 MS–LTC–DRGs proposed for FY
2012. The commenter stated that even
though approximately 69 percent of the
proposed MS–LTC–DRGs have few or
no cases, they are still included in the
relative weight calculations, and
therefore may not accurately reflect the
utilization of LTCH services.
Response: The commenter may find it
helpful to review our detailed
explanation of the application of the
MS–DRG patient classification system
used by the IPPS to the LTCH PPS,
which required the establishment of the
categories of ‘‘no-volume’’ and ‘‘low
volume’’ MS–LTC–DRGs because
LTCHs do not treat the full range of
patients treated in IPPS hospitals (67 FR
55983 through 55995). We believe that
the commenter may not fully
understand how ‘‘low-volume’’ MS–
LTC–DRGs and ‘‘no volume’’ MS–LTC–
DRGs are treated in our relative weight
methodology. The MS–LTC–DRG
relative weights are determined based
on the ratio of the estimated cost of the
cases assigned to each MS–LTC–DRG
(as proxied by total charges from the
claims in the MedPAR data) to the cost
of the all of the LTCH cases (for all MS–
LTC–DRGs) in the database. Although
the ‘‘low-volume’’ MS–LTC–DRGs
represent approximately 37 percent of
the 751 MS–LTC–DRGs proposed for FY
2012, the cases assigned to those the
‘‘low-volume’’ MS–LTC–DRGs only
represented approximately 1.5 percent
of the LTCH cases used to calculate the
proposed relative weights. Similarly,
while the ‘‘no-volume’’ MS–LTC–DRGs
represent approximately 32 percent of
the 751 MS–LTC–DRGs proposed for FY
2012, there were no cases assigned to
the ‘‘no-volume’’ MS–LTC–DRGs, and
therefore, no data from any claims for
those MS–LTC–DRGs was used to
determine the proposed relative
weights. As described in greater detail
below in section VII.B.3.g. (step 5) of
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this preamble, the relative weights for
the ‘‘no-volume’’ MS–LTC–DRGs are
assigned based on clinical similarity
and relative costliness, and therefore,
have no effect on the calculation of the
relative weights.
For the reasons discussed above, we
do not believe that inclusion of the
‘‘low-volume’’ MS–LTC–DRGs and the
‘‘no volume’’ MS–LTC–DRGs
inappropriately skew the calculation of
the relative weights such that the data
do not accurately reflect the utilization
of LTCH services. We continue to
believe that our methodology for
determining the relative weights for
each MS–LTC–DRG appropriately
account for the variations in cost per
discharge and resource utilization
among the payment groups in
accordance with § 412.515. Therefore, in
this final rule, we are adopting our
proposed methodology as final without
modification. In summary, for FY 2012,
to determine the FY 2012 MS–LTC–DRG
relative weights, we grouped LTCH
cases to the appropriate MS–LTC–DRG,
while taking into account the lowvolume quintile (as described above).
After grouping the cases to the
appropriate MS–LTC–DRG (or lowvolume quintile), we calculated the FY
2012 relative weights by first removing
statistical outliers and cases with a
length of stay of 7 days or less (as
discussed in greater detail below). Next,
we 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 2012 MS–LTC–
DRG relative weights. We note that, as
we stated in section VII.B.3.c. of this
preamble, we excluded the data of allinclusive rate LTCHs, LTCHs that are
paid in accordance with demonstration
projects, and any Medicare Advantage
claims in the March 2011 update of the
FY 2010 MedPAR file.
Step 1—Remove statistical outliers.
The first step in the calculation of the
FY 2012 MS–LTC–DRG relative weights
is to remove statistical outlier cases.
Consistent with our historical relative
weight methodology, we define
statistical outliers as cases that are
outside of 3.0 standard deviations from
the mean of the log distribution of both
charges per case and the charges per day
for each MS–LTC–DRG. These statistical
outliers were removed prior to
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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 proposed 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 2012 MS–LTC–
DRG relative weights, the value of many
relative weights would decrease and,
therefore, payments would decrease to a
level that may no longer be appropriate.
We do not believe that it would be
appropriate to compromise the integrity
of the payment determination for those
LTCH cases that actually benefit from
and receive a full course of treatment at
a LTCH by including data from these
very short-stays. Therefore, consistent
with our historical relative weight
methodology, in determining the FY
2012 MS–LTC–DRG relative weights, we
removed LTCH cases with a length of
stay of 7 days or less. (For additional
information on this step of the relative
weight methodology, 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 were 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 2012 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
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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 2012 MS–LTC–DRG relative weights
would lower the FY 2012 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 2012 MS–
LTC–DRG relative weights on an
iterative basis.
Consistent with our historical relative
weight methodology, we calculated the
FY 2012 MS–LTC–DRG relative weights
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 was used for each LTCH.
For each MS–LTC–DRG, we
calculated the FY 2012 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
above were multiplied by these
hospital-specific case-mix indexes.
These hospital-specific case-mix
adjusted relative charge values were
then used to calculate a new set of MS–
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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 2012 relative
weight for MS–LTC–DRGs with no
LTCH cases.
As we stated above, we determined
the FY 2012 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 2011 update of the FY 2010
MedPAR file for this final rule). Using
these data, we identified a number of
MS–LTC–DRGs for which there were 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 2010 and,
therefore, no charge data were available
for these MS–LTC–DRGs. Thus, in the
process of determining the MS–LTC–
DRG relative weights, we were unable to
calculate relative weights for the MS–
LTC–DRGs with no LTCH cases using
the methodology described in Steps 1
through 4 above. However, because
patients with a number of the diagnoses
under these MS–LTC–DRGs may be
treated at LTCHs, consistent with our
historical methodology, we assigned a
relative weight to each of the no-volume
MS–LTC–DRGs based on clinical
similarity and relative costliness (with
the exception of ‘‘transplant’’ MS–LTC–
DRGs and ‘‘error’’ MS–LTC–DRGs, as
discussed below). (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 2012
relative weights for the MS–LTC–DRGs
with no LTCH cases in the March 2011
update of the FY 2010 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
2012, we identified 236 MS–LTC–DRGs
for which there were no LTCH cases in
the database (including the 8
‘‘transplant’’ MS–LTC–DRGs and 2
‘‘error’’ MS–LTC–DRGs). As stated
above, we assigned relative weights for
each of the 236 no-volume MS–LTC–
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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 515 (751 ¥ 236 = 515)
MS–LTC–DRGs for which we were able
to determine relative weights based on
FY 2010 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
crosswalked one of the 236 ‘‘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, as we proposed, we
crosswalked the no-volume MS–LTC–
DRG to an MS–LTC–DRG for which
there were LTCH cases in the March
2011 update of the FY 2010 MedPAR
file, and to which it was similar
clinically in intensity of use of resources
and relative costliness as determined by
criteria such as care provided during the
period of time surrounding surgery,
surgical approach (if applicable), length
of time of surgical procedure,
postoperative care, and length of stay.
We evaluated the relative costliness in
determining the applicable MS–LTC–
DRG to which a no-volume MS–LTC–
DRG was cross-walked in order to assign
an appropriate relative weight for the
no-volume MS–LTC–DRGs in FY 2012.
(For more detail on our process for
evaluating relative costliness, we refer
readers to the FY 2010 IPPS/RY 2010
LTCH PPS final rule (73 FR 48543).) We
believe in the rare event that there
would be a few LTCH cases grouped to
one of the no-volume MS–LTC–DRGs in
FY 2012, the relative weights assigned
based on the cross-walked MS–LTC–
DRGs would result in an appropriate
LTCH PPS payment because the
crosswalks, which are based on similar
clinical similarity and relative
costliness, generally require equivalent
relative resource use.
We 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 2012. 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–
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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 2012. (As
we noted above, in the infrequent case
where nonmonotonicity involving a novolume MS–LTC–DRG results,
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 was cross-walked
(that is, the cross-walked MS–LTC–
DRG) for FY 2012 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 2012 MS–LTC–DRGs with no LTCH
cases, we are providing the following
example, which refers to the no-volume
MS–LTC–DRGs crosswalk information
for FY 2012 provided in Table 13B.
Example: There were no cases in the
FY 2010 MedPAR file used for this rule
for MS–LTC–DRG 61 (Acute Ischemic
Stroke with Use of Thrombolytic Agent
with MCC). We determined that MS–
LTC–DRG 70 (Nonspecific
Cebrovascular Disorders with MCC) was
similar clinically and based on resource
use to MS–LTC–DRG 61. Therefore, we
assigned the same relative weight of
MS–LTC–DRG 70 of 0.8072 for FY 2012
to MS–LTC–DRG 61 (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 2012, 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
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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 2012 MS–LTC–
DRG relative weights to account for
nonmonotonically increasing relative
weights.
As discussed earlier in this section,
the MS–DRGs contain base DRGs that
have been subdivided into one, two, or
three severity of illness levels. Where
there are three severity levels, the most
severe level has at least one code that is
referred to as an MCC (that is, major
complication or comorbidity). The next
lower severity level contains cases with
at least one code that is a CC (that is,
complication or comorbidity). Those
cases without an MCC or a CC are
referred to as ‘‘without CC/MCC.’’ When
data do not support the creation of three
severity levels, the base DRG is
subdivided into either two levels or the
base DRG is not subdivided. The twolevel subdivisions could consist of the
DRG with CC/MCC and the DRG
without CC/MCC. Alternatively, the
other type of two-level subdivision may
consist of the DRG with MCC and the
DRG without MCC.
In those base MS–LTC–DRGs that are
split into either two or three severity
levels, cases classified into the ‘‘without
CC/MCC’’ MS–LTC–DRG are expected
to have a lower resource use (and lower
costs) than the ‘‘with CC/MCC’’ MS–
LTC–DRG (in the case of a two-level
split) or both the ‘‘with CC’’ and the
‘‘with MCC’’ MS–LTC–DRGs (in the
case of a three-level split). That is,
theoretically, cases that are more severe
typically require greater expenditure of
medical care resources and will result in
higher average charges. Therefore, in the
three severity levels, relative weights
should increase by severity, from lowest
to highest. If the relative weights
decrease as severity increases (that is, if
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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 2012 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
LTCH PPS final rule (74 FR 43964
through 43966). Any adjustments for
nonmonotonicity that were made in
determining the FY 2012 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 2012 budget
neutrality factor.
As we established in the RY 2008
LTCH PPS final rule (72 FR 26882),
under the broad authority conferred
upon the Secretary to develop the LTCH
PPS under section 123 of Public Law
106–113, as amended by section 307(b)
of Public Law 106–554, beginning with
the MS–LTC–DRG update for FY 2008,
the annual update to the MS–LTC–DRG
classifications and relative weights is
done in a budget neutral manner such
that estimated aggregate LTCH PPS
payments would be unaffected, that is,
would be neither greater than nor less
than the estimated aggregate LTCH PPS
payments that would have been made
without the MS–LTC–DRG classification
and relative weight changes
(§ 412.517(b) in conjunction with
§ 412.503). (For a detailed discussion on
the establishment of the budget
neutrality requirement for the annual
update of the MS–LTC–DRG
classifications and relative weights, we
refer readers to the RY 2008 LTCH PPS
final rule (72 FR 26881).)
The MS–LTC–DRG classifications and
relative weights are updated annually
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based on the most recent available
LTCH claims data to reflect changes in
relative LTCH resource use (§ 412.517(a)
in accordance with § 412.503). Under
the budget neutrality requirement at
§ 412.517(b), for each annual update, the
MS–LTC–DRG relative weights are
uniformly adjusted to ensure that
estimated aggregate payments under the
LTCH PPS would not be affected (that
is, decreased or increased). Consistent
with that provision, we updated the
MS–LTC–DRG classifications and
relative weights for FY 2012 based on
the most recent available LTCH data,
and to apply a budget neutrality
adjustment in determining the FY 2012
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 used 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 2012, 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 were not influenced by
changes in the composition of case
types or the changes to the classification
system. That is, the normalization
adjustment is intended to ensure that
the recalibration of the MS–LTC–DRG
relative weights (that is, the process
itself) neither increases nor decreases
the average CMI.
To calculate the normalization factor
for FY 2012 (the first step of our budget
neutrality methodology), in this final
rule, as we proposed, we used the
following three steps: (1.a.) we used the
most recent available LTCH claims data
(FY 2010) and grouped them using the
FY 2012 GROUPER (Version 29.0) and
the recalibrated FY 2012 MS–LTC–DRG
relative weights (determined in steps 1
through 6 of the Steps for Determining
the FY 2012 MS–LTC–DRG Relative
Weights above) to calculate the average
CMI; (1.b.) we grouped the same LTCH
claims data (FY 2010) using the FY 2011
GROUPER (Version 28.0) and FY 2011
MS–LTC–DRG relative weights and
calculated the average CMI; and (1.c.)
we computed the ratio of these average
CMIs by dividing the average CMI for
FY 2011 (determined in Step 1.b.) by the
average CMI for FY 2012 (determined in
step 1.a.). In determining the MS–LTC–
DRG relative weights for FY 2012, each
recalibrated MS–LTC–DRG relative
weight was multiplied by 1.11520 in the
first step of the budget neutrality
methodology, which produced
‘‘normalized relative weights.’’
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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 2012 MS–LTC–DRG
classifications and relative weights) are
equal to estimated aggregate LTCH PPS
payments before reclassification and
recalibration (that is, the FY 2011 MS–
LTC–DRG classifications and relative
weights). Accordingly, consistent with
our existing methodology, we used FY
2010 discharge data to simulate
payments and compare estimated
aggregate LTCH PPS payments using the
FY 2011 MS–LTC–DRGs and relative
weights to estimate aggregate LTCH PPS
payments using the FY 2012 MS–LTC–
DRGs and relative weights.
Furthermore, consistent with our
historical policy of using the best
available data, we also used updated
data to determine the budget neutrality
adjustment factor for FY 2012 in the
final rule.
For this final rule, as we proposed, we
determined the FY 2012 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 2012 and GROUPER
Version 29.0 (as described above); (2.b.)
we simulated estimated total LTCH PPS
payments using the FY 2011 GROUPER
(Version 28.0) and the FY 2011 MS–
LTC–DRG relative weights shown in
Table 11 of the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50613 through 50626);
and (2.c.) we calculated the ratio of
these estimated total LTCH PPS
payments by dividing the estimated
total LTCH PPS payments using the FY
2011 GROUPER (Version 28.0) and the
FY 2011 MS–LTC–DRG relative weights
(determined in step 2.b.) by the
estimated total LTCH PPS payments
using the FY 2012 GROUPER (Version
29.0) and the normalized MS–LTC–DRG
relative weights for FY 2012
(determined in Step 2.a.). In
determining the FY 2012 MS–LTC–DRG
relative weights, each normalized
relative weight was multiplied by a
budget neutrality factor of 0.994649 in
the second step of the budget neutrality
methodology to determine the budget
neutral FY 2012 relative weight for each
MS–LTC–DRG.
Accordingly, in determining the FY
2012 MS–LTC–DRG relative weights in
this final rule, consistent with our
existing methodology, we applied a
normalization factor of 1.11520 and a
budget neutrality factor of 0.994649
(computed as described above). Table
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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,
and five-sixths of the geometric mean
length of stay (used in determining SSO
payments under § 412.529) for FY 2012.
The FY 2012 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
1.11520 and the budget neutrality factor
of 0.994649.
C. Quality Reporting Program for LTCHs
1. Background and Statutory Authority
CMS seeks to promote higher quality
and more efficient health care for
Medicare beneficiaries, and our efforts
are furthered by quality reporting
programs coupled with public reporting
of that information. Such quality
reporting programs already exist for
various settings such as hospital
inpatient services via the Hospital
Inpatient Quality Reporting (IQR)
Program (formerly called the Reporting
Hospital Quality Data for Annual
Payment Update (RHQDAPU) Program),
hospital outpatient services via the
Hospital Outpatient Quality Reporting
(OQR) Program (formerly called the
Hospital Outpatient Quality Data
Reporting Program (HOP QDRP)) and
physicians’ and other eligible
professionals’ services via the Physician
Quality Reporting System (formerly
called the Physician Quality Reporting
Initiative, or PQRI). We have also
implemented quality reporting programs
for home health agencies and skilled
nursing facilities that are based on
conditions of participation, and an endstage renal disease quality incentive
program (ESRD QIP) that links payment
to performance.
Section 3004(a) of the Affordable Care
Act authorizes an additional quality
reporting program for LTCHs, by adding
a new paragraph (5) to section 1886(m)
of the Act. Section 1886(m)(5)(A)(i) of
the Act requires that, for rate year 2014
and each subsequent rate year, the
Secretary shall reduce any annual
update to the standard Federal rate for
discharges occurring during such rate
year, by 2 percentage points for any
LTCH that does not comply with quality
data submission requirements with
respect to an applicable rate year. We
note that section 1886(m)(5) of the Act
uses the term ‘‘rate year.’’ Beginning
with the annual update to the LTCH
PPS that took effect on October 1, 2009,
we consolidated the rulemaking cycle
for the annual update of the LTCH PPS
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Federal payment rates with the annual
update of the MS–LTC–DRG
classifications and relative weights so
that the annual updates to the rates and
factors have an October 1 effective date
and occur on the same schedule. To
reflect this change to the annual
payment rate update cycle, we revised
the regulations at § 412.503 to specify
that, beginning on or after October 1,
2009, the ‘‘LTCH PPS rate year’’ is
defined as October 1 through September
30 (73 FR 26797 through 26798 and
26838). Beginning October 1, 2010, we
changed from using the term ‘‘rate year’’
to ‘‘fiscal year’’ under the LTCH PPS in
order to conform to the standard
definition of the Federal fiscal year
(October 1 through September 30). For
LTCH PPS purposes, the term ‘‘rate
year’’ and the term ‘‘fiscal year’’ both
refer to the time period beginning
October 1 and ending September 30. For
more information regarding this
terminology change, we refer readers to
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50396 and 50397). For purposes
of the discussion below, in order to
eliminate any possible confusion that
may be caused by using the term ‘‘rate
year’’ with respect to the LTCH quality
reporting program, we will use the term
‘‘fiscal year’’ rather than ‘‘rate year.’’
As provided at section
1886(m)(5)(A)(ii) of the Act, depending
on the amount of the annual update for
a particular year, a reduction of 2.0
percentage points may result in the
annual update being less than 0.0
percent for a fiscal year and may result
in payment rates under the LTCH PPS
being less than payment rates for the
preceding fiscal year. In addition, as set
forth at section 1886(m)(5)(B) of the Act,
any reduction based on failure to
comply with the reporting requirements,
as required by section 1886(m)(5)(A) of
the Act, shall apply only with respect to
the particular fiscal year involved, and
any such reduction shall not be taken
into account in computing the payment
rate for subsequent fiscal years.
Section 1886(m)(5)(C) of the Act
requires that, for fiscal year 2014 and
each subsequent fiscal year, each LTCH
shall submit to the Secretary data on
quality measures as specified by the
Secretary. Such data must be submitted
in a form and manner, and at a time,
specified by the Secretary. Generally,
any measures selected by the Secretary
must have been endorsed by the entity
with a contract under section 1890(a) of
the Act. This contract is currently held
by the NQF. The NQF is a voluntary
consensus standard-setting organization
with a diverse representation of
consumer, purchaser, provider,
academic, clinical, and other health care
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stakeholder organizations. The NQF was
established to standardize health care
quality measurement and reporting
through its consensus development
process. We have generally adopted
NQF-endorsed measures in our
reporting programs.
However, section 1886(m)(5)(D)(ii) of
the Act provides that, in the case of a
specified area or medical topic
determined appropriate by the Secretary
for which a feasible and practical
measure has not been endorsed by the
entity with a contract under section
1890(a) of the Act (currently NQF), the
Secretary may specify a measure(s) that
is (are) not so endorsed, as long as due
consideration is given to measures that
have been endorsed or adopted by a
consensus organization identified by the
Secretary. Under section
1886(m)(5)(D)(iii) of the Act, the
Secretary shall publish, by no later than
October 1, 2012, measures which shall
be applicable with respect to the FY
2014 payment determination.
Section 1886(m)(5)(E) of the Act
requires the Secretary to establish
procedures for making data submitted
under the LTCH quality reporting
program available to the public. The
Secretary must ensure that each LTCH
has the opportunity to review the data
that are to be made public with respect
to that facility prior to such data being
made public. The Secretary must also
report quality measures that relate to
services furnished in LTCHs on the
CMS Web site.
2. Quality Measures for the LTCH
Quality Reporting Program for FY 2014
a. Considerations in the Selection of the
Quality Measures
In implementing the LTCH quality
reporting program, we believe that the
development of a quality reporting
program that is successful in promoting
the delivery of high quality health care
services in LTCHs is of paramount
importance. As the statute provides in
section 1886(m)(5)(D) of the Act, in
establishing the LTCH quality reporting
program, we must publish quality
measures to be reported with respect to
the FY 2014 payment determination no
later than October 1, 2012. In order to
meet that mandate, we sought to
develop a quality reporting program that
incorporates overarching health care
aims and goals intended to facilitate
quality care in a manner that is effective
and meaningful, while remaining
mindful of reporting burden and
feasibility of data collection by LTCHs,
in order to reduce and avoid duplicative
reporting efforts when possible. We seek
to efficiently collect information on
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valid, reliable, and relevant measures of
quality and to share this information
with the public, as provided under
section 1886(m)(5)(E) of the Act.
Several provisions of the Affordable
Care Act, taken together, direct the
Secretary to establish a national strategy
to provide a comprehensive plan and
priorities to improve the delivery of
health care services, patient health
outcomes, and population health
through a transparent, collaborative
process. This strategy, the National
Quality Strategy, was released by the
Secretary (available on the Web site at:
http://www.healthcare.gov/center/
reports/quality03212011a.html#es). We
have used the priorities of the National
Quality Strategy to guide identification
of the proposed quality measures for
LTCHs under section 1886(m)(5) of the
Act.
We also applied the following
additional considerations and criteria in
selecting the quality measures for
LTCHs: whether a measure is included
in, or facilitates alignment with, other
Medicare and Medicaid programs;
whether a measure addresses HHS
priorities, such as prevention, care of
chronic illness, high prevalence
conditions, patient safety, patient and
caregiver engagement, and care
coordination; and whether a measure is
evidence-based and may drive quality
improvement as well as has a low
probability of causing unintended
adverse consequences, such as reduced
LTCH admissions of higher risk
patients.
Furthermore, at the Listening Session
held on November 15, 2010, for the
Affordable Care Act section 3004 quality
reporting programs, we sought input,
and invited comments and suggestions
regarding quality reporting, quality
measurement recommendations,
prioritization, and feasibility. We sought
additional input at a Special Open Door
Forum held on December 16, 2010, for
the Affordable Care Act section 3004
quality reporting programs. Transcripts
for both the Listening Session and the
Open Door Forum can be found on the
CMS Web site at: http://www.cms.gov/
LTCH-IRF-Hospice-Quality-Reporting.
In addition, we invited suggestions
and input regarding the section 3004
quality reporting programs to be sent to
us using the CMS Web site mail box
LTCH-IRF-Hospice-Quality-Reporting
[email protected] found at http://
www.cms.gov/LTCH-IRF-HospiceQuality-Reporting. We also received
suggestions and input from a LTCH
technical expert panel (TEP), convened
by the CMS measure development
contractor on January 31, 2011, that
reviewed and prioritized the quality
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measures identified by a LTCH
environmental scan led by a CMS
measure development contractor,
Research Triangle Institute (RTI
International), specifically for the LTCH
quality reporting program. Specifically,
this TEP reviewed measures found in
the environmental scan and rated them
for importance, scientific soundness,
usability, and feasibility.
In summary, in selecting the quality
measures discussed below, with
applicability for FY 2014 and
subsequent years, our goal is to achieve
several objectives. First, the measures
should relate to the general aims of
better care for the individual, better
population health, and lower cost
through better quality. Second, the
measures should promote improved
quality specifically with regard to the
priorities that are of most relevance to
LTCHs. These include: patient safety,
such as avoiding healthcare-associated
infections (HAIs) and adverse events;
better coordination of care; and personcentered and family-centered care.
Third, the measures should address
improved quality for the primary role of
LTCHs, which is to furnish extended
medical care to individuals with
clinically complex problems, such as
multiple acute or chronic conditions,
that need hospital-level care for
relatively extended periods of greater
than 25 days.
b. LTCH Quality Measures for the FY
2014 Payment Determination
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25983), we
proposed that, for the FY 2014 payment
determination, LTCHs submit data on
three quality measures: (1) Urinary
Catheter-Associated Urinary Tract
Infections (CAUTI); (2) Central Line
Catheter-Associated Bloodstream
Infection (CLABSI); and (3) Pressure
Ulcers that are New or Have Worsened.
HAIs are a topic area widely
acknowledged by HHS in the HHS
Action Plan to Prevent HAIs (http://
www.hhs.gov/ash/initiatives/hai/
actionplan/), the Institute of Medicine,
the National Priorities Partnership, and
others as a high impact priority
requiring measurement and
improvement. Better care is one of the
aims found in the National Quality
Strategy, and patient safety is one of the
priorities. Mitigating HAIs is essential in
the improvement of patient safety, and,
therefore, patient care. HAIs are among
the leading causes of death in the
United States and, therefore, are serious
reportable events. CDC estimates that as
many as 2 million infections are
acquired each year in hospitals and
result in approximately 90,000 deaths
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per year.58 HAIs not only put the patient
at risk, but also increase the days of
hospitalization required for patients and
add considerable health care costs.
Therefore, two of the three proposed
quality measures, CAUTI and CLABSI,
are HAI measures.
Other HAIs included in the HHS
Action Plan to Prevent HAIs were under
consideration for the LTCH quality
reporting program beginning October 1,
2012. However, the TEP convened by
the measure development contractor
recommended the two infection events,
urinary catheter-associated urinary tract
infection and central line catheterassociated bloodstream infection (each
an episode of an infection, such as
CAUTI or CLABSI) as highly pertinent,
and important for data collection as well
as most ready and currently feasible for
implementation in the LTCH setting.
HAI quality measures are important for
quality reporting, and we intend to
propose additional HAI measures
included in the HHS HAI Action Plan
to Prevent HAIs through future
rulemaking. These potential HAI quality
measures are listed in our discussion of
possible measures under consideration
for future years. In the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 25983
through 25985), we proposed the
selection of the CAUTI and CAUTI
events as the two initial HAI quality
measures for the LTCH quality measure
reporting program.
(1) FY 2014 LTCH Measure #1: Urinary
Catheter-Associated Urinary Tract
Infections (CAUTI)
The first measure we proposed for
LTCHs for purposes of the FY 2014
payment determination is an
application of the NQF-endorsed
measure developed by CDC for hospital
intensive care units (ICU) entitled (NQF
#0138) ‘‘Urinary Catheter-Associated
Urinary Tract Infection [CAUTI] rate per
1,000 urinary catheter days, for
Intensive Care Unit Patients’’ to all
LTCH care units. This measure was
developed by the CDC to measure the
percentage of patients with CAUTIs in
the ICU context. At the time we
developed the proposed rule, the
measure we proposed to apply, NQF
#0138, was undergoing measure
maintenance review by NQF. We
indicated that this review may result in
a change in how the CDC calculates the
aggregated data from using a rate for
CAUTI, to the use of a standardized
infection ratio (SIR) of healthcare
58 McKibben L; Horan T: Guidance on public
reporting of healthcare-associated infections:
Recommendations of the Healthcare Infection
Control Practices Advisory Committee. AJIC
2005;33:217 through 226.
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51745
associated catheter-associated urinary
tract infections. We proposed to adopt
the current measure in this rulemaking
cycle. However, we also indicated that
we intend to propose the adoption of
any modifications to this measure that
may result from the NQF review process
in future rulemaking.
While it is fast becoming a medical
best practice to avoid urinary catheter
use whenever possible, this may not
always be possible with the LTCH
patient population, due to the severity
of their primary illnesses as well as
comorbidities. Patients who are exposed
to indwelling urinary catheters have a
significantly higher risk of developing
urinary tract infections (UTIs).
UTIs are a common cause of
morbidity and mortality. The HHS
Action Plan to Prevent HAIs identified
catheter associated urinary tract
infections as the leading type of HAI
that is largely preventable, and the
occurrence of which can be drastically
reduced in order to reduce adverse
health care related events and avoid
excess costs.
The urinary tract is the most common
site of HAI, accounting for more than 30
percent of infections reported by acute
care hospitals.59 Healthcare-associated
UTIs are commonly attributed to
catheterization of the urinary tract.
CAUTI can lead to such
complications as cystitis,
pyelonephritis, gram-negative
bacteremia, prostatitis, epididymitis,
and orchitis in males and, less
commonly, endocarditis, vertebral
osteomyelitis, septic arthritis,
endophthalmitis, and meningitis in all
patients. Complications associated with
CAUTI also include discomfort to the
patient, prolonged hospital stay, and
increased cost and mortality. Each year,
more than 13,000 deaths are associated
with UTIs.2 Prevention of CAUTIs is
discussed in the CDC/HICPAC
document, Guideline for Prevention of
Catheter-associated Urinary Tract
Infections.60
The NQF-endorsed CAUTI measure
we proposed is currently collected by
the CDC via the National Healthcare
Safety Network (NHSN) as part of Statemandated reporting and surveillance
requirements for hospitals. CDC’s NHSN
is a secure Internet-based surveillance
system that currently has data collection
forms and data submission and
reporting mechanism in place for
59 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.
60 Wong ES. Guideline for prevention of catheterassociated urinary tract infections. Infect Control
1981;2:126–30.
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LTCHs. NHSN is currently used, in part,
as one means by which certain Statemandated reporting and surveillance
data are collected.
We recognize that the NQF has
endorsed this measure for the short
term, acute care ICU setting, but believe
that this measure is highly relevant to
LTCHs, in that urinary catheters are
commonly used in the LTCH care
setting. As previously noted, NQF #0138
is undergoing measure maintenance
review by NQF. This review may result
in a change in how CDC calculates the
aggregated data from using a rate for
CAUTI to the use of a SIR. We proposed
to adopt the current measure in this
rulemaking cycle. However, we
indicated that we intend to propose the
adoption of any modifications to this
measure that may result from the NQF
review process in future rulemaking.
The TEP convened by the our measure
development contractor on January 31,
2011, identified CAUTI as a high
priority quality issue for LTCHs, and
there was agreement by this TEP that
this particular infection rate is worthy of
surveillance within LTCHs. This
measure is applicable for surveillance in
long-term care units (CDC/NHSN
Manual, Device-Associated Module,
CAUTI Event, which is available on the
CDC Web site at: http://www.cdc.gov/
nhsn/pdfs/pscManual/
7pscCAUTIcurrent.pdf.
Section 1886(m)(5)(D)(ii) of the Act
provides that ‘‘[i]n the case of a
specified area or medical topic
determined appropriate by the Secretary
for which a feasible and practical
measure has not been endorsed by the
entity with a contract under section
1890(a) [of the Act], the Secretary may
specify a measure that is not so
endorsed as long as due consideration is
given to measures that have been
endorsed or adopted by a consensus
organization identified by the
Secretary.’’ We reviewed the NQF’s
consensus-endorsed measures and were
unable to identify any NQF-endorsed
measures for urinary catheter-associated
urinary tract infections for the LTCH
setting. We are unaware of any other
measures for catheter-associated urinary
tract infections that have been approved
by voluntary consensus standards
bodies and endorsed by NQF. We
proposed to adopt an application of this
NQF-endorsed (in the short-term acute
care ICU setting) measure under the
Secretary’s authority to select non-NQFendorsed measures.
As previously noted, NQF #0138 is
undergoing measure maintenance
review by NQF. This review may result
in changes to this measure’s
specifications in how CDC calculates
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the aggregated data from using a rate for
CAUTI to the use of a SIR. We proposed
to adopt the current measure in this
rulemaking cycle. However, we
indicated that we intend to propose the
adoption of any modifications to this
measure that may result from the NQF
review process in future rulemaking. We
note that we intend to ask NQF to
formally extend its endorsement of the
CAUTI measure to the LTCH setting.
We solicited public comment on the
proposed quality measure ‘‘Urinary
Catheter-Associated Urinary Tract
Infections’’ (CAUTI) in the FY 2012
IPPS/LTCH PPS.
Comment: The majority of
commenters acknowledged that
catheter-associated urinary tract
infections are an important issue and
supported this measure for use in
quality measurement and reporting
given the clinical severity of some LTCH
patients. A few commenters expressed
concern related to the clinical relevance,
lack of uniformity, and relative
usefulness compared to other catheter
associated urinary tract infection
measures for LTCHs. One commenter
believed that no data were provided to
support the selection of this HAI for
LTCH settings.
Response: We appreciate the
commenters’ support in the use of this
measure. We agree with the importance
of catheter associated urinary tract
infections. As an HAI, the CDC
estimates that there are 449,334 CAUTIs
and 13,000 deaths per year with an
estimated associated cost of
$340,000,000.61 The catheter-associated
urinary tract infection is the most
common type of HAI, comprising some
30 percent of all HAIs. Furthermore and
importantly, 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 HAI that is largely
preventable.62
With respect to the other urinary tract
infection measures referenced, we
believe that the commenters are
referring to other NQF endorsed
measures that are based on urinary tract
infections (not catheter-associated) or
measured usage of a urinary catheters,
not measures of Catheter Associated
61 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.
62 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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Urinary Tract Infection. As we have
previously stated we are unaware of any
other endorsed measure for Urinary
Catheter Associated Urinary Tract
Infection.
As for data in support of the selection
of CAUTI for the LTCH setting, each
year, more than 13,000 deaths are
associated with UTIs.63 Furthermore,
CAUTI is included in the HHS National
Action Plan to Prevent HAIs. LTCH
patients often have medical
complexities that necessitate the use of
urinary catheters as an integral aspect of
a patient’s care, and the use of urinary
catheters is common. Additionally, the
TEP convened by the CMS measure
developer contractor for LTCH measure
development identified CAUTI as a high
priority issue for LTCHs. Because the
use of urinary catheters leads to risk of
CAUTI, we believe that the CAUTI
measure is appropriate for LTCHs and
aligns with HHS priorities to reduce
such infections.
Comment: Commenters commended
the NQF endorsement process and
suggested that the LTCH CAUTI
measure undergo the same evaluation
before being published in the final rule.
Many commenters expressed concern
that the CAUTI measure is not endorsed
by the NQF for the LTCH setting. Some
commenters suggested that CMS work
with the CDC to test this measure and
‘‘refine the measure’’ prior to finalizing
its use.
Response: We agree with the value of
the NQF endorsement process. We are
using the NQF endorsed CAUTI
measure for Hospital ICU’s and applying
it to the LTCH setting. With regard to
the comment that we ‘‘refine the
measure’’ prior to the use of this
measure, we interpret this to mean to
further specify or specify the measure
differently for LTCHs. Although the
currently NQF endorsed CAUTI
measure is not specifically NQFendorsed for the LTCH setting, CAUTI
events, from which the measure is
calculated, are already being collected
by some LTCHs through the use of the
NHSN. We intend to use the same
measure specifications as endorsed by
NQF for Hospital ICUs as for LTCHs and
collected through the NHSN.
Comment: Several commenters
highlighted the need to risk-adjust the
CAUTI measure. These commenters
stated that some LTCH patients are at
much higher risk of developing CAUTI
than other lower risk patients. Several
commenters expressed concern that lack
of risk adjustment could possibly lead to
unintended consequences such as
reduced access for higher risk patients.
63 See
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Response: The CAUTI measure as
endorsed by NQF does include risk
adjustment although not based on
individual patient characteristics or
comorbidities as suggested by
commenters. Rather as endorsed by
NQF, the CDC NHSN process uses
facility type and location type
information for risk adjustment by
stratifying the results by facility and
location type. The results are then
reported as observed over expected
based on the expected rate for the
facility or location. In this case,
measures would be calculated based on
the expected rate for LTCHs, according
to the data reported to the CDC. This is
reported as a Standardized Infection
Ratio (SIR). More information about the
SIR can be found at the CDC Web site:
http://www.cdc.gov/nhsn/PDFs/
pscManual/7pscCAUTIcurrent.pdf.
Comment: Some commenters
expressed concern with potential
erroneous attribution of infections that
may have resulted from catheter use in
a previous setting. One commenter
asked whether quality data related to
CAUTI would be collected for all LTCH
patients regardless of payer.
Response: With respect to erroneous
attribution, the CDC’s guidelines for
HAI NHSN event reporting include a
Transfer Rule. Under the Transfer Rule,
CAUTIs that develop within 48 hours of
transfer from a patient’s previous
patient transferring location to the
receiving or admitting location, are not
attributable to the admitting patient
location, such as the LTCH setting.
Therefore such CAUTIs are not included
in the admitting LTCH’s HAI event
reporting, and are not included in the
LTCH’s CAUTI measure. In the HAI
NHSN event reporting, admitting and
transferring locations are defined using
a unit identifier on the CDC’s NSHN.
We believe this appropriately addresses
the potential risk of erroneous
attribution for transferred patients.
Additional information related to the
‘‘Transfer Rule’’ can be found on the
CDC Web site at: http://www.cdc.gov/
nhsn/PDFs/slides/CAUTI.pdf.
As stated in the proposed rule, the
reporting of HAI events and meaningful
HAI event surveillance by LTCHs using
the CDC/NHSN requires the submission
of HAI events, regardless of payer.
Comment: One commenter expressed
concern that patients who were
‘‘colonized’’ with bacteria but without
symptoms would be included as CAUTI
and therefore opposed use of this
measure.
Response: We interpret the
commenter’s use of the term
‘‘colonized’’ to mean a condition in
which significant numbers of bacteria
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have colonized the urinary tract but
there are no signs or symptoms of
urinary tract infection. Patients with
this condition do not meet CDC’s
current criteria for CAUTI. To meet
CDC’s criteria, asymptomatic patients
must have a bacteremia involving at
least one microorganism that is a
uropathogen. Please refer to the CDC
website for further information http://
www.cdc.gov/nhsn/PDFs/pscManual/
7pscCAUTIcurrent.pdf
After consideration of the public
comments we received, we are
finalizing the Urinary CatheterAssociated Urinary Tract Infection
measure, as proposed, for the FY 2014
payment determination.
(2) FY 2014 Measure #2: Central Line
Catheter-Associated Bloodstream
Infection (CLABSI)
The second measure we proposed for
LTCHs for the FY 2014 payment
determination is an application of a
CDC-developed NQF-endorsed measure
for hospital ICU and high-risk nursery
patients; (NQF #0139) ‘‘Central Line
Catheter-Associated Bloodstream
Infection (CLABSI) Rate for ICU and
High-Risk Nursery (HRN) Patients.’’
This is a measure of the percentage of
ICU and high-risk nursery patients who,
over a certain amount of days, acquired
central line catheter-associated
bloodstream infections over a specified
number of line days.
A central line is a catheter that health
care providers often place in a large vein
in the neck, chest, or groin to give
medication or fluids or to collect blood
for medical tests. Many LTCH patients
have been discharged from short-term
acute care hospital ICUs or ICU stepdown units with these central lines
already in place. In other situations, a
central line IV may be inserted during
the patient’s stay at the LTCH.
Bloodstream infections are usually
serious infections typically causing a
prolongation of hospital stay and
increased cost and risk of mortality.64
An estimated 248,000 bloodstream
infections occur in U.S. hospitals each
year.65 Furthermore, CLABSIs result in
thousands of deaths each year and
billions of dollars in added costs to the
U.S. healthcare system, yet these
infections are preventable. The CDC is
providing guidelines and tools to the
64 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.
65 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.
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51747
health care community to help reduce
central line catheter-associated
bloodstream infections. Techniques to
prevent CLABSI through proper central
line management are addressed in
CDC’s Healthcare Infection Control
Practices Advisory Committee
Guidelines for the Prevention of
Intravascular Catheter Related
Infections.66
We recognize that NQF endorsement
of this measure is limited to ICU and
HRN patients in hospital settings, but
believe that this measure is also highly
relevant in the LTCH setting because
intravascular, central venous catheters
(also known as a ‘‘central line’’) are used
frequently due to the fact that these
types of hospitals care for patients with
complex medical problems which
require LTCH stays and intensive
treatment.
The CMS measure development
contractor convened a TEP on January
31, 2011, which identified CLASBIs as
a high priority quality issue for LTCHs;
there was agreement by the TEP that
this particular infection rate is worthy of
surveillance within LTCHs. This
measure is applicable for surveillance in
long-term hospital care units (CDC/
NHSN Manual, Device-Associated
Module, CLABSI Event, which is
available at the CDC Web site at: http://
www.cdc.gov/nhsn/PDFs/pscManual/
4PSC_CLABScurrent.pdf).
Section 1886(m)(5)(D)(ii) of the Act
provides that ‘‘[i]n the case of a
specified area or medical topic
determined appropriate by the Secretary
for which a feasible and practical
measure has not been endorsed by the
entity with a contract under section
1890(a) [of the Act], the Secretary may
specify a measure that is not so
endorsed as long as due consideration is
given to measures that have been
endorsed or adopted by a consensus
organization identified by the
Secretary.’’ We reviewed the NQF’s
consensus-endorsed measures, and were
unable to identify any NQF endorsed
measures for central line catheterassociated bloodstream infections for
the LTCH setting. We are unaware of
any other measures for CLABSI that
have been approved by voluntary
consensus standards bodies and
endorsed by NQF. Therefore, we
proposed to adopt an application of this
NQF-endorsed (for ICU and HRN)
measure under the Secretary’s authority
provided in section 1886(m)(5)(D)(ii) of
the Act.
66 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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We proposed to apply the measure
specifications as endorsed by NQF. We
also intend to ask NQF to formally
extend its endorsement of the CLABSI
measure to all care settings within the
LTCH (that is, beyond the LTCH ICU).
We solicited public comment on the
proposed quality measure ‘‘Central Line
Catheter-Associated Bloodstream
Infection’’ (CLABSI) in the FY 2012
IPPS/LTCH PPS proposed rule for the
quality reporting program for LTCHs.
Comment: The majority of
commenters supported the selection of
CLABSI for use in quality measurement
and reporting. One commenter believed
that, of the three proposed measures,
CLABSI is probably the best understood
measure, and encouraged its adoption.
Other commenters remarked positively
on its clinical relevance given the
clinical severity of some LTCH patients.
However, one commenter questioned
the clinical relevance of a CLABSI-based
quality measure for LTCHs, and
expressed concern that the majority of
LTCH patients do not have central lines
in LTCHs.
Response: We appreciate the
commenters’ support for the use the
CLABSI measure. We agree with the
importance of CLABSIs. Specifically, we
believe collecting data on this quality
measure is clinically relevant because
CLABSIs are preventable, and can lead
to poor outcomes such as sepsis and
death. Further, as indicated in the HHS
National Action Plan to Prevent HAIs
(http://www.hhs.gov/ash/initiatives/hai/
actionplan/index.html), CLABSI is a
leading type of HAI.
We also agree with commenter who
stated that CLABSIs are clinically
relevant to LTCHs. LTCH patients are
often medically complex and central
line catheters are used in the LTCH
setting as part of patient care
management. Therefore, as with other
patients, LTCH patients are at risk for
developing a CLABSI. For calendar year
2009, there were 4,522 LTCH claims in
CMS data with ICD–9 codes for this
infection, supporting both the relevance
of this measure and the presence of
central line catheter usage.
Comment: Some commenters
commended the NQF endorsement
process and some commenters
expressed concern that the CLABSI
measure is not NQF-endorsed for the
LTCH setting and suggested that the
LTCH CLABSI measure undergo the
same evaluation before being published
in the final rule. One commenter
suggested that CMS work with the CDC
to test this measure and ‘‘refine the
measure’’ and that CMS seek NQF
endorsement for use in LTCHs prior to
finalizing its use.
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Response: We agree with the value of
the NQF endorsement process. We are
using an NQF endorsed CLABSI
measure for Hospital ICU’s and applying
it to the LTCH setting. With regard to
the comment that we ‘‘refine the
measure’’ prior to the use of this
measure, we interpret this to mean to
further specify or specify the measure
differently for LTCHs. Although the
currently NQF endorsed CAUTI
measure is not specifically NQFendorsed for the LTCH setting, CLABSI
events, from which the measure is
calculated, are already being submitted
by some LTCHs through the use of the
NHSN. We intend to use the same
measure specifications as endorsed by
NQF for Hospital ICUs as for LTCHs and
collected through the NHSN.
Comment: Many commenters urged
CMS to risk-adjust the CLABSI measure.
These commenters stated that some
LTCH patients were at much higher risk
of developing CLABSI than other, lower
risk, patients. Some commenters
suggested that data for this measure be
based upon the type of LTCH unit and
that the measure consider those units
associated with the highest risk of
infection such as long-term care
ventilator units that may utilize central
line catheters more extensively. Some
commenters noted that there are
medical situations where an infection
may be anticipated or occur despite best
care efforts. Several commenters
expressed concern that the perceived
lack of risk adjustment could possibly
lead to unintended consequences such
as reduced access for higher risk
patients. Some commenters appeared to
express concern that the data provided
were not at the individual level.
Response: The CLABSI measure as
endorsed by NQF does include risk
adjustment although not based on
individual patient characteristics or
comorbidities as suggested by
commenters. Rather, as suggested by
others and endorsed by NQF for ICUs,
the CDC NHSN process uses facility
type and location type information for
risk adjustment by stratifying the results
by facility and location type. The results
are then reported as observed over
expected based on the expected rate for
the facility or location. In this case,
measures would be calculated based on
the expected rate for LTCHs or locations
within the facility, based on the data
reported to the CDC. This is reported as
a Standardized Infection Ratio (SIR),
described in detail at http://
www.cdc.gov/nhsn/PDFs/pscManual/
7pscCAUTIcurrent.pdf. The SIR is a
summary statistic that risk adjusts by
taking into account risk differences
across patient population by stratifying
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by hospital location. This is the only
type of summary statistic method that is
used at this time, or that has historically
been used by the CDC for the CLABSI
and CAUTI measures. After extensive
consultation with the CDC in this
matter, we have determined that it is
best to defer experts at CDC, who have
recommended that SIR is the most
appropriate method of summary statistic
for taking risk differences in patient
population into account. In addition,
during a Technical Expert Panel (TEP)
that was convened on July 7, 2011,
many of the LTCH subject-matter
experts opined that SIR is an
appropriate and adequate method of
taking risk differences in patient
population into account for the CAUTI
and CLABSI measures.
After consideration of the public
comments we received, we are
finalizing the Central Line CatheterAssociated Bloodstream Infection
measure, as proposed, for the FY 2014
payment determination.
(3) FY 2014 Measure #3: Pressure Ulcers
The third measure we proposed for
LTCHs for purposes of the FY 2014
payment determination is an
application of a CMS-developed NQFendorsed measure for short-stay nursing
home patients: (NQF #0678, formerly
assigned as NQF # NH–012–10)
‘‘Percent of Residents with Pressure
Ulcers that Are New or Have
Worsened.’’ This measure includes the
percentage of patients who have one or
more stage 2–4 pressure ulcers that are
new or worsened from a previous
assessment. Consistent in our support of
the National Quality Strategy principles,
mitigating the occurrence or worsening
of pressure ulcers is essential in the
improvement of patient safety and,
therefore, patient care.
We recognize NQF endorsement of
this measure is limited to short-stay
nursing home patients, but believe that
this measure is highly relevant and a
high priority quality issue for the care
of LTCH patients. Pressure ulcers are
high-volume and high-cost adverse
events across the spectrum of health
care settings from acute hospitals to
home health. Patients in the LTCH
setting are medically complex, have
functional limitations that often are
severe, and, therefore, are at high risk
for the development, or worsening, of
pressure ulcers. Pressure ulcers are
serious medical conditions and an
important measure of quality. Pressure
ulcers can lead to serious, lifethreatening infections, which
substantially increase the total cost of
care. Furthermore, as we noted in the
FY 2008 IPPS final rule with comment
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period (72 FR 42705), in 2006 there
were 322,946 reported cases of Medicare
patients with a pressure ulcer as a
secondary diagnosis—each case had an
average charge of $40,381 for a hospital
stay, for an annual total cost of 13
billion dollars. The prevalence of
pressure ulcers in health care facilities
is increasing, with some 2.5 million
patients being treated annually for
pressure ulcers in acute care
facilities.67 68 In 2006, there were
503,300 acute hospital stays during
which pressure ulcers were noted. This
is a 78.9 percent increase from 1993
when there were approximately 281,300
hospital stays related to pressure
ulcers.69
The CMS measure development
contractor convened a TEP on January
31, 2011, which identified this topic as
highly relevant and a high priority
quality issue for the care of LTCH
patients, and the application of this
measure (NQF #0678) as appropriate for
LTCHs.
Section 1886(m)(5)(D)(ii) of the Act
provides that ‘‘[i]n the case of a
specified area or medical topic
determined appropriate by the Secretary
for which a feasible and practical
measure has not been endorsed by the
entity with a contract under section
1890(a) [of the Act], the Secretary may
specify a measure that is not so
endorsed as long as due consideration is
given to measures that have been
endorsed or adopted by a consensus
organization identified by the
Secretary.’’ We reviewed the NQFendorsed measures, and we were unable
to identify any NQF-endorsed measures
for the monitoring of pressure ulcers
that are new or worsened, for the LTCH
setting. We are unaware of any other
measure for the LTCH setting of new or
worsened pressure ulcers that are
approved by voluntary consensus
standards bodies and endorsed by NQF.
Therefore, we proposed to adopt an
application of this NQF-endorsed (for
short-stay nursing home patients)
measure for the LTCH quality reporting
program under the Secretary’s authority
67 Russo CA, Steiner C, Spector W.:
Hospitalizations related to pressure ulcers among
adults 18 years and older, 2006 (Healthcare Cost
and Utilization Project Statistical Brief No. 64).
December 2008. Available at: http://www.hcupus.ahrq.gov/reports/statbriefs/sb64.pdf.
68 Institute for Healthcare Improvement: Relieve
the pressure and reduce harm. May 21, 2007.
Available at: http://www.ihi.org/IHI/Topics/
PatientSafety/SafetyGeneral/ImprovementStories/
FSRelievethePressureandReduceHarm.htm.
69 MacLean DS.: Preventing & managing pressure
sores. Caring for the Ages. March 2003;4(3):34–7.
Available at: http://www.amda.com/publications/
caring/march2003/policies.cfm.
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set forth at section 1886(m)(5)(D)(ii) of
the Act.
We solicited public comment on the
proposed quality measure Percent of
Residents with Pressure Ulcers that Are
New or Have Worsened in the FY 2012
IPPS/LTCH PPS proposed rule for the
quality reporting program for LTCHs.
Comment: Most commenters
supported the selection of pressure
ulcers for use in quality measurement
and reporting. However, one commenter
questioned the clinical relevance of this
measure, and believed that there was a
lack of supporting data in the proposed
rule. Another commenter suggested that
few studies have conclusively shown
that ‘‘standard interventions
implemented today have been proven
beyond a reasonable doubt to do
anything at all to prevent pressure
ulcers.’’
Response: We appreciate the
commenters’ support of this measure.
We believe, as the data provided in
the proposed rule suggests, that the
development of new or worsened
pressure ulcers is a very relevant
clinical quality issue in all clinical
settings, including LTCHs. Our measure
development contractor convened a TEP
on January 31, 2011, which identified
this topic as highly relevant and a high
priority quality issue for the care of
LTCH patients, and the application of
this measure (NQF 0678) as appropriate
for LTCHs. Specifically, in LTCHs
alone, claims submitted to CMS in 2009
included nearly 700 claims for stage one
pressure ulcers; just over 2,600 claims
for stage 2 pressure ulcers; just over
7,000 for stage 3 pressure ulcers; nearly
10,000 claims for stage 4 pressure ulcers
and just over 1,100 claims for both stage
3 and stage 4 pressure ulcers; as well as
nearly 800 claims for unstageable
pressure ulcers. LTCH patients are often
at an increased risk of pressure ulcer
formation given their medical
complexities, and often lack of mobility.
We disagree with the commenter who
believed that few studies have
conclusively shown that ‘‘standard
interventions implemented today have
been proven beyond a reasonable doubt
to do anything at all to prevent pressure
ulcers.’’ We believe that the evidencebased pressure ulcer prevention
guidelines published by clinical experts,
such as the National Pressure Ulcer
Advisory Panel in conjunction with the
European Pressure Ulcer Advisory Panel
(NPUAP and EPUAP) (http://www.
npuap.org/resources.htm) as well as the
Institute for Clinical Systems
Improvement, and others, suggest that
pressure ulcer development and
worsening can be reduced and mitigated
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51749
through the application of such best
practices.
Comment: Many commenters agreed
that pressure ulcers are an important
issue, and are important for quality
measurement in the LTCH setting.
However, one commenter expressed
concern that the proposed pressure
ulcer measure was developed for shortstay nursing home patients and
suggested that patients in LTCHs require
hospital-level, physician-led, post acute
care, while patients in nursing homes
have far lower medical acuity and
resource use. Some commenters
recommended harmonizing the LTCH
pressure ulcer measure with Hospital
IQR Program pressure ulcer measure
which includes only Stages III and IV,
suggesting that this would facilitate
cross-site data comparisons that would
be helpful for policy work to reduce
patient harm, improve transitions of
care, reduce preventable readmissions
and related delivery system reforms.
Commenters suggested the involvement
of albumin levels in wound
improvement. Commenters also
suggested that CMS work to test this
measure, ‘‘refine the measure,’’ and seek
NQF endorsement for use in LTCHs
prior to finalizing its use.
Response: We appreciate the many
supportive comments as to the
importance of the issues of pressure
ulcers in the LTCH setting. Although we
agree LTCHs are different than nursing
homes in terms of patient types, we do
not agree that the issue of pressure
ulcers is substantially different in terms
of preventability and treatment. With
respect to harmonizing measures with
the Hospital IQR Program, we believe
that an assessment of patients as done
for the nursing home measure is
preferable for a pressure ulcer measure
as opposed to a claims based measure
relying on diagnosis codes. We believe
the assessment provides more
information particularly for worsening
and improving pressure ulcers. As for
the suggestion albumin levels are
involved in wound improvement, this is
not a risk factor as included in the NQFendorsed measure we are adopting for
application to the LTCH setting. Finally,
as to the future refinement, we are
applying the measure as endorsed by
NQF for nursing homes.
Comment: Many commenters believed
that the term ‘‘worsening’’ pressure
ulcers was ambiguous. These
commenters noted that inter-rater
reliability of wound staging may vary
significantly, and suggested that the
term ‘‘worsening’’ be defined.
Commenters also suggested that
‘‘worsening’’ be removed from the
description and that CMS base the
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quality measure solely on the
appearance of ‘‘new’’ pressure ulcers.
Many commenters also suggested that
this measure include an indicator for
when a pressure ulcer is ‘‘present on
admission’’ (POA), as is done with the
Hospital IQR Program measure, Pressure
Ulcers Stages III and IV. Some
commenters indicated that it is difficult
to accurately differentiate between
worsening pressure ulcers and pressure
ulcers that appear to worsen as part of
the healing process before they get
better, such as pressure ulcers that
undergo debridement, or in instances
when the patient has an episode of
sepsis or hemodynamic instability.
These commenters suggested that
debridement often improves the overall
condition of the wound but it is
expected that it initially will increase
the measurement of the wound. In
addition, some commenters
recommended adding a measure to
identify healing pressure ulcers. One
commenter suggested that the pressure
ulcer measure should be defined as the
number of patients per 1000 days who
suffered a pressure ulcer.
Response: This proposed measure is
an application of a measure that NQFendorsed in the SNF setting. We do not
agree that the measure is ambiguous or
that it should be based solely on the
appearance of new pressure ulcers. As
specified for the LTCH setting, the
measure, new or worsening pressure
ulcers, is based on changes in skin
integrity that occurs within the LTCH.
With regard to the Hospital IQR
Program, and the use of a present on
admission (POA) indicator, it is
important to note that the pressure ulcer
measure in the Hospital IQR Program
relies on claims codes to identify
pressure ulcers. A POA indicator is
necessary to avoid attributing to the
hospital the development of a pressure
ulcer when the pressure ulcer was
present on admission. By contrast, the
measure that we proposed for LTCHs is
based on the direct assessment of
patients, the first assessment of which is
upon admission. The measure considers
pressure ulcers that were present on
admission based on the initial
assessment in order to assess for any
worsening of these pressure ulcers
during the patients’ stays.
Unstageable wounds include deep
tissue injuries and pressure ulcers
covered by nonremovable dressings,
slough or eschar. These are not
currently included in this 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 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.
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
Minimum Data Set 3.0 (MDS 3.0)
Resident Assessment Instrument
Manual, page 24 of Section M, Skin
Conditions, which describes the NPUAP
approach. This information can be
found on the CMS Web site for the MDS
3.0: http://www.cms.gov/NursingHome
QualityInits/45_NHQIMDS30Training
Materials.asp#TopOfPage.
Finally, with respect to the suggestion
of a measure of healing pressure ulcers
and measurement on the basis of 1000
patients, we will consider these
suggestions for the future. However, as
we have proposed, we are finalizing the
application of the existing NQF
endorsed specifications for pressure
ulcers for the nursing home setting to
LTCHs.
After consideration of the public
comments we received, we are
finalizing the Percent of Residents with
Pressure Ulcers that Are New or Have
Worsened measure, as proposed, for the
FY 2014 payment determination.
3. Possible LTCH Quality Measures
under Consideration for Future Years
As discussed below, we seek to
achieve a comprehensive set of quality
measures to be available for widespread
use for informed decision-making and
quality improvement. Therefore, as
stated previously and as indicated in the
proposed rule, we intend to propose,
through future rulemaking, measures
included in the HHS Action Plan to
Prevent HAIs. As we also stated in the
proposed rule, we intend to propose
through future rulemaking measures
related to ventilator care such as the
NQF-endorsed Institute for Healthcare
Improvement process measure, NQF
#0302, Ventilator Bundle, which is a
comprehensive ventilator care-bundle
process measure that is designed to
facilitate protocols such as weaning, and
mitigate ventilator-related infections,
such as ventilator-associated
pneumonia, and other complications.
We also intend to propose additional
outcome measures such as those related
to acute care rehospitalization. We are
aware of the limits related to feasibility
in data submission at the present time.
For example, there is no feasible means
to submit the ventilator bundle process
measure at this at this time, and are
therefore we are currently identifying
the data elements necessary for this
measure using a data subset from the
Continuity Assessment Record and
Evaluation (CARE) data set as well as a
submission mechanism. We also intend
to propose, through future rulemaking,
additional measures, such as those
related to symptom management,
physical restraints, medication use,
falls, infections, and function, using the
data subsets of the CARE data set
necessary for measure calculations.
In the proposed rule, we invited
public comment and suggestions on the
implementation of a standardized
assessment instrument for LTCHs that
would similarly support the calculation
of quality measures. We also invited
public comment on the measures and
measures topics under consideration for
future years set out below. In addition,
we invited other suggestions and
rationale to support the adoption of
measures and topics not listed below.
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POSSIBLE MEASURES AND MEASURE TOPICS FOR THE LTCH QUALITY REPORTING PROGRAM UNDER CONSIDERATION FOR
FUTURE YEARS
Overarching Goal: Safety and Healthcare Acquired Conditions—HAIs
HAI reporting for:
• Ventilator-associated Pneumonia.***
• Surgical site infection rate.***
• Multi-drug resistant organism infection.
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51751
POSSIBLE MEASURES AND MEASURE TOPICS FOR THE LTCH QUALITY REPORTING PROGRAM UNDER CONSIDERATION FOR
FUTURE YEARS—Continued
Overarching Goal: Safety and Healthcare Acquired Conditions: Avoidable Adverse Events and Serious Reportable Events
•
•
•
•
•
•
•
•
•
•
•
•
Unplanned acute care hospitalizations.
Mortality.***
Blood Incompatibility.**
Foreign object retained after surgery.**
Manifestation of poor glycemic control.**
Air Embolism.**
Falls and trauma.**
Venous Thromboembolism.*
Injuries secondary to Poly-pharmacy.
Injuries related restraint use.
Medication errors.*
Stage III and IV Pressure Ulcer.**
Overarching Goal: Safety and Improvement Practices for Adverse Event Reduction
•
•
•
•
•
Central line bundle.***
Ventilator bundle.***
Patient Immunization for Influenza.***
Patient Immunization for Pneumonia.***
Staff immunization.***
Overarching Goal: Safety—NQF Endorsed Nursing Sensitive Care Measures
•
•
•
•
•
Patient Fall Rate.***
Falls with Injury.***
Pressure Ulcer Prevalence.***
Restraint Prevalence (vest and limb only).***
Skill mix (Registered Nurse [RN], Licensed Vocational/Practical Nurse [LVN/LPN], unlicensed assistive personnel [UAP], and contract)***
Nursing care hours per patient day (RN, LPN, UAP).***
• Voluntary turnover for RN, APN, LPN, UAP.***
• Practice Environment Scale-Nursing Work Index.***
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* Harmonizes with NQF Serious Reportable Events.
** Harmonizes with Hospital-Acquired Conditions–Present on Admission Program for IPPS hospitals.
*** Harmonizes with NQF-endorsed measures.
We solicited public comment on
possible LTCH quality measures under
consideration for future years.
Comment: Some commenters
generally supported the future measures
under consideration, and specifically
supported several of the potential
measures for LTCH quality reporting in
future years, including: Staff
immunization for influenza; measures
for ventilator care and ventilatorassociated pneumonia; surgical site
infections; multi-drug resistant
organism infections; readmissions;
process measures related to reducing
catheter-associated urinary tract
infections and Stage III and IV pressure
ulcers; glycemic control in diabetic
patients; and MRSA bacteremia for
multidrug-resistant organisms.
Commenters also suggested adding to
the list chronic obstructive pulmonary
disease, C. Difficile SIR, process
measures for management of
cardiovascular conditions, including
heart failure and atrial fibrillation,
condition-specific readmissions, and a
process measure for management of
patient serum albumin levels as a
replacement measure for pressure
ulcers. In addition, commenters
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suggested that CMS use measures
considered as ‘‘best in class.’’ Several
commenters cautioned against the use of
ventilator bundle process measure
because of the burden related to this
measure.
Response: We appreciate the
commenters’ support of the listed
measures and measure topics, as well as
the cautions expressed, and we will take
their comments into consideration in
determining whether to adopt the
measures for the LTCH quality reporting
program in the future. We also thank the
commenters for their suggested
additional measures for potential use in
future reporting program years.
Comment: Commenters supported the
use of the NHSN as a reporting system
for future measure submission. Some
commenters supported the use of the
CARE data item set in collecting data in
the future. Other commenters strongly
recommended delaying implementation
of the CARE data item set for future use
until the PAC–PRD has been reported to
Congress and undergone Congressional
and public comments review. One
commenter opposed the use of the data
set used in the PAC–PRD.
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Response: We thank the commenters
for their feedback and support in the
future use of the CARE data item set.
CMS concluded its PAC–PRD and data
collection using CARE in December,
2010. We plan to submit our report to
Congress with findings by the close of
2011.
4. Data Submission Methods and
Timelines
a. Method of Data Submission for
HAIs
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25988 through
25890), we proposed to adopt two HAI
quality measures, Central Line CatheterAssociated Bloodstream Infection
(CLABSI) Event: CLABSI rate per 1000
central line days, and Urinary CatheterAssociated Urinary Tract Infection
(CAUTI) Event: CAUTI rate per 1000
urinary catheter days. We proposed to
use CDC/NHSN for data collection and
reporting for these two HAI measures
(http://www.cdc.gov/nhsn/).
As we noted above, the NHSN is a
secure, Internet-based surveillance
system. It is maintained by CDC, and
can be utilized by all types of healthcare
facilities in the United States, including
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LTCHs, acute care hospitals that collect
and report HAIs through the NHSN as
part of our Hospital IQR Program, as
well as psychiatric hospitals,
rehabilitation hospitals, outpatient
dialysis centers, and ambulatory surgery
centers. The NHSN enables health care
facilities to submit their HAI event data,
and access their data for the purposes of
internal infection-surveillance.
Facilities can also use the NHSN to
obtain information on clinical practices
known to prevent HAIs, information on
the incidence or prevalence of
multidrug-resistant organisms within
their organizations, and information on
other adverse events. Some States use
the NHSN as a means of collecting State
law-mandated HAI reporting. NHSN
collects data via a Web-based tool
hosted by the CDC and available at:
http://www.cdc.nhsn. This reporting
service is provided free of charge to
healthcare facilities. In addition, CDC
may have the ability to receive NHSN
measures data from electronic health
records (EHRs) in the near future.
Currently, the data reporting of these
two HAI events is completed through
the NHSN. More than 20 States require
hospitals to report HAIs using NHSN,
and CDC supports more than 4,000
hospitals that are using the NHSN. Over
200 LTCHs currently submit HAI data
via the NHSN.
HAI event reporting and meaningful
HAI event surveillance by the LTCH,
using the CDC/NHSN requires the
submission of all HAI events, regardless
of payer. We believe delivery of high
quality care in the LTCH setting is
imperative. Collecting such quality data
on all patients in the LTCH setting
supports CMS’ mission to ensure high
quality care for Medicare beneficiaries.
This will provide us with the most
robust and accurate reflection of quality
in the LTCH setting. Therefore, in order
to facilitate and ensure that high quality
care is delivered to Medicare
beneficiaries in the LTCH setting, we
proposed that quality data related to
HAIs be collected on all LTCH patients,
regardless of payer.
Currently the NHSN has data
collection forms, data submission, and
reporting mechanisms in place that are
in use by LTCHs for both CLABSI and
CAUTI measures. Details related to the
procedures using the NHSN for data
submission can be found at: http://
www.cdc.gov/nhsn. Specifically, details
related to the procedures of using the
NHSN for data submission and
information on definitions, numerator
data, denominator data and data
analyses for CLABSI Event: CLABSI rate
per 1000 central line days calculated by
dividing the number of CLABSI by the
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number of central line days and
multiplying the result by 1000 can be
found at http://www.cdc.gov/nhsn/
PatientSafety.html. Details related to the
CLABSI SIR can be found at http://
www.cdc.gov/hai/pdfs/stateplans/
SIR_05_25_2010.pdf. Details related to
the procedures of using the NHSN for
data submission and information on
definitions, numerator data,
denominator data and data analyses for
CAUTI Event: CAUTI rate per 1000
urinary catheter days calculated by
dividing the number of CAUTIs by the
number of catheter days and
multiplying the result by 1000 can also
be found at http://www.cdc.gov/nhsn/
PatientSafety.html.
The reporting procedures for these
HAI events would not be affected by the
use of the SIR instead of the current rate
calculation. CDC performs those
calculations. Further information
related to the use of the SIRs can be
found on the Web sites at: http://
www.hhs.gov/ash/initiatives/hai/
appendices.html and http://
www.cdc.gov/HAI/surveillance/
QA_stateSummary.html.
We solicited public comment on the
proposed methods of data submission
for the CLABSI and CAUTI measures in
the FY 2012 IPPS/LTCH PPS proposed
rule for the quality reporting program
for LTCHs.
Comment: Several commenters
supported the use of the NHSN for data
reporting. However, some commenters
questioned the readiness of the CDC’s
NHSN infrastructure to accept a greater
volume of data by adding LTCH
reporters. Several commenters
expressed concerns with provider
burden and resources required to enroll,
train, and implement data reporting
through the CDC’s NHSN.
Response: CDC has indicated that the
NHSN has undergone a major
architectural redesign over the last year
in response to the need to scale up to
more users and to improve its
functionality. Based on the current
number of facilities reporting, the small
number of additional LTCHs that we
proposed to add equates to only a 5
percent increase in usage, which is not
an appreciable burden on the system.
CDC is confident that the changes it is
making will meet the challenges of the
proposed increase in NHSN usage.
Comment: One commenter suggested
that the NHSN would create an
additional burden as a new reporting
system for the LTCHs that are not
currently using NHSN for reporting.
Response: At this time, nearly half of
all certified LTCHs report HAI events
using the NHSN. As we discuss in more
detail in section IX.J.3.b. of Appendix A
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to this final rule, we believe that the
burdens associated with submitting data
to the CDC via NHSN will be modest
because many LTCHs are NHSNregistered and trained and have
experience using this system. For
LTCHs that have not used this system,
the registration and training are free and
require only a small amount of time.
Finally, we estimate that the costs for
data submission for the LTCHs that are
not currently using the NHSN for both
measures will be modest.
Comment: Several commenters
supported the use of NHSN data for
collection of data pertaining to CLABSI
and CAUTI quality measures as well as
additional future measures. One
commenter suggested that CMS mandate
the use of NHSN by making its use part
of the Conditions of Participation (CoPs)
for LTCHs. Several commenters
recommended the use of existing data
reporting mechanisms for data
submission, including EHRs, in order to
minimize burden, avoid duplication of
efforts, improve accuracy, and align
these quality-related data collection
efforts with other quality assessment
reporting efforts (for example, The Joint
Commission). These commenters noted
that introduction of a new data
collection system could prove difficult
for LTCHs not yet reporting information
through this system, especially small or
rural LTCHs, and some commenters
suggested that CMS allow providers
choice in submission systems.
Response: We thank the commenters
for their support of the use of the NHSN
for the data collection of the CAUTI and
CLABSI measure. We also thank the
commenter for the suggestion that we
integrate the use of the NHSN as a part
of the LTCH CoPs. However, we do not
believe it is necessary to add such a
requirement to the LTCH CoPs in order
to require submission of the applicable
data through the NHSN for the LTCH
quality reporting program.
We wish to minimize any burdens
associated with the LTCH quality
reporting program. We intend to
minimize burden where measures are
already submitted through measure
simplification, while still working to
implement a quality reporting program
that concentrates on providing safe,
sound care for all patients receiving
services in LTCHs. We chose the NHSN
reporting system because
implementation of this system has
already been shown to be both feasible
and useful in LTCH settings. The
reporting of HAIs using the NHSN is
provided free of charge by the CDC for
acute and post acute settings. NHSN
reporting for HAIs is already mandated
or soon will be mandated in 11 States
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and the District of Columbia. The
CLABSI measure is already in place in
11 States and the District of Columbia.
At the time of this final rule, CDC
indicated that over 200 LTCHs, out of
439 certified LTCHs, report HAI events
using the CDC via NHSN. During the 12month period from April 2010 to March
2011, 58 LTCHs reported CLABSI for at
least one month, and the same number
reported CAUTI for at least one month.
Over 4,000 hospitals currently submit
safety reports to NHSN; and over 20
States require acute-care hospitals to
participate. The CDC/NHSN HAI event
reporting, therefore, provides an
opportunity for alignment across
healthcare settings and alignment with
definitions between various healthcare
settings as well as among all LTCHs.
Comment: Several commenters noted
that data collected for NHSN does not
include collection of individual patient
level information, limiting the potential
for more robust risk adjustment based
on severity of illness and other patientlevel risk factors. The commenters
believed that the only real variables
collected by NHSN for use in riskadjustment for CAUTI and CLABSI are
device days and device utilization.
Response: As previously discussed in
response to another comment on risk
adjustment for the two proposed NHSN
measures, the risk adjustment
methodology of the CDC, as endorsed by
NQF uses risk stratification by facility
type and location calculating observed
over expected for a particular facility or
location and reported as a Standardized
Infection Ratio. We believe that this risk
adjustment is sufficient as endorsed by
NQF, and avoids adding to the
complexity and reporting burden of the
measures that would arise should we
require detailed information on patient
co-morbidities and characteristics.
After consideration of the public
comments received, we are adopting as
final our proposed method of data
submission for HAIs using the CDC/
NHSN, with the first reporting period to
begin October 1, 2012, for the FY 2014
payment determination.
b. Timeline for Data Reporting Related
to HAIs
CDC recommends that HAI reporting
occur closest in time to the event, and
further recommends that reporting
occur no later than 30 days following
the event. To facilitate HAI surveillance
and reporting for these proposed
measures for payment determination,
we proposed an additional timeframe
for reporting following the initial
reporting period. We proposed a data
submission timeframe for NHSN event
51753
reporting for these proposed LTCH
quality reporting program HAI measures
of October 1, 2012 through December
31, 2012 for the determination of FY
2014 annual payment update, and that
LTCHs submit their data no later than
May 15, 2013.
In order to better align with the
current Hospital IQR Program HAI
reporting processes (75 FR 20223), we
also proposed that all subsequent LTCH
quality reporting cycles will be based on
a calendar year cycle (for example,
beginning January 1, 2013 through
December 31, 2013) for determination of
the update to the standard Federal rate
for each LTCH in FY 2015 and
subsequent years. We proposed that,
beginning in CY 2013, and for all
subsequent years, LTCHs would submit
HAI event data via the NHSN, for four
consecutive quarters of the calendar
year. For example, for the FY 2015
annual payment update to the standard
Federal rate, LTCHs would submit HAI
data collected in the first quarter of CY
2013, the second quarter of CY 2013, the
third quarter of CY 2013, and the fourth
quarter of CY 2013.
The timelines for submission of
quality data on the CLABSI and CAUTI
measures for the FY 2015 annual
payment update that we proposed are
set out below.
TIMELINES FOR SUBMISSION OF DATA ON THE CENTRAL LINE CATHETER-ASSOCIATED BLOODSTREAM INFECTIONS AND
URINARY CATHETER-ASSOCIATED URINARY TRACT INFECTIONS (CAUTI & CLABSI) MEASURES FOR THE FY 2015
ANNUAL PAYMENT UPDATE
CDC–NHSN Collection and quarterly report
generation time
CY 2013 Infection event(s)
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Q1
Q2
Q3
Q4
(January–March 2013) ................................
(April–June 2013) ........................................
(July–September 2013) ...............................
(October–December 2013) ..........................
LTCHs would have until the final
submission deadline for the LTCH
quality reporting program to submit
their quarterly data to the NHSN. After
the final submission deadline has
occurred for each CY 2013 quarter, CMS
will receive a file from the CDC with the
aggregated measurement rates of the
specific calculations that have been
generated by the NHSN for the LTCH
quality reporting program and we will
use those results for purposes of
determining whether the LTCH met the
requirements for the LTCH quality
reporting program.
We invited public comments on the
reporting cycle for LTCHs.
Comment: Many commenters
recommended a 1-year delay in the
publication of the CLABSI and CAUTI
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Proposed submission deadlines for the LTCH
quality reporting program FY 2015 payment
determination
January 31–August 15 .....................................
April 30–November 15 .....................................
July 31–February 15 ........................................
October 31–May 15 ..........................................
August 15, 2013.
November 15, 2013.
February 15, 2014.
May 15, 2014.
quality measures. These commenters
suggested that the delay would allow
time for administrative processes and
procedures, training, NQF endorsement,
validation of data, and the strengthening
of the NHSN system, and/or addition of
a POA indicator, while still allowing for
data to be submitted in time to meet the
requirements of section 1886
(m)(5)(A)(iii) of the Act for measure
publication by October 1, 2012. Several
commenters suggested the initial roll
out of one quality measure at a time, for
use in testing and evaluation of benefit.
One commenter recommended that the
CLABSI quality measure be
implemented only after site-based
testing.
Response: There is already current
and successful use of the NHSN
reporting infrastructure for HAI
measures for over 200 of the 439
certified LTCHs. We are announcing
these measures at this time to provide
ample notice for facilities for the
purposes of administrative procedures
such as enrollment and training. We
intend to announce specifications
related to the HAI measures’ data
collection, submission, and reporting
procedures on or before January 31,
2012. Specifically, we note that data
collection does not begin until October
1, 2012. Therefore, there already exists
a one year delay incorporated from the
publication of these measures and when
data collection begins for purposes of
the FY 2014 payment determination. We
also are working with the CDC for full
implementation support.
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After consideration of the public
comments we received, we are adopting
as final the proposed reporting cycle for
data submission for HAIs for FY 2014
payment determination.
In alignment with the Hospital IQR
Program, (75 FR 50223), we also
proposed that once quarterly each LTCH
will utilize an automated report
function that will be made available to
submitters in the NHSN, to generate a
quarterly report containing individual
LTCH-level numerator, denominator,
and exclusion counts for these two HAI
measures specifically. CDC will create
an automated LTCH quality program
report function and add it to NHSN’s
reporting functionalities. While LTCHs
may be reporting other data elements to
CDC for other reporting programs (that
is, State-mandated surveillance
programs), the quarterly LTCH quality
program report that would be generated
within NHSN would only contain those
data elements needed to calculate the
two measures currently being proposed
for the LTCH quality reporting program.
We would only receive this aggregated
data from CDC.
We also proposed that any further
details regarding, data submission and
reporting requirements for HAI
measures to be reported via NHSN
would be posted on the CMS Web site
at: http://www.cms.gov/LTCH–IRF–
Hospice-Quality-Reporting/ by no later
than January 31, 2012.
Requirements for NHSN participation,
measure specifications, and data
collection can be found on the CDC Web
site at: http://www.cdc.gov/nhsn/.
LTCHs are encouraged to visit this Web
site in order to view the NHSN
enrollment and reporting requirements.
Training resources are available there.
In order to allow adequate time for
enrollment in the NHSN, and for
training to take place, should these
measures be finalized, additional details
related to this reporting program’s
requirements, such as when enrollment
is due to occur, will be announced by
no later than January 31, 2012, on the
CMS Web site at: http://www.cms.gov/
LTCH–IRF–Hospice-Quality-Reporting/.
In the announcement, we would
propose to provide guidance on the
specifications, definitions and reporting
requirements.
We sought comment on the alignment
with the Hospital IQR Program reporting
cycle.
Comment: Commenters expressed
appreciation for the alignment of LTCH
quality reporting program’s data
submission timelines with those in the
Hospital IQR Program. Commenters also
expressed appreciation that the LTCH
quality reporting program follows the
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basic structure of the Hospital IQR
Program. Several commenters requested
that, like the Hospital IQR Program,
there also be procedures and
methodology for data validation, an
appeals process, and that LTCHs be
permitted to review their data 30 days
before it is made available to the public.
Response: We appreciate the
commenters’ support. We will consider
suggestions with regard to the
procedures and processes that are to be
put into place for the LTCH quality
reporting program, and data validation
methodology as well as an appeals
processes in future rulemaking.
After consideration of the public
comments we received, we are adopting
as final the proposed timeline for data
submission for HAIs for FY 2014
payment determination.
c. Method of Data Collection and
Submission for the Pressure Ulcer
Measure Data
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25989 through
25990), we proposed that the pressure
ulcer data elements necessary to
calculate the pressure ulcer measure
would be identical to those data
elements collected through the
Minimum Data Set 3.0 (MDS 3.0), which
is a reporting instrument used in
nursing homes. The current MDS 3.0
pressure ulcer items evolved as an
outgrowth of CMS’ work to develop a
standardized patient assessment
instrument, referred to as CARE. The
current MDS 3.0 pressure ulcer items
are also currently used in the
calculation of the NQF-endorsed
nursing home pressure ulcer measure,
Percent of Residents with Pressure
Ulcers That Are New or Worsened
[Short Stay] (NQF #0678, formerly NQF
# NH–012–10). We note that the MDS
data elements were supported by the
National Pressure Ulcer Advisory Panel
(NPUAP).
We believe that to support the
standardized collection and calculation
of the LTCH pressure ulcer quality
measure will require the use of a subset
of the standardized CARE instrument,
and thus we proposed the use of a
subset of the CARE instrument’s
assessment items for data collection. We
will be using specifically the pressure
ulcer data elements necessary to
calculate the pressure ulcer measure,
and those data items are identical to
those data elements collected through
the Minimum Data Set 3.0 (MDS 3.0).
The current MDS 3.0 pressure ulcer data
items can be found at the CMS Web site
at: https://www.cms.gov/NursingHome
QualityInits/45_NHQIMDS30Training
PO 00000
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Materials.asp.70 This data assessment
subset will allow identical data
elements to be collected in LTCHs and
in nursing homes.
The CARE assessment instrument,
was developed and tested in the postacute care payment reform
demonstration (which included LTCHs)
as required by section 5008 of the
Deficit Reduction Act (DRA), Public
Law 109–171. It is a standardized
assessment instrument that can be used
across all post acute care sites to
measure functional status and other
factors during treatment and at
discharge from each provider. (For more
information, we refer readers to the
following Web site: http://
www.pacdemo.rti.org.) CARE was tested
over the last 2 years in 199 providers,
of which 28 were LTCHs. Participant
feedback suggested most of these items
are already collected by LTCHs during
their intake process and in monitoring
the patients’ health status during the
stay. Importantly, the CARE items meet
Federal interoperable data standards
and should be transferable by most data
systems. A data reporting mechanism
for transferring the data to CMS is
currently under development. We
anticipate that it will be similar to the
current systems used to report
assessment data for payment and quality
monitoring in the other post acute care
sites.
We believe that, for the collection of
data necessary to calculate this pressure
ulcer measure, using a CARE subset of
standardized data elements to collect,
report, and calculate the pressure ulcer
quality measure will drive uniformity
across settings which will lead to better
quality of care in LTCHs and,
ultimately, across the continuum of care
settings. We also believe that the use of
a standardized method of
communication will lead to better
informed decision making.
We stated in the proposed rule that if
this proposal is finalized, additional
details regarding the data elements
needed to calculate this measure,
submission requirements and
specifications used for these data
elements to calculate the pressure ulcer
quality measure using a subset of CARE
instrument will be published on the
CMS Web site at http://www.cms.gov/
LTCH–IRF–Hospice-Quality-Reporting/
by no later than January 31, 2012.
We solicited public comment on the
proposed methods of data submission
for the pressure ulcer data in the FY
70 https://www.cms.gov/NursingHomeQuality
Inits/45_NHQIMDS30TrainingMaterials.asp (Look
for Downloads. Select MDS 3.0 Item Subsets v1.002.
Click on MDS 3.0 ALL Items. Scroll down to
Section M, Skin Conditions, items M0100–M0900.)
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
2012 IPPS/LTCH PPS proposed rule for
the LTCH quality reporting program.
Comment: Commenters suggested that
CMS consider existing mechanisms for
LTCHs to collect and report data on
quality measures with the input of the
LTCH provider community, and avoid
any unnecessary duplication of
reporting for other purposes.
Response: We are working with other
reporting agencies toward measure
simplification and reductions in
potentially duplicative reporting.
After consideration of the public
comments we received, we are adopting
as final our mechanism for data
submission to be similar to the current
systems used to report assessment data
for payment and quality monitoring in
the other post acute care sites for the
data submission mechanism for the
pressure ulcer measure data elements as
used in the NQF #0678, Percent of
Residents with Pressure Ulcers that Are
New or Worsened. As stated in the
proposed rule, additional details
regarding the data elements needed to
calculate this measure, submission
requirements and specifications used for
these data elements to calculate the
pressure ulcer quality measure will be
published on the CMS Web site at http:
//www.cms.gov/LTCH–IRF–HospiceQuality-Reporting/ by no later than
January 31, 2012.
We proposed to use standardized
assessment data elements for data
collection that would support the
calculation of quality measures in the
LTCHs. Specifically, we proposed to use
a subset of data items from the CARE
data set instrument for the collection of
the data elements necessary to calculate
the proposed quality measure, the
Percent of New or Worsened Pressure
Ulcers. This data subset is identical to
the MDS 3.0 data elements for pressure
ulcers, which constitute the
specification for the NQF-endorsed
pressure ulcer measure #0678 that we
finalized earlier to apply to the LTCH
setting.
We invited public comment on the
use of a subset of CARE data items for
the purposes data collection for this
measure: Percent of Residents with
Pressure Ulcers that Are New or
Worsened. We also invited public
comment on this proposal for the
calculation of the quality measure for
pressure ulcers.
Comment: Many commenters
expressed concern about the use of
CARE data elements for collecting data
elements on new or worsening pressure
ulcers in the LTCHs, asserting the data
element set was not tested in the LTCH
environment or approved by NQF.
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Response: The proposed pressure
ulcer measure is an NQF-endorsed
measure when used in the nursing home
setting. The data elements are identical
to MDS 3.0 which constitutes the
specifications of the proposed pressure
ulcer measure for the LTCH setting. The
measure uses data elements that have
been tested in LTCHs during the PAC–
PRD. The CARE data item set was also
tested for reliability and validity in the
LTCH environment during the PAC–
PRD. The CARE data item set was used
to collect over 8,500 assessments on
patients in 28 LTCHs in different parts
of the country. The items used to
populate this measure have been tested
for reliability in the LTCH setting, and
have shown to have very high
agreement. Furthermore, the data
elements used to populate the pressure
ulcer assessment are based on input
from the National Pressure Ulcer
Advisory Panel and the Wound Ostomy
and Continence Nurses Society, two
professional groups that set the
standards used in all settings to measure
pressure ulcer severity. As a result, we
believe that the items are familiar to
LTCH staff that assess patients for
pressure ulcers.
Comment: One commenter expressed
disappointment that these specifications
of the CARE tool were not made public
prior to the comment period.
Response: We proposed the use of
data elements that are included in the
CARE data item set and are included in
the MDS 3.0. The MDS specifications
are free and are available to the public
through the CMS Web site: http://www.
cms.gov/NursingHomeQualityInits/
30_NHQIMDS30TechnicalInformation.
asp#TopOfPage. As specified,
additional details regarding the
submission requirements for the data
elements needed to calculate this
measure will be published on the CMS
Web site at http://www.cms.gov/LTCHIRF-HOSPICE-Quality-Reporting/ no
later than January 31, 2012. We are
developing draft technical specifications
and anticipate publication in the fall of
2011 with final technical specifications
on or before January 31, 2012.
Comment: One commenter asked
when and how often would the quality
measure regarding new or worsening
pressure ulcers be applied.
Response: We interpret the
commenter’s question regarding how
often would the quality measure be
applied to be referencing the number of
assessments necessary to calculate the
measure. There will be two assessments
needed to calculate the measure. The
data collected for this measure includes
an initial assessment, obtained at the
time of the admission, and a subsequent
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51755
assessment. We expect to provide
further details related to measure
specifications and submission
requirements on or before January 31,
2012.
After consideration of the public
comments we received, we are adopting
as final our method of data submission
for the pressure ulcer measure, the use
of the quality data elements as used in
the NQF-endorsed pressure ulcer
measure #0678, Percent of Residents
with Pressure Ulcers that Are New or
Worsened as required to calculate this
measure.
d. Timeline for Data Reporting Related
to Pressure Ulcers
The delivery of high quality care in
the LTCH setting is imperative. We
believe that collecting quality data on
all patients in the LTCH setting supports
CMS’ mission to ensure quality care for
Medicare beneficiaries. Collecting data
on all patients provides the most robust
and accurate reflection of quality in the
LTCH setting. Accurate representation
of quality provided in LTCHs is best
conveyed using data related to pressure
ulcers on all LTCH patients, regardless
of payer. Thus, in order to facilitate and
ensure this effort, in the FY 2012 IPPS/
LTCH PPS proposed rule, we proposed
that quality data related to pressure
ulcers shall be collected on all LTCH
patients, regardless of payer, using a
subset of the CARE data collection
instrument in accordance with the
timetable and schedule set forth in
section VII.C.4.b. of the preamble to the
proposed rule. We stated in the
proposed rule that we will provide
further details about the data collection
instrument on the CMS Web site http:
//www.cms.gov/LTCH–IRF–HospiceQuality-Reporting/ as these details
become available.
We invited public comments on the
proposed reporting cycle for LTCHs.
Comment: The majority of
commenters, including those who
supported use of pressure ulcers as a
quality measure, strongly recommended
delaying the implementation of the
CARE data item set as part of regulatory
mechanism for pressure ulcer until:
results from CARE data item set
demonstration have been reported to
Congress and undergone Congressional
and public comment review; the data
items are validated in collaboration with
experts in the field, and the tool has
been NQF-endorsed. Many commenters
suggested a 1-year delay. Other
commenters suggested postponing the
measure ‘‘indefinitely’’ or did not
specify a desired timeframe.
Response: We concluded our PAC–
PRD and data collection using CARE in
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December 2010. We plan to submit its
report to Congress with findings by the
end of 2011. We did not propose the
implementation of the entire data
instrument, but rather a subset of tested,
and reliable data elements. Further, the
pressure ulcer measure data elements
that populate this measure belong to an
already NQF-endorsed measure for
which testing was necessary for
endorsement. These data elements are
currently successfully submitted to CMS
by over 16,000 nursing facilities. We are
developing draft technical submission
requirements and we expect to publish
them in August 2011. We anticipate that
we will announce final technical
specifications related to the pressure
ulcer measure data elements on or
before January 31, 2012.
After consideration of the public
comments we received, we are adopting
as final the proposed timeline for data
submission for the New or Worsened
Pressure Ulcers measure and in
accordance with the timetable and
schedule set forth in section VII.C.4.b. of
this preamble, with data collection to
begin October 1, 2012 for the FY 2014
payment determination.
5. Public Reporting and Availability of
Data Submitted
Under section 1886(m)(5)(E) of the
Act, the Secretary is required to
establish procedures for making any
quality data submitted by LTCHs
available to the public. Such procedures
will ensure that a LTCH has the
opportunity to review the data that is to
be made public with respect to the
LTCH prior to such data being made
public. The Secretary will report quality
measures that relate to services
furnished in LTCHs on the CMS Web
site. Currently, the agency is developing
plans regarding the implementation of
this provision. Procedures for public
reporting will be proposed through
future rule making. At this time, we
have not established procedures or
timelines for public reporting of data.
Comment: Several commenters
requested the addition and specification
of a standardized appeals process for all
providers to ensure that any issues that
arise in data aggregation and validation
can be addressed. With respect to all
three measures, commenters suggested
that LTCHs should be permitted a 30day window to review their data before
the data are released to the public.
Several commenters stated that there
should be a data validation
methodology procedure applied.
Another commenter believed that
measures required for public reporting
should be endorsed by the NQF, and
ideally by the Measures Application
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Partnership as well. For CAUTI and
CLABSI, one commenter encouraged
NQF, CMS, and the CDC to determine
how best to educate the public with
regard to SIRs, in order to make sure
that consumers understand the meaning
of SIRs prior to the start of public
reporting. With respect to reporting of
the pressure ulcer measure, one
commenter wanted assurance that the
CARE-based pressure ulcer measure was
validated and viewed as appropriate by
LTCHs before the information is shared
with the public.
Response: We intend to adopt
procedures that will ensure that an
LTCH has the opportunity to review the
data to be made public prior to the data
being made public, and will such
announce details related to such
procedures in the future. Additionally,
as required under section 1886(m)(5)(E)
of the Act, we will report quality
measures that relate to services
furnished in LTCHs on a CMS Web site.
Specifically, with regard to the
comment suggesting that, prior to public
reporting of the pressure ulcer measure,
the agency ensure the measure was
appropriately validated, we note that
ongoing review to ensure
appropriateness, validity and risk
adjustment are integral aspects of
quality measure maintenance, and we
intend to ensure appropriate measure
maintenance of all quality measures.
Comment: One commenter expressed
appreciation that NHSN will be
providing a separate reporting function
that will automatically generate LTCH
quality program reports.
Response: We appreciate the
commenter’s support.
D. Rebasing and Revising of the Market
Basket Used Under the LTCH PPS
1. Background
The input price index (that is, the
market basket) that was used to develop
the LTCH PPS for FY 2003 was the
‘‘excluded hospital with capital’’ market
basket. That market basket was based on
1997 Medicare cost report data and
included data for Medicare-participating
IRFs, IPFs, LTCHs, cancer hospitals, and
children’s hospitals. Although the term
‘‘market basket’’ technically describes
the mix of goods and services used in
providing hospital care, this term is also
commonly used to denote the input
price index (that is, cost category
weights and price proxies combined)
derived from that market basket.
Accordingly, the term ‘‘market basket,’’
as used in this section, refers to an input
price index.
Beginning with RY 2007, LTCH PPS
payments were updated using a FY
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2002-based market basket reflecting the
operating and capital cost structures for
IRFs, IPFs, and LTCHs (hereafter
referred to as the rehabilitation,
psychiatric, and long-term care (RPL)
market basket). We excluded cancer and
children’s hospitals from the RPL
market basket because their payments
are based entirely on reasonable costs
subject to rate-of-increase limits
established under the authority of
section 1886(b) of the Act, which are
implemented in regulations at § 413.40.
They are not paid under a PPS. Also, the
FY 2002 cost structures for cancer and
children’s hospitals are noticeably
different than the cost structures of the
freestanding IRFs, freestanding IPFs,
and LTCHs. A complete discussion of
the FY 2002-based RPL market basket
appears in the RY 2007 LTCH PPS final
rule (71 FR 27810 through 27817).
In the FY 2010 IPPS/RY 2010 LTCH
PPS proposed rule (74 FR 21062), we
expressed our interest in exploring the
possibility of creating a stand-alone
LTCH market basket that reflects the
cost structures of only LTCH providers.
However, as we discussed in the FY
2010 IPPS/RY 2010 LTCH PPS final rule
(74 FR 43967 through 43968), we are
conducting further research to assist us
in understanding the reasons for the
variations in costs and cost structure
between freestanding IRFs and hospitalbased IRFs. We also are researching the
reasons for similar variations in costs
and cost structure between freestanding
IPFs and hospital-based IPFs. We
remain unable to sufficiently
understand the observed differences in
costs and cost structures between
hospital-based IRFs and freestanding
IRFs and between hospital-based IPFs
and freestanding IPFs. Therefore, we do
not believe it is appropriate at this time
to establish stand-alone market baskets
for IRFs, IPFs, and LTCHs.
We are currently exploring the
viability of creating two separate market
baskets from the current RPL market
basket: One market basket would
include freestanding IRFs and
freestanding IPFs and would be used to
update payments under both the IPF
and IRF payment systems. The other
market basket would be a stand-alone
LTCH market basket. Depending on the
outcome of our research, we may
propose a stand-alone LTCH market
basket in the next LTCH PPS update
cycle.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25990), we invited
public comment on the possibility of
using this type of market basket to
update LTCH payments in the future.
Comment: Several commenters stated
that CMS’ ongoing work to develop a
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market basket that is distinct to the
LTCH PPS, and that recognizes the
differences among LTCHs, IRFs, and
IPFs, is worthwhile, given the unique
role LTCHs play in treating high
complexity, long-stay patients. Further,
one commenter stated that there are a
sufficient number of LTCHs to support
a separate market basket, and CMS
should have confidence that an LTCHspecific market basket would be a
reflection of real inflationary changes to
the costs of LTCH goods and services.
Several commenters encouraged CMS to
create a separate LTCH market basket
for the FY 2013 LTCH PPS.
Response: We appreciate the
commenters’ support as we continue to
investigate the feasibility of developing
a LTCH-specific market basket.
Under the LTCH PPS for FY 2012, we
proposed to rebase and revise the FY
2002-based RPL market basket by
creating a FY 2008-based RPL market
basket as described below. In the
following discussion, we provide an
overview of the market basket and
describe the methodologies we
proposed (and are adopting in this final
rule) to use for purposes of determining
the operating and capital portions of the
FY 2008-based RPL market basket.
2. Overview of the FY 2008-Based RPL
Market Basket
The FY 2008-based RPL market basket
is a fixed-weight, Laspeyres-type price
index. A Laspeyres price index
measures the change in price, over time,
of the same mix of goods and services
purchased in the base period. Any
changes in the quantity or mix of goods
and services (that is, intensity)
purchased over time are not measured.
The index itself is constructed in
three steps. First, a base period is
selected (in the proposed rule, we
proposed to use FY 2008 as the base
period) and total base period
expenditures are estimated for a set of
mutually exclusive and exhaustive
spending categories, with the proportion
of total costs that each category
represents being calculated. These
proportions are called cost or
expenditure weights. Second, each
expenditure category is matched to an
appropriate price or wage variable,
referred to as a price proxy. In nearly
every instance, these price proxies are
derived from publicly available
statistical series that are published on a
consistent schedule (preferably at least
on a quarterly basis). Finally, the
expenditure weight for each cost
category is multiplied by the level of its
respective price proxy. The sum of these
products (that is, the expenditure
weights multiplied by their price levels)
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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 of the provider’s
inputs be captured, with those changes
being reflected in the cost weights.
Therefore, we rebase the market basket
periodically so the cost weights reflect
recent changes in the mix of goods and
services that hospitals purchase
(hospital inputs) to furnish inpatient
care between base periods.
3. Rebasing and Revising of the RPL
Market Basket
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 25991), we invited
public comments on our proposed
methodological changes to the RPL
market basket. The terms ‘‘rebasing’’
and ‘‘revising,’’ while often used
interchangeably, actually denote
different activities. ‘‘Rebasing’’ means
moving the base year for the structure of
costs of an input price index (for
example, in the proposed rule, we
proposed to shift the base year cost
structure for the RPL market basket from
FY 2002 to FY 2008). ‘‘Revising’’ means
changing data sources, price proxies, or
methods, used to derive the input price
index. For FY 2012, we proposed to
rebase and revise the market basket used
to update the LTCH PPS. A summary of
the public comments we received and
any changes we have made as a result
of these public comments are included
in the applicable areas of this section.
a. Development of Cost Categories
(1) Medicare Cost Reports
As we proposed and are adopting in
this final rule, the FY 2008-based RPL
market basket consists of several major
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51757
cost categories derived from the FY
2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs, including wages and
salaries, pharmaceuticals, professional
liability insurance, capital, and a
residual. These FY 2008 Medicare cost
reports include providers whose cost
report begin date is on or between
October 1, 2007, and September 30,
2008. We used FY 2008 as the base year
because we believe that the Medicare
cost reports for this year represent the
most recent, complete set of Medicare
cost report data available for IRFs, IPFs,
and LTCHs. However, there is an issue
with obtaining data specifically for
benefits and contract labor from this set
of FY 2008 Medicare cost reports
because IRFs, IPFs, and LTCHs were not
required to complete the Medicare cost
report worksheet from which these data
were collected (Worksheet S–3, Part II).
As a result, only a small number of
providers (less than 30 percent) reported
data for these categories, and we do not
expect these FY 2008 data to improve
over time. However, because IRFs, IPFs,
and LTCHs were not required to submit
data for Worksheet S–3, Part II in
previous cost reporting years, we have
always had this issue of incomplete
Medicare cost report data for benefits
and contract labor (including when we
finalized the FY 2002-based RPL market
basket). Due to the incomplete benefits
and contract labor data for IRFs, IPFs,
and LTCHs, we developed these cost
weights using FY 2008 Medicare cost
report data for IPPS hospitals (similar to
the method that was used for the FY
2002-based RPL market basket). We
provide additional detail on this
approach later in this section.
Because our goal is to measure cost
shares that are reflective of case-mix and
practice patterns associated with
providing services to Medicare
beneficiaries, we limited our selection
of Medicare cost reports to those from
hospitals that have a Medicare average
length of stay that is within a
comparable range of their total facility
average length of stay. We believe this
provides a more accurate reflection of
the structure of costs for Medicare
covered days. We used the cost reports
of LTCHs and IRFs with Medicare
average lengths of stay within 15
percent (that is, 15 percent higher or
lower) of the total facility average length
of stay for the hospital. This is the same
edit we applied to derive the FY 2002based RPL market basket and generally
includes those LTCHs and IRFs with
Medicare average length of stay within
approximately 5 days of the facility
average length of stay of the hospital.
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facility average length of stay in order to
measure the cost shares that are
reflective of case-mix and practice
patterns associated with providing
services to Medicare beneficiaries.
The length-of-stay edits utilized were
developed specifically for each provider
type (that is, IRFs, LTCHs, and IPFs).
For LTCHs and IRFs, we used the cost
reports with Medicare average lengths of
stay within 15 percent (that is, 15
percent higher or lower) of the total
facility average length of stay for the
hospital. Applying this edit resulted in
excluding about 12 percent of IRFs and
LTCHs that, in the aggregate, had a
facility length of stay that was 80
percent higher than their Medicare
length of stay. The resulting sample of
LTCHs and IRFs after the length-of-stay
edit, in the aggregate, had a facility
length of stay that was 2 percent higher
than their Medicare length of stay. We
believe applying this edit allows us to
achieve our goal of creating a market
basket that is reflective of case-mix and
practice patterns associated with
providing services to Medicare
beneficiaries.
Comment: One commenter suggested
that, because only a small number of
providers (less than 30 percent) reported
TABLE VII.D–1—MAJOR COST CATEGORIES AND THEIR RESPECTIVE data for benefits and contract labor on
COST WEIGHTS AS CALCULATED DI- their cost reports, CMS consider
RECTLY FROM FY 2008 MEDICARE requiring all LTCHs to submit this
information.
COST REPORTS
Response: Effective for cost reports
beginning on or after May 1, 2010, CMS
FY 2008-Based
finalized a revised Hospital and
RPL market basMajor cost categories
Hospital Health Care Complex Cost
ket cost weights
(percent)
Report, Form CMS 2552–10, which is
available for download from the CMS
Wages and Salaries .......
47.371 Web page at http://www.cms.gov/
Professional Liability Insurance (Malpractice)
0.764 Transmittals/2010Trans/
Pharmaceuticals .............
6.514 list.asp?intNumPerPage=10 by clicking
Capital .............................
8.392 on the link to CMS Transmittal
All other ..........................
36.959 #R1P240. Form CMS 2552–10 includes
a new worksheet (Worksheet S–3, part
Comment: One commenter expressed
V) which identifies the contract labor
concern with CMS’ proposal regarding
costs and benefit costs for the hospital
length-of-stay edits associated with
complex and is applicable to
LTCHs and IRFs, which is to use only
subproviders and units. CMS anticipates
the cost reports of those facilities whose that all providers will report these data
Medicare average lengths of stays are
so we are able to include the data in
within 15 percent (that is, 15 percent
future market basket rebasings.
higher or lower) of the total facility
(2) Other Data Sources
length of stay, and asked if CMS could
In addition to the IRF, IPF and LTCH
identify the number of facilities that
Medicare cost reports for freestanding
would fall out of these categories. The
IRFs, freestanding IPFs, and LTCHs, the
commenter based this request on the
other data sources we used to develop
fact that there are only 440 LTCHs, and
the FY 2008-based RPL market basket
this exclusion could adversely impact
cost weights were the FY 2008 IPPS
the industry.
Response: As stated above, we
Medicare cost reports and the 2002
proposed to limit our selection of
Benchmark Input-Output (I–O) Tables
Medicare cost reports to those cost
created by the Bureau of Economic
reports from hospitals that have a
Analysis (BEA), U.S. Department of
Medicare average length of stay that is
Commerce. The FY 2008 Medicare cost
within a comparable range of their total
reports include providers whose cost
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As we proposed, we used a less
stringent measure of Medicare average
length of stay for IPFs. For this provider
type, and in order to produce a robust
sample size, we used those facilities’
Medicare cost reports whose average
length of stay is within 30 or 50 percent
(depending on the total facility average
length of stay) of the total facility
average length of stay. This is the same
edit we applied to derive the FY 2002based RPL market basket.
We applied these length-of-stay edits
to first obtain a set of cost reports for
facilities that have a Medicare length of
stay within a comparable range of their
total facility length of stay. Using this
set of Medicare cost reports, we then
calculated cost weights for four cost
categories and a residual as represented
by all other costs directly from the FY
2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs (found in Table VII.D–1
below). These Medicare cost report cost
weights were then supplemented with
information obtained from other data
sources (explained in more detail
below) to derive the FY 2008-based RPL
market basket cost weights.
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report begin date is on or between
October 1, 2007, and September 30,
2008.
As noted above, the FY 2008-based
RPL cost weights for benefits and
contract labor were derived using FY
2008-based IPPS Medicare cost reports.
We used these Medicare cost reports to
calculate cost weights for ‘‘Wages and
Salaries,’’ ‘‘Employee Benefits,’’ and
‘‘Contract Labor’’ for IPPS hospitals for
FY 2008. For the Employee Benefits cost
weight for the FY 2008-based RPL
market basket, the ratio of the FY 2008
IPPS benefits cost weight to the FY 2008
IPPS Wages and Salaries cost weight
was applied to the RPL Wages and
Salaries cost weight. Similarly, the ratio
of the FY 2008 IPPS Contract Labor cost
weight to the FY 2008 IPPS Wages and
Salaries cost weight was applied to the
RPL Wages and Salaries cost weight to
derive a Contract Labor cost weight for
the FY 2008-based RPL market basket.
The ‘‘All Other’’ cost category is
divided into other hospital expenditure
category shares using the 2002 BEA
Benchmark I–O data following the
removal of the portions of the ‘‘All
Other’’ cost category provided in Table
VII.D–1 that are attributable to the
benefits and contract labor cost
categories. The BEA Benchmark I–O
data are generally scheduled for
publication every 5 years. The most
recent data available are for 2002. BEA
also produces Annual I–O estimates;
however, the 2002 Benchmark I–O data
represent a much more comprehensive
and complete set of data that are derived
from the 2002 Economic Census. For the
FY 2002-based RPL market basket, we
used the 1997 Benchmark I–O data. As
we proposed, we used the 2002
Benchmark I–O data for the FY 2008based RPL market basket. Instead of
using the less detailed Annual I–O data,
we aged the 2002 Benchmark I–O data
forward to 2008. The methodology we
used to age the data forward involves
applying the annual price changes from
the respective price proxies to the
appropriate cost categories. We repeat
this practice for each year.
The ‘‘All Other’’ cost category
expenditure shares are determined as
being equal to each category’s
proportion to total ‘‘all other’’
expenditures based on the aged 2002
Benchmark I–O data. For instance, if the
cost for telephone services represented
10 percent of the sum of the ‘‘all other’’
Benchmark I–O hospital expenditures,
then telephone services would represent
10 percent of the ‘‘all other’’ cost
category of the RPL market basket.
Comment: One commenter supported
our continued use of general acute
hospital cost reports along with the
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LTCH cost reports to develop the FY
2008-based RPL market basket.
Response: As stated above, we are
finalizing our proposed methods for
rebasing and revising the RPL market
basket in this final rule, including the
incorporation of cost report data from
LTCHs and general acute care hospitals.
b. Final Cost Category Computation
As stated previously, for the FY 2012
rebasing proposal, we used the
Medicare cost reports for IRFs, IPFs, and
LTCHs to derive four major cost
categories. The FY 2008-based RPL
market basket includes two additional
cost categories that were not broken out
separately in the FY 2002-based RPL
market basket: ‘‘Administrative and
Business Support Services’’ and
‘‘Financial Services.’’ The inclusion of
these two additional cost categories,
which are derived using the Benchmark
I–O data, is consistent with the addition
of these two cost categories to the FY
2006-based IPPS market basket (74 FR
43845). We break out both categories so
we can better match their respective
expenses with more appropriate price
proxies. A thorough discussion of our
rationale for each of these cost
categories is provided below in section
VII.D.3.f. of this final rule. Also, the FY
2008-based RPL market basket excludes
one cost category: ‘‘Photographic
Supplies.’’ The 2002 Benchmark I–O
weight for this category is considerably
smaller than the 1997 Benchmark I–O
weight, presently accounting for less
than one-tenth of one percentage point
of the RPL market basket. Therefore, we
include the photographic supplies costs
in the ‘‘Chemicals’’ cost category weight
with other similar chemical products.
We did not propose to change our
definition of the labor-related share.
However, we did propose to rename our
aggregate cost categories from ‘‘Laborintensive’’ and ‘‘Nonlabor-intensive’’
services to ‘‘Labor-related’’ and
‘‘Nonlabor-related’’ services. This is
consistent with the FY 2006-based IPPS
market basket (74 FR 43845). As
discussed in more detail below and
similar to the FY 2002-based RPL
market basket, we are classifying a cost
category as labor-related and include it
in the labor-related share if the cost
category is defined as being laborintensive and its cost varies with the
local labor market. In previous
regulations, we grouped cost categories
that met both of these criteria into laborintensive services. We believe the new
labels more accurately reflect the
concepts that they are intended to
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convey. We did not propose to change
our definition of the labor-related share
because we continue to classify a cost
category as labor-related if the costs are
labor-intensive and vary with the local
labor market.
We did not receive any public
comments that addressed our proposal
to rename our aggregate cost categories
from ‘‘Labor-intensive’’ and ‘‘Nonlaborintensive’’ to ‘‘Labor-related’’ and
‘‘Nonlabor-related’’ services. Therefore,
in this final rule, we are adopting our
proposal to rename our aggregate cost
categories without modification.
c. Selection of Price Proxies
After computing the FY 2008 cost
weights for the rebased RPL market
basket, it was necessary to select
appropriate wage and price proxies to
reflect the rate of price change for each
expenditure category. With the
exception of the proxy for Professional
Liability Insurance, all of the proxies for
the operating portion of the FY 2008based RPL market basket are based on
Bureau of Labor Statistics (BLS) data
and are grouped into one of the
following BLS categories:
Producer Price Indexes—Producer
Price Indexes (PPIs) measure price
changes for goods sold in markets other
than the retail market. PPIs are
preferable price proxies for goods and
services that hospitals purchase as
inputs because these PPIs better reflect
the actual price changes encountered by
hospitals. For example, we are using a
PPI for prescription drugs, rather than
the Consumer Price Index (CPI) for
prescription drugs, because hospitals
generally purchase drugs directly from a
wholesaler. The PPIs that we use
measure price changes at the final stage
of production.
Consumer Price Indexes—Consumer
Price Indexes (CPIs) measure change in
the prices of final goods and services
bought by the typical consumer.
Because they may not represent the
price encountered by a producer, we
used CPIs only if an appropriate PPI was
not available, or if the expenditures
were more similar to those faced by
retail consumers in general rather than
by purchasers of goods at the wholesale
level. For example, the CPI for food
purchased away from home is used as
a proxy for contracted food services.
Employment Cost Indexes—
Employment Cost Indexes (ECIs)
measure the rate of change in employee
wage rates and employer costs for
employee benefits per hour worked.
These indexes are fixed-weight indexes
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51759
and strictly measure the change in wage
rates and employee benefits per hour.
Appropriately, they are not affected by
shifts in employment mix.
We evaluated the price proxies using
the criteria of reliability, timeliness,
availability, and relevance. Reliability
indicates that the index is based on
valid statistical methods and has low
sampling variability. Timeliness implies
that the proxy is published regularly,
preferably at least once a quarter.
Availability means that the proxy is
publicly available. Finally, relevance
means that the proxy is applicable and
representative of the cost category
weight to which it is applied. The PPIs,
CPIs, and ECIs selected meet these
criteria.
Table VII.D–2 below sets forth the FY
2008-based RPL market basket,
including cost categories and their
respective weights and price proxies.
For comparison purposes, the
corresponding FY 2002-based RPL
market basket cost weights also are
listed. For example, ‘‘Wages and
Salaries’’ are 49.447 percent of total
costs in the FY 2008-based RPL market
basket compared to 52.895 percent for
the FY 2002-based RPL market basket.
‘‘Employee Benefits’’ are 12.831 percent
in the FY 2008-based RPL market basket
compared to 12.982 percent for the FY
2002-based RPL market basket. As a
result, compensation costs (wages and
salaries plus employee benefits) for the
FY 2008-based RPL market basket are
62.278 percent of total costs compared
to 65.877 percent for the FY 2002-based
RPL market basket.
Following Table VII.D–2 is a summary
outlining the choice of the proxies we
proposed (and are adopting in this final
rule) to use for the operating portion of
the FY 2008-based RPL market basket.
The price proxies for the capital portion
are described in more detail in the
capital methodology section below in
section VII.D.3.d. of this final rule.
We note that the proxies for the
operating portion of the FY 2008-based
RPL market basket are the same as those
used for the FY 2006-based IPPS
operating market basket. Because these
proxies meet our criteria of reliability,
timeliness, availability, and relevance,
we believe they are the best measures of
price changes for the cost categories. For
further discussion on the FY 2006-based
IPPS market basket, we refer readers to
the discussion in the FY 2010 IPPS/RY
2010 LTCH PPS final rule (74 FR
43843).
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TABLE VII.D–2—FY 2008-BASED RPL MARKET BASKET COST CATEGORIES, WEIGHTS, AND PRICE PROXIES WITH FY
2002-BASED RPL MARKET BASKET COST WEIGHTS INCLUDED FOR COMPARISON
FY 2002Based RPL
market basket
cost weights
FY 2008Based RPL
market basket
cost weights
1. Compensation ..........................................................
A. Wages and Salaries1 ...............................................
65.877
52.895
62.278
49.447
B. Employee Benefits1 .................................................
2. Utilities ......................................................................
A. Electricity ..................................................................
B. Fuel, Oil, and Gasoline ............................................
C. Water and Sewage ..................................................
3. Professional Liability Insurance ................................
12.982
0.656
0.351
0.108
0.197
1.161
12.831
1.578
1.125
0.371
0.082
0.764
4. All Other Products and Services ..............................
A. All Other Products ....................................................
(1.) Pharmaceuticals .....................................................
22.158
13.325
5.103
26.988
15.574
6.514
(2.) Food: Direct Purchases .........................................
(3.) Food: Contract Services ........................................
(4.) Chemicals2 .............................................................
(5.) Medical Instruments ...............................................
(6.) Photographic Supplies 2 .........................................
(7.) Rubber and Plastics ...............................................
(8.) Paper and Printing Products ..................................
(9.) Apparel ...................................................................
(10.) Machinery and Equipment ...................................
(11.) Miscellaneous Products .......................................
B. All Other Services ....................................................
(1.) Labor-related Services ...........................................
(a.) Professional Fees: Labor-related 3 ........................
0.873
0.620
1.100
1.014
0.096
1.052
1.000
0.207
0.297
1.963
8.833
5.111
2.892
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 4 ...
n/a
0.422
(c.) All Other: Labor-Related Services 4 .......................
2.219
2.145
(2.) Nonlabor-Related Services ....................................
(a.) Professional Fees: Nonlabor-Related 3 ..................
3.722
n/a
6.733
4.211
(b.) Financial Services 5 ................................................
(c.) Telephone Services ...............................................
(d.) Postage ..................................................................
(e.) All Other: Nonlabor-Related Services5 ..................
5. Capital-Related Costs ..............................................
A. Depreciation .............................................................
(1.) Fixed Assets ..........................................................
n/a
0.240
0.682
2.800
10.149
6.187
4.250
0.853
0.416
0.630
0.623
8.392
5.519
3.286
(2.) Movable Equipment ...............................................
1.937
2.233
B. Interest Costs ...........................................................
(1.) Government/Nonprofit ............................................
2.775
2.081
1.954
0.653
(2.) For Profit ................................................................
0.694
1.301
C. Other Capital-Related Costs ....................................
1.187
0.919
Total .......................................................................
100.000
100.000
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Cost categories
FY 2008-Based RPL market basket price proxies
––
ECI for Wages and Salaries, Civilian Hospital Workers.
ECI for Benefits, Civilian Hospital Workers.
––
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 (26 years).
PPI for Machinery and Equipment—vintage-weighted
(11 years).
––
Average yield on domestic municipal bonds (Bond
Buyer 20 bonds)—vintage-weighted (26 years).
Average yield on Moody’s Aaa bonds—vintageweighted (26 years).
CPI–U for Residential Rent.
––
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 are using a blended PPI composed of the PPI for Industrial Gases, the PPI for Other Basic Inorganic Chemical Manufacturing, the PPI for Other Basic Organic Chemical Manufacturing, and the PPI for Soap and Cleaning Compound Manufacturing. For more detail about this proxy, we refer readers to section VII.D.3.c.(10) of the preamble of this final rule. In addition, we now include
expenses related to Photographic Supplies in the Chemicals cost category due to the small cost weight associated with these expenses. We
note that, although we are eliminating the specific cost category, these costs are still accounted for within the RPL market basket.
3 The ‘‘Professional Fees: Labor-related’’ and ‘‘Professional Fees: Nonlabor-related’’ cost categories were included in one cost category called
‘‘Professional Fees’’ in the FY 2002-based RPL market basket. For more detail about how these new categories were derived, we refer readers
to section VII.D.3.f. of the preamble of this final rule on the labor-related share.
4 The Administrative and Business Support Services cost category was contained within the ‘‘All Other: Labor-intensive Services’’ cost category
in the FY 2002-based RPL market basket. The ‘‘All Other: Labor-intensive Services’’ cost category is renamed the ‘‘All Other: Labor-related Services’’ cost category for the FY 2008-based RPL market basket.
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51761
5 The ‘‘Financial Services’’ cost category was contained within the ‘‘All Other: Non-labor Intensive Services’’ cost category in the FY 2002based RPL market basket. The ‘‘All Other: Non-labor Intensive Services’’ cost category is renamed the ‘‘All Other: Nonlabor-related Services’’
cost category for the FY 2008-based RPL market basket.
(1) Wages and Salaries
We are using the ECI for Wages and
Salaries for Hospital Workers (All
Civilian) (BLS series code
CIU1026220000000I) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
(2) Employee Benefits
We are using the ECI for Employee
Benefits for Hospital Workers (All
Civilian) to measure the price growth of
this cost category. This same proxy was
used in the FY 2002-based RPL market
basket.
(3) Electricity
We are using the PPI for Commercial
Electric Power (BLS series code
WPU0542). This same proxy was used
in the FY 2002-based RPL market
basket.
(4) Fuel, Oil, and Gasoline
For the FY 2002-based RPL market
basket, this category only included
expenses classified under North
American Industry Classification
System (NAICS) 21 (Mining). We used
the PPI for Commercial Natural Gas
(BLS series code WPU0552) as a proxy
for this cost category. For the FY 2008based market basket, we added costs to
this category that had previously been
grouped in other categories. The added
costs include petroleum-related
expenses under NAICS 324110
(previously captured in the
miscellaneous category), as well as
petrochemical manufacturing classified
under NAICS 325110 (previously
captured in the chemicals category).
These added costs represent 80 percent
of the hospital industry’s fuel, oil, and
gasoline expenses (or 80 percent of this
category). Because the majority of the
industry’s fuel, oil, and gasoline
expenses originate from petroleum
refineries (NAICS 324110), we are using
the PPI for Petroleum Refineries (BLS
series code PCU324110324110) as the
proxy for this cost category.
(5) Water and Sewage
We are using the CPI for Water and
Sewerage Maintenance (All Urban
Consumers) (BLS series code
CUUR0000SEHG01) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
(6) Professional Liability Insurance
We proxy price changes in hospital
professional liability insurance
premiums (PLI) using percentage
changes as estimated by the CMS
Hospital Professional Liability Index. To
generate these estimates, we collect
commercial insurance premiums for a
fixed level of coverage while holding
nonprice factors constant (such as a
change in the level of coverage). This
method is also used to proxy PLI price
changes in the Medicare Economic
Index (75 FR 73268). This same proxy
was used in the FY 2002-based RPL
market basket.
(7) Pharmaceuticals
We are using the PPI for
Pharmaceuticals for Human Use,
Prescription (BLS series code
WPUSI07003) to measure the price
growth of this cost category. We note
that we did not make a change to the
PPI that is used to proxy this cost
category. Although there was a recent
change to the BLS naming convention
for this series, this is the same proxy
that was used in the FY 2002-based RPL
market basket.
(8) Food: Direct Purchases
We are using the PPI for Processed
Foods and Feeds (BLS series code
WPU02) to measure the price growth of
this cost category. This same proxy was
used in the FY 2002-based RPL market
basket.
(9) Food: Contract Services
We are using the CPI for Food Away
From Home (All Urban Consumers)
(BLS series code CUUR0000SEFV) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
(10) Chemicals
We are using a blended PPI composed
of the PPI for Industrial Gas
Manufacturing (NAICS 325120) (BLS
series code PCU325120325120P), the
PPI for Other Basic Inorganic Chemical
Manufacturing (NAICS 325180) (BLS
series code PCU32518–32518–), the PPI
for Other Basic Organic Chemical
Manufacturing (NAICS 325190) (BLS
series code PCU32519–32519–), and the
PPI for Soap and Cleaning Compound
Manufacturing (NAICS 325610) (BLS
series code PCU32561–32561–). Using
the 2002 Benchmark I–O data, we found
that these NAICS industries accounted
for approximately 90 percent of the
hospital industry’s chemical expenses.
Therefore, we are using this blended
index because we believe its
composition better reflects the
composition of the purchasing patterns
of hospitals than does the PPI for
Industrial Chemicals (BLS series code
WPU061), the proxy used in the FY
2002-based RPL market basket. Table
VII.D–3 below shows the weights for
each of the four PPIs used to create the
blended PPI, which we determined
using the 2002 Benchmark I–O data.
TABLE VII.D–3—BLENDED CHEMICAL PPI WEIGHTS
Weights
(in percent)
Name
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PPI
PPI
PPI
PPI
for
for
for
for
Industrial Gas Manufacturing ......................................................................................................................
Other Basic Inorganic Chemical Manufacturing .........................................................................................
Other Basic Organic Chemical Manufacturing ............................................................................................
Soap and Cleaning Compound Manufacturing ...........................................................................................
(11) Medical Instruments
We are using the PPI for Medical,
Surgical, and Personal Aid Devices (BLS
series code WPU156) to measure the
price growth of this cost category. In the
1997 Benchmark I–O data,
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approximately half of the expenses
classified in this category were for
surgical and medical instruments.
Therefore, we used the PPI for Surgical
and Medical Instruments and
Equipment (BLS series code WPU1562)
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35
25
30
10
NAICS
325120
325180
325190
325610
to proxy this category in the FY 2002based RPL market basket. The 2002
Benchmark I–O data show that surgical
and medical instruments now represent
only 33 percent of these expenses and
that the largest expense category is
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surgical appliance and supplies
manufacturing (corresponding to BLS
series code WPU1563). Due to this
reallocation of costs over time, we are
changing the price proxy for this cost
category to the more aggregated PPI for
Medical, Surgical, and Personal Aid
Devices.
(12) Photographic Supplies
We are eliminating the cost category
specific to photographic supplies for the
FY 2008-based RPL market basket.
These costs are now included in the
Chemicals cost category because the
costs are presently reported as all other
chemical products. Notably, although
we are eliminating the specific cost
category, these costs are still accounted
for within the RPL market basket.
(13) Rubber and Plastics
We are using the PPI for Rubber and
Plastic Products (BLS series code
WPU07) to measure price growth of this
cost category. This same proxy was used
in the FY 2002-based RPL market
basket.
(14) Paper and Printing Products
We are using the PPI for Converted
Paper and Paperboard Products (BLS
series code WPU0915) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
(15) Apparel
We are using the PPI for Apparel (BLS
series code WPU0381) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
(16) Machinery and Equipment
We are using the PPI for Machinery
and Equipment (BLS series code
WPU11) to measure the price growth of
this cost category. This same proxy was
used in the FY 2002-based RPL market
basket.
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(17) Miscellaneous Products
We are using the PPI for Finished
Goods Less Food and Energy (BLS series
code WPUSOP3500) to measure the
price growth of this cost category. Using
this index avoids the double-counting of
food and energy prices, which is already
captured elsewhere in the market
basket. This same proxy was used in the
FY 2002-based RPL market basket.
(18) Professional Fees: Labor-Related
We are using the ECI for
Compensation for Professional and
Related Occupations (Private Industry)
(BLS series code CIS2020000120000I) to
measure the price growth of this
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category. It includes occupations such
as legal, accounting, and engineering
services. This same proxy was used in
the FY 2002-based RPL market basket.
(19) Administrative and Business
Support Services
We are using the ECI for
Compensation for Office and
Administrative Support Services
(Private Industry) (BLS series code
CIU2010000220000I) to measure the
price growth of this category. Previously
these costs were included in the All
Other: Labor-intensive category (now
renamed the All Other: Labor-related
Services category), and were proxied by
the ECI for Compensation for Service
Occupations. We believe that this
compensation index better reflects the
changing price of labor associated with
the provision of administrative services
and its incorporation represents a
technical improvement to the market
basket.
(20) All Other: Labor-Related Services
We are using the ECI for
Compensation for Service Occupations
(Private Industry) (BLS series code
CIU2010000300000I) to measure the
price growth of this cost category. This
same proxy was used in the FY 2002based RPL market basket.
(21) Professional Fees: Nonlabor-Related
We are using the ECI for
Compensation for Professional and
Related Occupations (Private Industry)
(BLS series code CIS2020000120000I) to
measure the price growth of this
category. This is the same price proxy
that we are using for the Professional
Fees: Labor-related cost category.
(22) Financial Services
We are using the ECI for
Compensation for Financial Activities
(Private Industry) (BLS series code
CIU201520A000000I) to measure the
price growth of this cost category.
Previously these costs were included in
the All Other: Nonlabor-intensive
category (now renamed the All Other:
Nonlabor-related Services category), and
were proxied by the CPI for All Items.
We believe that this compensation
index better reflects the changing price
of labor associated with the provision of
financial services and its incorporation
represents a technical improvement to
the market basket.
(23) Telephone Services
We are using the CPI for Telephone
Services (BLS series code
CUUR0000SEED) to measure the price
growth of this cost category. This same
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proxy was used in the FY 2002-based
RPL market basket.
(24) Postage
We are using the CPI for Postage (BLS
series code CUUR0000SEEC01) to
measure the price growth of this cost
category. This same proxy was used in
the FY 2002-based RPL market basket.
(25) All Other: Nonlabor-Related
Services
We are using the CPI for All Items
Less Food and Energy (BLS series code
CUUR0000SA0L1E) to measure the
price growth of this cost category.
Previously these costs were proxied by
the CPI for All Items in the FY 2002based RPL market basket. We believe
that using the CPI for All Items Less
Food and Energy avoids the double
counting of changes in food and energy
prices, as they are already captured
elsewhere in the market basket.
Consequently, we believe that the
incorporation of this proxy represents a
technical improvement to the market
basket.
We did not receive any public
comments that addressed our proposed
selection of price proxies to reflect the
rate of price change for each
expenditure category. Therefore, we are
adopting our proposal as final without
modification.
d. Methodology for Capital Portion of
the RPL Market Basket
In the FY 2002-based RPL market
basket, we did not have freestanding
IRF, freestanding IPF, and LTCH 2002
Medicare cost report data for the capitalrelated cost weights, due to a change in
the 2002 reporting requirements.
Therefore, we used these hospitals’ 2001
expenditure data for the capital cost
categories of Depreciation, Interest, and
Other Capital Expenses, and aged the
data to a 2002 base year using relevant
price proxies.
For the FY 2008-based RPL market
basket, as we proposed, we calculated
weights for the RPL market basket
capital costs using the same set of FY
2008 Medicare cost reports used to
develop the operating share for IRFs,
IPFs, and LTCHs. To calculate the total
capital cost weight, we first applied the
same length-of-stay edits as applied
when calculating the operating cost
weights as described above in section
VII.D.3.a. of this preamble. The resulting
Capital-Related weight for the FY 2008
base year is 8.392 percent.
Lease expenses are unique in that
they are not broken out as a separate
cost category in the RPL market basket,
but rather are proportionally distributed
amongst the cost categories of
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Depreciation, Interest, and Other
Capital-related Costs, reflecting the
assumption that the underlying cost
structure of leases is similar to that of
capital costs in general. As was done in
the FY 2002-based RPL market basket,
we first assumed 10 percent of lease
expenses represents overhead and
assigned those costs to the Other
Capital-Related Costs category
accordingly. The remaining lease
expenses were distributed across the
three cost categories based on the
respective weights of Depreciation,
Interest, and Other Capital-related Costs
not including lease expenses.
Depreciation contains two
subcategories: (1) Building and Fixed
Equipment (or Fixed Assets); and (2)
Movable Equipment. The
apportionment between building and
fixed equipment and movable
equipment was determined using the FY
2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs. This methodology was also
used to compute the apportionment
used in the FY 2002-based RPL market
basket (71 FR 27815).
The total Interest cost category is split
between government/nonprofit interest
and for-profit interest. The FY 2002based RPL market basket allocated 75
percent of the total Interest cost weight
to Government/Nonprofit interest and
proxied that category by the average
yield on domestic municipal bonds. The
remaining 25 percent of the Interest cost
weight was allocated to For-profit
interest and was proxied by the average
yield on Moody’s Aaa bonds (70 FR
47912). This was based on the FY 2002based IPPS capital input price index (70
FR 23406) due to insufficient Medicare
cost report data for freestanding IRFs,
freestanding IPFs, and LTCHs. For the
FY 2008-based RPL market basket, as we
proposed, we derived the split using the
FY 2008 Medicare cost report data on
interest expenses for government/
nonprofit and for-profit freestanding
IRFs, freestanding IPFs, and LTCHs.
Based on these data, we calculated a 33/
67 split between government/nonprofit
and for-profit interest. We believe it is
important that this split reflects the
latest relative cost structure of interest
expenses for RPL providers. As stated
above, we first applied the average
length of stay edits (as described in
section VII.D.3.a. of this preamble) prior
to calculating this split. Therefore, we
used cost reports that are reflective of
case mix and practice patterns
associated with providing services to
Medicare beneficiaries. Using data
specific to government/nonprofit and
for-profit freestanding IRFs, freestanding
IPFs, and LTCHs as well as the
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application of these length of stay edits
are the primary reasons for the
difference in this split relative to the FY
2002-based RPL market basket.
Because capital is acquired and paid
for over time, capital expenses in any
given year are determined by both past
and present purchases of physical and
financial capital. The vintage-weighted
capital portion of the FY 2008-based
RPL market basket is intended to
capture the long-term consumption of
capital, using vintage weights for
depreciation (physical capital) and
interest (financial capital). These
vintage weights reflect the proportion of
capital purchases attributable to each
year of the expected life of building and
fixed equipment, movable equipment,
and interest. We used the vintage
weights to compute vintage-weighted
price changes associated with
depreciation and interest expense.
Vintage weights are an integral part of
the FY 2008-based RPL market basket.
Capital costs are inherently complicated
and are determined by complex capital
purchasing decisions, over time, based
on such factors as interest rates and debt
financing. In addition, capital is
depreciated over time instead of being
consumed in the same period it is
purchased. The capital portion of the FY
2008-based RPL market basket would
reflect the annual price changes
associated with capital costs, and would
be a useful simplification of the actual
capital investment process. By
accounting for the vintage nature of
capital, we are able to provide an
accurate and stable annual measure of
price changes. Annual nonvintage price
changes for capital are unstable due to
the volatility of interest rate changes
and, therefore, do not reflect the actual
annual price changes for Medicare
capital-related costs. The capital
component of the FY 2008-based RPL
market basket would reflect the
underlying stability of the capital
acquisition process and provides
hospitals with the ability to plan for
changes in capital payments.
To calculate the vintage weights for
depreciation and interest expenses, we
needed a time series of capital
purchases for building and fixed
equipment and movable equipment. We
found no single source that provides an
appropriate time series of capital
purchases by hospitals for all of the
above components of capital purchases.
The early Medicare cost reports did not
have sufficient capital data to meet this
need. Data we obtained from the
American Hospital Association (AHA)
do not include annual capital
purchases. However, AHA does provide
a consistent database back to 1963. We
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51763
used data from the AHA Panel Survey
and the AHA Annual Survey to obtain
a time series of total expenses for
hospitals. We then used data from the
AHA Panel Survey supplemented with
the ratio of depreciation to total hospital
expenses obtained from the Medicare
cost reports to derive a trend of annual
depreciation expenses for 1963 through
2008.
In order to estimate capital purchases
using data on depreciation expenses, the
expected life for each cost category
(building and fixed equipment, movable
equipment, and interest) is needed to
calculate vintage weights. For the FY
2002-based RPL market basket, due to
insufficient Medicare cost report data
for freestanding IRFs, freestanding IPFs,
and LTCHs, we used 2001 Medicare cost
reports for IPPS hospitals to determine
the expected life of building and fixed
equipment and movable equipment (71
FR 27816). The FY 2002-based RPL
market basket was based on an expected
average life of building and fixed
equipment of 23 years. It used 11 years
as the average expected life for
moveable equipment. We believed that
this data source reflected the latest
relative cost structure of depreciation
expenses for hospitals at the time and
was analogous to freestanding IRFs,
freestanding IPFs, and LTCHs.
The expected life of any asset can be
determined by dividing the value of the
asset (excluding fully depreciated
assets) by its current year depreciation
amount. This calculation yields the
estimated useful life of an asset if
depreciation were to continue at current
year levels, assuming straight-line
depreciation. Following a similar
method to what was applied for the FY
2002-based RPL market basket, we used
the average expected life of building and
fixed equipment to be equal to 26 years,
and the average expected life of movable
equipment to be 11 years. These
expected lives are calculated using FY
2008 Medicare cost reports for IPPS
hospitals since we are currently unable
to obtain robust measures of the
expected lives for building and fixed
equipment and movable equipment
using the Medicare cost reports from
freestanding IRFs, freestanding IPFs,
and LTCHs.
As we proposed, we also used the
building and fixed equipment and
movable equipment weights derived
from FY 2008 Medicare cost reports for
freestanding IRFs, freestanding IPFs,
and LTCHs to separate the depreciation
expenses into annual amounts of
building and fixed equipment
depreciation and movable equipment
depreciation. Year-end asset costs for
building and fixed equipment and
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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 asset costs from the current year
asset costs. From this capital purchase
time series, we were able to calculate
the vintage weights for building and
fixed equipment and for movable
equipment. Each of these sets of vintage
weights is explained in more detail
below.
For the building and fixed equipment
vintage weights, we used the real annual
capital purchase amounts for building
and fixed equipment to capture the
actual amount of the physical
acquisition, net of the effect of price
inflation. This real annual purchase
amount for building and fixed
equipment was produced by deflating
the nominal annual purchase amount by
the building and fixed equipment price
proxy, BEA’s chained price index for
nonresidential construction for
hospitals and special care facilities.
Because building and fixed equipment
have an expected life of 26 years, the
vintage weights for building and fixed
equipment are deemed to represent the
average purchase pattern of building
and fixed equipment over 26-year
periods. With real building and fixed
equipment purchase estimates available
from 2008 back to 1963, we averaged
twenty 26-year periods to determine the
average vintage weights for building and
fixed equipment that are representative
of average building and fixed equipment
purchase patterns over time. Vintage
weights for each 26-year period are
calculated by dividing the real building
and fixed capital purchase amount in
any given year by the total amount of
purchases in the 26-year period. This
calculation is done for each year in the
26-year period, and for each of the
twenty 26-year periods. We used the
average of each year across the twenty
26-year periods to determine the average
building and fixed equipment vintage
weights for the FY 2008-based RPL
market basket.
For the movable equipment vintage
weights, the real annual capital
purchase amounts for movable
equipment were used to capture the
actual amount of the physical
acquisition, net of price inflation. This
real annual purchase amount for
movable equipment was calculated by
deflating the nominal annual purchase
amounts by the movable equipment
price proxy, the PPI for Machinery and
Equipment. This is the same proxy used
for the FY 2002-based RPL market
basket. Based on our determination that
movable equipment has an expected life
of 11 years, the vintage weights for
movable equipment represent the
average expenditure for movable
equipment over an 11-year period. With
real movable equipment purchase
estimates available from 2008 back to
1963, thirty-five 11-year periods were
averaged to determine the average
vintage weights for movable equipment
that are representative of average
movable equipment purchase patterns
over time. Vintage weights for each 11year period are calculated by dividing
the real movable capital purchase
amount for any given year by the total
amount of purchases in the 11-year
period. This calculation was done for
each year in the 11-year period and for
each of the thirty-five 11-year periods.
We used the average of each year across
the thirty-five 11-year periods to
determine the average movable
equipment vintage weights for the FY
2008-based RPL market basket.
For the interest vintage weights, the
nominal annual capital purchase
amounts for total equipment (building
and fixed, and movable) were used to
capture the value of the debt
instrument. Because we have
determined that hospital debt
instruments have an expected life of 26
years, the vintage weights for interest
are deemed to represent the average
purchase pattern of total equipment
over 26-year periods. With nominal total
equipment purchase estimates available
from 2008 back to 1963, twenty 26-year
periods were averaged to determine the
average vintage weights for interest that
are representative of average capital
purchase patterns over time. Vintage
weights for each 26-year period are
calculated by dividing the nominal total
capital purchase amount for any given
year by the total amount of purchases in
the 26-year period. This calculation is
done for each year in the 26-year period
and for each of the twenty 26-year
periods. We used the average of each
year across the twenty 26-year periods
to determine the average interest vintage
weights for the FY 2008-based RPL
market basket. The vintage weights for
the capital portion of the FY 2002-based
RPL market basket and the FY 2008based RPL market basket are presented
in Table VII.D–4 below.
TABLE VII.D–4—FY 2002 AND FY 2008 VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE PROXIES
Building and fixed equipment
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Year
FY 2002
23 years
1 ...............................................................
2 ...............................................................
3 ...............................................................
4 ...............................................................
5 ...............................................................
6 ...............................................................
7 ...............................................................
8 ...............................................................
9 ...............................................................
10 .............................................................
11 .............................................................
12 .............................................................
13 .............................................................
14 .............................................................
15 .............................................................
16 .............................................................
17 .............................................................
18 .............................................................
19 .............................................................
20 .............................................................
21 .............................................................
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0.021
0.022
0.025
0.027
0.029
0.031
0.033
0.035
0.038
0.040
0.042
0.045
0.047
0.049
0.051
0.053
0.056
0.057
0.058
0.060
0.060
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FY 2008
26 years
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
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Movable equipment
Interest
FY 2002
11 years
FY 2008
11 years
0.065
0.071
0.077
0.082
0.086
0.091
0.095
0.100
0.106
0.112
0.117
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
0.071
0.075
0.080
0.083
0.085
0.089
0.092
0.098
0.103
0.109
0.116
........................
........................
........................
........................
........................
........................
........................
........................
........................
........................
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FY 2002
23 years
0.010
0.012
0.014
0.016
0.019
0.023
0.026
0.029
0.033
0.036
0.039
0.043
0.048
0.053
0.056
0.059
0.062
0.064
0.066
0.070
0.071
FY 2008
26 years
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
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TABLE VII.D–4—FY 2002 AND FY 2008 VINTAGE WEIGHTS FOR CAPITAL-RELATED PRICE PROXIES—Continued
Building and fixed equipment
Year
22
23
24
25
26
FY 2002
23 years
.............................................................
.............................................................
.............................................................
.............................................................
.............................................................
Total ..................................................
0.061
0.061
........................
........................
........................
1.000
FY 2008
26 years
0.045
0.046
0.046
0.045
0.046
1.000
Movable equipment
Interest
FY 2002
11 years
FY 2008
11 years
FY 2002
23 years
........................
........................
........................
........................
........................
1.000
........................
........................
........................
........................
........................
1.000
0.074
0.076
........................
........................
........................
1.000
FY 2008
26 years
0.056
0.060
0.063
0.064
0.068
1.000
Note: Numbers may not add to total due to rounding.
After the Capital cost category weights
were computed, it was necessary to
select appropriate price proxies to
reflect the rate-of-increase for each
expenditure category. We use the same
price proxies for the capital portion of
the FY 2008-based RPL market basket
that were used in the FY 2002-based
RPL market basket with the exception of
the Boeckh Construction Index. We
replaced the Boeckh Construction Index
with BEA’s Chained Price Index for
Nonresidential Construction for
Hospitals and Special Care Facilities.
The BEA index represents construction
of facilities such as hospitals, nursing
homes, hospices, and rehabilitation
centers. Although these price indices
move similarly over time, we believe
that it is more technically appropriate to
use an index that is more specific to the
hospital industry. We believe these are
the most appropriate proxies for
hospital capital costs that meet our
selection criteria of relevance,
timeliness, availability, and reliability.
The price proxies (prior to any vintage
weighting) for each of the capital cost
categories are the same as those used for
the FY 2006-based Capital Input Price
Index (CIPI) as described in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74
FR 43857).
e. FY 2012 Market Basket Update for
LTCHs
For FY 2012 (that is, October 1, 2011
through September 30, 2012), as we
proposed, we are using an estimate of
the FY 2008-based RPL market basket
update based on the best available data.
Consistent with historical practice, we
estimate the RPL market basket update
for the LTCH PPS based on IHS Global
Insight, Inc.’s (IGI’s) forecast using the
most recent available data. IGI is a
nationally recognized economic and
financial forecasting firm that contracts
with CMS to forecast the components of
the market baskets.
Based on IGI’s first quarter 2011
forecast with history through the fourth
quarter of 2010, the projected market
basket update for FY 2012 was 2.8
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 2.8 percent for FY
2012. We also proposed that if more
recent data became subsequently
available (for example, a more recent
estimate of the market basket), we
would use such data, if appropriate, to
determine the FY 2012 annual update in
the final rule. For this final rule, we are
incorporating a more recent estimate of
the market basket update and MFP
adjustment. Based on IGI’s second
quarter 2011 forecast with history
through the first quarter of 2011, the
projected market basket update for FY
2012 is 2.9 percent. Therefore,
consistent with our historical practice of
estimating market basket increases
based on the best available data, we are
finalizing a market basket update of 2.9
percent for FY 2012. (As discussed in
greater detail in section V.A.2. of the
Addendum to this final rule, we are
providing for an annual update of 1.8
percent to the LTCH PPS standard
Federal rate for FY 2012 under
§ 412.523(c)(3)(viii) of the regulations.)
Using the FY 2002-based RPL market
basket and IGI’s second quarter 2011
forecast for the market basket
components, the FY 2012 market basket
update would be 3.0 percent (before
taking into account any statutory
adjustment). Table VII.D–5 below
compares the FY 2008-based RPL
market basket and the FY 2002-based
RPL market basket percent changes.
TABLE VII.D–5—FY 2002-BASED AND FY 2008-BASED RPL MARKET BASKET PERCENT CHANGES; FY 2006 THROUGH
FY 2014
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Fiscal year (FY)
Historical data:
FY 2006 ............................................................................................................................
FY 2007 ............................................................................................................................
FY 2008 ............................................................................................................................
FY 2009 ............................................................................................................................
FY 2010 ............................................................................................................................
Average 2006–2010 .........................................................................................................
Forecast:
FY 2011 ............................................................................................................................
FY 2012 ............................................................................................................................
FY 2013 ............................................................................................................................
FY 2014 ............................................................................................................................
Average 2011–2014 .........................................................................................................
FY 2002-Based RPL
market basket index
percent change
FY 2008-Based RPL
market basket index
percent change
3.9
3.4
3.8
2.5
2.3
3.2
3.7
3.4
3.7
2.7
2.2
3.1
2.7
3.0
3.0
3.0
2.9
2.7
2.9
2.9
3.0
2.9
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 2011 forecast.
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For FY 2012, the FY 2008-based RPL
market basket update (2.9 percent) is
slightly lower than the market basket
update based on the FY 2002-based RPL
market basket. The lower total
compensation weight in the FY 2008based RPL market basket (62.278
percent) relative to the FY 2002-based
RPL market basket (65.877 percent),
absent other factors, would have
resulted in a slightly lower market
basket update using the FY 2008-based
RPL market basket. However, this
impact is partially offset by the larger
weight associated with the Professional
Fees category. In both market baskets,
these expenditures are proxied by the
ECI for Compensation for Professional
and Related Services. The weight for
Professional Fees in the FY 2002-based
RPL market basket is 2.892 percent
compared to 6.325 percent in the FY
2008-based RPL market basket. The net
effect is that the market basket update
is slightly lower for FY 2012 based on
the FY 2008-based RPL market basket
relative to the FY 2002-based RPL
market basket.
f. 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
levels by applying the applicable LTCH
PPS wage index.
The labor-related share is determined
by identifying the national average
proportion of total costs that are related
to, influenced by, or vary with the local
labor market. We continue to classify a
cost category as labor-related if the costs
are labor-intensive and vary with the
local labor market. Given this, based on
our definition of the labor-related share,
we 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 (previously referred to in the
FY 2002-based RPL market basket as
labor-intensive), and a portion of the
Capital-Related cost weight.
Consistent with previous rebasings,
the All Other: Labor-related Services
cost category is mostly comprised of
building maintenance and security
services (including, but not limited to,
commercial and industrial machinery
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and equipment repair, nonresidential
maintenance and repair, and
investigation and security services).
Because these services tend to be laborintensive and are mostly performed at
the hospital facility (and, therefore,
unlikely to be purchased in the national
market), we believe that they meet our
definition of labor-related services.
As stated in the RY 2007 LTCH PPS
final rule (71 FR 27829), the laborrelated share was defined as the sum of
the relative importance of the laborrelated share of operating costs (Wages
and Salaries, Employee Benefits,
Professional Fees, and All Other: Laborintensive Services), and a portion of
Capital costs of the RPL market basket
based on FY 2002 data. Therefore, to
determine the labor-related share for the
LTCH PPS for FY 2011, we used the FY
2002-based RPL market basket cost
weights relative importance to
determine the labor-related share for the
LTCH PPS.
For the FY 2008-based RPL market
basket rebasing, the inclusion of the
Administrative and Business Support
Services cost category into the laborrelated share remains consistent with
the current labor-related share because
this cost category was previously
included in the Labor-intensive cost
category. As previously stated, we
established a separate Administrative
and Business Support Service cost
category so that we can use the ECI for
Compensation for Office and
Administrative Support Services to
more precisely proxy these specific
expenses.
For the FY 2002-based RPL market
basket, we assumed that all nonmedical
professional services (including
accounting and auditing services,
engineering services, legal services, and
management and consulting services)
were purchased in the local labor
market and, therefore, all of their
associated fees varied with the local
labor market. As a result, we previously
included 100 percent of these costs in
the labor-related share. In an effort to
more accurately determine the share of
professional fees that should be
included in the labor-related share, we
surveyed hospitals regarding the
proportion of those fees that go to
companies that are located beyond their
own local labor market (the results are
discussed below).
We continue to look for ways to refine
our market basket approach to more
accurately account for the proportion of
costs influenced by the local labor
market. To that end, we conducted a
survey of hospitals to empirically
determine the proportion of contracted
professional services purchased by the
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industry that are attributable to local
firms and the proportion that are
purchased from national firms. We
notified the public of our intent to
conduct this survey on December 9,
2005 (70 FR 73250) and received no
comments.
With approval from the Office of
Management and Budget (OMB), we
contacted a sample of IPPS hospitals
and received responses to our survey
from 108 hospitals. We believe that
these data serve as an appropriate proxy
for the purchasing patterns of
professional services for LTCHs as they
are also institutional providers of health
care services. Using data on full-time
equivalents (FTEs) to allocate
responding hospitals across strata
(region of the country and urban/rural
status), we calculated post-stratification
weights. Based on these weighted
results, we determined that hospitals
purchase, on average, the following
portions of contracted professional
services outside of their local labor
market:
• 34 percent of accounting and
auditing services.
• 30 percent of engineering services.
• 33 percent of legal services.
• 42 percent of management
consulting services.
We applied each of these percentages
to its respective Benchmark I–O cost
category underlying the professional
fees cost category to determine the
Professional Fees: Nonlabor-related
costs. The Professional Fees: Laborrelated costs were determined to be the
difference between the total costs for
each Benchmark I–O category and the
Professional Fees: Nonlabor-related
costs. This is the methodology that we
used to separate the FY 2008-based RPL
market basket professional fees category
into Professional Fees: Labor-related
and Professional Fees: Nonlabor-related
cost categories.
In addition to the professional
services listed above, we also classified
expenses under NAICS 55, Management
of Companies and Enterprises, into the
Professional Fees cost category as was
done in previous rebasings. The NAICS
55 data are mostly comprised of
corporate, subsidiary, and regional
managing offices, or otherwise referred
to as home offices. Formerly, all of the
expenses within this category were
considered to vary with, or be
influenced by, the local labor market
and were thus included in the laborrelated share. Because many hospitals
are not located in the same geographic
area as their home office, we analyzed
data from a variety of sources in order
to determine what proportion of these
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costs should be appropriately included
in the labor-related share.
Using data primarily from the
Medicare cost reports and a CMS
database of Home Office Medicare
Records (HOMER) (a database that
provides city and state information
(addresses) for home offices), we were
able to determine that 19 percent of the
total number of freestanding IRFs,
freestanding IPFs, and LTCHs that had
home offices had those home offices
located in their respective local labor
markets—defined as being in the same
Metropolitan Statistical Area (MSA).
The Medicare cost report requires
hospitals to report their home office
provider numbers. Using the HOMER
database to determine the home office
location for each home office provider
number, we compared the location of
the provider with the location of the
hospital’s home office. We then placed
providers into one of the following three
groups:
• Group 1—Provider and home office
are located in different States.
• Group 2—Provider and home office
are located in the same State and same
city.
• Group 3—Provider and home office
are located in the same State and
different city.
We found that 63 percent of the
providers with home offices were
classified into Group 1 (that is, different
State) and, thus, these providers were
determined to not be located in the
same local labor market as their home
office. Although there were a very
limited number of exceptions (that is,
providers located in different States but
the same MSA as their home office), the
63 percent estimate was unchanged.
We found that 9 percent of all
providers with home offices were
classified into Group 2 (that is, same
State and same city and, therefore, the
same MSA). Consequently, these
providers were determined to be located
in the same local labor market as their
home offices.
We found that 27 percent of all
providers with home offices were
classified into Group 3 (that is, same
State and different city). Using data
from the Census Bureau to determine
the specific MSA for both the provider
and its home office, we found that 10
percent of all providers with home
offices were identified as being in the
same State, a different city, but the same
MSA.
Pooling these results, we were able to
determine that approximately 19
percent of providers with home offices
had home offices located within their
51767
local labor market (that is, 9 percent of
providers with home offices had their
home offices in the same State and city
(and, thus, the same MSA), and 10
percent of providers with home offices
had their home offices in the same State,
a different city, but the same MSA). We
apportion the NAICS 55 expense data by
this percentage. Thus, we classified 19
percent of these costs into the
Professional Fees: Labor-related cost
category and the remaining 81 percent
into the Professional Fees: Nonlaborrelated Services cost category.
Using this method and the IGI’s
forecast for the first quarter 2011 of the
FY 2008-based RPL market basket, the
proposed LTCH labor-related share for
FY 2012 was the sum of the FY 2012
relative importance of each labor-related
cost category. Consistent with our
policy for updating the labor-related
share with the most recent available
data, the labor-related share for this
final rule reflects IGI’s second quarter
2011 forecast of the FY 2008-based RPL
market basket. Table VII.D–6 below
shows the FY 2012 relative importance
labor-related share using the FY 2008based RPL market basket and the FY
2011 relative importance labor-related
share using the FY 2002-based RPL
market basket.
TABLE VII.D–6—COMPARISON OF THE FY 2011 RELATIVE IMPORTANCE LABOR-RELATED SHARE BASED ON THE FY
2002-BASED RPL MARKET BASKET AND THE FY 2012 RELATIVE IMPORTANCE LABOR-RELATED SHARE BASED ON
THE FY 2008-BASED RPL MARKET BASKET
FY 2011 Relative
importance laborrelated share 1
FY 2012 Relative
importance laborrelated share 2
Wages and Salaries ................................................................................................................................
Employee Benefits ...................................................................................................................................
Professional Fees: Labor-Related ...........................................................................................................
Administrative and Business Support Services .......................................................................................
All Other: Labor-Related Services ...........................................................................................................
52.449
13.971
2.855
................................
2.109
48.984
12.998
2.072
0.416
2.094
Subtotal .............................................................................................................................................
Labor-Related Portion of Capital Costs (46%) ........................................................................................
71.384
3.887
66.564
3.635
Total Labor-Related Share ...............................................................................................................
75.271
70.199
1 Published
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2 Based
in the FY 2011 IPPS/LTCH PPS final rule (75 FR 50391) and based on the second quarter 2010 IGI forecast.
on the second quarter 2011 IGI forecast.
The labor-related share for FY 2012 is
the sum of the FY 2012 relative
importance of each labor-related cost
category, and would reflect the different
rates of price change for these cost
categories between the base year (FY
2008) and FY 2012. The sum of the
relative importance for FY 2012 for
operating costs (Wages and Salaries,
Employee Benefits, Professional Fees:
Labor-Related, Administrative and
Business Support Services, and All
Other: Labor-related Services) is 66.564
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percent, as shown in Table VII.D–6
above. We are providing that the portion
of Capital that is influenced by the local
labor market is estimated to be 46
percent, which is the same percentage
applied to the FY 2002-based RPL
market basket. Because the relative
importance for Capital-Related Costs is
7.903 percent of the FY 2008-based RPL
market basket in FY 2012, we
multiplied 46 percent by 7.903 percent
to determine the labor-related share of
Capital for FY 2012. The result is 3.635
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percent, which we added to 66.564
percent for the operating cost amount to
determine the total labor-related share
for FY 2012. Thus, the labor-related
share that we are using for the LTCH
PPS in FY 2012 is 70.199 percent. This
labor-related share is determined using
the same methodology as employed in
calculating all previous LTCH laborrelated shares.
Comment: Several commenters
questioned the 5-percentage point
reduction in the labor-related share
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(from approximately 75 to
approximately 70 percent) for the LTCH
PPS, after the labor-related share has
been relatively constant over the last
several years. One commenter stated
that this 5-percentage point reduction in
the labor-related share, at one time, will
have a substantial adverse impact. The
commenters requested that CMS not use
limited size data that result in the
revision of the FY 2012 labor-related
share by nearly 5 percentage points. One
commenter remarked that the reduction
reflects a dramatic change in the laborrelated share from one year to the next.
Response: The reduction in the laborrelated share from FY 2011 to FY 2012
is primarily the result of rebasing the
RPL market basket from a FY 2002 base
year to a FY 2008 base year, and reflects
use of a more recent cost structure of
freestanding IRFs, freestanding IPFs,
and LTCHs. As displayed in Table
VII.D–2, the rebasing of the RPL market
basket from a FY 2002 base year to a FY
2008 base year resulted in a decrease in
the compensation cost weight of
approximately 3.6 percentage points
from 65.877 percent to 62.278 percent.
We found during our most recent
rebasing process that the compensation
cost weight had begun to gradually
decrease over the time period from 2003
to 2008.
The decrease in the base year
compensation cost weight is accounting
for over three-quarters of the total
decrease from the FY 2011 labor-related
share and the FY 2012 labor-related
share (of approximately 5 percentage
points). The remaining decrease in the
labor-related share is primarily the
result of the treatment of professional
fees as labor-related or nonlabor-related.
The FY 2012 labor-related share
reflects the most recently available and
complete set of Medicare cost reports,
and thus reflects the updated and
appropriate proportion of costs that are
related to, influenced by, or vary with
the local labor market for IRFs, IPFs,
and LTCHs.
Comment: One commenter
specifically called into question the
methodology used for estimating the
allocation of professional fees;
specifically stating concerns that the
sample size used was too small (108
hospitals), the survey results may be old
and no longer valid, that there is no
indication that CMS conducted a
statistically valid sample for estimating
the allocation of professional fees, and
that it would have been more
appropriate for CMS to survey LTCH’s
for this information.
Response: We disagree with the
commenter’s rationale in regard to the
calculation of the labor-related share for
FY 2012. A method that distributes
professional fees based on empirical
research and data represents a technical
improvement to the construction of the
market basket, where previously 100
percent of professional fees were
assumed to vary with the local labor
market. The actual survey results are for
the year 2008, and are the most recent
data available at the time of this final
rule. In response to the concerns about
the sample size of 108 hospitals and the
validity of the survey results, we
provide more detail on the survey
conducted below. We note that these
same survey results were used in the
IPPS market basket rebasing for the FY
2010 IPPS final rule (74 FR 43853) and
the RPL market basket rebasing for the
FY 2012 IPF final rule (76 FR 26445
through 26447).
The survey’s methods unfolded in the
following manner: Through an
independent contractor, a small sample
of 12 hospitals were initially pre-tested
in order to ensure the understandability
of the survey questions. The survey
prompted sample institutions to select
from multiple choice answers the
proportions of their professional fees
that are purchased from firms located
outside of their respective local labor
market. The multiple choice answers for
each type of professional service
included the following options: 0
percent of fees; 1–20 percent of fees; 21–
40 percent of fees; 41–60 percent of fees;
61–80 percent of fees; 81–99 percent of
fees; and 100 percent of fees. All
respondents were assured that the
information they provided would be
kept strictly confidential.
Understanding that larger, urbanbased hospitals (and those located in
areas with area wage indexes greater
than 1.0) are most likely to be impacted
by the survey’s results, we used data on
full-time equivalents (FTEs) to represent
the sizes of hospitals and selected
hospitals with probability proportional
to their sizes across strata when drawing
the full sample. Strata were formed by
Census Region and Urban/Rural Status.
The distributions of the hospital
population, as well as weighted
distributions for the responders, by
Urban/Rural Status (including data on
hospital size) and Census Region were
as follows:
All hospitals
percent distribution
and average FTE
size
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Total
Total
Total
Total
Total
Total
Total
.........................................................................................................................................................
Rurals .............................................................................................................................................
Urbans ............................................................................................................................................
Northeast Region ............................................................................................................................
Mid-West Region ............................................................................................................................
South Region ..................................................................................................................................
West Region ...................................................................................................................................
Sample weights were calculated as
the inverse of the selection probability
and were subsequently adjusted for
nonresponse bias by strata and poststratified to derive final weights. This
type of application represents a
common survey approach and is based
on valid and widely-accepted statistical
techniques.
For the estimates of the nationwide
proportion of nonmedical professional
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services fees purchased outside of the
local labor market, we first examined
the data on multiple levels. First, we
found that fewer than 30 percent of the
responding hospitals paid 100 percent
of their professional fees to vendors
located within their local labor market.
Conversely, we found that roughly 20
percent of responding hospitals reported
that 81 percent or more of their
professional services fees are paid to
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100%/994
30%/388
70%/1,255
15%/1,442
23%/1,062
42%/843
20%/899
Responding
hospitals percent
distribution and
average FTE size
100%/1,156
25%/449
75%/1,460
20%/1,078
24%/1,656
37%/944
19%/1,081
vendors located outside of their local
labor market.
In determining the specific and
appropriate proportions of professional
fees to consider labor-related and
nonlabor-related, we generated
weighted averages from the data in the
following manner:
• For any multiple choice answer
where the standard error associated
with the weighted counts for that
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answer was less than 30 percent, we
multiplied the weighted counts
associated with that answer by the
midpoint of the range within that
answer. For example, for Accounting
and Auditing services, if a weighted
count of 500 hospitals responded that
they pay ‘‘1 to 20 percent’’ of their
professional fees for these services to
firms located outside of their local labor
market, we would multiply 500 times 10
percent. We repeat this for each possible
multiple choice answer.
• For any multiple choice answer
where the standard error associated
with the weighted counts for that
answer exceeded 30 percent, we
multiplied the weighted hospital counts
by the low point of the range. Using a
similar example as above, if a weighted
count of 300 hospitals responded that
they pay ‘‘1 to 20 percent’’ of their
professional fees for these services to
firms located outside of their local labor
market, and the standard error on that
estimate was greater than 30 percent, we
would multiply 300 times 1 percent.
• After applying one of these two
techniques to each answer, dependent
on its associated standard error, we took
a weighted average of the results to
determine the final proportion to be
excluded from the labor-related share
for each of the four types of professional
services surveyed.
Given the information provided
above, we believe that the estimates
based on this survey are valid.
Comment: One commenter
recommended that CMS phase in this
change in the labor-related share over a
2- to 3-year period to allow LTCHs a
longer period of time to absorb the
impact of this reduction to the laborrelated share.
Response: We do not agree with this
recommendation. In this final rule we
are finalizing our methodology for
calculating the labor-related share for
FY 2012 using the FY 2008-based RPL
market basket and the most recent
forecast data available (which is IHS
Global Insight Inc.’s second quarter
2011 forecast). This is also the same
forecast we are using to derive the FY
2012 market basket update for this final
rule. As the updated labor-related share
reflects the current proportion of costs
that are related to, vary with, or
influenced by the local labor market, we
believe it is appropriate to incorporate
the results in full into the FY 2012
payment update.
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E. Changes to the LTCH Payment Rates
and Other Changes to the FY 2012
LTCH PPS
1. Overview of Development of the
LTCH Payment Rates
The LTCH PPS was effective
beginning with a LTCH’s first cost
reporting period beginning on or after
October 1, 2002. Therefore, beginning
with their FY 2003 cost reporting
period, LTCHs were paid, during a 5year transition period, a total LTCH
prospective payment that was
comprised of an increasing proportion
of the LTCH PPS Federal rate and a
decreasing proportion based on
reasonable cost-based principles, unless
the hospital made a one-time election to
receive payment based on 100 percent
of the Federal rate, as specified in
§ 412.533. New LTCHs (as defined at
§ 412.23(e)(4)) were paid based on 100
percent of the Federal rate, with no
phase-in transition payments.
The basic methodology for
determining LTCH PPS Federal
prospective payment rates is set forth at
§ 412.515 through § 412.536. In this
section, we discuss the factors that we
use to update the LTCH PPS standard
Federal rate for FY 2012, that is,
effective for LTCH discharges occurring
on or after October 1, 2011 through
September 30, 2012.
For further details on the
development of the FY 2003 standard
Federal rate, we refer readers to the
August 30, 2002 LTCH PPS final rule
(67 FR 56027 through 56037). For
subsequent updates to the LTCH PPS
Federal rate, we refer readers to the
following final rules: RY 2004 LTCH
PPS final rule (68 FR 34134 through
34140); RY 2005 LTCH PPS final rule
(68 FR 25682 through 25684); RY 2006
LTCH PPS final rule (70 FR 24179
through 24180); RY 2007 LTCH PPS
final rule (71 FR 27819 through 27827);
RY 2008 LTCH PPS final rule (72 FR
26870 through 27029); RY 2009 LTCH
PPS final rule (73 FR 26800 through
26804); RY 2010 LTCH PPS final rule
(74 FR 44021 through 44030); and FY
2011 IPPS/LTCH PPS final rule (75 FR
50443 through 50444).
The update to the LTCH PPS standard
Federal rate for FY 2012 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
2012 are discussed below. In addition,
as discussed below in section VII.E.3. of
this preamble, beginning in FY 2012, in
addition to the update factor, we make
an adjustment to the standard Federal
rate to account for the estimated effect
of any changes to the area wage level
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adjustment on estimated aggregate
LTCH PPS payments.
2. FY 2012 LTCH PPS Annual Market
Basket Update
a. Overview
Historically, the Medicare program
has used a market basket to account for
price increases in the services furnished
by providers. The market basket used
for the LTCH PPS includes both
operating and capital-related costs of
LTCHs because the LTCH PPS uses a
single payment rate for both operating
and capital-related costs. With the
initial implementation of the LTCH PPS
for FY 2003, we established the use of
the excluded hospital with capital
market basket as the LTCH PPS market
basket (67 FR 56016 through 56017).
(For further details on the development
of the excluded hospital with capital
market basket, we refer readers to the
RY 2004 LTCH PPS final rule (68 FR
34134 through 34137).) The
development of the initial LTCH PPS
standard Federal rate for FY 2003, using
the excluded hospital with capital
market basket, is discussed in further
detail in the August 30, 2002 LTCH PPS
final rule (67 FR 56027 through 56033).
Beginning in RY 2007, we adopted the
rehabilitation, psychiatric, long-term
care (RPL) hospital market basket based
on FY 2002 data as the appropriate
market basket of goods and services
under the LTCH PPS for discharges
occurring on or after July 1, 2006. As
discussed in the RY 2007 LTCH PPS
final rule (71 FR 27810), based on our
research, we did not develop a market
basket specific to LTCH services. We
were unable to create a separate market
basket specifically for LTCHs at that
time due to the small number of
facilities and the limited amount of data
that was reported. (For further details on
the development of the FY 2002-based
RPL market basket, we refer readers to
the RY 2007 LTCH PPS final rule (71 FR
27810 through 27817).)
As discussed in greater detail in
section VII.D. of this preamble, we are
revising and rebasing the market basket
used under the LTCH PPS for FY 2012.
Specifically, we are adopting a newly
created FY 2008-based RPL market
basket (described in section VII.D. of
this preamble). Also, in section VII.D. of
this preamble, we discuss our continued
interest in exploring the possibility of
creating a stand-alone LTCH market
basket that reflects the cost structures of
only LTCH providers.
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b. Revision of Certain Market Basket
Updates as Required by the Affordable
Care Act
Several provisions of the Affordable
Care Act affect the policies and payment
rates under the LTCH PPS. Section
1886(m)(3)(A) of the Act, as added by
section 3401(c) of the Affordable Care
Act, specifies that, for rate year 2010
and each subsequent rate year through
2019, any annual update to the standard
Federal rate shall be reduced:
• For rate year 2010 through 2019, by
the other adjustment specified in
sections 1886(m)(3)(A)(ii) and (m)(4) of
the Act; and
• For rate year 2012 and each
subsequent year, by the productivity
adjustment (which we refer to as ‘‘the
multifactor productivity (MFP)
adjustment’’ as discussed in section
VII.E.2.d. of this preamble) described in
section 1886(b)(3)(B)(xi)(II) of the Act.
Section 1886(m)(3)(B) of the Act
provides that the application of
paragraph (3) of section 1886(m) of the
Act may result in the annual update
being less than zero for a rate year, and
may result in payment rates for a rate
year being less than such payment rates
for the preceding rate year. We note that
because the annual update to the LTCH
PPS policies, rates, and factors now
occurs on October 1, we have adopted
the term ‘‘fiscal year’’ (FY) rather than
‘‘rate year’’ (RY) under the LTCH PPS
beginning October 1, 2010, to conform
with the standard definition of the
Federal fiscal year (October 1 through
September 30) used by other PPSs, such
as the IPPS (75 FR 50396 through
50397). Although the language of
sections 3401(c), 10319, and 1105(b) of
the Affordable Care Act refers to years
2010 and thereafter under the LTCH
PPS as ‘‘rate year,’’ consistent with our
change in the terminology used under
the LTCH PPS from ‘‘rate year’’ to
‘‘fiscal year,’’ for purposes of clarity,
when discussing the annual update for
the LTCH PPS, including the provisions
of the Affordable Care Act, we employ
‘‘fiscal year’’ rather than ‘‘rate year’’ for
2011 and subsequent years.
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c. Market Basket Under the LTCH PPS
for FY 2012
As noted above and as discussed in
the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50389), when we initially created
the FY 2002-based RPL market basket,
we were unable to create a separate
market basket specifically for LTCHs
due, in part, to the small number of
facilities and the limited data that were
provided in the Medicare cost reports.
Over the last several years, however, the
number of LTCHs submitting valid
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Medicare cost report data has increased.
Based on this development, as well as
our desire to move from one RPL market
basket to three stand-alone and
provider-specific market baskets (for
IRFs, IPFs, and LTCHs, respectively), we
have begun to explore the viability of
creating these market baskets for future
use. However, as we discussed in the
RY 2010 LTCH PPS final rule (74 FR
43967 through 43968), we are
conducting further research to assist us
in understanding the reasons for the
variations in costs and cost structure
between freestanding IRFs and hospitalbased IRFs. We also are researching the
reasons for similar variations in costs
and cost structure between freestanding
IPFs and hospital-based IPFs. Therefore,
we do not believe it is appropriate at
this time to propose stand-alone market
baskets for IRFs, IPFs, and LTCHs, and
we believe that it is appropriate to
continue to use the RPL market basket
for LTCHs, IRFs, and IPFs under their
respective PPSs.
We continue to believe that the RPL
market basket appropriately reflects the
cost structure of LTCHs, for the reasons
discussed when we adopted the RPL
market basket for use under the LTCH
PPS in the RY 2007 LTCH PPS final rule
(71 FR 27810 through 27817). For the
reasons explained above, as we
proposed, we are continuing to use the
RPL market basket under the LTCH PPS
for FY 2012. However, as discussed in
greater detail in section VII.D. of this
preamble, we are finalizing our proposal
to rebase and revise the FY 2002-based
RPL market basket by creating a FY
2008-based RPL market basket. As we
discussed in the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 26006),
currently, we are exploring the viability
of creating two separate market baskets
from the current RPL market basket:
One market basket would include
freestanding IRFs and freestanding IPFs
and would be used to update payments
under both the IPF and IRF payment
systems. The other market basket would
be a stand-alone LTCH market basket.
Depending on the outcome of our
research, we may propose a stand-alone
LTCH market basket in the next LTCH
PPS update cycle.
In that same proposed rule, we
invited public comment on the
possibility of using this type of market
basket to update LTCH payments in the
future. Under the authority of section
123 of the BBRA as amended by section
307(b) of the BIPA, we proposed to use
the FY 2008-based RPL market basket
(described in section VII.D. of this
preamble) under the LTCH PPS for FY
2012, which we continue to believe
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appropriately reflects the cost structure
of LTCHs.
Comment: One commenter supported
CMS’ work to rebase and revise the
market basket used for LTCHs, and
asked if it would be possible to identify
separate LTCH market baskets for
hospitals-within-hospitals and
freestanding facilities, further stating
that CMS mentions there are cost
differences between free standing IPFs
and hospital-based IPF facilities, and
also for IRF facilities, but CMS does not
make the same statement for LTCHs.
The commenter asked if this is an
ongoing item of study, or if it is CMS’
belief that there are no cost differences
between freestanding LTCHs and
hospital-within-hospital LTCHs. The
commenter encouraged CMS to consider
having a differentiation for freestanding
LTCHs and hospital-within-hospital
LTCHs.
Response: The FY 2008-based RPL
market basket reflects all LTCH
facilities, including both freestanding
LTCHs and hospitals-within-hospitals.
We are continuing to analyze all aspects
of a possible stand-alone LTCH market
basket, including the contributions of
hospital-within-hospital LTCHs on such
a market basket. Any future changes to
the market basket used to update
LTCHs, including the possible
introduction of a LTCH-specific market
basket, would be proposed and subject
to notice and comment rulemaking.
Comment: Several commenters
supported CMS’ work to rebase and
revise the FY 2002-based RPL market
basket to a FY 2008-based RPL market
basket. These commenters also stated
their support for CMS’ inclusion of
LTCH cost reports to develop the FY
2008-based RPL market basket.
Response: We appreciate the support
for this policy. As we proposed, in this
final rule, we are finalizing our
proposed methods for rebasing and
revising the RPL market basket to a FY
2008-based RPL market basket.
d. Productivity Adjustment
Section 1886(m)(3)(A)(i) of the Act
specifies that, for FY 2012 and
subsequent years, any annual update to
the standard Federal rate shall be
reduced by the productivity adjustment
described in section 1886(b)(3)(B)(xi)(II)
of the Act. Section 1886(b)(3)(B)(xi)(II)
of the Act, as added by section 3401(a)
of the Affordable Care Act, defines the
productivity adjustment as equal to the
10-year moving average of changes in
annual economy-wide, private nonfarm
business multifactor productivity (MFP)
(as projected by the Secretary for the 10year period ending with the applicable
fiscal year, calendar year, cost reporting
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period, or other annual period) (the
‘‘MFP adjustment’’). The Bureau of
Labor Statistics (BLS) is the agency that
publishes the official measure of private
non-farm business MFP. We refer
readers to the BLS Web site at http://
www.bls.gov/mfp to obtain the BLS
historical published MFP data.
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 described in section IV.K.3. of this
preamble, we derived the FY 2012 MFP
adjustment applied to the operating
IPPS applicable percentage increase
using a projection of MFP that is
currently produced by IHS Global
Insight, Inc. (IGI). For a detailed
description of the model currently used
by IGI to project MFP, as well as a
description of how the MFP adjustment
was calculated for FY 2012, we refer
readers to section IV.K.3 of this
preamble. We proposed that if more
recent data became subsequently
available (for example, a more recent
estimate of the market basket and MFP
adjustment), we would use such data, if
appropriate, to determine the FY 2012
market basket update and MFP
adjustment in the final rule. The current
estimate of the MFP adjustment for FY
2012 based on IGI’s second quarter 2011
forecast is 1.0 percent. Consistent with
the statute, we reduce the FY 2012
market basket update of the LTCH PPS
standard Federal rate using this same
FY 2012 MFP adjustment.
To determine the market basket
update for LTCHs for FY 2012, as
reduced by the MFP adjustment,
consistent with the approach under the
IPPS for FY 2012 (discussed in section
IV.K.3. of this preamble), we subtracted
the FY 2012 MFP percentage adjustment
from the FY 2012 market basket update.
Following application of the
productivity adjustment, the adjusted
market basket update (that is, the full
market basket increase less the MFP
adjustment) is then reduced by the
‘‘other adjustment’’ as required by
sections 1886(m)(3)(A)(ii) and
1886(m)(4) of the Act. The market
basket update for FY 2012, which
reflects both the MFP adjustment and
the ‘‘other adjustment’’ as required by
sections 1886(m)(3)(A)(ii) and
1886(m)(4) of the Act, is described in
section VII.E.2.e. of this preamble.
e. Annual Market Basket Update for
LTCHs for FY 2012
Consistent with our historical
practice, we estimate the market basket
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update based on IGI’s forecast using the
most recent available data.For the
proposed rule, based on IGI’s first
quarter 2011 forecast, the FY 2012
market basket estimate for the LTCH
PPS using the FY 2008-based RPL
market basket was 2.8 percent. For this
final rule, based on IGI’s second quarter
2011 forecast, the FY 2012 estimate of
the FY 2008-based RPL market basket
update is 2.9 percent.
Section 1886(m)(3)(A)(i) of the Act
specifies that, for FY 2012 (and
subsequent years), any annual update to
the standard Federal rate shall be
reduced by the productivity adjustment
(referred to as ‘‘the MFP adjustment’’)
described in section 1886(b)(3)(B)(xi)(II)
of the Act. Furthermore, section
1886(m)(3)(A)(ii) of the Act specifies
that, for each of RYs 2010 through 2019,
any annual update to the standard
Federal rate shall be reduced by the
other adjustment specified in section
1886(m)(4) of the Act. Specifically,
section 1886(m)(4)(C) of the Act requires
a 0.1 percentage point reduction to the
annual update to the LTCH PPS
standard Federal rate for FY 2012.
In accordance with section
1886(m)(3)(A)(i) of the Act, in the FY
2012 IPPS/LTCH PPS proposed rule (76
FR 26006), we proposed to reduce the
FY 2012 full market basket estimate of
2.8 percent (based on the first quarter
2011 forecast of the FY 2008-based RPL
market basket) by the proposed FY 2012
MFP adjustment (that is, the 10-year
moving average of MFP for the period
ending FY 2012, as described in section
VII.E.2.d of the preamble of the
proposed rule) of 1.2 percent (based on
IGI’s first quarter 2011 forecast).
Following application of the proposed
productivity adjustment, the proposed
adjusted market basket update of 1.6
percent (2.8 percent minus 1.2
percentage points) 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. Accordingly,
in the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 26007), we
proposed an annual market basket
update under the LTCH PPS for FY 2012
of 1.5 percent (that is, the most recent
estimate of the proposed LTCH PPS
market basket update of 2.8 percent less
the proposed MFP adjustment of 1.2
percentage points less the 0.1
percentage point required under section
1886(m)(4)(C) of the Act. In that same
proposed rule, we proposed to revise
§ 412.523(c)(3) of the regulations by
adding a new paragraph (viii), which
would specify that the standard Federal
rate for FY 2012 is the standard Federal
rate for the previous long-term care
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51771
hospital prospective payment system
fiscal year updated by 1.5 percent.
Again, consistent with our historical
practice of using the most recent
available data, we proposed that if more
recent data became available when we
developed the final rule, we would use
such data, if appropriate, in determining
the final market basket update under the
LTCH PPS for FY 2012. Therefore, in
this final rule, consistent with our
proposal, we are establishing an annual
market basket update under the LTCH
PPS for FY 2012 of 1.8 percent (that is,
the most recent estimate of the LTCH
PPS market basket update of 2.9 percent
less the MFP adjustment of 1.0
percentage point less the 0.1 percentage
point required under section
1886(m)(4)(C) of the Act). This is based
on IGI’s second quarter 2011 forecast.
Consistent with our proposal, we are
revising § 412.523(c)(3) by adding a new
paragraph (viii), which specifies that the
standard Federal rate for FY 2012 is the
standard Federal rate for the previous
long-term care hospital prospective
payment system fiscal year updated by
1.8 percent.
3. Budget Neutrality Adjustment for the
Changes to the Area Wage Level
Adjustment
As described in section V.B. of the
Addendum to this final rule, when the
LTCH PPS was implemented, under the
authority of section 123 of the BBRA as
amended by section 307(b) of the BIPA,
we established an adjustment to the
LTCH PPS standard Federal rate to
account for differences in LTCH area
wage levels at § 412.525(c). The laborrelated share of the LTCH PPS standard
Federal rate is adjusted to account for
geographic differences in area wage
levels by applying the applicable LTCH
PPS wage index. The applicable LTCH
PPS wage index is computed using wage
data from inpatient acute care hospitals
without regard to reclassification under
section 1886(d)(8) or section 1886(d)(10)
of the Act. Historically, in general, the
LTCH PPS wage index and labor-related
share are updated annually based on the
latest available data. However, there are
currently no statutory or regulatory
requirements that state that any updates
or adjustments to the LTCH PPS area
wage level adjustment (that is, the wage
index or the labor-related share) be
budget neutral, such that estimated
aggregate LTCH PPS payments would be
neither greater than nor less than
estimated aggregate LTCH PPS
payments without such changes to the
area wage level adjustment.
As we discussed in the August 30,
2002 LTCH PPS final rule (67 FR
56015), when we implemented the
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LTCH PPS, we established a 5-year
transition to the full area wage level
adjustment. The area wage level
adjustment was completely phased-in
for cost reporting periods beginning in
FY 2007. Therefore, for cost reporting
periods beginning on or after October 1,
2006, the applicable full LTCH PPS
wage index values are used to make
payments under the LTCH PPS. As
discussed in section VII.D. of this
preamble, we are finalizing our proposal
to revise and rebase the market basket
used under the LTCH PPS for FY 2012.
We also are finalizing our proposal to
update the labor-related share for FY
2012 based on this market basket.
Concurrent with those proposals, in the
FY 2012 IPPS/LTCH PPS proposed rule
(76 FR 26007), we took the opportunity
to revisit our approach for the annual
update of the area wage level
adjustment. We discussed that, in order
to mitigate estimated yearly fluctuations
in estimated aggregate LTCH PPS
payments, as have been suggested in the
past, we have given further
consideration to the issue of
establishing a budget neutrality
requirement for any changes to the area
wage level adjustment. Therefore, under
the broad authority conferred upon the
Secretary under section 123 of the
BBRA, as amended by section 307(b) of
the BIPA, to develop the LTCH PPS, we
proposed under § 412.525(c) that,
beginning with the adjustment for area
wage levels for FY 2012, any changes to
the wage index values or labor-related
share would be made in a budget
neutral manner such that estimated
aggregate LTCH PPS payments would be
unaffected, that is, would be neither
greater than nor less than the estimated
aggregate LTCH PPS payments that
would have been made without such
changes to the area wage level
adjustment.
Under this proposal, we proposed to
determine an area wage level
adjustment budget neutrality factor that
would be applied to the standard
Federal rate to ensure that any changes
to the area wage level adjustment would
be budget neutral such that any changes
to the wage index values or labor-related
share would not result in any change
(increase or decrease) in estimated
aggregate LTCH PPS payments. We also
proposed the steps (described below) we
would follow to determine an area wage
level adjustment budget neutrality factor
that would be applied to the standard
Federal rate that would ensure that the
any update to the wage index values
and to the labor-related share would be
adopted in a budget neutral manner.
Under this proposal, we proposed to
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revise the existing regulations at
§ 412.523(d) to add a new paragraph (4)
to specify that, beginning in FY 2012,
we adjust the standard Federal rate by
a factor that accounts for the estimated
effect of any adjustments or updates to
the area wage level adjustment under
§ 412.525(c)(1) on estimated aggregate
LTCH PPS payments. We also proposed
to revise existing § 412.525(c) to reflect
our current policy of updating the laborrelated share annually. (76 FR 26007)
Comment: A few commenters
opposed the proposed budget neutrality
requirement for changes to the LTCH
PPS area wage adjustment for FY 2012.
The commenters believed that CMS had
not provided adequate justification for
why such an adjustment is needed now
when CMS has not contemplated one in
past years, and requested that CMS
provide data to justify this change in
policy.
Response: We do not agree with the
commenters that we did not provide
adequate justification for why we are
revisiting our approach for the annual
update of the area wage level
adjustment at this time. As we stated in
the FY 2102 IPPS/LTCH PPS proposed
rule (76 FR 26007), we believe
establishing a budget neutrality
requirement for any changes to the area
wage level adjustment would mitigate
estimated yearly fluctuations in
estimated aggregate LTCH PPS
payments. Each labor market area’s
wage index value is calculated as the
ratio of that labor market area’s average
hourly wage to the national average
hourly wage. The annual update to the
wage index is only intended to reflect
changes in hospital labor costs in each
geographic labor market area relative to
the change in the national average
hospital labor costs for all areas.
Because the area wage adjustment is a
measure of relative hospital labor costs,
it is not intended to result in changes
(increases or decreases) in aggregate
payments. LTCH payments rates are
updated annually to account for changes
in hospital labor costs by the price
growth reflected in the labor-related
categories of the applicable LTCH PPS
market basket update. For example, if
nationally each hospital’s labor costs
increased by 5 percent, although labor
costs have increased, the area wage
index (which is the ratio of the area’s
average hourly wage to the national
average hourly wage) would not change
because the relative measure of the
area’s labor costs as compared to the
national average labor costs has not
changed. In fact, aggregate payments
will increase based on changes to the
labor portion of the market basket.
Moreover, a budget neutrality
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requirement for any changes to the area
wage level adjustment is consistent with
our policy under other hospital PPSs,
such as the IPPS, IRF PPS, and IPF PPS.
We note that none of the commenters
provided policy or technical
justifications for not budget neutralizing
for changes to the LTCH PPS area wage
adjustment.
Therefore, for the reasons stated
above, in this final rule, we are adopting
our proposal to establish a budget
neutrality requirement for any changes
to the area wage adjustment without
modification, beginning in FY 2012.
We did not receive any public
comments on our proposed
methodology (steps) for determining an
area wage level adjustment budget
neutrality factor that would be applied
to the standard Federal rate. We also did
not receive any public comments on our
proposed changes to the regulations at
§ 412.523(d) and § 412.525(c) under our
area wage level adjustment budget
neutrality proposal. Therefore, as
discussed below, we are adopting these
proposals in this final rule.
In this final rule, under the broad
authority conferred upon the Secretary
under section 123 of the BBRA, as
amended by section 307(b) of the BIPA,
to develop the LTCH PPS, as we
proposed, under § 412.525(c)(2), we are
establishing a budget neutrality
requirement for any changes to the
adjustment for area wage levels,
beginning in FY 2012. Under this
policy, 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 the
estimated aggregate LTCH PPS
payments that would have been made
without such changes to the area wage
level adjustment. We also are
determining under this budget
neutrality requirement, as we proposed,
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. As we proposed, we are
revising the existing regulations at
§ 412.523(d) to add a new paragraph (4),
which specifies that, beginning in FY
2012, we adjust the standard Federal
rate by a factor that accounts for the
estimated effect of any adjustments or
updates to the area wage level
adjustment under § 412.525(c)(1) on
estimated aggregate LTCH PPS
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payments. In addition, as we proposed,
we are revising existing § 412.525(c) to
reflect our current policy of updating
the labor-related share annually.
For this final rule, consistent with our
proposal, we used the following
methodology to determine an area wage
level adjustment budget neutrality factor
that is applied to the standard Federal
rate under at § 412.523(d)(4) for FY 2012
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:
• Step 1—We simulate estimated
aggregate LTCH PPS payments using the
FY 2011 wage index values as
established in Tables 12A and 12B of
the Addendum to the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50627
through 50646) and the FY 2011 laborrelated share of 75.271 percent as
established in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50391 and 50445).
• Step 2—We simulate estimated
aggregate LTCH PPS payments using the
FY 2012 wage index values as shown in
Tables 12A and 12B of the Addendum
to this final rule and the FY 2012 laborrelated share of 70.199 percent (based
on the latest available data as discussed
in section VII.D.3.f. of this preamble).
• Step 3—We calculate the ratio of
these estimated total LTCH PPS
payments by dividing the estimated
total LTCH PPS payments using the FY
2011 area wage level adjustments
(calculated in Step 1) by the estimated
total LTCH PPS payments using the
proposed FY 2012 area wage level
adjustments (calculated in Step 2) to
determine the area wage level
adjustment budget neutrality factor.
• Step 4—We then apply the FY 2012
area wage level adjustment budget
neutrality factor from Step 3 to
determine the FY 2012 LTCH PPS
standard Federal rate after the
application of the FY 2012 annual
update (discussed in section V.A.2. of
the Addendum to this final rule). As
explained above, this factor is applied to
the FY 2012 standard Federal rate to
ensure that the FY 2012 update to the
wage index values and to the laborrelated share (discussed in section V.B.
of the Addendum to this final rule) are
adopted in a budget neutral manner.
For this final rule, using the steps in
the methodology described above, we
determined a FY 2012 area wage level
adjustment budget neutrality factor of
0.99775. Accordingly, in section V.A.2.
of the Addendum to this final rule, to
determine the FY 2012 LTCH PPS
standard Federal rate, we applied an
area wage level adjustment budget
neutrality factor of 0.99775, in
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accordance with § 412.523(d)(4).
Accordingly, the FY 2012 LTCH PPS
standard Federal rate shown in Table 1E
of the Addendum to this final rule
reflects this adjustment.
4. Greater Than 25-Day Average Length
of Stay Requirement for LTCHs
Section 1886(d)(1)(B) of the Act lists
hospitals that are excluded from the
IPPS. Section 1886(d)(1)(B)(iv) of the
Act specifies the exclusion from the
IPPS for ‘‘a hospital which has an
average inpatient length of stay (as
determined by the Secretary) of greater
than 25 days.’’ The average length of
stay requirement was established as the
sole prerequisite for a hospital seeking
to be excluded from the IPPS under this
provider category. Section 114(a) of the
MMSEA of 2007 amended section 1861
of the Act by adding a new subsection
(ccc), which further defined LTCHs.
Thus, a hospital’s classification as an
LTCH has depended, in large part, upon
whether an acute care hospital met the
greater than 25 days average length of
stay requirement. Once the hospital was
classified as such under this criterion,
the ability for the hospital to continue
its exclusion from the IPPS and be paid
as an LTCH depended, in part, upon its
continuing to meet that criterion.
The regulations at 42 CFR 412.23(e)(1)
and (e)(2) set forth the requirements a
hospital must meet in order to be
excluded from the IPPS and be paid as
an LTCH. Specifically, § 412.23(e)(1)
requires that a hospital must have a
provider agreement under 42 CFR Part
489 to participate as a Medicare
hospital, and § 412.23(e)(2) provides
that a hospital must meet the LTCH
average length of stay of greater than 25
days policy. The methodology for
calculating the average length of stay is
specified at § 412.23(e)(3). A detailed
explanation of the procedural features of
the average length of stay policy was
included in the FY 2003 LTCH PPS final
rule, which implemented the LTCH PPS
(67 FR 55970 through 55974)).
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 26008), we
proposed to clarify two existing CMS
policies related to the greater than 25
days average length of stay requirement
policy: (1) The determination of the
average length of stay for a hospital
seeking exclusion under the IPPS to be
paid as an LTCH or an existing LTCH
undergoes a change of ownership; and
(2) the inclusion of Medicare Advantage
days in calculating the average length of
stay.
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a. Determination of the Average Length
of Stay When There Is a Change of
Ownership
Under § 412.23(e)(3)(iv) of the
regulations, we implemented a policy
regarding the application of the average
length of stay methodology, where a
hospital (that is either seeking LTCH
status, or is an existing LTCH) has
undergone a change of ownership.
Specifically, in the event of a change of
ownership, the regulation provides:
‘‘If a hospital has undergone a change
of ownership (as described in § 489.18
of this chapter) at the start of a cost
reporting period or at any time within
the period of at least 5 months of the
preceding 6-month period, the hospital
may be excluded from the prospective
payment system as a long-term care
hospital for a cost reporting period if,
for the period of at least 5 months of the
6 months immediately preceding the
start of the period (including time before
the change of ownership), the hospital
has the required average length of stay,
continuously operated as a hospital, and
continuously participated as a hospital
in Medicare.’’
Section 412.23(e)(3)(iv) institutes a
procedure by which the average length
of stay of a hospital seeking LTCH status
or an existing LTCH is evaluated by its
fiscal intermediary or MAC to determine
whether or not the facility that is being
sold meets the requirements for LTCH
status. Because the sale of the facility,
in effect, ends the seller’s cost reporting
period (§ 413.24(f)(1)), and triggers the
beginning of the purchaser’s first cost
reporting period, the period of time that
is evaluated is the ‘‘at least 5 months of
the 6 months immediately preceding the
period (including time before the
change of ownership’’ to determine the
average length of stay that will result in
the hospital that meets the requirements
for LTCH status. If the average length of
stay data indicates that, for this period
of time, the hospital met the required
average length of stay of greater than 25
days, then the new owner’s hospital will
achieve IPPS exclusion and LTCH
status. On the other hand, if the data
indicate that the hospital does not meet
the required average length of stay, the
hospital will instead be paid under the
IPPS under its new ownership. We
understand that there has been some
confusion in the provider community
regarding the specific applicability of
this regulation to a change of ownership
of an existing LTCH. Accordingly, in the
proposed rule, we proposed to clarify
this policy in regulation text by revising
§ 412.23(e)(3)(iv) to specifically address
the circumstance of a hospital that has
not as yet been classified as an LTCH
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and wishes to be classified as an LTCH
based on data from the hospital’s
discharges occurring both before and
after the change of ownership.
Moreover, in an effort to provide greater
clarity, we also proposed to establish a
separate provision in the regulations
(proposed paragraph (e)(3)(v) under
§ 412.23) to directly address LTCH
status where there is a change of
ownership of an existing LTCH. The
sale of an existing LTCH, which triggers
the beginning of a new cost reporting
period under the new owner
(413.24(f)(1)), is a situation where we
believe it is appropriate to review
whether the hospital that is being sold
has been functioning as an LTCH, that
is, has been treating patients for on
average length of stay of greater than 25
days, before allowing the new owner to
continue to be paid for services
provided at the hospital under the
LTCH PPS. Therefore, we proposed that
where there has been a change of
ownership of an existing LTCH, the
hospital will continue to be excluded
from the inpatient prospective payment
system as a long-term care hospital for
the cost reporting period beginning with
the change of ownership only if for the
period of at least 5 months of the 6
months immediately preceding the
change of ownership, the hospital meets
the required average length of stay. We
note that, conversely, under this
proposed policy, if the hospital fails to
meet the required average length of stay
criterion, after this evaluation, and if it
is an acute-care hospital, it will be paid
instead under the IPPS effective with
the day of the change of ownership, that
is, the start of the new owner’s cost
reporting period.
Accordingly, we proposed to clarify
our existing policy as described above
by (1) revising existing
§ 412.23(e)(3)(iv), to specifically address
LTCH status in instances where a
hospital is seeking IPPS exclusion and
payment under the LTCH PPS but a
change of ownership has occurred, and
(2) proposed to establish a new
§ 412.23(e)(3)(v) to specifically address
the issue of LTCH status for existing
LTCHs undergoing a change of
ownership.
Comment: One commenter did not
understand the clarification that CMS
proposed, noting that the only
distinction between § 412.23(e)(3)(iv)
and § 412.23(e)(3)(v) appeared to be a
‘‘new [30 day] notice requirement * * *
applicable only to existing LTCHs, but
not to newly qualifying LTCHs.’’ This
commenter also requested that CMS
resolve an ‘‘inconsistency’’ between the
preamble language and the regulation
text language regarding the definition of
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the 5 months of the 6 months that is to
be evaluated. The commenter indicated
that the preamble states that the period
in question is ‘‘* * * at least 5 months
of the 6 months immediately preceding
the change of ownership * * * ’’ but the
regulation text at § 412.23(e)(3)(v) states
‘‘* * * at least 5 months of the 6
months immediately preceding the start
of the hospital’s next cost reporting
period before the change of ownership
* * *.’’ Another commenter expressed
concern about CMS recognizing the
distinction between the sale of an LTCH
that would trigger the average length of
stay review specified in proposed
§ 412.23(e)(3)(v) and the transfer of an
LTCH to a related party that could take
place during a corporate reorganization
of an integrated hospital system.
Response: In response to the
commenter’s lack of clarity about the
similarities between existing
§ 412.23(e)(iv) and proposed
§§ 412.23(e)(3)(iv) and (e)(3)(v), we
emphasize that we have proposed to
clarify existing policy, not to change it.
The two ‘‘new’’ regulations that we
proposed are limited to LTCH changes
of ownership under either of two
specific situations: A hospital that is
sold prior to achieving LTCH status
(§ 412.23(e)(3)(iv)); and the sale of an
existing LTCH (§ 412.23(e)(3)(v)). Our
goal in proposing this clarification of
our existing LTCH change of ownership
policy at § 412.23(e)(iv) was to divide
the regulation that was causing
confusion among the provider
community because it formerly covered
change of ownership in both
situations—LTCHs under development
and existing LTCHs—into two separate
regulations. The new regulation at
§ 412.23(e)(3)(v) cited the already
existing requirement for a 30-day notice
to CMS for a hospital undergoing a
‘‘change of ownership or control,
including changes in authorized
official(s) or delegated official(s) * * *’’
at § 424.516(e). We included the 30-day
notice because we have been informed
by our regional offices that, in the past,
compliance with this 30-day notice
requirement by existing LTCHs that are
being sold has been somewhat
inconsistent and may not have been
understood to apply to LTCHs. Because
of ongoing communication between the
hospital wishing to qualify as a LTCH
and CMS when a hospital is applying to
CMS for LTCH status, CMS regional
office staff do not report this to be a
problem during the LTCH qualifying
period. However, the notice requirement
at § 424.516(e) applies to all providers
and suppliers enrolled in the Medicare
program.
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We appreciate the commenter
bringing to our attention the lack of
conformity between the preamble
language and the regulation text at
§ 412.23(e)(3)(v) regarding the 5 months
of the 6 months period in question for
the evaluation of the average length of
stay calculation. Because, as we note in
the preamble, a change of ownership
triggers the start of a new cost reporting
period, in order to clarify this regulation
text, in this final rule, we are revising
the regulation text to state ‘‘* * * at
least 5 months of the 6 months
immediately preceding the change of
ownership.
In response to the commenter who
requested that we specify that a
corporate reorganization of an integrated
hospital system that includes an LTCH
would not trigger an evaluation of the
LTCH’s average length of stay, we note
that if a business transaction relating to
an LTCH meets the definition of a
change of ownership under § 489.18, it
would be governed by the applicable
regulation at § 412.23(e)(3).
After consideration of the public
comments we received, we are
finalizing our clarification of our change
of ownership policy for LTCHs at
§§ 412.23(e)(3)(iv) and (e)(3)(v).
b. Inclusion of Medicare Advantage
(MA) Days in the Average Length of
Stay Calculation
With the passage of the Balanced
Budget Act of 1997, Medicare
beneficiaries were given the option to
receive their Medicare benefits through
private health insurance plans instead
of through the original Medicare plan
(Parts A and B). These programs were
known as Medicare+Choice or Part C
plans (Section 1851 through 1859 of the
Act, implemented in 42 CFR Part 422).
Pursuant to the Medicare Prescription
Drug, Improvement, and Modernization
Act of 2003, the compensation and
business practices changed for insurers
that offer these plans, and
‘‘Medicare+Choice’’ plans became
known as Medicare Advantage (MA)
plans.)
When CMS implemented the LTCH
PPS beginning in FY 2003, we revised
the then-existing policy for calculating
the average length of stay for LTCHs
described at then § 412.23(e)(2)(i).
Under the TEFRA payment system, the
average length of stay was determined
by ‘‘* * * dividing the number of total
inpatient days * * * by the total
discharges for the hospital’s most recent
complete cost reporting period * * *’’
However, beginning with FY 2003,
under the newly implemented LTCH
PPS, the calculation was based on
‘‘dividing the total number of covered
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and noncovered days of stay of
Medicare inpatients * * * by the total
Medicare discharges for the hospital’s
most recent complete cost reporting
period’’ (§ 412.23(e)(3)(i)). The rationale
for this change, as noted in the preamble
to the FY 2003 LTCH PPS final rule, is
that ‘‘LTCHs exist as a provider type in
order to treat Medicare patients
requiring complex long-term hospitallevel care. We believe that a hospital’s
right to qualify for payments under the
prospective payment system for LTCHs
should result from the actual provision
of clinically appropriate care to
Medicare LTCH patients * * *’’ (67 FR
55971).
Although the policy since the start of
the LTCH PPS has been for all LTCH
patients being paid for by Medicare to
be included in the average length of stay
calculation, until recently, we were
unable to include data for Medicare
Advantage (MA) patients in our
calculations because our database did
not capture discharge data on claims
paid by an MA plan. (In contrast,
patients who still had private insurance
as their primary health coverage and for
whom Medicare was a secondary payer,
were included in the calculations
because the portion of their claims
covered by Medicare was paid by Part
A and was therefore included in our
database.)
On July 20, 2007, we issued Change
Request 5647 that required the
submission by hospitals (IPPS, IRFs,
and LTCHs) of ‘‘information only’’ (not
for payment) bills for their MA patients
to their fiscal intermediaries or MACs
beginning with FY 2007. The stated goal
of capturing these MA data was that the
data were needed for disproportionate
share payments (DSH) under the IPPS,
low-income patient (LIP) payments
under the IRF PPS, and for short-stay
outlier (SSO) payments under the LTCH
PPS. An additional one-time
notification, Change Request 6821,
issued on June 7, 2010, reiterated the
requirements of Change Request 5647
for the reporting of MA days for DHS
and LIP data and also noted ‘‘[i]n
addition, this data is used for other
purposes such as determining LTCH
short stay outlier payments and
evaluating the greater than 25 days
length of stay requirement of Medicare
patients for LTCHs.’’
Although the inclusion of MA days in
the average length of stay calculation
has been CMS’ policy under the LTCH
PPS because, at the outset of the LTCH
PPS, we specified that the average
length of stay calculation was based on
‘‘all covered’’ and on ‘‘all covered days
of stay of Medicare patients’’
(§ 412.23(e)(2)), we acknowledge that, in
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practice, MA days were not included
due to limitations in our ability to
capture the data. We have been
informed by some members of the
provider community that it was not
their understanding that MA data
should be included in determining a
LTCH’s average length of stay, and that,
in some cases, the inclusion of these
data could substantially lower their
average length of stay, thus threatening
their status as LTCHs. Therefore, in the
FY 2012 IPPS/LTCH PPS proposed rule
(76 FR 26008 and 26009), we proposed
to clarify our existing policy at 42 CFR
412.23(e)(3) on the calculation of the
average length of stay to specify that all
data on all Medicare inpatient days,
including MA days, shall be included in
the average length of stay calculation.
Comment: A number of commenters
urged CMS to establish a specific
effective date for this policy, and one of
these commenters requested that we
confirm that the existing ‘‘* * * at least
5 months of the preceding 6 month’’
cure period would still be in effect for
an LTCH failing to meet the average
length of stay requirement as a result of
the inclusion of MA days in the average
length of stay calculation. Several
commenters challenged CMS’ assertion
that the inclusion of MA days was
‘‘clarification of existing policy’’ and
argued that the inclusion of MA days in
the average length of stay calculation
was a new policy. Therefore, the
commenters urged CMS to study the
impact on LTCHs of instituting this
‘‘new policy,’’ while instructing
Medicare contractors not to include MA
days in the average length of stay
calculation until this evaluation was
completed and then, to subject the
policy to notice and comment
rulemaking. Several commenters
expressed concern because contracts
currently in place between some LTCHs
and managed care organizations limit
the LTCH lengths of stay of beneficiaries
who are enrolled in those plans. The
inclusion of those MA days, the
commenters feared, would result in a
decrease in some LTCHs’ average length
of stay, and thereby threatens their
LTCH status.
One commenter opposed the
inclusion of MA days in the average
length of stay calculation for LTCHs,
arguing that the managed care payment
model is radically different than the feefor-service model and, therefore, is
incompatible with the ‘‘average of
greater than 25 day’’ length of stay
requirement for LTCHs. Because the
inclusion of such days in the average
length of stay calculation could
negatively impact LTCH status, the
commenter warned that inclusion of
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51775
MA days could lead to some LTCHs
denying care to beneficiaries who have
elected to enroll in MA plans.
Response: While we understand the
commenters’ concern about the impact
of counting MA days in an LTCHs’
average length of stay calculation, we
reassert that the inclusion of such days
has been contemplated since the
establishment of the LTCH PPS (67 FR
55970 through 55975) and delayed only
by previous technical limitations on
CMS’ ability to obtain the MA data. Our
regulations at § 412.23(e)(2)(i) specify
that the average length of stay
calculation is based on ‘‘* * * all
covered and noncovered days of stay of
Medicare patients * * *. ’’ ‘‘All covered
and noncovered days of stay of
Medicare patients’’ includes the days of
stay of Medicare managed care patients.
Additionally, as noted in this preamble,
on July 20, 2007, in Change Request
5647, we required the submission of
data on MA patients by hospitals (IPPS
hospitals, IRFs, and LTCHs), and on
June 7, 2010, in Change Request 6821,
we reiterated this requirement while
also specifying that the data would be
used for ‘‘* * * evaluating the greater
than 25 days length of stay requirement
of Medicare patients for LTCHs.’’ The
inclusion of MA days in the LTCH
average length of stay requirement is not
a new policy, but rather the
implementation of a long-stated step
that is now technically feasible for the
Medicare program. We had determined
that it was appropriate to discuss this
issue as a ‘‘clarification’’ in the FY 2012
IPPS/LTCH PPS proposed rule, and
solicited public comments because it
was brought to our attention that the
above noted change requests had
resulted in some confusion in the
provider community. We also
understand the concern that several of
the commenters have about the impact
that the shorter lengths of stay
negotiated by managed care
organizations could have on retaining
LTCH status. Therefore, we are
finalizing the clarification of our policy
with an effective date for the inclusion
of MA days in the average length of stay
calculation for LTCH cost reporting
periods beginning on or after January 1,
2012. We also are instructing our
contractors not to remove LTCH
designation from any LTCH based on
the fact that it fails to meet the average
length of stay requirement solely due to
the inclusion of MA days in its average
length of stay calculation until cost
reporting periods beginning on or after
January 1, 2012. In response to the
commenter’s concern, we also are
confirming our longstanding policy
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regarding the evaluation of data from
‘‘* * * at least 5 months of the
preceding 6 month’’ ‘‘cure’’ period for
an LTCH that fails to meet the average
length of stay requirement. Therefore,
even after January 1, 2012, a hospital
will be able to maintain its LTCH status
if it has a greater than 25-day average
length of stay (including MA days) for
at least 5 months of the 6 months prior
to the beginning of the cost reporting
period when it would lose its LTCH
status if it did not meet the average
length of stay requirement.
In response to the commenter who
objected to the inclusion of data from
beneficiaries who elected to enroll in
managed care plans rather than
traditional Medicare in the average
length of stay calculation, arguing that
the MA model is not compatible with
the average length of stay policy, which
is based on a fee-for-service payment
model, we note that Medicare
Advantage (as Medicare + Choice) is a
statutory creation (section 1851 through
1859 of the Act) for payment for services
provided to Medicare patients. The
exclusion of LTCHs from the IPPS as
acute care hospitals for patients with
‘‘* * *an average inpatient length of
stay (as determined by the Secretary) of
greater than 25 days (section
1886(d)(1)(B)(iv) of the Act) is a
description of a hospital treating long
length of stay patients. By regulation,
we have prescribed that the test is based
on Medicare patients rather than all of
the hospital’s patients. Congressional
action could mandate a determination
that MA patients should not be
included. However, thus far, although
Congress has addressed the LTCH PPS,
it has not addressed the exclusion of
MA days from the greater than 25-day
average length of stay determination.
Finally, our experience in meeting with
LTCH trade associations, the medical
and administrative leadership of LTCHs,
and our site visits to numerous LTCHs,
as well as our recent data on LTCH
inpatient censuses, do not confirm the
commenter’s warnings about reduced
MA patient access to LTCHs that will
result should MA patient days be
included in the average length of stay
calculation.
After consideration of the public
comments we received, we are
finalizing our proposed clarification but
with an effective date for inclusion of
MA days in the average length of stay
calculation for LTCH cost reporting
periods beginning on or after January 1,
2012.
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F. Application of LTCH Moratorium on
the Increase in Beds at Section
114(d)(1)(B) of Public Law 110–173
(MMSEA) to LTCHs and LTCH Satellite
Facilities Established or Classified as
Such Under Section 114(d)(2) of Public
Law 110–173
Under section 114(d) of the Medicare,
Medicaid, and SCHIP Extension Act of
2007 (MMSEA) (Pub. L. 110–173),
Congress established one moratorium on
the establishment or classification of
new LTCHs and LTCH satellite facilities
and a second moratorium on the
increase in the number of LTCH beds in
‘‘existing hospitals and satellite
facilities.’’ This section 114(d) provision
was amended by section 4302(b) of the
American Recovery and Reinvestment
Act of 2009 (ARRA) (Pub. L. 111–5) and
implemented in interim final rules
issued in the Federal Register on May
22, 2008, and August 27, 2009 (73 FR
29704 through 29707 and 74 FR 43990
through 43992, respectively), and
finalized in the FY 2010 and FY 2011
IPPS/LTCH PPS final rules (74 FR 43985
through 43990 and 75 FR 50397 through
50399, respectively). With the passage
of the Affordable Care Act on March 23,
2010, these moratoria were extended
under sections 3016 and 10312 for an
additional 2 years, through December
29, 2012. The extension was
implemented in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50400).
Specific exceptions to each
moratorium are included in the statute
and permit both the continued
establishment or classification of an
LTCH or LTCH satellite facility and an
increase in LTCH beds at a statutorily
defined ‘‘existing’’ hospital or satellite
facility, respectively. Under section
114(d)(2) of the MMSEA, as of
December 29, 2007, the preclusion on
the establishment or classification of a
new LTCH or LTCH satellite facility as
of December 29, 2007, would not apply
if the hospital met one of the following
three exceptions:
• The LTCH began its qualifying
period for payment as a LTCH under 42
CFR 412.23(e) on or before the date of
enactment of the MMSEA (section
114(d)(2)(A));
• The LTCH has a binding written
agreement with an outside, unrelated
party for the actual construction,
renovation, lease, or demolition for a
LTCH and had expended before
December 29, 2007, at least 10 percent
of the estimated cost of the project or,
if less, $2.5 million (section
114(d)(2)(B)); or
• The LTCH has obtained an
approved certificate of need (CON) in a
State where one is required on or before
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December 29, 2007 (section
114(d)(2)(C)).
Section 114(d)(3) of the MMSEA, as
originally enacted, provided an
exception to the moratorium on an
increase in beds at an existing LTCH or
LTCH satellite facility, if an existing
LTCH or satellite facility is located in a
State where there is only one other
LTCH; and the LTCH or satellite facility
requests an increase in beds following
the closure or decrease in the number of
beds of another LTCH in the State.
Section 4302(b) of the ARRA amended
this MMSEA provision to specify an
additional exception to the moratorium
on the increase in bed number if the
hospital or facility obtained a certificate
of need for an increase in beds that is
in a State for which such certificate of
need is required and that the CON was
issued on or after April 1, 2005, and
before December 29, 2007.
In implementing these two
moratorium provisions, we required that
each hospital or entity submit details of
its individual circumstance for
evaluation by CMS regional offices and
contractors in order to determine
whether a specific statutory exception
was applicable to the particular
situation (74 FR 43985 through 43990).
We note that, based upon these
exceptions (73 FR 29707), CMS records
indicate that, as of January 1, 2011, 50
new LTCHs and 8 new LTCH satellites
have been established or classified after
December 29, 2007, the date MMSEA
was enacted. (Data on additional beds
developed in existing LTCHs and LTCH
satellite facilities under the CON
exception provided by section 4302(b)
of the ARRA are maintained by States.)
Sections 3106 and 10312 of the
Affordable Care Act provided a 2-year
extension of both moratoria initially
established by section 114(d)(1) of the
MMSEA (which provided for an original
3-year application), indicating that
Congress continues to believe that it is
appropriate to continue to stem the
increase in the number of LTCHs and
LTCH satellite facilities and LTCH beds.
As noted above, section 114(d)(1)(B)
of the MMSEA established a
moratorium on the increase of LTCH
beds in existing LTCHs or satellite
facilities. Section 114(d)(4) of the
MMSEA defines ‘‘an existing hospital or
satellite facility’’ as a hospital or
satellite facility that received payment
under the LTCH PPS as of December 29,
2007, the date of enactment of the
MMSEA. By definition, LTCHs or
satellite facilities that were established
or classified as such under an exception
at section 114(d)(2) to the moratorium
under section 114(d)(1)(A) first received
payments under the LTCH PPS after
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December 29, 2007, and therefore,
would not fall under the definition of
‘‘an existing hospital or satellite
facility’’ to whom the moratorium on
the increase in bed numbers at section
114(d)(1)(B) applies. However, we do
not believe that it was Congress’ intent
to allow this subset of hospitals and
satellite facilities established or
classified after the enactment of
MMSEA unlimited bed growth and
expansion. In the FY 2012 IPPS/LTCH
PPS proposed rule (76 FR 26010), we
noted that continued Congressional
concern regarding the increase in the
number of LTCHs and satellite facilities
and LTCH beds is indicated in the 2year extension of the moratorium
provided by sections 3106 and 10312 of
the Affordable Care Act.
Section 123 of the Medicare,
Medicaid, and SCHIP [State Children’s
Health Insurance Program] Balanced
Budget Refinement Act of 1999 (BBRA
of 1999) (Pub. L. 106–113), as amended
by section 307 (b) of the Medicare,
Medicaid, and SCHIP [State Children’s
Health Insurance Program] Benefits
Improvement and Protection Act of
2000 (BIPA) (Pub. L. 106–554), confers
upon the Secretary discretion in
creating the LTCH PPS as the payment
system for LTCHs beginning in FY 2003.
Furthermore, the Secretary has
authority, under the general rulemaking
authority of sections 1102(a) and
1871(a) of the Act, to establish rules and
regulations as necessary to administer
the Medicare program and for the
efficient administration of the Medicare
program. Consistent with these
authorities, therefore, in the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
26010), we proposed that, effective
October 1, 2011, the moratorium
established under section 114(d)(1)(B) of
the MMSEA, and implemented at 42
CFR 412.23(e)(7) be applied to those
LTCHs and LTCH satellite facilities
established or classified as such
pursuant to the exceptions at section
114(d)(2) to the moratorium specified
under section 114(d)(1)(B) of the
MMSEA, as implemented at 42 CFR
412.23(e)(6). Specifically, we proposed
to limit the number of beds in these
facilities to the number of beds that
were certified by Medicare at the LTCH
or satellite facility when it was first paid
under the LTCH PPS. We proposed to
amend § 412.23 by adding a new
paragraph (e)(8) to specify this policy.
We believe that this policy captures the
essence of the original statutory
moratoria and the subsequent extension
of the moratoria for an additional 2
years—which was to limit growth in the
number of LTCHs and LTCH satellite
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facilities and LTCH beds payable under
Medicare—while recognizing the
inherent fairness in allowing those
projects already underway that
represented substantial investment,
planning, and State commitment to be
completed.
Comment: One commenter supported
CMS’ position on extending the
moratorium on increasing the number of
beds in ‘‘existing’’ LTCHs to those
LTCHs and satellites established
pursuant to exceptions provided in the
statute.
Response: We appreciate the
commenter’s support for the proposed
policy.
Comment: Three commenters urged
CMS not to implement the extension of
the moratorium to ‘‘new’’ LTCHs and
LTCH satellites. These commenters
noted that had Congress wished to
extend the original moratorium on an
increase in the number of beds in
existing LTCHs and LTCH satellites that
was first promulgated in MMSEA to
LTCHs and LTCH satellites that had
been established under one of the
exceptions to the moratorium on the
establishment of new LTCHs and LTCH
satellites, Congress could have utilized
either the ARRA or the Affordable Care
Act for such a purpose. One of the
commenters cited a longstanding
Supreme Court decision (Chevron
U.S.A. v. NRDC, 467 U.S. 837, 842–843
(1984)) which established the standard
for determining the validity of
regulatory provisions. The commenter
stated that under Chevron’s twopronged test: (1) if it is determined that
Congress has directly spoken to ‘‘* * *
the precise question at issue’’ then
‘‘* * * we must give effect to the
unambiguously expressed intent of
Congress;’’ but (2) if the statute is ‘‘silent
or ambiguous with respect to the
specific issue’’ it need only be asked
whether the regulation is ‘‘based on a
permissible construction of the statute.’’
This commenter argued that because the
MMSEA specified that the moratorium
on bed increases applied to ‘‘existing
LTCHs and satellites,’’ the extension of
the moratorium by CMS to LTCHs and
LTCH satellites that did not exist at the
time of the legislation but were
established under an exception, would
be a violation of the Chevron Court
decision.
Response: We do not agree that the
failure to include a specific extension of
the moratorium on bed increases to
those LTCHs and LTCH satellite
facilities originally excepted from the
moratoria established under the
MMSEA (new LTCHs and LTCH
satellite facilities) in either the ARRA or
the Affordable Care Act indicates that
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Congress intended to allow such LTCHs
and LTCH satellite facilities unlimited
authority to expand their bed numbers
while restricting the growth of
‘‘existing’’ LTCHs. We also disagree
with the commenters’ arguments that
the statute precisely answers the
question at issue. We believe the
discussion above describing our
understanding of Congress’ intent as
well as the law governing the authorities
for creating the LTCH PPS and the
authorities to establish rules and
regulations as necessary to administer
the Medicare program and for the
efficient administration of the Medicare
program provide an appropriate and
sufficient basis for the agency to finalize
this policy as proposed. Moreover, we
emphasize that, in finalizing this policy
as proposed, we do not believe that it
was Congress’ intent to allow the one
subgroup of LTCHs and LTCH satellite
facilities established after the enactment
of the MMSEA unlimited bed growth
and expansion, particularly while
extending both of the moratoria
applicable to ‘‘existing’’ LTCHs and
LTCH satellite facilities an additional 2
years in sections 3106 and 10312 of the
Affordable Care Act.
Comment: One commenter requested
that, if CMS finalizes the proposed
policy, ‘‘a specific exclusion’’ be
applied to any ‘‘new’’ LTCH that had
increased its bed capacity beyond the
number of beds that were certified by
Medicare when it was first paid under
the LTCH PPS.
Response: We agree with the
commenter that it is possible that some
‘‘new’’ LTCHs have already increased
their bed numbers beyond those that
existed when they were first certified by
Medicare and paid under the LTCH
PPS. In consideration of this possibility,
we are revising the proposed regulation
text at § 412.23(e)(8) that we are
adopting as final to indicate that the
moratorium on increases in bed
numbers for LTCHs and LTCH satellites
that were established under one of the
exceptions to the moratorium applies to
the number of beds at the LTCH as of
October 1, 2011.
After consideration of the public
comments we received, in this final
rule, we are adopting our proposed
addition of new § 412.23(e)(8) with the
modification noted above. That is, we
are specifying that effective October 1,
2011 and ending December 28, 2012, the
moratorium established under section
114(d)(1)(B) of the MMSEA, and
implemented at 42 CFR 412.23(e)(7) will
be applied to those LTCHs and LTCH
satellite facilities established or
classified as such pursuant to the
exceptions at section 114(d)(2) to the
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moratorium specified under section
114(d)(1)(B) of the MMSEA, as
implemented at § 412.23(e)(6).
Specifically, we are modifying the
language to limit the number of beds in
these facilities to the number of beds to
those ‘‘that were certified by Medicare
at the LTCH or satellite facility as of
October 1, 2011’’ to replace the
proposed language of the ‘‘initial
number of Medicare certified beds
established under paragraph (e)(6)(ii).
* * *’’.
VIII. MedPAC Recommendations
Under section 1886(e)(4)(B) of the
Act, the Secretary must consider
MedPAC’s recommendations regarding
hospital inpatient payments. Under
section 1886(e)(5) of the Act, the
Secretary must publish in the annual
proposed and final IPPS rules the
Secretary’s recommendations regarding
MedPAC’s recommendations. We have
reviewed MedPAC’s March 2011
‘‘Report to the Congress: Medicare
Payment Policy’’ and have given the
recommendations in the report
consideration in conjunction with the
policies set forth in this final rule.
MedPAC recommendations for the IPPS
for FY 2012 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.
IX. Other Required Information
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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/AcuteInpatientPPS.
We listed the data files and the cost for
each file, if applicable, in the FY 2012
IPPS/LTCH PPS proposed rule (76 FR
26010 through 26012).
Commenters interested in discussing
any data used in constructing this
proposed 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
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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.
In the FY 2012 IPPS/LTCH PPS
proposed rule (76 FR 226012 through
26015), 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 each
individual section.
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 2012
must submit a formal request. A formal
request includes a full description of the
clinical applications of the medical
service or technology and the results of
any clinical evaluations demonstrating
that the new medical service or
technology represents a substantial
clinical improvement. In addition, the
request must contain a significant
sample of the data to demonstrate that
the medical service or technology meets
the high-cost threshold. We detailed the
burden associated with this requirement
in the September 7, 2001, IPPS final rule
(66 FR 46902). As stated in that final
rule, collection of the information for
this requirement is conducted on an
individual case-by-case basis. We
believe the associated burden is thereby
exempt from the PRA as stipulated
under 5 CFR 1320.3(h)(6). Similarly, we
also believe the burden associated with
this requirement is exempt from the
PRA under 5 CFR 1320.3(c), which
defines the agency collection of
information subject to the requirements
of the PRA as information collection
imposed on 10 or more persons within
any 12-month period. This information
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collection does not impact 10 or more
entities in a 12-month period. In FYs
2008, 2009, 2010, 2011, and 2012, we
received 1, 4, 5, 3, and 3 applications,
respectively.
We did not receive any public
comments regarding these information
collections.
3. ICRs for the Hospital Inpatient
Quality Reporting (IQR) Program
The Hospital Inpatient Quality
Reporting (IQR) Program (formerly
referred to as the Reporting Hospital
Quality Data for Annual Payment
(RHQDAPU) Program) was originally
established to implement section 501(b)
of the MMA, Public Law 108–173. This
Program expanded our voluntary
Hospital Quality Initiative. The Hospital
IQR Program originally consisted of a
‘‘starter set’’ of 10 quality measures. 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.is currently approved
under OMB control number 0938–1022.
For the FY 2014 and FY 2015
payment updates, we intend to seek
OMB approval for a revised information
collection request using the same OMB
control number (0938–1022). In the
revised request, we will add five
measures that we adopted in the FY
2011 IPPS/LTCH PPS final rule (four
chart-abstracted measures and an HAI
measure (Surgical Site Infection (SSI)) to
be collected via NSHN for the FY 2014
payment determination. In addition, we
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are adding one HAI measure (CAUTI)
also to be collected via NHSN, one
structural measure and one claimsbased measure that we are adopting in
this final rule for the FY 2014 payment
determination. We estimate that the
changes to our FY 2014 payment
determination measure set will increase
the collection burden on hospitals by
approximately 3,260,175 hours per year.
Because the currently approved CDC
information collection request for the
NHSN (OCN: 0920–0666) does not
include all of the respondents
associated with the Hospital IQR
Program, we intend to request a separate
OMB control number for the measures
to be collected via the NHSN.
With respect to the four new chartabstracted measures for the FY 2014
payment determination, hospitals will
be required to submit data on patients
who receive inpatient acute care
hospital services. Specifically, with
respect to the two EDT measures and
two Global Immunization measures,
hospitals will need to collect
information on patients who receive
inpatient acute care hospital services
regarding EDT, as well as influenza and
pneumonia vaccination information for
all inpatients for which hospitals
currently collect only for patients
admitted for pneumonia. We estimate
that hospitals will incur an additional
3,500,000 burden hours resulting from
the addition of these four measures for
the FY 2014 payment determination. We
estimate that hospitals will submit
approximately 3,500,000 cases annually
for these 4 measures, and the
information needed to calculate these
measures requires an average of 1 hour
to abstract from medical records for
each case.
The HAI measure (Surgical Site
Infection (SSI)) that we added in the FY
2011 IPPS/LTCH PPS final rule for the
FY 2014 payment determination and the
HAI measure that we are adding in this
final rule for the FY 2014 payment
determination (CAUTI) are structured to
keep additional burden to a minimum
because they are to be collected via
NHSN. More than 4,000 hospitals in 29
States are already using NHSN to
comply with State-mandated reporting.
Although these HAI measures will add
burden for hospitals, we believe that the
additional burden will be lessened
because hospitals will already be using
NHSN to report the CLABSI measure for
the FY 2013 payment determination. In
addition, as mentioned above, not all
hospitals will experience any additional
burden because many hospitals already
submit data to this system either
voluntarily or as part of mandatory State
reporting requirements for HAIs. The
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burden associated with these
requirements is the time and effort
associated with collecting and
submitting the additional data. We
estimate that hospitals will need about
500,000 additional hours to report
Surgical Site Infection (SSI), and CAUTI
event data and denominator information
into the system.
The structural measure we are adding
for the FY 2014 payment determination
will require hospitals to indicate
whether they are participating in a
systematic qualified clinical database
for registry for General Surgery and, if
so, to identify the registry. We estimate
that 3,500 hospitals will spend about 5
minutes each to answer this question
each year, resulting in an estimated total
increase of 175 hours in terms of the
total burden to hospitals each year.
We also are adding one new claimsbased measure for the FY 2014 payment
determination. We do not believe that
this claims-based measure will create
any additional burden for hospitals
because it will be collected and
calculated by CMS based on the
Medicare FFS claims the hospitals have
already submitted to CMS.
We believe that the overall burden on
hospitals will be reduced to some extent
by the policy we finalized in the FY
2011 IPPS/LTCH PPS final rule to retire
two measures (PN–2 and PN–7)
beginning with the FY 2014 payment
determination. Burden will be further
reduced because, in this final rule,
beginning with the FY 2014 payment
determination, we are retiring or
suspending data collection for eight
additional measures (AMI–1 Aspirin at
Arrival, AMI–3 ACE/ARB, AMI–4
Smoking Cessation, AMI–5 Beta-Blocker
at Discharge, HF–4 Smoking Cessation,
PN–4 Smoking Cessation, PN–5c
Antibiotic within 6 Hours of Arrival and
SCIP Inf-6 Appropriate Hair Removal),
beginning with discharges occurring on
January 1, 2012. We estimate that the
retirement or suspension of these
measures will reduce the burden to
hospitals by a total of 740,000 hours
including reductions of 170,000 hours
for abstracting AMI measures, 220,000
hours for abstracting PN measures,
50,000 hours for abstracting HF
measures, and 300,000 hours for
abstracting SCIP measures.
We also are adding two new chartabstracted measure sets to the Hospital
IQR Program for FY 2015: Stroke (eight
measures) and Venous
Thromboembolism (VTE) (six
measures). Both measure sets are of
great importance to the Medicare
population, with stroke affecting about
795,000 people each year (American
Stroke Association). Both stroke and
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VTE measures are currently collected by
The Joint Commission for accreditation
and certification purposes. Both
measure sets use complementary data
elements to our current SCIP, VTE, and
AMI measure sets, thus reducing the
chart-abstraction burden. The burden
associated with these measure sets is the
time and effort associated with
collecting and submitting the additional
data. We estimate that each chartabstracted measure set will require
about 1 hour to abstract. We anticipate
the number of subsection (d) hospitals
participating in the Hospital IQR
Program to be approximately 3,500. The
number of charts to be abstracted by all
participating hospitals is estimated to be
180,000 per year for the Stroke measure
set, and 6,000,000 per year for the VTE
measure set. In total, our addition of the
Stroke and VTE measure sets is
estimated to increase the burden to
hospitals by 6,180,000 hours per year.
We also are adding three new HAI
measures to be collected via NHSN to
the Hospital IQR Program for FY 2015:
(1) Methicillin-resistant Staphylococcus
aureus (MRSA) Bacteremia measure; (2)
C. Difficile SIR measure; and (3)
Healthcare Personnel Influenza
vaccination measure. The information
needed for these measures will be
collected via NHSN, and, therefore, is
structured to keep additional burden to
a minimum because more than 4,000
hospitals in 29 States are already using
NHSN to comply with State-mandated
reporting. Although this will add
burden to hospitals, the initial setup
and acclimation to the NHSN system
will have already occurred with the
adoption of the CLABSI measure for the
Hospital IQR Program for the FY 2013
payment determination. In addition, as
mentioned above, not all hospitals will
experience any additional burden since
many hospitals already submit data to
this system either voluntarily or as part
of mandatory State reporting
requirements for HAIs. The burden
associated with this section is the time
and effort associated with collecting and
submitting the additional data. With
respect to the new HAI measures for the
FY 2015 payment determination, we
estimate that an additional 1,500,000
burden hours per year (500,000 hours
per measure) will be incurred by
hospitals to report data on these
measures.
We estimate that our changes to the
FY 2015 Hospital IQR Program measure
set will increase the collection burden
to hospitals by approximately 7,680,000
hours per year.
We have stated our intention to
explore mechanisms for data
submission using electronic health
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records (EHRs) (73 FR 48614; 74 FR
43866, 43892; 75 FR 50189).
Establishing such a system will require
interoperability between EHRs and CMS
data collection systems, additional
infrastructure development on the part
of hospitals and CMS, and the adoption
of standards for capturing, formatting,
and transmitting the data elements that
make up the measures. However, once
these activities are accomplished, the
adoption of measures that rely on data
obtained directly from EHRs will enable
us to expand the Hospital IQR Program
measure set with less cost and burden
to hospitals. We believe that automatic
collection and reporting of data through
EHRs will greatly simplify and
streamline reporting for various CMS
quality reporting programs, and that at
a future date, currently targeted to be FY
2015, hospitals will be able to switch
solely to EHR-based reporting of data
that are currently manually chartabstracted and submitted to CMS for the
Hospital IQR Program.
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4. ICRs for the Occupational Mix
Adjustment to the FY 2012 Index
(Hospital Wage Index Occupational Mix
Survey)
Section II.D. of the preamble of the
proposed rule and this final rule
discusses the occupational mix
adjustment to the final FY 2012 wage
index. While the preamble does not
contain any new ICRs, it is important to
note that there is an OMB approved
information collection request
associated with the hospital wage index.
Section 304(c) of Public Law 106–554
amended section 1886(d)(3)(E) of the
Act to require CMS to collect data at
least once every 3 years on the
occupational mix of employees for each
short-term, acute care hospital
participating in the Medicare program
in order to construct an occupational
mix adjustment to the wage index. We
collect the data via the occupational mix
survey.
The burden associated with this
information collection requirement is
the time and effort required to collect
and submit the data in the Hospital
Wage Index Occupational Mix Survey to
CMS. The aforementioned burden is
subject to the PRA; however, it is
currently approved under OMB control
number 0938–0907, with an expiration
date of February 28, 2013.
5. Hospital Applications for Geographic
Reclassifications by the MGCRB
Section III.I.3. of the preamble of the
proposed rule and this final rule
discusses revisions to the wage index
based on hospital redesignations. As
stated in that section, under section
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1886(d)(10) of the Act, the MGCRB has
the authority to accept short-term IPPS
hospital applications requesting
geographic reclassification for wage
index or standardized payment amounts
and to issue decisions on these requests
by hospitals for geographic
reclassification for purposes of payment
under the IPPS.
The burden associated with this
application process is the time and
effort necessary for an IPPS hospital to
complete and submit an application for
reclassification to the MGCRB. While
this requirement is subject to the PRA,
the associated burden is currently
approved under OMB control number
0938–0573, with an expiration date of
December 31, 2011.
We did not receive any public
comments on this information
collection requirement.
6. ICRs for the Quality Reporting
Program for LTCHs
In section VII.C. of the preamble of
the proposed rule and this final rule, we
discuss three quality reporting measures
for LTCHs for FY 2014: (1) Catheter
Associated Urinary Tract Infections
(CAUTI); (2) Central Line Associated
Blood Stream Infection Event (CLABSI);
and (3) Pressure Ulcers that are New or
Have Worsened.
As proposed, we will collect the HAI
CLABSI and CAUTI quality measures
through the use of the CDC/NHSN
(http://www.cdc.gov/nhsn/). We will
require that LTCH facilities report data
on each patient in their facility who has
been diagnosed with either a catheter
associated urinary tract infection or a
central line associated bloodstream
infection.
The NHSN is a secure, Internet-based
surveillance system which is
maintained and managed by CDC. Many
LTCHs already submit data to the NHSN
either voluntarily or as part of
mandatory State reporting requirements
for HAIs. There are currently 439
certified LTCHs and, according to CDC,
80 of these LTCHs already submit HAI
data to NHSN. For these LTCHs, the
burden of complying with the
requirements of the quality reporting
program will be reduced because these
LTCHs are familiar with the NHSN
submission process.
We provide financial incentives to
IPPS hospitals to report data regarding
certain HAIs via NHSN as part of the
Hospital IQR Program. We adopted the
CLABSI quality measure under the
Hospital IQR Program for the FY 2013
payment determination and are
adopting the CAUTI measure for the FY
2014 payment determination. In
addition, hospitals in 29 States are
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already using NHSN, and CDC supports
more than 4,000 hospitals that are
already using NHSN. Many LTCHs are
integrated into or are part of large
inpatient hospital systems. We believe
that these hospital systems have gained
the requisite knowledge and experience
with the submission of data about HAIs
via NHSN, under the Hospital IQR
Program, State law, or voluntarily.
Therefore, the transition to reporting
HAIs via the NHSN for these LTCHs
may be less burdensome.
The burden associated with these
quality measures is the time and effort
associated with collecting and
submitting the data concerning CAUTI
and CLABSI to NHSN for LTCHs that
are not currently reporting such data.
During the 12-month period from April
2010 to March 2011, 58 LTCHs reported
CLABSI for at least one month, and the
same number reported CAUTI for at
least one month. For LTCHs that already
submit data regarding these HAIs to
NHSN, there should be little, if any,
additional burden. For LTCHs who
submit data to NHSN for other HAIs, but
not CAUTI and CLABSI data, there may
be some burden. However, we believe
that this burden will be significantly
decreased because these LTCHs are
already enrolled in the NHSN system
and are already familiar with the NHSN
data submission process.
There are currently 435 LTCHs in the
United States paid under the LTCH PPS.
We estimate that each LTCH will submit
approximately 12 NHSN submissions (6
CAUTI and 6 CLABSI) per month (144
per LTCH annually). This equates to a
total of approximately 62,640
submissions of HAI data to NHSN from
all LTCHs paid under the LTCH PPS per
year. We estimate that each NHSN
assessment will take approximately 25
minutes to complete. This time estimate
consists of 10 minutes of clinical (for
example, nursing time) needed to
collect the clinical data and 15 minutes
of clerical time necessary to enter the
data into the NHSN data base. Based on
this estimate, we expect each LTCH 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 paid
under the LTCH PPS for reporting to
NHSN is 26,100 hours. The estimated
cost per submission is estimated at
$12.07. These costs are estimated using
an hourly wage for a Registered Nurse
of $41.59 and a Medical Billing Clerk/
Data Entry person of $20.57 (U.S.
Bureau of Labor Statistics data).
Therefore, we estimate that the annual
cost per each LTCH provider will be
$1,739 and the total yearly cost to all
LTCHs paid under the LTCH PPS for the
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submission of CAUTI and CLABSI data
to NHSN would be $756,326.71 The
aforementioned requirements are
subject to the PRA and the associated
burden hours will be accounted for in
a revision to the information collection
request currently approved as OCN
0920–0666.
With respect to the pressure ulcer
measure, we will post the specification
for the pressure ulcer measure on our
Web site along with the specific data
elements necessary to be collected by no
later than January 31, 2012. We expect
that the specific data items needed are
part of the Continuity Assessment
Record & Evaluation (CARE) data item
set. We developed the CARE as required
by section 5008 of the Deficit Reduction
Act of 2005. In 2011, CARE underwent
revisions. The revised CARE data item
set now consists of a compilation of
items from a comprehensive CMS
standardized item library. The revised
Medicare CARE data item set is
intended to be used to: (1) Standardize
program information on Medicare
beneficiaries’ acuity at discharge from
acute hospitals, (2) document medical
severity, functional status and other
factors related to outcomes and resource
utilization at admission, discharge, and
interim times during post acute
treatment, (3) understand the
relationship between severity of illness,
functional status, social support factors,
and resource utilization; and (4) report
quality measure data to CMS.
Because the CMS CARE pressure
ulcer data item set has not previously
been introduced in the LTCH setting,
there will be some initial burdens
associated with the introduction of this
data item set. These initial costs will
mainly be incurred in the training of the
facility staff. However, there should be
little, if any, additional education
required, in regards to the collection of
the data, because pressure ulcer
assessment should be a vital part of
good patient care and daily in-house
patient chart documentation.
LTCHs participating in the LTCH
Quality Reporting Program will be
required to perform the CARE pressure
ulcer assessment on each patient upon
admission and again upon discharge.
We believe that it is necessary to obtain
admission and discharge pressure ulcer
assessments on all patients admitted to
LTCH facilities in order to obtain full
and complete statistical data regarding
the quality of care provided by the
71 Nursing
Time—24 hours @ $41.59 per hour =
$998.16; $998.16 × 435 LTCHs = $434,200.
Admin Time—36 hours @ $20.57 per hour =
$740.52; $740.52 × 435 LTCHs = $322,126.
TOTAL = $434,200 + $322,126 = $756,326.
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facility to the patients receiving care in
that facility. The delivery of high quality
care in the LTCH setting is imperative.
We believe that collecting quality data
on all patients in the LTCH setting
supports our mission to insure quality
care for Medicare beneficiaries.
Collecting data on all patients provides
the most robust and accurate reflection
of quality in the LTCH setting. Accurate
representation of quality provided in
LTCHs is best conveyed using data
related to pressure ulcers on all LTCH
patients, regardless of payer, using a
subset of the CARE data item set. An
admission assessment is necessary in
order to assess for either the presence or
absence of pressure ulcers upon
admission. If pressure ulcers are
detected upon admission, they must be
properly assessed, staged and
documented. Upon discharge, an
assessment is needed to determine if
any worsening of the pressure ulcers
occurred during the LTCH stay. If no
pressure ulcers had been noted on the
admission assessment, then a discharge
pressure ulcer assessment would be
necessary in order to assess whether the
patient had developed any new pressure
ulcers during the LTCH stay.
At the time of publication of this final
rule, CMS has not completed
development of the information
collection instrument that LTCHs would
have to submit to comply with the
reporting requirements regarding the
CARE pressure ulcer assessment.
Because the CARE data item set is still
undergoing development, we cannot
assign a complete burden estimate at
this time. Once the CARE data item set
has been completed and finalized, we
will publish the required 60-day and 30day Federal Register notices to solicit
public comments on this data reporting
method and to announce the submission
of the information collection request to
OMB for its review and approval.
List of Subjects
42 CFR Part 412
Administrative practice and
procedure, Health facilities, Medicare,
Puerto Rico, Reporting and
recordkeeping requirements.
42 CFR Part 413
Health facilities, Kidney diseases,
Medicare, Puerto Rico, Reporting and
recordkeeping requirements.
42 CFR Part 476
Health care, Health professional,
Health record, Peer Review
Organization (PRO), Penalties, Privacy,
Reporting and recordkeeping
requirements.
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51781
For the reasons stated in the preamble
of this final rule, the Centers for
Medicare & Medicaid Services confirms
the interim rule published March 14,
2011, at 76 FR 13515, is confirmed as
final without change and is amending
42 CFR Chapter IV as follows:
PART 412—PROSPECTIVE PAYMENT
SYSTEMS FOR INPATIENT HOSPITAL
SERVICES
1. The authority citation for Part 412
continues to read as follows:
■
Authority: Secs. 1102 and 1871 of the
Social Security Act (42 U.S.C. 1302 and
1395hh), and sec. 124 of Public Law 106–113
(113 Stat. 1501A–332).
2. Section 412.23 is amended by—
a. In paragraph (e)(3)(i), removing the
cross-reference ‘‘paragraph (e)(3)(ii)
through (e)(3)(iv) of this section’’ and
adding in its place the cross-reference
‘‘paragraphs (e)(3)(ii) through (v) of this
section’’.
■ b. Revising paragraph (e)(3)(iv).
■ c. Adding paragraph (e)(3)(v).
■ d. Adding paragraph (e)(8).
The revision and additions read as
follows:
■
■
§ 412.23 Excluded hospitals:
Classifications.
*
*
*
*
*
(e) * * *
(3) * * *
(iv) If a hospital seeks exclusion from
the inpatient prospective payment
system as a long-term care hospital and
a change of ownership (as described in
§ 489.18 of this chapter) occurs within
the period of at least 5 months of the 6month period preceding its petition for
long-term care hospital status, the
hospital may be excluded from the
inpatient prospective payment system
as a long-term care hospital for the next
cost reporting period if, for the period
of at least 5 months of the 6 months
immediately preceding the start of the
cost reporting period for which the
hospital is seeking exclusion from the
inpatient prospective payment system
as a long-term care hospital (including
time before the change of ownership),
the hospital has met the required
average length of stay, has continuously
operated as a hospital, and has
continuously participated as a hospital
in Medicare.
(v) For periods beginning on or after
October 1, 2011, a hospital that is
excluded from the inpatient prospective
payment system as a long-term care
hospital that plans to undergo a change
of ownership (as described in § 489.18
of this chapter) must notify its fiscal
intermediary or MAC within 30 days of
the effective date of such change of
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ownership, as specified in § 424.516(e)
of this subchapter. The hospital will
continue to be excluded from the
inpatient prospective payment system
as a long-term care hospital for the cost
reporting period following the change of
ownership only if, for the period of at
least 5 months of the 6 months
immediately preceding the change of
ownership, the hospital meets the
required average length of stay
(calculated in accordance with
paragraph (e)(3)(i) of this section).
*
*
*
*
*
(8) Application of LTCH moratorium
on the increase in beds at section
114(d)(1)(B) of Public Law 110–173 to
LTCHs and LTCH satellite facilities
established or classified as such under
section 114(d)(2) of Public Law 110–173.
Effective for the period beginning
October 1, 2011, and ending December
28, 2012, for long-term care hospitals
and long-term care hospital satellite
facilities established under paragraph
(e)(6)(ii) of this section for the period
beginning December 29, 2007, and
ending September 30, 2011, the
moratorium under paragraph (e)(7) of
this section applies and the number of
Medicare-certified beds must not be
increased beyond the number of beds
that were certified by Medicare at the
long-term care hospital or the long-term
care hospital satellite facility as of
October 1, 2011.
*
*
*
*
*
■ 3. Section 412.64 is amended by—
■ a. Adding paragraph (d)(1)(iv).
■ b. Revising paragraph (h)(4)
introductory text.
The addition and revision read as
follows:
§ 412.64 Federal rates for inpatient
operating costs for Federal fiscal year 2005
and subsequent fiscal years.
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*
*
*
*
*
(d) * * *
(1) * * *
(iv) For fiscal year 2012, the
percentage increase in the market basket
index less a multifactor productivity
adjustment (as determined by CMS) and
less 0.1 percentage 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 September 30, 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:
*
*
*
*
*
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4. Section 412.105 is amended by
revising paragraph (b)(4) to read as
follows:
■
§ 412.105 Special treatment: Hospitals that
incur indirect costs for graduate medical
education programs.
*
*
*
*
*
(b) * * *
(4) Beds otherwise countable under
this section used for outpatient
observation services, skilled nursing
swing-bed services, ancillary labor/
delivery services, or inpatient hospice
services;
*
*
*
*
*
■ 5. Section 412.106 is amended by
revising paragraph (a)(1)(ii)(B) to read as
follows:
§ 412.106 Special treatment: Hospitals that
service a disproportionate share of low
income patients.
(a) * * *
(1) * * *
(ii) * * *
(B) Beds otherwise countable under
this section used for outpatient
observation services, skilled nursing
swing-bed services, or inpatient hospice
services;
*
*
*
*
*
■ 6. Section 412.140 is added to Subpart
H to read as follows:
§ 412.140 Participation, data submission,
and validation requirements under the
Hospital Inpatient Quality Review (IQR)
Program.
(a) Participation in the Hospital IQR
Program. In order to participate in the
Hospital IQR Program, a section 1886(d)
of the hospital must–
(1) Register on QualityNet.org, before
it begins to report data;
(2) Identify and register a QualityNet
Administrator as part of the registration
process under paragraph (a)(1) of this
section; and
(3) Submit a completed Notice of
Participation Form to CMS if the
hospital is participating in the program
for the first time, has previously
withdrawn from the program and would
like to participate again, or has received
a new CMS Certification Number (CNN).
(i) A hospital that would like to
participate in the program for the first
time (and to which paragraph (a)(3)(ii)
of this section does not apply), or that
previously withdrew from the program
and would now like to participate again,
must submit to CMS a completed Notice
of Participation Form by December 31 of
the fiscal year preceding the fiscal year
in which it wishes to participate.
(ii) A hospital that has received a new
CCN and would like to participate in the
program must submit a completed
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Notice of Participation Form to CMS no
later than 180 days from the date
identified as the open date on the
approved CMS Quality Improvement
Evaluation System (QIES).
(b) Withdrawal from the Hospital IQR
Program. CMS will accept Hospital IQR
Program withdrawal forms from
hospitals on or before August 15 of the
fiscal year preceding the fiscal year for
which a Hospital IQR payment
determination will be made.
(c) Submission and validation of
Hospital IQR Program data. (1) General
rule. Except as provided in paragraph
(c)(2) of this section, subsection (d)
hospitals that participate in the Hospital
IQR Program must submit to CMS data
on measures selected under section
1886(b)(3)(B)(viii) of the Act in a form
and manner, and at a time, specified by
CMS. A hospital must begin submitting
data on the first day of the quarter
following the date that the hospital
submits a completed Notice of
Participation form under paragraph
(a)(3) of this section.
(2) Exception. Upon request by a
hospital, CMS may grant an extension or
waiver of one or more data submission
deadlines in the event of extraordinary
circumstances beyond the control of the
hospital. Specific requirements for
submission of a request for an extension
or waiver are available
onQualityNet.org.
(d) Validation of Hospital IQR
Program data. CMS may validate one or
more measures selected under section
1886(b)(3)(B)(viii) of the Act by
reviewing patient charts submitted by
selected participating hospitals.
(1) Upon written request by CMS or
its contractor, a hospital must submit to
CMS a sample of patient charts that the
hospital used for purposes of data
submission under the program. The
specific sample that a hospital must
submit will be identified in the written
request. A hospital must submit the
patient charts to CMS or its contractor
within 30 days of the date identified on
the written request.
(2) A hospital meets the validation
requirement with respect to a fiscal year
if it achieves a 75-percent score, as
determined by CMS.
(e) Reconsiderations and appeals of
Hospital IQR Program decisions. (1) A
hospital may request reconsideration of
a decision by CMS that the hospital has
not met the requirements of the Hospital
IQR Program for a particular fiscal year.
Except as provided in paragraph (c)(2)
of this section, a hospital must submit
a reconsideration request to CMS no
later than 30 days from the date
identified on the Hospital Inpatient
Quality Reporting Program Annual
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Payment Update Notification Letter
provided to the hospital.
(2) A reconsideration request must
contain the following information:
(i) The hospital’s CMS Certification
Number (CCN);
(ii) The name of the hospital;
(iii) Contact information for the
hospital’s chief executive officer and
QualityNet system administrator,
including each individual’s name, email address, telephone number, and
physical mailing address;
(iv) A summary of the reason(s), as set
forth in the Hospital Inpatient Quality
Reporting Program Annual Payment
Update Notification Letter, that CMS
concluded the hospital did not meet the
requirements of the Hospital IQR
Program;
(v) A detailed explanation of why the
hospital believes that it complied with
the requirements of the Hospital IQR
Program for the applicable fiscal year;
(vi) Any evidence that supports the
hospital’s reconsideration request,
including copies of patient charts, emails and other documents; and
(vii) If the hospital has requested
reconsideration on the basis that CMS
concluded it did not meet the validation
requirement set forth in paragraph (d) of
this section, the reconsideration request
must contain the following additional
information:
(A) A copy of each patient chart that
the hospital timely submitted to CMS or
its contractor in response to a request
made under paragraph (d)(1) of this
section; and
(B) A detailed explanation identifying
which data the hospital believes was
improperly validated by CMS and why
the hospital believes that such data are
correct.
(3) A hospital that is dissatisfied with
a decision made by CMS on its
reconsideration request may file an
appeal with the Provider
Reimbursement Review Board under
Part 405, Subpart R of this chapter.
■ 7. Section 412.211 is amended by
adding paragraph (c)(4) to read as
follows:
§ 412.211 Puerto Rico rates for Federal
fiscal year 2004 and subsequent fiscal
years.
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*
*
*
*
*
(c) * * *
(4) For fiscal year 2012 and
subsequent fiscal years, the applicable
percentage increase specified in
§ 412.64(d).
*
*
*
*
*
■ 8. Section 412.230 is amended by
adding paragraph (d)(5) to read as
follows:
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§ 412.230 Criteria for an individual hospital
seeking redesignation to another rural area
or an urban area.
*
*
*
*
*
(d) * * *
(5) Single hospital MSA exception.
The requirements of paragraph (d)(1)(iii)
of this section do not apply if a hospital
is the single hospital in its MSA that is
paid under subpart D of this Part.
■ 9. Section 412.523 is amended by
adding paragraphs (c)(3)(viii) and (d)(4)
to read as follows:
§ 412.523 Methodology for calculating the
Federal prospective payment rates.
*
*
*
*
*
(c) * * *
(3) * * *
(viii) For long-term care hospital
prospective payment system fiscal year
beginning October 1, 2011, and ending
September 30, 2012. The standard
Federal rate for the long-term care
hospital prospective payment system
beginning October 1, 2011, and ending
September 30, 2012, is the standard
Federal rate for the previous long-term
care hospital prospective payment
system fiscal year updated by 1.8
percent. The standard Federal rate is
adjusted, as appropriate, as described in
paragraph (d) of this section.
*
*
*
*
*
(d) * * *
(4) Changes to the adjustment for area
wage levels. Beginning in FY 2012, CMS
adjusts the standard Federal rate by a
factor that accounts for the estimated
effect of any adjustments or updates to
the area wage level adjustment under
§ 412.525(c)(1) on estimated aggregate
LTCH PPS payments.
*
*
*
*
*
■ 10. Section 412.525 is amended by
revising paragraph (c) to read as follows:
§ 412.525 Adjustments to the Federal
prospective payment.
*
*
*
*
*
(c) Adjustments for area wage levels.
(1) The labor portion of a long-term care
hospital’s Federal prospective payment
is adjusted to account for geographical
differences in the area wage levels using
an appropriate wage index (established
by CMS), which reflects the relative
level of hospital wages and wage-related
costs in the geographic area (that is,
urban or rural area as determined in
accordance with the definitions set forth
in § 412.503) of the hospital compared
to the national average level of hospital
wages and wage-related costs. The
appropriate wage index that is
established by CMS is updated
annually. The labor portion of a longterm care hospital’s Federal prospective
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51783
payment is established by CMS and is
updated annually.
(2) Beginning in FY 2012, any
adjustments or updates to the area wage
level adjustment under this paragraph
(c) will be made in a budget neutral
manner such that estimated aggregate
LTCH PPS payments are not affected.
*
*
*
*
*
PART 413—PRINCIPLES OF
REASONABLE COST
REIMBURSEMENT; PAYMENT FOR
END-STAGE RENAL DISEASE
SERVICES; OPTIONAL
PROSPECTIVELY DETERMINED
PAYMENT RATES FOR SKILLED
NURSING FACILITIES
11. The authority citation for Part 413
continues to read as follows:
■
Authority: Secs. 1102, 1812(d), 1814(b),
1815, 1833(a), (i), and (n), 1861(v), 1871,
1881, 1883, and 1886 of the Social Security
Act (42 U.S.C. 1302, 1395d(d), 1395f(b),
1395g, 1395l(a), (i), and (n), 1395x(v),
1395hh, 1395rr, 1395tt, and 1395ww); and
sec. 124 of Public Law 106–133 (113 Stat.
1501A–332).
12. Section 413.70 is amended by—
a. Revising paragraph (b)(5)(i)(B).
b. Adding paragraph (b)(5)(i)(C).
The revision and addition read as
follows:
■
■
■
§ 413.70
Payment for services of a CAH.
*
*
*
*
*
(b) * * *
(5) * * *
(i) * * *
(B) Effective for cost reporting periods
beginning on or after January 1, 2004
and on or before September 30, 2011,
payment for ambulance services
furnished by a CAH or an entity that is
owned and operated by a CAH is 101
percent of the reasonable costs of the
CAH or the entity in furnishing those
services, but only if the CAH or the
entity is the only provider or supplier of
ambulance services located within a 35mile drive of the CAH or the entity.
(C) Effective for cost reporting periods
beginning on or after October 1, 2011,
payment for ambulance services
furnished by a CAH or an entity that is
owned and operated by a CAH is 101
percent of the reasonable costs of the
CAH or the entity in furnishing those
services, but only if the CAH or the
entity is the only provider or supplier of
ambulance services located within a 35mile drive of the CAH. If there is no
provider or supplier of ambulance
services located within a 35-mile drive
of the CAH and there is an entity that
is owned and operated by a CAH that
is more than a 35-mile drive from the
CAH, payment for ambulance services
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furnished by that entity is 101 percent
of the reasonable costs of the entity in
furnishing those services, but only if the
entity is the closest provider or supplier
of ambulance services to the CAH.
*
*
*
*
*
PART 476—UTILIZATION AND
QUALITY CONTROL REVIEW
13. 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)).
14. Section 476.78 is amended by—
a. In paragraph (a), removing the
reference ‘‘§ 466.71’’ and adding in its
place the reference ‘‘§ 476.71’’.
■ b. Revising paragraph (b).
The revision reads as follows:
■
■
§ 476.78 Responsibilities of health care
facilities.
mstockstill on DSK4VPTVN1PROD with RULES2
*
*
*
*
*
(b) Cooperation with QIOs. Health
care providers that submit Medicare
claims must cooperate in the
assumption and conduct of QIO review.
(1) Providers must allocate adequate
space to the QIO for its conduct of
review at the times the QIO is
conducting review.
(2) Providers must provide patient
care data and other pertinent data to the
QIO at the time the QIO is collecting
review information that is required for
the QIO to make its determinations.
QIOs pay providers paid under the
prospective payment system for the
costs of photocopying records requested
by the QIO in accordance with the
payment rate determined under the
methodology described in paragraph (c)
of this section and for first class postage
for mailing the records to the QIO.
When the QIO does postadmission,
preprocedure review, the provider must
provide the necessary information
before the procedure is performed,
unless it must be performed on an
emergency basis. Providers must—
(i) Photocopy and deliver to the QIO
all required information within 30
calendar days of a request;
(ii) Deliver all required medical
information to the QIO within 21
calendar days from the date of the
request in those situations where a
potential ‘‘serious reportable event’’ has
been identified or where other
circumstances as deemed by the QIO
warrant earlier receipt of all required
medical information. For purposes of
this paragraph, a serious reportable
event is defined as a preventable,
serious, and unambiguous adverse event
that should never occur.
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(3) Providers must inform Medicare
beneficiaries at the time of admission, in
writing, that the care for which
Medicare payment is sought will be
subject to QIO review and indicate the
potential outcomes of that review.
Furnishing this information to the
patient does not constitute notice, under
§ 411.402(a) of this chapter, that can
support a finding that the beneficiary
knew the services were not covered.
(4) When the provider has issued a
written determination in accordance
with § 412.42(c)(3) of this chapter that a
beneficiary no longer requires inpatient
hospital care, it must submit a copy of
its determination to the QIO within 3
working days.
(5) Providers must assure, in
accordance with the provisions of their
agreements with the QIO, that each case
subject to preadmission review has been
reviewed and approved by the QIO
before admission to the hospital or a
timely request has been made for QIO
review.
(6)(i) Providers must agree to accept
financial liability for any admission
subject to preadmission review that was
not reviewed by the QIO and is
subsequently determined to be
inappropriate or not medically
necessary.
(ii) The provisions of paragraph
(b)(6)(i) of this section do not apply if
a provider, in accordance with its
agreement with a QIO, makes a timely
request for preadmission review and the
QIO does not review the case timely.
Cases of this type are subject to
retrospective prepayment review under
paragraph (b)(7) of this section.
(7) Hospitals must agree that, if the
hospital admits a case subject to
preadmission review without
certification, the case must receive
retrospective prepayment review,
according to the review priority
established by the QIO.
*
*
*
*
*
(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 21, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare &
Medicaid Services.
Dated: July 27, 2011.
Kathleen Sebelius,
Secretary.
Note: The following Addendum and
Appendixes will not appear in the Code of
Federal Regulations.
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Addendum—Schedule of Standardized
Amounts, Update Factors, and Rate-ofIncrease Percentages Effective With
Cost Reporting Periods Beginning on or
After October 1, 2011
I. Summary and Background
In this Addendum, we are setting forth a
description of the methods and data we used
to determine the prospective payment rates
for Medicare hospital inpatient operating
costs and Medicare hospital inpatient capitalrelated costs for FY 2012 for acute care
hospitals. We also are setting forth the rateof-increase percentages for updating the
target amounts for certain hospitals excluded
from the IPPS for FY 2012. We note that,
because certain hospitals excluded from the
IPPS are paid on a reasonable cost basis
subject to a rate-of-increase ceiling (and not
by the IPPS), these hospitals are not affected
by the figures for the standardized amounts,
offsets, and budget neutrality factors.
Therefore, in this finalrule, 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, 2011.
In addition, we are setting forth a
description of the methods and data we used
to determine the standard Federal rate that
will be applicable to Medicare LTCHs for FY
2012.
In general, except for SCHs, MDHs, and
hospitals located in Puerto Rico, each
hospital’s payment per discharge under the
IPPS is based on 100 percent of the Federal
national rate, also known as the national
adjusted standardized amount. This amount
reflects the national average hospital cost per
case from a base year, updated for inflation.
Currently, SCHs are paid based on
whichever of the following rates yields the
greatest aggregate payment: The Federal
national rate; the updated hospital-specific
rate based on FY 1982 costs per discharge;
the updated hospital-specific rate based on
FY 1987 costs per discharge; the updated
hospital-specific rate based on FY 1996 costs
per discharge; or the updated hospitalspecific rate based on the FY 2006 costs per
discharge.
Under section 1886(d)(5)(G) of the Act,
MDHs historically have been paid based on
the Federal national rate or, if higher, the
Federal national rate plus 50 percent of the
difference between the Federal national rate
and the updated hospital-specific rate based
on FY 1982 or FY 1987 costs per discharge,
whichever was higher. However, section
5003(a)(1) of Public Law 109–171 extended
and modified the MDH special payment
provision that was previously set to expire on
October 1, 2006, to include discharges
occurring on or after October 1, 2006, but
before October 1, 2011. 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)
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of the Act. Section 3124(b)(2) of the
Affordable Care Act also amended section
13501(e)(2) of OBRA 1993 to extend the
provision permitting hospitals to decline
reclassification as an MDH through FY 2012.
Under section 5003(b) of Public Law 109–
171, if the change results in an increase to
an MDH’s target amount, we must rebase an
MDH’s hospital-specific rates based on its FY
2002 cost report. Section 5003(c) of Public
Law 109–171 further required that MDHs be
paid based on the Federal national rate or, if
higher, the Federal national rate plus 75
percent of the difference between the Federal
national rate and the updated hospitalspecific rate. Further, based on the provisions
of section 5003(d) of Public Law 109–171,
MDHs are no longer subject to the 12-percent
cap on their DSH payment adjustment factor.
For hospitals located in Puerto Rico, the
payment per discharge is based on the sum
of 25 percent of an updated Puerto Ricospecific rate based on average costs per case
of Puerto Rico hospitals for the base year and
75 percent of the Federal national rate. (We
refer readers to section II.D.3. of this
Addendum for a complete description.)
As discussed below in section II. of this
Addendum, we are making changes in the
determination of the prospective payment
rates for Medicare inpatient operating costs
for acute care hospitals for FY 2012. In
section III. of this Addendum, we discuss our
policy changes for determining the
prospective payment rates for Medicare
inpatient capital-related costs for FY 2012. In
section IV. of this Addendum, we are setting
forth our changes for determining the rate-ofincrease limits for certain hospitals excluded
from the IPPS for FY 2012. In section V. of
this Addendum, we are making changes in
the determination of the standard Federal
rate for LTCHs under the LTCH PPS for FY
2012. 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 2012
The basic methodology for determining
prospective payment rates for hospital
inpatient operating costs for acute care
hospitals for FY 2005 and subsequent fiscal
years is set forth at § 412.64. The basic
methodology for determining the prospective
payment rates for hospital inpatient
operating costs for hospitals located in Puerto
Rico for FY 2005 and subsequent fiscal years
is set forth at §§ 412.211 and 412.212. Below
we discuss the factors used for determining
the prospective payment rates for FY 2012.
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 Ricospecific standardized amounts to give the
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hospital the highest payment, as provided for
under sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act.
• Updates of 1.9 percent for all areas (that
is, the FY 2012 estimate of the market basket
rate-of-increase of 3.0 percent less an
adjustment of 1.0 percentage point for
multifactor productivity and less 0.1
percentage point), as required by section
1886(b)(3)(B)(i) of the Act, as amended by
sections 3401(a) 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
¥0.1 percent (that is, the FY 2012 estimate
of the market basket rate-of-increase of 3.0
percent, less 2.0 percentage points for failure
to submit data under the Hospital IQR
Program, less an adjustment of 1.0 percentage
point for multifactor productivity, and less
0.1 percentage point).
• An update of 1.9 percent to the Puerto
Rico-specific standardized amount (that is,
the FY 2012 estimate of the market basket
rate-of-increase of 3.0 percent less an
adjustment of 1.0 percentage point for
multifactor productivity and less 0.1
percentage point), in accordance with section
1886(d)(9)(C)(i) of the Act, as amended by
section 401(c) of Public Law 108–173, which
sets the update to the Puerto Rico-specific
standardized amount equal to the applicable
percentage increase set forth in section
1886(b)(3)(B)(i) of the Act.
• An adjustment to the standardized
amount to ensure budget neutrality for DRG
recalibration and reclassification, as provided
for under section 1886(d)(4)(C)(iii) of the Act.
• An adjustment to ensure the wage index
changes are budget neutral, as provided for
under section 1886(d)(3)(E)(i) of the Act. We
note that section 1886(d)(3)(E)(i) of the Act
requires that when we compute such budget
neutrality, we assume that the provisions of
section 1886(d)(3)(E)(ii) of the Act (requiring
a 62 percent labor-related share in certain
circumstances) had not been enacted.
• An adjustment to ensure the effects of
geographic reclassification are budget
neutral, as provided for in section
1886(d)(8)(D) of the Act, by removing the FY
2011 budget neutrality factor and applying a
revised factor.
• An adjustment to ensure the effects of
the rural community hospital demonstration
required under section 410A of Public Law
108–173, as amended by sections 3123 and
10313 of Public Law 111–148, which
extended the demonstration for an additional
5 years are budget neutral, as required under
section 410A(c)(2) of Public Law 108–173.
• An adjustment in light of the court’s
decision in Cape Cod v. Sebelius, (630 F.3d
203 (DC Cir. 2011)).
• An adjustment to remove the FY 2011
outlier offset and apply an offset for FY 2012,
as provided for in section 1886(d)(3)(B) of the
Act.
• As discussed below and in section II.D.
of the preamble to this 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
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51785
amounts to offset the estimated amount of the
increase in aggregate payments (including
interest) due to the effect of documentation
and coding that did not reflect real changes
in case-mix for discharges occurring during
FY 2008 and FY 2009.
Beginning in FY 2008, we applied the
budget neutrality adjustment for the rural
floor to the hospital wage indices rather than
the standardized amount. As we did for FY
2011, for FY 2012, we are 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 on the wage
index, we are applying a uniform, national
budget neutrality adjustment to the FY 2012
wage index for the rural floor. We note that,
as discussed in section III.F.2. of the
preamble of this final rule, we are extending
the imputed floor for 2 more years. Therefore,
we are continuing to apply the imputed floor
budget neutrality adjustment to the wage
indices. Thus, the imputed floor is reflected
in the final FY 2012 wage index.
A. Calculation of the Adjusted Standardized
Amount
1. Standardization of Base-Year Costs or
Target Amounts
In general, the national standardized
amount is based on per discharge averages of
adjusted hospital costs from a base period
(section 1886(d)(2)(A) of the Act), updated
and otherwise adjusted in accordance with
the provisions of section 1886(d) of the Act.
For Puerto Rico hospitals, the Puerto Ricospecific standardized amount is based on per
discharge averages of adjusted target amounts
from a base period (section 1886(d)(9)(B)(i) of
the Act), updated and otherwise adjusted in
accordance with the provisions of section
1886(d)(9) of the Act. The September 1, 1983
interim final rule (48 FR 39763) contained a
detailed explanation of how base-year cost
data (from cost reporting periods ending
during FY 1981) were established for urban
and rural hospitals in the initial development
of standardized amounts for the IPPS. The
September 1, 1987 final rule (52 FR 33043
and 33066) contains a detailed explanation of
how the target amounts were determined and
how they are used in computing the Puerto
Rico rates.
Sections 1886(d)(2)(B) and 1886(d)(2)(C) of
the Act require us to update base-year per
discharge costs for FY 1984 and then
standardize the cost data in order to remove
the effects of certain sources of cost
variations among hospitals. These effects
include case-mix, differences in area wage
levels, cost-of-living adjustments for Alaska
and Hawaii, IME costs, and costs to hospitals
serving a disproportionate share of lowincome patients.
In accordance with section 1886(d)(3)(E) of
the Act, the Secretary estimates, from timeto-time, the proportion of hospitals’ costs that
are attributable to wages and wage-related
costs. In general, the standardized amount is
divided into labor-related and nonlaborrelated amounts; only the proportion
considered to be the labor-related amount is
adjusted by the wage index. Section
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1886(d)(3)(E) of the Act requires that 62
percent of the standardized amount be
adjusted by the wage index, unless doing so
would result in lower payments to a hospital
than would otherwise be made. (Section
1886(d)(9)(C)(iv)(II) of the Act extends this
provision to the labor-related share for
hospitals located in Puerto Rico.)
For FY 2012, we are continuing to use a
labor-related share of 68.8 percent for
discharges occurring on or after October 1,
2011, for the national standardized amounts
and 62.1 percent for the Puerto Rico-specific
standardized amount. Consistent with
section 1886(d)(3)(E) of the Act, we are
applying the wage index to a labor-related
share of 62 percent for all IPPS hospitals
whose wage index values are less than or
equal to 1.0000. For all IPPS hospitals whose
wage indices are greater than 1.0000, we are
applying the wage index to a labor-related
share of 68.8 percent of the national
standardized amount. For FY 2012, all Puerto
Rico hospitals have a wage index less than
1.0. Therefore, the national labor-related
share will always be 62 percent because the
wage index for all Puerto Rico hospitals is
less than 1.0.
For hospitals located in Puerto Rico, we are
applying a labor-related share of 62.1 percent
if its Puerto Rico-specific wage index is
greater than 1.0000. For hospitals located in
Puerto Rico whose Puerto-Rico specific wage
index values are less than or equal to 1.0000,
we are applying a labor share of 62 percent.
The standardized amounts for operating
costs appear in Table 1A, 1B, and 1C that are
listed and published in section VI. of the
Addendum to this final rule and are available
via Internet.
2. Computing the Average Standardized
Amount
Section 1886(d)(3)(A)(iv)(II) of the Act
requires that, beginning with FY 2004 and
thereafter, an equal standardized amount be
computed for all hospitals at the level
computed for large urban hospitals during FY
2003, updated by the applicable percentage
update. Section 1886(d)(9)(A)(ii)(II) of the
Act equalizes the Puerto Rico-specific urban
and rural area rates. Accordingly, we are
calculating the FY 2012 national and Puerto
Rico standardized amounts irrespective of
whether a hospital is located in an urban or
rural location.
3. Updating the Average Standardized
Amount
Section 1886(b)(3)(B) of the Act specifies
the applicable percentage increase used to
update the standardized amount for payment
for inpatient hospital operating costs. As
discussed in section IV.K.3. of the preamble
of this 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 2012 applicable
percentage increase (which is based on the
second quarter 2011 forecast of the FY 2006based IPPS market basket) by the multifactor
productivity (MFP) adjustment (the 10-year
moving average of MFP for the period ending
FY 2012) of 1.0 percent, which is calculated
based on IHS Global Insight, Inc.’s (IGI’s)
second quarter 2011 forecast. In addition, in
accordance with section 1886(b)(3)(B)(i) of
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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 2012 by the estimated market basket
percentage increase less 0.1 percentage point
for hospitals in all areas. Sections
1886(b)(3)(B)(xi) and (xii) of Act, as added
and amended by sections 3401(a) and
10319(a) the Affordable Care Act, further
state that these adjustments may result in the
applicable percentage increase being less
than zero. The percentage increase in the
market basket reflects the average change in
the price of goods and services comprising
routine, ancillary, and special care unit
hospital inpatient services. Based on IGI’s
2011 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 2012 is 3.0 percent. Thus, for
FY 2012, the update to the average
standardized amount is 1.9 percent for
hospitals in all areas (that is, the FY 2012
estimate of the market basket rate-of-increase
of 3.0 percent less an adjustment of 1.0
percentage point for multifactor productivity
and less 0.1 percentage point). For hospitals
that do not submit quality data pursuant to
section 1886(b)(3)(B)(viii), the estimated
update to the operating standardized amount
is ¥0.1 percent (that is, the FY 2012 estimate
of the market basket rate-of-increase of 3.0
percent, less 2.0 percentage points for failure
to submit data under the IQR program, less
an adjustment of 1.0 percentage point for
multifactor productivity, 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, 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 finalizing
an applicable percentage increase to the
Puerto Rico-specific standardized amount of
1.9 percent.
Although the update factors for FY 2012
are set by law, we are required by section
1886(e)(4) of the Act to recommend, taking
into account MedPAC’s recommendations,
appropriate update factors for FY 2012 for
both IPPS hospitals and hospitals and
hospital units excluded from the IPPS.
Section 1886(e)(5)(A) of the Act requires that
we publish our proposed recommendations
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in the Federal Register for public comment.
Our recommendation on the update factors is
set forth in Appendix B of this final rule.
4. Other Adjustments to the Average
Standardized Amount
As in the past, we are adjusting the FY
2012 standardized amount to remove the
effects of the FY 2011 geographic
reclassifications and outlier payments before
applying the FY 2012 updates. We then
apply budget neutrality offsets for outliers
and geographic reclassifications to the
standardized amount based on FY 2012
payment policies.
We do not remove the prior year’s budget
neutrality adjustments for reclassification
and recalibration of the DRG weights and for
updated wage data because, in accordance
with sections 1886(d)(4)(C)(iii) and
1886(d)(3)(E) of the Act, estimated aggregate
payments after updates in the DRG relative
weights and wage index should equal
estimated aggregate payments prior to the
changes. If we removed the prior year’s
adjustment, we would not satisfy these
conditions.
Budget neutrality is determined by
comparing aggregate IPPS payments before
and after making changes that are required to
be budget neutral (for example, changes to
DRG classifications, recalibration of the DRG
relative weights, updates to the wage index,
and different geographic reclassifications).
We include outlier payments in the
simulations because they may be affected by
changes in these parameters.
Consistent with our methodology
established in the FY 2011 IPPS/LTCH final
rule (75 FR 50422 through 50433), because
IME Medicare Advantage payments are made
to IPPS hospitals under section 1886(d) of the
Act, we believe these payments must be part
of these budget neutrality calculations.
However, we note that it is not necessary to
include Medicare Advantage IME payments
in the outlier threshold calculation or the
outlier offset to the standardized amount
because the statute requires that outlier
payments be not less than 5 percent nor more
than 6 percent of total ‘‘operating DRG
payments,’’ which does not include IME and
DSH payments. In order to account for these
Medicare Advantage IME payments in
determining the budget neutrality
adjustments for this final rule, we identified
Medicare Advantage claims from IPPS
teaching hospitals in the MedPAR data.
Consistent with our methodology established
in the FY 2011 IPPS/LTCH final rule (75 FR
50422–50423), we first searched the MedPAR
file for all claims with an IME payment
greater than zero. We then filtered these
claims for a subset of claims with a GHO Paid
indicator with a value of ‘‘1’’ or if the IME
payment field was equal to the DRG payment
field. The GHO Paid indicator with a value
of ‘‘1’’ in the MedPAR file indicates that the
claim was paid by a Medicare Advantage
plan (other than the IPPS IME payment
specified at § 412.105(g)). For these Medicare
Advantage claims from IPPS teaching
hospitals, we computed a transfer-adjusted
CMI by provider based on the FY 2011 MS–
DRG GROUPER Version 28.0 assignment and
relative weights. We also computed a
transfer-adjusted CMI for these Medicare
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Advantage claims from IPPS teaching
hospitals based on the FY 2012 MS–DRG
GROUPER Version 29.0 assignments and
relative weights. These transfer-adjusted
CMIs (and corresponding case counts) were
used to calculate an IME teaching add-on
payment in accordance with § 412.105(g).
The total Medicare Advantage IME payment
amount was then added to the total Federal
payment amount for each provider (where
applicable) in order to account for the
Medicare Advantage IME payment in
determining the budget neutrality
adjustments. We note that we did not include
Medicare Advantage IME claims when
estimating outlier payments for providers
because Medicare Advantage claims are not
eligible for outlier payments under the IPPS.
Also, for this 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).
Additionally, consistent with our
methodology established in the FY 2011
IPPS/LTCH final rule (75 FR 50422–50423),
we examined the MedPAR and removed
pharmacy charges for antihemophilic blood
factor (which are paid separately under the
IPPS) with an indicator of ‘‘3’’ for blood
clotting with a revenue code of ‘‘0636’’from
the covered charge field for the budget
neutrality adjustments. We also removed
organ acquisition charges from the covered
charge field for the budget neutrality
adjustments because organ acquisition is a
pass-through payment not paid under the
IPPS.
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) for the budget
neutrality adjustments. The commenter
explained that the majority of patients
receiving blood clotting drugs have a
pharmacy indicator of ‘‘5,’’ which denotes
‘‘general drugs and/or IV therapy and blood
clotting drugs.’’ The commenter searched the
MedPAR file and found 48,494 claims with
a pharmacy indicator of ‘‘5’’ and 715 claims
with a pharmacy indicator of ‘‘3.’’ Based on
this analysis the commenter concluded that
a majority of anti hemophilic blood factor
claims contain an indicator of ‘‘5’’ rather than
‘‘3.’’ The commenter requested that CMS
develop a method to identify and separate
the charges for blood clothing drugs from
other pharmacy charges for blood factor
claims with an indicator of ‘‘5.’’ The
commenter also stated that, alternatively,
CMS could remove all pharmacy charges for
code ‘‘5’’ claims that are projected to qualify
as outliers under the FY 2012 proposed rule
in situations where no outlier payments for
FY 2010 were shown on the claims, but the
patients would have qualified as outliers in
FY 2010 based on the MedPAR claims for
covered charges (which include charges for
anti-hemophilic drugs). The commenter
explained that anti-hemophilic blood factor
are typically included in the covered charges
but are excluded by the PRICER program
from the charges used to pay the outlier. In
many of these cases an outlier payment
would have been made if the covered charges
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were used but once the PRICER program
excluded pharmacy charges for blood factor
claims with an indicator of ‘‘5’’, no outlier
payment was made.
Response: We appreciate the commenter’s
insights and are studying methods to
uniquely identify anti-hemophilic blood
factor charges in our MedPAR claims
database with an indicator of ‘‘5.’’ It is
possible that a change would be required to
the MedPAR file, which could delay
implementation, depending on the time
needed to adopt the systems change.
Additionally, we thank the commenter for
providing an alternative methodology to
identify anti-hemophilic blood factor charges
with an indicator of ‘‘5.’’ However, we are
not able to determine if the charges the
commenter is excluding are only charges
related to anti-hemophilic blood factor, and
we are concerned that this method could
exclude other charges that are not related to
these items. Therefore, we prefer to develop
a methodology that is more specific so that
charges that are not related to antihemophilic
blood factor are not excluded.
a. Recalibration of DRG Weights and Updated
Wage Index—Budget Neutrality Adjustment
Section 1886(d)(4)(C)(iii) of the Act
specifies that, beginning in FY 1991, the
annual DRG reclassification and recalibration
of the relative weights must be made in a
manner that ensures that aggregate payments
to hospitals are not affected. As discussed in
section II. of the preamble of this final rule,
we normalized the recalibrated DRG weights
by an adjustment factor so that the average
case weight after recalibration is equal to the
average case weight prior to recalibration.
However, equating the average case weight
after recalibration to the average case weight
before recalibration does not necessarily
achieve budget neutrality with respect to
aggregate payments to hospitals because
payments to hospitals are affected by factors
other than average case weight. Therefore, as
we have done in past years, we are making
a budget neutrality adjustment to ensure that
the requirement of section 1886(d)(4)(C)(iii)
of the Act is met.
Section 1886(d)(3)(E)(i) of the Act requires
us to update the hospital wage index on an
annual basis beginning October 1, 1993. This
provision also requires us to make any
updates or adjustments to the wage index in
a manner that ensures that aggregate
payments to hospitals are not affected by the
change in the wage index. Section
1886(d)(3)(E)(i) of the Act requires that we
implement the wage index adjustment in a
budget neutral manner. However, section
1886(d)(3)(E)(ii) of the Act sets the laborrelated share at 62 percent for hospitals with
a wage index less than or equal to 1.0, and
section 1886(d)(3)(E)(i) of the Act provides
that the Secretary shall calculate the budget
neutrality adjustment for the adjustments or
updates made under that provision as if
section 1886(d)(3)(E)(ii) of the Act had not
been enacted. In other words, this section of
the statute requires that we implement the
updates to the wage index in a budget neutral
manner, but that our budget neutrality
adjustment should not take into account the
requirement that we set the labor-related
share for hospitals with indices less than or
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51787
equal to 1.0 at the more advantageous level
of 62 percent. Therefore, for purposes of this
budget neutrality adjustment, section
1886(d)(3)(E)(i) of the Act prohibits us from
taking into account the fact that hospitals
with a wage index less than or equal to 1.0
are paid using a labor-related share of 62
percent. Consistent with current policy, for
FY 2012, we are adjusting 100 percent of the
wage index factor for occupational mix. We
describe the occupational mix adjustment in
section III.C. of the preamble of this final
rule.
For FY 2012, to comply with the
requirement that DRG reclassification and
recalibration of the relative weights be budget
neutral for the Puerto Rico standardized
amount and the hospital-specific rates, we
used FY 2010 discharge data to simulate
payments and compared aggregate payments
using the FY 2011 labor-related share
percentages, the FY 2011 relative weights,
and the FY 2011 pre-reclassified wage data
to aggregate payments using the FY 2011
labor-related share percentages, the FY 2012
relative weights, and the FY 2011 prereclassified wage data. Based on this
comparison, we computed a budget
neutrality adjustment factor equal to
0.997903. As discussed in section IV. of this
Addendum, we also apply the DRG
reclassification and recalibration budget
neutrality factor of 0.997903 to the hospitalspecific rates that are effective for cost
reporting periods beginning on or after
October 1, 2011.
In order to meet the statutory requirements
that we do not take into account the laborrelated share of 62 percent when computing
wage index budget neutrality, it was
necessary to use a three-step process to
comply with the requirements that DRG
reclassification and recalibration of the
relative weights and the updated wage index
and labor-related share have no effect on
aggregate payments for IPPS hospitals. We
first determined a DRG reclassification and
recalibration budget neutrality factor of
0.997903 by using the same methodology
described above to determine the DRG
reclassification and recalibration budget
neutrality factor for the Puerto Rico
standardized amount and hospital-specific
rates. Secondly, to compute a budget
neutrality factor for wage index and laborrelated share changes, we used FY 2010
discharge data to simulate payments and
compared aggregate payments using FY 2012
relative weights and FY 2011 pre-reclassified
wage indices, and applied the FY 2011 laborrelated share of 68.8 percent to all hospitals
(regardless of whether the hospital’s wage
index was above or below 1.0) to aggregate
payments using the FY 2012 relative weights
and the FY 2012 pre-reclassified wage
indices, and applied the labor-related share
for FY 2012 of 68.8 percent to all hospitals
(regardless of whether the hospital’s wage
index was above or below 1.0). In addition,
we applied the DRG reclassification and
recalibration budget neutrality factor (derived
in the first step) to the rates that were used
to simulate payments for this comparison of
aggregate payments from FY 2011 to FY
2012. By applying this methodology, we
determined a budget neutrality factor of
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1.000558 for changes to the wage index.
Finally, we multiplied the DRG
reclassification and recalibration budget
neutrality factor of 0.997903 (derived in the
first step) by the budget neutrality factor of
1.000558 for changes to the wage index
(derived in the second step) to determine the
DRG reclassification and recalibration and
updated wage index budget neutrality factor
of 0.99846.
b. Reclassified Hospitals—Budget Neutrality
Adjustment
Section 1886(d)(8)(B) of the Act provides
that, effective with discharges occurring on
or after October 1, 1988, certain rural
hospitals are deemed urban. In addition,
section 1886(d)(10) of the Act provides for
the reclassification of hospitals based on
determinations by the MGCRB. Under section
1886(d)(10) of the Act, a hospital may be
reclassified for purposes of the wage index.
Under section 1886(d)(8)(D) of the Act, the
Secretary is required to adjust the
standardized amount to ensure that aggregate
payments under the IPPS after
implementation of the provisions of sections
1886(d)(8)(B) and (C) and 1886(d)(10) of the
Act are equal to the aggregate prospective
payments that would have been made absent
these provisions. We note that the wage
index adjustments provided under section
1886(d)(13) of the Act are not budget neutral.
Section 1886(d)(13)(H) of the Act provides
that any increase in a wage index under
section 1886(d)(13) shall not be taken into
account ‘‘in applying any budget neutrality
adjustment with respect to such index’’
under section 1886(d)(8)(D) of the Act. To
calculate the budget neutrality factor for FY
2012, we used FY 2010 discharge data to
simulate payments and compared total IPPS
payments with FY 2012 relative weights, FY
2012 labor-related share percentages, and FY
2012 wage data prior to any reclassifications
under sections 1886(d)(8)(B) and (C) and
1886(d)(10) of the Act to total IPPS payments
with FY 2012 relative weights, FY 2012
labor-related share percentages, and FY 2012
wage data after such reclassifications. Based
on these simulations, we calculated an
adjustment factor of 0.991493 to ensure that
the effects of these provisions are budget
neutral, consistent with the statute.
The FY 2012 budget neutrality adjustment
factor is applied to the standardized amount
after removing the effects of the FY 2011
budget neutrality adjustment factor. We note
that the FY 2012 budget neutrality
adjustment reflects FY 2012 wage index
reclassifications approved by the MGCRB or
the Administrator. We note that, for this final
rule, as discussed in section III.B. of the
preamble to this final rule, section 3137(c) of
the Affordable Care Act resulted in some
additional hospitals receiving
reclassifications, or some hospitals receiving
reclassifications to a different area. These
reclassifications are included in the
calculation of reclassification budget
neutrality.
c. Rural Floor and Imputed Floor Budget
Neutrality Adjustment
As noted above, as discussed in section
III.F.2. of the preamble of this final rule, we
are extending the imputed floor for 2 more
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years. 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. As discussed in section III.F. of the
preamble of this final rule, consistent with
section 3141 of the Affordable Care Act, the
budget neutrality adjustment for the rural
and imputed floors is a national adjustment
to the wage index.
As discussed in section III.F.2. of the
preamble of this final rule, for the FY 2012
wage index, there is one new hospital in
rural Puerto Rico when previously there were
none. Therefore, for FY 2012, we are
calculating a national rural Puerto Rico wage
index (used to adjust the labor-related share
of the national standardized amount for
hospitals in Puerto Rico which receive 75
percent of the national standardized amount)
and a rural Puerto Rico-specific wage index
(which is used to adjust the labor-related
share of the Puerto Rico-specific
standardized amount for hospitals in Puerto
Rico that receive 25 percent of the Puerto
Rico-specific standardized amount). As the
new rural Puerto Rico hospital 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 on the
computation of the rural Puerto Rico wage
index can be found in section III.G. of the
preamble of this final rule. In past fiscal
years, when there was no rural Puerto Rico
wage index, we applied the national rural
floor budget neutrality wage index factor to
the national wage indices used to adjust the
labor-related share for the national
standardized amount (including the national
Puerto Rico wage indexes) but did not apply
this factor to the Puerto Rico-specific wage
indices. We did not apply the national rural
floor budget neutrality wage index factor to
the Puerto Rico-specific wage indices (nor
did we compute a Puerto Rico-specific rural
floor budget neutrality wage index factor)
because there were no rural hospitals in
Puerto Rico. As mentioned above, for FY
2012, there is now one rural Puerto Rico
hospital and, therefore, it is necessary to
compute and apply a Puerto Rico-specific
rural floor budget neutrality wage index
factor (in addition to the national factor).
To calculate the national rural floor and
imputed floor budget neutrality factor and
Puerto Rico-specific rural floor budget
neutrality adjustment factor, we used FY
2010 discharge data and FY 2012 postreclassified national and Puerto Rico-specific
wage indices to simulate IPPS payments.
First, we compared the national and Puerto
Rico-specific simulated payments without
the national rural floor and imputed floor
and Puerto Rico-specific rural floor applied
to national and Puerto Rico-specific
simulated payments with the national rural
floor and imputed floor and Puerto Ricospecific rural floor applied to determine the
national rural budget neutrality adjustment
factor of 0.991007 and the Puerto Ricospecific budget neutrality adjustment factor
of 0.989417. The national adjustment was
applied to the national wage indices to
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produce a national rural floor budget neutral
wage index and the Puerto Rico-specific
adjustment was then applied to the Puerto
Rico-specific wage indices to produce a
Puerto Rico-specific rural floor budget
neutral wage index.
d. Adjustment in Light of Court Decision in
Cape Cod v. Sebelius
In the FY 2012 IPPS/LTCH PPs proposed
rule (76 FR 26022), we proposed a 1.1
percent adjustment to the standardized
amount in recognition of the decision of
Cape Cod v. Sebelius (630 F.3d 203 (DC Cir.
2011)) (hereafter referred to as ‘‘Cape Cod’’).
However, we emphasized that remand
proceedings in that case were not complete
at that time and that the proposal reflected
the timing of the development of the
proposed rule and not a final decision as to
how the remand will proceed. In Cape Cod,
the plaintiff hospitals challenged the rural
floor budget neutrality adjustments for FY
2007 and FY 2008. In its opinion, the DC
Circuit Court found that section 4410 of the
Balanced Budget Act of 1997 (BBA) Public
Law 105–33, which authorized both the rural
floor and rural floor budget neutrality, would
not permit CMS to ignore prior year errors in
calculating rural floor budget neutrality
adjustments. The case was remanded to CMS
for further proceedings consistent with the
DC Circuit Court’s opinion.
While Cape Cod involved only FYs 2007
and 2008, in the FY 2012 proposed rule we
stated that the decision may have
implications for FY 2012 payment rates,
depending on the ultimate result of the
remand proceedings. In light of that opinion
and the timing of the rulemaking
development process, we proposed to restore
to the FY 2012 standardized amount the
offset for the rural floor and imputed floor on
the standardized amount over FY 1998
through 2006. We stated by making this
proposal for FY 2012, all affected parties
would have an opportunity to consider and
comment on the proposed adjustment. Given
that the court had remanded the case to the
Secretary for FYs 2007 and 2008 and those
remand proceedings were not yet completed
at the time of issuance of the proposed rule,
we indicated that the final rule might adopt
a different approach, depending on public
comments or developments in the remand
proceedings.
For purposes of the proposed rule, to
assess the overall impact of applying the
rural floor budget neutrality adjustment to
the standardized amount for the years
between FY 1998 and FY 2006, we
remodeled the recalibration/wage index
budget neutrality factor for the years at issue
(for which data were available), excluding
the effect of the rural floor adjustment. For
example, to compute the revised
recalibration/wage index budget neutrality
factor for FY 2000, we compared the FY 1999
pre-reclassified wage data with no rural floor
to FY 2000 pre-reclassified wage data with no
rural floor. We then compared the revised
factor to the wage/recalibration budget
neutrality factor derived under the original
modeling logic; that is, where the current
year’s pre-reclassified wage data had a rural
floor applied. The percent change in these
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two factors was then calculated for each
remodeled year.
Remodeled years from FY 1998 to FY 2004
showed an approximate 0.1 percentage point
increase between the factors for each year.
This increase results in a total of 0.7
percentage point, which we proposed to
return to the standardized amount in setting
the FY 2012 IPPS rates. Beginning with FY
2005 through FY 2006, the number of States
for which a floor wage index was available
was extended via the imputed floor policy.
With additional States receiving increases in
payment due to the application of the
imputed floor, we estimated the combined
effects of the rural and imputed floor to be
approximately 0.2 percentage point per year.
This resulted in a total of 0.4 percentage
point, which we proposed to return to the
standardized amount in setting the FY 2012
IPPS rates. Therefore, to remove the effects of
the rural floor from the standardized amount
for FY 1998 through FY 2006, we proposed
a one-time adjustment of 1.1 percentage
points, which increases the standardized
amount (0.7 percentage point plus 0.4
percentage point for a factor of 1.011). We
noted that, in the FY 2008 IPPS final rule
with comment period, we applied a one-time
adjustment of 1.002214 to the FY 2008
standardized amount to address a single year
transition (from FY 2007 to FY 2008) to a
noncumulative system of the rural floor
budget neutrality adjustment. The adjustment
of 1.002214 to the FY 2008 standardized
amount reflected the increase to the rates to
remove the effects of the rural floor budget
neutrality adjustment from FY 2007. Because
this 1.002214 factor remains on the rate, we
did not include an adjustment for FY 2007
in our calculation above.
Comment: Commenters supported CMS’
proposal to provide a 1.1 percent adjustment
in setting FY 2012 IPPS rates in light of the
Court’s decision in Cape Cod Hospital vs.
Sebelius. Several commenters requested that
CMS provide complete explanations of the
methodologies and data used in the
calculation of the 1.1 and 0.9 percent
adjustments to the standardized amount and
hospital-specific rate, respectively, for FYs
1998 through 2006. The commenters
suggested that such information would allow
them to verify the adjustment. These
commenters, however, did not propose an
adjustment different from the 1.1 percent
included in the FY 2012 proposed rule.
Response: In response to these
commenters’ comments, we are providing
more detail on how we calculated the onetime adjustment for purposes of determining
the FY 2012 IPPS rates. All of the data files
discussed in this response are available to the
public for download at http://www.cms.gov/
AcuteInpatientPPS/FFD/list.asp#TopOfPage.
We first estimated the percentage by which
the budget neutrality factors for wage and
recalibration differed due to applying a
cumulative budget rural floor for FYs 1998
through FY 2006. In calculating the original
wage and recalibration budget neutrality
factors, we simulated payments with the
prior year’s pre-reclassified wage data that
had no rural floor applied and prior year
DRG assignments and weights. We then
simulated payments with the current year’s
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pre reclassified wage data with a rural floor
applied and new DRG assignments and
weights. These two simulations were
compared against each other. The revised
modeling approach, which was instituted
and described in the FY 2008 IPPS final rule
with comment period, calculates the wage
and recalibration budget neutrality factor by
simulating payments with the prior year pre
reclassified wage data with no rural floor
applied and prior year DRG assignments and
weights and comparing those to simulated
payments with the current year’s prereclassified wage data with no rural floor
applied and new DRG assignments and
weights.
To estimate the percentage contribution of
the rural floor to the wage and recalibration
budget neutrality, we reconstructed payment
data and budget neutrality models for the
years involved in this case and then applied
both the original and revised budget
neutrality calculation methodology within
the model. Some fiscal years (for example,
FY 1998, FY 2001, and FY 2005) were more
challenging to model than other fiscal years
because multiple statutory changes in those
years led to a more complicated payment
structure. Each year, impact files are
prepared to analyze the payment impact of
policies and payment changes put forth in
the IPPS final rules and contain the variables
needed to simulate payments within each
year. These impact files did not hold a wage
index variable that reflected the ‘‘new’’ prereclassified wage data with no floor applied.
From FY 2003 forward, we reconstructed pre
reclassified wage index values with and
without a floor applied using the wage and
hour data files. For years prior to FY 2003,
the wage and hour data files were not
available so we set the wage index from the
standardization file as the pre reclassified no
floor wage index. Standardization files are
prepared each year in conjunction with each
final rule and contain pre-reclassified, prefloor wage index values for use in the process
of recalibrating the DRG relative weights. Due
to the time constraints with preparing the
final rule each year, the wage index values
contained in the standardization files are
typically prepared as soon as there is wage
data available and would reflect a prereclassified, pre-floor wage index value.
Although they may not reflect all corrections
and edits to the wage data that occurred in
a particular year, the majority of wage index
values contained in these files should match
the correct pre-reclassified, pre-floor wage
index values. Therefore, we believe these
files are sufficient to approximate the
payment effects of the rural floor policy. To
establish a rural floor for each State, we used
the wage index values for providers
physically located in the rural area for their
States. We then compared each provider’s
pre-reclassified no floor wage index to the
rural floor; if the pre-reclassified no floor
wage index was lower, the provider’s wage
index value was set equal to its State rural
floor wage index. This established a prereclassified wage index with the rural floor.
For FY 2003, FY 2004, and FY 2006, we
reconstructed pre-reclassified wage index
values with and without a rural floor using
the wage data files. Because the wage data
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51789
files typically reflect the final wage data for
the year and contain the most recent updates
(minor wage data updates can occur
throughout the year if there were mistakes in
the data on the part of the provider and/or
CMS), these files produced slightly different
national average hourly wage values than the
values published in the Federal Register for
the IPPS final rules. Again, the majority of
wage index values contained in these files
should match the correct pre-reclassified,
pre-floor wage index values. Therefore, we
believe these files are sufficient to
approximate the payment effects of the rural
floor policy. We followed the same steps that
we took for fiscal years prior to FY 2003 in
building pre-reclassified with floor wage
index values using the pre-floor wage index
values for the rural providers to set the rural
floors. Once the ‘‘with’’ and ‘‘without’’ rural
floor wage index variables were constructed,
they were merged into the impact files. Using
payment simulation programs and rates from
the historical budget neutrality libraries, we
were able to estimate the effect of the rural
floor policy for FY 1999, FY 2000, FY 2002,
FY 2003, FY 2004, and FY 2006. We used
these resulting estimates to assume a rural
floor effect for the years we were unable to
remodel in full because of the complexity of
the payment structure in those years as noted
above, that is, FY 1998, FY 2001, and FY
2005.
For each separate fiscal year remodeled, we
simulated payments with the prior year prereclassified wage data with no rural floor
applied and prior year DRG assignments and
weights. We compared these to simulated
payments with the current year’s prereclassified wage data with no rural floor
applied (constructed as described in the
preceding paragraph) and new DRG
assignments and weights. For example, for
FY 2000, we compared the FY 1999 prereclassified wage data with no rural floor to
FY 2000 pre-reclassified wage data with no
rural floor. This produced a wage and
recalibration budget neutrality factor that did
not carry any rural floor effects. Using the
same data set, we then repeated the original
calculation methodology that retained prior
years’ rural floor budget neutrality on the
standardized amount; that is, we simulated
payments with the prior year pre reclassified
wage data with no floor applied and prior
year DRG assignments and weights and then
compared them to simulated payments with
the new year’s pre reclassified wage data
with floor applied (constructed as described
in the preceding paragraph) and new DRG
assignments and weights. We then calculated
the percent change between the resulting
budget neutrality factors to determine the
percent contribution of the rural floor to the
budget neutrality adjustment. The ‘‘original’’
methodology under which the rural floor was
included in the wage and recalibration
budget neutrality calculation was repeated on
the data set(s) used for this estimate rather
than using the actual wage and recalibration
factors carried on the rates in order to limit
the percent change between the two numbers
solely to the application of the rural floor and
to prevent introducing differences that would
be due to data shifts between the original
files and the ones used for this estimate.
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Original budget
neutrality method
with rural floor
included
Remodeled budget neutrality
FY
FY
FY
FY
FY
FY
1999
2000
2002
2003
2004
2006
.......................................................................................
.......................................................................................
.......................................................................................
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We note that there is no difference between
applying the cumulative and non-cumulative
rural floor budget neutrality methodology in
FY 1998 because there are no prior year
payments to FY 1998 where the rural floor
was applied. The first year in which there is
an impact of the cumulative methodology is
FY 1999, which carries forward the budget
neutrality adjustment made in FY 1998. The
only significant change in rural floor wage
index policy (during the FYs 1999 through
2006) happened in FY 2005 when the
imputed floor policy was established. The
imputed floor policy provided a higher wage
index to hospitals in States that have no rural
areas and increases the impact of the rural
floor on the budget neutrality calculation. In
all the years we modeled through and
including FY 2004, the percentage change in
the wage and recalibration budget neutrality
showed a 0.1 percent effect for the rural floor
within each year. For FY 2006 and FY 2007,
the estimate for the rural floor showed a 0.2
percent effect. Therefore, we assume that,
similar to FY 2006, FY 2005 would also show
a 0.2 percent effect because that was the year
the imputed floor was first implemented. We
further assume that any year prior to FY 2004
for which budget neutrality was not
remodeled (that is, FY 1998 and FY 2001)
would show a 0.1 percent effect due to the
rural floor. Once the effects within each year
were determined, we determined a
cumulative effect of 1.1 percentage points.
We note that, in the FY 2008 IPPS final
rule with comment period, we applied a onetime adjustment of 1.002214 to the FY 2008
standardized amount to address a single year
transition (from FY 2007 to FY 2008) to a
noncumulative system of the rural floor
budget neutrality adjustment. This
adjustment of 1.002214 to the FY 2008
standardized amount reflected the increase to
the rates to remove the effects of the rural
floor budget neutrality adjustment from FY
2007. Because this 1.002214 factor remains
on the rate, we do not include an adjustment
for FY 2007 in the calculation described
above.
e. Case-Mix Budget Neutrality Adjustment
(1) Adjustment to the FY 2012 IPPS
Standardized Amount for the Prospective
Adjustment for FY 2010 and Subsequent
Years Authorized by Section 7(b)(1)(A) of
Public Law 110–90 and Section
1886(d)(3)(A)(vi) of the Act
As stated earlier, beginning in FY 2008, we
adopted the MS–DRG patient classification
system for the IPPS to better recognize
patients’ severity of illness in Medicare
payment rates. In the FY 2008 IPPS final rule
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0.999053
1.007418
0.996092
0.993478
1.003011
1.001375
with comment period (73 FR 47175 through
47186), we indicated that we believe the
adoption of the MS–DRGs had the potential
to lead to increases in aggregate payments
without a corresponding increase in actual
patient severity of illness due to the
incentives for changes in documentation and
coding. In that final rule, using the
Secretary’s authority under section
1886(d)(3)(A)(vi) of the Act to maintain
budget neutrality by adjusting the national
standardized amounts to eliminate the effect
of changes in documentation and coding that
do not reflect real change in case-mix, we
established prospective documentation and
coding adjustments of ¥1.2 percent for FY
2008, ¥1.8 percent for FY 2009, and ¥1.8
percent for FY 2010 (for a total adjustment
of ¥4.8 percent). On September 29, 2007,
Public Law 110–90 was enacted. Section 7 of
Public Law 110–90 included a provision that
reduces the documentation and coding
adjustment for the MS–DRG system that we
adopted in the FY 2008 IPPS final rule with
comment period to ¥0.6 percent for FY 2008
and ¥0.9 percent for FY 2009. To comply
with the provision of section 7(a) of Public
Law 110–90, in a final rule that appeared in
the Federal Register on November 27, 2007
(72 FR 66886), we changed the IPPS
documentation and coding adjustment for FY
2008 to ¥0.6 percent, and revised the FY
2008 national standardized amounts (as well
as other payment factors and thresholds)
accordingly, with these revisions being
effective as of October 1, 2007. For FY 2009,
section 7(a) of Public Law 110–90 required a
documentation and coding adjustment of
¥0.9 percent instead of the ¥1.8 percent
adjustment specified in the FY 2008 IPPS
final rule with comment period. As required
by statute, we applied a documentation and
coding adjustment of ¥0.9 percent to the FY
2009 IPPS national standardized amounts.
The documentation and coding adjustments
established in the FY 2008 IPPS final rule
with comment period are cumulative. As a
result, the ¥0.9 percent documentation and
coding adjustment in FY 2009 was in
addition to the ¥0.6 percent adjustment in
FY 2008, yielding a combined effect of ¥1.5
percent.
In the FY 2010 IPPS proposed rule and
final rule (74 FR 24092 through 24101 and
43768 through 43772, respectively), we
discussed our analysis of FY 2008 claims
data and did not apply any additional
documentation and coding adjustments to
the average standardized amounts under
section 1886(d) of the Act. We refer readers
to these rules for a detailed description of our
analysis, responses to comments, and final
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Revised budget
neutrality method
excluding rural
floor
Fmt 4701
Sfmt 4700
0.999666
1.008316
0.997134
0.994443
1.003932
1.003103
Percent change
between estimated
budget neutrality
factors
(percent)
0.10
0.10
0.10
0.10
0.10
0.20
policy respectively. After analysis of the FY
2009 claims data for the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50057 through 50073),
we found a total prospective documentation
and coding effect of 1.054. After accounting
for the ¥0.6 percent and the ¥0.9 percent
documentation and coding adjustments in
FYs 2008 and 2009, we found a remaining
documentation and coding effect of 3.9
percent. Therefore, we determined that an
additional cumulative adjustment of ¥3.9
percent would be necessary to meet the
requirements of section 7(b)(1)(A) of Public
Law 110–90 to make an adjustment to the
average standardized amounts in order to
eliminate the full effect of the documentation
and coding changes on future payments. As
we discussed in the FY 2011 IPPS/LTCH PPS
final rule, we did not propose a prospective
adjustment under section 7(b)(1)(A) of Public
Law 110–90 for FY 2011 (75 FR 23868
through 23870). We note that, as a result,
payments in FY 2011 (and in each future year
until we implement the requisite adjustment)
were 3.9 percent higher than they would
have been if we had implemented an
adjustment under section 7(b)(1)(A) of Public
Law 110–90. Our actuaries estimate that this
3.9 percentage point increase will result in an
aggregate payment of approximately $4
billion. We refer readers to the FY 2011 IPPS/
LTCH PPS final rule for a detailed
description of our analysis, responses to
comments, and final policy (75 FR 50057
through 50073).
In the proposed rule, we stated it was
imperative that CMS make a prospective
adjustment amount in FY 2012 to prevent the
continued accumulation of unrecoverable
overpayments. After consideration of the
public comments we received, and in
keeping with our longstanding policy to
mitigate, when possible, the effects of
significant downward adjustments on
hospitals to avoid what could be widespread,
disruptive effects of such adjustments on
hospitals, we are finalizing a prospective
adjustment of ¥2.0 percent instead of the
¥3.15 percent prospective adjustment that
was proposed. We refer the reader to section
II.D. of the preamble of this final rule for
more discussion. In addition, for a complete
discussion on our proposed and final
documentation and coding adjustment to the
hospital-specific rates, we refer readers to
section II.D.2.c.of this Addendum.
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(2) Adjustment to the FY 2012 IPPS
Standardized Amount for the Recoupment or
Repayment Adjustment for FY 2010
Authorized by Section 7(b)(1)(B) of Public
Law 110–90
As indicated in section II.D.4. in the
preamble to this final rule, the change due to
documentation and coding that did not
reflect real changes in case-mix for
discharges occurring during FY 2008 and FY
2009 exceeded the ¥0.6 and ¥0.9 percent
prospective documentation and coding
adjustment applied under section 7(a) of
Public Law 110–90 for those 2 years
respectively by 1.9 percentage points in FY
2008 and 3.9 percentage points in FY 2009.
In total, this change exceeded the cumulative
prospective adjustments by 5.8 percentage
points. Our actuaries estimated that this 5.8
percentage point increase resulted in an
increase in aggregate payments of
approximately $6.9 billion. In the FY 2011
IPPS/LTCH PPS final rule, we determined
that an aggregate adjustment of -5.8 percent
in FYs 2011 and 2012, subject to actuarial
adjustment to reflect accumulated interest,
would be necessary in order to meet the
requirements of section 7(b)(1)(B) of Public
Law 110–90 to adjust the standardized
amounts for discharges occurring in FYs
2010, 2011, and/or 2012 to offset the
estimated amount of the increase in aggregate
payments (including interest) in FYs 2008
and 2009.
It is often our practice to phase in rate
adjustments over more than one year in order
to moderate the effect on rates in any one
year. Therefore, as we specified in the FY
2011 IPPS/LTCH PPS final rule (75 FR
50425), we made an adjustment in FY 2011
to the standardized amount of ¥2.9 percent,
representing half of the aggregate adjustment
required under section 7(b)(1)(B) of Public
Law 110–90, for FY 2011. As we have
previously noted, unlike the prospective
adjustment to the standardized amounts
under section 7(b)(1)(A) of Public Law 110–
90 described earlier, the recoupment or
repayment adjustment to the standardized
amounts under section 7(b)(1)(B) of Public
Law 110–90 is not cumulative, but would be
removed for subsequent fiscal years once we
have offset the increase in aggregate
payments for discharges for FY 2008
expenditures and FY 2009 expenditures. We
refer readers to the FY 2011 IPPS/LTCH PPS
final rule for a detailed description of our
analysis, responses to comments, and final
policy (75 FR 50057 through 50073).
While we stated in the FY 2011 IPPS/LTCH
PPS final rule the need to potentially adjust
the remaining ¥2.9 percent estimate to
account for accumulated interest, our
actuaries have determined that there has
been no significant interest accumulation and
that no additional adjustment will be
required. Therefore, in section II.D. of the
preamble to this final rule, we finalized our
proposal to complete the recoupment
adjustment according to the timeframes set
forth by section 7(b)(1)(B) of Public Law 110–
90 by implementing the remaining ¥2.9
percent adjustment, in addition to removing
the effect of the ¥2.9 percent adjustment to
the standardized amount finalized in FY
2011.
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Because these adjustments will, in effect,
balance out, there will be no year-to-year
change in the standardized amount due to
this recoupment adjustment. As this
adjustment will complete the required
recoupment for overpayments due to
documentation and coding effects on
discharges occurring in FYs 2008 and 2009,
we anticipate removing the effect of this
adjustment by adding 2.9 percent to the
standardized amount in FY 2013. We
continue to believe that this is a reasonable
and fair approach that satisfies the
requirements of the statute while
substantially moderating the financial impact
on hospitals. We refer the reader to section
II.D. of the preamble to this final rule for
more discussion.
(3) Adjustment to the FY 2012 Puerto Rico
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 from the Puerto Rico-specific rate.
In FY 2011, as finalized in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50071 through
50073), we applied an adjustment of ¥2.6
percent to the Puerto Rico-specific rate.
Therefore, because the Puerto Rico-specific
rate received a full prospective adjustment of
¥2.6 percent in FY 2011, in section II.D.9.
of the preamble of this final rule, we
finalized our proposal to make no further
adjustment for FY 2012. For a complete
discussion on our final policy, we refer
readers to section II.D.9. of the preamble of
this final rule.
f. Rural Community Hospital Demonstration
Program Adjustment
As discussed in section IV.N. of the
preamble to this final rule, section 410A of
Public Law 108–173 originally required the
Secretary to establish a demonstration that
modifies reimbursement for inpatient
services for up to 15 small rural hospitals.
Section 410A(c)(2) of Public Law 108–173
requires that ‘‘[i]n conducting the
demonstration program under this section,
the Secretary shall ensure that the aggregate
payments made by the Secretary do not
exceed the amount which the Secretary
would have paid if the demonstration
program under this section was not
implemented.’’
Sections 3123 and 10313 of the Affordable
Care Act extended the demonstration for an
additional 5-year period, and allow up to 30
hospitals to participate in 20 States with low
population densities determined by the
Secretary. (In determining which States to
include in the expansion, the Secretary is
required to use the same criteria and data
that the Secretary used to determine the
States for purposes of the initial 5-year
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period). In the FY 2011 IPPS/LTCH PPS final
rule (75 FR 50426), in order to achieve
budget neutrality, we adjusted the national
IPPS rates by an amount sufficient to account
for the added costs of this demonstration as
described in section IV.K. of that final rule.
In other words, we applied budget neutrality
across the payment system as a whole rather
than merely across the participants of this
demonstration, consistent with past practice.
We stated that we believe that the language
of the statutory budget neutrality requirement
permits the agency to implement the budget
neutrality provision in this manner. The
statutory language requires that ‘‘aggregate
payments made by the Secretary do not
exceed the amount which the Secretary
would have paid if the demonstration * * *
was not implemented,’’ but does not identify
the range across which aggregate payments
must be held equal.
For FY 2012, we proposed the estimated
amount for the adjustment to the national
IPPS rates for FY 2012 to be $52,642,213. For
this final rule, we determined that for the 25
hospitals participating in the demonstration
project an estimated amount for the
adjustment to the national IPPS rates for FY
2012 is $52,452,060. Accordingly, to account
for the estimated costs of the demonstration
for the specific time periods as explained in
detail in section IV.N. of the preamble of this
final rule, for FY 2012, we computed a factor
of 0.999487 for the rural community hospital
demonstration program budget neutrality
adjustment that is applied to the IPPS
standardized rate.
We noted that because the settlement
process for the demonstration hospitals’ third
and fourth year cost reports, that is, for cost
reporting periods starting in FYs 2007 and
2008, has experienced a delay, for the
proposed rule, we were unable to state the
costs of the demonstration corresponding to
FYs 2007 and 2008 for purposes of
determining the amount by which the costs
of the demonstration corresponding to FYs
2007 and 2008 exceeded the amount offset by
the budget neutrality adjustments for FYs
2007 and 2008. As a result, we were unable
to propose the specific numeric adjustment
representing this offsetting process that
would be a component of the budget
neutrality adjustment and that would be
applied to the national IPPS rates. Therefore,
the estimated budget neutrality adjustment to
the national IPPS rate in the proposed rule
did not include a component to account for
these costs. We indicated in the proposed
rule that we anticipated that this information
may be available for the FY 2012 IPPS/LTCH
PPS final rule, at which time, if data from
settled cost reports are available, under our
proposal, we would incorporate a component
into the budget neutrality adjustment to the
national IPPS rates to account for the amount
by which the demonstration costs
corresponding to FY 2007 and FY 2008
exceeded the amount offset by the budget
neutrality adjustments for FYs 2007 and
2008.
Similarly, for this final rule, we are unable
to identify the specific numeric amount
representing this offsetting process that can
be incorporated into the budget neutrality
adjustment applied to the national IPPS rates
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due to delays in the settlement process for
the demonstration hospitals’ third and fourth
year cost reports. We note that we anticipate
that they may be available for the FY 2013
IPPS/LTCH PPS proposed and final rules.
Therefore, the estimated adjustment to the
national IPPS rates in this final rule cannot
include a component to account for these
costs.
g. Outlier Payments
Section 1886(d)(5)(A) of the Act provides
for payments in addition to the basic
prospective payments for ‘‘outlier’’ cases
involving extraordinarily high costs. To
qualify for outlier payments, a case must
have costs greater than the sum of the
prospective payment rate for the DRG, any
IME and DSH payments, any new technology
add-on payments, and the ‘‘outlier
threshold’’ or ‘‘fixed-loss’’ amount (a dollar
amount by which the costs of a case must
exceed payments in order to qualify for an
outlier payment). We refer to the sum of the
prospective payment rate for the DRG, any
IME and DSH payments, any new technology
add-on payments, and the outlier threshold
as the outlier ‘‘fixed-loss cost threshold.’’ To
determine whether the costs of a case exceed
the fixed-loss cost threshold, a hospital’s CCR
is applied to the total covered charges for the
case to convert the charges to estimated costs.
Payments for eligible cases are then made
based on a marginal cost factor, which is a
percentage of the estimated costs above the
fixed-loss cost threshold. The marginal cost
factor for FY 2012 is 80 percent, the same
marginal cost factor we have used since FY
1995 (59 FR 45367).
In accordance with section
1886(d)(5)(A)(iv) of the Act, outlier payments
for any year are projected to be not less than
5 percent nor more than 6 percent of total
operating DRG payments plus outlier
payments. We note that the statute requires
outlier payments to be not less than 5 percent
nor more than 6 percent of total ‘‘operating
DRG payments’’ (which does not include IME
and DSH payments) plus outlier payments.
When setting the outlier threshold, we
compute the 5.1 percent target by dividing
the total operating outlier payments by the
total operating DRG payments plus outlier
payments. We do not include any other
payments such as IME and DSH within the
outlier target amount. Therefore, it is not
necessary to include Medicare Advantage
IME payments in the outlier threshold
calculation. Section 1886(d)(3)(B) of the Act
requires the Secretary to reduce the average
standardized amount by a factor to account
for the estimated proportion of total DRG
payments made to outlier cases. Similarly,
section 1886(d)(9)(B)(iv) of the Act requires
the Secretary to reduce the average
standardized amount applicable to hospitals
located in Puerto Rico to account for the
estimated proportion of total DRG payments
made to outlier cases. More information on
outlier payments may be found on the CMS
Web site at: http://www.cms.hhs.gov/
AcuteInpatientPPS/
04_outlier.asp#TopOfPage.
(1) FY 2012 Outlier Fixed-Loss Cost
Threshold
For FY 2012, we proposed to continue to
use the same methodology used for FY 2009
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(73 FR 48763 through 48766) to calculate the
outlier threshold. Similar to the methodology
used in the FY 2009 IPPS final rule, for FY
2012, we 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 2012 outlier threshold, we
simulated payments by applying proposed
FY 2012 rates and policies using cases from
the FY 2010 MedPAR files. Therefore, in
order to determine the proposed FY 2012
outlier threshold, we inflated the charges on
the MedPAR claims by 2 years, from FY 2010
to FY 2012.
We 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.
Using the most recent data available, we
calculated the 1-year average annualized rateof-change in charges per case from the last
quarter of FY 2009 in combination with the
first quarter of FY 2010 (July 1, 2009 through
December 31, 2009) to the last quarter of FY
2010 in combination with the first quarter of
FY 2011 (July 1, 2010 through December 31,
2010). This rate-of-change was 4.43 percent
(1.044394) or 9.07 percent (1.090759) over 2
years. As we have done in the past, we
established the proposed FY 2012 outlier
threshold using hospital CCRs from the
December 2010 update to the ProviderSpecific 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 2012, we proposed to continue to use
the same methodology to calculate the CCR
adjustment by using the FY 2010 operating
cost per discharge increase in combination
with the actual FY 2010 operating market
basket percentage increase determined by
IHS Global Insight, Inc. (IGI), as well as the
charge inflation factor described above to
estimate the adjustment to the CCRs. (We
note that the FY 2010 actual (otherwise
referred to as ‘‘final’’) operating market
basket percentage increase reflects historical
data, whereas the published FY 2010
operating market basket update factor was
based on IGI’s 2009 second quarter forecast
with historical data through the first quarter
of 2009. We also note that while the FY 2010
published operating market basket update
was based on the FY 2002-based IPPS market
basket, the actual or ‘‘final’’ market basket
percentage increase is based on the FY 2006based IPPS market basket. Similarly, the FY
2010 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
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from hospital cost reports, we are using two
different measures of cost inflation. For FY
2012, we determined the adjustment by
taking the percentage increase in the
operating costs per discharge from FY 2008
to FY 2009 (1.0285) from the cost report and
dividing it by the final operating market
basket percentage increase from FY 2009
(1.026). This operation removes the measure
of pure price increase (the market basket)
from the percentage increase in operating
cost per discharge, leaving the nonprice
factors in the cost increase (for example,
quantity and changes in the mix of goods and
services). We repeated this calculation for 2
prior years to determine the 3-year average of
the rate of adjusted change in costs between
the operating market basket percentage
increase and the increase in cost per case
from the cost report (the FY 2006 to FY 2007
percentage increase of operating costs per
discharge of 1.0465 divided by the FY 2007
final operating market basket percentage
increase of 1.036, the FY 2007 to FY 2008
percentage increase of operating costs per
discharge of 1.0506 divided by the FY 2008
final operating market basket percentage
increase of 1.040). For FY 2012, we averaged
the differentials calculated for FY 2007, FY
2008, and FY 2009, which resulted in a mean
ratio of 1.0076. We multiplied the 3-year
average of 1.0076 by the FY 2010 final
operating market basket percentage increase
of 1.021, which resulted in an operating cost
inflation factor of 2.87 percent or 1.028747.
We then divided the operating cost inflation
factor by the 1-year average change in charges
(1.044394) and applied an adjustment factor
of 0.985018 to the operating CCRs from the
PSF (calculation performed on unrounded
numbers).
As stated in the FY 2009 IPPS final rule (73
FR 48763), we continue to believe it is
appropriate to apply only a 1-year adjustment
factor to the CCRs. On average, it takes
approximately 9 months for a fiscal
intermediary or MAC to tentatively settle a
cost report from the fiscal year end of a
hospital’s cost reporting period. The average
‘‘age’’ of hospitals’ CCRs from the time the
fiscal intermediary or the MAC inserts the
CCR in the PSF until the beginning of FY
2009 is approximately 1 year. Therefore, as
stated above, we believe a 1-year adjustment
factor to the CCRs is appropriate.
We used the same methodology for the
capital CCRs and determined the adjustment
by taking the percentage increase in the
capital costs per discharge from FY 2008 to
FY 2009 (1.0508) from the cost report and
dividing it by the final capital market basket
percentage increase from FY 2009 (1.015).
We repeated this calculation for 2 prior years
to determine the 3-year average of the rate of
adjusted change in costs between the capital
market basket percentage increase and the
increase in cost per case from the cost report
(the FY 2006 to FY 2007 percentage increase
of capital costs per discharge of 1.0507
divided by the FY 2007 final capital market
basket percentage increase of 1.013, the FY
2007 to FY 2008 percentage increase of
capital costs per discharge of 1.0811 divided
by the FY 2008 final capital market basket
percentage increase of 1.015). For FY 2012,
we averaged the differentials calculated for
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FY 2007, FY 2008, and FY 2009, which
resulted in a mean ratio of 1.0459. We
multiplied the 3-year average of 1.0459 by
the FY 2010 final capital market basket
percentage increase of 1.010, which resulted
in a capital cost inflation factor of 5.63
percent or 1.056329. We then divided the
capital cost inflation factor by the 1-year
average change in charges (1.044394) and
applied an adjustment factor of 1.011428 to
the capital CCRs from the PSF (calculation
performed on unrounded numbers). We
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 2012, we applied
the proposed FY 2012 rates and policies
using cases from the FY 2010 MedPAR files
in calculating the proposed outlier threshold.
As discussed in section III.B.3. of the
preamble to the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50160 and 50161) and in
section III.F. of this 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 2012, it was necessary to
apply this provision by adjusting the wage
index of those eligible hospitals in a frontier
State when calculating the outlier threshold
that results in outlier payments being 5.1
percent of total payments for FY 2012. If we
did not take into account this provision, our
estimate of total FY 2012 payments would be
too low, and, as a result, our proposed outlier
threshold would be too high, such that
estimated outlier payments would be less
than our projected 5.1 percent of total
payments.
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 through FY 2010
of 5.4 percent is already included within the
claims data (FY 2010 MedPAR files) used to
calculate the FY 2012 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
2010 MedPAR claims data, and we did not
believe there was any need to inflate FY 2010
claims data for any additional case-mix
growth projected to have occurred since FY
2010.
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Using this methodology, we proposed an
outlier fixed-loss cost threshold for FY 2012
equal to the prospective payment rate for the
DRG, plus any IME and DSH payments, and
any add-on payments for new technology,
plus $23,375.
As we did in establishing the FY 2009
outlier threshold (73 FR 57891), in our
projection of FY 2012 outlier payments, we
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 note that reconciliation occurs because
hospitals’ actual CCRs for the cost reporting
period are different than the interim CCRs
used to calculate outlier payments when a
bill is processed. Our simulations assume
that CCRs accurately measure hospital costs
based on information available to us at the
time we set the outlier threshold. For these
reasons, we proposed not to make any
assumptions about the effects of
reconciliation on the outlier threshold
calculation.
Comment: Commenters, including major
hospital associations, stated that CMS
currently estimates outlier payments in FY
2010 at 4.7 percent of total payments. The
commenters commended CMS for making
refinements such as applying an adjustment
factor to CCRs when computing the outlier
threshold but noted that, because CMS is still
not reaching the 5.1 percent target for outlier
payments, there is still room for
improvement. The commenters further stated
that although CMS currently projects outlier
payments in FY 2011 to be estimated at 4.9
percent of total payments, which is lower the
5.1 percent target, this estimate is based on
discharges from a prior year and, in their
view, will likely not reflect the actual result.
The commenters noted that in prior years
when CMS provided its projected estimate of
outlier payments for a given fiscal year, once
the actual claims were available to determine
the actual outlier payment (in the following
fiscal year), their analysis showed that the
estimate declined between 0.2 percent and
0.3 percent from the projection.
One commenter suggested that the
methodology to develop the adjustment
factor to the CCRs is unnecessarily
complicated and does not lead to a more
accurate result. The commenter requested
clarification if CMS applies the same CCR
throughout the fiscal year within the outlier
model. The commenter also urged CMS to
adopt a methodology that uses recent
historical industry wide average rate of
change, similar to the methodology used to
develop the charge inflation factor.
Specifically, the commenter recommended
that CMS measure the rate of change in CCRs
to develop the adjustment factor to the CCRs.
Further, in addition to recommending an
adjustment to the CCRs based on historical
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51793
data, the commenter opposed CMS’s
methodology of applying the adjustment
factor over one year and suggested that the
CCRs should be projected over different
periods of time, some less or more than one
year, based on variations in hospital fiscal
year ends. The commenter also opposed
CMS’ use of the December 2010 update of the
PSF and assert that CMS’s methodology is
oversimplified. The commenter believed that
its methodology would more accurately
project the decline in CCRs.
The commenter also 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. The
commenter explained that outlier payments
have been underpaid in every year since
2004. Based on actual payments determined
by the commenter using data analysis, the
commenter asserted that the underpayment
has exceeded 0.5 percent in all years except
one. The commenter recommended that CMS
maintain the outlier threshold at 5.1 percent
but apply an estimate adjustment factor when
projecting the outlier threshold. The
commenter provided an example and
computed this factor for FY 2009 and FY
2010 by taking the average variance in the
actual payment for FY 2008 and FY 2009
which was 0.491 percent. Based on this
factor, CMS would model the threshold to a
level of 5.591 percent (5.1 plus .491 percent).
If CMS were to overpay outliers, then the
adjustment would be become negative. The
commenter stated that this would fulfill the
statutory requirement in section 1886
(d)(5)(A) of the Act that requires that CMS
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.
The commenter responded to CMS’s
concerns expressed in last year’s final rule
(75 FR 50429) that an ‘‘estimate adjustment
factor’’ to the outlier threshold or
standardized amount in a given year to
account for ‘‘overpayments’’ or
‘‘underpayments’’ of outliers in other years
would not result in the agency making outlier
payments that were not directly related to the
actual cost of furnishing care in
extraordinarily costly cases. The commenter
believed that an ‘‘estimate adjustment factor’’
represents a prospective adjustment factor
based on historical data and would not
constitute a retroactive adjustment to prior
outlier payments because the adjustment
would have no impact on past outlier
payments. Moreover, the commenter further
opined that the estimate adjustment factor
would be based on historical outlier cases so
payments would be directly related to the
actual cost of furnishing care to outlier
patients.
Response: Commenters to previous rules
have raised similar concerns regarding our
estimates of outlier payments. We refer
readers to a similar discussion in the FY 2008
final rule with comment period (72 FR
47418). In response to the comment that
CCRs should be projected over different
periods of time, it is possible that some of the
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CCRs in the March PSF will be used in FY
2009 for actual outlier payments, while other
CCRs may be one year old. Therefore, we
apply a 1-year adjustment to the CCRs. The
adjusted CCR is applied throughout the fiscal
year within the outlier model. With respect
to the comment on our methodology used to
adjust the CCRs, as we stated in the FY 2008
IPPS final rule with comment period (72 FR
47418), we continue to believe this
calculation of an adjustment to the CCRs is
more accurate and stable than the
commenter’s methodology because it takes
into account the costs per discharge and the
market basket percentage increase when
determining a cost adjustment factor. There
are times where the market basket and the
cost per discharge will be constant, while
other times these values will differ from each
other, depending on the fiscal year.
Therefore, as mentioned above, using the
market basket in conjunction with the cost
per discharge takes into account two sources
that measure potential cost inflation and
ensures a more accurate and stable cost
adjustment factor.
With respect to the comment of computing
an ‘‘estimate adjustment factor,’’ we thank
the commenter for further explaining their
position on this adjustment. Further analysis
by CMS is necessary to determine if the
commenter’s approach to applying an
‘‘estimate adjustment factor’’ is appropriate.
We will consider the commenter’s suggestion
of applying an ‘‘estimate adjustment factor’’
in future rulemaking if, based on our
analysis, we determine that application of an
‘‘estimate adjustment factor’’ is appropriate
and consistent with the statute.
Comment: One commenter was concerned
that CMS did not include outlier
reconciliations in developing the outlier
threshold. The commenter requested that
CMS disclose in the final rule and future
proposed and final IPPS rules the amount of
money it has recovered through
reconciliation. The commenter explained
that this information will allow others to
comment specifically on how this provision
would impact the threshold.
Response: We received a similar comment
to last year’s rule, and we thank the
commenter for again informing us of its
concern regarding not including outlier
reconciliation within the development of the
outlier threshold. However, as stated above,
we continue to believe that, due to the policy
implemented in the June 9, 2003 outlier final
rule (68 FR 34494), CCRs will no longer
fluctuate significantly and, therefore, few
hospitals will actually have these ratios
reconciled upon cost report settlement. In
addition, it is difficult to predict the specific
hospitals that will have CCRs and outlier
payments reconciled in any given year. We
also noted that reconciliation occurs because
hospitals’ actual CCRs for the cost reporting
period are different than the interim CCRs
used to calculate outlier payments when a
bill is processed. Our simulations assume
that CCRs accurately measure hospital costs
based on information available to us at the
time we set the outlier threshold. For these
reasons, we proposed and are finalizing our
policy not to make any assumptions about
the effects of reconciliation on the outlier
threshold calculation.
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Additionally, we published a manual
update (Change Request 7192) to our outlier
policy on December 3, 2010, which also
updated Chapter 3, Section 20.1.2 of the
Medicare Claims Processing Manual. The
manual update outlines the outlier
reconciliation process for hospitals and
Medicare contractors. The instructions in
Change Request 7192 regarding outlier
reconciliation were effective on April 1,
2011. 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 will be publicly available once the
cost report data are posted on our Web site
at http://www.cms.gov/CostReports/
02_HospitalCostReport.asp#TopOfPage.
Since April 1, 2011, we have approved some
provider’s outlier payments to be reconciled.
Other providers that were flagged for outlier
reconciliation are still under review for
approval. 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). As instructed in Change Request
7192, barring an exception from CMS,
Medicare contractors were given until
October 1, 2011, to complete the
reconciliation process for those providers
flagged for outlier reconciliation prior to
April 1, 2011. To download and view the
manual instructions on outlier reconciliation,
we refer readers to the CMS Web site:
http://www.cms.hhs.gov/manuals/
downloads/clm104c03.pdf.
Because we are not making any changes to
our methodology for this final rule, for FY
2012, we are using the same methodology we
proposed to calculate the outlier threshold.
Using the most recent data available, we
calculated the 1-year average annualized rateof-change in charges per case from the first
quarter of FY 2010 in combination with the
second quarter of FY 2010 (October 1, 2009
through March 31, 2010) to the first quarter
of FY 2011 in combination with the second
quarter of FY 2011 (October 1, 2010 through
March 31, 2010). This rate-of-change was
3.89 percent (1.038944) or 7.94 percent
(1.079405) over 2 years. As we have done in
the past, we established the final FY 2012
outlier threshold using hospital CCRs from
the March 2011 update to the ProviderSpecific File (PSF)—the most recent available
data at the time of this final rule.
For FY 2012, we calculated the CCR
adjustment by using the FY 2010 operating
cost per discharge increase in combination
with the actual FY 2010 operating market
basket percentage increase determined by
IHS Global Insight, Inc. (IGI), as well as the
charge inflation factor described above to
estimate the adjustment to the CCRs. (We
note that the FY 2010 actual (otherwise
referred to as ‘‘final’’) operating market
basket percentage increase reflects historical
data, whereas the published FY 2010
operating market basket update factor was
based on IGI’s 2009 second quarter forecast
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with historical data through the first quarter
of 2009. We also note that while the FY 2010
published operating market basket update
was based on the FY 2002-based IPPS market
basket, the actual or ‘‘final’’ market basket
percentage increase is based on the FY 2006based IPPS market basket. Similarly, the FY
2010 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
2012, we determined the adjustment by
taking the percentage increase in the
operating costs per discharge from FY 2008
to FY 2009 (1.0290) from the cost report and
divided it by the final operating market
basket percentage increase from FY 2009
(1.026). This operation removes the measure
of pure price increase (the market basket)
from the percentage increase in operating
cost per discharge, leaving the nonprice
factors in the cost increase (for example,
quantity and changes in the mix of goods and
services). We repeated this calculation for 2
prior years to determine the 3-year average of
the rate of adjusted change in costs between
the operating market basket percentage
increase and the increase in cost per case
from the cost report (the FY 2006 to FY 2007
percentage increase of operating costs per
discharge of 1.0464 divided by the FY 2007
final operating market basket percentage
increase of 1.036, the FY 2007 to FY 2008
percentage increase of operating costs per
discharge of 1.0507 divided by FY 2008 final
operating market basket percentage increase
of 1.040). For FY 2012, we averaged the
differentials calculated for FY 2007, FY 2008,
and FY 2009, which resulted in a mean ratio
of 1.0078. We multiplied the 3-year average
of 1.0078 by the FY 2010 final operating
market basket percentage increase of 1.021,
which resulted in an operating cost inflation
factor of 2.87 percent or 1.028913. We then
divided the operating cost inflation factor by
the 1-year average change in charges
(1.038994) and applied an adjustment factor
of 0.990297 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 2008 to
FY 2009 (1.0494) from the cost report and
dividing it by the final capital market basket
percentage increase from FY 2009 (1.015).
We repeated this calculation for 2 prior years
to determine the 3-year average of the rate of
adjusted change in costs between the capital
market basket percentage increase and the
increase in cost per case from the cost report
(the FY 2006 to FY 2007 percentage increase
of capital costs per discharge of 1.0508
divided by the FY 2007 final capital market
basket percentage increase of 1.013, the FY
2007 to FY 2008 percentage increase of
capital costs per discharge of 1.0813 divided
by the FY 2008 final capital market basket
percentage increase of 1.015). For FY 2012,
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we averaged the differentials calculated for
FY 2007, FY 2008, and FY 2009, which
resulted in a mean ratio of 1.0455. We
multiplied the 3-year average of 1.0455 by
the FY 2010 final capital market basket
percentage increase of 1.010, which resulted
in a capital cost inflation factor of 5.6 percent
or 1.055964. We then divided the capital cost
inflation factor by the 1-year average change
in charges (1.038994) and applied an
adjustment factor of 1.011428 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 2012, we applied
the FY 2012 rates and policies using cases
from the FY 2010 MedPAR files in
calculating the outlier threshold. As
discussed in section III.B.3. of the preamble
to the FY 2011 IPPS/LTCH PPS final rule (75
FR 50160 and 50161) and in section III.F. of
this 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
threshold for FY 2012, it was necessary to
apply this provision by adjusting the wage
index of those eligible hospitals in a frontier
State when calculating the outlier threshold
that results in outlier payments being 5.1
percent of total payments for FY 2012. If we
did not take into account this provision, our
estimate of total FY 2012 payments would be
too low, and, as a result, our proposed outlier
threshold would be too high, such that
estimated outlier payments would be less
than our projected 5.1 percent of total
payments.
Also, for this final rule, our estimate of the
cumulative effect of changes in
documentation and coding due to the
adoption of the MS–DRGs through FY 2010
of 5.4 percent is already included within the
claims data (FY 2010 MedPAR files) used to
calculate the FY 2012 outlier threshold. Also,
we estimate that there will be no continued
changes in documentation and coding in FYs
2011 and 2012. Therefore, the cumulative
effect of documentation and coding that has
occurred is already reflected within the FY
2010 MedPAR claims data, and we did not
believe there was any need to inflate FY 2010
claims data for any additional case-mix
growth projected to have occurred since FY
2010.
Using this methodology, we calculated a
final outlier fixed-loss cost threshold for FY
2012 equal to the prospective payment rate
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for the DRG, plus any IME and DSH
payments, and any add-on payments for new
technology, plus $22,385.
We note that our final threshold is less
than the proposed threshold. We believe this
is due to the increase in the standardized
amount from the proposed rule to the final
rule. (Some examples that caused the
standardized amount to increase from the
proposed rule to this final rule include, but
are not limited to, the increase in the market
basket update and the decreases in the
multifactor productivity adjustment and our
prospective documentation and coding
adjustment). As payments increase, fewer
cases will qualify for outlier payments thus
requiring us to lower the threshold from the
proposed rule to this final rule.
(2) Other Changes Concerning Outliers
As stated in the FY 1994 IPPS final rule (58
FR 46348), we establish an outlier threshold
that is applicable to both hospital inpatient
operating costs and hospital inpatient
capital-related costs. When we modeled the
combined operating and capital outlier
payments, we found that using a common
threshold resulted in a lower percentage of
outlier payments for capital-related costs
than for operating costs. We project that the
thresholds for FY 2012 will result in outlier
payments that will equal 5.1 percent of
operating DRG payments and 6.18 percent of
capital payments based on the Federal rate.
In accordance with section 1886(d)(3)(B) of
the Act, as we proposed, we are reducing the
FY 2012 standardized amount by the same
percentage to account for the projected
proportion of payments paid as outliers.
The outlier adjustment factors that are
applied to the standardized amount based on
the FY 2012 outlier threshold are as follows:
Operating
standardized
amounts
National .....
Puerto Rico
0.948990
0.953549
Capital
federal
rate
0.938207
0.926153
We are applying the outlier adjustment
factors to the FY 2012 rates after removing
the effects of the FY 2011 outlier adjustment
factors on the standardized amount.
To determine whether a case qualifies for
outlier payments, we apply hospital-specific
CCRs to the total covered charges for the
case. Estimated operating and capital costs
for the case are calculated separately by
applying separate operating and capital
CCRs. These costs are then combined and
compared with the outlier fixed-loss cost
threshold.
Under our current policy at § 412.84, we
calculate operating and capital CCR ceilings
and assign a statewide average CCR for
hospitals whose CCRs exceed 3.0 standard
deviations from the mean of the log
distribution of CCRs for all hospitals. Based
on this calculation, for hospitals for which
the fiscal intermediary or MAC computes
operating CCRs greater than 1.152 or capital
CCRs greater than 0.159, or hospitals for
which the fiscal intermediary or MAC is
unable to calculate a CCR (as described at
§ 412.84(i)(3) of our regulations), statewide
average CCRs are used to determine whether
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51795
a hospital qualifies for outlier payments.
Table 8A listed in section VI. of this
Addendum (and available only via the
Internet) contains the statewide average
operating CCRs for urban hospitals and for
rural hospitals for which the fiscal
intermediary or MAC is unable to compute
a hospital-specific CCR within the above
range. Effective for discharges occurring on
or after October 1, 2011, these statewide
average ratios will replace the ratios
published in the IPPS final rule for FY 2011
(75 FR 50390–50392). Table 8B listed in
section VI. of this Addendum (and available
via the Internet) contains the comparable
statewide average capital CCRs. Again, the
CCRs in Tables 8A and 8B will be used
during FY 2012 when hospital-specific CCRs
based on the latest settled cost report are
either not available or are outside the range
noted above. Table 8C listed in section VI. of
this Addendum (and available via the
Internet) contains the statewide average total
CCRs used under the LTCH PPS as discussed
in section V. of this Addendum.
We finally note that we published a
manual update (Change Request 3966) to our
outlier policy on October 12, 2005, which
updated Chapter 3, Section 20.1.2 of the
Medicare Claims Processing Manual. The
manual update covered an array of topics,
including CCRs, reconciliation, and the time
value of money. We encourage hospitals that
are assigned the statewide average operating
and/or capital CCRs to work with their fiscal
intermediary or MAC on a possible
alternative operating and/or capital CCR as
explained in Change Request 3966. Use of an
alternative CCR developed by the hospital in
conjunction with the fiscal intermediary or
MAC can avoid possible overpayments or
underpayments at cost report settlement,
thus ensuring better accuracy when making
outlier payments and negating the need for
outlier reconciliation. We also note that a
hospital may request an alternative operating
or capital CCR ratio at any time as long as
the guidelines of Change Request 3966 are
followed. Additionally, as mentioned above,
we published an additional manual update
(Change Request 7192) to our outlier policy
on December 3, 2010 which also updated
Chapter 3, Section 20.1.2 of the Medicare
Claims Processing Manual. The manual
update outlines the outlier reconciliation
process for hospitals and Medicare
contractors. To download and view the
manual instructions on outlier reconciliation,
we refer readers to the CMS Web site: http://
www.cms.hhs.gov/manuals/downloads/
clm104c03.pdf.
(3) FY 2010 and FY 2011 Outlier Payments
In the FY 2011 IPPS final rule (75 FR
50431), we stated that, based on available
data, we estimated that actual FY 2010
outlier payments would be approximately 4.7
percent of actual total DRG payments. This
estimate was computed based on simulations
using the FY 2009 MedPAR file (discharge
data for FY 2009 claims). That is, the
estimate of actual outlier payments did not
reflect actual FY 2010 claims, but instead
reflected the application of FY 2010 rates and
policies to available FY 2009 claims.
Our current estimate, using available FY
2010 claims data, is that actual outlier
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payments for FY 2010 were approximately
4.7 percent of actual total DRG payments.
Thus, the data indicate that, for FY 2010, the
percentage of actual outlier payments relative
to actual total payments is lower than we
projected for FY 2010. Consistent with the
policy and statutory interpretation we have
maintained since the inception of the IPPS,
we do not plan to make retroactive
adjustments to outlier payments to ensure
that total outlier payments for FY 2010 are
equal to 5.1 percent of total DRG payments.
We currently estimate that actual outlier
payments for FY 2011 will be approximately
4.8 percent of actual total DRG payments,
approximately 0.3 percentage points lower
than the 5.1 percent we projected when
setting the outlier policies for FY 2011. This
estimate of 4.8 percent is based on
simulations using the FY 2010 MedPAR file
(discharge data for FY 2010 claims).
Comment: Commenters disagreed with
CMS’ use of modeled data versus actual
payment data to compute the outlier payment
percentage for FY 2010. The commenters
stated that they performed their own analysis
using actual payment information in the
MedPAR file which resulted in outlier
payments being 4.36 percent of actual DRG
payments for FY 2010. The commenters
recommended that CMS determine the FY
2010 outlier payment percentage using actual
payments rather than modeled payments.
The commenters disagreed with CMS’
reasons in the FY 2011 final rule (75 FR
50431) for using modeled data instead of
actual data. In last year’s 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 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 last
year’s final rule, CMS expressed concern that
SCHs and MDHs complicates 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 noted
‘‘that SCH/MDH hospitals represent a small
percent of hospitals overall.’’
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The commenters also requested further
clarification regarding how CMS conducted
its analysis that showed an outlier payment
percentage of 4.7 percent for FY 2010. The
commenters specifically requested that CMS
disclose what CCRs were used to develop the
FY 2010 estimate payment set forth in the
proposed rule, and state whether the same
CCRs or different CCRs were used to
determine the FY 2010 payments as set forth
in the FY 2011 proposed and final rules.
Response: We continue to believe that
modeling FY 2010 outlier payments is a
reasonable approach to compute the outlier
payment percentage for that year. Similar to
our response in the FY 2011 final rule, to
determine the FY 2010 outlier estimate, we
used the FY 2010 PRICER and the latest
update of the FY 2010 MedPAR file to model
actual outlier payments for FY 2009.
Although the MedPAR does contain the
actual payment amounts to hospitals, we still
believe that modeling actual outlier
payments for FY 2010 produces an enhanced
accuracy of actual outlier payments. For
example, we model which SCHs would have
greater hospital-specific payment amounts
versus their Federal payments, (similar to
what is currently done at cost report
settlement) and exclude those providers from
our determination of FY 2010 actual outlier
payments. Also, we believe modeling actual
outlier payments for FY 2010 is consistent
with our approach of using modeling for the
rate setting for FY 2011 (which also models
the FY 2010 payments for use in the FY 2011
rate setting).
The commenters noted that that if a claim
is cancelled after the MedPAR file is built,
the modeled payment for that claim will also
be included in overall estimates. While the
commenter is correct, this concern is relevant
regardless of whether we use actual data or
modeled data to compute the outlier payment
percentage. Therefore, we do not believe that
this argument supports the use of actual
payment data instead of modeled data. As
stated above, we continue to believe that
modeling that outlier payment percentage
presents more accuracy.
We disagree with the commenter that
obtaining the outlier payments directly from
the MedPAR file does not introduce
complications related to the SCH/MDH
status. Specifically, if an SCH or MDH is paid
at the end of its cost reporting year based on
its target amount, then including the
payment in the ‘‘Outlier Amount’’ field in the
outlier payment percentage would distort the
computation of the outlier payment
percentage because the hospital’s actual
payment was based on its target amount and
not the federal standardized amount.
Therefore, as mentioned above, we model
which SCHs would have greater hospitalspecific payment amounts versus payments
based on the standardized amount (similar to
what is currently done at cost report
settlement), and we then exclude those
providers from our determination of FY 2010
outlier percentage payout. Because we are
modeling which SCHs would have greater
hospital-specific payment amounts versus
their Federal payments, we believe it is
appropriate to model the outlier percentage
payout.
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Without further detail from the
commenters, we are unable to determine why
the commenters were unable to duplicate our
estimate of the FY 2010 outlier percentage
payout. However, to provide further
clarification of the CCRs used to model the
FY 2010 outlier percentage payout, we used
CCRs from the March 2010 update of the
PSF. This is the same file that was used to
compute the FY 2010 outlier percentage
payout in the FY 2011 proposed and final
rules.
5. FY 2012 Standardized Amount
The adjusted standardized amount is
divided into labor-related and nonlaborrelated portions. Tables 1A and 1B listed and
published in section VI. of this Addendum
(and available via the Internet) contain the
national standardized amounts that we are
applying to all hospitals, except hospitals
located in Puerto Rico, for FY 2012. 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 labor-related
share applied to the standardized amounts in
Table 1A is the labor-related share of 68.8
percent, and Table 1B is 62 percent. In
accordance with sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act, we are applying
a labor-related share of 62 percent, unless
application of that percentage would result in
lower payments to a hospital than would
otherwise be made. In effect, the statutory
provision means that we will apply a laborrelated share of 62 percent for all hospitals
(other than those in Puerto Rico) whose wage
indices are less than or equal to 1.0000.
In addition, Tables 1A and 1B include the
standardized amounts reflecting the
applicable percentage increase of 1.9 percent
for FY 2012, and an update of -0.1 percent
for hospitals that fail to submit quality data
consistent with section 1886(b)(3)(B)(viii) of
the Act.
Under section 1886(d)(9)(A)(ii) of the Act,
the Federal portion of the Puerto Rico
payment rate is based on the dischargeweighted average of the national large urban
standardized amount (this amount is set forth
in Table 1A). The labor-related and nonlaborrelated portions of the national average
standardized amounts for Puerto Rico
hospitals for FY 2012 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 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 2011 national standardized
amount. The second column shows the
changes from the FY 2011 standardized
amounts for hospitals that satisfy the quality
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(through FY 2011) average standardized
amount after restoring the FY 2011 offsets for
outlier payments, demonstration budget
neutrality and the geographic reclassification
budget neutrality. The DRG reclassification
data submission requirement and therefore
receive the full update of 1.9 percent. The
third column shows the changes for hospitals
receiving the reduced update of -0.1 percent.
The first row of the table shows the updated
and recalibration wage index budget
neutrality factors are cumulative. Therefore,
the FY 2011 factor is not removed from this
table.
COMPARISON OF FY 2011 STANDARDIZED AMOUNTS TO THE FY 2012 STANDARDIZED AMOUNT WITH FULL AND REDUCED
UPDATE
FY 2011 Base Rate, after removing
geographic reclassification budget
neutrality, demonstration budget
neutrality, cumulative FY 2008
and FY 2009 documentation and
coding adjustment, FY 2011 documentation
and
coding
recoupment, and outlier offset
(based on the labor–related share
percentage for FY 2011) ..............
FY 2012 Update Factor ...................
Adjustment for Restoring Rural
Floor Budget Neutrality ................
FY 2012 DRG Recalibration and
Wage Index Budget Neutrality
Factor ...........................................
FY 2012 Reclassification Budget
Neutrality Factor ...........................
FY 2012 Rural Demonstration
Budget Neutrality Factor ..............
FY 2012 Outlier Factor ....................
Documentation and coding adjustments required under sections
7(b)(1)(A) and 7(b)(1)(B) of Public
Law 110–90 ..................................
Final Rate for FY 2012 ....................
Full Update (1.9 percent); Wage index is
greater than 1.0000
Full Update (1.5 percent); Wage index is
less than or equal to
1.0000
Reduced Update (¥0.1
percent); Wage index is
greater than 1.0000
Reduced Update (¥0.1
percent); Wage index is
less than or equal to
1.0000
Labor: $3,947.65
Nonlabor: $1,790.21
1.019
Labor: $3,557.48
Nonlabor: $2,180.39
1.019
Labor: $3,947.65
Nonlabor: $1,790.21
0.999
Labor: $3,557.48
Nonlabor: $2,180.39
0.999
1.011
1.011
1.011
1.011
0.99846
0.99846
0.99846
0.99846
0.991493
0.991493
0.991493
0.991493
0.999487
0.948990
0.999487
0.948990
0.999487
0.948990
0.999487
0.948990
0.9386
Labor: $3,584.30
Nonlabor: $1,625.44
0.9386
Labor: $3,230.04
Nonlabor: $1,979.70
0.9386
Labor: $3,513.95
Nonlabor: $1,593.54
0.9386
Labor: $3,166.64
Nonlabor: $1,940.85
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 2012.
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.
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1. Adjustment for Area Wage Levels
Sections 1886(d)(3)(E) and
1886(d)(9)(C)(iv) of the Act require that we
make an adjustment to the labor-related
portion of the national and Puerto Rico
prospective payment rates, respectively, to
account for area differences in hospital wage
levels. This adjustment is made by
multiplying the labor-related portion of the
adjusted standardized amounts by the
appropriate wage index for the area in which
the hospital is located. In section III. of the
preamble of this final rule, we discuss the
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data and methodology for the FY 2012 wage
index.
2. Adjustment for Cost-of-Living in Alaska
and Hawaii
Section 1886(d)(5)(H) of the Act authorizes
the Secretary to make an adjustment to take
into account the unique circumstances of
hospitals located in Alaska and Hawaii.
Higher labor-related costs for these two States
are taken into account in the adjustment for
area wages described above. For FY 2011 and
in prior fiscal years, we used the most recent
updated cost of living adjustment (COLA)
factors obtained from the U.S. Office of
Personnel Management (OPM) Web site at
http://www.opm.gov/oca/cola/rates.asp. We
multiply the nonlabor-related portion of the
standardized amount by the applicable
adjustment factor.
Sections 1911 through 1919 of the
Nonforeign Area Retirement Equity
Assurance Act, as contained in subtitle B of
title XIX of the National Defense
Authorization Act (NDAA) for Fiscal Year
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
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2010 with COLA rates frozen as of the date
of enactment, October 28, 2009, and then
proportionately reduced to reflect the phasein of locality pay.
In the proposed rule, we stated that we did
not believe it was appropriate to use either
the 2010 or 2011 reduced factors for
adjusting the nonlabor-related portion of the
standardized amount for hospitals in Alaska
and Hawaii for Medicare payment purposes.
Therefore, for FY 2012, we proposed to
continue to use the same COLA factors
(published by OPM) that we used to adjust
payments in FY 2011 (which are based on
OPMs 2009 COLA factors) to adjust the
nonlabor-related portion of the standardized
amount for hospitals located in Alaska and
Hawaii. We stated that we believe using these
COLAs will appropriately adjust the
nonlabor-related portion of the standardized
amount for hospitals in Alaska and Hawaii
consistent with section 1886(d)(5)(H) of the
Act.
We did not receive any public comments
on our proposal. Therefore, we are finalizing
our proposal to use the same factors currently
in use under the IPPS for FY 2011 for FY
2012. Below is a table of factors obtained
from OPM that we are using for FY 2012.
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TABLE OF COST-OF-LIVING ADJUSTMENT FACTORS: ALASKA AND HAWAII HOSPITALS
Cost of living adjustment factor
Area
Alaska:
City of Anchorage and 80-kilometer (50-mile) radius by road .................................................................................................
City of Fairbanks and 80-kilometer (50-mile) radius by road ..................................................................................................
City of Juneau and 80-kilometer (50-mile) radius by road ......................................................................................................
Rest of Alaska ..........................................................................................................................................................................
Hawaii:
City and County of Honolulu ....................................................................................................................................................
County of Hawaii ......................................................................................................................................................................
County of Kauai ........................................................................................................................................................................
County of Maui and County of Kalawao ..................................................................................................................................
1.23
1.23
1.23
1.25
1.25
1.18
1.25
1.25
(The above factors are based on data obtained from the U.S. Office of Personnel Management Web site at: http://www.opm.gov/oca/cola/
rates.asp.)
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C. MS–DRG Relative Weights
As discussed in section II.H. of the
preamble of this final rule, we have
developed relative weights for each MS–DRG
that reflect the resource utilization of cases
in each MS–DRG relative to Medicare cases
in other MS–DRGs. Table 5 listed in section
VI. of this Addendum (and available via the
Internet) contains the relative weights that
we are applying to discharges occurring in
FY 2012. These factors have been
recalibrated as explained in section II. of the
preamble of this final rule.
D. Calculation of the Prospective Payment
Rates
General Formula for Calculation of the
Prospective Payment Rates for FY 2012
In general, the operating prospective
payment rate for all hospitals paid under the
IPPS located outside of Puerto Rico, except
SCHs and MDHs, for FY 2012 equals the
Federal rate.
Currently, SCHs are paid based on
whichever of the following rates yields the
greatest aggregate payment: The Federal
national rate; the updated hospital-specific
rate based on FY 1982 costs per discharge;
the updated hospital-specific rate based on
FY 1987 costs per discharge; the updated
hospital-specific rate based on FY 1996 costs
per discharge; or the updated hospitalspecific rate based on the FY 2006 costs per
discharge to determine the rate that yields
the greatest aggregate payment.
The prospective payment rate for SCHs for
FY 2012 equals the higher of the applicable
Federal rate, or the hospital-specific rate as
described below. The prospective payment
rate for MDHs for FY 2012 equals the higher
of the Federal rate, or the Federal rate plus
75 percent of the difference between the
Federal rate and the hospital-specific rate as
described below. For MDHs, the updated
hospital-specific rate is based on FY 1982, FY
1987 or FY 2002 costs per discharge,
whichever yields the greatest aggregate
payment.
The prospective payment rate for hospitals
located in Puerto Rico for FY 2012 equals 25
percent of the Puerto Rico rate plus 75
percent of the applicable national rate.
1. Federal Rate
The Federal rate is determined as follows:
Step 1—Select the applicable average
standardized amount depending on whether
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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.E. of the preamble of this final
rule.
2. Hospital-Specific Rate (Applicable Only to
SCHs and MDHs)
a. Calculation of Hospital-Specific Rate
Section 1886(b)(3)(C) of the Act provides
that currently SCHs are paid based on
whichever of the following rates yields the
greatest aggregate payment: the Federal rate;
the updated hospital-specific rate based on
FY 1982 costs per discharge; the updated
hospital-specific rate based on FY 1987 costs
per discharge; the updated hospital-specific
rate based on FY 1996 costs per discharge; or
the updated hospital-specific rate based on
the FY 2006 costs per discharge to determine
the rate that yields the greatest aggregate
payment.
As discussed previously, currently MDHs
are paid based on the Federal national rate
or, if higher, the Federal national rate plus 75
percent of the difference between the Federal
national rate and the greater of the updated
hospital-specific rates based on either FY
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1982, FY 1987 or FY 2002 costs per
discharge.
Hospital-specific rates have been
determined for each of these hospitals based
on the FY 1982 costs per discharge, the FY
1987 costs per discharge, or, for SCHs, the FY
1996 costs per discharge or the FY 2006 costs
per discharge, and for MDHs, the FY 2002
cost per discharge. For a more detailed
discussion of the calculation of the hospitalspecific rates, we refer the reader to the FY
1984 IPPS interim final rule (48 FR 39772);
the April 20, 1990 final rule with comment
period (55 FR 15150); the FY 1991 IPPS final
rule (55 FR 35994); and the FY 2001 IPPS
final rule (65 FR 47082).
b. Updating the FY 1982, FY 1987, FY 1996,
FY 2002, and FY 2006 Hospital-Specific
Rates for FY 2012
Section 1886(b)(3)(B)(iv) of the Act
provides that the applicable percentage
increase applicable to the hospital-specific
rates for SCHs and MDHs equals the
applicable percentage increase set forth in
section 1886(b)(3)(B)(i) of the Act (that is, the
same update factor as for all other hospitals
subject to the IPPS). Because the Act sets the
update factor for SCHs and MDHs equal to
the update factor for all other IPPS hospitals,
the update to the hospital specific rates for
SCHs and MDHs is subject to the
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
and MDHs is 1.9 percent (that is, the FY 2012
estimate of the market basket rate-of-increase
of 3.0 percent less an adjustment of 1.0
percentage point for multifactor productivity
and less 0.1 percentage point) for hospitals
that submit quality data or ¥0.1 percent (that
is, the FY 2012 estimate of the market basket
rate-of-increase of 3.0 percent, less 2.0
percentage points for failure to submit data
under the Hospital IQR Program, less an
adjustment of 1.0 percentage point for
multifactor productivity, 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 and MDHs, we refer readers
to section IV.H. of the preamble of this final
rule.
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In addition, because SCHs and MDHs use
the same MS–DRGs as other hospitals when
they are paid based in whole or in part on
the hospital-specific rate, the hospitalspecific rate is adjusted by a budget
neutrality factor to ensure that changes to the
DRG classifications and the recalibration of
the DRG relative weights are made in a
manner so that aggregate IPPS payments are
unaffected. Therefore, for both SCHs and
MDHs, the hospital-specific rate is adjusted
by the DRG reclassification and recalibration
budget neutrality factor of 0.997903, as
discussed in section III. of this Addendum.
The resulting rate is used in determining the
payment rate an SCH or MDH will receive for
its discharges beginning on or after October
1, 2011.
c. Documentation and Coding Adjustment to
the FY 2012 Hospital-Specific Rates for SCHs
and MDHs
As discussed in section II.D. of the
preamble of this final rule, because hospitals
(SCHs and MDHs) paid based in whole or in
part on the hospital-specific rate use the
same MS–DRG system as other hospitals, we
believe they have the potential to realize
increased payments from documentation and
coding changes that do not reflect real
increases in patients’ severity of illness.
Under section 1886(d)(3)(A)(vi) of the Act,
Congress stipulated that hospitals paid based
on the standardized amount should not
receive additional payments based on the
effect of documentation and coding changes
that do not reflect real changes in case-mix.
Similarly, we believe that hospitals paid
based on the 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
hospital-specific rates, we believe that we
have the authority to apply the
documentation and coding adjustment to the
hospital-specific rates using our special
exceptions and adjustment authority under
section 1886(d)(5)(I)(i) of the Act.
As we discuss in section II.D. of the
preamble of this final rule, our best estimate,
based on the most recently available data, is
that a cumulative adjustment of ¥5.4 percent
is required to eliminate the full effect of the
documentation and coding changes on future
payments to SCHs and MDHs. Unlike the
case of standardized amounts paid to IPPS
hospitals, prior to FY 2011 we had not made
any previous adjustments to the hospital
specific rates paid to SCHs and MDHs to
account for documentation and coding
changes. Consequently, in order to maintain
consistency as far as possible with the
adjustments applied to IPPS hospitals, we
made an adjustment of ¥2.9 percent in FY
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2011 to the hospital-specific rates paid to
SCHs and MDHs.
As discussed above, we are making a ¥2.0
percent documentation and coding
adjustment for IPPS hospitals in FY 2012
(¥2.0 percent prospective adjustment plus a
¥2.9 percent recoupment adjustment in FY
2012, offset by the removal of the ¥2.9
percent recoupment adjustment for FY 2011).
We believe that any adjustment to the
hospital-specific rate due to documentation
and coding effect should be as similar as
possible to adjustments to the IPPS rate.
Accordingly, we are making a ¥2.0 percent
payment adjustment to the hospital-specific
rate. We believe that a prospective
adjustment of ¥2.0 percent allows CMS to
maintain, to the extent possible, similarity
and consistency in payment rates for
different IPPS hospitals paid using the MS–
DRG.
d. Adjustment To Restore Prior Rural Floor
Budget Neutrality Offsets
As discussed in section II.A.4.d. of this
Addendum, in light of the Cape Cod
decision, we are adjusting hospital-specific
amounts by 0.9 percent to restore to these
amounts the offset for the rural floor and
imputed floor in prior years. Our rationale
and methodology for such adjustment are
explained in section II.A.4.d of this
Addendum. As with the standardized
amount, we are returning 0.7 percentage
point for FYs 1998 through 2004, and 0.2
percentage point for FY 2005 to the hospitalspecific rates. We note that, in the FY 2006
IPPS final rule (70 FR 47429 and 47430),
beginning in FY 2006, we changed our
methodology and began applying only the
DRG reclassification and recalibration budget
neutrality factor to the hospital-specific rates.
Because the rural floor budget neutrality
adjustment was not applied to the hospitalspecific rates in FYs 2006 and 2007, we are
not including FY 2006 and FY 2007 in our
assessment. Therefore, to remove the effects
of the rural floor from the hospital-specific
rates for FYs 1998 through 2005, we are
applying a one-time permanent adjustment of
0.9 percent to the hospital-specific rates (that
is, a factor of 1.009). We received comments
requesting complete explanations of the
methodologies and data used in the
calculation of the 1.1 and 0.9 percent
adjustments to the standardized amount and
hospital-specific rate. A complete summary
and response to this comment can be found
above in section II.A.4.d. of this Addendum.
3. General Formula for Calculation of
Prospective Payment Rates for Hospitals
Located in Puerto Rico Beginning on or After
October 1, 2011, and Before October 1, 2012
Section 1886(d)(9)(E)(iv) of the Act
provides that, effective for discharges
occurring on or after October 1, 2004,
hospitals located in Puerto Rico are paid
based on a blend of 75 percent of the national
prospective payment rate and 25 percent of
the Puerto Rico-specific rate.
a. Puerto Rico Rate
The Puerto Rico prospective payment rate
is determined as follows:
Step 1—Select the applicable average
standardized amount considering the
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51799
applicable wage index (Table 1C published
in section VI. of this Addendum and
available via the Internet).
Step 2—Multiply the labor-related portion
of the standardized amount by the applicable
Puerto Rico-specific wage index.
Step 3—Add the amount from Step 2 and
the nonlabor-related portion of the
standardized amount.
Step 4—Multiply the amount from Step 3
by the applicable MS–DRG relative weight
(Table 5 listed in section VI. of this
Addendum and available via the Internet).
Step 5—Multiply the result in Step 4 by 25
percent.
b. National Rate
The national prospective payment rate is
determined as follows:
Step 1—Select the applicable average
standardized amount.
Step 2—Multiply the labor-related portion
of the standardized amount by the applicable
wage index for the geographic area in which
the hospital is located or the area to which
the hospital is reclassified.
Step 3—Add the amount from Step 2 and
the nonlabor-related portion of the national
average standardized amount.
Step 4—Multiply the amount from Step 3
by the applicable MS–DRG relative weight
(Table 5 listed in section VI. of this
Addendum and available via the Internet).
Step 5—Multiply the result in Step 4 by 75
percent.
The sum of the Puerto Rico rate and the
national rate computed above equals the
prospective payment for a given discharge for
a hospital located in Puerto Rico. This rate
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 2012
The PPS for acute care hospital inpatient
capital-related costs was implemented for
cost reporting periods beginning on or after
October 1, 1991. Effective with that cost
reporting period, hospitals were paid during
a 10-year transition period (which extended
through FY 2001) to change the payment
methodology for Medicare acute care hospital
inpatient capital-related costs from a
reasonable cost-based methodology to a
prospective methodology (based fully on the
Federal rate).
The basic methodology for determining
Federal capital prospective rates is set forth
in the regulations at 42 CFR 412.308 through
412.352. Below we discuss the factors that
we used to determine the capital Federal rate
for FY 2012, which is effective for discharges
occurring on or after October 1, 2011.
The 10-year transition period ended with
hospital cost reporting periods beginning on
or after October 1, 2001 (FY 2002). Therefore,
for cost reporting periods beginning in FY
2002, all hospitals (except ‘‘new’’ hospitals
under § 412.304(c)(2)) are paid based on the
capital Federal rate. For FY 1992, we
computed the standard Federal payment rate
for capital-related costs under the IPPS by
updating the FY 1989 Medicare inpatient
capital cost per case by an actuarial estimate
of the increase in Medicare inpatient capital
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costs per case. Each year after FY 1992, we
update the capital standard Federal rate, as
provided at § 412.308(c)(1), to account for
capital input price increases and other
factors. The regulations at § 412.308(c)(2) also
provide that the capital Federal rate be
adjusted annually by a factor equal to the
estimated proportion of outlier payments
under the capital Federal rate to total capital
payments under the capital Federal rate. In
addition, § 412.308(c)(3) requires that the
capital Federal rate be reduced by an
adjustment factor equal to the estimated
proportion of payments for (regular and
special) exceptions under § 412.348. Section
412.308(c)(4)(ii) requires that the capital
standard Federal rate be adjusted so that the
effects of the annual DRG reclassification and
the recalibration of DRG weights and changes
in the geographic adjustment factor (GAF) are
budget neutral.
For FYs 1992 through 1995, § 412.352
required that the capital Federal rate also be
adjusted by a budget neutrality factor so that
aggregate payments for inpatient hospital
capital costs were projected to equal 90
percent of the payments that would have
been made for capital-related costs on a
reasonable cost basis during the respective
fiscal year. That provision expired in FY
1996. Section 412.308(b)(2) describes the 7.4
percent reduction to the capital Federal rate
that was made in FY 1994, and
§ 412.308(b)(3) describes the 0.28 percent
reduction to the capital Federal rate made in
FY 1996 as a result of the revised policy for
paying for transfers. In FY 1998, we
implemented section 4402 of Public Law
105–33, which required that, for discharges
occurring on or after October 1, 1997, the
budget neutrality adjustment factor in effect
as of September 30, 1995, be applied to the
unadjusted capital standard Federal rate and
the unadjusted hospital-specific rate. That
factor was 0.8432, which was equivalent to
a 15.68 percent reduction to the unadjusted
capital payment rates. An additional 2.1
percent reduction to the rates was effective
from October 1, 1997 through September 30,
2002, making the total reduction 17.78
percent. As we discussed in the FY 2003
IPPS final rule (67 FR 50102) and
implemented in § 412.308(b)(6), the 2.1
percent reduction was restored to the
unadjusted capital payment rates effective
October 1, 2002.
To determine the appropriate budget
neutrality adjustment factor and the regular
exceptions payment adjustment during the
10-year transition period, we developed a
dynamic model of Medicare inpatient
capital-related costs; that is, a model that
projected changes in Medicare inpatient
capital-related costs over time. With the
expiration of the budget neutrality provision,
the capital cost model was only used to
estimate the regular exceptions payment
adjustment and other factors during the
transition period. As we explained in the FY
2002 IPPS final rule (66 FR 39911), beginning
in FY 2002, an adjustment for regular
exception payments is no longer necessary
because regular exception payments were
only made for cost reporting periods
beginning on or after October 1, 1991, and
before October 1, 2001 (we refer readers to
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§ 412.348(b) of our regulations). Because
payments are no longer made under the
regular exception policy effective with cost
reporting periods beginning in FY 2002, we
discontinued use of the capital cost model.
The capital cost model and its application
during the transition period are described in
Appendix B of the FY 2002 IPPS final rule
(66 FR 40099).
Section 412.374 provides for blended
payments to hospitals located in Puerto Rico
under the IPPS for acute care hospital
inpatient capital-related costs. Accordingly,
under the capital PPS, we compute a separate
payment rate specific to hospitals located in
Puerto Rico using the same methodology
used to compute the national Federal rate for
capital-related costs. In accordance with
section 1886(d)(9)(A) of the Act, under the
IPPS for acute care hospital operating costs,
hospitals located in Puerto Rico are paid for
operating costs under a special payment
formula. Prior to FY 1998, hospitals located
in Puerto Rico were paid a blended operating
rate that consisted of 75 percent of the
applicable standardized amount specific to
Puerto Rico hospitals and 25 percent of the
applicable national average standardized
amount. Similarly, prior to FY 1998,
hospitals located in Puerto Rico were paid a
blended capital rate that consisted of 75
percent of the applicable capital Puerto Ricospecific rate and 25 percent of the applicable
capital Federal rate. However, effective
October 1, 1997, in accordance with section
4406 of Public Law 105–33, the methodology
for operating payments made to hospitals
located in Puerto Rico under the IPPS was
revised to make payments based on a blend
of 50 percent of the applicable standardized
amount specific to Puerto Rico hospitals and
50 percent of the applicable national average
standardized amount. In conjunction with
this change to the operating blend
percentage, effective with discharges
occurring on or after October 1, 1997, we also
revised the methodology for computing
capital payments to hospitals located in
Puerto Rico to be based on a blend of 50
percent of the Puerto Rico capital rate and 50
percent of the national capital Federal rate.
As we discussed in the FY 2005 IPPS final
rule (69 FR 49185), section 504 of Public Law
108–173 increased the national portion of the
operating IPPS payments for hospitals
located in Puerto Rico from 50 percent to
62.5 percent and decreased the Puerto Rico
portion of the operating IPPS payments from
50 percent to 37.5 percent for discharges
occurring on or after April 1, 2004 through
September 30, 2004 (refer to the March 26,
2004 One-Time Notification (Change Request
3158)). In addition, section 504 of Public Law
108–173 provided that the national portion of
operating IPPS payments for hospitals
located in Puerto Rico is equal to 75 percent
and the Puerto Rico-specific portion of
operating IPPS payments is equal to 25
percent for discharges occurring on or after
October 1, 2004. Consistent with that change
in operating IPPS payments to hospitals
located in Puerto Rico, for FY 2005 we
revised the methodology for computing
capital payments to hospitals located in
Puerto Rico to be based on a blend of 25
percent of the Puerto Rico-specific capital
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rate and 75 percent of the national capital
Federal rate for discharges occurring on or
after October 1, 2004 (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 2012. In
particular, we explain why the FY 2012
capital Federal rate increases approximately
0.3 percent, compared to the FY 2011 capital
Federal rate. As discussed in the impact
analysis in Appendix A of 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 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 2012 under that
framework is 1.5 percent based on the best
data available at this time. The update factor
under that framework is based on a projected
1.5 percent increase in the CIPI, a 0.0 percent
adjustment for intensity, a 0.0 percent
adjustment for case-mix, a 0.0 percent
adjustment for the FY 2010 DRG
reclassification and recalibration, and a
forecast error correction of 0.0 percent. As
discussed below in section III.C. of this
Addendum, we continue to believe that the
CIPI is the most appropriate input price
index for capital costs to measure capital
price changes in a given year. We also
explain the basis for the FY 2012 CIPI
projection in that same section of this
Addendum. We note, as discussed in section
VI.E.1. of the preamble of this final rule, we
are applying a -1.0 percent adjustment to the
capital rate in FY 2012 to account for the
effect of changes in documentation and
coding under the MS–DRGs that do not
correspond to changes in real increases in
patients’ severity of illness. Below we
describe the policy adjustments that we are
applying in the update framework for FY
2012.
The case-mix index is the measure of the
average DRG weight for cases paid under the
IPPS. Because the DRG weight determines
the prospective payment for each case, any
percentage increase in the case-mix index
corresponds to an equal percentage increase
in hospital payments.
The case-mix index can change for any of
several reasons:
• The average resource use of Medicare
patients changes (‘‘real’’ case-mix change);
• Changes in hospital documentation and
coding of patient records result in higher
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weight DRG assignments (‘‘coding effects’’);
and
• The annual DRG reclassification and
recalibration changes may not be budget
neutral (‘‘reclassification effect’’).
We define real case-mix change as actual
changes in the mix (and resource
requirements) of Medicare patients as
opposed to changes in documentation and
coding behavior that result in assignment of
cases to higher weighted DRGs but do not
reflect higher resource requirements. The
capital update framework includes the same
case-mix index adjustment used in the
former operating IPPS update framework (as
discussed in the May 18, 2004 IPPS proposed
rule for FY 2005 (69 FR 28816)). (We no
longer use an update framework to make a
recommendation for updating the operating
IPPS standardized amounts as discussed in
section II. of Appendix B in the FY 2006 IPPS
final rule (70 FR 47707).)
For FY 2012, we are projecting a 1.0
percent total increase in the case-mix index.
We estimated that the real case-mix increase
will also equal 1.0 percent for FY 2012. 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, as we
proposed, the net adjustment for case-mix
change in FY 2012 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 index-related changes other than
those due to patient severity. Due to the lag
time in the availability of data, there is a 2year lag in data used to determine the
adjustment for the effects of DRG
reclassification and recalibration. For
example, we have data available to evaluate
the effects of the FY 2010 DRG
reclassification and recalibration as part of
our update for FY 2012. To adjust for
reclassification and recalibration effects,
under our historical methodology, we would
run the FY 2010 cases through the FY 2009
GROUPER and through the FY 2010
GROUPER. If the resulting ratio of the casemix indices did not equate to 1.0, in the
update framework for FY 2012, we would
make an adjustment to account for the
reclassification and recalibration effects in
FY 2010. In the update framework for FY
2011 (the FY 2011 IPPS final rule (75 FR
50435)), we did not adjust for reclassification
and recalibration effects from FY 2009
because it was accounted for in the
documentation and coding adjustment to the
capital Federal rates for FY 2011. For FY
2012, we are not performing an analysis of
changes in case-mix in FY 2010 due to the
effect of documentation and coding, as this
would be most consistent with our approach
under the operating IPPS. Therefore, at this
time, under our broad authority in section
1886(g) of the Act, as we proposed, we are
making a 0.0 percent adjustment for
reclassification and recalibration in the
update framework. We may evaluate the
effect of FY 2010 reclassification and
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recalibration if we perform an analysis of the
documentation and coding effect in FY 2010
in future rulemaking.
The capital update framework also
contains an adjustment for forecast error. The
input price index forecast is based on
historical trends and relationships
ascertainable at the time the update factor is
established for the upcoming year. In any
given year, there may be unanticipated price
fluctuations that may result in differences
between the actual increase in prices and the
forecast used in calculating the update
factors. In setting a prospective payment rate
under the framework, we make an
adjustment for forecast error only if our
estimate of the change in the capital input
price index for any year is off by 0.25
percentage point or more. There is a 2-year
lag between the forecast and the availability
of data to develop a measurement of the
forecast error. A forecast error of -0.2
percentage point was calculated for the FY
2012 update. That is, current historical data
indicate that the forecasted FY 2010 CIPI (1.2
percent) used in calculating the FY 2010
update factor was 0.2 percentage point higher
than the actual realized price increases (1.0
percent). The two primary contributing
factors for the FY 2010 CIPI forecast being
slightly higher than the actual FY 2010
increase in the CIPI were that the prices for
the nonprofit and government interest cost
category grew slower than what had been
forecasted, and the prices for the other
capital expenses cost category also grew
slower than what had been forecasted.
Because the estimation of the FY 2010
forecast error for the CIPI is not greater than
0.25 percentage point, as we proposed, we
are making a 0.0 percent adjustment for
forecast error in the update for FY 2012.
Under the capital IPPS update framework,
we also make an adjustment for changes in
intensity. Historically, we calculated this
adjustment using the same methodology and
data that were used in the past under the
framework for operating IPPS. The intensity
factor for the operating update framework
reflected how hospital services are utilized to
produce the final product, that is, the
discharge. This component accounts for
changes in the use of quality-enhancing
services, for changes within DRG severity,
and for expected modification of practice
patterns to remove non-cost-effective
services. Our intensity measure is based on
a 5-year average.
Historically, we calculated case-mix
constant intensity as the change in total
charges per admission, adjusted for price
level changes (the CIPI for hospital and
related services) and changes in real casemix. Without reliable estimates of the
proportions of the overall annual intensity
increases that are due, respectively, to
ineffective practice patterns and the
combination of quality-enhancing new
technologies and complexity within the DRG
system, we assume that one-half of the
annual increase is due to each of these
factors. The capital update framework thus
provides an add-on to the input price index
rate of increase of one-half of the estimated
annual increase in intensity, to allow for
increases within DRG severity and the
adoption of quality-enhancing technology.
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51801
We developed a Medicare-specific
intensity measure based on a 5-year average.
Past studies of case-mix change by the RAND
Corporation (Has DRG Creep Crept Up?
Decomposing the Case Mix Index Change
Between 1987 and 1988 by G. M. Carter,
J. P. Newhouse, and D. A. Relles, R–4098–
HCFA/ProPAC (1991)) suggest that real casemix change was not dependent on total
change, but was usually a fairly steady
increase of 1.0 to 1.5 percent per year.
However, we used 1.4 percent as the upper
bound because the RAND study did not take
into account that hospitals may have induced
doctors to document medical records more
completely in order to improve payment.
In accordance with § 412.308(c)(1)(ii), we
began updating the capital standard Federal
rate in FY 1996 using an update framework
that takes into account, among other things,
allowable changes in the intensity of hospital
services, as noted above. For much of the last
decade, we found that the charge data
appeared to be skewed as a result of hospitals
attempting to maximize outlier payments,
while lessening costs, and we established a
0.0 percent adjustment for intensity in each
of those years. Therefore, for FY 2011, in an
effort to further refine the intensity
adjustment and more accurately reflect
allowable changes in hospital intensity, we
revised our intensity measure to use changes
in hospital costs per discharge over a 5-year
average rather than changes in hospital
charges, which had been the basis of the
intensity adjustment in prior years. The
unique nature of capital—how and when it
is purchased, its longevity, and how it is
financed—creates a greater degree of variance
in capital cost among hospitals than does
operating cost. As discussed in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50436), we
believe that using changes in capital costs per
discharge as the basis for the intensity
adjustment in lieu of changes in charges will
decrease some of the variability of this
adjustment. In this final rule, for FY 2012, as
we proposed, we are using an intensity
measure that is based on a 5-year adjusted
average of cost per discharge, as we did for
FY 2011. Therefore, the intensity measure for
FY 2012 is based on an average of cost per
discharge data from the 5-year period
beginning with FY 2005 and extending
through FY 2009. Based on these data, we
estimated that case-mix constant intensity
declined during FYs 2005 through 2009. In
the past, when we found intensity to be
declining, we believed a zero (rather than
negative) intensity adjustment was
appropriate. Consistent with this approach,
because we estimate that intensity declined
during that 5-year period, we believe it is
appropriate to continue to apply a zero
intensity adjustment for FY 2012. Therefore,
as we proposed, we are making a 0.0 percent
adjustment for intensity in the update for FY
2012.
Above, we described the basis of the
components used to develop the 1.5 percent
capital update factor under the capital update
framework for FY 2012 as shown in the table
below.
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CMS FY 2012 UPDATE FACTOR TO THE CAPITAL FEDERAL RATE
Capital Input Price Index .........................................................................................................................................................................
Intensity: ...................................................................................................................................................................................................
Case-Mix Adjustment Factors:
Real Across DRG Change ...............................................................................................................................................................
Projected Case-Mix Change ............................................................................................................................................................
¥1.0
1.0
Subtotal .....................................................................................................................................................................................
Effect of FY 2010 Reclassification and Recalibration .............................................................................................................................
Forecast Error Correction ........................................................................................................................................................................
1.5
0.0
0.0
Total Update .....................................................................................................................................................................................
1.5
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b. Comparison of CMS and MedPAC Update
Recommendation
In its March 2011 Report to Congress,
MedPAC did not make a specific update
recommendation for capital IPPS payments
for FY 2012. (MedPAC’s Report to the
Congress: Medicare Payment Policy, March
2011, Chapter 3).
2. Outlier Payment Adjustment Factor
Section 412.312(c) establishes a unified
outlier payment methodology for inpatient
operating and inpatient capital-related costs.
A single set of thresholds is used to identify
outlier cases for both inpatient operating and
inpatient capital-related payments. Section
412.308(c)(2) provides that the standard
Federal rate for inpatient capital-related costs
be reduced by an adjustment factor equal to
the estimated proportion of capital-related
outlier payments to total inpatient capitalrelated PPS payments. The outlier thresholds
are set so that operating outlier payments are
projected to be 5.1 percent of total operating
IPPS DRG payments.
For FY 2011, we estimated that outlier
payments for capital would equal 5.96
percent of inpatient capital-related payments
based on the capital Federal rate in FY 2011.
Based on the thresholds as set forth in
section II.A. of this Addendum, we estimate
that outlier payments for capital-related costs
will equal 6.18 percent for inpatient capitalrelated payments based on the capital
Federal rate in FY 2012. Therefore, we are
applying an outlier adjustment factor of
0.9382 in determining the capital Federal
rate. Thus, we estimate that the percentage of
capital outlier payments to total capital
standard payments for FY 2012 will be
slightly higher than the percentage for FY
2011. This slight 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.
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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
2012 outlier adjustment of 0.9382 is a ¥0.23
percent change from the FY 2011 outlier
adjustment of 0.9404. Therefore, the net
change in the outlier adjustment to the
capital Federal rate for FY 2012 is 0.9977
(0.9382/0.9404). Thus, the outlier adjustment
will decrease the FY 2012 capital Federal rate
by 0.23 percent compared with the FY 2011
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.
In the past, we used the actuarial capital
cost model (described in Appendix B of the
FY 2002 IPPS final rule (66 FR 40099)) to
estimate the aggregate payments that would
have been made on the basis of the capital
Federal rate with and without changes in the
DRG classifications and weights and in the
GAF to compute the adjustment required to
maintain budget neutrality for changes in
DRG weights and in the GAF. During the
transition period, the capital cost model was
also used to estimate the regular exception
payment adjustment factor. As we explained
in section III.A. of this Addendum, beginning
in FY 2002, an adjustment for regular
exception payments was no longer necessary.
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1.5
0.0
Therefore, we no longer use the capital cost
model. Furthermore, as discussed below,
special exceptions payments will no longer
be made in FY 2012, and an exceptions
payment adjustment factor will no longer be
necessary, as there are no remaining
hospitals eligible to receive special
exceptions payments.
To determine the proposed factors for FY
2012, we compared (separately for the
national capital rate and the Puerto Rico
capital rate) estimated aggregate capital
Federal rate payments based on the FY 2011
MS–DRG classifications and relative weights
and the FY 2011 GAF to estimated aggregate
capital Federal rate payments based on the
FY 2011 MS–DRG classifications and relative
weights and the FY 2012 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 of
1.0010 for FY 2012 to the previous
cumulative FY 2011 adjustment of 0.9902,
yielding an adjustment of 0.9912, through FY
2012. For the Puerto Rico GAFs, we are
applying an incremental budget neutrality
adjustment of 1.0085 for FY 2012 to the
previous cumulative FY 2011 adjustment of
0.9965, yielding a cumulative adjustment of
1.0049 through FY 2012.
We then compared estimated aggregate
capital Federal rate payments based on the
FY 2011 DRG relative weights and the FY
2012 GAFs to estimate aggregate capital
Federal rate payments based on the
cumulative effects of the FY 2012 MS–DRG
classifications and relative weights and the
FY 2012 GAFs. The incremental adjustment
for DRG classifications and changes in
relative weights is 0.9994 both nationally and
for Puerto Rico. The cumulative adjustments
for MS–DRG classifications and changes in
relative weights and for changes in the GAFs
through FY 2012 are 0.9905 nationally and
1.0043 for Puerto Rico. We note that all the
values are calculated with unrounded
numbers. The following table summarizes the
adjustment factors for each fiscal year:
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51803
BUDGET NEUTRALITY ADJUSTMENT FOR DRG RECLASSIFICATIONS AND RECALIBRATION AND THE GEOGRAPHIC
ADJUSTMENT FACTORS
National
Puerto Rico
Incremental adjustment
Fiscal year
1992 .................
1993 .................
1994 .................
1995 .................
1996 .................
1997 .................
1998 .................
1999 .................
2000 .................
2001 1 ...............
2001 2 ...............
2002 .................
2003 5 ...............
2003 6 ...............
2004 8 ...............
2004 10 ..............
2005 11 ..............
2005 13 ..............
2006 .................
2007 .................
2008 .................
2009 15 ..............
2010 16 ..............
2011 17 ..............
2012 18 ..............
Incremental adjustmant
Geographic
adjustment
factor
DRG Reclassifications
and recalibration
Combined
......................
......................
......................
......................
......................
......................
......................
0.99944
0.99857
0.99782
0.99771 3
0.99666 4
0.99915
0.99896 7
1.00175 9
1.00164 9
0.99967 12
0.99946 12
1.00185 14
1.00000
1.00172
1.00206
0.99989
0.99989
1.00104
......................
......................
......................
......................
......................
......................
......................
1.00335
0.99991
1.00009
1.00009 3
0.99668 4
0.99662
0.99662 7
1.00081 9
1.00081 9
1.00094
1.00094
0.99892
0.99858
0.99792
0.99945
0.99945
0.99914
0.99935
......................
0.99800
1.00531
0.99980
0.99940
0.99873
0.99892
1.00279
0.99848
0.99791
0.99780 3
0.99335 4
0.99577
0.99558 7
1.00256 9
1.00245 9
1.00061 12
1.00040 12
1.00076 14
0.99858
0.99963
1.00150
0.99941
0.99903
1.00039
Cumulative
1.00000
0.99800
1.00330
1.00310
1.00250
1.00123
1.00015
1.00294
1.00142
0.99933
0.99922
0.99268
0.98848
0.98830
0.99083
0.99072
0.99137
0.99117
0.99198
0.99057
0.99021
0.99170
0.99112
0.99016
0.99054
Geographic
adjustment
factor
DRG Reclassifications
and recalibration
Combined
......................
......................
......................
......................
......................
......................
......................
0.99898
0.99910
1.00365
1.00365 3
0.98991 4
1.00809
1.00809
1.00028
1.00028
0.99115
0.99115
1.00762
1.00234
1.00079
1.00097
1.00141
1.00050
1.00845
......................
......................
......................
......................
......................
......................
......................
1.00335
0.99991
1.00009
1.00009 3
0.99668 4
0.99662
0.99662
1.00081
1.00081
1.00094
1.00094
0.99892
0.99858
0.99792
0.99945
0.99953
0.99914
0.99935
......................
......................
......................
......................
......................
......................
......................
1.00233
0.99901
1.00374
1.00374 3
0.99662 4
1.00468
1.00468
1.00109
1.00109
0.99208
0.99208
1.00653
1.00092
0.99870
1.00041
1.00094
0.999564
1.00780
Cumulative
......................
......................
......................
......................
......................
......................
1.00000
1.00233
1.00134
1.00508
1.00508
0.99164
0.99628
0.99628
0.99736
0.99736
0.98946
0.98946
0.99592
0.99683
0.99554
0.99595
0.99688
0.99652
1.00429
1 Factors
effective for the first half of FY 2001 (October 2000 through March 2001).
effective for the second half of FY 2001 (April 2001 through September 2001).
factors are applied to FY 2000 cumulative factors.
4 Incremental factors are applied to the cumulative factors for the first half of FY 2001.
5 Factors effective for the first half of FY 2003 (October 2002 through March 2003).
6 Factors effective for the second half of FY 2003 (April 2003 through September 2003).
7 Incremental factors are applied to FY 2002 cumulative factors.
8 Factors effective for the first half of FY 2004 (October 2003 through March 2004).
9 Incremental factors are applied to the cumulative factors for the second half of FY 2003.
10 Factors effective for the second half of FY 2004 (April 2004 through September 2004).
11 Factors effective for the first quarter of FY 2005 (September 2004 through December 2004).
12 Incremental factors are applied to average of the cumulative factors for the first half (October 1, 2003 through March 31, 2004) and second
half (April 1, 2004 through September 30, 2004) of FY 2004.
13 Factors effective for the last three quarters of FY 2005 (January 2005 through September 2005).
14 Incremental factors are applied to average of the cumulative factors for 2005.
15 Final factors for FY 2009, including the implementation of section 124 of Public Law 110–275, which affects wage indices and GAFs for FY
2009.
16 Final revised factors for FY 2010 which reflect the effect of the provisions of the Affordable Care Act.
17 Final factors for FY 2011.
18 Final factors for FY 2012.
2 Factors
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3 Incremental
The methodology used to determine the
recalibration and geographic adjustment
factor (GAF/DRG) budget neutrality
adjustment is similar to the methodology
used in establishing budget neutrality
adjustments under the IPPS for operating
costs. One difference is that, under the
operating IPPS, the budget neutrality
adjustments for the effect of geographic
reclassifications are determined separately
from the effects of other changes in the
hospital wage index and the DRG relative
weights. Under the capital IPPS, there is a
single GAF/DRG budget neutrality
adjustment factor (the national capital rate
and the Puerto Rico capital rate are
determined separately) for changes in the
GAF (including geographic reclassification)
and the DRG relative weights. In addition,
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there is no adjustment for the effects that
geographic reclassification has on the other
payment parameters, such as the payments
for DSH or IME.
For FY 2011, we established a GAF/DRG
budget neutrality factor of 0.9990 (75 FR
50437). For FY 2012, we are establishing a
GAF/DRG budget neutrality factor of 1.0004.
The GAF/DRG budget neutrality factors are
built permanently into the capital rates; that
is, they are applied cumulatively in
determining the capital Federal rate. This
follows the requirement that estimated
aggregate payments each year be no more or
less than they would have been in the
absence of the annual DRG reclassification
and recalibration and changes in the GAFs.
The incremental change in the adjustment
from FY 2011 to FY 2012 is 1.0004. The
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Sfmt 4700
cumulative change in the capital Federal rate
due to this adjustment is 0.9905 (the product
of the incremental factors for FYs 1995
through 2011 and the incremental factor of
1.0004 for FY 2012). (We note that averages
of the incremental factors that were in effect
during FYs 2005 and 2006, respectively, were
used in the calculation of the cumulative
adjustment of 0.9905 for FY 2012.)
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 2012 geographic
reclassification decisions made by the
MGCRB compared to FY 2011 decisions.
However, it does not account for changes in
payments due to changes in the DSH and
IME adjustment factors.
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4. Exceptions Payment Adjustment Factor
Section 412.308(c)(3) of our regulations
requires that the capital standard Federal rate
be reduced by an adjustment factor equal to
the estimated proportion of additional
payments for both regular exceptions and
special exceptions under § 412.348 relative to
total capital PPS payments. In estimating the
proportion of regular exception payments to
total capital PPS payments during the
transition period, we used the actuarial
capital cost model originally developed for
determining budget neutrality (described in
Appendix B of the FY 2002 IPPS final rule
(66 FR 40099)) to determine the exceptions
payment adjustment factor, which was
applied to both the Federal and hospitalspecific capital rates.
Since FY 2002, an adjustment for regular
exception payments was no longer necessary
in determining the capital Federal rate
because, in accordance with § 412.348(b),
regular exception payments were only made
for cost reporting periods beginning on or
after October 1, 1991 and before October 1,
2001. Accordingly, in FY 2002 and
subsequent fiscal years, no payments are
made under the regular exceptions provision
(66 FR 39949). Furthermore, there are no
longer any remaining hospitals eligible to
receive a special exceptions payment under
§ 412.348(g) because they have reached the
limitation on the period for exception
payments under § 412.348(g)(7). A hospital
qualifying for a special exceptions payment
could receive exceptions payments for up to
10 years from the year in which it completed
a project that met the applicable criteria
under § 412.348(g). However, the project had
to be completed no later than the end of the
hospital’s last cost reporting period
beginning before October 1, 2001. Therefore,
FY 2012 will be the final year any hospital
could have received a special exceptions
payment. However, as we indicated above,
based on the date the projects were
completed, there are no remaining hospitals
eligible to receive a special exceptions
payment in FY 2012, which negates the need
for a special exceptions adjustment for FY
2012. Furthermore, we note that special
exceptions adjustments will no longer be
made in subsequent years because FY 2012
is the final year payments could have been
made to eligible hospitals in accordance with
§ 412.348(g)(7).
In the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50439), we estimated that total
(special) exceptions payments for FY 2011
would equal 0.04 percent of aggregate
payments based on the capital Federal rate.
Therefore, we applied an exceptions
adjustment factor of 0.9996 (1 ¥ 0.0004) to
determine the FY 2011 capital Federal rate.
As we stated above, because there are no
special exceptions payments in FY 2012, we
are no longer applying an exceptions
payment adjustment factor to the capital
Federal rate for FY 2012. However, the
exceptions reduction factors were not built
permanently into the capital rates; that is, the
factors were not applied cumulatively in
determining the capital Federal rate.
Therefore, we are applying a permanent
factor of 1.0004 (1/0.9996) in determining the
FY 2012 capital Federal rate to restore the
reduction that resulted from the 0.9996
exceptions adjustment factor that was
applied in determining the FY 2011 capital
Federal rate.
5. Capital Standard Federal Rate for FY 2012
For FY 2011, we established a capital
Federal rate of $420.01 (75 FR 50439). We are
establishing an update of 1.5 percent in
determining the FY 2012 capital Federal rate
for all hospitals. However, as discussed in
greater detail in section V.E. of the preamble
of this final rule, under the statutory
authority at section 1886(g) of the Act,
consistent with section 1886(d)(3)(A)(vi) of
the Act and section 7(b) of Public Law 110–
90, we are making an additional 1.0 percent
reduction to the national capital Federal
payment rate in FY 2012 to account for the
effect of changes in case-mix resulting from
documentation and coding changes that do
not reflect real changes in the case-mix in
light of the adoption of MS–DRGs.
Accordingly, we are applying a cumulative
documentation and coding adjustment factor
of 0.9479 in determining the FY 2012 capital
Federal rate (that is, the existing ¥0.6
percent adjustment in FY 2008 plus the ¥0.9
percent adjustment in FY 2009, plus the
¥2.9 percent adjustment for FY 2011, plus
the ¥1.0 percent adjustment for FY 2012,
computed as 1 divided by (1.006 × 1.009 ×
1.029 × 1.010). (We note that we did not
apply a documentation and coding
adjustment to the capital Federal rate in FY
2010 (74 FR 43927).) As a result of the 1.5
percent update and other budget neutrality
factors discussed above, we are establishing
a national capital Federal rate of $421.42 for
FY 2012. The national capital Federal rate for
FY 2012 was calculated as follows:
• The FY 2012 update factor is 1.015, that
is, the update is 1.5 percent.
• The FY 2012 budget neutrality
adjustment factor that is applied to the
capital standard Federal payment rate for
changes in the MS–DRG classifications and
relative weights and changes in the GAFs is
1.004.
• The FY 2012 outlier adjustment factor is
0.9382.
• The FY 2012 (special) exceptions
payment adjustment factor is 1.0000 because
we project that there will be no exceptions
payments made in FY 2012 as discussed
above in section III.A. of this Addendum.
However, we are applying a permanent factor
of 1.0004 (1/0.9996) in determining the FY
2012 capital Federal rate to restore the
reduction that resulted from the 0.9996
exceptions adjustment factor applied in
determining the FY 2011 capital Federal rate.
• The cumulative adjustment factor for FY
2012 applied to the national capital Federal
rate for changes in documentation and
coding under the MS–DRGs is 0.9479.
Because the capital Federal rate has
already been adjusted for differences in casemix, wages, cost-of-living, indirect medical
education costs, and payments to hospitals
serving a disproportionate share of lowincome patients, we are not making
additional adjustments in the capital
standard Federal rate for these factors, other
than the budget neutrality factor for changes
in the MS–DRG classifications and relative
weights and for changes in the GAFs.
We are providing the following chart that
shows how each of the factors and
adjustments for FY 2012 affects the
computation of the FY 2012 national capital
Federal rate in comparison to the FY 2011
national capital Federal rate. The FY 2012
update factor has the effect of increasing the
capital Federal rate by 1.5 percent compared
to the FY 2011 capital Federal rate. The GAF/
DRG budget neutrality factor of 1.0004 has
the effect of increasing the capital Federal
rate by 0.04 percent. The FY 2012 outlier
adjustment factor has the effect of decreasing
the capital Federal rate by 0.23 percent
compared to the FY 2011 capital Federal rate.
The FY 2012 special exceptions payment
adjustment factor to restore the FY 2011
exceptions adjustment factor of 0.9996 has
the net effect of increasing the FY 2012
national capital Federal rate by 0.04 percent
as compared to the FY 2011 national capital
Federal rate. The combined effect of all the
changes will increase the national capital
Federal rate by approximately 0.34 percent
compared to the FY 2011 national capital
Federal rate.
COMPARISON OF FACTORS AND ADJUSTMENTS: FY 2011 CAPITAL FEDERAL RATE AND FY 2012 CAPITAL FEDERAL RATE
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FY 2011
Update Factor 1 ................................................................................................
GAF/DRG Adjustment Factor 1 ........................................................................
Outlier Adjustment Factor 2 ..............................................................................
Exceptions Adjustment Factor 3 .......................................................................
MS–DRG Documentation and Coding Adjustment Factor ..............................
Capital Federal Rate 7 ......................................................................................
1.0150
0.9990
0.9404
0.9996
0.9574 4
$420.01
FY 2012
1.0150
1.0004
0.9382
1.0000
0.9479 5
$421.42
Change
1.0150
1.0004
0.9977
1.0004
0.9901 6
1.0034
Percent
change
1.50
0.04
¥0.23
0.04
¥0.99
0.34
1 The update factor and the GAF/DRG budget neutrality factors are built permanently into the capital rates. Thus, for example, the incremental
change from FY 2011 to FY 2012 resulting from the application of the 1.0004 GAF/DRG budget neutrality factor for FY 2012 is a net change of
1.0004.
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51805
2 The outlier reduction factor is not built permanently into the capital rate; that is, the factor is not applied cumulatively in determining the capital rate. Thus, for example, the net change resulting from the application of the FY 2012 outlier adjustment factor is 0.9382/0.9404, or 0.9977.
3 There are no longer any hospitals eligible to receive special exception adjustments in FY 2012, but since the exceptions payment adjustment
is not cumulative, we are restoring the 0.9996 special exceptions adjustment applied to the FY 2011 capital rate.
4 The documentation and coding adjustment factor includes the ¥0.6 percent in FY 2008, ¥0.9 percent in FY 2009, no additional reduction in
FY 2010, and the ¥2.9 percent in FY 2011.
5 The documentation and coding adjustment factor includes the ¥0.6 percent in FY 2008, ¥0.9 percent in FY 2009, no additional reduction in
FY 2010, the ¥2.9 percent in FY 2011, and the proposed ¥1.0 percent in FY 2012.
6 The change is measured from the FY 2011 cumulative factor of 0.9574.
7 Sum of percent change may not sum due to rounding.
In this final rule, we also are providing the
following chart that shows how the final FY
2012 capital Federal rate differs from the
proposed FY 2012 capital Federal rate as
presented in the FY 2012 IPPS/LTCH PPS
proposed rule.
COMPARISON OF FACTORS AND ADJUSTMENTS: PROPOSED FY 2012 CAPITAL FEDERAL RATE AND FINAL FY 2012
CAPITAL FEDERAL RATE
Proposed FY
2012
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Update Factor ..............................................................................................................................
GAF/DRG Adjustment Factor ......................................................................................................
Outlier Adjustment Factor ............................................................................................................
Exceptions Adjustment Factor .....................................................................................................
MS–DRG Documentation and Coding Adjustment Factor ..........................................................
Capital Federal Rate ....................................................................................................................
6. Special Capital Rate for Puerto Rico
Hospitals
Section 412.374 provides for the use of a
blended payment system for payments to
hospitals located in Puerto Rico under the
PPS for acute care hospital inpatient capitalrelated costs. Accordingly, under the capital
PPS, we compute a separate payment rate
specific to hospitals located in Puerto Rico
using the same methodology used to compute
the national Federal rate for capital-related
costs. Under the broad authority of section
1886(g) of the Act, as discussed in section V.
of the preamble of this final rule, beginning
with discharges occurring on or after October
1, 2004, capital payments to hospitals located
in Puerto Rico are based on a blend of 25
percent of the Puerto Rico capital rate and 75
percent of the capital Federal rate. The
Puerto Rico capital rate is derived from the
costs of Puerto Rico hospitals only, while the
capital Federal rate is derived from the costs
of all acute care hospitals participating in the
IPPS (including Puerto Rico).
To adjust hospitals’ capital payments for
geographic variations in capital costs, we
apply a GAF to both portions of the blended
capital rate. The GAF is calculated using the
operating IPPS wage index, and varies
depending on the labor market area or rural
area in which the hospital is located. We use
the Puerto Rico wage index to determine the
GAF for the Puerto Rico part of the capitalblended rate and the national wage index to
determine the GAF for the national part of
the blended capital rate.
Because we implemented a separate GAF
for Puerto Rico in FY 1998, we also apply
separate budget neutrality adjustments for
the national GAF and for the Puerto Rico
GAF. However, we apply the same budget
neutrality factor for DRG reclassifications and
recalibration nationally and for Puerto Rico.
The budget neutrality adjustments for the
national GAF and for the Puerto Rico GAF,
and the budget neutrality factor for MS–DRG
reclassifications and recalibration (which is
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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). In FY 1998, we
implemented a 17.78 percent reduction to the
Puerto Rico capital rate as a result of Public
Law 105–33. In FY 2003, a small part of that
reduction was restored.
For FY 2011, the special capital rate for
hospitals located in Puerto Rico was $197.66
(75 FR 50441). Consistent with our
adjustment to the FY 2011 Puerto Ricospecific standardized amount, under the
Secretary’s broad authority under section
1886(g) of the Act, we established an
adjustment to the Puerto Rico-specific capital
rate of ¥2.6 percent in FY 2011 for the
cumulative increase in case-mix due to
changes in documentation and coding under
the MS–DRGs for FYs 2008 and 2009. The
¥2.6 percent adjustment to the capital
Puerto Rico-specific rate that we made in FY
2011 reflects the entire amount of our current
estimate of the effects of documentation and
coding that did not reflect real changes in
case-mix for discharges occurring during FYs
2008 and 2009 from hospitals located in
Puerto Rico. Consequently, in this final rule,
we are not making any additional
adjustments for the effect of documentation
and coding that did not reflect real changes
in case-mix to the capital Puerto Ricospecific rate for FY 2012. Therefore, with the
changes we are making to the other factors
used to determine the capital rate, the FY
2012 special capital rate for hospitals in
Puerto Rico is $203.86.
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1.0150
1.0005
0.9406
1.0000
0.9479
$422.54
Final FY 2012
1.0150
1.0004
0.9382
1.0000
0.9479
$421.42
Percent
change
0.00
¥0.01
¥0.26
0.00
0.00
¥0.27
B. Calculation of the Inpatient CapitalRelated Prospective Payments for FY 2012
Because the 10-year capital PPS transition
period ended in FY 2001, all hospitals
(except ‘‘new’’ hospitals under § 412.324(b)
and under § 412.304(c)(2)) are paid based on
100 percent of the capital Federal rate in FY
2012.
For purposes of calculating payments for
each discharge during FY 2012, the capital
standard Federal rate is adjusted as follows:
(Standard Federal Rate) × (DRG weight) ×
(GAF) × (COLA for hospitals located in
Alaska and Hawaii) × (1 + DSH Adjustment
Factor + IME Adjustment Factor, if
applicable). The result is the adjusted capital
Federal rate.
Hospitals also may receive outlier
payments for those cases that qualify under
the thresholds established for each fiscal
year. Section 412.312(c) provides for a single
set of thresholds to identify outlier cases for
both inpatient operating and inpatient
capital-related payments. The outlier
thresholds for FY 2012 are in section II.A. of
this Addendum. For FY 2012, a case would
qualify as a cost outlier if the cost for the case
plus the (operating) IME and DSH payments
is greater than the prospective payment rate
for the MS–DRG plus the fixed-loss amount
of $22,385.
Currently, as provided in § 412.304(c)(2),
we pay a new hospital 85 percent of its
reasonable costs during the first 2 years of
operation unless it elects to receive payment
based on 100 percent of the capital Federal
rate. Effective with the third year of
operation, we pay the hospital based on 100
percent of the capital Federal rate (that is, the
same methodology used to pay all other
hospitals subject to the capital PPS).
C. Capital Input Price Index
1. Background
Like the operating input price index, the
capital input price index (CIPI) is a fixedweight price index that measures the price
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changes associated with capital costs during
a given year. The CIPI differs from the
operating input price index in one important
aspect—the CIPI reflects the vintage nature of
capital, which is the acquisition and use of
capital over time. Capital expenses in any
given year are determined by the stock of
capital in that year (that is, capital that
remains on hand from all current and prior
capital acquisitions). An index measuring
capital price changes needs to reflect this
vintage nature of capital. Therefore, the CIPI
was developed to capture the vintage nature
of capital by using a weighted-average of past
capital purchase prices up to and including
the current year.
We periodically update the base year for
the operating and capital input price indexes
to reflect the changing composition of inputs
for operating and capital expenses. In the FY
2010 IPPS/RY 2010 LTCH PPS final rule (74
FR 44021), we rebased and revised the CIPI
to a FY 2006 base year to reflect the more
current structure of capital costs in hospitals.
A complete discussion of this rebasing is
provided in section IV. of the preamble of
that final rule.
2. Forecast of the CIPI for FY 2012
Based on the latest forecast by IHS Global
Insight, Inc. (second quarter of 2011), we are
forecasting the FY 2006-based CIPI to
increase 1.5 percent in FY 2012. This reflects
a projected 1.9 percent increase in vintageweighted depreciation prices (building and
fixed equipment, and movable equipment),
and a projected 2.0 percent increase in other
capital expense prices in FY 2012, partially
offset by a projected 1.3 percent decline in
vintage-weighted interest expenses in FY
2012. The weighted average of these three
factors produces the 1.5 percent increase for
the FY 2006-based CIPI as a whole in FY
2012.
IV. Changes to Payment Rates for Excluded
Hospitals: Rate-of-Increase Percentages
Historically, hospitals and hospital units
excluded from the prospective payment
system received payment for inpatient
hospital services they furnished on the basis
of reasonable costs, subject to a rate-ofincrease ceiling. An annual per discharge
limit (the target amount as defined in
§ 413.40(a)) was set for each hospital or
hospital unit based on the hospital’s own
cost experience in its base year, and updated
annually by a rate-of-increase percentage.
The updated target amount for that period
was multiplied by the Medicare discharges
during that period and applied as an
aggregate upper limit (the ceiling as defined
in § 413.40(a)) on total inpatient operating
costs for a hospital’s cost reporting period.
Prior to October 1, 1997, these payment
provisions applied consistently to all
categories of excluded providers
(rehabilitation hospitals and units (now
referred to as IRFs), psychiatric hospitals and
units (now referred to as IPFs), LTCHs,
children’s hospitals, and cancer hospitals).
Payments for services furnished in
children’s hospitals and cancer hospitals that
are excluded from the IPPS continue to be
subject to the rate-of-increase ceiling based
on the hospital’s own historical cost
experience. (We note that, in accordance
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with § 403.752(a), RNHCIs are also subject to
the rate-of-increase limits established under
§ 413.40 of the regulations.)
In the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 26037), we proposed that the FY
2012 rate-of-increase percentage for updating
the target amounts for cancer and children’s
hospitals and RNHCIs be the estimated
percentage increase in the FY 2012 IPPS
operating market basket, estimated to be 2.8
percent, in accordance with applicable
regulations at § 413.40. We also proposed to
use the most recent data available to
determine the estimated percentage increase
for the FY 2012 IPPS operating market
basket. For this final rule, we are using the
most recent data available to determine the
FY 2012 IPPS operating market basket
update. Based on IHS Global Insight, Inc.’s
second quarter 2011 forecast, with historical
data through the 2011 first quarter, the IPPS
operating market basket update is 3.0 percent
for FY 2012. Therefore, for cancer and
children’s hospitals and RNHCIs, the FY
2012 rate-of-increase percentage that is
applied to the FY 2011 target amounts in
order to determine the FY 2012 target amount
is 3.0 percent.
IRFs, IPFs, and LTCHs were previously
paid under the reasonable cost methodology.
However, the statute was amended to provide
for the implementation of prospective
payment systems for IRFs, IPFs, and LTCHs.
In general, the prospective payment systems
for IRFs, IPFs, and LTCHs provide
transitioning periods of varying lengths of
time during which a portion of the
prospective payment is based on cost-based
reimbursement rules under 42 CFR Part 413
(certain providers do not receive a
transitioning period or may elect to bypass
the transition as applicable under 42 CFR
Part 412, Subparts N, O, and P.) We note that
all of the various transitioning periods
provided for under the IRF PPS, the IPF PPS,
and the LTCH PPS have ended.
The IRF PPS, the IPF PPS, and the LTCH
PPS are updated annually. We refer readers
to section 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 2012.
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 our proposals under this section.
V. Changes to the Payment Rate for the
LTCH PPS for FY 2012
A. LTCH PPS Standard Federal Rate for FY
2012
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 2012.
Under § 412.523(c)(3)(ii) of the regulations,
for LTCH PPS rate years beginning RY 2004
through RY 2006, we updated the standard
Federal rate annually by a factor to adjust for
the most recent estimate of the increases in
prices of an appropriate market basket of
goods and services for LTCHs. We
established this policy of annually updating
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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 considered the effect of documentation
and coding that was unrelated to patients’
severity of illness in establishing the annual
update to the standard Federal rate as set
forth in the regulations at § 412.523(c)(3)(iv)
through (c)(3)(vii).
Several provisions of the Affordable Care
Act revised the annual update to the standard
Federal rate, beginning in RY 2010.
Specifically, section 1886(m)(3)(A) of the
Act, as added by section 3401(c) of the
Affordable Care Act, specifies that, for rate
year 2010 and each subsequent rate year, any
annual update to the standard Federal rate
shall be reduced:
• For rate year 2010 through 2019, by the
other adjustment specified in section
1886(m)(3)(A)(ii) and (m)(4) of the Act; and
• For rate year 2012 and each subsequent
year, by the productivity adjustment
described in section 1886(b)(3)(B)(xi)(II) of
the Act (which we refer to as ‘‘the multifactor
productivity (MFP) adjustment’’) as
discussed in section VII.E.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.E.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 employ ‘‘fiscal
year’’ rather than ‘‘rate year’’ for 2011 and
subsequent years.)
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For FY 2011, consistent with our historical
practice, we established an update to the
LTCH PPS standard Federal rate based on the
full estimated LTCH PPS market basket
increase of 2.5 percent, the 0.50 percentage
point reduction required by sections
1886(m)(3)(A)(i) and (m)(4)(B) of the Act, and
an adjustment to account for the increase in
case-mix in prior periods (FYs 2008 and
2009) that resulted from the effect of
documentation and coding practices of ¥2.5
percent. Accordingly, at § 412.523(c)(vii) of
the regulations, we established an annual
update of ¥0.49 percent to the standard
Federal rate for FY 2011 (75 FR 50443
through 50444).
In this final rule, for FY 2012, as discussed
in greater detail in section VII.E.2. of the
preamble of this final rule, 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 2.9 percent less
the MFP adjustment of 1.0 percentage point
required under 1886(m)(3)(A)(ii) of the Act
and less the 0.1 percentage point required by
sections 1886(m)(3)(A)(i) and (m)(4)(C) of the
Act. As discussed in greater detail below, for
FY 2012, we are not making an adjustment
to account for the increase in case-mix in a
prior period (FY 2010) resulting from the
effect of documentation and coding.
2. Development of the FY 2012 LTCH PPS
Standard Federal Rate
We continue to believe that the annual
update to the LTCH PPS standard Federal
rate should be based on the most recent
estimate of the increase in the LTCH PPS
market basket, including any statutory
adjustments. We also continue to believe it
is appropriate that the standard Federal rate
be offset by an adjustment to account for any
effect of documentation and coding practices
that does not reflect increased severity of
illness. Such an adjustment protects the
integrity of the Medicare Trust Funds by
ensuring that the LTCH PPS payment rates
better reflect the true costs of treating LTCH
patients.
Consistent with past LTCH payment
policy, we have continued to monitor the
most recent available LTCH data. In the FY
2012 IPPS/LTCH PPS proposed rule (76 FR
26038), we stated that, based on an analysis
of FY 2010 LTCH claims from the December
2010 update of the MedPAR files, it did not
appear that an adjustment for the effect of
documentation and coding in FY 2010 was
warranted. Therefore, we did not propose to
make an adjustment for the effect of
documentation and coding during FY 2010 in
our proposed annual update to the LTCH PPS
standard Federal rate for FY 2012.
Furthermore, we proposed that, consistent
with our historical practice of using the best
available data, if more recent data
subsequently became available, we would
examine such data for the final rule to
determine if an adjustment for the effect of
documentation and coding during FY 2010 is
warranted.
For this final rule, based on an analysis of
the most recent available data, that is FY
2010 LTCH claims from the March 2011
update of the MedPAR file, it does not appear
that an adjustment for the effect of
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documentation and coding in FY 2010 is
warranted. Therefore, in this final rule, as we
proposed, we are not making an adjustment
for the effect of documentation and coding
during FY 2010 in our annual update to the
LTCH PPS standard Federal rate for FY 2012.
In the FY 2011 IPPS/LTCH PPS final rule
(75 FR 50443 through 50444), we established
an annual update to the LTCH PPS standard
Federal rate for FY 2011 based on the full
estimated LTCH PPS market basket increase
of 2.5 percent, the 0.50 percentage point
reduction required by sections
1886(m)(3)(A)(i), (m)(3)(A)(ii), and (m)(4)(B)
of the Act, and an adjustment to account for
the increase in case-mix in prior periods (FYs
2008 and 2009) that resulted from the effect
of documentation and coding practices of
¥2.5 percent. Accordingly, at
§ 412.523(c)(vii), we established an annual
update to the standard Federal rate for FY
2011 of ¥0.49 percent. That is, we applied
an update factor of 0.9951 (calculated as
1.020 × 1 divided by 1.025 = 0.9951 or ¥0.49
percent) to the RY 2010 Federal rate of
$39,794.95 (as established in the June 2, 2010
FY 2010 IPPS/RY 2010 LTCH PPS notice (75
FR 31128 through 31129)) to determine the
FY 2011 standard Federal rate. Consequently,
we established a standard Federal rate for FY
2011 of $39,599.95, which is applicable to
LTCH PPS discharges occurring on or after
October 1, 2010, through September 30, 2011.
In the FY 2012 IPPS/LTCH PPS proposed
rule, for FY 2012, as noted above and as
discussed in greater detail in section VII.E.2.
of the preamble of the proposed rule,
consistent with our historical practice, we
proposed to establish an annual update to the
LTCH PPS standard Federal rate of 1.5
percent, based on the full estimated increase
in the proposed LTCH PPS market basket of
2.8 percent less the proposed MFP
adjustment of 1.2 percentage points required
under 1886(m)(3)(A)(ii) and less the 0.1
percentage point required by sections
1886(m)(3)(A)(i) and(m)(4)(C) of the Act.
Accordingly, we proposed an update factor to
the standard Federal rate for FY 2012 of 1.5
percent. That is, under proposed
§ 412.523(c)(viii), we proposed to apply a
factor of 1.015 to the FY 2011 standard
Federal rate of $39,599.95 (as established in
the FY 2011 IPPS/LTCH PPS final rule (75 FR
50444)) to determine the FY 2012 standard
Federal rate. Furthermore, as discussed in
greater detail in section VII.E.3. of the
preamble of the proposed rule, for FY 2012,
we proposed to apply an area wage level
budget neutrality factor of 0.99723 to the
standard Federal rate to ensure that any
changes to the area wage level adjustment
(that is, the 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 proposed to establish a
standard Federal rate for FY 2012 of
$40,082.61 (calculated as $39,599.95 × 1.015
× 0.99723), which would be applicable to
LTCH PPS discharges occurring on or after
October 1, 2011, through September 30, 2012.
Comment: Several commenters expressed
general support for the development of the
proposed standard Federal rate. In particular,
commenters agreed that an adjustment for the
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51807
effect of documentation and coding during
FY 2010 was not warranted.
Response: We appreciate the commenters’
support for the development of the proposed
standard Federal rate. We are finalizing our
proposed approach for the development of
the standard Federal rate for FY 2012 (based
on the latest available data) without
modification in this final rule.
In this final rule, for FY 2012, as noted
above and as discussed in greater detail in
section VII.E.2. of the preamble of the 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 2.9 percent
less the MFP adjustment of 1.0 percentage
point required under section
1886(m)(3)(A)(ii) of the Act and less the 0.1
percentage point required by sections
1886(m)(3)(A)(i) and(m)(4)(C) of the Act.
Accordingly, the update factor to the
standard Federal rate for FY 2012 is 1.8
percent. That is, under § 412.523(c)(viii), we
apply a factor of 1.018 to the FY 2011
standard Federal rate of $39,599.95 (as
established in the FY 2011 IPPS/LTCH PPS
final rule (75 FR 50444)) to determine the FY
2012 standard Federal rate. Furthermore, as
discussed in greater detail in section VII.E.3.
of the preamble of this final rule, for FY
2012, we are applying 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) will not result
in any change (increase or decrease) in
estimated aggregate LTCH PPS payments.
Consequently, we are establishing a standard
Federal rate for FY 2012 of $40,222.05
(calculated as $39,599.95 x 1.018 x 0.99775),
which will be applicable to LTCH PPS
discharges occurring on or after October 1,
2011, through September 30, 2012.
B. Adjustment for Area Wage Levels Under
the LTCH PPS for FY 2012
1. Background
Under the authority of section 123 of the
BBRA as amended by section 307(b) of the
BIPA, we established an adjustment to the
LTCH PPS standard Federal rate to account
for differences in LTCH area wage levels at
§ 412.525(c). The labor-related share of the
LTCH PPS standard Federal rate is adjusted
to account for geographic differences in area
wage levels by applying the applicable LTCH
PPS wage index. The applicable LTCH PPS
wage index is computed using wage data
from inpatient acute care hospitals without
regard to reclassification under section
1886(d)(8) or section 1886(d)(10) of the Act.
As we discussed in the August 30, 2002
LTCH PPS final rule (67 FR 56015), when we
implemented the LTCH PPS, we established
a 5-year transition to the full area wage index
level adjustment. The area wage level
adjustment was completely phased-in for
cost reporting periods beginning in FY 2007.
Therefore, for cost reporting periods
beginning on or after October 1, 2006, the
applicable LTCH wage index values are the
full LTCH PPS wage index values calculated
based on acute care hospital inpatient wage
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index data without taking into account
geographic reclassification under section
1886(d)(8) and section 1886(d)(10) of the Act.
For additional information on the phase-in of
the area wage level adjustment under the
LTCH PPS, we refer readers to the August 30,
2002 LTCH PPS final rule (67 FR 56017
through 56019) and the RY 2008 LTCH PPS
final rule (72 FR 26891).
2. Geographic Classifications/Labor Market
Area Definitions
As discussed in the August 30, 2002 LTCH
PPS final rule, which implemented the LTCH
PPS (67 FR 56015 through 56019), in
establishing an adjustment for area wage
levels, the labor-related portion of a LTCH’s
Federal prospective payment is adjusted by
using an appropriate wage index based on
the labor market area in which the LTCH is
located. Specifically, the application of the
LTCH PPS area wage level adjustment at
existing § 412.525(c) is made on the basis of
the location of the LTCH in either an urban
area or a rural area as defined in § 412.503.
Currently under the LTCH PPS at § 412.503,
an ‘‘urban area’’ is defined as a Metropolitan
Statistical Area (which would include a
metropolitan division, where applicable) as
defined by the Executive OMB and a ‘‘rural
area’’ is defined as any area outside of an
urban area.
In the RY 2006 LTCH PPS final rule (70 FR
24184 through 24185), in regulations at
§ 412.525(c), we revised the labor market area
definitions used under the LTCH PPS
effective for discharges occurring on or after
July 1, 2005, based on the Executive OMB’s
CBSA designations, which are based on 2000
Census data. We made this revision because
we believe that the CBSA-based labor market
area definitions will ensure that the LTCH
PPS wage index adjustment most
appropriately accounts for and reflects the
relative hospital wage levels in the
geographic area of the hospital as compared
to the national average hospital wage level.
We note that these are the same CBSA-based
designations implemented for acute care
hospitals under the IPPS at § 412.64(b),
effective October 1, 2004 (69 FR 49026
through 49034). (For further discussion of the
CBSA-based labor market area (geographic
classification) definitions currently used
under the LTCH PPS, we refer readers to the
RY 2006 LTCH PPS final rule (70 FR 24182
through 24191).) We have updated the LTCH
PPS CBSA-based labor market area
definitions annually since they were adopted
for RY 2006 (73 FR 26812 through 26814, 74
FR 44023 through 44204, and 75 FR 50444
through 50445).
As we discussed in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 26039), in
OMB Bulletin No. 10–2, issued on December
1, 2009, OMB announced that the CBSA
changes in that bulletin would be the final
update prior to the 2010 Census of
Population and Housing. We adopted those
changes under the LTCH PPS in the FY 2011
IPPS/LTCH PPS final rule (75 FR 50444
through 50445), effective beginning October
1, 2010, and they are also reflected in this FY
2012 final rule. In 2013, OMB plans to
announce new area delineations based on its
2010 standards (75 FR 37246) and the 2010
Census data.
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The OMB bulletin is available on the OMB
Web site at http://www.whitehouse.gov/OMBgo to ‘‘Agency Information’’ and click on
‘‘Bulletins’’.
3. LTCH PPS Labor-Related Share
Under the adjustment for differences in
area wage levels at § 412.525(c), the laborrelated share of a LTCH’s PPS Federal
prospective payment is adjusted by the
applicable wage index for the labor market
area in which the LTCH is located. The LTCH
PPS labor-related share currently represents
the sum of the labor-related portion of
operating costs (wages and salaries, employee
benefits, professional fees, and all other
labor-intensive services) and a labor-related
portion of capital costs using the applicable
LTCH PPS market basket. Currently, as
established in the RY 2007 LTCH PPS final
rule (71 FR 27829 through 27830), the LTCH
PPS labor-related share is based on the
relative importance of the labor-related share
of operating costs and capital costs of the
rehabilitation, psychiatric, and long-term
care hospital (RPL) market basket based on
FY 2002 data, as those were the best available
data at that time that reflected the cost
structure of LTCHs. For the past 4 years (RY
2008, RY 2009, RY 2010, and FY 2011), we
updated the LTCH PPS labor-related share
annually based on the latest available data for
the FY 2002-based RPL market basket. For FY
2011, in the FY 2011 IPPS/LTCH PPS final
rule (75 FR 20445), we established a laborrelated share of 75.271 percent based on the
best available data at that time for the FY
2002-based RPL market basket for FY 2011.
(Additional background information on the
historical development of the labor-related
share under the LTCH PPS and the
development of the RPL market basket can be
found in the RY 2007 LTCH PPS final rule
(71 FR 27810 through 27817 and 27829
through 27830).)
As discussed in section VII.D. of the
preamble of this final rule, we are finalizing
our proposal to revise and rebase the market
basket used under the LTCH PPS beginning
in FY 2012 by adopting the newly created FY
2008-based RPL market basket. We also are
finalizing our proposal to determine the
labor-related share for FY 2012 as the sum of
the FY 2012 relative importance of each
labor-related cost category of the FY 2008based RPL market basket. (The summary of
comments we received on the proposed
LTCH PPS labor-related share for FY 2012
and our responses can be found in section
VII.D.3.f. of the preamble of this final rule.)
As we discuss in section VII.D.3.f. of the
preamble of this final rule, we are
establishing a labor-related share under the
LTCH PPS for FY 2012 based on IHS Global
Insight, Inc.’s second quarter 2011 forecast of
the FY 2008-based RPL market basket for FY
2012, as these are the most recent available
data that reflect the cost structure of LTCHs.
Consistent with our proposal, the laborrelated share for FY 2012 is the sum of the
FY 2012 relative importance of each laborrelated cost category of the FY 2008-based
RPL market basket, and reflects the different
rates of price change for these cost categories
between the base year (FY 2008) and FY
2012. As discussed in greater detail in
section VII.D.3.f. of this preamble, the sum of
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the relative importance for FY 2012 for
operating costs (Wages and Salaries,
Employee Benefits, Professional Fees: LaborRelated, Administrative and Business
Support Services, and All-Other: Laborrelated Services) is 66.564 percent and the
proposed labor-related share of capital costs
is 3.635 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 laborrelated share of 70.199 percent (66.564
percent plus 3.635 percent) under the LTCH
PPS for the FY 2012, which will be effective
for discharges occurring on or after October
1, 2011, and through September 30, 2012.
(For additional details on the development of
the LTCH PPS labor-related share for FY
2012, we refer readers to section VII.D.3.f. of
the preamble of this final rule.)
4. LTCH PPS Wage Index for FY 2012
Historically, under the LTCH PPS, we have
established LTCH PPS wage index values
calculated from acute care IPPS hospital
wage data without taking into account
geographic reclassification under sections
1886(d)(8) and 1886(d)(10) of the Act (67 FR
56019). The area wage level adjustment
established under the LTCH PPS is based on
a LTCH’s actual location without regard to
the urban or rural designation of any related
or affiliated provider.
In the FY 2011 LTCH PPS final rule (75 FR
50445 through 50446), we calculated the FY
2011 LTCH PPS wage index values using the
same data used for the FY 2011 acute care
hospital IPPS (that is, data from cost
reporting periods beginning during FY 2007),
without taking into account geographic
reclassification under sections 1886(d)(8) and
1886(d)(10) of the Act, as these were the most
recent complete data available at that time.
In that same final rule, we indicated that we
computed the FY 2011 LTCH PPS wage
index values consistent with the urban and
rural geographic classifications (labor market
areas) and consistent with the prereclassified IPPS wage index policy (that is,
our historical policy of not taking into
account IPPS geographic reclassifications in
determining payments under the LTCH PPS).
We also continued to use our existing policy
for determining wage index values in areas
where there are no IPPS wage data.
Consistent with our historical
methodology, to determine the applicable
wage index values under the LTCH PPS for
FY 2012, under the broad authority conferred
upon the Secretary by section 123 of the
BBRA, as amended by section 307(b) of BIPA,
to determine appropriate adjustments under
the LTCH PPS, we proposed to use wage data
collected from cost reports submitted by IPPS
hospitals for cost reporting periods beginning
during FY 2008, without taking into account
geographic reclassification under sections
1886(d)(8) and 1886(d)(10) of the Act. We
proposed to use FY 2008 data because these
data are the most recent complete data
available. These are the same data used to
compute the FY 2012 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
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readers to the FY 2010 IPPS/RY 2010 LTCH
PPS final rule (74 FR 44024 through 44025).)
The FY 2012 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 pre-reclassified IPPS
wage index policy (that is, our historical
policy of not taking into account IPPS
geographic reclassifications under sections
1886(d)(8) and 1886(d)(10) of the Act in
determining payments under the LTCH PPS).
As with the IPPS wage index, wage data for
multicampus hospitals with campuses
located in different labor market areas
(CBSAs) are apportioned to each CBSA
where the campus or campuses are located
(as discussed in section III.F. of the preamble
of this final rule). Furthermore, in
determining the FY 2012 LTCH PPS wage
index values in this final rule, we are
continuing to use our existing policy for
determining wage index values in areas
where there are no IPPS wage data.
As discussed in the FY 2011 IPPS/LTCH
PPS final rule (75 FR 50446), we established
a methodology for determining LTCH PPS
wage index values for areas that have no IPPS
wage data in the RY 2009 LTCH PPS final
rule, and as we proposed, we are continuing
to use this methodology for FY 2012. As was
the case in FY 2011, there are currently no
LTCHs located in labor areas without IPPS
hospital wage data (or IPPS hospitals) for FY
2012. However, we calculate 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. (We refer readers to 73
FR 26817 through 26818 for an explanation
of and rationale for our policy.)
Comment: One commenter pointed out that
it is not necessary to use our methodology for
determining a LTCH PPS wage index value
for areas with no IPPS wage data to
determine a LTCH PPS wage index value for
the rural area of Massachusetts for FY 2012,
as we proposed, because there are, in fact,
data for rural Massachusetts (CBSA code 22)
in the FY 2008 IPPS wage data that we
proposed to use to determine the FY 2012
LTCH PPS wage index values in the
proposed rule.
Response: We appreciate the commenter
pointing out that we mistakenly stated in the
FY 2012 IPPS/LTCH PPS proposed rule (76
FR 26040) that there was no IPPS wage data
for the rural area of Massachusetts in the FY
2008 IPPS wage data that we proposed to use
to determine the FY 2012 LTCH PPS wage
index values. We note that, although our
proposal incorrectly stated that we would use
our established methodology for rural areas
with no IPPS wage data to compute the FY
2012 LTCH PPS wage index for the rural area
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of Massachusetts, the proposed FY 2012
LTCH PPS wage index for the rural area of
Massachusetts (CBSA code 22, as shown in
Table 12B of that same proposed rule) was
computed based on the proposed FY 2008
IPPS wage data (and was not computed using
our policy for rural areas with no IPPS wage
data as our proposal indicated). Accordingly,
in this final rule, we determined the FY 2012
LTCH PPS wage index value for the rural
area of Massachusetts (CBSA code 22) using
the FY 2008 IPPS wage data that we are
generally using to determine all of the FY
2012 LTCH PPS wage index values in this
final rule.
Based on the FY 2008 IPPS wage data that
we used to determine the FY 2012 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 and as we proposed, we calculated the
FY 2012 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). We
note that, as IPPS wage data are dynamic, it
is possible that urban areas without IPPS
wage data will vary in the future.
The FY 2012 LTCH wage index values that
will be applicable for LTCH discharges
occurring on or after October 1, 2011,
through September 30, 2012, are presented in
Table 12A (for urban areas) and Table 12B
(for rural areas), which are listed in section
VI. of the Addendum of this final rule and
available via the Internet.
e. Budget Neutrality Adjustment for Changes
to the Area Wage Level Adjustment
Historically, the LTCH PPS wage index and
labor-related share are updated annually
based on the latest available data. However,
there are currently no statutory or regulatory
requirements that the annual update to the
LTCH PPS area wage level adjustment at
existing § 412.525(c) (that is, the wage index
and the labor-related share) be budget neutral
such that estimated aggregate LTCH PPS
payments would be unaffected (that is,
would be neither greater than nor less than
estimated aggregate LTCH PPS payments
without such changes). In section VII.E.3. of
the preamble of this final rule, as we
proposed, under new § 412.525(c)(2), we are
providing that, beginning in FY 2012, any
changes to the wage index values or laborrelated 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, as we
proposed, we have also determined an area
wage level adjustment budget neutrality
factor that is 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
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51809
estimated aggregate LTCH PPS payments.
Therefore, under § 412.523(d)(4), we are
applying an area wage level adjustment
budget neutrality factor of 0.99775
(determined under the methodology
described in section VII.E.3. of the preamble
of this final rule) to determine the FY 2012
LTCH PPS standard Federal rate. (The
development of the LTCH PPS standard
Federal rate for FY 2012 is discussed in
section V.A.2. of this Addendum.)
C. LTCH PPS Cost-of-Living Adjustment for
LTCHs Located in Alaska and Hawaii
In the August 30, 2002 final rule (67 FR
56022), we established, under § 412.525(b), a
cost-of-living adjustment (COLA) for LTCHs
located in Alaska and Hawaii to account for
the higher costs incurred in those States.
Specifically, we apply a COLA to payments
to LTCHs located in Alaska and Hawaii by
multiplying the nonlabor-related portion of
the standard Federal payment rate by the
applicable COLA factors established annually
by CMS. Higher labor-related costs for LTCHs
located in Alaska and Hawaii are taken into
account in the adjustment for area wage
levels described above.
For FY 2011 and in prior years, we used
the most recent updated COLA factors
obtained from the U.S. Office of Personnel
Management (OPM) Web site at 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 phasein of locality.
As we discussed in the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 26040), we
do not believe it is appropriate to use either
the 2010 or 2011 reduced factors for
adjusting the nonlabor-related portion of the
standard Federal rate for LTCHs in Alaska or
Hawaii. Therefore, for FY 2012, we proposed
to continue to use the same COLA factors
(published by OPM) that we used to adjust
payments in FY 2011 (which are based on
OPM’s 2009 COLA factors) to adjust the
nonlabor-related portion of the standard
Federal rate for LTCHs located in Alaska and
Hawaii, and we invited public comment on
this proposal. We believe using these COLA
factors would appropriately adjust the
nonlabor-related portion of the standard
Federal rate for LTCHs in Alaska and Hawaii
consistent with § 412.525(b). We did not
receive any public comments on this
proposal.
In this final rule, for FY 2012, under the
broad authority conferred upon the Secretary
by section 123 of the BBRA, as amended by
section 307(b) of BIPA, to determine
appropriate adjustments under the LTCH
PPS, as we proposed, we will continue to use
the same COLA factors (published by OPM)
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that we use to adjust LTCH PPS payments in
FY 2011. We believe using these COLA
factors will appropriately adjust the
nonlabor-related portion of the standard
Federal rate for LTCHs in Alaska and Hawaii
consistent with § 412.525(b). (We note that
this policy is consistent with the proposed
adjustment for cost-of-living in Alaska and
Hawaii for IPPS hospitals discussed in
section II.B.2. of this Addendum). Therefore,
consistent with our current policy, under
§ 412.525(b), for FY 2012 we are applying 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 factors listed in
the chart below because they are the most
recent available data at this time. As
discussed above, these factors were obtained
from the OPM and are also used under the
IPPS for FY 2012.
COST-OF-LIVING ADJUSTMENT FACTORS FOR ALASKA AND HAWAII HOSPITALS FOR THE LTCH PPS FOR FY 2012
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
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(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 exceeds the adjusted LTCH PPS
payment for the MS–LTC–DRG plus a fixedloss amount. Specifically, in accordance with
§ 412.525(a)(3) (in conjunction with
§ 412.503), we make an additional payment
to an HCO case that is equal to 80 percent
of the difference between the estimated cost
of the patient case and the outlier threshold,
which is the sum of the adjusted Federal
prospective payment for the MS–LTC–DRG
and the fixed-loss amount. The fixed-loss
amount is the amount used to limit the loss
that a hospital will incur under the outlier
policy for a case with unusually high costs.
This results in Medicare and the LTCH
sharing financial risk in the treatment of
extraordinarily costly cases. Under the LTCH
PPS HCO policy, the LTCH’s loss is limited
to the fixed-loss amount and a fixed
percentage of costs above the outlier
threshold (adjusted MS–LTC–DRG payment
plus the fixed-loss amount). The fixed
percentage of costs is called the marginal cost
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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 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
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§ 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
methodology for determining the LTCH total
CCR ceiling (described above), based on IPPS
total CCR data from the December 2010
update of the PSF, we proposed to establish
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a total CCR ceiling of 1.210 under the LTCH
PPS that would be effective for discharges
occurring on or after October 1, 2011,
through September 30, 2012. Consistent with
our historical policy of using the best
available data, we also proposed that if more
recent data became available, we would use
such data to establish a total CCR ceiling for
FY 2012 in the final rule. Consistent with
that proposal, 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, using our established methodology for
determining the LTCH total CCR ceiling
(described above), based on IPPS total CCR
data from the March 2011 update of the PSF,
we are establishing a total CCR ceiling of
1.215 under the LTCH PPS that will be
effective for discharges occurring on or after
October 1, 2011, through September 30, 2012.
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 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 2010 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, 2011, through
September 30, 2012, in Table 8C which is
listed in section VI. of the Addendum to that
proposed rule and available via the Internet.
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 2011
update of the PSF, we are establishing LTCH
PPS statewide average total CCRs for urban
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and rural hospitals that will be effective for
discharges occurring on or after October 1,
2011, through September 30, 2012, in Table
8C which is listed in section VI. of the
Addendum to this final rule and available via
the Internet.
As we explained in the proposed rule (76
FR 26042), all areas in the District of
Columbia, New Jersey, and Rhode Island are
classified as urban. Therefore, there are no
rural statewide average total CCRs listed for
those jurisdictions in Table 8C listed in
section VI. of the Addendum to this final rule
and available via the Internet. This policy is
consistent with the policy that we
established when we revised our
methodology for determining the applicable
LTCH statewide average CCRs in the FY 2007
IPPS final rule (71 FR 48119 through 48121)
and is the same as the policy applied under
the IPPS. In addition, although North Dakota
has areas that are designated as rural, there
are no short-term, acute care IPPS hospitals
or LTCHs located in those areas as of March
2011. Therefore, there is no rural statewide
average total CCR listed for rural North
Dakota in Table 8C listed in section VI. of the
Addendum to this final rule and available via
the Internet.
In addition, consistent with our existing
methodology and as we proposed, in
determining the urban and rural statewide
average total CCRs for Maryland LTCHs paid
under the LTCH PPS, in this final rule, we
used, as a proxy, the national average total
CCR for urban IPPS hospitals and the
national average total CCR for rural IPPS
hospitals, respectively. We used this proxy
because we believe that the CCR data on the
PSF for Maryland hospitals may not be
entirely accurate (as discussed in greater
detail in the FY 2007 IPPS final rule (71 FR
48120)).
d. Reconciliation of LTCH HCO and SSO
Payments
We note that under the LTCH PPS HCO
policy at § 412.525(a)(4)(iv)(D) and the LTCH
PPS SSO policy at § 412.529(f)(4)(iv), the
payments for HCO and SSO cases,
respectively, are subject to reconciliation.
Specifically, any reconciliation of outlier
payments is based on the CCR that is
calculated based on a ratio of cost-to-charge
data computed from the relevant cost report
determined at the time the cost report
coinciding with the discharge is settled. For
additional information, we refer readers to
sections 150.26 through 150.28 of the
Medicare Claims Processing Manual (Pub.
100–4) as added by Change Request 7192
(Transmittal 2111; December 3, 2010) and the
RY 2009 LTCH PPS final rule (73 FR 26820
through 26821).
3. Establishment of the LTCH PPS Fixed-Loss
Amount for FY 2012
When we implemented the LTCH PPS, as
discussed in the August 30, 2002 LTCH PPS
final rule (67 FR 56022 through 56026),
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
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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 2012 IPPS/LTCH PPS proposed
rule (76 FR 26042), we proposed to continue
to use our existing methodology to calculate
the fixed-loss amount for FY 2012 (based on
data and the rates and policies presented in
that proposed 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
2012, we used the most recent available
LTCH claims data and CCR data at this time.
Specifically, for the proposed rule, we used
LTCH claims data from the December 2010
update of the FY 2010 MedPAR file and
CCRs from the December 2010 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 2012 because
these data were the most recent complete
LTCH data available at that time. We also
proposed to determine the FY 2012 fixed-loss
amount based on the proposed MS–LTC–
DRG classifications and proposed relative
weights from the version of the GROUPER
that would be in effect as of the beginning
of FY 2012, that is, Version 29.0 of the
GROUPER. In that same proposed rule, under
the broad authority of section 123(a)(1) of the
BBRA and section 307(b)(1) of BIPA, we
proposed to establish a fixed-loss amount of
$19,270 for FY 2012. Thus, we proposed to
make an additional payment to an HCO case
that is equal to 80 percent of the difference
between the estimated cost of the case and
the proposed outlier threshold (the sum of
the adjusted proposed Federal LTCH
payment for the proposed MS–LTC–DRG and
the proposed fixed-loss amount of $19.270).
In this final rule, as we proposed, we are
continuing to use our existing methodology
to calculate the fixed-loss amount for FY
2012 (based on updated 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. (For an explanation of
our rationale for establishing an HCO
payment ‘‘target’’ of 8 percent of total
estimated LTCH payments, we refer readers
to the August 30, 2002 LTCH PPS final rule
(67 FR 56022 through 56024).) Consistent
with our historical practice of using the best
data available, in determining the fixed-loss
amount for FY 2012, 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 2011
update of the FY 2010 MedPAR file and
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CCRs from the March 2011 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 2012 because
these data are the most recent complete
LTCH data currently available. Furthermore,
we determined the FY 2012 fixed-loss
amount based on the MS–LTC–DRG
classifications and relative weights from the
version of the GROUPER that is in effect as
of the beginning of FY 2012, that is, Version
29.0 of the GROUPER.
Under the broad authority of section
123(a)(1) of the BBRA and section 307(b)(1)
of BIPA, we are establishing a fixed-loss
amount of $17,931 for FY 2012. Thus, we
will make an additional payment to an HCO
case that is equal to 80 percent of the
difference between the estimated cost of the
case and the outlier threshold (the sum of the
adjusted Federal LTCH payment for the MS–
LTC–DRG and the fixed-loss amount of
$17.931). We also note that the fixed-loss
amount of $17,931 for FY 2012 is lower than
the FY 2011 fixed-loss amount of $18,785,
and is also somewhat lower than the
proposed FY 2012 fixed-loss amount of
$19,270 (which was determined using LTCH
claims data from the December 2010 update
of the FY 2010 MedPAR file and CCRs from
the December 2010 update of the PSF
because these data were the most recent
complete data available at that time). Based
on our payment simulations using the most
recent available data at this time, the
decrease in the fixed-loss amount for FY
2012 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, as noted above, we
refer readers to the August 30, 2002 LTCH
PPS final rule (67 FR 56022 through 56024.)
Maintaining the fixed-loss amount at the
current level would result in HCO payments
that are less than the current regulatory 8percent 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 a SSO case (as defined in the
regulations at § 412.529 in conjunction with
§ 412.503) and also as a HCO case. In this
scenario, a patient could be hospitalized for
less than five-sixths of the geometric average
length of stay for the specific MS–LTC–DRG,
and yet incur extraordinarily high treatment
costs. If the estimated costs exceeded the
HCO threshold (that is, the SSO payment
plus the fixed-loss amount), the discharge is
eligible for payment as a HCO. Thus, for a
SSO case in FY 2012, the HCO payment
would be 80 percent of the difference
between the estimated cost of the case and
the outlier threshold (the sum of the fixedloss amount of $17,931 and the amount paid
under the SSO policy as specified in
§ 412.529).
E. Computing the Adjusted LTCH PPS
Federal Prospective Payments for FY 2012
Section 412.525 sets forth the adjustments
to the LTCH PPS standard Federal rate.
Under § 412.525(c), the standard Federal rate
is adjusted to account for differences in area
wages by multiplying the labor-related share
of the standard Federal rate by the
appropriate LTCH PPS wage index (as shown
in Tables 12A and 12B listed in section VI.
of the Addendum of this 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
appropriate cost-of-living factor (shown in
the chart in section V.C.5. 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
2012 of $40,222.05, 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 rate for FY 2012 in the
following example:
Example:
During FY 2012, a Medicare patient is in
a LTCH located in Chicago, Illinois (CBSA
16974). The FY 2012 LTCH PPS wage index
value for CBSA 16974 is 1.0600 (Table 12A
listed in section VI. of the Addendum of this
final rule and available via the Internet). The
Medicare patient is classified into proposed
MS–LTC–DRG 28 (Spinal Procedures with
MCC), which has a relative weight for FY
2012 of 1.7420 (Table 11 listed in section VI.
of the Addendum of this final rule and
available via the Internet).
To calculate the LTCH’s total adjusted
Federal prospective payment for this
Medicare patient in FY 2012, we computed
the wage-adjusted Federal prospective
payment amount by multiplying the
unadjusted standard Federal rate
($40,222.05) by the labor-related share
(70.199 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 (29.801
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 (1.7420) to
calculate the total adjusted Federal LTCH
PPS prospective payment for FY 2012
($73,017.99). The table below illustrates the
components of the calculations in this
example.
Unadjusted Standard Federal Prospective Payment Rate ..........................................................................................................
Labor-Related Share .....................................................................................................................................................................
$40,222.05
× 0.70199
Labor-Related Portion of the Federal Rate ..................................................................................................................................
Wage Index (CBSA 16974) ...........................................................................................................................................................
= $28,235.48
× 1.0600
Wage-Adjusted Labor Share of Federal Rate ..............................................................................................................................
Nonlabor-Related Portion of the Federal Rate ($40,222.08 × 0.29801) .....................................................................................
= $29,929.61
+ $11,986.57
Adjusted Federal Rate Amount ...................................................................................................................................................
MS–LTC–DRG 28 Relative Weight ..............................................................................................................................................
= $41,916.18
× 1.7420
Total Adjusted Federal Prospective Payment .............................................................................................................................
= $73,017.99
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, beginning in FY 2012,
IPPS tables 2, 3A, 3B, 4A, 4B, 4C, 4D, 4E, 4F,
4J, 5, 6A, 6B, 6C, 6D, 6E, 6F, 7A, 7B, 8A, 8B,
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9A, 9C, and 10, and LTCH PPS tables 8C, 11,
12A, and 12B will no longer be published as
part of the annual IPPS/LTCH PPS proposed
and final rulemakings. Instead, these tables,
along with new LTCH PPS tables 13A and
13B, and new IPPS table 14 will be available
only through the Internet. IPPS tables 1A, 1B,
1C, and 1D, and LTCH PPS table 1E,
displayed at the end of this section, will
continue to be published in the Federal
Register as part of the annual proposed and
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final rules. We note that previously tables 6G,
6H, 6I, 6I.1, 6I.2, 6J, 6J.1, 6J.2, and 6K were
already made available only through the
Internet. We will continue to post these
tables through the Internet.
Readers who experience any problems
accessing any of the tables that are posted on
the CMS Web sites identified below should
contact Ing Jye Cheng at (410) 786–4548.
The following IPPS tables for this FY 2012
final rule are available only through the
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Internet on the CMS Web site at: http://
www.cms.hhs.gov/AcuteInpatientPPS/
01_overview.asp. Click on the link on the left
side of the screen titled, ‘‘FY 2012 IPPS Final
Rule Home Page’’ or ‘‘Acute Inpatient—Files
for Download’’.
Table 2.—Acute Care Hospitals Case-Mix
Indexes for Discharges Occurring in Federal
Fiscal Year 2010; Hospital Wage Indexes for
Federal Fiscal Year 2012; Hospital Average
Hourly Wages for Federal Fiscal Years 2010
(2006 Wage Data), 2011 (2007 Wage Data),
and 2012 (2008 Wage Data); and 3–Year
Average of Hospital Average Hourly Wages
Table 3A.—FY 2012 and 3-Year Average
Hourly Wage for Acute Care Hospitals in
Urban Areas by CBSA
Table 3B.—FY 2012 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 2012
Table 4B.—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals in Rural Areas by CBSA
and by State—FY 2012
Table 4C.—Wage Index and Capital
Geographic Adjustment Factor (GAF) for
Acute Care Hospitals That Are Reclassified
by CBSA and by State—FY 2012
Table 4D.—States Designated as Frontier,
with Acute Care Hospitals Receiving at a
Minimum the Frontier State Floor Wage
Index1; Urban Areas with Acute Care
Hospitals Receiving the Statewide Rural
Floor Wage Index—FY 2012
Table 4E.—Urban CBSAs and Constituent
Counties for Acute Care Hospitals—FY 2012
Table 4F.—Puerto Rico Wage Index and
Capital Geographic Adjustment Factor (GAF)
for Acute Care Hospitals by CBSA—FY 2012
Table 4J.—Out-Migration Adjustment for
Acute Care Hospitals—FY 2012
Table 5.—List of Medicare Severity
Diagnosis-Related Groups (MS–DRGs),
Relative Weighting Factors, and Geometric
and Arithmetic Mean Length of Stay—FY
2012
Table 6A.—New Diagnosis Codes—FY
2012
Table 6B.—New Procedure Codes—FY
2012
Table 6C.—Invalid Diagnosis Codes—FY
2012
Table 6D.—Invalid Procedure Codes—FY
2012
Table 6E.—Revised Diagnosis Code
Titles—FY 2012
Table 6F.—Revised Procedure Code
Titles—FY 2012
Table 6G.—Additions to the CC Exclusions
List—FY 2012
Table 6H.—Deletions from the CC
Exclusions List—FY 2012
Table 6I.—Complete MCC List—FY 2012
Table 6I.1.—Additions to the MCC List—
FY 2012
Table 6I.2.—Deletions to the MCC List—FY
2012
Table 6J.—Complete CC List—FY 2012
Table 6J.1.—Additions to the CC List—FY
2012
Table 6J.2.—Deletions to the CC List—FY
2012
Table 6K.—Complete List of CC
Exclusions—FY 2012
Table 7A.—Medicare Prospective Payment
System Selected Percentile Lengths of Stay:
FY 2010 MedPAR Update—March 2011
GROUPER V28.0 MS–DRGs
Table 7B.—Medicare Prospective Payment
System Selected Percentile Lengths of Stay:
FY 2010 MedPAR Update—March 2011
GROUPER V29.0 MS–DRGs
Table 8A.—FY 2012 Statewide Average
Operating Cost-to-Charge Ratios (CCRs) for
Acute Care Hospitals (Urban and Rural)
Table 8B.—FY 2012 Statewide Average
Capital Cost-to-Charge Ratios (CCRs) for
Acute Care Hospitals
Table 9A.—Hospital Reclassifications and
Redesignations—FY 2012
Table 9C.—Hospitals Redesignated as
Rural under Section 1886(d)(8)(E) of the
Act—FY 2012
Table 10.—Geometric Mean Plus the Lesser
of .75 of the National Adjusted Operating
Standardized Payment Amount (Increased to
Reflect the Difference Between Costs and
Charges) or .75 of One Standard Deviation of
Mean Charges by Medicare Severity
Diagnosis-Related Groups (MS–DRGs)
Table 14.—List of Hospitals with Fewer
than 1,600 Medicare Discharges Based on the
March 2011 Update of the FY 2010 MedPAR
File and Their FY 2012 Low-Volume
Payment Adjustment
The following LTCH PPS tables for this FY
2012 final rule are available only through the
Internet on the CMS Web site at http://
www.cms.gov/LongTermCareHospitalPPS/
LTCHPPSRN/list.asp under the list item for
Regulation Number CMS–1518–P.
Table 8C.—FY 2012 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, 2011
through September 30, 2012 under the LTCH
PPS
Table 12A.—LTCH PPS Wage Index for
Urban Areas for Discharges Occurring from
October 1, 2011 through September 30, 2012
Table 12B.—LTCH PPS Wage Index for
Rural Areas for Discharges Occurring From
October 1, 2011 through September 20, 2012
Table 13A.—Composition of Low-Volume
Quintiles for MS–LTC–DRGs—FY 2012
Table 13B.—No-Volume MS–LTC–DRG
Crosswalk for FY 2012
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 2012
Full update (1.90 percent)
Reduced update (¥0.10 percent)
Labor-related
Nonlabor-related
Labor-related
Nonlabor-related
$3,584.30
$1,625.44
$3,513.95
$1,593.54
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 2012
Full update (1.90 percent)
Reduced update (¥0.10 percent)
Labor-related
Nonlabor-related
Labor-related
Nonlabor-related
$3,230.04
$1,979.70
$3,166.64
$1,940.85
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TABLE 1C—ADJUSTED OPERATING STANDARDIZED AMOUNTS FOR PUERTO RICO, LABOR/NONLABOR—FY 2012
Rates if wage index is
greater than 1
National ............................................................................................
Puerto Rico ......................................................................................
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Rates if wage index is
less than or equal to 1
Labor
Nonlabor
Labor
Nonlabor
$3,584.30
1,553.29
$1,625.44
947.98
$3,230.04
1,550.79
$1,979.70
950.48
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TABLE 1D—CAPITAL STANDARD
FEDERAL PAYMENT RATE—FY 2012
Rate
National .....................................
Puerto Rico ...............................
$421.42
203.86
TABLE 1E—LTCH STANDARD FEDERAL
PROSPECTIVE
PAYMENT
RATE—FY 2012
Rate
Standard Federal Rate .............
$40,222.05
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 2012 acute
care hospital operating and capital payments
will redistribute amounts in excess of $100
million among different types of inpatient
cases. 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
$1.13 billion increase in FY 2012 operating
payments (or 1.1 percent change) and an
estimated $151 million increase in FY 2012
capital payments (or 1.8 percent change). 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
a change in payments by $126 million (or 2.5
percent).
Our operating impact estimate includes the
¥2.0 percent documentation and coding
adjustment applied to the hospital-specific
rates and to the IPPS standardized amounts.
In addition, our operating impact estimate
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includes the 1.9 percent hospital update to
the standardized amount (which includes the
3.0 percent market basket update with the
reduction of 1.0 percentage point for the
multifactor productivity adjustment and the
0.1 percentage point reduction required
under the Affordable Care Act). Finally, our
operating impact estimate includes the 1.1
percent update to the standardized amount
and the 0.9 percent update to the hospitalspecific rates in light of DC Circuit’s decision
in Cape Cod v. Sebelius (630 F.3d 203 (DC
Cir. 2011)). The estimates of IPPS operating
payments to acute care hospitals do not
reflect any changes in hospital admissions or
real case-mix intensity, which would also
affect overall payment changes.
The 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. The final rule will affect
payments to a substantial number of small
rural hospitals, as well as other classes of
hospitals, and the effects on some hospitals
may be significant.
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 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
changes, as well as statutory changes
effective for FY 2012, on various hospital
groups. We estimate the effects of individual
policy changes by estimating payments per
case while holding all other payment policies
constant. We use the best data available, but,
generally, we do not attempt to make
adjustments for future changes in such
variables as admissions, lengths of stay, or
case-mix.
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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 46 such hospitals in Maryland
remain excluded from the IPPS pursuant to
the waiver under section 1814(b)(3) of the
Act.
As of July 2011, there are 3,423 IPPS acute
care hospitals to be included in our analysis.
This represents about 64 percent of all
Medicare-participating hospitals. The
majority of this impact analysis focuses on
this set of hospitals. There also are
approximately 1,346 CAHs. These small,
limited service hospitals are paid on the basis
of reasonable costs rather than under the
IPPS. (We refer readers to section I.H.15. of
this Appendix for a further description of the
impact of CAH-related policy changes.) There
are also 1,290 IPPS-excluded hospitals and
2,119 IPPS-excluded hospital units. These
IPPS-excluded hospitals and units include
IPFs, IRFs, LTCHs, RNHCIs, children’s
hospitals, and cancer hospitals, which are
paid under separate payment systems.
Changes in the prospective payment systems
for IPFs and IRFs are made through separate
rulemaking. Payment impacts for these IPPSexcluded hospitals and units are not
included in this final rule. The impact of the
update and policy changes to the LTCH PPS
for FY 2012 is discussed in section I.J. of this
Appendix.
F. Effects on Hospitals and Hospital Units
Excluded From the IPPS
As of July 2011, there were 3,409 hospitals
and hospital units excluded from the IPPS.
Of these, 78 children’s hospitals, 11 cancer
hospitals, and 17 RNHCIs are being paid on
a reasonable cost basis subject to the rate-ofincrease ceiling under § 413.40. The
remaining providers, 235 rehabilitation
hospitals and 940 rehabilitation units, and
437 LTCHs, are paid the Federal prospective
per discharge rate under the IRF PPS and the
LTCH PPS, respectively, and 512 psychiatric
hospitals and 1,179 psychiatric units are paid
the Federal per diem amount under the IPF
PPS. As stated above, IRFs and IPFs are not
affected by the rate updates discussed in this
final rule. The impacts of the changes to
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
and children’s hospitals continue to be paid
on a reasonable cost basis subject to TEFRA
limits for FY 2012. For these hospitals
(cancer and children’s hospitals), consistent
with the authority provided in section
1886(b)(3)(B)(ii) of the Act, the update is the
FY 2012 percentage increase in the IPPS
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operating market basket. In compliance with
section 404 of the MMA, in the FY 2010
IPPS/RY 2010 LTCH PPS final rule (74 FR
43930), we replaced the FY 2002-based IPPS
operating and capital market baskets with the
revised and rebased FY 2006-based IPPS
operating and capital market baskets.
Therefore, consistent with current law, based
on IHS Global Insight, Inc.’s 2011 second
quarter forecast, with historical data through
the 2011 first quarter, we are estimating that
the FY 2012 update based on the IPPS
operating market basket is 3.0 percent (that
is, the current estimate of the market basket
rate-of-increase). However, the Affordable
Care Act requires an adjustment for
multifactor productivity (currently estimated
to be 1.0 percentage point) and a 0.1
percentage point reduction to the market
basket update resulting in a 1.9 percent
applicable percentage increase for IPPS
hospitals. 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
2012 IPPS operating market basket, estimated
at 3.0 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 per-case cost
increases above the cumulative update in
their rate-of-increase limits, the major effect
is the amount of excess costs that will not be
reimbursed.
We note that, under § 413.40(d)(3), an
excluded hospital that continues to be paid
under the TEFRA system and whose costs
exceed 110 percent of its rate-of-increase
limit receives its rate-of-increase limit plus
50 percent of the difference between its
reasonable costs and 110 percent of the limit,
not to exceed 110 percent of its limit. In
addition, under the various provisions set
forth in § 413.40, cancer and children’s
hospitals can obtain payment adjustments for
justifiable increases in operating costs that
exceed the limit.
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
IPPS for FY 2012 for operating costs of acute
care hospitals. FY 2012 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 2012 operating payments will
increase by 1.1 percent compared to FY 2011,
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largely due to the documentation and coding
adjustments and the applicable percentage
increase applied to the IPPS rates. In addition
to the applicable percentage increase, this
amount reflects the FY 2012 adjustments for
documentation and coding and recoupment
described in section II.D. of the preamble of
this final rule: ¥ 2.0 percent for the IPPS
national standardized amounts and the IPPS
hospital-specific rates. The impacts do not
illustrate changes in hospital admissions or
real case-mix intensity, which will also affect
overall payment changes.
We have prepared separate impact analyses
of the changes to each system. This section
deals with 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
would allow us to estimate the payment
impacts using this model. For those changes,
we have attempted to predict the payment
impacts based upon our experience and other
more limited data.
The data used in developing the
quantitative analyses of changes in payments
per case presented below are taken from the
FY 2010 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 2010 MedPAR
file, we simulated payments under the
operating IPPS given various combinations of
payment parameters. As described above,
Indian Health Service hospitals and hospitals
in Maryland were excluded from the
simulations. The impact of payments under
the capital IPPS, or the impact of payments
for costs other than inpatient operating costs,
are not analyzed in this section. Estimated
payment impacts of the capital IPPS for FY
2012 are discussed in section I.I. of this
Appendix.
We discuss the following changes below:
• Effects of the application of the
documentation and coding adjustment and
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.
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• Effects of the increase to the
standardized amount and hospital-specific
rates in light of D.C. Circuit’s decision in
Cape Cod v. Sebelius, 630 F.3d 203 (DC Cir.
2011).
• 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 2008, compared to the
FY 2007 wage data.
• The effects of the recalibration of the
MS–DRG relative weights as required by
section 1886(d)(4)(C) of the Act, including
the wage and recalibration budget neutrality
factors.
• The effects of the geographic
reclassifications by the MGCRB that will be
effective in FY 2012.
• 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 section 505 of Public Law
108–173, which provides for an increase in
a hospital’s wage index if the hospital
qualifies by meeting a threshold percentage
of residents of the county where the hospital
is located who commute to work at hospitals
in counties with higher wage indexes.
• The total estimated change in payments
based on the FY 2012 policies relative to
payments based on FY 2011 policies that
include the applicable percentage increase of
1.9 percent (or 3.0 percent market basket
update with a reduction of 1.0 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 2012
changes, our analysis begins with a FY 2011
baseline simulation model using: The FY
2012 applicable percentage increase of 1.9
percent and the documentation and coding
adjustment of ¥2.0 percent; the FY 2011
MS–DRG GROUPER (Version 28.0); the most
current CBSA designations for hospitals
based on OMB’s MSA definitions; the FY
2011 wage index; and no MGCRB
reclassifications. Outlier payments are set at
5.1 percent of total operating MS–DRG and
outlier payments for modeling purposes.
Section 1886(b)(3)(B)(viii) of the Act, as
added by section 5001(a) of Public Law 109–
171, as amended by section 4102(b)(1)(A) of
the ARRA (Pub. L. 111–5) and by section
3401(a)(2) of the Affordable Care Act (Pub. L.
111–148), provides that, for FY 2007 through
FY 2014, the update factor will include a
reduction of 2.0 percentage points for any
hospital that does not submit quality data in
a form and manner and at a time specified
by the Secretary. (Beginning in FY 2015, the
reduction is one-quarter of such applicable
percentage increase determined without
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regard to section 1886(b)(3)(B)(ix), (xi), or
(xii) of the Act.) At the time that this impact
was prepared, 57 hospitals did not receive
the full market basket rate-of-increase for FY
2011 because they failed the quality data
submission process or did not choose to
participate. For purposes of the simulations
shown below, we modeled the payment
changes for FY 2012 using a reduced update
for these 57 hospitals. However, we do not
have enough information at this time to
determine which hospitals will not receive
the full update factor for FY 2012.
Each policy change, statutory or otherwise,
is then added incrementally to this baseline,
finally arriving at an FY 2012 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
2011 to FY 2012. Three factors not discussed
separately have significant impacts here. The
first factor is the update to the standardized
amount. In accordance with section
1886(b)(3)(B)(i) of the Act, we are updating
the standardized amounts for FY 2012 using
an applicable percentage increase of 1.9
percent. This includes our forecasted IPPS
operating hospital market basket increase of
3.0 percent with a reduction of 1.0
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 ¥0.1
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 and
for MDHs are also equal to the applicable
percentage increase, or 1.9 percent. In
addition, we are updating the Puerto Ricospecific amount by an applicable percentage
increase of 1.9 percent.
A second significant factor that affects the
changes in hospitals’ payments per case from
FY 2011 to FY 2012 is the change in
hospitals’ geographic reclassification status
from one year to the next. That is, payments
may be reduced for hospitals reclassified in
FY 2011 that are no longer reclassified in FY
2012. Conversely, payments may increase for
hospitals not reclassified in FY 2011 that are
reclassified in FY 2012.
A third significant factor is that we
currently estimate that actual outlier
payments during FY 2011 will be 4.8 percent
of total MS–DRG payments. Our updated FY
2011 outlier estimate accounts for changes to
the FY 2011 IPPS payments required under
the Affordable Care Act. When the FY 2011
final rule was published, we projected FY
2011 outlier payments would be 5.1 percent
of total MS–DRG plus outlier payments; the
average standardized amounts were offset
correspondingly. The effects of the lower
than expected outlier payments during FY
2011 (as discussed in the Addendum to this
final rule) are reflected in the analyses below
comparing our current estimates of FY 2011
payments per case to estimated FY 2012
payments per case (with outlier payments
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projected to equal 5.1 percent of total
MS–DRG payments).
Comment: One commenter noted that in
examining the IPPS Impact File associated
with the FY 2012 IPPS/LTCH PPS proposed
rule posted on the CMS Web site, it found
that approximately 27,000 claims were
included in the calculation of the case-mix
index and case counts (fields such as BILLS,
TACMIV29, and CASETA29) which may be
Medicare Advantage (MA) patient claims
submitted by teaching hospitals in order to
receive their IME payments. These claims
only had an IME payments listed. The
commenter stated that if these claims are MA
claims, they are not eligible for outlier
payments under the IPPS and, as agreed by
CMS, must not be included as part of the
calculation of the outlier thresholds or be
included in the statistics posted in the IPPS
Impact File. Accordingly, the commenter
requested that CMS review these 27,000
‘‘IME only’’ claims to determine whether
they represent MA claims.
Response: We have reviewed our MedPAR
claims file used to calculate outlier
thresholds and used to report hospital case
counts and case-mix values and have
determined that there are MA claims that
may be submitted by teaching hospitals that
do not have a GHO Paid indicator with a
value of 1,’’ which is the indicator for MA
claims. However, we can identify those
claims as likely to be MA claims because the
IME payment field is equal to the DRG
payment field. We agree with the commenter
that MA claims submitted by teaching
hospitals for the purpose of the IME payment
should not be included in the calculation of
the outlier threshold and have excluded
those claims from the outlier calculation that
have a GHO Paid indicator with a value of
‘‘1’’ or do not have a GHO Paid indicator
with a value of ‘‘1’’ but do have an IMEPAY
field equal to the DRGPAY field because
these are probably MA claims that are likely
not paid under the IPPS and therefore would
not incur an outlier payment. Claims that are
trimmed using the criteria discussed above
are not part of the calculation of the outlier
threshold, hospital case count or fee-forservice case mix values reported on the IPPS
Impact File in this final rule.
Comment: One commenter requested that
CMS provide a table indicating the State-byState impact of the rural floor provision for
providers in each State, including a schedule
of what the area wage indexes would be if
the rural floor was not applied. The
commenter also suggested that CMS publish
this information annually.
Response: In this final rule, we are
including in this impact section a table
indicating State level impacts of the rural
floor and imputed floor provision. Also, we
are revising Table 4D of the Addendum,
which specifies the wage index for States or
urban areas receiving the frontier State wage
index or rural and imputed floors, to include
a column indicating the pre-floor area wage
index.
2. Analysis of Table I
Table I displays the results of our analysis
of the changes for FY 2012. The table
categorizes hospitals by various geographic
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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
urban; and rural. There are 2,498 hospitals
located in urban areas included in our
analysis. Among these, there are 1,371
hospitals located in large urban areas
(populations over 1 million), and 1,127
hospitals in other urban areas (populations of
1 million or fewer). In addition, there are 925
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 2,519;
1,384; 1,135; and 904, 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 2,391 nonteaching hospitals in our
analysis, 792 teaching hospitals with fewer
than 100 residents, and 240 teaching
hospitals with 100 or more residents.
In the DSH categories, hospitals are
grouped according to their DSH payment
status, and whether they are considered
urban or rural for DSH purposes. The next
category groups together hospitals considered
urban or rural, in terms of whether they
receive the IME adjustment, the DSH
adjustment, both, or neither.
The next five rows examine the impacts of
the changes on rural hospitals by special
payment groups (SCHs, RRCs, and MDHs).
There were 175 RRCs, 320 SCHs, 193 MDHs,
and 120 hospitals that are both SCHs and
RRCs, and 18 hospitals that are both MDHs
and RRCs.
The next series of groupings are based on
the type of ownership and the hospital’s
Medicare utilization expressed as a percent
of total patient days. These data were taken
from the FY 2008 or FY 2007 Medicare cost
reports.
The next two groupings concern the
geographic reclassification status of
hospitals. The first grouping displays all
urban hospitals that were reclassified by the
MGCRB for FY 2012. The second grouping
shows the MGCRB rural reclassifications.
The final category shows the impact of the
policy changes on the 19 cardiac hospitals.
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BILLING CODE 4120–01–C
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
3.0 percent market basket update, the
reduction of 1.0 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 2012
documentation and coding adjustment of
¥2.0 percent on the national standardized
amount and the hospital-specific rates. As a
result, we are applying a ¥0.1 percent
adjustment to the national standardized
amount and the hospital specific rate.
Overall, hospitals will experience a ¥0.1
percent decrease in payments due to the
effects of the hospital update and
documentation and coding adjustment on the
national standardized amount. Puerto Rico
hospitals will experience a 0.3 percent
increase in payments because we are not
making any documentation and coding
adjustment to the Puerto Rico-specific rate,
which is 25 percent of Puerto Rico’s payment
rate.
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b. Effects of the Adjustment to the
Standardized Amount for Cape Cod Hospital
v. Sebelius (Column 3)
Column 3 shows the impact of the 1.1
percent adjustment to the national
standardized amount and the 0.9 percent
adjustment to the hospital-specific rate in
light of the decision in Cape Cod Hospital v.
Sebelius, as discussed in section II. of the
Addendum to this final rule.
Overall, hospitals will experience a 1.1
percent increase in payments due to the
effects of the adjustment on the national
standardized amount. Hospital categories
that experience less than a 1.1 percent
increase in payments include hospitals that
are paid under the hospital-specific rate,
which we are increasing by 0.9 percent. Rural
hospitals will experience a 1.0 percent
increase in payments because many rural
hospitals are paid under the hospital-specific
rate, which we are increasing by 0.9 percent.
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c. Effects of the Changes to the MS–DRG
Reclassifications and Relative Cost-Based
Weights With Recalibration Budget
Neutrality (Column 4)
Column 4 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 rule, the FY 2012 MS–DRG
relative weights will be 100 percent costbased and 100 percent MS–DRGs. For FY
2012, the MS–DRGs are calculated using the
FY 2010 MedPAR data grouped to the
Version 29.0 (FY 2012) MS–DRGs. The
methods of calculating the relative weights
and the reclassification changes to the
GROUPER are described in more detail in
section II.H. of the preamble of this final rule.
The ‘‘All Hospitals’’ line in Column 4
indicates that changes due to MS–DRGs and
relative weights will result in a 0.0 percent
change in payments with the application of
the recalibration budget neutrality factor of
0.997903 on to the standardized amount. Due
to 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 0.2 percent
decrease in payments and large urban
hospitals experiencing a 0.1 percent increase
in payments.
d. Effects of Wage Index Changes (Column 5)
Column 5 shows the impact of updated
wage data with the application of the wage
budget neutrality factor. Section
1886(d)(3)(E) of the Act requires that,
beginning October 1, 1993, we annually
update the wage data used to calculate the
wage index. In accordance with this
requirement, the wage index for acute care
hospitals for FY 2012 is based on data
submitted for hospital cost reporting periods
beginning on or after October 1, 2007 and
before October 1, 2008. The estimated impact
of the updated wage data and labor share on
hospital payments is isolated in Column 5 by
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holding the other payment parameters
constant in this simulation. That is, Column
5 shows the percentage change in payments
when going from a model using the FY 2011
wage index, based on FY 2007 wage data, the
current labor-related share and having a 100percent occupational mix adjustment
applied, to a model using the FY 2012 prereclassification wage index with the laborrelated share, also having a 100-percent
occupational mix adjustment applied, based
on FY 2008 wage data (while holding other
payment parameters such as use of the
Version 29.0 MS–DRG GROUPER constant).
The occupational mix adjustment is based on
the 2007–2008 occupational mix survey.
In addition, the column shows the impact
of the application of wage budget neutrality
to the national standardized amount. In FY
2010, we began calculating separate wage
budget neutrality and recalibration budget
neutrality factors, in accordance with section
1886(d)(3)(E) of the Act, which specifies that
budget neutrality to account for wage
changes or updates made under that
subparagraph must be made without regard
to the 62 percent labor-related share
guaranteed under section 1886(d)(3)(E)(ii) of
the Act. Therefore, for FY 2012, we are
calculating the wage budget neutrality factor
to ensure that payments under updated wage
data and the labor-related share are budget
neutral without regard to the lower laborrelated share of 62 percent applied to
hospitals with a wage index less than or
equal to 1. In other words, the wage budget
neutrality is calculated under the assumption
that all hospitals receive the higher laborrelated share of the standardized amount.
The wage budget neutrality factor is
1.000558, and the overall payment change is
0 percent.
Column 5 shows the impacts of updating
the wage data using FY 2008 cost reports.
Overall, the new wage data will lead to a 0.0
percent change for all hospitals before being
combined with the wage budget neutrality
adjustment shown in Column 5. Among the
regions, the largest increase is in the rural
New England region, which experiences a 0.7
percent increase due to increases in the wage
index among rural Connecticut and rural
Massachusetts hospitals. The largest decline
from updating the wage data is seen in the
rural East South Central region (–0.5 percent
decrease).
In looking at the wage data itself, the
national average hourly wage increased 3.7
percent compared to FY 2011. Therefore, the
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only manner in which to maintain or exceed
the previous year’s wage index was to match
or exceed the national 3.7 percent increase in
average hourly wage. Of the 3,428 hospitals
with wage data for both FYs 2011 and 2012,
1,729, or 50.4 percent, experienced an
average hourly wage increase of 3.4 percent
or more.
The following chart compares the shifts in
wage index values for hospitals for FY 2012
relative to FY 2011. Among urban hospitals,
32 will experience an increase of more than
5 percent and less than 10 percent and 4 will
experience an increase of more than 10
percent. Among rural hospitals, 1 will
experience an increase of more than 5
percent and less than 10 percent, and none
will experience an increase of more than 10
percent. However, 924 rural hospitals will
experience increases or decreases of less than
5 percent, while 2,448 urban hospitals will
experience increases or decreases of less than
5 percent. Sixteen urban hospitals will
experience decreases in their wage index
values of more than 5 percent and less than
10 percent. Three urban hospitals will
experience decreases in their wage index
values of greater 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 wage index which is an adjustment to
either 68.8 percent or 62 percent of the laborrelated share of a hospital’s standardized
amount, depending upon whether its wage
index is greater than 1.0 or less than or equal
to 1.0. Therefore, these figures illustrate a
somewhat larger change in the wage index
than will occur to the hospital’s total
payment.
The following chart shows the projected
impact for urban and rural hospitals.
Number of hospitals
Percentage change in area wage index values
Urban
mstockstill on DSK4VPTVN1PROD with RULES2
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 ......................................................................................................................
e. Combined Effects of the MS–DRG and
Wage Index Changes (Column 6)
Section 1886(d)(4)(C)(iii) of the Act
requires that changes to MS–DRG
reclassifications and the relative weights
cannot increase or decrease aggregate
payments. In addition, section 1886(d)(3)(E)
of the Act specifies that any updates or
adjustments to the wage index are to be
budget neutral. We computed a wage budget
neutrality factor of 1.000558, and a
recalibration budget neutrality factor of
0.997903 (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
0.998460, or approximately –0.15 percent,
which is applied to the national standardized
amounts. Because the wage budget neutrality
and the recalibration budget neutrality are
calculated under different methodologies
according to the statute, when the two budget
neutralities are combined and applied to the
standardized amount, the overall payment
impact is not necessarily budget neutral.
However, in this 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 no change in
payments for urban hospitals and 0.1 percent
decrease in payments for rural hospitals.
Urban Pacific hospitals will experience a 0.3
percent increase in payments due to
increases in their wages compared to the
national average, while the urban East North
Central area will experience a –0.4 decrease
in payments because of below average
increases in wages. Among the rural hospital
categories, rural New England hospitals will
experience the greatest increase in payment
(0.4 percent) primarily due to above average
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increases in the wage data, while the rural
East North Central area will experience a 0.6
percent decrease in payments due to
decreases in the wage data.
f. Effects of MGCRB Reclassifications
(Column 7)
Our impact analysis to this point has
assumed acute care hospitals are paid on the
basis of their actual geographic location (with
the exception of ongoing policies that
provide that certain hospitals receive
payments on other bases than where they are
geographically located). The changes in
Column 7 reflect the per case payment
impact of moving from this baseline to a
simulation incorporating the MGCRB
decisions for FY 2012 which affect hospitals’
wage index area assignments.
By spring of each year, the MGCRB makes
reclassification determinations that will be
effective for the next fiscal year, which
begins on October 1. The MGCRB may
approve a hospital’s reclassification request
for the purpose of using another area’s wage
index value. Hospitals may appeal denials of
MGCRB decisions to the CMS Administrator.
Further, hospitals have 45 days from
publication of the IPPS rule in the Federal
Register to decide whether to withdraw or
terminate an approved geographic
reclassification for the following year.
The overall effect of geographic
reclassification is required by section
1886(d)(8)(D) of the Act to be budget neutral.
Therefore, for the purposes of this impact
analysis, we are applying an adjustment of
0.991943 to ensure that the effects of the
section 1886(d)(10) reclassifications are
budget neutral (section II.A. of the
Addendum to this final rule). Geographic
reclassification generally benefits hospitals in
rural areas. We estimate that geographic
reclassification will increase payments to
rural hospitals by an average of 1.8 percent.
By region, all the rural hospital categories,
with the exception of the one rural Puerto
Rico hospital, will experience increases in
payments due to MGCRB reclassification.
Rural hospitals in the East South Central
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Rural
4
32
2,448
16
3
0
0
924
0
0
region will experience a 2.6 percent increase
in payments and rural hospitals in the
Mountain region will experience a 0.5
percent increase in payments. Urban
hospitals in New England and the Middle
Atlantic will experience an increase in
payments of 0.7 percent and 0.3 percent,
respectively, largely due to reclassifications
of hospitals in Connecticut and New Jersey.
Table 9A listed in section VI. of the
Addendum to this final rule and available via
the Internet reflects the approved
reclassifications for FY 2012.
g. Effects of the Rural and Imputed Floor,
Including Application of National Budget
Neutrality (Column 8)
As discussed in section III.B. of the
preamble of the FY 2009 IPPS final rule, the
FY 2010 IPPS/RY 2010 LTCH PPS final rule,
the FY 2011 IPPS/LTCH PPS final rule and
this 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. Beginning with FY 2008, we
apply a uniform budget neutrality adjustment
is applied to the wage index. In addition, as
discussed in section III.F.2. of the preamble
of this final rule, the imputed floor, which is
budget neutral, was set to expire with the FY
2011 wage index but we are finalizing to
extend the imputed floor for 2 additional
years. The imputed floor only benefits
hospitals located in New Jersey. For FY 2012
(and in FY 2011), the Affordable Care Act
requires that we apply one rural floor budget
neutrality factor to the wage index, nationally
and the imputed floor is part of the rural
floor budget neutrality factor applied to the
wage index, nationally. The FY 2012 rural
floor budget neutrality factor applied to the
wage index is 0.991007, which will reduce
wage indexes by ¥0.9 percent.
Column 8 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 2012
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wage index of providers before the rural floor
and imputed floor adjustment and the postreclassification FY 2012 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 the 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 0.1 percent
increase in payments because those providers
benefit from the rural floor. Urban hospitals
in the New England region can expect a 5.3
percent increase in payments primarily due
to the application of the rural floor in
Massachusetts and the applicable national
rural floor budget neutrality as required by
the Affordable Care Act. All 60 urban
providers in Massachusetts are expected to
receive the rural floor wage index value,
including rural floor budget neutrality, of
1.3452. 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
is established by the conversion of a CAH to
an IPPS hospital that is geographically
located in rural Massachusetts.
Massachusetts hospitals can expect
approximately an 8.7 percent increase in
IPPS payments due to the application of 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. Similar to
Massachusetts, this is the first year in which
urban Puerto Rico hospitals will receive a
rural floor as a result of a new IPPS hospital
located in rural Puerto Rico setting a rural
floor. We are applying a rural floor budget
neutrality factor to the Puerto Rico-specific
wage index of 0.989417 or 1.1 percent. The
Puerto Rico-specific wage index adjusts the
Puerto Rico-specific standardized amount,
which represents 25 percent of payments to
Puerto Rico hospitals.
There are 39 hospitals in New Jersey that
benefit from the extension of the imputed
floor and receive the imputed floor wage
index value, including rural floor budget
neutrality of 1.1264. Urban Middle Atlantic
hospitals will experience a ¥0.1 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
Middle Atlantic region.
In response to a public comment, 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 displays the number of IPPS hospitals
located in each State. Column 2 displays the
number of hospitals in each State that will
be receiving the rural floor or imputed floor
wage index for FY 2012. Column 3 displays
the percentage of total payments each State
receives or contributes to fund the rural floor
and imputed floor with national budget
neutrality. The column compares the postreclassification FY 2012 wage index of
providers before the rural floor and imputed
floor adjustment and the post-reclassification
FY 2012 wage index of providers with the
rural floor and imputed floor adjustment.
Column 4 displays an 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 2012 IPPS ESTIMATED PAYMENTS DUE TO RURAL FLOOR AND IMPUTED FLOOR WITH NATIONAL BUDGET NEUTRALITY
mstockstill on DSK4VPTVN1PROD with RULES2
State
Number of hospitals
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 ....................................
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Number of hospitals
receiving rural floor or
imputed floor
95
6
57
47
308
46
32
5
168
108
14
15
130
89
34
55
65
97
20
61
100
51
64
80
12
23
24
13
67
28
170
89
6
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Percent change in payments due to application
of rural floor and imputed floor with budget
neutrality
3
4
0
0
100
7
12
0
5
0
0
0
0
1
5
1
1
10
0
60
0
0
0
4
1
0
0
9
39
0
2
4
0
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¥0.4
1.7
¥0.5
¥0.4
0.2
0.4
1.9
¥0.5
¥0.4
¥0.5
¥0.4
¥0.4
¥0.5
¥0.5
¥0.3
¥0.4
¥0.4
¥0.5
¥0.4
8.7
¥0.5
¥0.5
¥0.5
¥0.4
¥0.3
¥0.4
¥0.5
1.5
1.4
¥0.3
¥0.5
¥0.4
¥0.3
18AUR2
Difference
(in millions)
¥$7.5
2.3
¥8.8
¥5.0
20.3
4.3
30.0
¥2.0
¥29.1
¥13.0
¥1.1
¥1.0
¥26.3
¥11.1
¥3.0
¥3.5
¥8.5
¥7.2
¥2.1
274.8
¥21.4
¥8.1
¥5.6
¥10.5
¥0.8
¥2.4
¥3.7
6.3
54.2
¥1.6
¥47.5
¥15.5
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51825
FY 2012 IPPS ESTIMATED PAYMENTS DUE TO RURAL FLOOR AND IMPUTED FLOOR WITH NATIONAL BUDGET
NEUTRALITY—Continued
State
Number of hospitals
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Ohio .................................................
Oklahoma .........................................
Oregon .............................................
Pennsylvania ....................................
Puerto Rico ......................................
Rhode Island ....................................
South Carolina .................................
South Dakota ...................................
Tennessee .......................................
Texas ...............................................
Utah .................................................
Vermont ...........................................
Virginia .............................................
Washington ......................................
Washington, D.C. .............................
West Virginia ....................................
Wisconsin .........................................
Wyoming ..........................................
138
85
33
152
51
11
55
19
99
320
32
6
81
48
7
32
64
11
h. Effects of the Application of the Frontier
State Wage Index (Column 9)
Section 10324(a) of the Affordable Care Act
requires that we establish a minimum postreclassified wage index of 1.00 for all
hospitals located in ‘‘frontier States.’’ The
term ‘‘frontier States’’ is defined in the
statute as States in which at least 50 percent
of counties have a population density less
than 6 persons per square mile. Based on
these criteria, five States (Montana, North
Dakota, Nevada, South Dakota, and
Wyoming) are considered frontier States and
48 hospitals located in those States will
receive a frontier wage index of 1.0. This
provision is not budget neutral and is
estimated to increase IPPS operating
payments by approximately $50 million.
Urban hospitals located in the West North
Central region and urban hospitals located in
the Mountain region will experience an
increase in payments by 0.6 percent and 0.2
percent, respectively because many of the
hospitals located in this region are frontier
hospitals. Similarly, rural hospitals located
in the Mountain region and rural hospitals in
the West North Central region will
experience an increase in payments by 0.6
percent and 0.1 percent, respectively.
i. Effects of the Wage Index Adjustment for
Out-Migration (Column 10)
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
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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
employed in an area with a higher wage
index. Overall, rural hospitals will
experience a 0.1 percent increase in
payments as a result of the outmigration
adjustment. Rural DSH providers will
experience a 0.5 percent increase in
payments. There are 255 providers that will
receive the out-migration adjustment in FY
2012. This out-migration wage adjustment is
not budget neutral, and we estimate the
impact of these providers receiving the outmigration increase to be approximately
$15 million.
j. Effects of the Expiration of Section 508
(Column 11)
Column 11 shows our estimate of the
changes in payments due to the expiration of
section 508, a non-budget neutral
reclassification provision, applied under the
MMEA. Because this provision is not budget
neutral, the expiration of this reclassification
provision results in a ¥0.2 percent decrease
in payments, overall. There are 88 section
508 hospitals in this payment analysis.
Section 508 hospitals are generally urban
hospitals, resulting in a ¥0.2 percent
decrease in payments among the urban
hospital category and a 0.0 percent change in
payments among rural hospitals. Urban
Middle Atlantic and East North Central
regions will experience a decrease in
payments of ¥0.4 percent and ¥0.5 percent
respectively because many section 508
hospitals are located in those regions. Urban
teaching hospitals that do not receive DSH
will experience a ¥0.4 percent decrease in
payments due to the expiration of section
508.
k. Effects of All FY 2012 Changes (Column
12)
Column 12 shows our estimate of the
changes in payments per discharge from FY
2011 and FY 2012, resulting from all changes
reflected in this final rule for FY 2012. It
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¥0.4
¥0.4
¥0.4
¥0.4
0.1
¥0.6
¥0.4
¥0.3
¥0.3
¥0.5
¥0.4
¥0.3
¥0.4
¥0.4
¥0.5
¥0.3
¥0.4
0
9
2
3
16
12
0
0
0
11
4
2
0
2
2
0
3
2
0
Fmt 4701
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Difference
(in millions)
¥15.8
¥5.7
¥3.5
¥17.3
0.1
¥2.2
¥7.2
¥0.9
¥7.7
¥34.0
¥1.7
¥0.6
¥10.8
¥7.3
¥2.5
¥2.2
¥6.4
0.0
includes combined effects of the previous
columns in the table.
The average increase in payments under
the IPPS for all hospitals is approximately 1.1
percent for FY 2012 relative to FY 2011. As
discussed in section II.D. of the preamble of
this final rule, this column includes the FY
2012 documentation and coding adjustment
of ¥2.0 percent on the national standardized
amount and on the hospital-specific rates. In
addition, this column includes the annual
hospital update of 1.9 percent to the national
standardized amount. This annual hospital
update includes the 3.0 percent market
basket update, the reduction of 1.0
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 ¥0.1 percent
decrease in payments in FY 2012 relative to
FY 2011. As described in Column 3, the 1.1
percent adjustment to the national
standardized amount and the 0.9 percent
adjustment to the hospital specific rate in
light of a recent court decision related to
rural floor budget neutrality results in a 1.1
percent increase in payments in FY 2012
relative to FY 2011. In addition, Column 11
describes a ¥0.2 percent decrease in
payments due to the expiration of section 508
reclassifications that had been extended for
FY 2011 under the MMEA. Section 508 was
not a budget-neutral provision. The impact of
moving from our estimate of FY 2011 outlier
payments, 4.8 percent, to the estimate of FY
2012 outlier payments, 5.1 percent, results in
an increase of 0.3 percent in FY 2012
payments relative to FY 2011. 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.
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The overall change in payments per
discharge for hospitals paid under the IPPS
in FY 2012 is estimated to increase by 1.1
percent. The payment increase among the
hospital categories is largely attributed to the
updates to the rate including the hospital
update and the increase to the rate associated
with a recent court decision related to rural
floor budget neutrality. Hospitals in urban
areas will experience an estimated 1.2
percent increase in payments per discharge
in FY 2012 compared to FY 2011. Hospital
payments per discharge in rural areas are
estimated to increase by 0.2 percent in FY
2012 as compared to FY 2011.
Among urban census divisions, the
smallest estimated payment increase will be
0.2 percent in the East North Central region
because many of the urban providers in this
region had benefited from section 508
reclassifications in FY 2011 that have expired
for FY 2012. Urban hospitals in New England
will see the largest payment increases (5.6
percent) because the Massachusetts hospitals
are benefitting from the rural floor in their
State. Furthermore, urban Puerto Rico
hospitals will experience a 1.2 percent
increase in payments due to the application
of the rural floor.
Among the rural regions, the providers in
the East South Central and West South
Central regions will experience decreases in
payments of ¥0.5 percent and 0.3 percent
respectively, due to decreases in wage data
and the downward adjustment applied to
their wage index for rural floor budget
neutrality. Rural hospitals in the Pacific
region will experience an increase in
payments of 0.7 percent because the rural
providers in this region benefit from higher
than average wage data and MGCRB
reclassification.
Among special categories of hospitals,
MDHs will receive an estimated payment
increase of 0.5 percent. MDHs are paid the
higher of the IPPS rate based on the national
standardized amount, that is, the Federal
rate, or, if the hospital-specific rate exceeds
the Federal rate, the Federal rate plus 75
percent of the difference between the Federal
rate and the hospital-specific rate. SCHs are
paid the higher of their Federal rate and the
hospital-specific rate. Overall, SCHs will
experience an estimated decrease in
payments by 0.7 percent.
Rural hospitals reclassified for FY 2012 are
anticipated to receive a 0.5 percent payment
increase. Rural hospitals that are not
reclassifying are estimated to receive a
payment decrease of 0.3 percent due to lower
wage data, changes to the relative weights
and application of rural floor budget
neutrality. Urban reclassified hospitals will
experience the average payment increase at
1.1 percent due to the benefits under MGCRB
reclassification and the rural floor. Urban
nonreclassified hospitals will experience a
payment increase of 1.2 percent.
Cardiac hospitals are expected to
experience a payment decrease of 1.2 percent
in FY 2012 relative to FY 2011.
3. Impact Analysis of Table II
Table II presents the projected impact of
the changes for FY 2012 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 2011 with the average payments per
discharge for FY 2012, as calculated under
our models. Thus, this table presents, in
terms of the average dollar amounts paid per
discharge, the combined effects of the
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.
TABLE II—IMPACT ANALYSIS OF CHANGES FOR FY 2012 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT
SYSTEM
[Payments per discharge]
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Number of
hospitals
All hospitals ..............................................................................................
By Geographic Location:
Urban hospitals .................................................................................
Large urban areas (populations over 1 million) ...............................
Other urban areas (populations of 1 million or fewer) .....................
Rural hospitals ..................................................................................
Bed Size (Urban):
0–99 beds .........................................................................................
100–199 beds ...................................................................................
200–299 beds ...................................................................................
300–499 beds ...................................................................................
500 or more beds .............................................................................
Bed Size (Rural):
0–49 beds .........................................................................................
50–99 beds .......................................................................................
100–149 beds ...................................................................................
150–199 beds ...................................................................................
200 or more beds .............................................................................
Urban by Region:
New England ....................................................................................
Middle Atlantic ..................................................................................
South Atlantic ...................................................................................
East North Central ............................................................................
East South Central ...........................................................................
West North Central ...........................................................................
West South Central ..........................................................................
Mountain ...........................................................................................
Pacific ...............................................................................................
Puerto Rico .......................................................................................
Rural by Region:
New England ....................................................................................
Middle Atlantic ..................................................................................
South Atlantic ...................................................................................
East North Central ............................................................................
East South Central ...........................................................................
West North Central ...........................................................................
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Average FY
2011 payment
per discharge
Average FY
2012 payment
per discharge
All FY 2012
changes
(2)
(3)
(4)
3,423
$10,249
$10,359
1.1
2,498
1,371
1,127
925
10,658
11,239
9,944
7,657
10,783
11,378
10,051
7,675
1.2
1.2
1.1
0.2
632
782
449
430
205
8,202
8,989
9,738
10,952
13,141
8,289
9,101
9,847
11,062
13,316
1.1
1.2
1.1
1
1.3
320
348
152
58
47
6,174
7,169
7,424
8,416
9,438
6,157
7,162
7,449
8,458
9,501
¥0.3
¥0.1
0.3
0.5
0.7
120
320
380
401
153
169
366
159
380
50
11,136
11,772
9,809
10,043
9,492
10,256
9,995
10,803
13,112
5,299
11,761
11,877
9,891
10,060
9,535
10,379
10,123
10,892
13,316
5,362
5.6
0.9
0.8
0.2
0.5
1.2
1.3
0.8
1.6
1.2
23
69
165
120
170
99
10,175
8,037
7,362
7,966
7,027
8,145
10,210
8,096
7,400
7,997
6,992
8,196
0.3
0.7
0.5
0.4
¥0.5
0.6
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TABLE II—IMPACT ANALYSIS OF CHANGES FOR FY 2012 ACUTE CARE HOSPITAL OPERATING PROSPECTIVE PAYMENT
SYSTEM—Continued
[Payments per discharge]
Number of
hospitals
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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:
RRC ..................................................................................................
SCH ..................................................................................................
MDH ..................................................................................................
SCH and RRC ..................................................................................
MDH and RRC .................................................................................
Type of Ownership:
Voluntary ...........................................................................................
Proprietary ........................................................................................
Government ......................................................................................
Medicare Utilization as a Percent of Inpatient Days:.
0–25 ..................................................................................................
25–50 ................................................................................................
50–65 ................................................................................................
Over 65 .............................................................................................
Hospitals Reclassified by the Medicare Geographic Classification Review Board:
FY 2012 Reclassifications:
All Reclassified Hospitals FY 2012 ..................................................
All Non-Reclassified Hospitals FY 2012 ..........................................
Urban Reclassified Hospitals FY 2012: ...........................................
Urban Non-reclassified Hospitals FY 2012 ......................................
Rural Reclassified Hospitals FY 2012 ..............................................
Rural Nonreclassified Hospitals FY 2012: .......................................
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
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Average FY
2011 payment
per discharge
Average FY
2012 payment
per discharge
All FY 2012
changes
(2)
(3)
(4)
183
66
29
1
6,737
8,509
10,235
2,280
6,720
8,533
10,307
2,299
¥0.3
0.3
0.7
0.8
2,519
1,384
1,135
904
10,643
11,224
9,925
7,733
10,768
11,362
10,032
7,751
1.2
1.2
1.1
0.2
2391
792
240
8,592
10,136
15,078
8,676
10,233
15,289
1
1
1.4
739
1547
337
8,951
11,137
7,627
9,026
11,275
7,696
0.8
1.2
0.9
417
222
27
134
7,117
8,471
6,372
5,928
7,069
8,526
6,384
5,952
¥0.7
0.7
0.2
0.4
827
144
1057
491
12,180
9,858
9,120
8,529
12,327
9,946
9,237
8,600
1.2
0.9
1.3
0.8
175
320
193
120
18
8,561
8,149
6,397
9,420
8,467
8,616
8,090
6,432
9,479
8,513
0.6
¥0.7
0.5
0.6
0.5
1,985
870
566
10,394
9,115
10,869
10,512
9,195
10,967
1.1
0.9
0.9
358
1,695
1,081
198
14,311
10,897
8,505
7,456
14,494
11,025
8,567
7,522
1.3
1.2
0.7
0.9
655
2768
323
2142
332
532
40
62
9,793
10,371
10,668
10,673
8,260
6,825
8,598
7,263
9,881
10,487
10,780
10,800
8,305
6,803
8,615
7,283
0.9
1.1
1.1
1.2
0.5
¥0.3
0.2
0.3
19
11,158
11,288
1.2
the impacts of these changes. Our estimates
of the likely impacts associated with these
other changes are discussed below.
1. Effects of Proposed Policy on HACs,
Including Infections
In section II.F. of the preamble of this final
rule, we discuss our implementation of
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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
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through application of evidence-based
guidelines. For discharges occurring on or
after October 1, 2008, hospitals will not
receive additional payment for cases in
which one of the selected conditions was not
present on admission, unless, based on data
and clinical judgment, it cannot be
determined at the time of admission whether
a condition is present. That is, the case will
be paid as though the secondary diagnosis
were not present. However, the statute also
requires the Secretary to continue counting
the condition as a secondary diagnosis that
results in a higher IPPS payment when doing
the budget neutrality calculations for MS–
DRG reclassifications and recalibration.
Therefore, we will perform our budget
neutrality calculations as though the
payment provision did not apply, but
Medicare will make a lower payment to the
hospital for the specific case that includes
the secondary diagnosis. Thus, the provision
results in cost savings to the Medicare
program.
We note that the provision will only apply
when one or more of the selected conditions
are the only secondary diagnosis or diagnoses
present on the claim that will lead to higher
payment. Medicare beneficiaries will
generally have multiple secondary diagnoses
during a hospital stay, such that beneficiaries
having one MCC or CC will frequently have
additional conditions that also will generate
higher payment. Only a small percentage of
the cases will have only one secondary
diagnosis that would lead to a higher
payment. Therefore, if at least one
nonselected secondary diagnosis that leads to
higher payment is on the claim, the case will
continue to be assigned to the higher paying
MS–DRG and there will be no Medicare
savings from that case. In addition, as
discussed in section II.F.3.e. of the preamble
of this 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
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 discuss our decision not to add one
HAC for FY 2012: Contrast-Induced Acute
Kidney Injury. Therefore, we have deleted
the cost estimates for this proposed HAC
from the proposed savings estimates for the
next 5 fiscal years.
The HAC payment provision went into
effect on October 1, 2008. Our savings
estimates for the next 5 fiscal years are
shown below:
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Year
FY
FY
FY
FY
FY
2012
2013
2014
2015
2016
Savings
(in millions)
............................
............................
............................
............................
............................
$21
22
23
25
27
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 two applications for add-on
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payments for new medical services and
technologies for FY 2012, as well as the
status of the new technology that was
approved to receive new technology add-on
payments in FY 2011. As explained in that
section, add-on payments for new technology
under section 1886(d)(5)(K) of the Act are not
required to be budget neutral. As discussed
in section II.I.4. of the preamble of this final
rule, we are not approving either of the two
applications for new technology add-on
payments for FY 2012. However, we are
finalizing our proposal to continue to make
new technology add-on payments in FY 2012
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 estimate below is
based on the increase in add-on payments for
FY 2012 as if every claim that would qualify
for a new technology add-on payment would
receive the maximum add-on payment. For
FY 2011, the applicant estimates that
approximately 170 Medicare beneficiaries
will be eligible for the AutoLITTTM.
Therefore, based on the applicant’s estimate
from FY 2011, we currently estimate that
payments for the AutoLITTTM will increase
overall FY 2012 payments by $900,000.
3. Effects of Requirements for Hospital
Inpatient Quality Reporting (IQR) Program
In section VII.C. of Appendix A of the FY
2011 IPPS/LTCH PPS final rule (75 FR 50662
through 50663), we discussed the impact of
the FY 2011 through FY 2014 Hospital
Inpatient Quality Reporting (IQR) Program
requirements we adopted in that final rule.
We estimated that 95 hospitals would not
receive the full payment update in any fiscal
year from FY 2012 through FY 2014. At the
time that analysis was prepared, 104
hospitals did not receive the full payment
update in FY 2010.
In section IV.A. of this final rule, we
discuss our requirements for hospitals to
report quality data under the Hospital IQR
Program in order to receive the full update
to the standardized amount for FY 2012
through FY 2015. We now estimate that
approximately 104 hospitals may not receive
the full update in any fiscal year. (In section
IV.A.2.b. of this final rule, we finalized that,
for the FY 2014 payment determination, we
would retire four measures (AMI–4, HF–4,
PN–4, and PN–5c) and suspend data
collection for four measures (AMI–1, AMI–3,
AMI–5, and SCIP–INF–6), 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
2012 through FY 2015.
In section IV.A.7. of the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50225 through
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50229), we established Hospital IQR
validation requirements for the FY 2012 and
FY 2013 payment determinations. Beginning
with the FY 2012 payment update, hospitals
must pass our validation requirement of a
minimum of 75 percent reliability, based
upon our chart-audit validation process, for
four quarters of data from the last quarter of
CY 2011 through the third quarter of CY
2012.
In previous years, charts were requested by
the CMS CDAC contractor and hospitals were
given 45 days from the date of the request to
submit the requested records. In section
IV.A.6.a. of this final rule and in proposed
§ 412.140(d)(1), beginning with the FY 2012
we are reducing the deadline from 45 days
to 30 days for hospitals to return requested
medical record documentation to support our
validation requirement. This may be an
additional administrative burden to hospitals
selected for validation. However, this
deadline is in line with our QIO regulations
at § 476.78 and the burden will be 18 charts
for each for the four quarters that must be
copied and mailed in a 30 day period for FY
2012 and subsequent years.
In addition, we are adding a new
§ 478.78(b)(2)(ii) that will require the
submission of medical information within 21
days in those situations in which a ‘‘serious
reportable event’’ or other circumstance has
been identified during the course of a QIO
review. We do not believe this will cause a
significantly higher administrative burden on
the hospitals, because CMS reimburses
providers returning medical records to QIOs
at the rate of 12 cents per page for copying
and approximately $4.00 per chart for
postage. Given that we reimburse for the data
collection effort, we believe that this
requirement represents a minimal burden to
providers. We have continued our efforts to
ensure that QIOs provide assistance to all
hospitals that wish to participate in the
Hospital IQR Program.
In section IV.A.6.b. of this final rule, for FY
2014 payment determinations and
subsequent years, we are adding two strata to
the current Hospital IQR validation sample of
SCIP, AMI, HF, and PN cases. For the first
stratum, we are selecting three cases per
selected hospital per quarter to validate the
CLABSI measure using a two step selection
process that would target potential patients
with positive infection from blood culture
results and a Central Venous Catheter. The
requirement of an additional 3 charts per
hospital submitted for validation for the
CLABSI measure will result in approximately
2,400 total additional charts per quarter being
submitted to CMS by all selected hospitals.
We reimburse hospitals for the cost of
sending charts to the CDAC contractor at the
rate of 12 cents per page for copying and
approximately $4.00 per chart for postage.
Our experience shows that the average chart
received by the CDAC contractor is
approximately 275 pages. Thus, we will
expend approximately $88,800 per quarter to
collect the additional charts we need to
validate the CLASBI measure. Additionally,
we will collect the CLABSI-specific data
elements from all charts currently requested
for the Hospital IQR validation. We will
validate a total of 15 records per quarter per
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validated hospital in 5 strata (SCIP, AMI, HF,
PN, CLABSI and the ED/Global
Immunization measure).
In section IV.A.6.b. of this final rule, for FY
2014 and subsequent years, we are adding a
second stratum to our validation sample,
which will enable us to validate the EDT and
the Immunization for Influenza and
Immunization for Pneumonia global
measures. Thus, we will be validating a total
of 18 records per quarter per selected
hospital in 6 strata ((1) SCIP, (2) AMI, (3) HF,
(4) PN, (5) CLABSI, and (6) EDT/
immunization measures). Under the
assumptions outlined above, we will expend
approximately $88,800 per quarter to collect
the additional charts for the EDT/
immunization measures. The total
requirement of 18 charts per hospital will
result in approximately 14,400 charts per
quarter being submitted to CMS. Using the
assumptions discussed above, for the FY
2014 Hospital IQR Program, we estimate that
CMS will have expenditures of
approximately $532,800 per quarter related
to the validation requirement. Additionally,
we will collect the CLABSI-specific data and
the EDT/Immunization data elements from
all charts currently requested for Hospital
IQR validation. We will validate a total of 18
records per quarter per validated hospital in
6 strata (SCIP, AMI, HF, PN, CLABSI and the
ED/Global Immunization measure). We do
not believe this will be an additional burden
on the hospitals because these data will be
abstracted from records already submitted.
Given that we reimburse for the data
collection effort, we believe that a
requirement for 18 charts per hospital per
quarter represents a minimal burden to
participating hospitals selected for
validation.
Finally, with respect to our validation
requirements, we also are providing that, for
FY 2015, we will select additional hospitals
for validation if they were open under their
current CCNs in FY 2012 but not selected for
validation in the three previous annual
Hospital IQR Program validation selections.
This provision could affect data collection
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costs and burdens, but we are unable to
estimate any impact at this time.
4. Effects of Additional 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)(i) of the Act. The applicable
percentage for FY 2014 is 1.25 percent, for
FY 2015 is 1.5 percent, for FY 2016 is 1.75
percent, and for FY 2017 and subsequent
years is 2 percent.
In section IV.B. of the preamble of this
final rule, we are adding requirements for the
FY 2014 Hospital VBP Program. Specifically,
we are adding a Medicare Spending per
Beneficiary Measure, how the measure will
be scored, and the measure’s performance
period and baseline period. Because this
additional measure is claims-based and is
required for the Hospital IQR Program, its
inclusion in the Hospital VBP Program does
not result in any additional burden because
the Hospital VBP Program uses data that are
required for the Hospital IQR Program.
5. Effects of Requirements for Hospital
Readmissions Reduction Program
In section IV.C. of the preamble of this
final rule, we are selecting three high cost,
high volume conditions for the Hospital
Readmission Reduction Program FY 2013
payment reduction, and the definition of
readmission for these conditions. We also are
finalizing the use of the following three
measures for these conditions for the FY
2013 payment determination:
• Heart failure [HF] 30-day Risk
Standardized Readmission Measure
• Acute Myocardial Infarction [AMI] 30-day
Risk Standardized Readmission Measure
• Pneumonia [PN] 30-day Risk Standardized
Readmission Measure
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51829
These three risk-adjusted NQF endorsed
measures will be calculated by CMS for
hospitals subject to this provision using
Medicare FFS Part A and B claims data, and
require no submission of additional data by
the hospital. Therefore, there is no data
collection burden associated with this
provision for FY 2013. These measures also
are used under the Hospital IQR Program,
and have been publicly reported on the
Hospital Compare Web site since 2009.
Therefore, there is a high degree of
familiarity and acceptance among the
stakeholder community with regard to these
measures.
We also are establishing a methodology for
calculating the Excess Readmission Ratio
using these three measures for the FY 2013
payment determination. This is defined as a
ratio of the number of risk-adjusted
readmissions (based on actual readmissions)
for the given condition at a specified hospital
compared with the number of readmissions
that will be expected for an average hospital
caring for the same patients. Below is a
description of this calculation:
Numerator—Adjusted number of
readmission at specific hospital (calculated
for each patient and add up results for all
patients):
Hospital-specific readmission effect +
average hospital contribution to readmission
risk + [risk factor weights × patient risk
factors]
Denominator—Number of readmissions if
an average hospital treated the same patients
(calculated for each patient and summed for
all patients):
Average hospital contribution to
readmission risk + [risk factor weights ×
patient risk factors]
We are providing a minimum case
threshold of 25 cases for a given condition in
order to have an Excess Readmission Ratio
calculated. Using the 25-case threshold, we
have analyzed the distribution of Excess
Readmission Ratio calculations on various
types of IPPS hospitals. The results of these
analyses are shown in the three tables below.
BILLING CODE 4120–01–P
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The three tables above show the
distribution of Excess Readmission Ratios for
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AMI hospitalizations, HF hospitalizations,
and PN hospitalizations respectively. The
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data for these tables come from the publiclyreported risk-standardized rates of
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readmission reported in 2010 on Hospital
Compare (representing hospitalizations
between July 2006 and June 2009). The
distributions of the ratios are shown only for
hospitals with at least 25 cases included in
the measures over the 3-year period.
The first column of the tables lists hospital
characteristics (census region, bed size,
teaching status, and urban/rural location) and
the second column shows the number of
hospitals included in the distribution for the
particular category. For example, for the first
table, AMI readmission, a total of 2,477
hospitals had at least 25 included
hospitalizations between July 2006 and June
2009. Of these hospitals, 148 were in the
New England region.
The third and fourth columns show the
number and percentage of hospitals (of those
with 25 or more cases) in the particular
category with an Excess Readmission Ratio
less than or equal to 1; such hospitals would
not have their payments adjusted due to the
Readmission Reduction Program because
they would not be found to have ‘‘excess’’
readmissions. For example in the first table,
for AMI readmissions, 72 of the 148 hospitals
in the New England region (that had 25 or
more AMI hospitalizations) had an Excess
Readmission Ratio of less than or equal to 1,
which means that 48.6 percent of the
hospitals in the New England region (with at
least 25 cases of AMI in 3 years) would not
have their payments affected by the Hospital
Readmission Reduction Program, whereas
the remaining hospitals would be at risk of
a payment reduction based on excess
readmissions.
The following eight columns show the
distribution of the excess readmissions. For
example, for AMI, in the New England region
the mean Excess Readmission Ratio is
1.0060, the lowest 5th percentile hospitals
had ratios of 0.9172 or less and the hightest
95th percentile of hospitals had Excess
Readmission Ratios of 1.1104 or greater.
The final column of each table shows the
number of hospitals, within the given
category, that are not included in the
distribution based on sample size. For
example, for AMI, in the New England region
30 hospitals are not included in the
distribution because they had fewer than 25
AMI hospitalizations over the 3-year period.
Currently, 25 hospitalizations is the
minimum number of hospitalizations for
public reporting. Hospitals with fewer than
25 cases for a given condition do not have
risk-standardized rates of readmission
reported on Hospital Compare. We are
finalizing this threshold for the Readmission
Reduction Program.
Overall these analyses show, for all three
conditions, that in all hospital categories
approximately half of the hospitals are at risk
of payment reductions based on excess
readmissions. This percentage does not vary
greatly by region; however for all three
measures the Mid-Atlantic region has the
lowest percentage of hospitals with Excess
Readmission Ratios of less than or equal to
1 and, therefore, the Mid-Atlantic region is
the region with the highest percentage of
hospitals at risk of payment reduction. By
contrast, the Mountain region has the largest
percentage of hospitals with ratios of less
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than or equal to 1. The distributions do not
differ greatly by bed size, though the largest
hospitals have slightly lower percentages of
hospitals with ratios less than or equal to 1
for AMI and PN. The distributions do not
vary greatly by teaching status or rural/urban
location for any of the measures.
We also are publicly reporting the
readmission rates for these three measures on
the Hospital Compare Web site using the
current processes employed for public
reporting of these measures, which includes
a preview period. We believe that this also
poses no additional burden to hospitals, as
they currently employ this system for
Hospital IQR public reporting.
6. Effects of Policy Changes Relating to
Payment Adjustments for Medicare
Disproportionate Share Hospitals (DSHs) and
Indirect Medical Education (IME)
In section IV.G. of the preamble of this
final rule, we are finalizing our proposal to
exclude from the hospital’s disproportionate
patient percentage (DPP) of the Medicare
DSH calculation and from the available bed
day count used to calculate the DSH payment
adjustment and the IME payment
adjustments, patient days for hospice
patients receiving inpatient hospice services
in a hospital setting. For the purpose of the
DSH payment adjustment calculation, the
patient days for hospice patients receiving
inpatient hospice services in the hospital are
excluded from both the numerator and the
denominator of the Medicare and Medicaid
fractions. As such, the impact on hospitals’
DSH payment adjustment will vary based on
the demographic composition of an
individual hospital’s patient population. In
other words, under this policy, some
hospitals may receive increased DSH
payment adjustments and other hospitals
may expect to receive lower DSH payment
adjustments, depending on the extent to
which a hospital provides inpatient hospice
services to hospice patients.
The final policy of excluding, from the
available bed count, patient days for hospice
patients receiving hospice services in an
inpatient hospital setting only impacts DSH
payment adjustments for limited situations.
Specifically, urban hospitals with fewer than
100 beds or rural hospitals with fewer than
500 beds, with the exception of rural referral
centers or MDHs, are subject to a cap of their
DSH payment adjustment of 12 percent.
Thus, a decrease in the number of available
beds due to the exclusion of beds used to
provide inpatient hospice services only
impacts a provider’s DSH payment
adjustments if it results in the hospital’s bed
count falling below the bed count threshold.
Should a hospital fall below the bed count
threshold, it would become subject to the
Medicare DSH payment adjustment cap and
its DSH payment could decrease.
For IME payment purposes, a decrease in
a hospital’s number of available beds results
in an increase in the resident-to-bed ratio.
The exclusion of bed days associated with
hospice patients from the available bed count
for IME will reduce the available beds,
increase the resident-to-bed ratio, and,
consequently, may increase IME payments to
teaching hospitals, depending on the extent
to which these hospitals were providing
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inpatient hospice services to hospice
patients.
7. Effects of the FY 2012 Low-Volume
Hospital Payment Adjustment
As discussed in section IV.E. of the
preamble to this final rule, we discuss the
provisions of sections 3125 and 10314 of the
Affordable Care Act that expand eligibility
for the low-volume hospital payment
adjustment at section 1886(d)(12) of the Act
for FYs 2011 and 2012 to hospitals with less
than 1,600 Medicare discharges (instead of
the prior requirement of less than 800 total,
Medicare and non-Medicare, discharges) and
hospitals that are located more than 15 miles
from other IPPS hospitals (rather than the
prior requirement of more than 25 miles).
The payment adjustment is also changed
from an empirically determined additional
25 percent payment adjustment to qualifying
hospitals with less than 200 total discharges
(69 FR 49099 through 49102 and 70 FR 47432
through 47434) to a continuous, linear
sliding scale adjustment ranging from an
additional 25 percent payment adjustment to
qualifying hospitals with 200 or fewer
Medicare discharges to no additional
payment to hospitals with 1,600 or more
Medicare discharges (75 FR 50241).
Based on FY 2010 claims data (March 2011
update of the MedPAR file), we estimate that
514 out of the 529 hospitals in our database
that qualified as a low-volume hospital for
FY 2011 will continue to meet the Medicare
discharges criterion to qualify as a lowvolume hospital for FY 2012. For purposes of
this impact analysis, we are assuming that all
of these 514 hospitals will continue to meet
the distance criterion in FY 2012. If all 514
hospitals qualified for the low-volume
payment adjustment in FY 2012, we estimate
that these hospitals will receive an additional
estimated $293 million based on the FY 2012
low-volume payment adjustment (described
in section IV.E. of the preamble of this final
rule) as compared to FY 2012 payments
without the proposed low-volume
adjustment. (As discussed in section IV.E. of
the preamble of this final rule, for FY 2012,
we are determining a hospital’s number of
Medicare discharges based on the most
recent update of the FY 2010 MedPAR files
(that is, the March 2011 update for this final
rule.)
In addition, we identified an additional 86
hospitals in our database that meet the
Medicare discharges criterion to qualify as a
low-volume hospital for FY 2012 based on
our policy of determining a hospital’s
Medicare discharges based on data from the
March 2011 update of the FY 2010 MedPAR
file (as established in section IV.E. of the
preamble of this final rule). (We note that
these 86 hospitals did not meet the discharge
criterion to qualify as a low-volume hospital
for FY 2011.) However, we are not able to
estimate the number of these 86 hospitals
that will also meet the distance criterion. The
actual number of hospitals that will also meet
the distance criterion to qualify as a lowvolume hospital is very likely be significantly
less than the estimated 86 maximum number
of potential additional low-volume hospitals
for FY 2012 (as compared to FY 2011). (We
note that approximately 40 percent of the
hospitals that met the discharge criterion for
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FY 2011 also met the mileage criterion and,
therefore, are eligible to receive the lowvolume payment adjustment in FY 2011.) If
all these 86 hospitals were to qualify as lowvolume hospitals in FY 2012, we estimate
that an additional $23 million in payments
will be made for the FY 2012 low-volume
payment adjustment at section 1886(d)(12) of
the Act.
8. Effects of Changes Relating to MDHs
As discussed in section IV.H. of the
preamble to this final rule, section 3124 of
Public Law 111–148 extended the MDH
program for 1 additional year, from the end
of FY 2011 (that is, for discharges before
October 1, 2011) to the end of FY 2012 (that
is, for discharges before October 1, 2012). The
extension had no impact on FY 2011. For FY
2012, the extension allows the continuation
of MDH status and the payment
methodology, for an MDH to be paid its
hospital-specific rate, based on its FY 1982,
1987, or 2002 updated costs per discharge,
rather than the Federal rate, if this results in
a greater aggregate payment. Therefore, the
impact of the extension is one additional year
of hospital-specific rate payments, when
greater than Federal rate payments, for these
hospitals as MDHs, rather than Federal rate
payments for these hospitals without special
treatment as MDHs.
9. Effects of Policy Relating to CRNA Services
Furnished in Rural Hospitals and CAHs
In section IV.I. of the preamble of this final
rule, we discuss the interim final rule with
comment that appeared in the November 24,
2010 Federal Register (75 FR 72256)
regarding pass-through payment for CRNA
services. In that interim final rule with
comment period, we stated that we were
changing the effective date of our policy to
allow hospitals and CAHs that have
reclassified as rural under 42 CFR 412.103 to
be eligible for CRNA pass-through from ‘‘cost
reporting periods beginning on or after
October 1, 2010’’ to an effective date of
‘‘December 2, 2010.’’ In section IV.I. of the
preamble of this final rule, we respond to the
comment received on the interim final rule
with comment period and state that we are
finalizing the effective date of December 2,
2010, that was established in the interim
final rule with comment period. Also in the
interim final rule with comment period (75
FR 72258), we stated that a change to the
effective date would only affect at most a
small subset of hospitals and CAHs affected
by the change to the regulations adopted in
the FY 2010 IPPS/LTCH PPS final rule and,
for this reason, we expected the change to the
effective date in the interim final rule with
comment period to have a minor impact on
Federal expenditures. We continue to expect
that this change to the effective date will
have a minor impact on Federal
expenditures.
10. Effect of the Additional Payments to
Qualifying Hospitals in Low Medicare
Spending Counties
Under section 1109 of Public Law 111–152,
Congress allocated $400 million to be spent
for FYs 2011 and 2012 to qualifying hospitals
located in a county that ranks, based upon its
ranking in age, sex, and race adjusted
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spending for benefits under Medicare Parts A
and B per enrollee, within the lowest quartile
of counties. In the FY 2011 IPPS/LTCH PPS
final rule, we identified the list of eligible
counties, the qualifying hospitals, and their
payment amounts and stated that we would
distribute $150 million in FY 2011 and $250
million in FY 2012. In section IV.J. of the
preamble to this final rule, we modified the
lists of qualifying hospitals and their
payment amounts for FYs 2011 and 2012
because we found that some of the hospitals
listed as qualifying hospitals for section 1109
payments were no longer subsection (d)
hospitals, a requirement to receive payments
under section 1109 of the Act. Following
these revisions, for FY 2011, there are 404
subsection (d) hospitals that are receiving
payments under section 1109 of the Act. For
FY 2012, there are 402 subsection (d)
hospitals that will receive payments under
section 1109 of the Act, although the number
of qualifying hospitals may change should
any of them cease to be a subsection (d)
hospital prior to FY 2012. Furthermore, in
this final rule, we finalized our proposal to
spend the remaining $250 million in FY
2012. We also finalized our proposal to make
payments to the qualifying hospitals through
a one-time annual payment made by one
Medicare contractor who would directly pay
all of the qualifying hospitals. In section IV.J.
of the preamble to this final rule, Table J1
lists the distribution of payments among the
list of qualifying hospitals.
11. Effects of Changes Relating to ESRD AddOn Payment
In section IV.L. of the preamble of this final
rule, we discuss our clarification that the
term ‘‘Medicare discharges’’ as used in
§ 412.104(a) refers to discharges of all
beneficiaries entitled to Medicare Part A; that
is, discharges associated with individuals
entitled to Part A, including discharges of
individuals receiving benefits under original
Medicare, discharges of individuals whose
inpatient benefits are exhausted or whose
stay was not covered by Medicare, and
discharges for individuals enrolled in
Medicare Advantage Plans, cost contracts
under section 1876 of the Act (health
maintenance organizations (HMOs)) and
competitive medical plans (CMPs).
We are not able to provide a detailed
analysis of the impact of the clarification of
this definition. We are not making any
changes to the existing regulations at
§ 412.104 under which we will continue to
provide an additional Medicare payment to
a hospital for inpatient services provided to
Medicare beneficiaries with ESRD who
receive a dialysis treatment during a hospital
stay, if the hospital has established that ESRD
Medicare beneficiary discharges, excluding
certain MS–DRGs for renal failure, admission
for renal dialysis, and kidney transplant,
where the beneficiary received dialysis
services during the inpatient stay, are 10
percent or more of its total Medicare
discharges. We note that this clarification
could change both the denominator (total
Medicare discharges) and the numerator
(ESRD Medicare beneficiary discharges,
excluding certain MS–DRGs for renal failure,
admission for renal dialysis, and kidney
transplant) associated with this calculation.
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As a result of our clarification, these
discharges will be included in the
denominator of the calculation for the
determination of eligibility for the ESRD
additional payment to hospitals. Similarly,
for the numerator of this calculation, we also
will include all discharges of ESRD
beneficiaries who are entitled to Medicare
Part A and who receive inpatient dialysis,
subject to the exclusions of certain MS–DRG
codes described above. Depending on
whether or not the additional discharges are
for ESRD beneficiaries, the calculation may
increase or decrease.
12. Effects of Changes Relating to the
Reporting Requirements for Pension Costs for
Medicare Cost-Finding and Wage Reporting
Purposes
In sections III.D.3. and IV.M. of the
preamble of this final rule, we are revising
our policy for determining pension cost for
Medicare purposes. We are setting forth two
distinct policies: one for determining and
reporting defined benefit pension costs on
the cost report for Medicare cost-finding
purposes and the other for determining and
reporting defined benefit pension costs for
Medicare wage index purposes. The
allowable pension cost under the current
rules and the revised policies are based on
the amount funded. The current rules impose
an actuarially based limit on the allowable
amount and the rules adopted in this final
rule limit the costs used in Medicare costfinding based on historical funding data.
Because the current rules and the policies
adopted in this final rule are both tied to the
amount funded, we expect that there will be
minimal impact. We note that it is not
possible to determine a precise impact for
Medicare cost-finding purposes because we
do not currently have data in the form and
manner required to calculate the pension
costs for all providers under our final
policies. Moreover, because we lack these
data, we are unable to determine a hospitallevel impact for the Medicare wage index.
We note that our policies may result in
redistribution within the Medicare wage
index, but section 1886(d)(3)(E) of the Act
requires any adjustments or updates made to
the Medicare wage index to be budget
neutral.
13. Effects of Implementation of Rural
Community Hospital Demonstration Program
In section IV.N. 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.N.
of the preamble of this final rule, in the IPPS
final rules for each of the previous 7 fiscal
years, we have estimated the additional
payments made by the program for each of
the participating hospitals as a result of the
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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 making an adjustment in the FY
2012 IPPS final rule of $52,452,060 to the
national IPPS rates to account for estimated
demonstration cost for FY 2012 for the 7
‘‘pre-expansion’’ participating hospitals that
are currently participating in the
demonstration and the 18 additional
hospitals selected to participate as a result of
the expansion of the demonstration under the
Affordable Care Act. In addition, in the FY
2012 proposed rule, we stated that the budget
neutrality adjustment would also account for
any differences between the cost of the
demonstration program for hospitals
participating in the demonstration during
FYs 2007 and 2008, represented by their cost
reports beginning in FYs 2007 and 2008, and
the amount that was offset by the budget
neutrality adjustment for FYs 2007 and 2008.
In the proposed rule, we stated that we could
not establish the amount of this difference
because settled cost reports beginning in FYs
2007 and 2008 in the demonstration were not
available. Similarly, for this final rule, the
estimated $52,452,060 that we are offsetting
does not account for any differences between
the cost of the demonstration program for
hospitals participating in the demonstration
during FYs 2007 and 2008 and the amount
that was offset by the budget neutrality
adjustment for FYs 2007 and 2008 because
the specific numeric value associated with
this component of the adjustment to the
national IPPS rates cannot be known at this
time. This is because settled cost reports
beginning in FYs 2007 and 2008 of the
hospitals participating during FYs 2007 and
2008 in the demonstration also are not
available at this time.
14. Effects of Changes to the List of MS–DRGs
Subject to Postacute Care Transfer and DRG
Special Pay Policy
In section IV.P. of the preamble to this final
rule, we discuss changes to the list of MS–
DRGs subject to the postacute care transfer
and DRG special payment policies. As
reflected in Table 5 listed in section VI. of
the Addendum to this final rule and available
via the Internet, using criteria set forth in
regulation at § 412.4, we evaluated MS–DRG
charges, discharge, and transfer data to
determine which MS–DRGs qualify for the
postacute care transfer and DRG special pay
policies. We note that we are making no
change to these payment policies in this FY
2012 final rule. We are changing the status
of certain MS–DRGs as a result of revision of
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the MS–DRGs for FY 2012. We are changing
the status of five MS–DRGs to qualify for the
postacute care transfer policy in FY 2012,
after not qualifying in FY 2011. An
additional three MS–DRGs that qualified
under the policy in FY 2011 do not qualify
in FY 2012, and we are changing their status
accordingly. Finally, three MS–DRGs now
qualify for the MS–DRG special pay policy in
FY 2012 after not qualifying in FY 2011, and
we are adding them to the list of qualifying
MS–DRGs. Column 4 of Table I in this
Appendix A 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. The analysis and methods
determining the changes due to the MS–
DRGs and relative weights accounts for and
includes changes in MS–DRG postacute care
transfer and special pay policy statuses. We
refer readers to section I.G.2.f. of this
Appendix for a more detailed discussion of
payment impacts due to MS–DRG
reclassification policies.
15. Effects of Changes Relating to Hospital
Services Furnished Under Arrangements
In section IV.Q. of the preamble of this
final rule, we are limiting the services that a
hospital may provide under arrangement.
Routine 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.
Only diagnostic and therapeutic services
(that is, ancillary services) may be provided
under arrangement outside the hospital. We
are aware of only a few cases where routine
services are being provided outside the
hospital other than where the patient is a
registered inpatient. Even in those few
instances where a hospital (hospital A) is
currently treating the services that are
provided under arrangements at another
hospital (hospital B), as if they are provided
by hospital A and reporting the costs on
hospital A’s cost report, complying with this
change should not be a burden on either the
patient or the hospital. Under this policy,
when the patient is transferred to hospital B
for the services, the patient will need to be
discharged from hospital A and admitted to
hospital B. Therefore, we have determined
that the impact of this change is negligible.
16. Effects of Change Relating to CAH
Payment for Ambulance Services
In section VI.B. of the preamble of this
final rule, we discuss our revision of the
regulations at § 413.70(b)(5) to state that,
effective for cost reporting periods beginning
on or after October 1, 2011, payment for
ambulance services furnished by a CAH or by
a CAH-owned and operated entity is 101
percent of the reasonable costs of the CAH or
the entity in furnishing those services, but
only if the CAH or the entity is the only
provider or supplier of ambulance services
located within a 35-mile drive of the CAH.
In addition, we are revising the regulations
at § 413.70(b)(5) to state that, effective for
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cost reporting periods beginning on or after
October 1, 2011, if there is no provider or
supplier of ambulance services located
within a 35-mile drive of the CAH, but there
is a CAH-owned and operated entity located
more than a 35-mile drive from the CAH, the
CAH owned and operated entity would be
paid at 101 percent of reasonable costs for its
ambulance services as long as that entity is
the closest provider or supplier of ambulance
services to the CAH. We believe this change
will continue to allow for sufficient
ambulance services to CAHs. We do not have
sufficient information or data to determine
how many CAH-owned and operated entities
can qualify for reasonable cost-based
payments under the change. As a result, we
are unable to quantify the financial impact of
this change for payment based on 101
percent of reasonable costs. However, even
those entities that do not qualify for payment
based on 101 percent of reasonable costs
would be paid for ambulance services under
the Medicare ambulance fee schedule.
I. Effects of Changes in the Capital IPPS
1. General Considerations
For the impact analysis presented below,
we used data from the March 2011 update of
the FY 2010 MedPAR file and the March
2011 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
2011 update of the most recently available
hospital cost report data (FYs 2008 and 2009)
to categorize hospitals. Our analysis has
several qualifications. We use the best data
available and make assumptions about casemix and beneficiary enrollment as described
below. In addition, as discussed in section
V.E. of the preamble to this final rule, we are
making a ¥1.0 percent documentation and
coding adjustment to the national capital rate
for FY 2012 in addition to the ¥0.6 percent
adjustment established for FY 2008, the ¥0.9
percent adjustment for FY 2009, and the
¥2.9 percent adjustment for FY 2011. This
results in a cumulative adjustment factor of
0.9479 that we applied in determining the FY
2012 national capital rate to account for
improvements in documentation and coding
that do not reflect real changes in case mix
under the MS–DRGs. We note that we
applied a ¥2.6 percent documentation and
coding adjustment to the Puerto Rico-specific
capital rate in FY 2011, which reflects the
entire amount of our current estimate of the
effects of documentation for FYs 2008 and
2009 that do not reflect real changes in casemix under the MS–DRGs. Therefore, we are
not adjusting the Puerto Rico-specific capital
rate in FY 2012 to account for changes in
documentation and coding.
Due to the interdependent nature of the
IPPS, it is very difficult to precisely quantify
the impact associated with each 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
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individual hospitals are placed in the wrong
category.
Using cases from the March 2011 update of
the FY 2010 MedPAR file, we simulated
payments under the capital IPPS for FY 2011
and FY 2012 for a comparison of total
payments per case. Any short-term, acute
care hospitals not paid under the general
IPPS (Indian Health Service hospitals and
hospitals in Maryland) are excluded from the
simulations.
The methodology for determining a capital
IPPS payment is set forth at § 412.312. The
basic methodology for calculating capital
IPPS payments in FY 2012 is as follows:
(Standard Federal Rate) × (DRG weight) ×
(GAF) × (COLA for hospitals located in
Alaska and Hawaii) × (1 + DSH Adjustment
Factor + IME adjustment factor, if
applicable).
In addition to the other 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 1.0 percent in both
FYs 2011 and 2012.
• We estimate that the Medicare
discharges will be approximately 11.8
million in FY 2011 and 12.2 million in FY
2012.
• The capital Federal rate was updated
beginning in FY 1996 by an analytical
framework that considers changes in the
prices associated with capital-related costs
and adjustments to account for forecast error,
changes in the case-mix index, allowable
changes in intensity, and other factors. As
discussed in section III.A.1.a. of the preamble
of this final rule, the update is 1.5 percent
for FY 2012.
• In addition to the FY 2012 update factor,
the FY 2012 capital Federal rate was
calculated based on a GAF/DRG budget
neutrality factor of 1.0004, and a outlier
adjustment factor of 0.9382. As discussed in
section III.A.4. of the Addendum to this final
rule, an exceptions adjustment factor is not
necessary in FY 2012 because there are no
longer any hospitals eligible to receive
special exceptions payments in FY 2012.
However, the special exceptions adjustment
factor was not built permanently into the
capital rate; that is, was not applied
cumulatively. Therefore, because there will
be no special exceptions payments in FY
2012, we are only applying an adjustment to
restore the special exceptions adjustment that
was applied to the FY 2011 capital rate, that
is, 1.0004 (calculated as 1/0.9996).
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• For FY 2012, as discussed above and in
section V.E. of the preamble to this final rule,
we are applying a cumulative 0.9479
adjustment in determining the FY 2012
national capital rate for changes in
documentation and coding that are expected
to increase case-mix under the MS–DRGs but
do not reflect real case-mix change. This
cumulative adjustment of 0.9479 reflects the
additional ¥1.0 percent adjustment in FY
2012 for the effects of documentation and
coding in FYs 2008 and 2009.
2. Results
We used the actuarial model described
above to estimate the potential impact of our
changes for FY 2012 on total capital
payments per case, using a universe of 3,419
hospitals. As described above, the individual
hospital payment parameters are taken from
the best available data, including the March
2011 update of the FY 2010 MedPAR file, the
March 2011 update to the PSF, and the most
recent cost report data from the March 2011
update of HCRIS. In Table III, we present a
comparison of estimated total payments per
case for FY 2011 and estimated total
payments per case for FY 2012 based on the
FY 2012 payment policies. Column 2 shows
estimates of payments per case under our
model for FY 2011. Column 3 shows
estimates of payments per case under our
model for FY 2012. Column 4 shows the total
percentage change in payments from FY 2011
to FY 2012. The change represented in
Column 4 includes the 1.5 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
2012 are expected to increase as compared to
capital payments per case in FY 2011. The
capital rate for FY 2012 will increase
approximately 0.34 percent as compared to
the FY 2011 capital rate. The changes to the
GAFs are expected to result, on average, in
a slight decrease in capital payments for most
regions with the 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 2012 as compared to
FY 2011. This is primarily because, based on
the FY 2010 claims from the March 2011
update of the MedPAR file, we are currently
estimating that FY 2011 capital outlier
payments are slightly less the projected
percentage of 5.96 percent that we used to
determine the outlier offset that we applied
in determining the FY 2011 capital Federal
rate.
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The net impact of these changes, as
discussed above, is an estimated 1.8 percent
change in capital payments per discharge
from FY 2011 to FY 2012 for all hospitals (as
shown below in Table III).
The geographic comparison shows that, on
average, all hospitals, urban and rural, are
expected to experience an increase in capital
IPPS payments per case in FY 2012 as
compared to FY 2011. Capital IPPS payments
per case for urban hospitals are estimated to
increase 1.8 percent, while rural hospitals are
expected to experience a 1.2 percent
increase.
The comparisons by region show that all
regions will experience, on average, increases
in capital IPPS payments. For urban areas,
the estimated increase in capital payments
per discharge from FY 2011 to FY 2012
ranges from a 1.0 percent increase for the
East North Central and East South Central
urban regions to a 5.8 percent increase for the
New England urban region. As discussed
above, the New England urban region is
estimated to have a larger than average
increase in capital payments per case in FY
2012 as compared to FY 2011 due to the
application of a rural floor. For rural regions,
the estimated percent increase in capital
payments per discharge from FY 2011 to FY
2012 ranges from a 0.7 percent increase for
the East North Central rural region to a 2.6
percent increase for the Pacific rural region.
By type of ownership, voluntary hospitals
and government hospitals are estimated to
experience a 1.8 percent increase in capital
payments per case; and proprietary hospitals
are estimated to experience a 1.6 percent
increase in capital payments per case from
FY 2011 to FY 2012.
Section 1886(d)(10) of the Act established
the MGCRB. Hospitals may apply for
reclassification for purposes of the wage
index for FY 2012. Reclassification for wage
index purposes also affects the GAFs because
that factor is constructed from the hospital
wage index.
To present the effects of the hospitals being
reclassified for FY 2012, we show the average
capital payments per case for reclassified
hospitals for FY 2012. All reclassified and
nonreclassified hospitals are expected to
experience an increase in capital payments in
FY 2012 as compared to FY 2011. Urban
reclassified hospitals are estimated to
experience an increase of 1.7 percent, while
urban nonreclassified are estimated to
experience the largest increase of 1.9 percent.
Rural reclassified hospitals are estimated to
experience an increase of 1.4 percent, while
rural nonreclassified hospitals are estimated
to have a 0.8 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 an increase of 0.5 percent in
capital payments from FY 2011 to FY 2012.
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Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
51837
TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE
[FY 2011 payments compared to FY 2012 payments]
Average FY
2011 payments/
case
Average FY
2012 payments/
case
3,423
1,371
1,127
925
2,498
632
782
449
430
205
925
320
348
152
58
47
786
865
774
542
824
664
711
762
842
993
542
433
500
536
613
656
800
882
787
549
839
675
724
775
856
1,015
549
439
505
543
621
664
1.8
1.9
1.7
1.2
1.8
1.6
1.9
1.7
1.6
2.1
1.2
1.3
1.0
1.3
1.2
1.2
2,498
120
320
380
401
153
169
366
159
380
50
925
23
69
165
120
170
99
183
66
29
1
824
862
877
770
800
729
816
779
847
983
378
542
721
554
529
574
498
570
484
575
685
163
839
912
890
781
808
737
830
796
861
1,004
388
549
728
562
536
577
501
581
491
581
703
166
1.8
5.8
1.4
1.6
1.0
1.0
1.8
2.1
1.7
2.2
2.5
1.2
1.0
1.4
1.3
0.4
0.7
1.8
1.4
1.1
2.6
1.8
3,423
1,384
1,135
904
786
864
774
544
800
881
787
550
1.8
1.9
1.7
1.2
2,391
792
240
671
784
1,112
682
795
1,137
1.7
1.5
2.2
1,547
337
848
590
864
599
1.9
1.4
417
222
475
596
482
604
1.4
1.3
27
134
485
450
488
453
0.5
0.7
827
144
1,057
491
917
806
711
734
935
817
725
745
1.9
1.4
1.9
1.5
2,402
56
33
11
17
828
741
725
557
770
843
750
740
566
784
1.8
1.2
2.0
1.6
1.8
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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 ............................................................................
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 .......................................................................................
Medicare-dependent hospitals (MDH) ..............................................
SCH, RRC and EACH ......................................................................
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51838
Federal Register / Vol. 76, No. 160 / Thursday, August 18, 2011 / Rules and Regulations
TABLE III—COMPARISON OF TOTAL PAYMENTS PER CASE—Continued
[FY 2011 payments compared to FY 2012 payments]
Average FY
2011 payments/
case
Average FY
2012 payments/
case
323
2,142
332
532
54
827
826
588
475
547
841
841
596
479
550
1.7
1.9
1.4
0.8
0.5
1,985
870
566
802
705
801
816
717
815
1.8
1.6
1.8
358
1,695
1,081
198
1,005
836
667
581
1,026
852
676
590
2.1
1.9
1.4
1.5
Number of
hospitals
Hospitals Reclassified by the Medicare Geographic Classification Review Board:
FY 2012 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 .............................................................................................
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 2012. 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 rates, factors, and
other payment rate policies related to the
LTCH PPS that are presented in the preamble
of this final rule in terms of their estimated
fiscal impact on the Medicare budget and on
LTCHs.
Currently, our database of 426 LTCHs
includes the data for 82 nonprofit (voluntary
ownership control) LTCHs and 322
proprietary LTCHs. Of the remaining 22
LTCHs, 13 LTCHs are government-owned
and operated and the ownership type of the
other 9 LTCHs is unknown. In the impact
analysis, we used the rates, 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, the update to the MS–LTC–DRG
classifications and relative weights, the
update to the wage index values and laborrelated share, including the application of a
budget neutrality adjustment for changes to
the area wage adjustment, and the best
available claims and CCR data to estimate the
change in payments for FY 2012. The
standard Federal rate for FY 2012 is
$40,222.05. This rate reflects the 1.8 percent
annual update to the standard Federal rate
and the area wage level budget neutrality
factor of 0.99775, which ensures that the
changes in the wage indexes and laborrelated share do not influence estimated
aggregate payments.
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Based on the best available data for the 426
LTCHs in our database, we estimate that the
update to the standard Federal rate for FY
2012 (discussed in section V.A.2. of the
Addendum to this final rule) and the changes
to the area wage adjustment for FY 2012
(discussed in section V.B. of the Addendum
to this final rule), in addition to an estimated
increase in HCO payments and an estimated
increase in SSO payments, will result in an
increase in estimated payments from FY 2011
of approximately $126 million (or about 2.5
percent). Based on the 426 LTCHs in our
database, we estimate that the FY 2012 LTCH
PPS payments will be approximately $5.257
billion, an increase from FY 2011 LTCH PPS
payments which were approximately $5.131
billion. Because the combined distributional
effects and estimated changes to the
Medicare program payments are
approximately $100 million, this final rule is
considered a major economic rule, as defined
in this section. We note that the
approximately $126 million for the projected
increase in estimated aggregate LTCH PPS
payments from FY 2011 to FY 2012 does not
reflect changes in LTCH admissions or casemix intensity in estimated LTCH PPS
payments, which also will affect overall
payment changes.
The projected 2.5 percent increase in
estimated payments per discharge from FY
2011 to FY 2012 is attributable to several
factors, including the 1.8 percent annual
update to the standard Federal rate, and
projected increases in estimated HCO and
SSO payments. As Table IV shows, the
change attributable solely to the final update
to the standard Federal rate is projected to
result in an increase of 1.6 percent in
payments per discharge from FY 2011 to FY
2012, on average, for all LTCHs. Because we
are applying an area wage level budget
neutrality factor to the standard Federal rate,
the 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
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Change
the wage index values for FY 2012 based on
the most recent available data. In addition,
we are decreasing the labor-related share
from 75.271 percent to 70.199 percent under
the LTCH PPS for FY 2012, based on the
most recent available data on the relative
importance of the labor-related share of
operating and capital costs of the FY 2008based RPL market basket. We also are
applying an area wage level budget neutrality
factor to the standard Federal rate to ensure
that annual changes to the area wage level
adjustment (that is, the wage index and laborrelated changes) are budget neutral. We are
making an area wage level budget neutrality
factor of 0.99775, which reduces the final
standard Federal rate by 0.23 percent.
Therefore, the changes to the wage data and
labor-related share do not result in a change
in aggregate LTCH PPS payments.
Table IV below shows the impact of the
payment rate and policy changes on LTCH
PPS payments for FY 2012 presented in this
final rule by comparing estimated FY 2011
payments to estimated FY 2012 payments.
The projected increase in payments per
discharge from FY 2011 to FY 2012 is 2.5
percent (shown in Column 8). This projected
increase in payments was attributable to the
impacts of the change to the standard Federal
rate (1.6 percent in Column 6), as well as the
effect of the estimated increase in payments
for HCO cases and SSO cases in FY 2012 as
compared to FY 2011 (0.5 percent and 0.3
percent, respectively). That is, estimated total
HCO payments are projected to increase from
FY 2011 to FY 2012 in order to ensure that
the estimated HCO payments would be 8
percent of the total estimated LTCH PPS
payments in FY 2012. An analysis of the
most recent available LTCH PPS claims data
(that is, FY 2010 claims data from the March
2011 update of the MedPAR file) indicates
that the FY 2011 HCO threshold of $18,785
(as established in the FY 2011 IPPS/LTCH
PPS final rule) may result in HCO payments
in FY 2011 that fall slightly below the
estimated 8 percent. Specifically, we
currently estimate that HCO payments will
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be approximately 7.5 percent of the estimated
total LTCH PPS payments in FY 2011. We
estimated that the impact of the increase in
HCO payments will result in approximately
a 0.5 percent increase in estimated payments
from FY 2011 to FY 2012, on average, for all
LTCHs. Furthermore, in calculating the
estimated increase in payments from FY 2011
to FY 2012 for HCO and SSO cases, we
increased estimated costs by the applicable
market basket percentage increase as
projected by our actuaries, which increases
estimated payments by 0.3 percent relative to
last year. We note that estimated payments
for all SSO cases comprised approximately
13 percent of the estimated total LTCH PPS
payments, and estimated payments for HCO
cases comprised approximately 8 percent of
the estimated total LTCH PPS payments.
Payments for HCO cases are based on 80
percent of the estimated cost of the case
above the HCO threshold, while the majority
of the payments for SSO cases (over 65
percent) are based on the estimated cost of
the SSO case.
As we discuss in detail throughout this
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 3.5 percent increase
in estimated payments per discharge for FY
2012 as compared to FY 2011 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 26 rural LTCHs in our
database (out of 426 LTCHs) for which
complete data were available.
The estimated increase in LTCH PPS
payments from FY 2011 to FY 2012 for rural
LTCHs is primarily due to the higher than
average impacts from the changes to the area
wage level adjustment, specifically, the
reduction to the labor-related share from
75.271 to 70.199. Although we are applying
an area wage level budget neutrality factor for
changes to the wage indexes and laborrelated share to ensure that there is no
change in aggregate LTCH PPS payments due
to those changes, we estimated rural
hospitals will experience a 0.7 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
2012 as compared to FY 2011.
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
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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 2012 of
approximately $126 million (or 2.5 percent)
based on the 426 LTCHs in our database.
b. Effects of Requirements for LTCH Quality
Reporting Program
In section VII.C. of the preamble of this
final rule, we discuss our requirements for
LTCHs to report quality data under the LTCH
quality reporting program. As set forth at
section 1886(m)(5)(A) of the Act, beginning
with FY 2014, the Secretary must reduce by
2.0 percentage points any annual update to
the standard Federal rate for discharges for
any LTCH which does not comply with the
LTCH quality data submission requirements.
In the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 26076), we estimated that should
we adopt the proposed requirements for the
LTCH quality reporting program for FY 2014,
few LTCHs would not receive the full
payment update in any fiscal year as a result
of failure to comply with the quality
reporting program that has been mandated by
section 3004 of the Affordable Care Act. We
stated this because we believe that most
LTCHs will see the new quality reporting
program as an important step in improving
the quality of care patients receive in these
facilities. We also 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.
At this time, information is not available to
determine the precise number of LTCHs that
will receive the 2-percent reduction to the
annual update to the standard Federal rate
for discharges due to noncompliance with
the requirements of section 3004 of the
Affordable Care Act. At this time, we have no
way to estimate how many LTCHs will fully
comply with the LTCH quality reporting
program.
In section VII.C. of the preamble of this
final rule, we are adopting three quality
reporting measures for LTCHs for FY 2014:
(1) Catheter-Associated Urinary Tract
Infections (CAUTI); (2) Central Line CatheterAssociated Blood Stream Infection Event
(CLABSI); and (3) Pressure Ulcers that are
New or Have Worsened. In the FY 2012 IPPS/
LTCH PPS proposed rule (76 FR 26076), we
estimated that the total LTCH costs to report
these data, including NHSN registration and
training for the CAUTI and CLABSI quality
measures; data submission for all three
measures, and monitoring data submission
would be $1,128,440.
Comment: Several commenters expressed
concern over the potential for negative
financial implications and believed that large
burdens would be imposed by requiring the
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51839
reporting of CLABSI and CAUTI measures to
the CDC via NHSN.
Response: We wish to minimize any
burdens associated with the LTCH quality
reporting program. We believe that using the
NHSN minimizes the potential reporting
burdens on LTCHs. We note that the CDC
estimates that 200 LTCHs out of a total of 435
certified LTCHs currently submit HAI data to
the CDC via NHSN. This means that 46
percent of LTCHs are already enrolled in
NHSN, are familiar with the data collection
mechanism, and have knowledge of the
submission processes required by the CDC.
For LTCHs that currently report both
measures using the NHSN, there will be no
additional burden.
For LTCHs that currently report only one
of the HAIs to NHSN (for example, an LTCH
that reports CAUTI to NHSN, but does not
report CLABSI), there will be only modest
additional burdens as a result of new LTCH
quality reporting program. Because these
LTCHs are currently reporting data to NHSN
for other purposes, they have already
registered with the NHSN and taken the
mandatory training. In addition, these LTCHs
should already have staff members whom are
familiar with the reporting procedures used
by NHSN.
LTCHs that do not already report
information to NHSN will incur the most
additional burden. This burden would
consist of the following:
(1) Registration with the NHSN;
(2) Mandatory NHSN training (which is
estimated to take approximately 4–5 hours);
(3) LTCH training of administrative staff on
how to transmit data to the NHSN; and
(4) Quarterly reporting time.
NHSN does not charge a fee for registration
or the submission of data. The mandatory
training is also free. This training must be
taken before the LTCH can become a
registered user. The training must be taken by
an administrator, but this may be a person
such as an infection control specialist,
Director of Nursing, or another person
associated with the LTCH’s quality reporting
program. Only one person is required to take
the NHSN mandatory training in order for the
LTCH to become registered.
Once the LTCH is registered with the
NHSN, it may wish to train other members
of the staff about the use of the NHSN
system. Each LTCH may decide how many
additional staff should be trained. However,
it is not likely that more than a few staff
members per LTCH will need to be trained
on the use of the NHSN system.
The new quality reporting program
requires that each LTCH must collect the
CLABSI and CAUTI data to submit to NHSN.
However, the collection of data pertaining to
infectious diseases incurred by patients in an
LTCH is an important part of safe and
effective patient care. We believe that most,
if not all, LTCHs already collect and record
data pertaining to CAUTI, CLABSI, and
pressure ulcers as a part of their safe and
effective patient care. This belief is supported
by research and environmental scans which
have been performed by our measure
developer contractor, as well as statements
by LTCH providers during open door forums
and during TEP discussions. Therefore, we
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do not believe that there will be any
significant additional burden related to data
collection for the three quality measures.
We anticipate that the amount of time that
will be needed by each LTCH to report the
data collected to the NHSN will be minimal
for several reasons. First, these data will be
aggregated and reported at intervals.
Secondly, based on statistics provided by the
CDC, we believe that only a small percentage
of patients admitted to LTCHs will
experience one of these serious HAIs. We
estimate that there may be approximately six
CAUTI and six CLABSI events per LTCH per
month. This equates to approximately 144
HAI events per LTCH per year. We estimate
that it will take approximately 15 minutes of
administrative data entry time per
submission to submit these data to NHSN. If
the data are aggregated and submitted once
per month, the time required of an
administrative data entry person will be 3
hours per month. If the average wage of an
administrative assistant is $20.57, the
estimated cost to an LTCH for the monthly
submission of the CAUTI and CLABSI data
will be $61.71, or $740.52 per LTCH per year.
Comment: One commenter recommended
that hospitals receive some payment to
mitigate the additional cost associated with
reporting this information.
Response: The Affordable Care Act
amended the Act to require the Secretary to
implement quality reporting programs in
settings that have not been required to do so
in the past, including LTCHs. As noted
above, we wish to minimize any burdens
associated with the LTCH quality reporting
program. However, the Act does not provide
for additional payments to LTCHs for quality
data reporting. In addition, by using NHSN
and a subset of the CARE data item set, we
are attempting to minimize the burden of the
LTCH quality reporting program by using
data submission methods that have been
used or are being used by some LTCHs.
After consideration of the public comments
we received, we are finalizing the three
quality reporting measures, namely (1)
Catheter-Associated Urinary Tract Infections
(CAUTI); (2) Central Line CatheterAssociated Blood Stream Infection Event
(CLABSI); and (3) Pressure Ulcers that are
New or Have Worsened as proposed for the
FY 2014 payment determination.
At this time, the data reporting mechanism
for transferring pressure ulcer data to CMS
remains under development. As discussed
elsewhere in the preamble to this final rule,
we expect the data reporting mechanism to
be used will be a subset of the CARE data
item set. Upon completion of the pressure
ulcer assessment subset of the CARE data
item set, a PRA package will be published in
the FEDERAL REGISTER, in which CMS will
state burden estimates related to the quality
measure entitled ‘‘Pressure Ulcers that are
New or Have Worsened.’’ Additionally, CMS
will release further details and specifications
regarding the data collection mechanism via
the CMS Web site by no later than January
31, 2012.
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c. Impact of Application of LTCH
Moratorium on the Increase in Beds at
Section 114(d)(1)(B) of Public Law 110–173
(MMSEA) to LTCHs and LTCH Satellite
Facilities Established or Classified as Such
Under Section 114(d)(1)(B) of Public Law
110–173
As discussed in section VII.F. of the
preamble of this final rule, at § 412.23(e)(8),
for the period beginning October 1, 2011, and
ending December 28, 2012, we are applying
the moratorium on the increase in the
number of beds under section 114(d)(1)(B) of
the MMSEA, as specified in § 412.23(e)(7), to
LTCHs and LTCH satellite facilities that were
established or classified during the period
after December 29, 2007 and ending
September 30, 2011, under one of the
exceptions to the moratorium at section
114(d)(2) of the MMSEA, as set forth in
paragraph (e)(6)(ii) of § 412.23. The final
regulation precludes a LTCH or LTCH
satellite facility that was developed under an
exception to the moratorium on the
establishment of new LTCHs and LTCH
satellite facilities from increasing the number
of Medicare-certified beds beyond the
number certified by Medicare on October 1,
2011. Approximately 50 LTCHs and 8 LTCH
satellite facilities were developed under the
exceptions at § 412.23(e)(6)(ii); and under the
moratorium at section 114(d)(4) of the
MMSEA, which solely applied to ‘‘existing’’
LTCHs and LTCH satellite facilities,
additional beds may have been added to
these LTCHs and LTCH satellite facilities
since establishment. Under the new
regulation at § 412.23(e)(8), these ‘‘new’’
LTCHs and LTCH satellite facilities will also
be subject to the moratorium on bed
increases. Because additional increases in the
number of LTCH beds in these facilities
could result in added costs to the Medicare
program, the impact of precluding additional
growth in the number of Medicare-certified
beds in these facilities is expected to result
in no additional spending under the
Medicare program from these LTCHs and
LTCH satellite facilities.
d. Impact of the Clarification to the Greater
Than 25 Day Average Length of Stay
Requirement for LTCHs
In section VII.E.5. of the preamble of this
final rule, we present two clarifications to
our existing policy for determining whether
a hospital is meeting the greater than 25 day
average length of stay requirement for
payment under the LTCH PPS. First, we are
clarifying and revising the regulations at
§ 412.23(e)(3)(iv) dealing with the average
length of stay determination when there is a
change of ownership of either a hospital
seeking to qualify as an LTCH or of an
existing LTCH. Second, we described and are
clarifying our existing policy regarding the
inclusion of Medicare Advantage days in the
average length of stay calculation. Because
typically LTCHs track the lengths of stay of
their Medicare patients on an ongoing basis
for purposes of maintaining their LTCH
status, and Medicare contractors are already
tasked with evaluating each LTCH’s average
length of stay, we do not believe that there
is any actual impact resulting from the
clarification of these existing policies nor do
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they impose any additional burdens on either
LTCHs or Medicare contractors.
e. Impact on Providers
The basic methodology for determining a
per discharge LTCH PPS payment is set forth
in § 412.515 through § 412.536. In addition to
the basic MS–LTC–DRG payment (the
standard Federal rate multiplied by the MS–
LTC–DRG relative weight), we make
adjustments for differences in area wage
levels, the COLA for Alaska and Hawaii, and
SSOs. Furthermore, LTCHs may also receive
HCO payments for those cases that qualify
based on the threshold established each year.
To understand the impact of the changes
to the LTCH PPS payments presented in this
final rule on different categories of LTCHs for
FY 2012, it is necessary to estimate payments
per discharge for FY 2011 using the rates,
factors (including the FY 2011 GROUPER
(Version 28.0), and relative weights and the
policies established in the FY 2011 IPPS/
LTCH PPS final rule (75 FR 50364 through
50400 and 50442 through 50449). It is also
necessary to estimate the payments per
discharge that would have been made under
the LTCH PPS rates, factors, policies, and
GROUPER (Version 29.0) for FY 2012 (as
discussed in VII. of the preamble and section
V. of the Addendum to this final rule). These
estimates of FY 2011 and FY 2012 LTCH PPS
payments are based on the best available
LTCH claims data and other factors, such as
the application of inflation factors to estimate
costs for SSO and HCO cases in each year.
We also evaluated the change in estimated
FY 2011 payments to estimated FY 2012
payments (on a per discharge basis) for each
category of LTCHs.
Hospital groups were based on
characteristics provided in the OSCAR data,
FY 2008 through FY 2009 cost report data in
HCRIS, and PSF data. Hospitals with
incomplete characteristics were grouped into
the ‘‘unknown’’ category. Hospital groups
included the following:
• Location: large urban/other urban/rural.
• Participation date.
• Ownership control.
• Census region.
• Bed size.
To estimate the impacts of the final
payment rates and policy changes among the
various categories of existing providers, we
used LTCH cases from the FY 2010 MedPAR
file to estimate payments for FY 2011 and to
estimate payments for FY 2012 for 426
LTCHs. We believe that the discharges based
on the FY 2010 MedPAR data for the 426
LTCHs in our database, which includes 322
proprietary LTCHs, provide sufficient
representation in the MS–LTC–DRGs
containing discharges for patients who
received LTCH care for the most commonly
treated LTCH patients’ diagnoses.
f. Calculation of Prospective Payments
For purposes of this impact analysis, to
estimate per discharge payments under the
LTCH PPS, we simulated payments on a
case-by-case basis using LTCH claims from
the FY 2010 MedPAR files. For modeling
estimated LTCH PPS payments for FY 2011,
we applied the FY 2011 standard Federal rate
(that is, $39,599.95, under which LTCH
discharges occurring on or after October 1,
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2010, to September 30, 2011 are paid). For
modeling estimated LTCH PPS payments for
FY 2012, we applied the FY 2012 standard
Federal rate of $40,222.05, which will be
effective for LTCH discharges occurring on or
after October 1, 2011, and through September
30, 2012. The final FY 2012 standard Federal
rate of $40,222.05 includes the application of
an area wage level budget neutrality factor of
0.99775 (as discussed in section VII.E.4. of
the preamble of this final rule).
Furthermore, in modeling estimated LTCH
PPS payments for both FY 2011 and FY 2012
in this impact analysis, we applied the FY
2011 and the FY 2012 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 2011 payments
using the current LTCH PPS labor-related
share of 75.271 percent (75 FR 50445) and
the wage index values established in the
Tables 12A and 12B of the Addendum to the
FY 2011 IPPS/LTCH PPS final rule (75 FR
50627 through 50646). We also applied the
FY 2011 COLA factors shown in the table in
section V.B.5. of the Addendum to that final
rule (75 FR 50446) to the FY 2011 nonlaborrelated share (24.729 percent) for LTCHs
located in Alaska and Hawaii. Similarly, we
adjusted for differences in area wage levels
in determining the estimated FY 2012
payments using the LTCH PPS FY 2012
labor-related share of 70.199 percent and the
FY 2012 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 2012 COLA factors shown in the table
in section V.B.5. of the Addendum to the FY
2011 IPPS/LTCH PPS final rule to the FY
2012 nonlabor-related share (29.801 percent)
for LTCHs located in Alaska and Hawaii.
As discussed above, our impact analysis
reflects an estimated change in payments for
SSO cases, as well as an estimated increase
in payments for HCO cases (as described in
section V.C. of the Addendum to this final
rule). In modeling final payments for SSO
and HCO cases in FY 2012, we are applying
an inflation factor of 1.057 (determined by
OACT) to the estimated costs of each case
determined from the charges reported on the
claims in the FY 2010 MedPAR files and the
best available CCRs from the March 2011
update of the PSF. Furthermore, in modeling
estimated LTCH PPS payments for FY 2012
in this impact analysis, we used the FY 2012
fixed-loss amount of $17,931 (as discussed in
section V. of the Addendum to this final
rule).
These impacts reflect the estimated
‘‘losses’’ or ‘‘gains’’ among the various
classifications of LTCHs from the FY 2011 to
FY 2012 based on the 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 2011 (as
described above).
• The fifth column shows the estimated
payment per discharge for FY 2012 (as
described above).
• The sixth column shows the percentage
change in estimated payments per discharge
from FY 2011 to FY 2012 due to the update
to the standard Federal rate (as discussed in
section V.A.2. of the Addendum to this final
rule).
• The seventh column shows the
percentage change in estimated payments per
discharge from FY 2011 to FY 2012 for
changes to the area wage level adjustment
(that is, the final wage indexes and laborrelated share), including the application of an
area wage level budget neutrality factor (as
discussed in section V.B.5. of the Addendum
to the final rule).
• The eighth column shows the percentage
change in estimated payments per discharge
from FY 2011 (Column 4) to FY 2012
(Column 5) for all changes (and includes the
effect of estimated changes to HCO and SSO
payments).
TABLE IV—IMPACT OF PAYMENT RATE AND POLICY CHANGES TO LTCH PPS PAYMENTS FOR FY 2012
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[Estimated FY 2011 payments compared to estimated FY 2012 payments*]
LTCH Classification
Number of
LTCHs
Number of
LTCH PPS
cases
Average FY
2011 LTCH
PPS payment
per case
Average FY
2012 LTCH
PPS payment
per case 1
Percent
change in estimated payments per
discharge
from FY 2011
to FY 2012
for the annual update
to the federal
rate 2
(1)
(2)
(3)
(4)
(5)
(6)
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 .....................
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Percent
change in estimated payments per
discharge
from FY 2011
to FY 2012
for changes
to the area
wage level
adjustment
with budget
neutrality 3
Percent
change in
payments per
discharge
from FY 2011
to FY 2012
for all
changes 4
(7)
(8)
426
135,100
$37,977
$38,911
1.6
0.0
2.5
26
400
204
196
5,862
129,238
77,420
51,818
33,445
38,182
39,911
35,599
34,366
39,118
40,884
36,478
1.7
1.6
1.6
1.6
0.7
0.0
¥0.2
0.3
3.5
2.4
2.2
2.8
16
44
186
176
4
5,914
16,673
63,376
48,317
820
33,691
40,019
37,198
38,826
37,558
34,509
41,075
38,085
39,794
38,534
1.6
1.5
1.6
1.6
1.6
¥0.6
¥0.2
0.0
0.1
1.5
1.9
2.4
2.4
2.6
4.1
82
322
13
9
19,596
113,085
1,720
699
38,992
37,702
42,710
42,249
40,120
38,596
44,026
43,546
1.6
1.6
1.6
1.6
0.0
0.0
¥0.2
¥0.2
2.9
2.4
2.9
2.9
15
30
59
70
29
7,313
7,970
15,577
19,913
8,177
33,726
38,866
41,327
39,857
37,658
34,501
39,802
42,388
40,820
38,635
1.5
1.6
1.5
1.6
1.6
¥0.6
¥0.1
0.0
¥0.5
0.2
1.7
2.3
2.6
2.0
2.8
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TABLE IV—IMPACT OF PAYMENT RATE AND POLICY CHANGES TO LTCH PPS PAYMENTS FOR FY 2012—Continued
[Estimated FY 2011 payments compared to estimated FY 2012 payments*]
LTCH Classification
Number of
LTCHs
Number of
LTCH PPS
cases
Average FY
2011 LTCH
PPS payment
per case
Average FY
2012 LTCH
PPS payment
per case 1
Percent
change in estimated payments per
discharge
from FY 2011
to FY 2012
for the annual update
to the federal
rate 2
(1)
(2)
(3)
(4)
(5)
(6)
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 + ................................
Percent
change in estimated payments per
discharge
from FY 2011
to FY 2012
for changes
to the area
wage level
adjustment
with budget
neutrality 3
Percent
change in
payments per
discharge
from FY 2011
to FY 2012
for all
changes 4
(7)
(8)
26
141
32
24
5,903
50,675
6,742
12,830
39,877
33,357
41,479
48,595
40,921
34,176
42,579
49,716
1.6
1.7
1.6
1.5
0.3
0.5
¥0.4
¥0.4
2.9
2.9
2.2
1.8
29
199
114
47
23
14
3,667
43,952
36,429
21,072
16,057
13,923
32,708
37,489
38,383
40,614
36,539
37,509
33,554
38,410
39,368
41,622
37,410
38,339
1.7
1.6
1.6
1.6
1.5
1.6
0.5
0.1
0.1
¥0.3
¥0.1
0.0
3.1
2.6
2.6
2.2
2.3
2.2
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1 Estimated FY 2012 LTCH PPS payments based on the final payment rates and policy changes presented in the preamble and the Addendum to this final rule.
2 Percent change in estimated payments per discharge from FY 2011 to FY 2012 for the annual update to the standard Federal rate, as discussed in section V.A.2. of the Addendum to this final rule.
3 Percent change in estimated payments per discharge from FY 2011 to FY 2012 for changes to the area wage level adjustment at
§ 412.525(c) (as discussed in section V.B. of the Addendum to this final rule).
4 Percent change in estimated payments per discharge from FY 2011 LTCH PPS (shown in Column 4) to FY 2012 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.
g. Results
Based on the most recent available data for
426 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 2.5
percent, on average, for all LTCHs from FY
2011 to FY 2012 as a result of the payment
rate and policy changes presented in this
final rule, as well as estimated increases in
HCO and SSO payments. We note that we
updated the standard Federal rate for FY
2012 by 1.8 percent, which is based on the
latest estimate of the LTCH PPS market
basket increase (2.9 percent), the reduction of
1.0 percentage point for the multifactor
productivity adjustment and the 0.1
percentage point reduction required under
sections 1886(m)(3) and (m)(4) of the Act. We
noted earlier in this section that for most
categories of LTCHs, as shown in Table IV
(Column 6), the impact of the increase of
approximately 1.8 percent for the annual
update to the standard Federal rate is
projected to result in approximately a 1.6
percent change in estimated payments per
discharge for all LTCHs from FY 2011 to FY
2012. Because payments to cost-based SSO
cases and a portion of payments to SSO cases
that are paid based on the ‘‘blend’’ option of
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the SSO payment formula at
§ 412.529(c)(2)(iv) are not affected by the
annual update to the standard Federal rate,
we estimated that the effect of the 1.8 percent
annual update to the standard Federal rate
will result in a 1.6 percent increase on
estimated aggregate LTCH PPS payments for
all LTCH PPS cases, including SSO cases.
Furthermore, as discussed previously in this
regulatory impact analysis, the average
increase in estimated payments per discharge
from the FY 2011 to FY 2012 for all LTCHs
of approximately 2.5 percent (as shown in
Table IV) was determined by comparing
estimated FY 2012 LTCH PPS payments
(using the rates and policies discussed in this
final rule) to estimated FY 2011 LTCH PPS
payments (as described above in section I.J.1.
of this Appendix).
(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 4 percent of
all LTCH cases are treated in these rural
hospitals. The impact analysis presented in
Table IV shows that the average percent
increase in estimated payments per discharge
from FY 2011 to FY 2012 for all hospitals is
2.5 percent for all changes. For rural LTCHs,
the percent change for all changes is
estimated to be 3.5 percent, while for urban
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LTCHs, we estimate the increase to be 2.4
percent. Large urban LTCHs are projected to
experience an increase of 2.2 percent in
estimated payments per discharge from FY
2011 to FY 2012, while other urban LTCHs
are projected to experience an increase of 2.8
percent in estimated payments per discharge
from FY 2011 to FY 2012, 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
majority (approximately 47 percent) of the
LTCH cases are in hospitals that began
participating in the Medicare program
between October 1993 and September 2002,
and are projected to experience nearly the
average increase (2.4 percent) in estimated
payments per discharge from FY 2011 to FY
2012, as shown in Table IV.
In the participation category where LTCHs
began participating in the Medicare program
before October 1983, LTCHs are projected to
experience a lower than average percent
increase (1.9 percent) in estimated payments
per discharge from FY 2011 to FY 2012, as
shown in Table IV. Approximately 4 percent
of LTCHs began participating in Medicare
before October 1983. The LTCHs in this
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category are projected to experience a lower
than average increase in estimated payments
because of decrease in payments due to the
changes to the area wage adjustment.
Approximately 10 percent of LTCHs began
participating in Medicare between October
1983 and September 1993. These LTCHs are
projected to experience a 2.4 percent increase
in estimated payments from FY 2011 to FY
2012. LTCHs that began participating in
Medicare after October 2002 currently
represent approximately 41 percent of all
LTCHs, and are projected to experience an
average increase (2.6 percent) in estimated
payments from FY 2011 to FY 2012.
(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, for these LTCHs in the
voluntary category, estimated FY 2012 LTCH
payments per discharge will increase higher
than the average (2.9 percent) in comparison
to estimated payments in FY 2011 primarily
because we project an increase in estimated
HCO payments and SSO payments to be
higher than the average for these LTCHs. The
majority (76 percent) of LTCHs are identified
as proprietary and these LTCHs are projected
to experience a nearly average increase (2.4
percent) in estimated payments per discharge
from FY 2011 to FY 2012. Finally,
government-owned and operated LTCHs (3
percent) are also expected to experience a
higher than average increase in payments of
2.9 percent in estimated payments per
discharge from FY 2011 to FY 2012.
(4) Census Region
Estimated payments per discharge for FY
2012 are projected to increase for LTCHs
located in all regions in comparison to FY
2011. Of the 9 census regions, we project that
the increase in estimated payments per
discharge will have the largest positive
impact on LTCHs in the West North Central
and West South Central regions (2.9 percent,
as shown in Table IV). The estimated percent
increase in payments per discharge from FY
2011 to FY 2012 for those regions is largely
attributable to the changes in the area wage
level adjustment.
In contrast, LTCHs located in the New
England region are projected to experience
the smallest increase in estimated payments
per discharge from FY 2011 to FY 2012. The
average estimated increase in payments of 1.7
percent for LTCHs in the New England region
is primarily due to estimated decreases in
payments associated with 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 payments for small LTCHs
(0–24 beds) will experience a 3.1 percent
increase in payments due to increases in the
area wage adjustment while large LTCHs
(200+ beds) will experience a 2.2 percent
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increase in payments. LTCHs with between
75 and 124 beds and between 125 and 199
beds are expected to experience a slightly
below average increase in payments per
discharge from FY 2011 to FY 2012 (2.2
percent and 2.3 percent, respectively)
primarily due to an estimated decrease in
their payments from FY 2011 to FY 2012 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 2012 of approximately $126
million (or approximately 2.5 percent) for the
426 LTCHs in our database.
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. Alternatives Considered
1. General
This final rule contains a range of policies.
It also provides descriptions of the statutory
provisions that are addressed, identifies
policies, and presents rationales for our
decisions and, where relevant, alternatives
that were considered.
2. Alternative Considered for Hospital
Inpatient Quality Review (IQR) and ValueBased Purchasing (VBP) Programs: Medicare
Spending per Beneficiary Measure
In the FY 2012 IPPS/LTCH PPS proposed
rule (76 FR 25896 and 25897 and 76 FR
25927 and 25928), we described our
proposed policy for implementing the
claims-based Medicare spending per
beneficiary measure for the FY 2014 Hospital
IQR Program and the claims-based Medicare
spending per beneficiary measure for the FY
2014 Hospital VBP Program. In addition, we
described an alternative we considered for
the Medicare spending per beneficiary
measure (76 FR 26080 through 26082). We
considered this alternative approach based
on the principle that Medicare spending per
beneficiary benchmarks for lower quality
hospitals should not exceed the benchmarks
for higher quality hospitals. This alternative
approach was more complex than the
approach we are finalizing. Due to its
increased complexity, in the proposed rule,
we included the discussion of this alternative
approach in this section, rather than earlier
in the preamble of the proposed rule, for ease
of presentation. The approach consisted of
setting differential spending benchmarks for
different quality score-based cohorts of
hospitals and applying an efficiency
adjustment to the quality score.
We did not receive any public comments
on the discussion of an alternative approach
to incorporating a Medicare spending per
beneficiary measure into the FY 2014
Hospital VBP Program or the Hospital IQR
Program. We are finalizing the addition of a
Medicare spending per beneficiary measure
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to the FY 2014 Hospital IQR Program, as
described in section IV.A.3.b.(ii)(B) of the
preamble to this final rule, and to the FY
2014 Hospital VBP Program, as described in
section IV.B.3.b.(iii) of the preamble to this
final rule.
L. 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 1.1 percent
in operating payments. We estimate that
operating payments will increase by
approximately $1.13 billion in FY 2012. For
FY 2012, we are distributing $250 million to
hospitals that qualify to receive additional
payment under section 1109 of Public Law
111–152, which is an additional $100 million
than what we had distributed under this
provision in FY 2011. In addition, we
estimate a savings of $21 million associated
with the HACs policies in FY 2012, which is
an additional $1 million in savings than in
FY 2011. We estimate that we will spend
$900,000 in new technology add-on
payments in FY 2012, which is
approximately $17 million less than what we
spent in FY 2011. We estimate that low
volume payments in FY 2012 will be $5
million more than the low volume payments
made in FY 2011. These estimates, added to
our FY 2012 operating estimate of $1.13
billion, will result in an increase of $1.22
billion for FY 2012. We estimate that capital
payments will experience a 1.8 percent
increase in payments per case, as shown in
Table III of section I.I. of this Appendix. We
project that there would be a $151 million
increase in capital payments in FY 2012
compared to FY 2011. The cumulative
operating and capital payments should result
in a net increase of $1.369 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 2012. 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 2012.
Accordingly, based on the best available data
for the 426 LTCHs in our database, we
estimate that FY 2012 LTCH PPS payments
will increase approximately $126 million (or
approximately 2.5 percent).
M. Accounting Statements and Tables
1. 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
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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 2011 TO FY 2012
Category
Transfers
Annualized Monetized
Transfers.
From Whom to Whom
$1.369 billion.
Total ...................
$1.369 billion
Federal Government
to IPPS Medicare
Providers.
2. LTCHs
As discussed in section I.J. of this
Appendix, the impact analysis for the
changes under the LTCH PPS for this final
rule projects an increase in estimated
aggregate payments of approximately $126
million (or approximately 2.5 percent) for the
426 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 426 LTCHs in our
database. All expenditures are classified as
transfers to Medicare providers (that is,
LTCHs).
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TABLE VI—ACCOUNTING STATEMENT:
CLASSIFICATION OF ESTIMATED EXPENDITURES FROM THE FY 2011
LTCH PPS TO THE FY 2012 LTCH
PPS
Category
Transfers
Annualized Monetized
Transfers
Positive transfer—Estimated increase in
expenditures: $126
million.
II. Regulatory Flexibility Act (RFA) Analysis
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
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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 2012 IPPS/
LTCH PPS proposed rule, we solicited public
comments on our estimates and analysis of
the impact of our proposals on those small
entities. We did not receive any public
comments.
III. 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 now define
a small rural hospital as a hospital that is
located outside of an urban area and has
fewer than 100 beds. Section 601(g) of the
Social Security Amendments of 1983 (Pub. L.
98–21) designated hospitals in certain New
England counties as belonging to the adjacent
urban area. Thus, for purposes of the IPPS
and the LTCH PPS, we continue to classify
these hospitals as urban hospitals. (We refer
readers to Table I in section I.G. of this
Appendix for the quantitative effects of the
policy changes under the IPPS for operating
costs.)
IV. 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 2011, 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.
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V. 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 rates for SCHs and
MDHs, and the rate-of-increase limits for
certain hospitals excluded from the IPPS, as
well as LTCHs, IPFs, and IRFs. We also
discuss our response to MedPAC’s
recommended update factors for inpatient
hospital services.
II. Inpatient Hospital Update for FY 2012
A. FY 2012 Inpatient Hospital Update
Section 1886(b)(3)(B) of the Act, as
amended by sections 3401(a) and 10319(a) of
the Affordable Care Act, sets the applicable
percentage increase under the IPPS for FY
2012 as equal to the rate-of-increase in the
hospital market basket for IPPS hospitals in
all areas, subject to a reduction of 2.0
percentage points if the hospital fails to
submit quality information under rules
established by the Secretary in accordance
with section 1886(b)(3)(B)(viii) of the Act,
and then subject to an adjustment based on
changes in economy-wide productivity and
an additional reduction of 0.1 percentage
point. Sections 1886(b)(3)(B)(xi) and
(b)(3)(B)(xii) of the 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.K.3. of the
preamble of the proposed rule, based on IGI’s
first quarter 2011 forecast of multifactor
productivity (MFP), we proposed a MFP
adjustment (the 10-year moving average of
MFP for the period ending FY 2012) of 1.2
percent.
Therefore, in the FY 2012 IPPS/LTCH PPS
proposed rule, based on IGI’s first quarter
2011 forecast of the FY 2012 market basket
increase, we proposed an applicable
percentage increase to the FY 2012 operating
standardized amount of 1.5 percent (that is,
the FY 2012 estimate of the market basket
rate-of-increase of 2.8 percent less an
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adjustment of 1.2 percentage points for
economy-wide productivity and less 0.1
percentage point) for hospitals in all areas,
provided the hospital submits quality data in
accordance with section 1886(b)(3)(B)(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 ¥0.5
percent (that is, the FY 2012 estimate of the
market basket rate-of increase of 2.8 percent
less 2.0 percentage points for failure to
submit quality data, less an adjustment of 1.2
percentage points for economy-wide
productivity, and less an additional
adjustment of 0.1 percentage point).
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,
based on IGI’s second quarter 2011 forecast
of MFP, we are finalizing a MFP adjustment
(the 10-year moving average of MFP for the
period ending FY 2012) of 1.0 percent for FY
2012.
Based on IGI’s second quarter 2011 forecast
of the FY 2012 market basket increase, we are
finalizing an applicable percentage increase
to the FY 2012 operating standardized
amount of 1.9 percent (that is, the FY 2012
estimate of the market basket rate-of-increase
of 3.0 percent less an adjustment of 1.0
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 making an applicable
percentage increase to the operating
standardized amount of ¥0.1 percent (that is,
the FY 2012 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 1.0
percentage point for economy-wide
productivity, and less an additional
adjustment of 0.1 percentage point).
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B. Update for SCHs and MDHs for FY 2012
Section 1886(b)(3)(B)(iv) of the Act
provides that the FY 2012 applicable
percentage increase in the hospital-specific
rates for SCHs and MDHs equals the
applicable percentage increase set forth in
section 1886(b)(3)(B)(i) of the Act (that is, the
same update factor as for all other hospitals
subject to the IPPS). Therefore, the update to
the hospital specific rates for SCHs and
MDHs is subject to section 1886(b)(3)(B)(i) of
the Act, as amended by sections 3401(a) and
10319(a) of the Affordable Care Act.
Accordingly, the applicable percentage
increase to the hospital-specific rates
applicable to SCHs and MDHs for FY 2012
is 1.9 percent for hospitals that submit
quality data or ¥0.1 percent for hospitals
that fail to submit quality data.
C. FY 2012 Puerto Rico Hospital Update
Section 401(c) of Public Law 108–173
amended section 1886(d)(9)(C)(i) of the Act
and states that, for discharges occurring in a
fiscal year (beginning with FY 2004), the
Secretary shall compute an average
standardized amount for hospitals located in
any area of Puerto Rico that is equal to the
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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, the applicable
percentage increase to the Puerto Ricospecific standardized amount for FY 2012 is
1.9 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.
Section 1886(j)(3)(C) of the Act addresses
the increase factor for the Federal prospective
payment rate of IRFs. Section 123 of Public
Law 106–113, as amended by section 307(b)
of Public Law 106–554 (and codified at
section 1886(m)(1) of the Act), provides the
statutory authority for updating payment
rates under the LTCH PPS. In addition,
section 124 of Public Law 106–113 provides
the statutory authority for updating all
aspects of the payment rates for IPFs.
Currently, children’s hospitals, cancer
hospitals, and RNHCIs are the remaining
three types of hospitals still reimbursed
under the reasonable cost methodology. In
this final rule, we are providing our current
estimate of the FY 2012 IPPS operating
market basket percentage increase (3.0
percent) to update the target limits for
children’s hospitals, cancer hospitals, and
RNHCIs for FY 2012.
For FY 2012, as discussed in section VII.
of the preamble to this final rule, we are
establishing an update to the LTCH PPS
standard Federal rate for FY 2012 based on
the full proposed LTCH PPS market basket
increase estimate (2.9 percent). The annual
update also includes the requirement at
section 1886(m)(3)(A)(i) of the Act to reduce
the annual update by the economy-wide
productivity adjustment described in section
1886(b)(3)(B)(xi)(ii) of the Act, which is
currently estimated to be 1.0 percent. In
addition, section 1886(m)(3)(A)(ii) of the Act
requires that any annual update for FY 2012
be reduced by the ‘‘other adjustment’’ at
section 1886(m)(4)(C) of the Act, which is 0.1
percentage point. Accordingly, the update
factor to the standard Federal rate for FY
2012 is 1.8 percent (that is, we are applying
a factor of 1.018 in determining the LTCH
PPS standard Federal rate for FY 2012).
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Effective for cost reporting periods
beginning on or after January 1, 2005, IPFs
are paid under the IPF PPS. IPF PPS
payments are based on a Federal per diem
rate that is derived from the sum of the
average routine operating, ancillary, and
capital costs for each patient day of
psychiatric care in an IPF, adjusted for
budget neutrality. In the RY 2012 IPF PPS
final rule (76 FR 26434 through 26435), we
extended the IPF PPS RY 2012 by 3 months
(a total of 15 months instead of 12 months)
through September 30, 2012. Based on IGI’s
first quarter 2011 forecast, with history
through the fourth quarter of 2010, the
projected 15-month market basket update
based on the FY 2008-based RPL market
basket for the 15-month RY 2012 (July 1,
2011 through September 30, 2012) is 3.2
percent. In accordance with section
1886(s)(2)(A)(ii) of the Act, which requires
the application of an ‘‘other adjustment,’’
described in section 1886(s)(3) of the Act
(specifically, section 1886(s)(3)(A) for RYs
2011 and 2012), that reduces the update to
the IPF PPS base rate for the rate year
beginning in CY 2011, we adjusted the IPF
PPS update by 0.25 percentage point for RY
2012. Therefore, we applied the 15-month FY
2008-based RPL market basket increase of 3.2
percent for RY 2012, which was then
adjusted by the ‘‘other adjustment’’ of 0.25
percentage point.
IRFs are paid under the IRF PPS for cost
reporting periods beginning on or after
January 1, 2002. For cost reporting periods
beginning on or after October 1, 2002 (FY
2003), and thereafter, the Federal prospective
payments to IRFs are based on 100 percent
of the adjusted Federal IRF prospective
payment amount, updated annually (69 FR
45721). Sections 1886(j)(3)(C)(ii)(II) and
1886(j)(3)(D)(ii) of the Act require the
application of a 0.1 percentage point
reduction to the market basket increase factor
for FYs 2012 and 2013. In addition, section
1886(j)(3)(C)(ii)(I) of the Act requires the
application of an economy-wide productivity
adjustment. As published elsewhere in this
Federal Register, in accordance with section
1886(j)(3)(C) of the Act, as amended by
section 3401(d) of the Affordable Care Act,
we base the FY 2012 market basket update,
used to determine the applicable percentage
increase for the IRF payments, on the second
quarter 2011 forecast of the FY 2008-based
RPL market basket (estimated to be 2.9
percent). This percentage increase is then
reduced by the MFP adjustment (the 10-year
moving average of MFP for the period ending
FY 2012) of 1.0 percent, which was
calculated based on IGI’s second quarter 2011
forecast. Following application of the
productivity adjustment, the applicable
percentage increase is then reduced by 0.1
percentage point, as required by section
1886(j)(3)(C)(ii)(II) and 1886(j)(3)(D)(ii) of the
Act, as added and amended by sections 3401
(d) of the Affordable Care Act. Therefore the
final FY 2012 IRF update is 1.8 percent (2.9
percent market basket update less 1.0
percentage point MFP adjustment less 0.1
percentage point legislative adjustment).
III. Secretary’s Final Recommendations
MedPAC is recommending an inpatient
hospital update equal to one percent for FY
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2012. MedPAC’s rationale for this update
recommendation is described in more detail
below. As mentioned above, section
1886(e)(4)(A) of the Act requires that the
Secretary, taking into consideration the
recommendations of MedPAC, recommend
update factors for inpatient hospital services
for each fiscal year that take into account the
amounts necessary for the efficient and
effective delivery of medically appropriate
and necessary care of high quality. Consistent
with current law, we are recommending an
applicable percentage increase to the
standardized amount of 1.9 percent (that is,
the FY 2012 estimate of the market basket
rate-of-increase of 3.0 percent less an MFP
adjustment of 1.0 percentage point and less
0.1 percentage point). We are recommending
that the same applicable percentage increase
apply to SCHs and MDHs and the Puerto
Rico-specific standardized amount.
In addition to making a recommendation
for IPPS hospitals, in accordance with
section 1886(e)(4)(A) of the Act, we are
recommending update factors for all other
types of hospitals. Consistent with our
update for these facilities, we are
recommending an update for children’s
hospitals, cancer hospitals, and RNHCIs of
3.0 percent.
For FY 2012, 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. In addition, consistent with the
update specified in the FY 2012 IRF PPS
final rule (as described above), we are
recommending an update of 1.8 percent (that
is, the market basket increase factor of 2.9
percent less 1.0 percentage point for the MFP
adjustment and less 0.1 percentage point in
accordance with sections 1886(j)(3)(C)(ii)(II)
and 1886(j)(3)(D)(ii) of the Act) to the IRF
PPS Federal rate for FY 2012. Finally,
consistent with the update specified in the
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FY 2012 IPF PPS final rule (as described
above), we are recommending an update of
3.2 percent reduced by 0.25 percentage point
to the IPF PPS Federal rate for RY 2012 for
the Federal per diem payment amount.
IV. MedPAC Recommendation for Assessing
Payment Adequacy and Updating Payments
in Traditional Medicare
In its March 2011 Report to Congress,
MedPAC assessed the adequacy of current
payments and costs, and the relationship
between payments and an appropriate cost
base. MedPAC recommended an update to
the hospital inpatient rates equal to one
percent. MedPAC expects Medicare margins
to remain low in 2012. At the same time
though, MedPAC’s analysis finds that
efficient hospitals have been able to maintain
positive Medicare margins while maintaining
a relatively high quality of care. MedPAC
also recommended that Congress should
require the Secretary to make adjustments to
inpatient payment rates in future years to
recover all overpayments due to
documentation and coding improvements.
MedPAC noted that priority should be given
to preventing future overpayments.
Response: With regard to MedPAC’s
recommendation of an update to the hospital
inpatient rates equal to one percent, for FY
2012, as discussed above, sections 3401(a)
and 10319(a) of the Affordable Care Act
amended section 1886(b)(3)(B) of the Act.
Section 1886(b)(3)(B) of the Act, as amended
by these sections, sets the requirements for
the FY 2012 applicable percentage increase.
Therefore, we are establishing an applicable
percentage increase for FY 2012 of 1.9
percent, provided the hospital submits
quality data, consistent with these statutory
requirements.
Similar to our response last year, we agree
with MedPAC that hospitals should control
costs rather than have Medicare
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accommodate the current rate of growth. As
MedPAC noted, the lack of financial pressure
at certain hospitals can lead to higher costs
and in turn bring down the overall Medicare
margin for the industry.
With regard to MedPAC’s recommendation
that Congress should require the Secretary to
make adjustments to inpatient payment rates
in future years to recover all overpayments
due to documentation and coding
improvements, we refer the reader to section
III. D. of the preamble to this final rule for
a complete discussion on the FY 2012 MS–
DRG documentation and coding adjustment.
In section III. D. of the preamble to this final
rule, we are making a prospective adjustment
of 2.0 percent and a recoupment of 2.9
percent to the FY 2012 inpatient payment
rates to recover overpayments due to
documentation and coding improvements.
We note that any recoupments for
overpayments due to documentation and
coding improvements beyond the authority
of section 7(b)(1)(B) of Public Law 110–90
would require additional changes to current
law by Congress. Therefore, without a change
to current law, our ability to recoup all
overpayments due to documentation and
coding improvements is limited.
We note that, because the operating and
capital prospective payment systems remain
separate, we are continuing to use separate
updates for operating and capital payments.
The update to the capital rate is discussed in
section III. of the Addendum to this final
rule.
We address public comments related to
MedPAC’s recommendation of an update to
the hospital inpatient rates equal to 1.0
percent in section II.D. of the preamble to
this final rule.
[FR Doc. 2011–19719 Filed 8–1–11; 4:15 pm]
BILLING CODE 4120–01–P
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| File Type | application/pdf |
| File Modified | 2011-08-18 |
| File Created | 2011-08-18 |